\i',i 'm LIBRARY OF THE NEW YORK STATE COLLEGE OF HOME ECONOMICS CORNELL ITHACA, UNIVERSITY NEW YORK HF 5635.B1°6""' """""'"' library Cornell University Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924013824309 20th Century Bookkeeping and Accounting A TREATISE ON MODERN BOOKKEEPING, ACCOUNTING, AND BUSINESS CUSTOMS, AS ILLUSTRATED IN THE "BUSINESS TRANSACTIONS" WHICH ACCOMPANY THIS TEXT NINTH EDITION FOR USE IN ALL SCHOOLS THAT TEACH BOOKKEEPING AND ACCOUNTING By JAMES W. BAKEIR ASSISTED BV Comme:rciau Teachers and Rracxicinq Accountants GRANTED A MEDAL OF AWARD BY THE PANAMA-PACIFIC INTERNATIONAL EXPOSITION, SAN FRANCISCO, CALIFORNIA, 1915 PUBLISHED BY South-Western Publishing Co. Cincinnati, O. 1918 Copyright, 191 7 Copyright, 191 8 SOUTH-WESTERN PUBLISHING COMPANY Cincinnati, Ohio PREFACE The successful business man should know that a profit will result from the transactions in connection with his business before they are completed. To deter- mine this he should have such information as will show the detailed operating cost, the profit from trading or other operations, the net profit for each fiscal period, its source, and the increase or decrease over previous periods. A report concerning the failure or suspension of a business, accompanied with the statement that the creditors will not know what percentage of their claim may be collected until the experts have audited the books, indicates that the manage- ment did not have all the facts available in connection with the business. Such a statement is so common in the newspaper announcement of failures that it sug- gests a connection between accounting and success. If these conditions are to be improved, it is necessary to teach the correct principles of accounting and the best practice in applying them. The bookkeeping student of to-day is the bookkeeper or business man of to-morrow. If he has a knowledge of the correct principles, as bookkeeper, he will apply them, or, as manager, he will see that they are applied by the bookkeeper. The purpose of this text is to present the correct principles of bookkeeping and accounting,— principles advocated and practiced by modern bookkeepers and accountants. The information upon which it is based was obtained from standard authorities on accounting and from consultations with practicing book- keepers and accountants. The text is prepared primarily for the student and not for the practicing book- keeper or accountant. The presentation permits the beginner to master first the simple principles of accounting as applied in a small business. When he understands these, he can then appreciate the more complicated principles of accounting necessary in recording the transactions for a business of extensive operations. A study of the text would result in only a theoretical knowledge of the subject. Practice is necessary in applying the principles. This practice is provided in the sets that accompany the text. Each set has its outline of accounts based on the nature of the business and the number of transactions in connection therewith. A correct knowledge of the principles is essential, but efficiency in applying this knowledge is of equal importance. The student who has mastered the prin- ciples of bookkeeping and accounting should have also acquired accuracy, neatness and speed. For this reason the working sets require the recording of a number of transactions, — a sufficient number to impress on the student's mind the import- ance of a correct record and to give him confidence and skill in applying his knowledge of the subject. That the student may learn to recognize a transaction from the paper that represents it in business, he is required to make his record in the working sets from reproduced business papers. The transactions, moreover, are practical, and iden- tical with those that occur in business. Applying the correct principles and re- cording practical transactions represented in the same manner as they are in busi- ness, gives the student a knowledge of the subject which will make his services de- sirable to the business man, and valuable to himself. Not only should the student who has completed a course in bookkeeping and accounting understand the principles of the subject and the best practice in ap- iv PREFACE. plying these principles, but he should also have some knowledge of the efficient methods employed in modern business. This knowledge, given in connection with the sets, includes special ruling in all books of original entry, carbon copy and loose leaf records, controlling accounts, and many other time-saving methods made popular by practicing bookkeepers. Efficiency in office routine means the greatest amount of work with the best results at the least cost. As applied to the work of the bookkeeper, it means the ability to record the greatest number of transactions with correct results in the least possible time. Throughout the text and sets, special attention is given to modern methods in recording transactions and preparing the work of the book- keeper for the auditor. The student who has mastered the principles in this text and completed the sets that accompany it, need not hesitate to accept a position as bookkeeper in any office. He can rest assured that the training received will have prepared him to make a correct record in an efficient manner. If the work of his predecessor has not been correctly done, he is prepared to improve the method in use. He can adt with the assurance that the work he does will be approved by the accountant who audits his books. THE PUBLISHERS. Part One BOOKKEEPING AND ACCOUNTING TERMS § 1. Bookkeeping is the systematic recording of the financial facts in regard to a business enterprise. If all the facts are recorded, they will show a complete history of the business, that is, the cash received and paid, property bought and sold, transactions with customers and creditors, expenses necessary in conducting the business, the profit resulting from its conduct, and the net profit or loss. There are two methods in use, — single entry and double entry. § 2. Single Entry is a method of bookkeeping in which all of the financial facts in regard to the business are not recorded. Usually only a record of cash and of the transactions with customers and creditors is kept. In order to show the financial condition of the business at any particular time, it is necessary to obtain additional information by an inventory or appraisal of the other property owned by the business. § 3. Double Entry is a method of bookkeeping in which a systematic rec- ord is made of all the financial facts in regard to the business. It is based on the principle that each transaction involves an exchange of equal value, and the record must show the value of property or services received and of the property or services given in return in each transaction. The explanation of bookkeeping, accounting and accounts as given in the following sections refers to the double entry method. § 4. Auditing is verifying the results obtained by a bookkeeper, clerk, agent or any other person connected with the business whose duty it is to record transactions. It requires a thorough knowledge of bookkeeping, as it is not possible to verify the correctness of the results unless the one who does the auditing is thoroughly familiar with the manner of obtaining these results. § 5. Accounting is the science which treats of the proper recording, classification, presentation, and interpretation of the financial facts relating to a business enterprise. The term accounting is more comprehensive than the term bookkeeping, and may be said to include the latter. Bookkeeping deals primarily with the record- ing of financial facts, while accounting treats of their classification, presentation and interpretation. The bookkeeping record is the medium through which the accounting results are obtained, while accounting prescribes how this record should be kept. Neither can be studied nor used independently of the other. § 6. A Bookkeeper is one who has a sufficient knowledge of the principles of bookkeeping and of business routine to correctly record business transactions. His duties may be to record all, or part of the transactions made in connection with the business. Thus in a small business, where only one bookkeeper is necessary, he may keep the books, make the bills and do all the other work required in con- nection with recording the transactions. Where the business is larger, and a 6 BOOKKEEPING AND ACCOUNTING. number of bookkeepers are necessary in the office, one may record the sales, another the purchases, another the cash received and paid, and still others per- form other parts of the bookkeeping routine. § 7. An Auditor is one who verifies the results of the bookkeeper, cashier, clerk, agent or other person who records transactions. An auditor may devote his entire time to auditing for the firm with which he is connected, or he may engage in public practice and make periodical audits for those who wish to em- ploy his services. § 8. An Accountant is one who is skilled in the theory and practice of ac- counting. His duty is to classify, interpret and present the financial facts provided by the bookkeeping record so that they will be of the greatest possible use to the management in the conduct of the business. In some cases he may be required to install new records or to correct those in use so that the financial facts may be recorded in a more systematic and intelligible manner. He must have a thorough knowledge of the principles of bookkeeping and accounting and a wide experience in the practical application of them. § 9. A Certified Public Accountant (C. P. A.). The work of the account- ant is confidential, and the one who employs him has very limited means of knowing his ability. In order to avoid impostures by those who are not qualified to do accounting work, many states have passed laws providing for the examina- tion of those who wish to do public accounting work. At least two years' experience in public accounting and a preliminary education equivalent to that of a four years' high school course are usually prerequisites to this examination. A person who has passed this examination is known as a "Certi- fied Public Accountant." The fact that he has passed the examination is evidence to the one who is to employ him that he is qualified to do the required work. § 10. The Object of all Investment in business is profit — that is, an increase in the value of the property (capital) invested. This profit, or loss if the business has not been conducted at a profit, is ascertained at the end of the business year, usually referred to as a fiscal period (§ 76). § 11. Property is any object of value that a person, partnership, or cor- -poration may lawfully acquire and hold. The business man regards it as money ■or anything that can be exchanged for money. Money is the medium of exchange and measure of value, and all property is measured in terms of money. § 12. An Asset is property belonging to an individual, or to a business con- ducted by an individual, a partnership, or a corporation. All the property be- longing to a business is its assets. Cash, money or any property that the bank will accept as money; merchandise, salable goods in stock; notes, written promises of others ; personal accounts, verbal and implied promises of customers ; and patent rights, authority from the U. S. Patent Office, are examples of the assets of a business. § 13. A Liability is a debt owed by an individual, or by a business con- ducted by an individual, a partnership, or a corporation. All the debts owed by a business are its liabilities. Notes, written promises to pay others; and personal accounts, verbal promises to pay debts created, are examples of the liabilities of a business. § 14. A Profit is an increase in the value of property invested at the begin- ning of the business or purchased afterwards. In a mercantile or trading business, the profit is brought about by buying merchandise at one price and selling it at a greater price. Profit derived from conducting a business is sometimes referred to as income. BOOKKEEPING AND ACCOUNTING. 7 § 15. A Loss is a decrease in the value of the property invested at the beginning of the business or purchased afterwards. If the total losses are more than the total profits, the business has been conducted at a loss. The cost of conducting a business is the principal loss, but is usually referred to as the operating cost. Inability to collect an account due from a customer is an example of a loss as the term is usually applied in connection with a business. § 16. Capital is the property invested at the beginning of a business enter- prise, also the net value of the assets, that is, the total assets less the liabilities at any time during the conduct of the business. § 17. The Balance Sheet is a written or printed statement of the assets, liabilities and capital of a business, arranged in proper form as in Illustration No. 24 on page 63. It is through the Balance Sheet that the capital at the close of the fiscal period is ascertained. (§ 16.) § 18. The Profit and Loss Statement is a written or printed statement of the profits, losses, and net profit or loss of a business, arranged in proper form as in Illustration No. 25 on page 64. It is through the Profit and Loss statement that the profit or loss for the fiscal period is ascertained. (§ 10.) § 19. A Business Transaction is an exchange of values by which the finan- cial condition of the business is affected. The sale of merchandise for cash or on account, the collecting of an account from a customer, the payment of a note at the bank, the payment of rent, and the purchase of merchandise for cash or on account, are examples of business transactions. Business transactions may be classified into four distinct groups as follows : cash, credit, payment of a debt, and service. 1[ I. Cash Transactions. In this class, cash is exchanged for property, that is, cash is received for merchandise or other property sold, or it is paid for mer- chandise or other property purchased. When the cash is received, it is usually re- ferred to as a "cash sale;" when paid, a "cash purchase." % 2. Credit Transactions. In this class, merchandise or some other property is purchased or sold on account, that is, credit is allowed to or by the business. When merchandise is purchased by the business, it is usually referred to as a "credit purchase;" when sold, a "credit sale." 11 3. Payment of a Debt. In this class, those described in H 2 are cancelled by fulfilling the contract. When the debt is paid by the business, it is usually referred to as "paid in full" or "paid to apply on account;" when paid to the business, as "received in full of account," or "received to apply on account." % 4. Service Transactions. In this class, cash or some other property is given or received in payment of services rendered to or by the business. When the service is rendered to the business, the transaction is referred to as "expense" or "operating cost;" when rendered by the business, as Vincome" or "revenue." § 20. An Account is a record of all the transactions with any one person, any one kind of property, service, or revenue, collected under a specific heading. This heading is designated as the name of the account. The Cash account in Illus- tration No. I on page 12 shows a record of all the transactions with cash for the month of January. The name of an account should indicate the nature of the property, service, or revenue which it represents. An account is opened by writing the name and the amount indicated in the transaction that makes it necessary. An account is closed by ruling (c) when the two sides are made equal by a trans- action (Illustration No. 2, page 15), or (&) when it is desired to close it for a special purpose (Illustration No. i, page 12). 8 BOOKKEEPING AND ACCOUNTING. § 21. Debits and Credits. Transactions affect accounts in two ways, one opposite to the other. For this reason each account is divided into two sides, — the left-hand side termed the debit, and the right-hand side termed the credit. The ruling for each side is usually the same. In Illustrations Nos. 1-7 the debit side of each account is at the left of the three lines in the center, and the credit side is at the right of these lines. The terms debits and credits apply to the amounts as well as to the two sides of the account. Amounts recorded on the debit side are referred to as debits, and those recorded on the credit side, as credits. § 22. The Balance of an Account is the difference between the two sides and shows its value. The difference between the total receipts of cash as shown by the debit side of the Cash account and the total payments as shown by the credit side of this account, is the cash balance or amount of money on hand. The difference between the total charges to a customer as shown by the debit side of his account and the total credits as shown by the credit side, is the balance he owes. The difference between the total expenses as shown by the debit side of the Ex- pense account, and any deductions as shown by the credit side, is the amount of the expense of the business. The balance of an account should show an asset, a liability, a profit, or a loss. § 23. Valuation Accounts. If the balance of a property account does not show the present value of the property, it is necessary to indicate the decrease in value by a special account termed a valuation (reserve) account. Such accounts are usually necessary in connection with accounts that show the value of property purchased for use in the business, because this property will of necessity decrease on account of its use. A typewriter which cost $100.00 January i, 1918, would not be worth $100.00 December 31, 1918. Unless this decrease is shown by a valuation account, the Balance Sheet prepared at the end of the year will not be correct. Valuation accounts also apply to reserves set up to take care of loss through failure to collect notes due the business and accounts with customers. § 24. Classification of Accounts. Accounts are divided into two general classes, real accounts and nominal accounts. 1[ I. Real Accounts represent assets or liabilities and are personal or im- personal. Personal real accounts are accounts with individuals, partnerships or corporations; impersonal real accounts are accounts with Cash, Land, Buildings, Notes Receivable, Notes Payable and other property of this nature. ^ 2. Nominal Accounts represent an income, an operating cost, a profit, or a loss. These are accounts with Sales, Expense, Interest, Profit on Real Estate, and other accounts of this nature. § 25. Asset Accounts. The object of these accounts is to show the value of property belonging to the business. All of the asset accounts show the total value of the property or assets of the business. Since property is purchased for two dif- ferent purposes, there are two kinds of asset accounts; one shows the value of proper- ty which is acquired through the purchase and sale of commodities in which the business deals; the other, the value of property bought to be used in the business, and not for sale. The former is termed "Current or Active Assets," and includes such accounts as Cash, Merchandise Inventory, Accounts Receivable, etc.; the latter is termed "Fixed Assets" and includes such accounts as Furniture and Fix- tures, Land, Buildings, etc. § 26. Liability Accounts. The object of these accounts is to show the obligations owed by the business. There are two classes of indebtedness: verbal promises (accounts payable), and written promises (notes payable). Liability accounts, like asset accounts, are divided into two classes: Current and Fixed. The former includes such accounts as Accounts Payable and Notes Payable; the latter includes such accounts as Mortgages Payable and Bonds Payable. BOOKKEEPING AND ACCOUNTING. 9 § 27. Capital Accounts. The object of these accounts is to show the investment at the beginning of the business, subsequent investments and accumu- lated profits, or losses. The investment may be made by one person, two or more persons acting under a partnership agreement, or three or more persons associated together as a corporation. The investment account in an individual or partner- ship business is given the name of the individual owner or partner, and the word "Capital" is written after the name to indicate that it is the investment account. The investment in a corporation is shown by the Capital Stock account, and the Surplus account. § 28. Income or Revenue Accounts. The object of these accounts is to show the profit derived from' the regular operations of the business. These are usually represented by the following: Purchases, Inventory and Sales (usually referred to as trading accounts) in a mercantile business. Loans and Discounts in a banking business, Circulation in a newspaper business, Toll Service in a tele- phone or telegraph business, and Advertising in a business engaged in selling adver- tising service. § 29. Operating Accounts. The object of these accounts is to show the operating cost or "Expense" of conducting the business. The expenses of the business may be represented by one Expense account or divided into two general classes: General Administrative Expense and Selling Expense. The general administrative expense refers to the amounts paid for conducting the business, such as rent, bookkeepers' and stenographers' salaries, officers' salaries, heat, light, and similar items. The selling expense refers to amounts paid for securing sales. § 30. Special Profit or Income Accounts. The object of these accounts is to show the special income that is not derived from the regular operations of the business. These are represented by such accounts as Interest, Commission, Profit on Real Estate, and Dividend. § 31. Special Loss Accounts. The object of these accounts is to show special losses that are not due to the regular operations of the business. They are represented by such accounts as Loss on Stolen Typewriter, and Interest Paid on Borrowed Capital. QUESTIONS. 1. Define bookkeeping and state its purpose. (§ i.) 2. Define the single entry method. (§ 2.) Double entry method. (§ 3.) 3. Define auditing. (§ 4.) Accounting. (§ 5.) 4. State the duties of the bookkeeper; the auditor; the accountant. (§§ 6-8.) 5. Who is a certified public accountant? (§ 9.) 6. What is the object of investment? (§ 10.) 7. Define property. (§ ii.) 8. What is an asset? (§ 12.) A liability? (§ 13.) 9. What is a profit? (§ 14.) A loss? (§ 15.) 10. Define Capital. (§ 16.) 11. What is the Balance Sheet? (§17.) 12. What is the Profit and Loss statement? (§ 18.) 13. Define a business transaction. (§ 19-) 14. Define an account. How is it named? Opened? Closed? (§ 20.) 15. What is meant by debit and credit? (§ 21.) 16. What is the "Balance" of an account? What does it show? (§ 22.) 17. Give the classification of accounts and define each class. (§ 24, ^1[ i and 2.) 18. What are asset accounts? (§25.) Liability accounts? (§26.) 19. What is the object of the Capital account? (§ 27.) 20. What are income accounts? (§ 28.) Operating accounts? (§ 29.) 10 BOOKKEEPING AND ACCOUNTING. OUTLINE OF ACCOUNTS USED IN THE INTRODUCTORY SET. § 32. The Outline below includes all accounts made necessary by recording the transactions for January, February and March, the Introductory Set. These are discussed as they are introduced. This outline is based on the classification given in §§ 24-31. Current Assets. Cash. Inventory of Merchandise. Notes Receivable. Accounts Receivable. [Furniture and Fixtures. Fixed Assets \ Land. [Buildings. Current Liabilities (Notes Payable [^Accounts rayable. Capital I W. H. Goodwin (Sole Proprietor.) {Purchases. Sales. Inventory of Merchandise. ^ ^ \Building Expense and Revenue. Special Profit and Loss.{Jf/--t-^ ^^^^ ^^^^^^ BOt)KKEEPING AND ACCOUNTING. ii ACCOUNTS. § 33. Introduction. The discussion on pages 1 1-29 relates to those accounts made necessary by the transactions in January, the first month of the Introductory Set. To record a transaction, it is necessary to determine the accounts debited and_ credited. Unless the student knows the purpose of an account and the various debits and credits applicable to it, he can not be expected to intelligently record transactions as they occur. Reference is made by section (§), paragraph (Tf), and illustration numbers, as the information is needed, (a) in completing Exercises Nos. 1-2 1, and (&) in recording the transactions for the Introductory Set. Additional accounts will be treated in the same manner as transactions are introduced which require their use. The purpose of the exercises accompanying the discussion is to illustrate the various debits and credits applicable to each account. These exercises are to be completed prior to the Introductory Set or in connection with it as directed by the teacher, that the student may better understand the method of debiting and cred- iting the accounts resulting from the transactions. CASH ACCOUNT. § 34. The Object of this Account is to show a record of all transactions in which cash is received and paid, and the balance on hand. Cash is money or any commercial paper that the banks will accept at its face value as money. The latter includes personal checks, bank drafts, cashier's checks, postofSce and ex- press money orders, and traveler's checks. (§ 94, %% i — 6.) Debit the Cash Account: Credit the Cash Account: H I. For cash invested at the begin- T[ 3. For cash paid with currency or ning of the business. by check. 1[ 2. For cash received. 1[ 4. The Balance of this Account shows the amount of cash on hand; this may be in the safe, in the bank, or a part in each place. It is shown as a current asset on the Balance Sheet. 1[ 5. To Close the Cash Account. This account is usually closed at the end of each month and the balance brought down on the debit side on the same page, or transferred to a new page. When closed, the balance together with the date of closing and the word "Balance" are entered on the credit side with red ink*, the account ruled with single and double red lines and footed with black ink as in Illustration No. i. The balance is carried down on the debit side under date of the next business day as in Illustration No. i, or entered on the debit side of the Cash account on a new page. *THE USE OF RED INK in bookkeeping is optional with the bookkeeper. When preferred, it is used for all ruling and, for the facts concerning an amount which is entered to close an ac- count. Unless otherwise instructed by the teacher the student will use red ink for all work of this kind. Correct ruling adds much to the appearance of a set of books. The best effect is obtained when the single line extends under the dollars and cents columns only, and the double lines across all vertical lines except the explanation column, which is the wide column between the date and amount. The best results in ruling are obtained by laying the rule with the brass edge up and toward the front. The rule is held in position with the left hand and the line drawn by moving the pen from left to right, the pen gliding across the brass edge of the rule. By changing the angle of the pen, double lines may be ruled without moving the rule. 12 BOOKKEEPING AND ACCOUNTING. ( — -r:^-,;/-^*^^ / 7-0 ^ ^^ & - ir^ S - - i / ^ / i? 6> 77 /CO 3¥ 1 /\So 3 /J J £7 /3 ¥ ^ -- ! 3/ — >¥ ! i ^ t^ %(o 4 7- 5 3/ ,^::S^aJia^ri^c£y 1^ Aj-V'7 2 ■£■ -^2 1 ! - --■ - - i 1 2 3 o C 2 30 6 7L^ : >^3 J'd 7S & / A^'^^C Iflf i> 2 and 3. References are given only when the student may be in doubt as to the reason for the debit or credit. Exercise No. 1, Cash Account. Jan. I. W. H. Goodwin invested $2,000.00 in cash (1[ i). 4. Paid $20.00 for city license {\ 3). 5. Paid City Milling Co. $192.00 for flour (If 3). 6. Received for cash sales, $30.00 (If 2) ; paid Borches & Co. $77.30, in full (H 3). 9. Received $10.00 from A. R. Jennings (T[ 2). 12. Received $30.00 from Central Hotel. 13. Received for cash sales, $40.00; paid Kaiser Bros. $100. oo( ^3). 18. Received $35.00 from M. A. Johnson (If 2). 20. Paid Kaiser Bros. $34.95 (If 3) ; received for cash sales, $50.00 (If 2). 24. Received $15.00 from Central Hotel (If 2); paid Hazen & Lotspeich I125.00 (If 3). 26. Received $4.25 from A. R. Jennings. 27. Received for cash sales, $42.50. 29. Received $50.00 from C. L. Loyd. 30. Paid Borches & Co. $150.00 (If 3). 31. Paid sundry expenses, $60.00. Enter the cash balance ($1,547.50) on the credit side, rule and foot the account, and bring the balance down on the debit side as in Illustration No. I. BOOKKEEPING AND ACCOUNTING. 13 Exercise No. 2, Cash Account. If more than one exercise is written on a page, leave three blank lines between each, to indicate the number of each exercise before presenting for approval. Be sure Feb. I. C. H. Hobson invested $2,500.00 in cash (1| i); paid $1,186.45 for mer- chandise (K 3). 2. Paid rent, $40.00; paid salaries, $30.00; received from Oxford Hotel, $100.00 {i 2). 3. Paid $50.00 for scales (1[ 3) ; paid $350.00 for team of horses and wagon. 5. Received for cash sales, $327.56 (K 2). 6. Gave the Hall Safe Company check for $150.00 for safe (Tj 3). 7. Received for cash sales, $175.46; paid driver $18.00. 8. Paid telephone rent, $10.00; received from Oxford Hotel, $150.00. 9. Received for cash sales, $95.00; paid $25.00 for office desk. 10. Paid $237.50 for merchandise; received for cash sales, $156.75; received from Chas. C. Lundy, $40.00. 12. Gave Jones Bros, a check in payment for merchandise, $62.85; received from Robert A. Dow, $25.00. 13. Received for cash sales, $297.36; paid sundry expenses, $38.50. Balance on hand, $1,668.83. Exercise No. 3, Cash Account. Mar. I 2 3 5 6 7 8 9 10 12 14 15 16 17 19 A. L. Graham invested $3,500.00 in cash (][ i). Paid by check for team and wagon, $300.00 (H 3). Paid by check for office and store fixtures, $650.00. Received for cash sales, $304.87; paid cash for merchandise, $1,500.00. Received from Caleb Barber, $50.00; paid sundry expenses, $127.00. Paid $150.00 for safe; received from O. H. Arnold, $64.00. Cash purchase, $330.75 (If 3); received for cash sales, $204.18. Received from H. F. Ritter, $15.00; cash purchase, $28.65. Received for cash sales, $264.85; received from O. B. Donaldson, $50.00. Received for cash sales, $15.79; P^id Belknap Hardware Co. $629.87. Paid sundry expenses, $72.50; paid C. R. Crawford, $75.00. Received from H. F. Ritter, $20.00; borrowed $1,000.00 from the bank. Paid by check Simmons Hardware Co., $526.48 (% 3); gave McClung Hardware Co. a check for $200.00. Paid Green Construction Co., $31.65; cash purchase, $304.05. Received for cash sales, $421.65; paid sundry expenses, $54.25. Balance on hand, $930.14.. PERSONAL ACCOUNTS. § 35. Personal Accounts show the result of transactions with individuals, partnerships, or corporations. They are made necessary by the purchase and sale of property on account. They are divided into two classes: one (accounts with customers) shows the result of transactions with the persons to whom property has been sold on account, and the other (accounts with creditors) shows the result of transactions with those from whom property has been purchased on account. 14 BOOKKEEPING AND ACCOUNTING. ACCOUNTS WITH CUSTOMERS. § 36. The Object of these Accounts is to show the balance due from each customer to whom the business sells property on account. A separate account is kept with each person, partnership, or corporation. Debit Customers: Credit Customers: 1[ I. For amounts due from customers U 4. *For cash they pay us on ac- at the beginning of the busi- count. ness. \ 5. For notes they give us signed by 1[ 2. For the value of property sold them or signed by others and them on account. transferred to us. 1[ 3. For freight paid by us unless we 1[ 6. For time drafts they accept, or agreed to deliver the property sight drafts paid by them, at the customer's freight sta- which are drawn by us to tion. apply on account. II 7. For rebates allowed by us for shortages, overcharges, dam- aged goods or goods returned. (These items are represented by credit bills sent by us.) 1[ 8. For freight charges paid by them, when we agreed to deliver the goods at their freight station. Tf 9. For discount deducted as in- dicated by the terms on the bill. 1[ 10. For special deductions made in settlement when the full amount can not be collected. 1[ II. The Balance of a Customer's Account shows the amount he owes. It is shown as a current asset on the Balance Sheet. % 12. To Close a Customer's Account. A customer's account is not closed until it is paid in full, unless it is desired to rule the account and transfer the balance to a new page. When the account balances by payment, it is ruled at the point where it balances with a single red line under the dollars and cents columns on each - side as in Illustration No. 2. If the account is made to balance, the balance together with the date and the word "Balance" is entered on the credit side, the account ruled with single and double red lines and footed with black ink. The balance is entered with black ink on the debit side of the account on the new page. If desired, the total debits and total credits may be forwarded to the new page, in which case "Carried Forward" is entered in the explanation column opposite the total on each side. *NOTE. A debtor has the right, by law, to indicate on what item his payment shall be applied. Thus if he owes several amounts and wishes the payment to be applied to any one particular amount, and indicates this, the credit must be applied on that amount. In cases of this kind the bookkeeper should indicate the amount on which the credit is allowed by placing a letter at the left of the amount of the item on the debit side, and place the same letter to the left of each payment on the credit side. It is best to begin with "a" and continue with as many letters as may be required for pay- ments on different charges. Each payment on the first charge is indicated by the letter "a;" each payment on the second charge is indicated by the letter "b" on each side. The letters are not necessary when an item is paid in full by one payment, and the account is ruled. The student will understand this better by referring to Exercise No. 4 and Illustration No. 2. The same method is used to indicate payments made to a creditor, or partial payments on notes as explained in §109, 1[4. BOOKKEEPING AND ACCOUNTING. 15 0. ?^ 9^C?'Z.f^^?'^:U Trn-'^ ^ ■(3s^. ^^ /2-^ ^;%«t«^j=« s s f // /O I 7 r & ^ s 30 .. ^ a > =i r/ ^ >^ iio / ?- / (. i4 3/ CA / JT c / £. 4<- y • 3 s- ' Illustration No. 3, Account with Roberts Bros'., Exercise No. 7. ^ 12. The Balance of a Creditor's Account shows the amount owed to him. It is shown as a current liability on the Balance Sheet. 1 8 BOOKKEEPING AND ACCOUNTING. If 13. To Close a Creditor's Account. A creditor's account is not closed until it is paid in full unless it is desired to rule the account and transfer the balance to a new page. When the account balances by payment, it is ruled at the point where it balances with a single red line under the dollars and cents columns on each side as in Illustration No. 3. If the account is made to balance, the balance, together with the date and the word "Balance," is entered on the debit side, the account ruled with single and double red lines and footed with black ink. The balance is entered with black ink on the credit side of the account on the new page. If desired, the total debits and total credits may be forwarded to the new page, in which case "Carried Forward" is entered in the explanation column opposite the total on each side. Partial payments are indicated as explained in the note under § 36. Exercises in Creditors' Accounts. Prepare on ledger paper an account for each of these three exercises. Exercise No. 7 is the same as Illustration No. 3. The work presented to the teacher should show each debit and credit entry, the total of the debit side below the last ruling, the total of the credit side below the last ruling, and the balance. References are to § 37, these being given only when the student may be in doubt as to the reason for the debit or credit. Exercise No. 7, Roberts Bros., New York. Jan. I. Bought from Roberts Bros., $416.40 (1[ 10). 5. Bought on fifteen days' time, $825.59. 10. Paid invoice of the 1st by check, $416.40. (Rule the account by drawing a single red line just beneath the amount on each side of the account. See Illustration No. 3.) 11. Bought on ten days' time, $786.99. 12. Paid $400.00 on invoice purchased the 5th ( J[ i) ; bought on fifteen days' time, $350.65. 16. Bought on fifteen days' time, $372.65. 17. Gave them check for $425.59, balance due on invoice received the 5th (^ i). (Rule the account as in Illustration No. 3.) 18. Bought on thirty days' time, $209.48. 20. Paid $300.00 on invoice purchased the 11 th ; received credit memoran- dum for $16.50, for damaged goods on invoice of the i6th {*\ 5). 25. Bought on thirty days' time, $80.23. 27. Gave them check for balance due on invoice of the nth, $486.99 (If i). 28. Gave them check to pay invoice of the 12th, $350.65; paid $200.00 on invoice purchased on the i6th. 29. Bought on sixty days' time, $121.64. 31. Gave them check in full for balance due on invoice of the i6th. Exercise No. 8, Mays & Hickman, Chicago. Feb. I. Bought of Mays & Hickman on account, merchandise per invoice of this, date, $316.92. 3. Bought on thirty days' time, $217.36. 6. Paid cash on invoice of the 1st, $200.00 (If i). 7. Received credit bill for goods returned from invoice of the 3d, $32.65 (If 5) . 9. Paid balance of invoice of the 1st, $116.92. ' 10. Bought on thirty days' time, with the privilege of 3 per cent discount for payment within ten days, $399.67. Indicate the terms in the explanation column by writing 3/10, n/30. {Concluded on page ig.) BOOKKEEPING AND ACCOUNTING. 19 {Exercise No. 8 — Continued from page 18.) Feb. 12. Gave them check for balance due on invoice of the 3d, $184.71 (If i). Foot the four items on the debit side, and the first two on the credit side. The totals should be equal. Rule as previously instructed. 15. Purchased on account, $409.16. 16. Paid freight on invoice of the 15th and charged to their account as per agreement, $26.37. 19. Paid $150.00 on the invoice purchased the 15th. 20. Purchased on thirty days' time, with the privilege of 3 per cent discount for cash in ten days, $527.62. 22. Paid invoice of the loth, less discount; the amount of the check is $387.68, discount, $11.99 .(Hlf i and 6). Enter the two amounts, and in the explanation column, on the same line as the amount of the check, write "Check;" and on the line with the discount, "Discount." 26. Purchased on account, $234.81. 27. Gave check to pay balance due on invoice purchased the 15th, $232.79. The five items on the debit side below the ruling should balance the first two items below the ruled line on the credit side. You will note that invoice purchased on the 15th was paid by freight, $26.37, cash, $150.00, and check, $232.79. The invoice of the loth was paid by check and discount. 28. Paid invoice of the 20th by check, $511.79 and discount, $15.83; bought on account, $176.29. Exercise No. 9, J. B. Jones & Co., St. Louis. 9 10 12 Mar. I . Purchased of J . B . Jones & Co. , on ten days' time, merchandise per invoice of this date, $116.92. 2. Purchased on sixty days' time, with the privilege of 3 per ceht for cash in ten days, $186.25. Paid freight on invoice received the ist and charged to their account, per agreement, $9.10 (1[ 7). Bought on thirty days' time, $209.11. Received credit memorandum for goods returned from invoice of the 2d, $28.65 (H 5)- Accepted their ten-day draft for balance due on invoice purchased the 1st, $107.82 (If 3). Bought on ten. days' time, $436.50. Paid invoice of the 2d, less 3 per cent ; amount of check, $152.87, discount, $4.73 m I and 6). The discount is calculated on the amount of the invoice less the goods returned, as it would not be right to take discount on the value of the latter. 15. Transferred to them J. B. Jones' note for $100.00 to apply on invoice of the 5th. Bought on thirty days' time, $227.65. Accepted their three-day draft in payment of invoice purchased on the loth. Bought on account, $427.62. Gave them our note due in thirty days for $109.1 1 , balance due on invoice of the 5th (H 2). Bpught on sixty days' time, with the privilege of 3 per cent discount for cash in ten days, $627.42. Paid freight $52.65 on invoice of the 21st, and charged to their account, per agreement; bought on thirty days' time, $418.26. Received credit memorandum for $106.42, goods returned from invoice of the 22d. {Concluded on page 20.) 16 17 19 20 21 22 23 20 BOOKKEEPING AND ACCOUNTING. (Exercise No. g — Continued from page ig.) Mar. 24. Gave them check for $127.62, and thirty-day note for $300.00, to pay invoice purchased on the 19th. 26. Bought on thirty days' time, $207.30. 27. Accepted twenty-day draft for $311.84 for balance due on invoice re- ceived the 22d (^ 3) ; paid invoice of the 21st, less 3 per cent discount; amountof check, $555.95, discount, $18.82 (^[^ i and 6). The discount is calculated on the full amount of the bill, because the charge is for freight paid by us which should have been paid by them. 30. Bought on sixty days' time, with the privilege of 3 per cent if paid in thirty days, $416.25. CAPITAL ACCOUNT. § 38. The Object of this Account is to show the net capital of the business that is, a record of the transactions with the proprietor, which includes the money invested at the beginning of the business, subsequent investments, withdrawals from the investment, and the profit made or loss sustained by conducting the business. When the business is owned by a sole proprietor, the investment account is indicated by the word "Capital" after his name. The debits and credits given below refer to the investment by a sole proprietor. Debit the Capital Account: Credit the Capital Account: H I. For any debts owed at the be- ginning of the business if they are assumed by the business. 1[ 2. For amounts withdrawn from the capital invested. This does not include amounts withdrawn for services ren- dered the business. H 3. For the debit excess of the Per- sonal account, if the balance is closed into the Capital account. 1[ 4. For the net loss as shown by the debit balance of the Profit and Loss account when that account is closed at the end of the fiscal period. 1f5. 116. If 7. If 8. For the value of all property invested at the beginning of the business. For subsequent investments. For the credit excess of the Personal account, if the bal- ance is closed into the Capital account. For the net profit as shown by the credit balance of the Profit and Loss account when that account is closed at the end of the fiscal period. 11 9. The Balance of the Capital Account shows the net amount invested in the business. After the accounts have been closed at the end of the fiscal period, the difference shows the present capital, which is the investment, plus the profit, or minus the loss, for the period. 1[ ID. To Close the Capital Account. This account is not closed until it has been credited with the profit or debited with the loss for the period. After this entry has been made, the date and the balance of the account together with the words "Present Capital" are entered on the debit side with red ink, the account ruled with single and double red lines and footed with black ink. The present capital is carried down on the credit side under date of the beginning of the next fiscal period, with black ink. -See Illustration No. 4. BOOKKEEPING AND ACCOUNTING. 21 i-i^ / f/ 3/ ^f'A':Jin./-Ca:/xZx^ Z±^± / 1? / TdA- JJ^ ^i S3 2- \% ^3_ ;^3^ A5C £.3, Illustration No. 4, Capital Account for Exercise No. 10. Exercises in the Capital Account. Prepare on ledger paper an account for each of the three exercises. Exercise No. 10 is the same as Illustration No. 4. When the work is presented to the teacher, each account should be closed, and the Present Capital carried down on the credit side as in the illustration. References are to § 38. Exercise No. 10, Guy R. Newberry, Capital. Jan. I. Guy R. Newberry invested $2,000.00 in the retail grocery business (^ 5). 31. The Profit and Loss statement was made, and the net profit, $253.06, was credited to his account when the Profit and Loss account was closed (H 8). See Illustrations Nos. 4 and 7. Exercise No. 11, Robert Whittle, Capital. Feb. I. Robert Whittle invested $2,000.00 in the retail shoe business. 10. Withdrew $500.00 {\ 2). 16. Withdrew $1,000.00. 25. Withdrew $100.00. 27. Invested $500.00 {\ 6). 28. His account was charged with $63.50, the balance of his Personal account (1[ 3) ; the Profit and Loss statement was made, and his account was credited with the net profit, $416.25, at the time the Profit and Loss account was closed (1[ 8). Exercise No. 12, W. W. Woodruff, Capital. Mar. I. W. W. Woodruff began the retail drug business with the following assets and liabilities: Cash, $4,000.00 (II5); Real Estate valued at $2,500.00 (H 5). He owed A. L. Jones $216.50 (If i), and a note of $1,000.00 on the real estate ( ^i). 10. Invested $1,100.00. 21. Withdrew $400.00. 31. The debit balance of his Personal account, $45.25, was transferred to his Capital account; the Profit and Loss statement was made and the net profit, $622.48, was transferred to the credit of his Capital account, when the Profit and Loss account was closed. 22 BOOKKEEPING AND ACCOUNTING. MERCHANDISE ACCOUNTS. § 39. Merchandise is a general term applied to goods bought and sold in a mercantile or trading business, such as groceries, dry goods, hardware, etc. Merchandise bought is termed Purchases, merchandise sold is termed Sales, and the merchandise on hand at the beginning or end of a fiscal period is termed an Inventory. Merchandise purchased, but later returned to the one from whom it was bought, is known as Returned Purchases, and merchandise sold, but later returned by the one to whom it was sold, is known as Returned Sales. Returned purchases and sales arise from the fact that the merchandise received by the pur- chaser may not agree with what he ordered or it may have been damaged in transit, and the seller agrees to its return. If desired, one account may be kept with Merchandise, which will show all the facts relating to its purchase and sale and the results thereof. However, if this is done, it causes returned sales to be recorded as if they were purchases and returned purchases to be recorded as if they were sales, which is incorrect. It also requires the cost price to appear on the debit side and the sale price on the credit side of the same account, which is contrary to the accounting principle that equal values should appear on each side of the same account, as in cash and accounts with customers. For these and other reasons discussed latar in the course, separate accounts are kept with transactions affecting purchases, and those affecting sales. PURCHASES ACCOUNT. * § 40. The Object of this Account is to show the cost of merchandise purchased. It is the record of transactions affecting the purchase of those articles purchased for sale in the regular conduct of the business, and such articles on hand at the beginning of the business or fiscal period. Debit the Purchases Account: Credit the Purchases Account: 1[ I. For the value of merchandise 1[ 4. For the cost of merchandise on hand at the beginning of returned to the seller for the business or of the fiscal credit, period. *l 2. For the invoice cost of mer- chandise purchased. 1[ 3. For amounts paid for freight, drayage, and storage of mer- chandise purchased. T[ 5. The Difference Between the Two Sides of this Account shows the net cost of merchandise purchased which includes the inventory at the beginning of the period, and the purchases and freight cost during the period. The inventory at the beginning of the period (U i), the purchases (f 2), the freight and drayaga (1 3)1 the returned purchases (1[ 4), and the inventory at the end of the period, are shown on the Profit and Loss Statement. The inventory at the end of the period is also shown on the Balance Sheet. II 6. To Close the Purchases Account. The Purchases account is not closed until the end of the fiscal period, at which time the value of merchandise on hand (inventory) is transferred to the Inventory account, and the cost of goods sold to the Sales account. The amount of the inventory together with the date and the word "Inventory," the amount of the cost of sales and the date together with tl\e words "Cost of Sales" are entered on the credit side. The Purchases account will then balance, and is ruled with single and double red lines and footed with black ink as in Illustration No. 5. If desired, the balance of the Purchases account may be entered on the credit side instead of the two amounts as explained in the note at the bottom of page 68. BOOKKEEPING AND ACCOUNTING. 23 7' >_ 3 _ s /o /s // 2-3 i 1 // j /J/ 3/ ^rJit^z^i/^n^^-ru ^ a 7. // ^ / 1 7 ^ ^7 / 7 ?- ? ,#■ ; / 2 > ■7 1 '0 ) Z\-}.ii Ao 7^ Illustration No. 5, Purchases Account for Exercise No. 13. INVENTORY ACCOUNT. § 41. The Object of this Account is to show the value of merchandise on hand, at the close of the fiscal period as shown by the inventory (§ 77, Illustration No. 23). At this time, the value of merchandise in stock according to the inventory, is taken out of the Purchases account and entered under the Inventory account. Debit the Inventory Account: \ I. For the value of salable mer- chandise on hand at the close of the fiscal period. At the same time credit the Pur- chases account. Credit the Inventory Account: 1[ 2. For the inventory on the debit side (If i). At the same time debit the Purchases account. 1[ 3. To Close the Inventory Account. This account is closed when the value of the inventory is transferred to the Purchases account, which may be at the close of the current fiscal period, or at the close of the next fiscal period. (§ 40, ^ i). After this entry has been made the account is ruled with double red lines. _Sq^2iZrii2:2Z^^2i:^ AZ, /^i^iieiizxuiizau^ 4^ Illustration No. 5a, Inventory Account for Exercise No. 13. 24 BOOKKEEPING AND ACCOUNTING. SALES ACCOUNT. § 42. The Object of this Account is to show the amount received from the sale of merchandise. It is the record of transactions affecting the sale of those articles purchased for sale, the cost of which was charged to the Purchases account. Debit the Sales Account: Credit the Sales Account: Hi. mer- cus- 112. For the selling price chandise sold. of For the selling price of chandise returned by tomers for credit. H 3. The Difference Between the Two Sides of this Account shows the net re- turns from sales. The total sales (credit side) and the returned sales (debit side) are shown on the Profit and Loss statement. TI 4. To Close the Sales Account. This account is not closed until the end of the fiscal period at which time the balance (gross profit on sales) is transferred to the Profit and Loss account. The date and the amount of the profit, together with the words "Profit on Sales," are entered on the debit side, the account ruled with single and double red lines and footed with black. (See § 40, If 6, last sentence.) ...4.AA. ife^ 3/ C^JJdj 2- r '-/ 7- <^ // / V ? T ^■vfc^/im/JaAd- 3 7 2- s- / ^ ^ n / ^ c 'j- 7 ° i < J ? 1 -f ^ 7 -r <^ ?- V _. T Z.2- ■7 ^ 7-5 IT n / ^ zC ■7 fr- 7- ^ 7-7 r // -7 -T i r 7 0^ r 7 -7 '0 -r Illustration No. 5b, Sales Account for Exercise No. 13. Exercises in Merchandise Accounts. Prepare on ledger paper a Purchases, Sales and Inventory account for each of the three exercises. Exercise No. 13 is the same as Illustrations Nos. 5, 5a and 5b. Exercise No. 13, Purchases, Sales and Inventory Accounts. Jan. 2. Bought merchandise from Borches & Co., $87.30 (§ 40, \ 2). 3. Bought merchandise from Kaiser Bros., $124.50. {Concluded on page 23.) BOOKKEEPING AND ACCOUNTING. 25 {Exercise No. ij— Continued from page 24.) Jan. 4. Sold merchandise to A. R. Jennings, $14.25 (§42, ^2). 5. Bought merchandise from City MilHng Co., $192.45. 6. Cash sales of merchandise, $30.15 (§42, 1| 2). 8. Sold Central Hotel, $57.20. 10. Bought merchandise from Hazen & Lotspeich, $218.35. 11. Sold merchandise to A. R. Jennings, $54.25. 13. Cash sales of merchandise, $92.40. 15. Bought merchandise from Borches & Co., $256.25. 16. Sold merchandise to Imperial Hotel, $49.40. 17. Bought merchandise from the Lake View Creamery, $28.20. 19. Sold merchandise to A. C. Williams, $42.25. 22. Cash sales of merchandise, $74.00. 23. Bought merchandise from J. Allen Smith, $196.90. 25. Sold Imperial Hotel, $80.15. 26. Sold C. L. Loyd, $78.25. 27. Bought merchandise from Borches & Co., $172.75; sold A. R. Jennings on account, $84.75 31. Inventory, value of goods on hand, $992.46. (§ 41, % i.) Close the Purchases and Sales accounts as in Illustration Nos. 5 and 5b and present the three accounts to the teacher for approval. Exercise No. 14, Purchases, Sales and Inventory Accounts. Allow fifteen lines fof Purchases, twenty lines for Sales, and five lines for Inventory. Feb. I. Salable goods on hand, $316.75 (§40, If i); bought, $1,186.45, 2. Sold merchandise, $73.50 (§42, ][ 2); sold merchandise, $327.56. 5. Sold merchandise, $416.25; sold merchandise, $470.25. 8. Bought merchandise, $857.48; sold merchandise, $65.00. 9. Sold merchandise, $166.50; we returned merchandise, $17.50 (§ 40, % 4). 10. Sold merchandise, $119.85; merchandise returned to us, $6.50 (§42, "|j i). 11. Sold merchandise, $156.75; bought merchandise, $387.65. 12. Paid freight, $62.85 (§ 4°' If 3) ! sold merchandise, $40.00. 14, Received $360.50 for cash sales; sold on account, $522.36. 17. Sold merchandise, for cash, $572.50. 19. Bought merchandise, $462.92; sold merchandise, $151.00. 21. Sold merchandise, for cash, $594.64. 24. Bought merchandise, $629.40; sold merchandise, $97.00. 25. , Sold merchandise, $220.00; bought merchandise, $418.25. 28. Paid freight and drayage bills, $116.80; sold merchandise, $50.00. 28. Salable goods on hand as per inventory, $1,639.47. (§ 4i. 11 !•) Exercise No. 15, Purchases, Sales and Inventory Accounts. Mar. 1. Salable goods on hand as per inventory, $2,465.89 (§40, Ifi). 2. Sold merchandise, $389.64; bought merchandise, $396.42. 3. Soldmerchandise, $275.49; merchandise returned to us, $10.10 (§42, If i). 5. Sold merchandise, $159.48; purchased merchandise, $132.75. 8. Sold merchandise, $437.69; purchased merchandise, $99.87. 12. Sold merchandise, $375.42; returned merchandise for credit, $25.00. 15. Sold merchandise, $526.49; paid freight and drayage bill, $100.00. 17. Purchased on account, $436.82; sold for cash, $86.42. 22. Received $349.75 for cash sales. 23. Purchased merchandise, $564.99; sold merchandise, $237.84. 25. Paid for storage in warehouse, $65.40 (§40, ^3). 30. Sold merchandise, $409.12 ; paid freight and drayage bills to date, $109.62. 31. Sold entire stock of goods, $2,472.48. 26 BOOKKEEPING AND ACCOUNTING. EXPENSE ACCOUNT. § 43. The Object of this Account is to show the cost of conducting the business. It is the record of transactions affecting the operating cost. As ex- plained in § 29, this may be shown in one account or a number of accounts. The special debits and credits given below, apply when only one account is kept. Debit Expense: H I. *For amounts paid for rent, tele- phone service, license, heat, light, salaries, and other ser- vices rendered in conducting the business. 1[ 2. fFor the cost of property which will be consumed by its use either, (a) on hand at the be- ginning of the business, or (b) subsequently purchased. Credit Expense: 1[ 3. For rebates that reduce the cost shown by the debit side. 1[ 4. For amounts received for sale of property, the value of which was charged to this account when purchased. If 5. The Difference Between the Two Sides of This Account shows the cost of conducting the business. It is shown as an operating cost on the Profit and Loss statement. ^ 6. To Close the Expense Account. This account is not closed until the end of the fiscal period, at which time the balance is closed into the Profit and Loss account. The date and the amount of the balance, together with the words "Net Expense" are entered on the credit side, the account ruled with single and double red lines and footed with black ink, as in Illustration No. 6. -=^ie^_ /•?/ 7 /r J/ TcO. ZLi z 2M Si^- ^ /^/ 7-S 3y f^-^ /' ^^ ^^^ Illustration No. 6, Expense Account for Exercise No. 16. *If at the time of closing, there are obligations for services rendered, the cost of which will be charged to Expense, the amount should be entered on the debit side before closing, because it in- creases the expenses. fThis may be debited to a special account, as Office Supplies, Postage, Advertising Material, etc. When debited to Expense and, at the time of closing, a part of the property remains on hand, the value is entered on the credit side before closing, because it reduces the expenses. BOOKKEEPING AND ACCOUNTING. 27 Exercises in the Expense Account. Prepare on ledger paper an account for each of the three exercises. Exercise No. 16 is the same as Illustration No. 6. When the work is presented to the teacher, each account should be closed as in the illustration. References are given to § 43 when the student may be in doubt as to the reason for the debit or credit. Exercise No. 16, Expense Account. Jan. 4. Paid city and state license, $20.00 (H i). 7. Paid for stationery, $13.25 (ll 2). 18. Paid for stamps, $2.50 (T| 2). 25. Received $1.00 for 2 reams of typewriting paper included in the pur- chase of stationery on the 7th (H 4). 31. Paid rent and salaries for the month, $85.00 (If i). Close the balance into the Profit and Loss account (1[ 6). Exercise No. 17, Expense Account. Feb. 3. Paid for stationery and books of account, $19.65 (If 2). 9. Paid employees, $35.00 (If i). 12. Paid for one thousand letterheads and envelopes, $6.50. 19. Paid telephone rent, $12.00. 27. Paid for stamps, $5.00. 28. Paid rent, $40.00, and employees' salaries, $35.00; received $5.00 for desk room rented to W. H. Jones (If 3). Close the balance into the Profit and Loss account. Exercise No. 18, Expense Account. Mar. I. Stationery and stamps on hand, $50.00 (If 2). 2. Paid livery bill for board of horses, $24.00. 5. Paid for repairs in store, $14.50. 13. Paid employees, $96.50; paid for stamps, $10.00. 25. Paid premium on insurance policy, $22.50. 31. Paid bookkeeper's salary, $40.00, and other employees, $75.00 (If i); received $6.00 as rebate on livery bill, which was for services of our horses and was overlooked when the bill was paid (If 3) ; sold stamps to customer, $2.00 (If 4). There are stamps, stationery, etc., on hand valued at $12.50; rent unpaid, $40.00. Before closing the balance into the Profit and Loss account, enter the value of the "Stamps" on the credit side and the "Unpaid Rent" on the debit side. Write the words in quotations in the explanation' columns. See notes in connection with § 43, Iflf I and 2. PROFIT AND LOSS ACCOUNT § 44. The Object of this Account is to show the operating cost, special losses, principal income, and special profits for the period. The facts in connection with this account are not obtained from transactions, but by transferring the bal- ances of the operating, loss, income, and profit accounts, hence it is sometimes referred to as a summary account. It is opened only at the close of the fiscal period and when the balances of all the accounts mentioned have been transferred to it, its balance is transferred to the Capital account. Special profits and losses that occur during the period should not be credited or debited to the Profit and Loss account, but should be credited or debited to a special account, the name of which will designate the profit or loss, as Loss on Stolen Typewriter, Loss on Doubtful Accounts, Profit on Real Estate, etc. 38 BOOKKEEPING AND ACCOUNTING. Debit Profit and Loss: \\ I. At the close of each fiscal period with the balance of the ex- pense account or accounts. *i, 2. At the close of each fiscal period with the balance of profit or loss accounts which show a debit balance. Credit Profit and Loss: 1[ 3. At the close of each fiscal period with the gross profit on sales. ^ 4. At the close of each fiscal period with the balance of profit or loss accounts which show a • credit balance. ^ 5. The Balance of this Account shows the net profit or net loss for the fiscal period; it is the same as the "Net Profit" or "Xet Loss" on the Profit and Loss statement. Tf 6. To Close the Profit and Loss Account. The balance of this account is closed into the Capital account or accounts. If the business has been conducted at a profit it will show a credit balance, and this together with the date and the words "Net Profit " are entered on the debit side, the account ruled with single and double red lines and footed with black ink; if the business has been conducted at a loss, it will show a debit balance, and the closing entry is made on the credit side in the same manner. Illustration No. 7 shows the account closed when it has a credit balance, and the second credit entry in Illustration No. 4 shows the profit transferred to the Capital account. li^^T^y;^^ gy?^ ,=;?^~<£J-^ 3/ /%/-G:t^.il^zJ&' / ! f ^ ^/ ^^^JTT^JaAj 1 3 1 1 72J/' / /■ ( /^ i J'^ a & r ff i " 7 7 2 7- r / i 3 7 ?- ? / r r n 1 ' — Illustration No. 7, Profit and Loss Account for Exercise No. 19. Exercises in the Profit and Loss Account. Prepare on ledger paper an account for each of the three exercises. Exercise No. 19 is the same as Illustration No. 7. When the work is presented to the teacher, each account should be closed as in the illustration. References are to § 44. Exercise No. 19, Profit and Loss Account. Jan. 31. The Profit and Loss statement made by the bookkeeper for Guy R. New- berry shows a loss of $119.75 on Expense (1[ i), and a profit of $372.81 on sales of merchandise {% 3). The net profit is closed into his Capital account. Exercise No. 20, Profit and Loss Account. Feb. 28. The Profit and Loss statement made by the bookkeeper for Robert Clark shows the following profits and losses: Losses: Expense, $80.00 (If i); Interest, $5.00 (If 2). Profits: Merchandise, $298.75 (^3); Discount, $5.65 ("if 4). The net profit is transferred to his Capital account. BOOKKEEPING AND ACCOUNTING. 29 Exercise No. 21, Profit and Loss Account. Mar. 31. At the close of the business, the Profit and Loss statement made by the bookkeeper for D. W. Jones shows the following profits and losses: Losses: General Expense, $501.08 (1[ i); Selling Expense, $408.95 (H i); Discount, $9.87 (U 2). Profits: Merchandise, $1,286.29 (Ij 3); Interest, $4.25 (If 4); Profit on Real Estate, $65.00 (If 4). The net profit is closed into his Capital account. QUESTIONS. 1. What is the object of the Cash account? (§ 34.) Name two debits. (Iflf I and 2.) The credit. (If 3.) 2. what does the balance show? (§ 34, If 4.) 3. How is the Cash account closed? (§ 34, if 5.) 4. Define Personal accounts. (§ 35.) 5. What is the object of accounts with customers? (§ 36.) Name three debits. m I-3-) Three credits. (Iflf 4-10.) 6. What does the balance show? (§ 36, If 11.) 7. When are accounts with customers closed? (§ 36, If 12.) 8. How are special payments designated? (§ 36, Note.) 9. What is the object of accounts with creditors? (§ 37.) Name three of the debits, (t^ 1-8.) The three credits. (1f^ 9-1 1.) ID. What does the balance show? (§ 37, If 12.) 11. When are accounts with creditors closed? (§ 37, If 13.) 12. What is the object of the Capital account? Name two debits. Two credits. What does the balance show? (§ 38, ^1f 1-9.) 13. How is the Capital account closed? (§ 38, If 10.) 14. After it is closed, where is the Present Capital written? 15. What is merchandise? Purchases? Sales? (§ 39.) 16. What is the object of the Purchases account? (§ 40.) Inventory account? (§41.) Sales account? (§42.) 17. For what is the Purchases account debited? (§ 40, If If 1-3.) Credited? (§40, If 4); 18. For what is Inventory account debited? (§ 41, If i.) Credited? (§41, If 2.) 19. For what is the Sales account debited? (§ 42, If i.)- Credited? (§ 42, ^ 2.) 20. What is the object of the Expense account? (§ 43.) Name two debits. (Iflf I and 2.) Two credits. (Iflf 3 and 4.) 21. What does this account show on the Profit and Loss statement? (§ 43, If 5.) 22. How is the Expense account dosed? (§ 43, If 6.) 23. What effect does property on "hand at the close of the fiscal period, the value of which was charged to the Expense account, have on the balance of the Expense account? (§43. Note.) 24. What is the object of the Profit and Loss account? (§ 44.) 25. What does the balance show? (§ 44, If 5-) How is it closed? (§ 44, If 6.) 30 BOOKKEEPING AND ACCOUNTING. RECORDING TRANSACTIONS AND POSTING. § 45. Introduction. The discussion on pages 30-46 relates to the method of recording the transactions in the Introductory Set. The rules for determining the debits and credits in a transaction, the books of account in which the trans- actions are recorded, and the method of posting are explained and illustrated. Reference is made by section (§), paragraph (1[), and illustration numbers as the information is needed in connection with recording the transactions (a) in Exercises Nos. 22-26, and (6) in the Introductory Set. § 46. Method of Determining the Accounts debited and credited by a transaction (§ 19). Each transaction affects at least two accounts (§ 21), one or more showing the value of the property or services received, and one or more the value of the property or services exchanged. Before recording a transaction it is necessary to determine the accounts affected — the one or more debits and the one or more credits. The general rule (§ 47) and the application of it (§§ 49-52) pro- vide the information necessary to determine the accounts affected in any trans- action; the name of the account is determined by the nature of the property, service, or revenue (§ 20). § 47. General Rule for Debits and Credits. The following rule applies to transactions in all lines of business. This rule should be understood and mem- orized. Debit: Credit: (a) What is received. (d) What is disposed of. , (b) Those who receive value from the (e) Those from whom the business business. receives value, (c) The service that costs value. (/) The service that produces value. § 48. Application of General Rule. Based on the classification given in § 19, IfH 1-4, this rule is especially applied as in §§ 49, 50, 51 and 52. § 49. Cash Transaction. When cash is received, debit Cash and credit the account which shows the value of the property given in exchange for it (§ 47, a and d). When cash is paid, debit the account which shows the value of the property received in exchange for it and credit Cash (§ 47, a and d). The applica- tion of the former is shown by the second entry in Illustration No. 11, debit side of the cash book; the latter, by the second entry in Illustration No. 12, credit side of the cash book. § 50. Credit Transaction. When merchandise or other property is pur- chased on account by the business, debit Purchases or the account that will show the value of the property purchased and credit the person or 'firm from whom the property was purchased (§ 47, a and e). When merchandise or other property is sold on account by the business, debit the person or firm to whom it is sold and credit Sales or the account which shows the value of the property sold (§ 47, b and d). The application of the former is shown by an entry in the purchases book, Illustration No. 9; the latter, by an entry in the sales book, Illustration No. 10. If the transaction involves property other than merchandise, the application is shown by an entry in the journal (§ 59). § 51. Payment of a Debt. When a debt is paid by the business, debit the account of the person or firm who receives the cash or other property given in payment and credit Cash or the account which shows the value of the property given in payment (§ 47, b and d). When a debt is paid to the business, debit Cash or the account which is to show the value of the property received and credit BOOKKEEPING AND ACCOUNTING. 31 the account of the person or firm from whom it is received (§ 47, a and e). The application of the former is shown by the third entry in Illustration No. 12, credit side of the cash book; the latter by the third entry in Illustration No. 11, debit side of the cash book. If no cash is involved, the application is shown by an entry in the journal (§ 59). § 52. Service Transaction. When a service is purchased by the busi- ness, debit the. account which is to show its value and credit Cash or the account which represents the value of the property given in payment (§ 47, c and d). When cash or other property is received by the business in payment of services rendered by it, debit Cash or the account which is to represent the value of the property received and credit the account which is to show the value of the income or revenue. The application of the former is shown by the first entry in Illustration No. 12, credit side of the cash book; the latter by an entry on the debit side of the cash book, the name of the income or revenue account being given. If no cash is in- volved the application is shown by an entry in the journal (§ 59). § 53. Method of Recording Transactions. Transactions are recorded as they occur and under the date of the occurrence. All the information in con- nection with a transaction is obtained from some voucher or business form which should be filed for reference. A correct record of the transactions in connection with a business is one of the essential elements of bookkeeping. This record must be permanent and arranged for convenient reference, hence the necessity for blank books usually termed books of account. § 54. Books of Account are bound or loose leaf books made of writing paper ruled as desired. There are three classes — books of original entry, books of classi- fied accounts (sometimes termed complete entry), and auxiliary books. Illus- trations Nos. 8, 9, 10, II and 12 show forms of ruling for books of original entry, and No. 13, a form of ruling for a book of classified accounts. § 55. Books of Original Entry are those in which the transactions are recorded as they occur. The record shows the date, the name of the account debited, the name of the account credited, the amount debited and credited, and the explana- tion or information for the auditor. In a mercantile or trading business, the usual books of original entry are the journal, purchases book, sales book, and cash book. § 56. Books of Classified Accounts (Complete Entry) are those in which the transactions relative to each account are grouped together. The complete history of each account is shown, the debits appearing on the left side, and the credits on the right side. This information is obtained from the books of original entry, and the amounts are transferred (posted § 58) from time to time, usually once each day. The ledger is the principal book of classified accounts. All the accounts may be shown in one ledger or it may be subdivided into (a) the general ledger, (b) one or more sales ledgers, and (c) one or more purchases ledgers, depending entirely- upon the number of transactions to be recorded. § 57. Auxiliary Books contain detailed information supporting the record in a book of original entry. They include check stubs, note stubs, draft stubs, receipt stubs, and bank pass book. § 58. Posting is transferring the amounts from a book of original entry to the ledger, or some other book of classified accounts. This is done so that each account in the ledger will show all of the amounts debited or credited to it. § 59. The Journal is a book of original entry in which all the transactions may be recorded. If it is the only book of original entry, all the transactions are recorded in it; if the purchases, sales, cash receipts, and cash payments are recorded in special books, it contains only those transactions not recorded in these books. 32 BOOKKEEPING AND ACCOUNTING. The record shows the date, name of the account debited and amount, name of the account credited and amount, and the explanation or information for the auditor. Illustration No. 8 shows one form of the journal; other forms will be illustrated in succeeding sets. Formerly all transactions were entered in the journal, but efficiency in modern accounting requires credit purchases, credit sales, and cash receipts and payments to be entered in special books. The journal is used for closing entries at the end of the fiscal period, other transfers, and transactions that can not be recorded in the purchases book, sales book, and cash book. {Concluded on page jj.) Date of the First Transaction on the Page. Debit Credit Ledger Folio Name of account debited. Name of account credited. Dollars Cts. [Dollars Cts. - JLere is written a complete history of the transaction. Do not sacrifice clearness for brevity. --' I I r 2 Date. Cash E. B. Taylor Capital Invested in the retail grocery business . 2 1000 77 30 loco 77 - 2-- Purchases E. C. Cline 30^ ^Bought Qn_account per invoice of Jan. i. — I I 4 Expense Cash 20 14 25 20 — Paid city and state license for one year. 2 I 6 A. R. Manley Sales i 14 SS Sold on account 40 lbs. Arbuckle Coffee .20 8.00 I bbl. White Lily Flour 6.25 - - 1 Illustration No. 8. One Form of the Journal. Explanation: The date of the first transaction is written on the blue line at the top of the page, and that of all other transactions entered on that page, in the center of the page on the first blue line below the explanation. The name of the account debited is written at the left, and the amount with which it is debited, written in, the first (debit) money column. The name of the account credited is written about one-half inch to the right of the one debited, and the amount placed in the second (credit) money column. The explanation is written between the ledger folio column at the left and the money column at the right. It begins on the next bliie line below the credit entry, and may occupy one or more lines, depending upon the number of words necessary to explain the entry. A full explanation should be made. The first entry in Illustration No. 11 shows the cash book entry for the first transaction; the first entry in Illustration No. 9, the purchases book entry for the second transaction; the first entry in Illustration No. 12, the cash book entry for the third transaction; the first entry in Illustration No. 10, the sales book entry for the fourth transaction. BOOKKEEPING AND ACCOUNTING. 33 11 I. Posting from the Journal. Each amount in the debit column is posted (§ 58) to the debit side of the account written on the same Hne with it. Each amount in the credit column is posted to the credit side of the account written on the same line with it. The amounts are posted in the order in which the transac- tions are recorded. The page in the journal and the letter "J" are entered in the folio column in the ledger for reference; the page of the account in the ledger is written in the folio column in the journal to indicate the posting. T[ 2. Journalizing is indicating the account debited and credited in a trans- action before recording it in a book of original entry. The efficient bookkeeper will prove that the debits and credits in a transaction are equal before placing it in the proper book or books of original entry. The beginner is advised to journalize each transaction before recording it, as the information obtained will enable him to better understand the debits and credits involved. When journalizing, the name of the account debited and the name of the account credited are indicated in the form of a journal entry as in Illustration No. 8. § 60. The Purchases Book is a book of original entry in which all credit purchases of merchandise are recorded and no other transactions are entered in it. The record of a credit purchase shows the date of entry, the name of the person or firm from whom the merchandise was purchased (account credited) , the address if desired, the date of the invoice, terms, and amount of the invoice. This infor- mation is obtained from the invoice received ; it is copied in the purchases book, or the original invoice filed as the purchases book record. It is not necessary to indicate the name of the account debited because the Purchases account is debited for the invoice cost of merchandise purchased as explained in § 40, 1[ 2. The Illustration below (No. 9) shows one form of a purchases book; other forms will be illustrated in succeeding sets. Hi. To Enter a Credit Purchase. A credit purchase is entered in the pur- chases book on one line in the following order: the date; the name of the person or firm from whom the merchandise is purchased ; the address, if desired ; the date of the invoice; the terms and the amount. The date of the entry should be written on the invoice before it is filed. 1[ 2. Posting from the Purchases Book. Each amount written in the first column is posted to the credit side of the account written on the same line with it; {Concluded on page 34.) 'fl CZ^, C : C ^c^-'T'z^e^ / — £Z.'C^:'€rz^..'9^^ z:7 > '^^i^^yT-^a^C-e^^ / ^^^-T^^tx^'i'LyV-y/Ycf^d.e'CA^ 7-3- f 3/ ^^c-T'-c-A.a^'ii&^ii/J^^-^c^ih^ C.y^'Ai/^-'^-^ci-mJia-deJ M'/y'O ^Jf Illustration No. 9, Purchases Book for Exercise No. 22. Explanation: The first three entries are a record of the credit purchases outlined in the 2d, 3d and I2th transactions in Exercise No. 22 on page 42. li journalized (§ 59, 1[ 2), three separate entries would be required, each similar in form to the second entry in Illustration No. 8. The figure "2" at the left of each name indicates the posting (§ 60, H 2) to page two in the ledger as in the first entry on the credit side of the respective accounts in Illustration No. 13 on page 40. The fourth entry shows the total credit purchases for the month. The figure "i" at the left of the word "Purchases" indicates the posting (§ 60, 1[ 3) to the Purchases account in the ledger, as in the second entry on the debit side of the Purchases account, Illustration No. 13 on page 39. 34 BOOKKEEPING AND ACCOUNTING. this account bears the name of the person or firm from whom the merchandise was purchased. The date, the letter "P" to indicate the name of the book, and the page of the purchases book (or invoice number) are entered in the ledger. If special terms are given, that is, a definite time stated for payment, this is written in the explanation column of the ledger account. To indicate the posting in the pur- chases book, the page of the ledger is written in the folio column, which is the space between the date of the month and the name of the account. ^ 3. Forwarding and Posting the Total. The Purchases account is not debited with the amount of each purchase, but with the total purchases at the end of the month, or when the Trial Balance is to be made. If the entries for the period require more than one page, the total of the first page is forwarded to the top of the second and the same plan is continued until the total is to be posted. "Carried Forward" and the amount are entered at the bottom of the first page, and "Brought Forward" and the amount at the top of the second page and succeeding pages. The total at the bottom of each page is entered between single and double red lines, on the first blank line below the last entry on the page. H 4. Cash Purchases may be entered in the cash book, or in the purchases book and cash book. If entered in the cash book only, Purchases is debited with the amount of the purchase. If entered in both the purchases book and cash book, the entries are the same as a credit purchase and a cash payment to a creditor; if an account is not to be opened with the person or firm from whom the cash purchase is made, the entry is checked in both the purchases book and cash book. The nature of the business and the wishes of the management will determine which method is the better practice. § 61, The Sales Book is a book of original entry in which all credit sales of merchandise are recorded and no other transactions are entered in it. The record of a credit sale shows the date of the sale, the name of the person or firm to whom the sale was made (account debited), the address, special terms, amount of the sale, and the various articles sold. This information is obtained from the bill rendered ; it is copied in the sales book or a carbon copy of the bill retained as the sales book record. It is not necessary to indicate the name of the account credited because the Sales account is credited with the selling price of merchandise sold as explained in § 42, H 2. Illustration No. 10 on page 35 shows one form of the sales book ; other forms will be illustrated in succeeding sets. ^ I. To Enter a Credit Sale. A credit sale is entered in the sales book as follows: the date, which is written at the top of the page for the first sale entered, and in the center of the page for the succeeding sales; the name of the person or firm to whom the merchandise is sold; the address, if desired; the items sold, this description being the same as the items on the bill; and the amount. Illus- tration No. 10 shows the position of the entries. The amount is entered on the same line with the name of the person or firm, and the description of the items sold indented, to facilitate posting. If 2. Posting from the Sales Book. Each amount written in the second money column is posted to the debit side of the account written on the same line with it; this account bears the name of the person or firm to whom the merchandise was sold. The date, the letter "S" to indicate the name of the book, and the page of the sales book are entered in the ledger. If special terms are given, that is, a defi- nite time in which payment is to be made, this is written in the explanation column of the ledger account. To indicate the posting in the sales book, the page of the ledger is written in the folio column at the left. 1[ 3. Forwarding and Posting the Total. The Sales account is not credited with the amount of each sale, but with the total sales at the end of the month, or when the Trial Balance is to be made. If the entries for the period require more than one page, the total of the first page is forwarded to the top of the BOOKKEEPING AND ACCOUNTING. 35 second and the same plan is continued until the total is to be posted. "Carried Forward^l and the amount are entered at the bottom of the first page, and "Brought Forward" and the amount, at the top of the second and succeeding pages. The total at the bottom of each page is entered between single and double red lines, on the first blank line below the last entry on the page. % 4. Cask Sales may be entered in the cash book, or in the sales book and cash book. If entered in the cash book only. Sales is credited with the amount of the sale. If entered in both the sales and cash books, the entries are the same as a credit sale and a cash receipt from a customer; if an account is not to be opened with the person or firm to whom the sale is made, the entry is checked in both the sales and cash books. The nature of the business and the wishes of the management will determine which method is the better practice. ^, / f/ 2- .>S4^,J / V [Z. 2--^ 3^ 'l^'C'-T'Z^ .^Z^e~z^c^~ < 3 ■J^t£t>-z^uy- ^.T-y ^0 >i> 7L 7^ \3 i/ A ^o U-. ^-^■^ ::^t£o-c-c-/- ^ c^ez.'n^, ^oaJ^i^. ^t^^'!>-z( ./J- \7-0 Aa 7- >- ^'Z- x^ .^, /A —SVi^^tk^ •^i^t/^t^.^ 6,2-^ .>0 3_/ 2-3 zs Illustration No. 10, Sales Book for Exercise No. 22. Explanation: The first four entries are a record of the credit sales outlined in the 5th, 9th, loth and 13th transactions in Exercise No. 22 on page 44. \l journalized (§ 59, If 2), four separate entries would be required, each similar in form to the fourth entry in Illustration No. 8. The figure "2" at the left of each name indicates the posting (§ 61, f 2) to page two in the ledger as in the entries on the debit side of the respective accounts in Illustration N^o. 13 on page 40. The fifth entry shows the total credit sales for the month. The figure "l" at the left of the word "Sales" indicates the posting (§ 61, If 3) to the Sales account in the ledger, as in the third entry on the credit side of the Sales account. Illustration No. 13 on page 39. 36 BOOKKEEPING AND ACCOUNTING. ~W.xplanMion) ~^^^^^^^ (Accounts Credi ted)' /f/ ^s4^-vt/-e.d^^r?T,e'n^ /T- J j^a %0 > 2--/ 2- SO .30 , / \3/\ / (2z.«^i;^_a!iz-A^ 4V s (Z:z..iJ^J^. J^i'^Ca^^7'-£'CA(^iti/ / / / 2- S L^^yzX.^^Cg;^ / / X f^Z s J\S Illustration JSJo. ii, Debit Side of Cash Book for Exercise No. 22. Explanation: The first five entries are a record of the cash received in the 1st, 7th, I Ith, 14th and 15th transactions in Exercise No. 22 on page 42. II journalized (§ 59, H 2), five separate entries would be required, each similar in form to the first entry in Illustration No. 8. The figures "i" and "2" at the left of each name indicates the posting (§ 62, 1[ 5) to pages I and 2 in the ledger as in the entries on the credit side of the respective accounts in Illustration No. 13 on pages 39 and 40. The sixth entry shows the total cash receipts for the month. The figure "i" at the left of the word "Cash" indicates the posting (§ 62, 1[ 7) to the Cash account in the ledger, as in the first entry on the debit side of the Cash account. Illustration No. 13 on page 39. § 62. The Gash Book is a book of original entry in which all receipts and payments of cash are recorded and no other transactions are entered in it. To distinguish between receipts and payments it is customary to record them on separate pages; these are usually opposite each other. Receipts are recorded on the left because the Cash account is debited when cash is received, and payments on the right because the Cash account is credited when cash is paid. Illustration No. II sliows the debit side and No. 12 the credit side of one form of the cash book; other forms will be illustrated in succeeding sets. 1[ I . Debit Side. This page contains a record of all transactions in which cash is received. The record of cash received shows the date of entry (month and day of month), the name of the account credited, explanation and the amount. This in- formation is obtained from the money or checks received, or the receipt stub if receipts are issued. It is not necessary to indicate the name of the account debited because the Cash account is debited for cash received (§34, H 2). H 2. Credit Side. This page contains a record of all transactions in which cash is paid. The record of cash paid shows the date of entry (month and day of month), the name of the account debited, explanation and the amount. This information is obtained from the stub of the check book (§ 57), or the receipt received for money paid. It is not necessary to indicate the name of the account credited because the Cash account is credited for cash paid (§ 34, 1[ 3). 1[ 3. To Prove Cash. Add the debit side and write the total in small pencil figures just beneath the last amount entered; add the credit side, and write the total in small pencil figures just beneath the last amount entered; on scratch paper add the balance on hand at the beginning of the month to the receipts, and from this total deduct the payments; the result should be the same as the cash on hand, which may be in the safe, in the bank, or a part in each place. The pencil figures on each side will be the total of all amounts written above, hence, should not be BOOKKEEPING AND ACCOUNTING. 37 (Accounts Debited) iExUanatiori) '^SU^ ,^^ ■,-t^-nU^ if- / cl^Ajjz.^^^.lJ>^ vt ' 2- /^ ~^ / c / (2<^uci-^u,^U<..u^ • / ^!7 / ? V -i^^^^^.^^ - • 5'^ ^/ / ^^y..^^ -<^^sS^^«Z* fS. /^/ ,?/ '^^ , 1-^ !? t ly A""^' ^ShcJi^UTL^C^ / r ^k ^^ ,\, , -2=ig=£ / / 1 £ .■r ^A / / -^.r-> JL^iT:^ \ Ji.'cz.^d-t ;.=/ 1 ^ \ ! n' //J e.^ ' vi^ 1 2. r J' %j^ -w^ »/ 7^' ■ 1 — - 1 1 i 1 iM-o^. /> 30 ^i? /•-icT . ' i/ r ^ T- .-r i 4. /• i — ■'- ■ :- /jL di 1 i t/L , — i 1 "^ - ! j 1 1 ' L \ Illustration No. 13. Ledger Accounts for Exercise No. 22 — Continued. Explanation: These accounts and those on the following page are the result of posting the entries in Illustrations Nos. 9, 10, n and 12. 40 BOOKKEEPING AND ACCOUNTING. ^.(3.^2^-.^ /3 (^y^^ 7 7 -1 1 1 SO " ^Z- /■ 77 V? a i 1 j ■ "■ T r yy^ \ ^ ^ ^■yi^ -zv=# 1 - ^ i i - ' 6^ ^ ^/ i ■^\r • ■ c 1 1 7t'7 -n. I 1 1 i 1 j . ^f k < . t i \ { i >J PB' / i^2rt I ; A ^ J- ' t ^ r 6 \S-l.'^ 4^ J, j i >iP\ d^ ! HyT/^^ ' . /i 7-C.rs- ^> ■^ i iorTi^J >/ re? f a-^u?- ,-«■ a 1 1 / j 1 ! i i ' ' — — -- i ^ ^ i "7 -J.. -- xS-c ? v^ ' ^ - - Illustration No. 13, Ledger Accounts for Exercise No. 22 — Concltided. Explanation: These accounts and those on the preceding page are the result of posting the entries in Illustrations Nos. 9, 10, II and 12. BOOKKEEPING AND ACCOUNTING. 41 § 66. A Trial Balance is a list of the open accounts in the ledger with the balance or the total debits and credits set opposite the name of each account. In practice it is customary to use the balance of the real accounts (§ 24, 1[ i) and the total debits and credits of the nominal accounts (§ 24, 1[ 2). % I. Reason for Taking a Trial Balance. In double entry bookkeeping each transaction involves a debit and a credit entry of the same amount. If all the debits in the books of original entry are posted to the debit side of the accounts involved in the ledger, and all the credits in the books of original entry to the credit side of the accounts involved in the ledger, the total debits and the total credits of all the ledger accounts must be equal. When this is the condition, the ledger is said to be in balance. Careful posting and checking are indications to the bookkeeper that his ledger is in balance, but as the experienced bookkeeper knows, and as the student will learn, these are not absolute evidence. There is a possi- bility of making an error in posting and not detecting it by checking, or of making a mistake in the addition of those accounts that have more than one amount on the debit or credit side. For these and other reasons which are explained later, there must be some additional proof that the ledger is in balance. To obtain this proof a Trial Balance is taken, usually at the end of each month. 1[ 2. Method of Taking a Trial Balance. The Trial Balance is made by listing on a sheet of journal paper the open accounts in the order in which they appear in the ledger. Prior to listing, each account that has more than one amount on the debit or credit side should be footed and the total entered in small pencil figures. If the balance of real accounts is to be used, the difference between the two sides should be entered in the explanation column on the larger side. After all the accounts together with the amounts are listed, the total debits should equal the total credits. If they are not equal, it will be necessary to verify the addition of the Trial Balance, the additions and subtractions in the ledger, and check the listing, and the posting. When the totals are equal, the Trial Balance is ruled with single and double red lines and footed with black ink as in Illustration No. 14. / / / / / 7- T' 2- 7- ^-^03^a^'2^^£o-7^, C^^-o-^i-i^ta^ jftr_ r^s- -Xa -/4 a a a -^Z^a- :i-^f / 3M. 7-7-\t- ^a_ ~7XZ zz 60-- #!^- ~/\S lUustration No. 14, Trial Balance for Exercise No. 22. Explanation: This Trial Balance is prepared from the ledger accounts in Illustration No. 13 on pages 39 and 40. The figures at the left of the names indicate the ledger pages. 42 BOOKKEEPING AND ACCOUNTING. EXERCISES IN JOURNALIZING, RECORDING TRANSACTIONS, POSTING AND TAKING A TRIAL BALANCE. The student is required to (o) record the transactions for Exercises Nos. 22, 23, 24, 25 and 26, in the purchases book, sales book, and cash book, (6) post to the ledger, and (c) take a Trial Balance. Illustrations Nos. 9, 10, 11 and 12 show the correct record for the transactions in Exercise No. 22; Illustration No. 13, the ledger accounts resulting from posting these; and Illustration No. 14, the Trial Balance. The transactions are not recorded in the regular books of account, but on loose journal and ledger paper. Exercise No. 22. E. B. Taylor, Proprietor. Rule an extra column at the left of pages i, 2 and 3 of a double sheet of journal paper as in Illustrations Nos. 9,11 and 12. Use page i for the purchases book, pages 2 and 3 for the cash book, and page 4 for the sales book. Write the headings in the cash book as those above the red lines in Illustrations Nos. 11 and 12. Jan. I. E. B. Taylor invests $1,000.00 in the grocery business. Enter on the debit side of the cash book (§ 62, If i) as in the first entry in Illustration No. II, except the ledger page, which is omitted in this and succeeding entries. 2. Bought of E. C. Cline, on account, merchandise per invoice of the 1st, $77.30. Enter in the purchases book (§60, Tf i) as in the first entry in Illustration No. 9. 3. Bought of Langley Bros., on account, merchandise per invoice of the 2d, $i34-95- Enter in the purchases book (§ 60, If i) as in the second entry in Illustration No. g. 4. Paid $20.00, city and state license for one year. Enter on the credit side of the cash book as in the first entry in Illustration No. 12. 6. Sold A. R. Manley, on account, 40 lbs. Arbuckle coffee at 20c; i bbl. White Lily flour, $6.25. Enter in the sales book (§ 61, If l) as in the first entry in Illustration No. 10. 10. Paid J. F. Sherwood $192.00 for merchandise per invoice of this date. Enter as in the second entry in Illustration No. 12. 12. Received $30.50 for sundry cash sales. Enter as in the second entry in Illustration No. 11. 13. Paid E. C. Chne $77.30, ift full of account. 16. Sold Gibson Hotel, on account, 6 bbls. Roller King flour at $5.10; 3 bbls. White Lily flour at $6.25; 40 lbs. Arbuckle coffee at 20c. Enter in the sales book as in the second entry in Illustration No. 10. 17. Sold T. L. Staples, on account, 4 bbls. Roller King flour at $5.10; 4 cans, 200 lbs. lard at 15c. 20. Received of A. R. Manley $10.00, to apply on account. 23. Bought of Logan & Moseley, on account, merchandise per invoice of this date, $228.60. 26. Sold A. R. Manley, on account, 5 bbls. White Lily flour at $6.25 ; 115 lbs. Arbuckle coffee at 20c. 27. Received of the Gibson Hotel $30.50, to apply on account. 30. Received $41.85 for sundry cash sales. After the transactions have been recorded, proceed as follows: 1st. Prove cash (§ 62, If 3) and rule the cash book as in Illustrations Nos. 11 and 12. 2d. Divide the first page of a sheet of ledger into five parts by ruling double red lines similar to those in Illustration No. 13, page 39. Open accounts with E. B. Taylor Capital, Cash, Purchases, Sales, and Expense by writing the names on the blue line above the red lines as in the illustration. Do not enter any amounts until instructed. Divide the second page of this ledger sheet into six equal parts with double red lines similar to those in Illustration No. 13, page 40. Open accounts with E. C. Cline, Langley Bros., A. R. Manley, Gibson Hotel, T. L. Staples, and Logan & Moseley by writing each name on the blue line above the red line as in the illustration. 3d. Trace the posting of the entries in Illustrations Nos. g, 10, 11 and 12 to the accounts on pages 39 and 40, Illustration No. 13. When this is understood, follow instructions in Nos. 4, 5, 6, 7, 8, 9 and 10 on page 43. BOOKKEEPING AND ACCOUNTING. 43 4th. Post the three entries in the purchases book to the credit side of the respective accounts in the ledger as explained in § 5o, H 2. 5th. Post the four entries in the sales book to the debit side of the respective accounts in the ledger as explained in § 6l, \ 2. 6th. Post the five entries on the debit side of the cash book to the credit side of the respective accounts in the ledger as explained in § 62, IJ 5. 7th. Post the three entries on the credit side of the cash book to the debit side of the respective accounts in the ledger as explained in § 62, If 6. Rule E. C. Cline's account as in the illustration. 8th. Foot and rule the purchases book as in Illustration No. 9 and post (§ 60, If 3) the total to the debit side of the Purchases account as in the second entry on the debit side of this account in Illustration No. 13. 9th. Foot and rule the sales book as in Illustration No. 10 and post (§ 61, If 3) the total to the credit side of the Sales account as in the third entry on the credit side of this account in Illus- tration No. 13. loth. Post (§ 62, If 7) the total cash receipts to the debit side of the Cash account, and the total payments to the credit side of the Cash account as in the first entry on the debit and first entry on the credit side of this account in Illustration No. 13. flth. Enter the balance on the credit side of the Cash account, rule the account, and carry the balance down on the debit side below the ruling as in Illustration No. 13. 1 2th. Check all posting as explained in § 64. 13th. Take a Trial Balance as explained in § 66 and Illustration No. 14. 14th. Present all work for approval. When approved proceed with Exercise No. 23. Exercise No. 23. Donald D. Sells, Proprietor. Prepare on a double sheet of journal paper a purchases book, sales book, and cash book in the same manner as instructed at the beginning of Exercise No. 22, and record on it the transactions for this exercise in the order in which they occur. Feb. I. Donald D. Sells invests $3,000.00 cash in the hardware business. Enter on the debit side of the cash book as in Illustration No. 1 1 . 2. Bought from Moore & Moore, on account, merchandise per invoice of this date, $187.65. Enter in the purchases book as in Illustration No. 9. 3. Sold J. C. Mason, on account, 4 kegs nails at $4.50. Eiiter in the sales book as in Illustration No. 10. 4. Paid Davis Bros. $281.36 for cash purchase of merchandise. Enter on the credit side of the cash book as in Illustration No. 12. 5. Paid $25.00, telephone rent. 6. Bought from Pickering Hardware Co., on account, merchandise per in- voice of this date, $321.97. Paid Moore & Moore $100.00, on account. 8. Received $116.50 for a cash sale. 9. Sold Walter Love, on account, i saw, $5.00; i corn sheller, $37.25. 10. Bought from Johnson Bros., on account, merchandise per invoice of this date, $261.85. Received $18.00 from J. C. Mason, in full of account. 11. Paid Moore & Moore $87.65, in full of account. 12. Sold J. C. Miller, on account, 100 lbs. lead at 5c; 4 doz. picks at $9.00. 13. Received $106.95 for cash sales. 15. Received $20.00 from Walter Love to apply on account. 16. Paid clerk's salary, $10.00. 17. Bought merchandise from Donelson Bros., on account, $321.85. 18. Sold Central Construction Co., on account, 3 doz. shovels at $7.00; 5 doz. picks at $9.00; 6 scrapers at $32.50. 19. Paid Pickering Hardware Co. $321.97, in full of account. 20. Paid Johnson Bros. $150.00, on account. 22. Received $125.25 for cash sales. 23. Sold Walter Love, on account, one Studebaker wagon, $85.00. 24. Paid Johnson Bros. $100.00, to apply on account. {Concluded on page 44.) 44 BOOKKEEPING AND ACCOUNTING. {Exercise No. 2j — Continued from page 43.) Feb. 25. Paid $30.00 for rent. 26. Received $22.25 from Walter Love in full of bill sold on the 9th. 27. Received for cash sales to date $121.85. 1st. Prove cash (balance $2,424.82) and rule the cash book as in Illustration Nos. II and 12. 2d. Post from the purchases book, sales book, and cash book, as instructed in the 4th, 5th, 6th and 7th paragraphs under Exercise No. 22. Allow five lines for Donald D. Sells Capital, five for Cash, six for Purchases, ten for Sales, four for Expense, and five for each personal account. Divide the ledger pages as in Illustration No. 13. Rule personal accounts when they balance. 3d. Foot and rule the purchases and sales books; post the totals of these and the total cash receipts aijd cash payments as explained in § 60, If 2, § 61, 1[ 2, and § 62, IfK 5 and 6. 4th. Check the posting (§ 64), and take a Trial Balance (§ 66). 5th. Present work for approval. When approved, proceed with Exercise No. 24. Exercise No. 24. H. A. Popp, Proprietor. Prepare on a double sheet of journal paper a purchases book, sales book, and cash book for this exercise in the same manner as instructed at the beginning of Exercise No. 22. Mar. I. H. A. Popp invests $1,000.00 cash in the retail coal business. 2. Bought from Central Coal Co., on account, merchandise per invoice of this date, $250.00 (§ 50). 3. Sold J. C. Miller, on account, 5 tons lump coal at $5.50, 5 tons nut coal at $5.00 (§ 50). 4. Bought from Davis Coal Co., on account, merchandise per' invoice of the 1st, $175-50. 5. Paid $10.00 for telephone service (§ 52). 6. Bought from Jellico Coal Co., on account, merchandise per invoice of this date, $362.75. 8. Paid Central Coal Co. $100.00, on account (§ 51). 9. Sold Walter Love, on account, 5 tons nut coal at $5.00; i ton lump coal, $5.50 (§ 50). 10. Received for sundry cash sales, $151.05 (§ 49). 11. Sold Central Hotel, on account, 50 tons nut coal at $4.85. 12. Paid Central Coal Co. $150.00, in full of account. 13. Sold J. C. Miller, on account, 3 tons lump coal at $5.50. 15. Cash sales to date, $122.00. 16. Received $20.00 from Walter Love, on account. 17. Paid clerk's salary for first half of month, $25.00 (§ 52). 18. Bought from Donaldson Coal Co., for cash, 100 tons coal at $4.00. 20. Paid Jellico Coal Co. $150.00, on account. 22. Received $10.50 from Walter Love in full of bill sold on the 9th. 23. Sold Central Hotel, on account, 5 tons lump coal at $5.50. 24. Bought from Davis Coal Co., on account, merchandise per invoice of the 22d, $209.38. 25. Received for sundry cash sales, $135.65. 26. Sold Walter Love, on account, 2 tons nut coal at $5.00. 27. Received $200.00 from Central Hotel to apply on account. 29. Sold J. C. Miller, on account, 8 tons nut coal at $5.00. 30. Received for sundry cash sales, $192.80. 31. Paid rent, $40.00, and clerk hire, $25.00. 1st. Prove cash and rule the cash book; cash balance, $932.00. 2d. Post from the purchases book, sales book, and cash book. Allow two lines for H. A. Popp Capital, five for Cash, five for Purchases, ten for Sales, four for Expense, and five for each personal account. Divide the ledger pages with double red lines as in Illustration No. 13. 3d. Foot and rule the purchases and sales book, and post the totals; post the total cash re- ceipts and the total cash payments; check all posting. 4th. Take a Trial Balance. 5th. Present work for approval. When approved, proceed with Exercise No. 25. BOOKKEEPING AND ACCOUNTING. 45 Exercise No. 25. J. N. Fulton, Proprietor. Prepare on a double sheet of journal paper a purchases book, sales book, and cash book for this exercise in the. same manner as instructed at the beginning of Exercise No. 22. Apr. I. J. N. Fulton invests $1,500.00 in the retail shoe business. 2. Bought from Union Shoe Co., on account, invoice of shoes, $681.70. 3. Paid $25.00 cash for telephone service. 4. Sold Davis Bros., on account, 10 pairs men's brogans at $1.25. 5. Paid $365.87 for cash purchase of shoes. 8. Received for cash sales to date, $158.70. 9. Bought from the Hamilton Brown Shoe Co., on account, invoice of shoes, $962.48. 11. Sold Arthur Ogden, on account, 3 pairs children's shoes at $1.25, i pair men's satin calf, $5.00. 12. Paid $37.50 insurance on stock and fixtures (§ 43, % i). 15. Paid Union Shoe Co. $381.70, on account. 16. Bought from Overton Shoe Co., on account, invoice of shoes, $468.42. 17. Paid $25.00 for stamps and stationery. 18. Received for cash sales to date, $181.90. 19. Sold Caleb Fall, on account, 4 pairs ladies' shoes, $3.40. 20. Sold Jacob Dolittle, on account, 5 pairs men's shoes at $3.00; 4 pairs women's shoes at $2.50; 6 pairs children's shoes at 90c. 22. Paid $400.00 to Hamilton Brown Shoe Co., on account. 23. Sold Joe Smith, for cash, 6 pairs children's shoes at 95c; i pair men's shoes, $4.00; 6 pairs ladies' bals. at $2.25. Enter in the sales book and cash book (§61, If 4) but do not open an account with Joe Smith. 24. Paid $35.00 rent for the month. 25. Received for cash sales to date, $206.10. 26. Bought for cash, invoice of shoes, $269.87. 27. Received $15.00 from Jacob Dolittle on account. 29. Sold A. J. Bowen, on account, 5 pairs men's shoes at $4.30. 30. Received $10.00 from Caleb Fall on account. Paid bookkeeper's and clerk's salaries, $55.00. Prove cash (cash balance, $499.96) and rule the cash book. Post from the purchases book, sales book and cash book; allow two lines for J. N. Fulton Capital, five for Cash, five for Purchases, ten for Sales, six for Expense, and four for each personal account. Post the totals of the purchases book, sales book, and cash book, check the posting, take a Trial Balance, and present for approval. Exercise No. 26. J. O. Murdock, Proprietor. Prepare on a double sheet of journal paper a purchases book, sales book and cash book for this exercise in the same manner as instructed at the beginning of Exercise No. 22. May I. J. O. Murdock invests $2,000.00 in the retail clothing business. Bought of Jones Bros., on account, per invoice of this date, $216.87 (§ 5o)- 2. Bought of Cohen & Eisenberg on account, merchandise per invoice of the 1st, $7542 (§ 50). 3. Sold A. C. Brown, on account, i suit of clothes, $44.00 (§ 50). 4. Bought of Hart, Schaffner & Marx, for cash, merchandise per invoice of this date, $218.72 (§ 50). Enter in the purchases book and cash book (§ 60, 1 4). 5. Sold for cash, i suit of clothes, $60.00; i overcoat, $50.00 (§ 50). 6. Sold J. C. Wilson, on account, i suit of clothes, $50.00; 5 shirts at $2.50. 8. Paid Cohen and Eisenberg, $75.42, in full for bill purchased on the 2d (§ 51) . Sold Charles Home, on account, i suit of clothes, $50.00; i vest, $10.00. 9. Bought of Hart, Schaffner & Marx, on account, merchandise per invoice of the 8th, $167.92. {Concluded on page 46.) 46 BOOKKEEPING AND ACCOUNTING. {Exercise No. 26 — Continued from page 45.) May 10. Sold A. C. Brown, on account, i suit of clothes, $50.00; i pr. pants, $15.00; 4 shirts at $2.50; 6 shirts at $2.00; 3 pr. socks at 50c. 11. Received $50.00 from Charles Home, on account (§51). 12. Bought of Cohen & Eisenberg, on account, merchandise per invoice of the loth, $84.75 (§ 50). 13. Paid $10.00, telephone rent for the month (§ 52). Received $62.50 from J. C. Wilson in payment for bill sold the 6th. 15. Bought of David Bros., on account, per invoice of the 7th, $203.18. 17. Bought of Jones Bros., on account, per invoice of the 12th, $162.50. 18. Paid David Bros. $203.18, in full for bill purchased on the 15th (§ 51). Received $87.55 from J. C. Wilson for a cash sale (§ 49). 19. Sold Charles Home, on account, 8 shirts at $2.50; i tie, $1.25. Paid the Central Coal Co. $12.00 for coal delivered today to be used for heating the building (§ 43, ^ 2). 20. Received $25.00 from A. C. Brown, on account. Received $90.00 cash for 2 suits of clothes. 22. Paid M. M. Condon cash for freight and drayage, $62.25 (§40, 1(3). 23. Gave Cohen & Eisenberg $84.75 cash in full of account. 24. Paid Jones Bros. $140.00, on account. 26. Received cash from Charles Home in full for bill sold on the 19th. 30. Paid Hart, Schaffner & Marx $167.92, in full for bill bought on the 9th. 31. Paid rent, $25.00; bookkeeper's salary, $35.00; clerk's salary, $30.00. Complete the work as instructed in the preceding exercises. Cash balance, $1,382.06. Allow two lines for J. O. Murdock Capital, five lines for Cash, five lines for Purchases, eight for Sales, four for Expense, and five for each personal account. The student is advised to journalize (§ 59, H 2) the transactions in this exercise, post from the journal entries, and take a Trial Balance, then compare the work required in the two methods. This will enable him to appreciate the efficiency in the use of the purchases, sales and cash books, also the application of the laws of debits and credits in recording transactions. QUESTIONS. 1. Give the general rule for determining debits and credits. (§ 47.) 2. Define books of account. (§ 54.) 3. What are books of original entry? (§ 55.) Books of classified accounts? (§ 56.) 4. Define auxiliary books. (§ 57.) ■5. Define posting. (§ 58.) 6- Define the journal and state the method of recording transactions in it. (§ 59.) 7. Define the purchases book. (§ 60.) 8. Define the sales book. (§ 61.) 9. Define the cash book. (§ 62.) 10. Distinguish between the debit and credit side. (§ 62, %*^ 1 and 2.) 11. Describe the method of proving cash. (§ 62, ^ 3.) 12. How and when is the cash book ruled? (§ 62, ^ 4.) 13. Describe the method of posting from the debit side of the cash book. (§ 62, 1f_ 5.) Credit side. (If 6.) 14. Is it necessary to post the totals? (§ 62, ][ 7.) 15. How are the totals posted? 16. Define the ledger and state its purpose. (§ 63.) 17. What is the purpose of checking the posting? (§ 64.) 18. Give the order of posting from the books of original entry. (§ 65.) 19. Define the Trial Balance. (§ 66.) 20. What is the reason for taking a Trial Balance? BOOKKEEPING AND ACCOUNTING. 47 INTRODUCTORY SET. RETAIL GROCERY BUSINESS, W. H. GOODWIN, PROPRIETOR. JANUARY. § 67. Introduction. The object of this set is to illustrate the application of the principles of accounting and the method of recording transactions in a busi- ness conducted by an individual or sole proprietor. The transactions are recorded in the books of account which consist of the purchases book, sales book, cash book, and journal. In addition to the use of these books, the student is taught to make bills, write receipts, prepare a statement of the business, and close the ledger., The bookkeeping terms (§§ 1-31), the accounts made necessary by the trans- actions in January, the first month (§§ 32-44), and the principles involved in recording transactions and posting (§§ 45-66), are explained in the preceding pages. The discussion on pages 47-70 relate to the business forms, method of recording transactions. Trial Balance, Balance Sheet, Profit and Loss statement, and ledger closing required in the January work. Reference is given to this information in connection with recording the transactions for January. The Transactions to he Recorded are separate from the discussion of the principles (§§ 1-120) and may be represented by incoming vouchers (reproduced business papers), or a printed record similar in form to Exercises Nos. 22-26. The final results are the same with either method. GENERAL INFORMATION. § 68. Business Papers are, aside from the personal instructions of his employ- er, the only evidence to the bookkeeper that a transaction has been made. They consist of bills or invoices, receipts, checks, notes, drafts, orders, statements, ship- ping invoices, account of sales, telegrams, etc. The use of each will be explained as it is introduced. In January only two are used, bills or invoices, and receipts. § 69. Bills or Invoices. When goods are purchased or services rendered, the written statement, describing the same and showing the value, is called a bill or an invoice. These terms are Used interchangeably; that is, sometimes a list of items bought is called a bill and sometimes an invoice. To avoid confusion, in the instructions in this work, the list of goods purchased by the proprietor will be termed an invoice, and that of goods sold by him, a bill. A bill is rendered that the purchaser may know that all of the goods ordered have been received, and that the calculations relative to their value have been made correctly. It should show the name of the seller, the date, the name of the pur- chaser and his address, the terms, a description of the goods, the value of each item, and the total. In all calculations where the result is a fraction of one cent, the fraction is regarded as a cent if its value is one-half or more; if less than one-half it is discarded. See Illustration No. 15 for the form of a bill. If I. Terms refer to the time payment is to be received. When no fixed time of payment is mentioned, the sale or purchase is said to be "on account". Legally the account is due and could be collected but custom has placed the time of payment 48 BOOKKEEPING AND ACCOUNTING. as the first of the following month. When the time of payment is mentioned this is indicated in the terms. Terms "60 days" means that the time of payment is 60 days from the date of the bill or invoice. W. H . GOODWIN Fancy Groceries, Provisions and Country Produce. . yigi>?? i'^-^--za-z>c-g--j^;-<»-2-<^ c^e^^.- /.i/^ :z^ Illustration No. 15, Bill for Sale, January 4, Introductory Set. § 70. Receipt. A receipt is a written acknowledgment from the receiver to the giver, of money or other property received in payment for some form of indebtedness. It is not customary to give receipts when the property is paid for at the time of the purchase. Receipts should be bound in book form, and each one provided with a stub, so that a permanent record of each receipt issued may be kept. The stub should be filled out first in order that it may not be forgotten or filled out incorrectly. No. L TtntK Ur7/?7y V /i^/ To_ ^^<2>. 'yjy/yu/riaJ for. ty^yy^y^J- A mnun-f^ M-gS- J^_L yyyny— ■ Qf7/f7yyy7yj^/ f, y g/ ^- /Q^ Y//^>&^?f?r/y. rj'yyfy97y- S^.. C>fj^yy/fyf?J' Illustration No. 16, Receipt given A. R. Jennings, January 9, Introductory Set. BOOKKEEPING AND ACCOUNTING. 49 § 71. Duties of a Bookkeeper. In general it is the duty of the bookkeeper to audit incoming papers, write outgoing papers, make a record of the transactions post these to the ledger, take a Trial Balance, make a Statement of the Business and close the ledger. The efficient bookkeeper must be accurate, rapid in making calculations and have a thorough knowledge of the principles of bookkeeping and accounting. § 72. Auditing Incoming Papers. The efficient bookkeeper will not accept a business paper as correct until he has proved it by a careful audit. The fact that an invoice is made out in correct form does not indicate that the extensions are correct. The same is true of checks, notes, drafts, freight bills and other business papers which represent transactions. An audit of a business paper is indicated by check marks to the left or right of the figures, and also by the name or initial of the person making the audit. § 73. Writing Outgoing Papers. Each sale requires a bill, and, unless a bill clerk is employed, it is the duty of the bookkeeper to make this. He may also be required to write checks, notes and other business papers. § 74. License. The advantages and protection of modern civilization do not come free of charge to those who have property. The expenses of the govern- ment must be paid, and to do this, taxes are levied. There are two methods of taxation ; one by charging a certain per cent of the value of the property, and the other by charging for certain privileges. The latter is termed "License," and is a charge paid by those who engage in business. Licenses are granted by an incorporated city, a county, a state, or the United States government. _ § 75. Files. Every well-regulated business office is equipped with filing devices in which to file incoming papers and copies of outgoing papers. These are filed alphabetically or numerically, thus providing a ready reference when needed. The correct filing of business papers is essential to the success of the business. The auditor will expect the bookkeeper to substantiate each transaction with the business paper that represents it. /^/ > T^^rr^A^vC^ i I f 7i7 3 a 3 /[a^c.'^^Si'-c~^- / 3 V ^ f /O f^>^^Z^Z£<>^'y''^?^?2f^i-'i('cAy , /ff Z X r i /S —- yS ^'V 7 V 2 i-/0 eld^z-t^ b- 7-3 / ^ ' O r ^7 t 3/ '^;^c/c^^^^7~i>A.eui£j ■ a i 7 £? / <*■ 4/ y o — 1 Illustration No. 17, Purchases Book, January, Introductory Set. 'Explanation: This illustration is the record of the credit purchases for the first month of the Introductory Set, also for Exercise No. 27 on page 50. The method of posting from the purchases book is explained in § 60, H 2, and the result of posting the above entries is shown in the credits to the personal accounts at the top of page 58. 50 BOOKKEEPING AND ACCOUNTING. Exercises in the Purchases Book. Rule a sheet of journal paper similar in form to Illustration No. 17 and prepare a purchases book for each of the three ex- ercises, Nos. 27, 28 and 29. Exercise No. 27 is the same as Illustration No. 17. Follow instructions given at the close of each exercise relative to posting. Exercise No. 27, Purchases Book. W. H. Goodwin received invoices for the following credit purchases of mer- chandise during the month of January: 2. Borches & Co., Jan. 2, on account, $77.30 (§ 60, If l). 3. Kaiser Bros., Jan. 3, on account, $134.95. 10. Hazen & Lotspeich, Jan. 10, on account, $228.60. 15. Borches & Co., Jan. 15, on account, $246.00. 17. Lake View Creamery, Jan 14, 20 days, $28.00. 23. J. Allen Smith & Co., Jan. 23, 10 days, $197.10. 27. Donaldson Bros., Jan. 24, on account, $172.75. Post (§ 60, Iflf 2 and 3) to a sheet of ledger paper (see pages 58 and 57), take a Trial Balance, and present all work for approval. Exercise No. 28, Purchases Book. E. K. Isaacs received invoices for the following credit purchases of merchan- dise during the month of February: A. Ames, Feb. i, 30 days, $350.00; J. H. King, Feb. i, 60 days, $286.00. M. Lowe, Feb. i, 30 days, $325.00. T. Harris, Feb. 5, 20 days, $486.00; P. T. Pilser, Feb. 3, 30 days, $210.00. T. Goodrich, Feb. 7, 90 days, $825.00. P. Benson, Feb. 10, 60 days, $64.00. O. Parsons, Feb. 12, 30 days, $128.00. L. Simpson, Feb. 13, 30 days, $242.00. Post (§ 60, Klf 2 and 3) to a sheet of ledger paper, (allow five lines for each account) take a Trial Balance, and present all work for approval. Exercise No. 29, Purchases Book. C. U. Steele received invoices for the following credit purchases of shoes for the month of March: 2. Bay State Shoe Co., Feb. 28, 10 days, $496.81. 3. Haynes, Henson & Co., Mar. 2, 10 days, $387.65. 4. M. B. Lang, Mar. 3, 30 days, $1,691.42. 6. Cline Shoe Co., Mar. 4, 30 days, $168.42. 18. Bay State Shoe Co., Mar. 15, 30 days, $987.35. 25. Haynes, Henson & Co., Mar. 20, 30 days, $462.85. 26. Cline Shoe Co., Mar. 20, 30 days, $785.00. 31. A. O. Haines, Mar. 21, 60 days, $432.50; M. B. Lang, Mar. 22, 30 days, $356.00. Post to the third page of a double sheet of ledger paper; allow one-fifth of a page for each account. When each creditor has been credited with the amount of his purchase, post (§60, 1[ 3) the total to the Purchases account; open the Purchases account at the top of page two of the ledger sheet. Take a Trial Balance and retain the exercise until Nos. 32 and 35 have been completed. Exercises in the Sales Book. Prepare on journal paper a sales book for each of the three exercises, Nos. 30-32. Exercise No. 30 is the same as Illustration No. 18. Follow instructions given at the close of each exercise relative to posting. Exercise No. 30, Sales Book. W. H. Goodwin made the following credit sales during the month of January; 4. A. R. Jennings, 105 Main St., City, 11 lbs. Arbuckle coffee at 20c; 50 lbs. granulated sugar at 6c; 25 lbs. brown sugar at 5c; 60 lbs. bacon at 13c. (^Concluded on page 5j.) I B. 3 H. 5 H. 9 J- II J- 12 C. 15 H. BOOKKEEPING AND ACCOUNTING. 51 ^-??^^-^gg^-a/_4i/ ^Z— //^J'^ Of^^^ S& , /^sy/7a-e^ftyt. _2^ ^c-oa-cx--/'' ai£_ '^K^TH^'Otryz^ g.^-C?-gZ<7" CS ,/3 7-2- A^ (3a^ ( -t-(^- f^ cT/^ -CzY ::^tci:^^^(y/ -' ii,>3 J_2^222^^-^_£rf^^._ ,/-5 //_ M Cir cT &i!^)-?^y^ ^'f7r7 ,^f r z^ kt: ■Illustration No. 18, Sales Book, January 1-19, Introductory Set— Continued. 52 BOOKKEEPING AND ACCOUNTING. Z-Z. /f/ ^gz^ oa,-yz^ ^^ > -7'?^^€Z^ !:i'-e^/ >./C> / /e /3^ _>4 Q( ^.7^zS ^7-^ OS 3 ocun^ /3S'- / 3 -^5^::??^ /.3S .^ y3. v6o^^ ^-■i-o-ze^i .OS -Y- I i \ ^i2-|5i7 O'S 2- v^ r ? '\S \s ff r 7 1 ^^ 2 15" / 3S ^^i^:^t.i>/- i^So _S3 .7-0 7-00 .06 (3^-^^i^'S9<€-./^>A.^ -5. / i 2Jr 2 5- ,^,^ ^ s\s _ Illustration No. 18, Sales Book, January 22-31, Introductory Set — Concltided. Explanation: This illustration (pages 51 and 52) is the record of the credit sales for the first month of the Introductory Set (with the exception of some of the articles sold), also for Exercise No. 30 beginning on page 50. The method of posting from the sales book is explained in § 61, U 2, and the result of posting these entries is shown by the debits to the personal accounts on page 59 and the last account at the bottom of page 58. BOOKKEEPING AND ACCOUNTING. 53 {Exercise No. jo— Continued from page 30.) 8. Central Hotel, 22 Walnut St., 5 bbls. Roller King flour at $5.10; 3 bbls. White Lily flour at $6.25; 3 hams, 45 lbs. at 13c; 100 lbs. granulated - sugar at 6c; 25 scks. salt at 5c. 11. A. R. Jennings, i doz. cans tomatoes, $1.10; 4 cans lard, 2163^ lbs. at 13c; 4 bbls. White Lily iflour at $6.25. 13. M. A. Johnson, Kingston, 5 bbls. White Lily flour at $6.25; 6 hams, 141 lbs. at 15c. 16. Imperial Hotel, 200 Locust St., 4 bbls. Roller King flour at $5.10; 20 shoul- ders, 290 lbs. at IOC. 19. A. C. Williams, 1221 Elm St., 14 doz. cans peaches at $1.35; 2080 lbs. br^n at $11.25 per 1,000 lbs. 22. R. G. Mathews, 26 E. Fourth St., 12 bu. meal at 6oc; 4 bu. beans at $2.10; 4 doz. cans tomatoes at $1 .10; 3 doz. cans peaches at $1.35. 25. Imperial Hotel, 4 bbls. White Lily flour at $6.25; 6 bbls. Roller King flour at $5.25; 6 lbs. creamery butter at 35c; 4 cans lard, 165 lbs. at 13c. 26. J. C. Wilson, 270 Central Ave., 2000 lbs. bran at $11.25 per 1000 lbs.; 17 scks. salt at 5c; 3 cans lard, 135 lbs. at 13c; i doz. cans peaches, $1.35. 27. C. L. Loyd, 1604 Vine St., 73 lbs. brown sugar at 5c; 8 bbls. White Lily flour at $6.50; 53 lbs. Arbuckle coffee at 20c; 200 lbs. granulated sugar at 6c. Post (§ 61, Ulf 2 and 3) to a sheet of ledger paper (see pages 59 and 57), take a Trial Balance, and present for approval. Exercise No. 31, Sales Book. W. J. Wheeler made the following credit sales during the month of February: 3. E. M. Miller, 507 Gay St., 50 bbls. flour at $4.50. 8. William A. Wallace, Evanston, 50 bbls. flour at $4.50; 200 bu. corn at 40c. 12. B. T. Hart & Co., Maryville, 25 bbls. flour at $4.50; 485 bu. corn at 40c. 14. D. T. Sinton, Uniontown, 200 bu. oats at 36c. 18. G. L. Frye, 29 Main St., 900 bu. rye at 60c; 500 bu. oats at 36c. 20. Rue & Long, 54 Union St., 250 bu. rye at 57c; 600 bu. corn at 35c. 23. Henry Mason, Pittsburg, 100 bu. corn at 45c; 60 bbls. flour at $5.00. 27. D. P. Lewis, 310 Chestnut St., 500 bu. oats at 38c; 50 bu. rye at 60c. 28. Maynard Pritchett, Brookville, 300 bu. corn at 40c; 400 bu. oats at 38c. Post (§ 61, l[1f 2 and 3) to a sheet of ledger paper, take a Trial Balance, and present for approval. Exercise No. 32, Sales Book. C. U. Steele made the following credit sales during the month of March: I. R. L. Watson, 207 Mason St., i pr. Queen City shoes, $7.50. 4. C. A. Sheppard, Canton, 3 prs. Ladies' shoes at $1.50; i pr. rubbers, 75c. 9. J. C. Wilson & Co., Hamilton, 8 prs. Men's Calf shoes at $1.25; 14 prs. Men's Jefferson shoes at $1.65. 12. A. R. King, Boston, i pr. Ladies' Bal. at $2.50. 15. W. E. Peters, Clinton, i pr. Men's Vici Autocrat shoes, $0.15. 18. W. K. Love, 207 Main St., i pr. Men's Vici Kid shoes, $8.45. 21. A. R. King, I pr. Women's Box Calf, $2.50; i pr. Boy's Box Calf, $2.50. 26. C. A. Sheppard, i pr. Men's Cong. Calf, $6.00. 30. R. L. Watson, 6 prs. Child's Satin Calf, at $1.15. Post (§ 61, If 2) to the fourth page of the double sheet of ledger paper used in posting Exercise No. 29. Allow one-sixth of a page for each account. When each customer has been debited with the amount of his purchase, post (§ 61, If 3) the total to the Sales account; open the Sales account ten lines from the top of page two of the ledger sheet. Take a Trial Balance from the accounts on the sheet, and retain the exercise until No. 35 has been completed. 54 BOOKKEEPING AND ACCOUNTING. (A cr.nunts CrpAif.p.d)_ (Rr.pln,nnMnn\ 3/ .£a:2Z^ '■L£^-. i:^^.^>^^Sa^/-_2<^Z2<^_ ,=21- !k<^ L^i-<:^-gJg. .^ ^£a^Cd22^y^^ i-^'€Z^^^^^L^-^,^^^CL^C^ U^^ CL. &r5:2^_tfi„-:e,-tC_<:fc2,.t-;S:::2, ^^ y/^rf^ /^^*-/'^j>^y ^yZf 6L £S0 2.5i J. jT M= L.i^'i^ ^^r^^-y?^K^ il. ^ i£^ Illustration No. 19, Debit Side of Cash Book, January, Introductory Set. 'Explanation: This illustration is the record of the cash receipts in the first month of the Intro- ductory Set, also the cash receipts outlined in Exercise No. 33 below. The method of posting from the debit side of the cash book is explained in § 62, If 5, and the result of posting these entries is shown by the credits to the various accounts on pages 57, 58, and 59, except the posting from the purchases book and the total of the sales book. Exercises in the Cash Book. Rule the inside page of a double sheet of journal paper similar to Illustrations Nos. 19 and 20 and prepare a cash book for each of the three exercises, Nos. 33, 34 and 35. Exercise No. 33 is the same as Illustrations Nos. 19 and 20. Follow instructions given at the close of each exercise relative to posting. In Exercises Nos. 33 and 34, the name of the account debited or credited is printed in italics. Exercise No. 33, Cash Book. Jan. I. W. H. Goodwin invested $2,000.00 in cash (§ 62, ^ i). 4. Paid $20.00 for city license {Expense) (§ 62, f 2). 5. Paid City Milling Co. $192.00 for a cash purchase (§ 62, 1[ 2). 6. Received for cash sales, $30.00 (§ 62, 1[ i). Paid Borches. &f Co. $77.30, in full of account (§ 62, '^ 2). 9. Received $10.00 from A. R. Jennings to apply on account (§ 62, 1[ i). 12. Received $30.00 from Central Hotel to apply on account (§ 62, ^ i). 13. Received for cash sales, $40.00 (§ 62, 1[ 1). Paid Kaiser Bros. $100.00 to apply on account (§ 62, ^ 2). 18. Received $35.00 from M. A. Johnson to apply on account. 20. Paid Kaiser Bros. $34.95 in full of account. Received for cash sales, $50.00. (Concluded on page 55.) BOOKKEEPING AND ACCOUNTING. 55 {Acf:ounts DehiteSX {Explanation) ^^''t^>7'-J-'l^^^'>-L^^^ (/ Illustration No. 20, Credit Side of Cash Book, January, Introductory Set. Explanation: This illustration is the record of the cash payments in the first month of the In- troductory Set, also the cash payments outlined in Exercise No. 33 on page 55. The method of post- ing from the credit side of the cash book is explained in § 62, If 6, and the result of posting these entries is shown by the debits to the various accounts on pages 57, 58, and 59, except the posting from the sales book and the total of the purchases book. {Exercise No. jj — Continued from page 54.) Jan. 24. Received $15.00 from Central Hotel to apply on account. Paid Hazen Sf Lotspeich $125.00 to apply on account. 26. Received $4.25 from A . R. Jennings to apply on account. 27. Received for cash sales, $42.50. 29. Received $50.00 from C. L. Loyd to apply on account. 30. Paid Borches & Co. $150.00 to apply on account. 31. Paid bookkeeper's salary $35.00, and rent $25.00 (Expense). Cash balance, $1,547.50. Post (§62, lllf 5, 6 and 7) to a sheet of ledger paper (see pages 57, 58 and 59), take a Trial Bal- ance, and present for approval. Exercise No. 34, Gash Book. Feb. I. Cash on hand, $1,276.80. 2. Received $150.00 from E. H. White, to apply on account (§ 62, ^ i). 3. Paid office rent for month of February, $40.00 (Debit § 43). 4. Received $80.00 for cash sales (§ 62, ^ i). Paid H. R. Swanson $60.00, to apply on account (§ 62, *\ 2). 6. Received $120.00 for cash sales (§ 62, *\ i). 8. Paid A. B. Hill $90.50, to apply on account. 9. Received $90.00 from /. K. Lachman in payment of bill of Jan. 10. (Concluded on page 56.) 56 BOOKKEEPING AND ACCOUNTING. {Exercise No. 34 — Continued from page 55.) Feb. 10. Paid drayage on merchandise purchased, $22.50. (Debit §40, ^3). 11. Paid /. G. Pipkin $124.00, to apply on account. 14. Received $69.75 for cash sales. 16. Received $170.00 from P. B. S. Peters, in payment of invoice of Jan. 10. 18. Paid $45.00 for office expense. 20. Paid /. T. Ludlow $146.00, to apply on account. 22. Purchased merchandise for cash from H. P. King, $128.00. 23. Received $47.85 for cash -sales. 24. Received $210.00 from H. M. Lovert, to apply on account. 25. Paid salesman's expenses, $76.00 (Debit § 43). Received $52.50 for cash sales. 27. Paid $32.80 for freight on merchandise purchased (Debit § 40). Paid clerk hire, $40.00 (Debit § 43). 28. Paid for advertising $22.50 (Debit § 43). Cash balance, $1,439.60. Post (§ 62, HH 5, 6 and 7) to a sheet of ledger paper, take a Trial Balance and present for approval. Exercise No. 35, Cash Book. Mar. I. C. U. Steele invested $2,500.00 cash in the retail shoe business. 2. Bought from M. B. Arnstine, for cash, stock of shoes invoiced at $1,691.42. 3. Paid telephone service for three months, in advance, $20.00. Received $69.85 for cash sales. 5. Paid clerk hire, $10.00. 6. Received $7.50 from R. L. Watson in full of account. 8. Paid Bay State Shoe Co. $496.81 in full of account. 9. Received $275.40 for cash sales. 12. Paid clerk hire, $10.00. 13. Paid $75.00, premium on insurance policy (§43, If i). 15. Paid Haynes, Henson & Co. $387.65 in full of account. 16. Received $5.25 from C. A. Sheppard in full of account. 18. Paid $8.25 for stamps and stationery. 19. Paid clerk hire, $10.00. 22. Received $33.10 from J. C. Wilson & Co., in full of account. 24. Received $8.45 from W. K. Love, in full of account. 26. Received $581.92 for cash sales. Paid clerk hire, $10.00. 27. C. U. Steele withdrew $50.00 (§ 38, ^[2). 29. Received $2.50 from A. R. King, in full of bill charged on the 12th. 31. Paid rent, $50.00. Paid Cline Shoe Co. $168.42 in full of invoice purchased March 6th. Received $361.92 for cash sales. Cash balance, $858.34. Open the following new accounts on the double sheet of ledger paper used in connection with Exercises Nos. 29 and 32: C. U. Steele Capital, Cash, and Expense, allowing one-third of a page for each account. Post (§ 62, ^1f 5-7)from the cash book to these new accounts and the other accounts on the ledger sheet that may be affected; rule the accounts that balance (§ 36, If 12, and § 37, 1[ 13). When the posting is completed, check the posting (§ 64) from the purchases book, sales book, and cash book, take a Trial Balance (§ 66), and present for approval. BOOKKEEPING AND ACCOUNTING. 57 9f. — ' 1 1 / ex '^ ^ ' \ i i_j $/ e^ 'z iff A -7^ J^ e3 ^s i^:S^czA0 f?,? ^ ^ fr A ■ 1 ! i ! ^ — '^^ :^ z^<- y-- ^^ -e^c^ X 1 i ^ ^ 7^ ( Z^. i Uiz^n^. >^ (?^ , / -2- S (Jrzmy. /t? ^c ^/ . 2 2 ^ i '■,0 /■ / ^ 7 ^ v.. ^w ^. ■i^^^ L^S-^-^ ^ < ?^ii5v /f/ '7 /' ^/ , .2 f / i 4?^ z. ?t-^. 'Jto-z^ C^ K^^ \ ( :^^v , ]Az^ny. 7-S ^/ / ^ 7 / ? 5?-<: ^ if^ ^^ y^'^f'u U^-ny^. ^ -tm/ ( ,.t-ZV ; _^ i -^- /f/ 7-7 ^/ ■ i/ 7-i ; ^ S 'A i ^i:^ ) e^i ■7-2^C'& ^^ ^i - r [ i Illustration No. 21, Ledger Accounts for January, Introductory Set — Continued. BOOKKEEPING AND ACCOUNTING. 59 %x 'Mi^&T^'^ (St^^ /fi />.3S ^7- s ■'^-T^.i^-a-T-iy yy >:>t^ ^«^^z^^-?;^ 2^ /^ /3 -^7^ -42- ,f/ '/a // 6 \3S 7-01, Sp! -c^i^L^^i-^-^d^ CttSZ^, ■ ya^ny. //. T-S ¥ Mf ^■5^^^ U^^^-iZ-^W^'' ;-/ (.^/:>-^-2^>^h^ d^i^:, IJ^ V ■J-^ 7-/!, /f/ >^ V JT ^ Z^-^ LX >7^ L^^ '^TJ^^^^?-eL^ C^Cz^ Cl^x ^ T^ M :r <:f ^^^^ /^ (;>^ C^2,n.i^>^ (j|i^ .. "TfT" ^^ %r%s ^ .iT^ Illustration No. 21, Ledger Accounts for January, Introductory Set — Concluded. Explanation: The accounts on pages 57, 58, and 59 are the result of posting the entries in Illus- trations Nos. 17, 18, 19, and 20. The student's ledger will show the same results after posting transactions for the first month of the Introductory Set. 60 BOOKKEEPING AND ACCOUNTING. J/,/f/ ^ %- 7- /7:l /3 (Z^l^lA^ -e'-Z'-^^tyC^'-ly'T-^-y, C-^^^^^ZS^^ "^Si^A-^ ^^^^^^^^i^c/ - C£-7Si-ee-^>?z.^j?I* 7 4^ -2f^ 3p pis '-\S 3T^ z a /? a C ^7 / 3 2 F / 7^ 1 ! JJtJI^. Illustration No. 22, Trial Balance, January 31, Introductory Set. Explanation This Trial Balance is made from the ledger accounts, pages S7, S8, and SO. and IS the same as the student's Trial Balance for January; the figures at the left are the pages on which these accounts appear m the student's ledger. The Balance Sheet (§ 81) is prepared from the real accounts on this Trial Balance and the inventory of merchandise. The Profit and Loss statement (§ 82) is prepared from the nominal accounts. CLOSE OF THE FISCAL PERIOD. § 76. The Object of all Investment in business is profit, that is, increase in the value of the property invested. Since this is the object, it is evident that every person who invests property in a business enterprise will want to know the condition of the business at least once each year, and, to learn this, wiH require the bookkeeper to make a statement showing the profits and losses for the period, f u*T*^ -^ elapses between the beginning of the business and the first statement ot the business, or between the last statement and the present one, is the "Fiscal BOOKKEEPING AND ACCOUNTING. 6i Period." This may be one year or any fraction of a year, according to the nature of the business and the wishes of the investors. The end of a fiscal period is some- times called the "closing time," because at that time the books are closed. The law enacted by Congress fixing a tax on incomes designates the time when the business shall submit the facts necessary to assess the tax. Since a State- ment of the Business is necessary in order to make the correct returns, the time fixed by this law is usually accepted by the business as the close of its fiscal period. At the close of each current fiscal period it is necessary to "take stock," that is, to ascertain the present value of salable merchandise on hand, as this is one of the principal assets of the business. INVENTORY. § 77. An Inventory is a list of merchandise or other property belonging to the business at the close of the fiscal period, the value of which is not shown by an account in the ledger. The total value of the property is also referred to as the inventory. 1[ I. Merchandise Inventory. This is the value of the salable merchandise in stock at the close of the fiscal period. The value of the inventory is ascertained by "taking stock," that is, making a list of all the merchandise on hand, at the proper price. This list contains the number of articles of each class, the descrip- tion, the value of each class, and the total value of all merchandise as in Illus- tration No. 23. II 2. When the Market Price is Used. The market price is used (a) when this is less than cost, and (b) when there is a change in the ownership of the business. Except in case of a change in the ownership of the business, the inventory should never be valued at more than cost price, for this would create on the books a profit which has not been realized, which is contrary to sound accounting prin- ciples. Profits can arise only as the result of sales and should not be anticipated in making the Statement of the Business. The following quotation from the Associated Press, taken from a letter sent by the Secretary of the National Association of Credit Men to 22,000 members of the organization, shows the importance of using the correct price in ascertaining the value of the inventory: "Merchandise should be inventoried at cost no matter how far above cost the replacement value of the merchandise has gone. If de- preciation has occurred in the merchandise, or it could be replaced at less than cost, then the inventory should be taken at the replacement value and not at cost price." ^ 3. Going Inventory of Merchandise. This is effected by keeping an ac- count with each separate class of merchandise, debiting it with the number of units when purchased, and crediting it with the number of units when sold. This plan is very satisfactory in such lines as furniture, shoes and hardware, be- cause the units sold are the same as the units purchased. It is necessary to prove the results of these accounts by "taking stock," because of the many errors that may be made in handling merchandise, and the possibility of articles being de- stroyed or stolen. % 4. Deductions. Shelf-worn merchandise is inventoried at a price fixed by the management. This class of merchandise includes ladies' dress goods, men's clothing and furnishings, shoes and other articles that decrease in value on account of the change in styles. Deductions from cost price on account of merchandise being shelf-worn or out of style should be taken care of through a reserve account. 62 BOOKKEEPING AND ACCOUNTING. MERCHAHDISE IHVEBTOEY, JAMUAEY 31, 191 73 Its, Grantilated Sugar (per 100#) $ 3.40 196 " Brown Sugar " " 1 doz. Ivory Soap 3 " Blacking 46 lbs. Arbuckle Coffee , 13 " Tea 38 gal. Coal Oil 646 lbs. Bacon 493 " Earn 1368 " Shoulder 119 " lard 24 doz. cans Tomatoes 36 gal. Syrup 8 bn. Irish Potatoes 10 bu. Sweet Potatoes 137 lbs. Trent Tobacco 42 " Smoking Tobacco . . . . ' 3863 Daniel Boone Cigars fper 1000) 1896 Key West Cigars " " 23 bbls. Keller King Flour 24 " White lily Flour 36 bu. Meal 80 .lbs. Creamery Butter . , 98 doz. Eggs 3 bu. Beans 9261 lbs. Hay fper ton of 2000#) 73 bu. Corn 78 bu. Oats 5963 lbs. Bran (per lOOCyS) Value of merchandise on hand 3.20 .35 .30 .10 .25 .09 .10 .10 .06 .10 .65 .25 .80 .60 .35 .30 sa.oo 16.00 3.26 3.86 .50 .28 .16 1.00 17.65 .40 .3li 6.50 4 3 3 64 49 83 11 16 8 6 6 44 12 127 30 74 92 18 22 15 3 81 29 24 38 48 27 35 90 60 25 42 60 30 28 90 60 75 40 46 60 48 34 75 40 00 40 68 73 20 57 76 882 46 Illustration No. 23, Merchandise in Stock, January 31, IntroduftoiTsitT IntroS'^'s?/ ^TuJl "" "'^"L'S'''"'^^"'^''^ '" ^^""^ ^* ^^^ ''^°^ °f the first fiscal period in the in[,sf™Hnn^^ ,'. A .^"'°""t' S882.46, appears as one of the current assets on the Balance Sheet, Illustration No. 24 and m connection with ascertainine the "Gross Profit on <^.i.<." ^„ .1,. D„ci „„J Loss statement, Illustration No. 25. 1 ascertaining the "Gross Profit on Sales" on the Profit and BOOKKEEPING AND ACCOUNt'in!^^ 63 ^ § 78. Resource Inventory. A list of the prepaid advertising, unexpired insurance, accrued interest, etc., is sometimes referred to as a resource inventory. These are inventories in a certain sense, but are best treated as accrued assets or deferred charges to operations, according to their nature. These are fully explained in succeeding sets. § 79. Liability Inventory, A list of the interest owed by the business but not due, unpaid pay roll, subscriptions collected in advance, interest collected in advance, etc., is sometimes referred to as a liability inventory. These are best treated as accrued liabilities or deferred credits to income according to their nature. These are fully explained in succeeding sets. STATEMENT OF THE BUSINESS. § 80. At the Close of each Fiscal Period, the bookkeeper prepares a state- ment showing the present financial condition of the business and the profit or loss for the period. This shows the assets, liabilities, capital, income, operating cost, and net profit or net loss for the period. It is customary to make two distinct statements, the Balance Sheet (§ 81) and the Profit and Loss statement (§ 82). In practice, the Balance Sheet is prepared first. The facts necessary in making these statements are obtained from the ledger accounts (Trial Balance) and the in- ventory of merchandise. § 81. Balance Sheet. As explained in § 17, the Balance Sheet is a list of the assets, liabilities, and capital, arranged in proper form. The usual arrangement is assets on the left, and liabilities and present capital on the right, as in Illustration No. 24. If desired, the liabilities may be listed below the assets instead of at the right as in the illustration, making the form the same as the Profit and Loss state- ment. ^ I. The Assets are usually listed as follows: Cash, Notes Receivable, Per- sonal accounts, Merchandise Inventory (salable goods on hand), and Fixed W. H. GOOIWIS BALAUOE SHEET. JAMUAKY 31. 191.. Current Aassts: Current liabilities: Cash 1547 60 Borches & Co. 96 00 A. B. Jennings 64 25 Hazen & lotspeloh 103 60 Central Hotel 12 35 lake View Creamery 28 CO K. A. Johnson 17 40 J. Allen Smith & Co. 197 10 Imperial Hotel 129 42 45 30 Donaldson Bros. Total Current Ilabllltlea 172 76 697 A. 0. WllllamB 45 E. G. Mathews 24 06 Capital Acoount: C. L. Loyd 28 42 25 25 W. H. Gooiwin, Pres. Cap. 2182 81 J. 0, Wilson Udse. Inventory Jan. 31 682 46 2780 2f Total Llahllltles & Capital 2780 Total Current Assats 26 Illustration No. 24, Balance Sheet, January 31, Introductory Set" Explanation: This statement is prepared from the Trial Balance and Inventory on pages 60 and 62 and shows the assets, liabilities and Present Capital of W. H. Goodwin at the close of the current fiscal period, ending January 31 ; it is the same as that required of the student at the close of the first fiscal period in the Introductory Set. At this time the only assets are Cash, Accounts Receivable, and Merchandise Inventory; the only liabilities are Accounts Payable. Had there been a number of personal accounts, these would have been shown on a separate list, and the totals only shown as "Personal Accounts" on the Balance Sheet. 64 BOOKKEEPING AND ACCOUNTING. Assets. The total of the various asset accounts is the present capital, if there are no outstanding obligations. % 2. The Liabilities are listed in the following order: Notes Payable, Ac- counts Payable. The total of these equals the total liabilities, that is, the out- standing obligations, which are to be paid IjY the business. T[ 3. The Present Capital or Present Worth of the business is the difference between the total assets and total liabilities. The net profit shown by the Profit and Loss statement, added to the net investment (balance of the Capital account) is the present capital. If the Profit and Loss statement shows a loss, the amount of this loss is deducted from the net investment. §82, Profit and Loss Statement. As explained in § 18, the Profit and Loss statement is a list of the income, operating cost, profits, losses, and net profit or loss, arranged in proper form. The usual form is the principal income first, followed by the operating cost, special losses, and special profits, as in Illustration No. 25, except that in this illustration there are no special profits nor special losses. 1[ I. Gross Profit on Sales. This is obtained by deducting the net cost of merchandise sold (merchandise on hand at the beginning of the period, plus the , W. H. GOODWIN STATEUEHT OP PROFIT AMD lOSS FOB PERIOD, JAM. 1, 191. TO JAN. 31, 1"91. Returns from Sales: Gross Sales 667 08 Cost of Sales: Purohases Deduct Inventory January 31 Set oost of merchandise sold Gross Profit on Sales 1E76 662 70 46 394 24 262 61 Operating Expenses: Expense Het Profit 60 00 182 61 Proof T. E. Goodwin's Present Capital (Bal. Sheet) V, E. Goodwin's Investment Jan. 1 Add Het Profit £162.61 2000.00 182.61 £182. Bl 2182.81 Illustration No. 25, Profit and Loss Statement, January 31, Introductory Set. Explanation: This statement is prepared from the Trial Balance and Inventory on pages 60 and 62, and shows the profits, losses and net profit of the business conducted by W. H. Goodwin at the close of the fiscal period ending January 31 ; it is the same as that required of the student at the end of the first fiscal period in the Introductory Set. At this time the only profit is the gross profit on sales, that is the profit on merchandise sold. The only loss is the expenses, balance of the Ex- pense account. The profit on merchandise sold is ascertained from the Inventory January 31, the Purchases account, and the Sales account. This is the first fiscal period for the business, hence there was no inventory at the close of the preceding fiscal period. BOOKKEEPING AND ACCOUNTING. 65 cost of merchandise purchased during the period, minus the value of goods on hand at the close of the period) from the net returns from sales (total cash and credit sales, minus any deductions for rebates or allowances). The statement of the facts in connection with ascertaining the gross profit on sales is usually made a part of the Profit and Loss statement, but may be shown as a separate schedule termed the Trading Statement. 1[ 2. Operating Expense. This is represented by one Expense account, or various accounts with expense. The total is the operating expense, or the cost of conducting the business for the fiscal period. 1[ 3. Other Income. This is represented by the credit balances of profit accounts, and may be. Interest, Discount, Commission, Profit on Real Estate, etc. (If any of these accounts show a debit balance, they are listed as deductions from income, 1[ 4.) T[ 4. Deductions from Income. These are represented by the debit balances of loss accounts, and may be, Interest, Discount, Commission, etc. (If any of these accounts show a credit balance, they are listed with the other income.) % 5. The Net Profit is the gross profit on sales (H i) less the operating ex- pense (If 2), plus additional profits or income (II 3), less deductions from income (1[4). If the operating expense and deductions from income exceed the gross profit on sales and additional income, the business has been operated at a loss. The profit as shown by the Profit and Loss statement added to the net investment (investment at the beginning, plus additional investments and minus withdrawals) must equal the Present Capital as shown by the Balance Sheet. 1[ 6. No Facts shown by either the Balance Sheet or the Profit and Loss state- ment can be accepted as correct unless the net profit as shown by the Profit and Loss statement is the same as the difference between the Present Capital shown by the Balance Sheet, and the investment. (See proof in Illustration No. 25.) Exercises in Preparing the Statement of the Business. Prepare a State- ment of the Business consisting of the Balance Sheet and Profit and Loss statement from each of the following Trial Balances. The inventory of merchandise is given below the Trial Balance. Use balance sheet paper for the Balance Sheet (Illus- tration No. 24) and journal paper for the Profit and Loss statement (Illustration No. 25). Exercise No. 36. Balance Sheet and Profit and Loss Statement. Trial Balance, A. Ragland, March 31. A. Ragland, Capital Cr., $2,500.00; Cash Dr., $2,216.50; Purchases Dr., $1,654.10; Sales Cr., $996.58; Expense Dr., $107.50; A. C. Briscoe Cr., $127.50; A. L. Lesseman Dr., $62.50; Mays Bros. Cr., $92.85; B. C. Bacon Dr., $13.50; J. J. Hornback Cr., $209.65; E. E. Admire Cr., $127.52. Merchandise Inventory, $927.36. Exercise No. 37. Balance Sheet and Profit and Loss Statement. Trial Balance, T. B. Bridges, Feb. 28. T. B. Bridges Capital Cr., $1,500.00; Cash Dr., $1,215.50; Purchases Dr., $1,116.75; Sales Cr., $718.10; Expense Dr., $50.50; Johnson Bros. Cr., $218.75; Rice & May Cr., $197.62; E. K. Isaacs Dr., $125.18; J. C. Sisk Dr., $110.15; W. W. Moore Dr., $62.50; A. L. Peer Cr., $46.11. Merchandise Inventory, $565.40. Exercise No. 38. See Trial Balance, Illustration No. 22; Merchandise Inven- tory, Illustration No. 23; Balance Sheet Illustration No. 24; Profit and Loss statement. Illustration No. 25. 66 BOOKKEEPING AND ACCOUNTING. § 83. Six Column Statement. Illustration No. 26 shows another form of the Statement of the Business, sometimes referred to as a Balance Sheet. Account- ants frequently use this form as a preliminary step to making the Balance Sheet and Profit and Loss statement. When so used it is referred to as a Working Sheet. This is more fully explained in a subsequent discussion. J/, 'f/ IF Namcf aTAccountr Trial Balanct PmStmdLo jjJlatement || Baa nceJliegt XoKTe/ TTollir LiabimiEf ^*7 / % y & / 2- ♦fa 3-)-S-J / 03 ?/■ 'f7 y 7% so ^ o c f o ■> 6 I 7 1 Ci 7 *f2 i y 1 1 7 S" o i i, v« ' o 3 ',0 * r ' ?7 •" 14 Sfy ,S ?^ o ii Illustration No. 26, Six Column Statement. Explanation: The Trial Balance is in the first two money columns at the left, the Profit and Loss statement m the next two columns, and the Balance Sheet in the two columns at the right. The inven- tory of merchandise is written with red ink to show that it is not an account on the Trial Balance; two special columns between the Trial Balance and Profit and Loss statement may be provided for inventories if desired. The net profit balances the Profit and Loss columns and this profit added to the investment balances the Assets and Liabilities columns; this proves the correctness of the work. .u J^V^^,^""^ '® advised to prepare a Working Sheet similar in form to the above illustration from the 1 rial Balance at the close of each fiscal period prior to the Balance Sheet and Profit and Loss statement. This will provide a better understanding of the principles involved and rive great as- sistance in preparing the more elaborate form of Working Sheet required in the advanced sets BOOKKEEPING AND ACCOUNTING. 67 CLOSING THE LEDGER. § 84. The Object of Closing the Ledger is to provide in the ledger a per- manent record of the financial condition of the business as showff by the Statement of the Business at the close of the fiscal period. To accomplish this, it is necessary to close all accounts that show a profit or a loss into a Profit and Loss account. When these accounts are closed, the balance of the Profit and Loss account is the same as the net profit or net loss shown by the Profit and Loss statement. The Profit and Loss account is closed into the Capital account or accounts. After the ledger is closed, there are no accounts open except those shown on the Balance .Sheet. There are two methods of closing the ledger, — the direct transfer method and the journal entry method. 1[ I. Direct Transfer or "Red Ink" Method. By this method all the accounts that show a profit or loss are closed into the Profit and Loss account by transferring the balance of each account to the proper side of the Profit and Loss account with- out making a record of this transfer in a book of original entry. The balance of each account which is closed is written with red ink to indicate that it has been transferred to some other account, hence this method is sometimes termed the "red ink" method of closing. ^ 2. Journal Entry Method. By this method an entry is made in the journal to transfer the balance of each account showing a profit or a loss to the Profit and Loss account. Accountants recommend the use of the journal entry method because it furnishes a record in a book of original entry of all transfers made in the ledger. The journal entries required to close the profit and loss accounts in Illustra- tion No. 25 are shown in Illustration No. 27. The first three entries in the illustration are necessary to transfer the gross profit on sales to the Profit and Loss account. The first is to take the value of merchandise on hand out of the Purchases account and place it in the Inventory account ; the second, to transfer the cost of merchandise sold to the Sales account ; the third, to transfer the gross profit on sales to the Profit and Loss account. If desired, the Purchases and Sales accounts may be closed by a combined journal entry as explained at the bottom of page 68. When the three separate entries or the .combined entries have been posted, the Purchases and Sales accounts will balance and each is ruled with single and-double red lines and footed with black ink as in the first and third accounts in Iluistration No. 28. The fourth entry in the illustration is to ck(se the balance of the Expense ac- count into the Profit and Loss account. When\it has been posted, the Expense account will balance and is footed and ruled as in Illustration No. 28; the cost of operating the business will appear on the debit side of the Profit and Loss account. The fifth entry is to close the balance of the Profit and Loss account into the Capital account. When this entry has been posted, the Profit and Loss account will balance and is footed and ruled as in Illustration No. 28 ; the net profit will appear on the credit side of the Proprietor's Capital account. The sixth entry is to close the Inventory account into the Purchases account. When posted, the Inventory account will balance and is ruled with double red lines as in Illustration No. 28; the value of merchandise on hand will appear on the debit side of the Purchases account. The Capital account may remain open, but it is customary to close it and carry the balance (Present Capital) down under date of the next business day following the closing. Red ink is used for the entry to close because the balance is carried down under the account closed on the same page; a journal entry is required only when one account is closed into another. See Illustration No. 29. NOTE. When a number of trading accounts in addition to Purchases and Sales are required, it is customary to close the balance of each account separately into the Profit and Loss account, rule this account and carry the "Gross Profit on Sales" down to the credit side. This method is ex- plained later in the course. 68 LA;i^-TT„(^c-c:o^7^-^ 3/, / ^/ '^zPTt'i^'-e-'yT^^Cc'-T'-i^ ^c:^d£^\::iiTyv-e-nt^f7^ eiJ-Ji:A.e^ c-6^c£e>-':i^^^i^^L£-^>^a-ce-<^ f f 7. Vi Illustration No. 27, Entries to Close the Profit and Loss Accounts, Jan. 31 Explanation: This shows the journal entries necessary to close the profit and loss accounts in Illustration No. 25, also at the close of January in the Introductory Set. If desired, the first three entries may be combined as in the illustration at the right. When combined, the Purchases and Sales ac- counts are closed by their balance instead of the amounts in the illustration on page 69. r r 7- / >i i- f o / r 7- Mi i-¥ e / r r 7- 3 fM t-Ct- r / r o Vi. g. / Inventory 882 46 Sales 657 05 Purchases 1276 70 Profit and Loss 262 81 ^C5i--7Vt:.«iC-«--:^-^-^ 69 '9' 3r t^^-z-^.'-.S'^i^^^T'-ij' / fT- '9' ^/ r r > J- ^ 7 ,5 / > 7 i > " \/€o^yi^. 3/ P f !■ > ^i J/ ^iid^'^^J&cI^ Q-A r r > v<^ ^£^ i:^^^--7'-t>^^-i=t-d^^-i/ i^ r ri- '1' 'f U^a.'jv. 3/ ^JU, 9' 3 f '^ > V jJtZ''7'iy. c (S-.o- J o -'-n^i^^iA^ Q:' /3 >7 J/ ^ 4. 'S 7 I ih ^.^, r, T (< J--7 o s- / 3. i 3 e / %- /:% e ^ \ Illustration No. 28, Profit and Loss Accounts closed January 31. Explanation: This shows the profit and loss accounts closed by posting the journal entries on page 68. The student should have the same results after the ledger is closed January 31. 70 BOOKKEEPING AND ACCOUNTING. 3/ '^^^^zA^^Ti?/ ./ > / r > r / / 3/ 1 / r -i- /" / z-/ /> > r / > / r > /■ / -S^ / y :2- / s- > F / Illustration No. 29, W. H. Goodwin, Capital Account closed January 31. § 85. The Proof Sheet is the finaJ Trial Balance taken after all the profit and loss accounts in the ledger have been closed. It is made after the closing that the bookkeeper may know his ledger is in balance at the beginning of the next fiscal period. The form is the same as the Trial Balance as in Illustration No. 30. -3/, /f/ / "yrrT/Tidi^-tp-^lct^^^ &cJ,.c:t:iLZ- ^ / fi- r / / ^2^.^^ / ~£-',^ 7 ^0 ?' ^^C<,-?H:^Ji-ci^..^^&^ r r-i- 'AC y G^T'ti^o->'T..'i.£.'7'~^ 3 S 3 >r ^^e^'^'d^T-T-z-tzJ!^ c^cco't-i-'T'i:^, C^j'-e-c£-i:^i^^ V 7. > , sr-T -^^f^ -^ ^7^0 ? i :2- J g- >& I 2 3 4 5 6, 7 8 9 10 II 12 13 14 15 16, 17 18 19 20 Illustration No. 30, Proof Sheet, January 31, Introductory Set. QUESTIONS. What are business papers? (§ 68.) Distinguish between a bill and an invoice. (§ 69.) What is meant by "terms"? (§ 69, \ i.) What is a receipt? (§ 70.) Why should incoming papers be audited? (§ 72.) Define license. (§ 74.) Why should business papers be filed? (§ 75.) What is a fiscal period? (§ 76.) How much time may it cover? What is an inventory? (§ 77.) What is meant by taking stock? (§ 77, If i.) At what price should the merchandise inventory be taken? Why is a Statement of the Business necessary? (§ 80.) What is the purpose of the Balance Sheet? (§ 81.) What is the purpose of the Profit and Loss statement? (§ 82.) Describe the Six Column Statement. (§ 83.) Why is the ledger closed? (§ 84.) What accounts are closed? What accounts will be open after the ledger is closed? Describe the two methods of closing the ledger. (§ 84, ^1f i and 2.) Why is the journal entry method preferred by accountants? (S 84 IT 2 ) What is the purpose of the Proof Sheet? (§ 85.) BOOKKEEPING AND ACCOUNTING. 71 INTRODUCTORY SET (Continued). FEBRUARY. § 86. Introduction. The work in this month is a continuation of the prac- tice work of January. The same books of account are used, and the same accounts are kept, with the addition of Notes Receivable, Notes Payable and Furniture and Fixtures. Transactions with the bank and those involving the use of commercial paper are introduced and illustrated. § 87._ Commercial Paper is that class of written contract obligations which are used in the place of and for money. Commercial Paper is divided into two classes: (o) paper that the bank will not accept as cash at its face value, which includes personal drafts and notes; (b) paper which the bank will accept as cash at its face value, which includes personal checks, bank drafts, cashier's checks, express, bank and postal money orders. § 88. A Draft is a written order from one party to another, directing him to pay a certain sum of money to a third party. A draft has three original parties : the drawer, the drawee and. the payee. The one signing the draft is the drawer; the one who is asked to pay the amount is the drawee; and the one to whom the money is to be paid is the payee. The draft indicates that the drawee is indebted to the drawer, and that he (the drawer) wishes the amount paid to the payee. There are two kinds of drafts, known as sight drafts and time drafts. S-JlLL^. '- JJag to /'y?t>. tiro or^or 6f_ a,f222i AS, ilfllui? rocciucb ar!^ citargi} thc^amc +0 account oj^ Pollaw 18g ^^^ Illustration No. 31, Sight Draft. § 89. A Sight Draft indicates that the amount owed the drawer is past due, and he wishes it paid upon presentation. If a sight draft is not paid upon pres- entation, the drawer should be notified immediately by the holder. See Illustration No. 31. 72 BOOKKEEPING AND ACCOUNTING. § 90. A Time Draft indicates that the amount owed the drawer is not due or that he wishes to allow the drawee additional time in which to make payment. They are usually drawn payable a designated number of days after sight or after date. The drawee accepts a time draft by writing across the face with red or black ink "Accepted," the date, his name and, if desired, the bank at which it is payable. If the drawee does not accept the draft upon presentation, the drawer and all previous endorsers should be notified immediately. See Illustration No. 32. ^/^ i)n\m ma 'y^:^ ::^-Pl9ii»r» b^^JT* »mi i&'yi>-7i^/-fm/y,7y?7y^~ 3)AUi6- ''4§0afhmM^U0pifmhU0iri\\iztrS^. ki; u/^T^^J-gyu Illustration No. 34, Personal Check. 1[ 2. 5a«^ Draft. A bank draft is a check drawn by one bank on another, and is evidence that the bank drawing the draft has money on deposit with the bank on which it is drawn. This is sometimes called "Exchange," especially if drawn on a bank in New York, Chicago, St. Louis, or some other large city. Illus- tration No. 35 shows the form of a bank draft. ■fyJ'J>ytJ?^j'^ Illustration No. 35, New York Draft. \ 3. Cashier's Check. A cashier's check is one drawn on the bank and signed by the cashier. They are used in payment of collections made for persons who are not customers or for paying obligations of the bank. Illustration No. 36 shows the form of a cashier's check. BOOKKEEPING AND ACCOUNTING. 75 J\^ 13203 :Xyi/-/'n/7///'M.J/0//My (/rz^yy^/r?y /L 19 YO^gji^C Cih/'/Z^^y^yy/i^y/ e^//r7^y-:^/Mr^y??y:^ /(>3M tM^^i ^ Cashier. Illustration No. 36, Cashier's Check. \ 4. Express Money Orders. An express money order is a check issued by an express company. These are sold to persons who wish to send money to some person in another city. The leading express companies in the United States are the Adams, American, Wells Fargo and Southern. Illustration No. 37 shows a copy of an express money order issued by the American Express Company. I When CouNTERsrcNED ^ BY AGENT AT POfNT OF ISSUE EXPRESS MONEY ORDER II- 5684625 ^mmmw^Mrn'mMPMB, AGREES TO TRANSMIT AND Pay TO THE ORDER dF_ ajyj7,<7o^.^ vf so <^ The Sum o f :/f?'?^/- j'y.^/^^y^. .iwDOLLARS (^M^^^^ \ Issued AT Agent . State of //Yy?yiJ = Date. % 7/?7yyy7/?^/ ^. .191 ^^ r? A7/?/Yy/jyry7y- Illustration No. 37, Express Money Order. \ 5. Bank Money Orders. A bank money order is used for the same purpose as the express money order, and is issued by the Bankers' Association, in compe- tition with the express companies. They are sold to those who wish to send money to some person at a distance. The draft is drawn on a central bank in New York City, by a bank, which is a member of the association, and payment is guaranteed by a trust fund. \ 6. Postal Money Orders. These are issued by the United States Post Office and are used for the same purpose as the express and bank money orders. The postmaster issues the order on the sender's written application, a special form being provided for this. Postal money orders may be cashed at any money order post office upon proper identification of the holder. 76 BOOKKEEPING AND ACCOUNTING. § 95. Endorsements. An endorsement is any writing on the back of a check, note or other commercial paper, placed there for the purpose of transferring the title, receipting for part payment, or for the accommodation of some one or more of the parties on the paper. The endorsement should be written about one inch from the left-hand end of the paper, as in Illustration No. 38. The endorsing of commercial paper should be well understood, as it transfers the title and holds the endorser liable in case default is made in payment. The law allows the same protection to commercial paper as it does to money, and unless it is properly endorsed, if lost, the finder may dispose of it, in which case" the loser can not recover it. § 96. Endorsement for Transfer. There are a number of ways in which the holder of a commercial paper may write his name in order to transfer the title; all of these will be explained in the study of Commercial Law. The four most frequently used are "in blank," "in full," "for deposit" and "for collection." iy I. "In Blank." An endorsement in blank is the name of the payee or holder only, written across the back. It has the same effect as making the paper pay- able to bearer, and it may be transferred by any sub- sequent holder, without further endorsement, but the endorsement of each holder is generally required, for identification. \ 2. "In Full." This endorsement is effected by writing "Pay to the order of" above the name of the person or firm to whom it is transferred, and signing the name of the payee or holder. The person to whom it is transferred must endorse it before any succeeding holder can use it. All papers sent through the mail, or to be held for some time by the person who receives them, should be endorsed in full. \ 3. "For Deposit." These words should be written above the name of the depositor on checks and other cash items to be deposited in the bank. This qualifies the endorsement and prevents their being used except for deposit. If desired, a rubber stamp with the words of the illustration at the left may be used for this purpose. If a stamp is used, the one who makes the deposit should indicate his name in connection with the endorsement. If 4. "For Collection." Notes left at a bank or other collection agency for collection, should have "For Collection" written above the endorsement. "Pay to the order of" and the name of the bank or collection agency is written above this endorsement. This pre- vents the paper being used as property of the bank or collection agency. §97. Endorsement for Receipt of Part Payment. When only part pay- ment is made on commercial paper, the receipt for the same should be written on the back of the paper, and by the holder. The date and amount is all that is nec- essary, and under no circumstances should the holder write his name. z/izu ■(0 ■me o/^er- 0/ i^ton ^anx. ^0?^ ti^ //. :7U ^ootlmin ^or- t-ot/eciion BOOKKEEPING AND ACCOUNTING. 77 Illustration No. 38, Position of Endorsement. § 98. Endorsement for Accommodation. This is effected by anyone signing his name on the back of a commercial paper for the purpose of guarantying the payment. An endorser for accommodation is as responsible to a third party for the payment of the paper as if he had transferred it for value. § 99. Signing Commercial Paper. Commercial paper should be signed by the party or parties responsible for its payment or by an authorized agent. An agent authorized to sign commercial paper should have a power of attorney as evidence of his authority. Each partner in a trading partnership can sign com- mercial paper and bind the firm by his action if the paper is issued in the regular conduct of the business. Commercial paper issued by a corporation is signed by an officer authorized to do so. Commercial paper issued by a partnership or corporation is signed with the firm name and the name of the person authorized to sign. No one should sign commercial paper for another without writing his own name below the name of the party responsible for the payment; the word "by" or "per" should be written to the left of his name. If his name is omitted, he might be held for forgery in case the principal denies his authority to execute the paper. If the word "by" or "per" is omitted, he might be held jointly with the principal or maker. § 100. A Bank is a business organized for the purpose of dealing in cash and securities. The capital invested together with the money deposited by cus- tomers is loaned to those engaged in other business enterprises. A bank is essential for each business community. It offers many advantages, some of which are as follows: a safe place for the keeping of money, a convenient means of paying obligations without the handling of money, a place where money may be borrowed on good security, a means of collecting drafts and other evidences of obligations. § 101. Opening an Account with the Bank. An account is opened with the bank by depositing currency or cash items with the officer or clerk designated to receive the deposit. As a rule the bank will require satisfactory references as to the financial standing of the depositor. Cash deposited in the bank may be withdrawn at any time except under certain conditions which are agreed to by the depositor. It can be withdrawn only by a written order signed by the depos- itor. The depositor is required to sign his name on a signature card that the bank may verify his signature on the checks which he writes. 78 BOOKKEEPING AND ACCOUNTING. § 102. Deposit Ticket. A deposit ticket is a printed form on which the depositor lists the currency and cash items to be deposited. These are supplied by the bank. Illustration No. 39 shows a popular form of the deposit ticket. ALWAYS BRING YOUR PASS BOOlC Merchants National Bank ALWAYS BRING YOUR PASS BOOK. Merchants National Bank _v^y_ ^J^y^_ JdJ_ LIST EACH CHECK SINGLY. Doirs. Cts. mi/jrKnr^z /SOCf ^^/U'^ 1flA..jA ^^ t( .^fe/^ /soo LIST BACH CHECK SINGLY. Doll's. Cts. 'fi/imv/n/yu/ /2.5 00 .^X^ /3 So ^X^>^ (^y ^Tfe^^/- /32 cs " (zJyr^yT^r /// Co 'f J^/m'MT^ // 2,S '9?7MrJ/7/??7^/la7^ /oo 00 " ^y>>Y/9?y77^'/m/7// ss /i, " 'Jhyy^ SJj-t^ ¥:i/ LS " T/p'/prJ/y/Ti/jMj/nA /9 /r It .'S^y} /07^ a Illustration No. 39, Deposit Tickets. § 103. Instructions for Making a Deposit. The bank teller has many deposits to enter each day, and they should be so arranged as to facilitate his work. If the following instructions are observed, the teller can readily audit the deposit: \ I. Small Change is put up in Envelopes or Coin Wrappers provided by the bank. These are usually arranged to contain fifty pennies, forty nickels, fifty dimes, forty quarter dollars or twenty half dollars. The name of the depositor is stamped or written on each package. U 2. Paper Money is Arranged, in Regular Order, the smaller denominations on top. if 3. Checks are Arranged in the order in which they are listed on the deposit ticket; the names of the local banks and the addresses of out-of-town banks should be written at the left on the same line with the amount of the checks. ^ 4. Each Check must be Endorsed. The correct endorsement is, "Pay to the order of," the name of the bank; "For deposit," the name of the fimi, and the name of the person who made up the deposit. Thus, if checks are deposited in the Merchants National Bank for W. H. Goodwin, and L. A. Owen makes up the deposit, the endorsement is, "Pay to the order of Merchants National Bank for deposit. BOOKKEEPING AND ACCOUNTING. 79 .W. H. Goodwin, by L. A. Owen." Endorsements are written on the left-hand end of the check. Hold the check so that it can be read, turn it over by bringing the top towards you, and write the endorsement across the back, about one inch from the left-hand end. (§ 96 and Illustration No. 38.) % 5. The Total of the Deposit is entered at the bottom, on the line with "Total," printed on the ticket. § 104. Pass Book. The object of this book is to provide a record of all money deposited and withdrawn. The amount of money deposited is entered in the pass book at the time the deposit is made; the amount of each canceled check (vouchers) is entered in it, usually once each month, and the checks returned to the depositor. Some banks render a monthly statement in which case the canceled vouchers are not entered in the. pass book. Illustration No. 40 shows the method of keeping the pass book when the canceled vouchers are entered in it, and Illus- tration No. 41, the form of monthly statement showing the balance in the bank. In Aeconnt with ~ Dr. MERCHANTS NATIONAL BANK ''O^/rv'^: jSw^^t^i^U/'-iyT^ / /3 M^J^-^i-^i^ / soo U3S ss M J s e/u^ / S.S XS '1 JL^S CO /J /7 A / ■? 7 /so / OJ /O ',0 '^&!ii/<:Zy'y7>c-ey Z'3 ^^3a/a/>7.(xy / 7S 7 7 ! %S 3. / g / IS 2./ S / '■5- /^ / y '^0 i ¥S Illustration No. 40, Pass Book Balanced, February, Introductory Set. W. H. Goodwin Hit arronnt mttt; ^nt\\mxU Nattonal lank 6 Vouchers Returned TjTr-AcirTrYA »,rTivTi7 A T r\TIL.l!,(.^YjLL BE CONSIDERED CORRECT AND VOUCHERS GENUINE Feb. 1 3 Deposit Check 1500.00 28.00 5 It 125.00 8 II 197.10 13 Deposit Check 435.55 150.00 17 23 £8 II II Deposit Balance 245.60 103.60 175.00 1402.45 Illustration No. 41, Bank Statement, February, Introductory Set. 8o BOOKKEEPING AND ACCOUNTING. § 105. A Check is a written order by a depositor on his bank, designating to whom he wishes the bank to pay a part or all the money he has on deposit. No particular form is necessary, but it is better to use the special form prepared by the bank. Checks are usually bound in book form; each is provided with a stub that a permanent record may be kept of all the facts mentioned on the check. See Illustration No. 42. Deposit, ^L ^._t Am 3 o Tp^c^ .? 4 / V > >■ S ^ 6.^ ¥> ■>■ s- ^^ ^7 ^s- 3 >o i-^ ■if ^o r ^0 ,, ^- J-o- ' 7 ■> ■3 f Illustration No. 43, Notes Receivable Account for Exercise No. 39. Exercises in Notes Receivable Account. Prepare on ledger paper an ac- count for each of these three exercises. Exercise No. 39 is the same as Illustration No. 43. References are to § 109. Exercise No. 39, Notes Receivable Account, Received a fifteen-day note for $42.30 (H 2). Received a ten-day note for $42.25. Received a thirty-day note for $87.65. Received a twenty-day note for $39.50; received check for $42.30 in payment of note due today (f 4). Received check for $42.25 for note due today (\ 4). Received a thirty-day note for $52.39 (1[ 2). Feb. 16. 24. Mar. I. 3- 5- 8. Apr. 5. May 6. 12. June I. 5- 10. II. 20. 25- Exercise No. 40, Notes Receivable Account. Received a sixty-day note for $129.62 {\ 2). Received a thirty-day note for $379.59. Received a three-month note for $1,462.30. Hall Bros, accepted our draft at ten days for $500.00 on account (1[ 3). Received $379.59 for note due today {\ 4). Transferred note received April 5 {\ 6). Received $500.00 for Hall Bros.' draft (If 4). Received a ninety-day note for $800.00. Received $700.00 as part payment on note dated May 12 (f 4). Exercise No. 41, Notes Receivable Account. July I. At the beginning of the business there were three notes on hand; one for $150.00, dated May 18, due in sixty days; one for $300.00, dated June 25, due m sixty days: and one for $175.00, dated June 29, due m 60 days (If i). Received a ninety-day note for $862.50. Received $150.00 for note due today (If 4). Received a thirty-day note for $975.80. Received a sixty-day note for $329.48.. C. A. Dow accepted our thirty-day draft for $650.00 (If 3). {Concluded on page 83.) .16. 17- Aug. 9. 18. 20. BOOKKEEPING AND ACCOUNTING. 83 {Exercise No. 41 — Continued from page 82.) Aug. 24. Received $300.00 in payment of note due. Sept. I. Received a sixty-day note for $119.98. Received check for $975.80 in payment of note due today. Received check for $175.00 in payment of note; transferred Dow's acceptance for $650.00 to D. C. Miller, on account (^ 6). Received sixty-day note for $250.00, Received $862.50 in payment of note. Transferred note for $119.98 to Day Bros., on account (1[ 6). NOTES PAYABLE ACCOUNT. § 110. The Object of this Account is to show the amount owed by the business, as evidenced by written obligations, which are notes (§ 93) or accepted drafts (§ 90, *\ i). This account is the opposite of the Notes Receivable. 24- I. 8. 10. 25- 29. 30. Debit Notes Payable: H I. With the face of each note or ac- *\ 2. cepted draft when paid in full by the business. A partial 1[ 3. payment is debited to Notes Payable and indicated by let- '*\ 4. ter as explained in the note under § 39. Credit Notes Payable: For the face of each note owed at the beginning of the business. For the face of each note signed by the business. For the face of each time draft accepted.* (If a Notes Pay- able book is not kept, the time of each note or draft should be written in the ex- planation column.) The credit side is the larger when not in balance. 1[ 5. The Balance of this Account shows the amount the firm owes on notes and accepted drafts. It is shown as a current liability on the Balance Sheet. If 6. To Close the Notes Payable Account. This account is not closed until it balances unless it is necessary to transfer the balance to a new page. If the pay- ment of any note balances the account at a certain point, it is ruled with a single red line; pencil footings are used to show that the totals on each side are equal. If it is necessary to transfer the balance to a new page the difference is entered on the debit side with red ink, the account footed and ruled with single and double red lines, and the amount forwarded to the new page on the credit side with black ink. ^(o-^tk-^ /^y 2-f 7^ > %-f 7 r' J/ a D Illustration No. 44, Notes Payable Account for Exercise No. 42. *NOTE. Trade acceptances should be shown in a Trade Acceptances Payable account. 84 BOOKKEEPING AND ACCOUNTING. Exercises in Notes Payable Account. Prepare on ledger paper an account for each of these three exercises. Exercise No. 42 is the same as Illustration No. 44. References are to § no. Feb. Mar. 20 22 5 6, 8, 12 13 19 21 31- Oct. Nov. Dec. I. 26. II. 25- 27. 30. 16. 19. 20. 21. 27. 30. 31- Exercise No. 42, Notes Payable Account. Gave twenty-day note for $96.00, in full of account (1[ 3). Accepted ten-day draft, $47-75. in full of account (t 4). Paid ten-day draft, $47-75 (If 0- Accepted fifteen-day draft in full of account, $378.25 (If 4). Accepted a ten-day draft, $155.00, in full of account. Paid twenty-day note for $96.00 (If i). Gave ninety-day note for $229.78, in full of account. Paid ten-day draft, $155.00. Borrowed $400.00 from the bank on thirty-day note (If 3); fifteen-day draft, $378.25. Prepaid ninety-day note for $229.78 (If i). Exercise No. 43, Notes Payable Account. Gave sixty-day note for $416.29 (If 3). Gave thirty-day note for $321.82. Gave ninety-day note for $722.80. Paid thirty-day note, $321.82 (If i). Accepted thirty-day draft for $500.00 (If 4). Gave thirty-day note for $350.00. Paid sixty-day note for $416.29. Gave sixty-day note for $379.62. Paid $200.00 on note given Nov. 11. Accepted ten-day draft for $50.00. Paid thirty-day draft, $500.00. Gave ninety-day note for $411.49. Paid thirty-day note, $350.00. paid Exercise No. 44, Notes Payable Account. Jan. 2. At the beginning of the business we owed two notes, one dated December 24, due in thirty days, for $1,500.00; the other dated December 15, due in sixty days, $1,000.00 (f 2). 3. Paid thirty-day note for $1,500.00. 9. Gave sixty-day note for $276.45. Feb. I. Gave thirty-day note for $239.80. 14. Paid $1,000.00 note due today (If i), by check for $500.00 and a new note for $500.00 due in sixty days, with interest (If 3). (The face of the old note is entered on the debit side, and the new note on the credit side. No record is made of the interest until it is paid.) 28. Gave thirty-day note for $715.29. Mar. 5. Accepted sixty-day draft for $326.16. 12. Accepted ten-day draft for $584.79. 22. Paid ten-day draft, $584.79. 30. Gave ninety-day note for $298.64. 31. Paid thirty-day note for $715.29. § 111. Property Purchased for Use in the Business. In every business it is necessary to purchase certain property which is not to be sold, but is to be used in conducting the business. This includes desks, safes, chairs, shelving, show BOOKKEEPING AND ACCOUNTING. 85 cases, scales, horses, wagons, automobiles, machinery and other property that may be needed. There are usually three accounts kept with this kind of property. One of these accounts is illustrated in this set (§ 112); the other two are illustrated in the succeeding sets. Property of this kind must of necessity decrease in value because of its use. The use of the property will to a certain extent determine the amount of the de- crease in value. A typewriter which is in constant use will wear out much more quickly than desks, show cases, shelving, etc. There are two methods of keeping accounts with property of this kind. One is to have the account show the present value of the property, and the other, to have the account show the cost value. The first method may be used where the amount invested in property of this kind is not large. The second method is better where a considerable amount is inyested in this kind of property. The first method is used in this set, while the second method is used in the succeeding sets. FURNITURE AND FIXTURES ACCOUNT. § 112. The Object of this Account is to show the value of property pur- chased for use in the office and storeroom, which includes desks, filing cabinets, typewriters, showcases, scales, etc. A permanent record of each article should be kept either in the explanation column of the account or in a special inventory book. Debit Furniture and Fixtures: 11 I. For the present value of furni- 1[ 3. ture and fixtures on hand at the beginning of the business. If 2. For the cost of any property of H 4. this kind purchased. Credit Furniture and Fixtures: With the selling price of any property, the value of which was charged to this account. With the depreciation on ac- count of use at the close of the fiscal period unless this is car- ried in a special account. ' CC^yn^c^ ^^T^k^-Z^CZi^A^,.^^ '9' >3 iff," I ^.3 >i i?- jT Illustration No. 45, Furniture and Fixtures Account for Exercise No. 45. \ 5. The Difference between the Two Sides of this Account shows the book value of furniture and fixtures. The value at the beginning of the fiscal period or the cost, the depreciation and the present value are shown on the Balance Sheet. II 6. To Close the Furniture and Fixtures Account. This account is not closed unless it is desired to bring the balance down on the same page or forward it to a new page. The balance together with the date and the word "Balance" are entered on the credit side with red ink, the account ruled with single and double red lines, footed with black ink, and the balance carried down on the debit side with black ink, or entered on tlie debit side of the Furniture and Fixtures account on the new page. Should the business be discontinued, the balance of the account, after the credit has been made for the sale of the property, is charged as an operating cost for the current fiscal period. 86 BOOKKEEPING AND ACCOUNTING. Exercises in Furniture and Fixtures Account. Prepare on ledger paper an account for each of these three exercises. Exercise No. 45 is the same as Illus- tration No. 45. References are to § 112. Exercise No. 45, Furniture and Fixtures Account. Feb. 12. Paid cash for desk, $35.00; chair, $5.00 {% 2). 23. Bought on account, one show case, $25.00 (H 2). 28. The Balance Sheet and Profit and Loss statement are to be made and the books closed. $5.00 deduction is made for depreciation in value {^4). Jan. I. 20. Mar. 25. June 6. 30. Exercise No. 46, Furniture and Fixtures Account. Furniture and Fixtures on hand valued at $250.00 (If i). Bought 12 chairs for $14.00; bought a typewriter for $100.00. Paid for office partition, $36.25; paid for scales, $45.00 (% 2). Sold desk (on hand January i) for $26.50 (1[ 3). The Balance Sheet and Profit and Loss statement are to be made, and the books closed. A deduction of $20.94 is made for depreciation in value of furniture and fixtures on hand {% 4). July Aug. Sept. Oct. Nov. Dec. Exercise No. 47, Furniture and Fixtures Account. Bought a safe for $150.00 (1[ 2) ; bought standing desk for $25.00. Bought stool for $5.00; bought scales for $40.00. Bought six chairs for $9.00; bought filing cases, $100.00. Bought typewriter for $100.00; bought three trucks, $25.00. Sold one section of filing cases for $16.50 (1[ 3). Bought show case, $35.00. Bought two counters and three tables for storeroom, $42.50 (1[ 2). At the time the Balance Sheet is made, a deduction of $25.75 is made for depreciation in value (H 4). QUESTIONS. 1. Define commercial paper. (§87.) 2. What is a draft? (§ 88.) A sight draft? (§ 89.) A time draft? (§ 90.) 3. Distinguish between a time draft and a trade acceptance. (§ 90, 1 2.) 4. What is a note? (§ 93.) What is the maturity value of a note? (§ 93, ^ 2.) 5. Name the kinds of commercial paper that are regarded as cash. (§ 94.) 6. Distinguish between an express money order and a postal money order. (§ 94, n 4 and 6.) 7. Define endorsements. (§ 95.) Name four endorsements for transfer. (§ 96.) 8. How and by whom should a commercial paper be signed? (§ 99.) 9. What is a bank? (§ 100.) A deposit ticket? (§ 102.) A pass book? (§ 104.) 10. Define a check. (§ 105.) Describe the method of writing it. (§ 106.) 11. Describe the method of keeping an account with the bank. (§ 107.) 12. Describe the method of reconciling the bank account. (§ 108.) 13. What is the object of the Notes Receivable account? (§ 109.) 14. What does the balance show? (§ 109, If 7.) 15. What is the object of the Notes Payable account? (§ no.) 16. What does the balance show? (§ no, % 5.) 17. For what purpose may property be purchased by the business? (§ in.) 18. What is the object of the Furniture and Fixtures account? (§ 112.) 19. Give two debits and one credit to the Furniture and Fixtures account. 20. What does the balance show? (§ 112, % 5.) BOOKKEEPING AND ACCOUNTING. 87 INTRODUCTORY SET (Continued). MARCH. § 113. Introduction. The work of this month is a continuance of the practice work of February. The same books of account are used, and the same accounts are kept with the addition of Land, Buildings, Building Expense and Revenue, and Interest. REAL ESTATE. § 114. Real Estate is a technical term that is applied to immovable property which consists of land, buildings and other improvements which make the land valuable. Real estate may be purchased by a business (a) for a home, or (b) for speculation. When it is purchased as a speculation a separate account should be opened for each property owned. The purchase price fixes the value of the real estate, and this value does not change except in the case of additional improvements. The value should not be increased by means of an inventory or appraisal for no profit can be realized until it is sold. A distinction should be made between the land and the buildings, because the buildings decrease in value owing to age and use, while the land does not. On account of this distinction their value should be separated at the time of purchase. Accountants recommend that separate accounts be kept with land and buildings. If only one account is kept, their separate value should be indicated by the use of the explanation column. In either case an account termed Building Ex- pense and Revenue should be kept to record all expenses incident to the upkeep of the buildings, and income which may be derived from the rental of any portion of the building. If the building is to be constructed on land purchased for this purpose, the purchase price of the land together with any additional cost of grading and preparing it for the building, is charged to the Land account. Payments in connection with the construction of the building are charged to a Building Contract account. When the building is completed, the balance of this account is closed into a Buildings account. This is carried on the books as the value of the building, and the depreciation is based on it. U I. Depreciation on Buildings. Depreciation refers to a decrease in value owing to age and use. In the case of buildings the amount of this depreciation depends on the material of which the buildings are constructed. Buildings con- structed of concrete will not depreciate as rapidly as those constructed of less sub- stantial material. At the end of each fiscal period a charge should be made for depreciation on the buildings, the amount of which has been determined by the management of the business. The subject of depreciation is thoroughly discussed by a number of leading authorities on accounting, including Montgomery, Dickin- son, Hatfield, Salliers and Walton. For a further discussion of the subject the student is referred to these authors. 88 BOOKKEEPING AND ACCOUNTING. LAND ACCOUNT. § 115. The Object of this Account is to show the cost of land purchased by the business. When the real estate is purchased, a separate value is placed on the land and buildings. The following debits and credits apply to the transactions with land purchased as a home for the business. Debit the Land Account: Credit the Land Account: Hi. If 2. 1l4- For the cost value of land on hand at the beginning of the business. For the cost of land purchased. For the expense required to secure title to the real estate. For the cost of sidewalk, grad- ing, and other improvements applicable to land. 1[ 5. For the cost price of land sold or subdivided.* *\ 6. The Balance of the Land Account shows the cost value of the land owned by the business. It represents one of the fixed investments and is shown as a fixed asset on the Balance Sheet. It is usually shown under the title of Real Estate with the land and buildings value shown separate. 1[ 7. To Close the Land Account. This account is not closed until all the land has been sold unless it is necessary to carry it forward to a new page. In the first case it is ruled with single and double red lines and footed with black ink. Dou- ble lines only may be used when there is but one amount on each side. In the second case, the balance is entered on the credit side with red ink, the account ruled with single and double red lines, and the balance carried forward to a new page; this transfer may be made by a journal entry, in which case the balance would be written with black ink. 30 &.C yj~a o Illustration No. 46, Land Account for Exercise No. 48. *NOTE. When land is subdivided and separate accounts kept with thesubdivisions, the cost of each of these is based on the original cost. To illustrate: if the original cost of a piece of land was $5,000.00, and it is to be divided into five subdivisions, the cost of each subdivision would be shown as $1,000.00. In no case should land be made to increase in value on account of this subdivision. No profit can arise until the land is sold. When sold at a profit or at a loss, this is shown by a special Profit on Land, or Loss on Land account. BOOKKEEPING AND ACCOUNTING. 89 BUILDINGS ACCOUNT. § 116. The Object of this Account is to show the cost of the buildings on land owned by the business. This value is fixed at the time the real estate is pur- chased. The cost includes the purchase price, and any amount paid for improving, but not for keeping the buildings in repair. If a new roof of the same material is put on a building this does not increase the value of the building because it was needed in order that the building could be used. If the original roof was made of wood, and a more expensive material is used for the new roof, this increases the value of the property, and the difference between the cost of the two kinds of material should be charged to the Buildings account. Debit the Buildings Account: 1[ I. For the cost value of buildings on land owned at the begin- ning of the business. *i 2. For the cost of buildings on land purchased, or new buildings erected. H 3. For the proportionate part of the expense required for se- curing title, unless this is all charged to the Land account, § 115- If 3- 1[ 4. For any improvements applic- able to the buildings that increase their value. Credit the Buildings Account: H 5. For the cost price of property sold. 1[ 6. For any amounts received from the insurance company in pay- ment for buildings destroyed. If 7. * The Balance of the Buildings Account shows the cost value of the build- ings owned by the business. It represents one of the fixed investments and is shown as a fixed asset on the Balance Sheet. It is usually shown under the title of Real Estate with the land and buildings value shown separately. 1[ 8. To Close the Buildings Account. This account is not closed until the build- ings represented by the account have been sold, unless it is desired to carry it forward to a new page. In the first case, it is ruled with single and double red lines, and footed with black ink; double lines only may be used when there is but one amount on each side. (See Illustration No. 47.) In the second case, the balance is entered on the credit side with red ink, the account ruled and footed, and the bal- ance carried forward to a new page ; this transfer may be made by a journal entry, in which case the balance would be written with black ink. cz--^L^ -rr' — S o o 3a &.C Illustration No. 47, Buildings Account for Exercise No. 48. * NOTE. The value of the building as shown by this account is not the real cost to the bu ness after a reserve has been set up for depreciation (§ 117) but is the difference between the cost and the amount charged off on account of use and decrease in value due to age. For this reason, the amount of the reserve is deducted from the cost of the building to show the present value; the cost, the reserve, and the present value are shown on the Balance Sheet. 90 BOOKKEEPING AND ACCOUNTING. BUILDING EXPENSE AND REVENUE ACCOUNT. § 117. The Object of this Account is to show the cost of maintaining the buildings and the income from rent. When separate accounts are kept with each piece of property owned, an Expense and Revenue account should be kept with each. Debit the Building Exp. and Rev. Acct. Hi. If 2. Ha- ll 4- For amounts paid for maintain- ing the buildings; such as, painting, papering, roofing, re- flooring, etc. For the cost of insurance on buildings. For the amount paid for taxes. For depreciation on buildings. (At the same time credit the Reserve for Depreciation of Buildings account. § 23.) Credit the Building Exp. and Rev. Acct. H 5. For amounts received in pay- ment for rent. H 6. The Difference Between the Two Sides of this Account shows the cost of the use of the buildings to the business. It may be shown as an operating expense, or the debit side as an operating cost and the credit side as an income on the Profit and Loss statement. H 7. To Close the Building Expense and Revenue Account. This account is closed when the ledger is closed, or when it is necessary to forward it to a new page. When the journal entry made to close the profit and loss accounts at the close of the fiscal period has been posted, this account will balance and is ruled with single and double red lines and footed with black ink. When it is necessary to transfer the account to a new page, it is ruled with single and double red lines and footed with black ink and the totals of each side transferred to the account on the new page. "Carried Forward" is written on the line with the totals on the old page, and "Brought Forward", on the new page. The pages should be indicated for reference. NOTE. When real estate is purchased as an investment instead of for the use of the business, the Expense and Revenue account wilt show an income and not an operating cost. In this case it would show a credit balance, and be listed among the profits instead of the operating costs. -£'-Z^-£-'^^,.^!^^<-€-=^-^ -ry-r- &.7 7 7 4li iV s/ Wi^ Illustration No. 49, Interest Account for Exercise No. 51 \ 7. _ The Difference Between the Two Sides of the Interest Account shows the excess of interest paid if the debit side is the larger, or received if the credit side is the larger ; a debit balance is shown on the Profit and Loss statement as a deduction from income, or a credit balance, as an income. If desired, the credit side may be shown as an income, and the debit side as a deduction from income. f 8. To Close the Interest Account. This account is closed when the ledger is closed, or when it is necessary to forward it to a new page. When the journal entry made to close the profit and loss accounts at the close of the fiscal period has been posted, this account will balance and is ruled with single and double red lines and footed with black ink. When it is necessary to transfer the account to a new page, it is ruled with single and double red lines and footed with black ink and the totals of each side transferred to the account on the new page. "Carried Forward" is written on the line with the totals on the old page, and "Brought Forward", on the new page. The pages should be indicated for reference. If 9. Accrued Interest. At the close of the fiscal period there may be interest due the business on notes which are not due, or accounts that are past due. In the 94 BOOKKEEPING AND ACCOUNTING. same way the business may owe interest on notes that are not yet due. The former is treated as an accrued asset, and the latter, as an accrued liabiHty. % 10. Interest Paid in Advance. At the close of the fiscal period there may be interest paid in advance on account of paper discounted at the bank, but not yet due. In the same way the business may have purchased paper and deducted the discount at the time of the purchase. The former is treated as a deferred charge to income or to operations, and the latter as a deferred credit to income. Exercises in Interest Account, Prepare on ledger paper an. Interest ac- count for each of these exercises. Exercise No. 51 is the same as Illustration No. 49. References are to § 119. Exercise No. 51, Interest Account. Mar. 16. Borrowed $400.00 from the bank on my note at 30 days. Gave them a check for $2.67, in payment for interest at 8% (H 2). 21. Received check from P. A. Banesforth for $88.09, ^^ payment for note, $87.65, and interest on the same, 44 cents (If 4). 31. Gave the bank a check in payment of note due Dick, McMillan & Co., $229.78, and interest on same to date, 57 cents (T[ i). Close the balance of this account into the Profit and Loss account as in Illustration No. 49. Exercise No. 52, Interest Account. Apr. I. Gave the bank check for $7.88, interest on discounted note {% 3). 27. Prepaid our note and deducted $2.63, interest to maturity (1[ 6). May 16. Gave the bank a check for $7.50, interest'on note renewed (If i). 27. Robert Clark prepays his note of $200.00 by check for $197.50 (If 3). Discounted Anderson Bros.' note for $400.00 at the bank, receiving credit for $393.67, the net proceeds (If 3). June 5. Prepaid our note of $500.00 by check for $482.90 (If 6). 30. Paid $4.50, interest on note due today (If i). t Close the balance of this account into the Profit and Loss account. Exercise No. 53, Interest Account. Gave the bank a check for $10.00, to pay discount on note {% 3). Received check from Davis Bros, for $287.65, in payment for balance due, $283.27, and the interest (If 4). • Received $6.00, interest on note renewed by a customer (If 4). Gave the bank a check for $20.00, to pay interest on note renewed (If 2). Gave Smith & Jones a check for $726.40, in payment of account due them, $718.65, and interest (If i). Received $5.60 from A. B. Day, interest on note he owes (If 4). Received $16.65 from D. L. Morris, interest due us (If 4). Discounted M. B. Jacobs' note for $552.65 at the bank, and received credit for the proceeds, $549.27 (^ 3). Gave W. H. Davis a check for $206.50, in payment of $200.00 note due today, and interest on the same (If i). Received check from A. H. Bowers for $22.50, interest due us (If 4). Borrowed $2,000.00 at the bank, and received credit for the proceeds, $1,960.00 (If 3). Close the balance of this account into the Profit and Loss account. July 27. Aug. 3i. ly. 27. Sept. Oct. 9' 30. 27. Nov. 6. Dec. 9- 28. BOOKKEEPING AND ACCOUNTING. 95 § 120. Compound Journal Entries. A transaction may affect more than two accounts; that is, two kinds of property may be purchased, and only one given in exchange for it, or one kind of property purchased and two or more kinds given in exchange for it. This same principle applies with services. Thus, a journal entry may be made up of one or more debits, and one or more credits. No matter how many debits and credits there may be, the total of the debits must equal the total of the credits, because the value of the property or services received always equals the value of the services or property given in exchange. The illustrations below show the form of compound journal entries. Exercise No. 54, Compound Journal Entries. Make the required journal entries for the following transactions for March I-I2. Prove the interest calculations, using 6% unless the rate is stated. Consider 28 days in February. Mar. I. Received from Young & Doyle, on account, a ninety-day note, dated Feb. 16, for $265.50, less $3.41, interest to maturity. March i, 191 Notes Receivable Young & Doyle Interest Received their 90-day note dated Feb. i6, less discount, on account. 26550 269 3 09 +1 Borrowed $1,000.00 from the bank on our ninety-day note. Received credit for net proceeds, $980.00, face of note less $20.00, interest at Cash Interest Notes Payable Discounted our 90-day note dated today less 8% discount. 980 20 3. C. H. Granger owes us $414.56. He settles in full by transferring Robert Dow's ninety-day note, dated Jan. 16, for $272.35, less $2.00 discount to maturity, and his thirty-day note for $144.21. Notes Receivable 272 35 Notes Receivable 144 21 C. H. Granger 414 56 Interest 2 Received Robert Dow's 90-day note dated Jan. 16, and C. H. Granger's 30-day note dated today in full of account. We owe Donaldson Bros. $375.62. We settle in full by transferring L. D. Arnold's three-month note (Notes Receivable) for $250.00, dated Feb. 12, less $3.83, 8% discount to maturity, and our thirty-day note for $129.45. (Debit § 37, Hlf 4 aqd 2 and § 119, T[ 3; credit, § 109, If 6, and § no, ^3.) We hold a four-month note for $375.00, dated Feb. 12. Discounted it at 8% and received $366.75 cash for the proceeds. (Debit, § 34, 1 2, and § 119, IF 3; credit, § 109, If 5.) (Concluded on page q6.) 96 BOOKKEEPING AND ACCOUNTING. (Exercise No. 54 — Continued from page qs-) Mar. 6. We owe D. H. Addison $614.65. We make settlement as follows: Our note dated today, due in three months, for $200.00, W. H. Day's ninety- day note (Notes Receivable) for $300.00, dated February 28, less $4.20 discount, and our check for $118.85. (Debit, § 37, 1[1f 2, 4 and I, and § 119, If 3; credit, § no, H 3, § 109, \ 6, and § 34, t 3.) 8. Mays Bros, owe us $412.50. They settle this by transferring W. H. James' four-month note, $275.00, dated Jan. 3, with interest $5.50, from date, less discount, $2.62, and their sixty-day note for $134.62. (Debit, § 109, If 2, twice, § 119, If 2 ; credit, § 119, 1 6, and § 36, \ 5.) 9. Borrowed $1,000.00 from the bank on our note dated today, and due in four months. Gave them check for the interest, $20.00, and re- ceived credit for $1,000.00, the face of the note. (Debit, § 34, *\ 2, and § 119, If 2; credit, § no, ^ 3, and § 34, If 3.) 10. We owe a note for $500.00, dated Jan. 9, and due in six months. The holder accepts our check for $489.92, which is the amount of the note, less $10.08, 6% interest for the remaining time. (Debit, §110, If i; credit, § 34,_ If 3, and § 119, If 6.) 11. Received credit at the bank for $308.48, proceeds of Jones Bros.' sixty- day acceptance (§ 90, ^ i) for $312.65. 12. Paid our note for $1,000.00, due at the bank today as follows: Our ninety-day note for $500.00 and our check for $510.00, balance due- on the old note and $10.00 interest on the new note; rate of interest, 8%. QUESTIONS. 1. Define real estate. (§ 114.) 2. What is meant by the depreciation on buildings? (§ 114, If i.) 3. How is depreciation provided for? (§ 114, If i.) 4. What is the object of the Land account? (§ 115.) 5. What does the balance show? 6. What is the object of the Buildings account? (§ 116.) 7. What does the balance show? r 8. What is the object of the Building Expense and Revenue account? (§ 117.) 9. What does the balance show? 10. What is interest? (§118.) 11. What is meant by the legal rate? (§ 118, Tf 2.) 12. What is meant by time, used in connection with interest? (§ 118, If 3.) 13. Give one method of calculating interest. (§ 118, If 4.) 14. What is the object of the Interest account? (§ 119.) 15. Give three debits and three credits to this account. (§ 119, Tf^f 1-6.) 16. What does the balance show? 17. How is the balance shown on the Profit and Loss statement? (§ 119, If 7.) 18. How is the Interest Account closed? 19. What is meant by accrued interest? (§119, If 9.) 20. How is it treated at the close of the fiscal period? (§ 119, If 9.) BOOKKEEPlKiS^ AND ACCOUNTING. 97 Part Two — Partnership. RETAIL HAY, GRAIN AND FEED BUSINESS, C. W. KEELAND & CO., PROPRIETORS. APRIL AND MAY § 121. Introduction. The object of this set is to illustrate the application of the principles of accounting in a business conducted as a partnership, and to give further practice in the classification of accounts, and the recording of trans- actions. It presents accounts with partners, fixed assets and reserves, trading ac- counts, operating expenses, adjusting entries at the close of the fiscal period, special sales book, purchases book and cash book, special business forms and important general information. A sufficient number of transactions is given to enable the student to appre- ciate the importance of accuracy, neatness, and a systematic record. He must understand not only the principles of accounting, but also their practical applica- tion, in order to make his services valuable to himself and others. The Transactions to he Recorded are separate from the discussion of the prin- ciples (§§ 122-186), and may be represented by incoming vouchers (reproduced business papers) or a printed record. The final results are the same with either method. PARTNERSHIP. § 122. A Partnership is the relation existing between two or more persons who have associated their time, labor, skill and capital in some business enterprise. The partners are the persons who have entered into the agreement to form a part- nership. § 123. The Object of Forming a Partnership is the mutual benefit of all interested. The qualifications and natural ability of each person differ widely. One seldom possesses all the requirements for an ideal business man. For this reason, the association of two or more as partners is often very desirable. A shrewd buyer, a good salesman, and an efficient collector, will form a partnership that is sure to succeed. While the necessary capital for conducting the business is usually the chief incentive to the formation of a partnership, yet the natural ability of each partner should always be considered, especially if he is to take an active part in the business. § 124. The Capital of a Partnership is the amounts invested by the partners, either at the beginning or at subsequent times, and the accrued profits. This property does not belong to any one of the partners, either as a whole or a part, but belongs to all of them in common. If a dispute arises between the partners, and no agreement can be effected, it will have to be settled by a court of equity, as partners can not sue each other in a court of law. 98 BOOKKEEPING AND ACCOUNTING. § 125. The Articles of Copartnership is the agreement or contract entered into by the partners at the beginning of the business, and must conform to the laws of the state in which it is made. This agreement should be in writing, and include the following: the time the partnership is to continue, the name under which the partners will do business, the amount invested by each, the place of business, the nature of the business, the duties of each partner, the amount to be withdraivn by each partner, the division of the profits, and such special conditions as may be deemed necessary. Each partner signs the articles of agreement and retains a copy. 1[ I. The Time. Unless the specific time is mentioned, the court will assume that the partnership is to exist for one year, and it may be dissolved at the end of a year if any partner asks for a dissolution. For this reason, the number of years that the partnership is to exist should be stated. T[ 2. Name. The partnership can do business under any name that the part- ners may select, provided this name does not interfere with the right of someone else. As a rule, the firm name contains the names of the partners who are most active in the business. The firm name of Jones, Smith & Co. does not neces- sarily mean that there are more parties interested in the business than Jones and Smith, except in a few states where the law does not permit the use of the word "Company" unless it is represented by one or more persons. The Union Manu- facturing Co. might be selected as a name for the partnership, without mention of the name of any individual connected with it. Since each partner is interested in the success of the business, and his personal influence is worth something to the business, the names of the partners should be used to form the firm name. % 3. Amount Invested. This refers to the amount invested at the beginning of the business, and any subsequent investments. The property invested is usually cash, but may be any other property, either tangible or intangible, that the partners agree to accept. Sometimes the personal influence or ability of one particular partner is accepted as his investment. A full description of the investment at the beginning should be outlined in the agreement that there may be no misunder- standing. If 4. Place of Business. This refers to the city or town in which the partners are to do business, and may include the street and number of the building where the business is to be located. % 5. Nature of the Business. It is better to describe in detail the nature of the business to be conducted, so that there will be no occasion for dispute. 1[ 6. Duties. A general outline of the duties to be performed by each partner should be specifically stated in the agreement. Each partner should be assigned the work best suited to his natural ability. Unless the duties of each partner are outlined in the agreement, there is almost sure to be trouble, because someone must of necessitS^ assume leadership, and too often, the one who is least qualified to do this, feels that he is the one that should do it. ^ J. Salaries. As a rule, no partner is allowed to withdraw any part of his investment without the written consent of the other partners. If a partner is permitted to do so, this condition should be specifically stated. Each partner is usually allowed a salary for his services. The amount of this should be stated, so that there will be no dispute. This is a very important part of the agreement, and should be stated clearly. If 8. Division of the Profits. Unless the agreement specifically states the proportionate part of the profit each partner is to receive, the court will assume that each partner is to have an equal part. For this reason, the agreement should state the proportionate part of the profit each partner is to receive. If 9. Special Conditions. The partners may include in the agreement any conditions that are not contrary to law. As the agreement is each partner's under- standing of the conditions under which the partnership is to exist, everything should BOOKKEEPING AND ACCOUNTING. 99 be mentioned so that there will be no occasion for a misunderstanding. Each partner owes it to the business to see that his private affairs do not become in- volved. For this reason, each partner should agree not to become surety for anyone, or engage in any other business. Unless these features are included in the agreement, the business may be seriously affected by the private affairs of one partner. The law regards the interest of each partner as property which may be sold to pay his obligations, no matter what agreement he may have with the other partners regarding this. § 126. Bookkeeping for a Partnership does not differ from that for an individual unless the nature of the business is different. The investment account will be represented by two or more individual Capital accounts instead of one. The profits are shared by each partner according to the conditions mentioned in the agreement, hence the Profit and Loss account is closed into each partner's Capital account instead of only one Capital account. It is good policy to make a copy of the articles of agreement in the journal, or at least outline the important features. The object of this is to prevent disputes among partners. Since the books are open for the inspection of each partner, if an outline of the agreement appears in the journal, neither partner can claim that he did not understand the agreement. See page lOO for §i27^-Outline of Accounts kept in this Set. ACCOUNTS WITH PARTNERS. § 128. It is necessary to keep an account with each partner to show his investments, withdrawals, and other transactions with him. The nature of the account is the same as that with an individual owner. It is the better practice to keep two accounts, one designated as the Partner's Capital account and the other the Partner's Personal account. PARTNER'S CAPITAL ACCOUNT. § 129. The Object of this Account is to show the interest of the partner in the business. The total of all the Partner's Capital accounts represents the total investment in the business. Debit the Partner's Capital Account: Credit the Partner's Capital Account: 1[ I. For debts owed by him at the *\ 5. For his investment at the begin- beginning of the business and ning of the business, assumed by the business. H 6. For all subsequent investments. *\ 2. For amounts withdrawn from 1[ 7. For the credit excess of his Per- the investment. sonal account, if that account 1[ 3. For the debit excess of his Per- is closed into the Capital sonal account, if that account account. is closed into the Capital ][ 8. For his share of the net profits account. as shown by the credit excess *l 4. For his share of the loss as of the Profit and Loss account shown by the debit excess of at the close of the fiscal the Profit and Loss account at period, except as explained the close of the fiscal period. in § 130, ^ 6. ^ 9. The Balance of the Partner's Capital Account shows the net amount invested, and at the end of the fiscal period, after the journal entry to close the Profit and Loss account has been made and posted, it shows his "Present Capital" or interest in the business. It is shown on the Balance Sheet as a part of the difference between the assets and liabilities. {Concluded on page loi.) 100 BOOKKEEPING AND ACCOUNTING. OUTLINE OF ACCOUNTS USED IN THE PARTNERSHIP SET. § 127. The Outline below includes all accounts made necessary by re- cording the transactions for April, May and June, the Partnership Set. These are discussed as they are introduced, except those kept in the preceding set. This classification is based on that given in §§24-31. Current Assets . Fixed Assets. Cash. T , fMerchandise in stock. ^ ^(Merchandise on consignment. Notes Receivable. Accounts Receivable. Accrued Assets. [Office Equipment. ■ \ Store Fixtures. [Delivery Equipment. Deferred Charges to Operations. „ T • 1 M- ■ fNotes Payable. Current Liabilities Accounts Payable. [Accrued Liabilities. Valuation. Reserve for Depreciation of Office Equipment. Reserve for Depreciation of Store Fixtures. Reserve for Depreciation of Delivery Equipment. Reserve for Doubtful Accounts. Capital . C. W. Keeland Capital. C. W. Keeland Personal. A. D. Munson Capital. A. D. Munson Personal. C. A. Howell Capital. C. A. Howell Personal. Trading. Inventory. Purchases. Freight In. Purchases Discount. Sales. Sales Rebates and Allowances. Sales Discount. Operating . Selling Expense. Traveling Expense. Loss on Doubtful Accounts. General Administrative Expense. finterest. Special Profit and Loss. Commission. [Loss on Dead Horse. BOOKKEEPING AND ACCOUNTING. lOI (§ I2g — Continued from page pQ.) IT lo. To Close the Partner's Capital Account. This account is not closed until all the other accounts, required to be closed at the end of the fiscal period, have been closed into the Profit and Loss account, and that account closed into the Capital accounts. (§ 27.) It will then show all of his investments, withdrawals, etc., also his share of the net profit or loss. The balance, which is his present capital, is entered on the debit side with red ink as follows: the date of closing, the words "Present Capital," and the amount of the balance. The account is ruled with single and double red lines, footed with black ink, and the "Present Capital" brought down on the credit side with black ink under date of the following business day. J/ -^^^^^&frM /^ 2. 7 Jf 32- 2- / (P <:> a /■ a ip I' 7J9 93- Z7 S'T. ?2- i 7 3 ■? 2-7 J"? J^-^ / /^ 2 yjfSZ- Illustration No. 50, Capital' Account for Exercise No. 55. PARTNER'S PERSONAL ACCOUNT. § 130. The Object of this Account is to show the result of those transac- tions with a partner which do not affect his Capital account. These include withdrawals for salary, profit set aside for withdrawal, merchandise taken out of stock for private use, amounts advanced to be used in the interest of the business, and other similar transactions with partners. Debit the Partner's Personal Account: \ I. For amounts withdrawn which may be (a) check payable to himself; (b) check payable to someone else, but to be charged to him, or (c), cur- rency taken from the cash register or petty cash drawer. \ 2. For merchandise taken out of stock for his private use. 1[ 3. For amounts advanced to be used in the interest of the business. Credit the Partner's Personal Account: If 4. For his salary at the end of each month. H 5. For amounts paid out of funds advanced to him (1[ 3) or his private funds in the interest of the business. H 6. For that part of the profit to be withdrawn from the business. If 7. The Balance of the Partner's Personal Account is the amount due the part- ner for services rendered, or due the business on account of overpayment. A debit balance indicates that the partner has overdrawn his salary or that part of the profit which may have been credited to his personal account for withdrawal. A credit balance indicates that the partner has not withdrawn all of his salary or that 102 BOOKKEEPING AND ACCOUNTING. part of the profit credit to his personal account for withdrawal. The balance will appear on the Baknce Sheet as a deduction from or addition to the Capital account. The balance may be shown as an asset or a liability in which case it would appear on the Balance Sheet after all other assets or liabilities have been listed. The better plan is to treat it as a part of the Capital account and list on the Balance Sheet as in Illustration No. 83. ^ 8. To Close the Partner's Personal Account. This account is not closed unless it is necessary to transfer the balance to a new page, or to the Partner's Capital account. The balance is entered on the smaller side with red ink, the account ruled with single and double red lines, and footed with black ink. The balance is entered with black ink on the opposite side of the account into which it is closed; the pages should be indicated for reference. y^^z^a^ // 2-/ ,3 /i. Jo JS J/ f-r / 2- OS &7 Zj^ ^- / J'£> e^ 2-0 e? , ii 7 ^ Illustration !■ lo. 51, Pers ona! Accoui at : /- / o o /CO 55- Exercises in Partner's Accounts. Prepare on ledger paper a Capital and a Personal account with each partner in these three exercises. The transactions with C. W. Keeland in Exercise No. 55 are the same as Illustrations Nos. 50 and 51. References are to §§ 129 and 130. Exercise No. 55, Capital and Personal Account with Two Partners. Apr. 2. C. W. Keeland and A. D. Munson form a partnership for the purpose of engaging in the retail hay, grain, feed and coal business. C. W. Keeland invests coal on hand valued at $1,000.00, and cash, $1,000.00; A. D. Munson invests cash, $2,000.00 (§ 129, If 5). 11. C. W. Keeland withdraws $35.00, and A. D. Munson $25.00 (§ 130). 21. Each partner withdraws $25.00. 30. Each partner is credited with $100.00, his salary for the month (§ 130.) May 3. A. D. Munson takes merchandise out of stock valued at $9.47, and C. W. Keeland, merchandise valued at $12.05 (§ 130, H 2). 12. C. W. Keeland withdraws $25.00 and A. D. Munson, $20.00. 24. A. D. Munson takes merchandise out of stock valued at $10.80, and C. W. Keeland, merchandise valued at $10.80. 26. Each partner withdraws $20.00. 30. Gave Wallace & Davis a check for $16.85 to pay a bill owed them by C. W. Keeland (§130, \ ib). 31. Each partner is credited with his salary for the month (§ 130, ^ 4). The Profit and Loss statement shows a net profit of $1,478.63; each partner is credited with one-half of this amount (§ 129, ^ 8). Rule the Capital accounts and bring down the Present Capital as in Illustration No. 50. BOOKKEEPING AND ACCOUNTING. 103 Exercise No. 56, Capital and Personal Accounts with Two Partners. Apr. I. H. D. Frick and C. L. Thomas form a copartnership for the purpose of engaging in the retail drug business. Each partner is to invest an equal amount, share equally the profits or losses, and receive a salary of $100.00 per month. H. D. Frick invests cash, $2,000.00; C. L. Thomas invests cash, $2,000.00 (§ 129, If 5). 9. Frick withdraws $25.00 (§ 130, If i). 11. Thomas withdraws $15.00. 16. Frick takes merchandise out of stock valued at $24.85 (§ 130, If 2). 20. Thomas takes merchandise out of stock valued at $10.50. 25. Thomas invests $1,000.00 and Frick $900.00 (§ 129, Tf 6). 27. Thomas withdraws $25.00. 28. Frick withdraws $10.00. 30. Each partner is credited with his salary for the month. May 9. Each partner withdraws $300.00 from his investment (§ 129, Tf 2). 12. Frick takes merchandise out of stock valued at $16.50. 19. Gave Jones Bros, a check for $36.50 to pay an account owed by Thomas (§ 130, If lb). 20. Thomas withdraws $15.00; Frick takes merchandise out of stock valued at $12.80. 25. Thomas takes merchandise out of stock valued at $18.65. 27. Thomas and Frick each withdraw $30.00. 31. Each partner is credited with his salary for the month. The Profit and Loss statement shows a net profit of $826.92; each Partner's Capital account is credited with one-half of this (§ 129, If 8). Foot and rule the Capital account and bring down the Present Capital as in Illustration No. 50. Exercise No. 57, Capital and Personal Accounts with Three Partners. July I. E. E. Admire, F. P. Schreiner and A. B. Johnston form a copartner- ship for the purpose of engaging in the retail hardware business. Each partner is to invest an equal amount and the profits or losses are to be shared equally. Each is to receive a salary of $100.00 per month. E. E. Admire invests cash, $2,000.00; merchandise, $1,865.40; personal accounts, $269.50; notes receivable, $398.40 (§ 129, If 5). F. P. Schreiner invests cash, $2,500.00; real estate, $1,000.00; notes re- ceivable, $850.70; accounts receivable, $562.50; the firm assumes a note for $350.00, which he owes at the First National Bank (§ 129, n I and 5)- ^ . . A. B. Johnston invests cash, $3,000.00; notes receivable, $1,000.00; accounts receivable, $500.00 (§ 129, % 5). 9. Admire withdraws $10.00; Johnston takes merchandise out of stock valued at $16.50. 14. Schreiner withdraws $25.00. 20. Admire takes merchandise out of stock valued at $19.50; Schreiner withdraws $25.00. 25. Johnston withdraws $30.00. 26. Admire takes merchandise out of stock valued at $27.50. 28. Schreiner withdraws $15.00. 29. Johnston takes merchandise out of stock valued at $19.60. (Concluded on page 104.) 104 BOOKKEEPING AND ACCOUNTING. {Exercise No. 57 — Continued from page 103.) July 31. Each partner is credited with his salary for the month. Aug. 9. Each partner withdraws $300.00 from the amount invested (§ 129, 1|2). II. Admire and Johnston each withdraw $25.00. 14. Schreiner withdraws $50.00. 20. Admire takes merchandise out of stock valued at $16.75. 22. Gave Mace & Brown a check for $18.40 to pay an account owed by Johnston. 23. Each partner invests an additional $1,000.00. 27. Gave S. D. Anderson $25.00 to apply on account owed him by Admire. 28. Each partner withdraws $25.00. 31. Each partner is credited with his salary for the month. The Profit and Loss statement shows a net profit of $1,527.48; each Partner's Capital account is credited with $400.00 of this and their Personal accounts with the balance (§ 129, *\ 8, and § 130, 1[ 6). Foot and rule the Capital account and bring down the Present Capital as in Illustration No. 50. ACCOUNTS WITH FIXED ASSETS. § 131. As Explained in §111, it is necessary to purchase certain property for use in the business. The nature of the property determines the name of the account. Since the property purchased for use in the office, storeroom, and for delivery purposes, is distinct and separate, it is considered the better practice to keep accounts with each class as follows: Office Equipment, Store Fixtures, and Delivery Equipment. 1[ I. Depreciation. Depreciation refers to the decrease in value of property purchased for use in the business. It is necessary to show this depreciation on the Statement of the Business at the close of the fiscal period, otherwise the Balance Sheet will not show the true assets, nor the Profit and Loss statement, the operating cost for the period. There are two methods of showing this depreciation. In one method, the asset account representing the value of the property is credited with the estimated value at the close of the fiscal period, and the balance (difference between the estimated value and the cost) is charged to the proper operating cost. In the other method, the asset account representing the value of the property is not affected by the charge to operating cost for the amount of the depreciation, but is allowed to show the cost value. The proper operating account is charged with the amount of depreciation, and a reserve for depreciation account credited. This reserve for depreciation account is a valuation account (§ 23) and qualifies the asset account to which it refers; the balance of the asset account shows the original cost of the property, and the balance of the reserve for depreciation account, the estimated decrease in value. The difference between these two accounts shows the estimated present value of the asset. The latter plan is the better practice because the asset account shows the cost value, hence permits a more satisfactory settle- ment with the insurance adjuster in case of a fire. The amount of the decrease will depend largely on the nature of the property. A typewriter which is in constant use will decrease more rapidly than a desk or safe. The depreciation each year is calculated on the original cost price and not on the present value. An adding machine which cost $400.00 January i, 1917, will not be worth $400.00 at the end of the year. If it is estimated that the machine will be of useful service for ten years, it would be worth $360.00 at the end of the first year, $320.00 at the end of the second year, $280.00 at the end of the third year, etc. The purpose of the discussion at this time is to show the necessity for taking into consideration the depreciation on property purchased for use in the business. BOOKKEEPING AND ACCOUNTING. 105 The amount of the depreciation is fixed by the management or by an appraisal company under the directions of the management. This subject is ably discussed by a number of leading authorities on account- ing, including Gilman, Montgomery, Dickinson, Hatfield, Salliers and Walton. OFFICE EQUIPMENT ACCOUNT. § 132. The Object of this Account is to show the cost of the property pur- chased for use in the office, which includes all office furniture, such as desks, type- writers, safes, files, bookcases, chairs, tables, etc. Debit Office Equipment Account: Credit Office Equipment Account: Hi. If 2. For the cost value of office furni- ture on hand at the beginning of the business. For the cost value of office furniture purchased during the fiscal period. 1[ 3. For the cost value of office equipment sold or exchanged. (If the selling or exchange price is less than the cost, the difference is charged to the Reserve for Depreciation ac- count.) 1[ 4. For the cost value of office equipment destroyed or dis- carded. (The Reserve for Depreciation account is deb- ited with this amount except as explained in the note under §133, 116.) If 5. The Balance of this Account shows the cost value of the office equipment on hand. It is shown as a fixed asset on the Balance Sheet. If -6. To Close the Office Equipment Account. This account is not closed until it balances, unless it is necessary to transfer the balance to a new page. When closed for this purpose, the balance, together with the date of closing and the new page, are entered with red ink on the credit side, the account ruled with single and double red lines and footed with black ink. The balance is entered with black ink on the debit side of the account on the new page. ^^^t-ZZ-Sc^-^j^ &s 3 s J ^ i J / 2. %3 ^-' T-a e^ ^ If Illustration No. 52, Office Equipment Account for Exercise No. 58. io6 BOOKKEEPING AND ACCOUNTING. RESERVE FOR DEPRECIATION OF OFFICE EQUIPMENT ACCOUNT. § 133. The Object of this Account is to show the net amount of the reserve created to take care of the decrease in the value of the property pur- chased for use in the office. It is a valuation account (§ 23) and deducted from the cost of office equipment to show the present value. Debit Reserve for Depreciation Account: 1[ I. With the cost value of office equipment discarded. T[ 2. With the difference between the cost, and selling or exchange price of office equipment sold or exchanged. ^ 3.* With the amount of depreci- ation on office equipment which has been stolen or un- expectedly destroyed. (See note under ^ 6.) Credit Reserve for Depreciation Account: II 4. At the close of each fiscal period with the amount of depreci- ation as designated by the management when the prop- erty was purchased. (The General Administrative Ex- pense account is charged with this depreciation.) NOTE. The amount set aside should be' suffi- cient to take care of the actual decrease in value on account of use, hence the account should always show a credit balance. V 5. The Balance of this Account shows the net amount reserved for depreci- ation of office equipment. It is sliown on the Balance Sheet as a deduction from the cost of office equipment. 1[ 6. To Close the Reserve for Depreciation of Office Equipment Account. This account is not closed until it balances, unless it is necessary to transfer the balance to a new page. When closed for this purpose, the balance, together with the date of closing and the new page, are entered on the smaller side with red ink, the ac- count ruled with single and double red lines and footed with black ink. The balance is entered with black ink under this account on the new page. 0^^ti.t.^^(_,.^ 2-.U / / ' 7 Illustration No. 56, Sales Account for Exercise No. 61. SALES REBATES AND ALLOWANCES ACCOUNT. § 142. The Object of this Account is to show the amount of the deductions made by customers on account of merchandise being damaged or not equal to sample, or other allowances. This account is not necessary unless the manage- ment wishes to have the rebates and allowances shown separately; an account of much size indicates that customers are not receiving satisfactory service. 114 BOOKKEEPING AND ACCOUNTING. Debit Sales Reb. and Allow. Acct. K I. For the amount of deductions allowed that do not affect the Sales or Sales Discount ac- count. Credit Sales Reb. and Allow. Acct. 1[ 2. For any error in allowing re- bates which is not discovered until after the rebate is al- lowed. 11 3. The Difference Between the Two Sides of this Account will show the total amount of rebates and allowances allowed customers. It is shown with the trading accounts on the Profit and Loss statement, as a deduction from the returns from sales. ^ 4. To Close the Sales Rebates and Allowances Account. When the journal entry to close the trading accounts has been made and posted, this account will balance and is ruled with single and double red lines and footed with black ink. .^i^. ^^^Z-fSt,^ P 7^U^\^4^ $. Illustration No. 57, Sales Rebates and Allowances Account for Exercise No. 61. INVENTORY ACCOUNT. § 143. The Object of this Account is to show the value of merchandise on hand at the close of the fiscal period. It may be regarded as a summary account and closed into the Purchases account after the ledger is closed, or remain open until the close of the fiscal period. The latter is considered the better practice because it permits errors in taking stock to show on the Inventory account. Debit the Inventory Account: \ I. For the value of salable mer- chandise on hand at the begin- ning of the business. \ 2. For the value of salable mer- chandise on hand at the end of the current fiscal period. Credit the Inventory Account: U 3. At the close of each fiscal period with the cost of salable mer- chandise on hand at the begin- ning of the period. (This is the same credit as the debit described in \ i.) 3' 9Pz,i^^^&i^% u i Z 7 /^ J/ ^%.^^^z.a..,d:t.^==^^>>^^ -/^^^•^^^^ srd i-i 2/= J' Illustration No. 59, Purchases Discount Account for Exercise No. 61. SALES DISCOUNT ACCOUNT. § 146. The Object of this Account is to show the total deductions made by customers for prompt payment of bills purchased. These deductions are allowed according to the terms of the bills. Credit Sales Discount Account: ^ 3. For an error made by a customer in his favor in deducting the discount, when the error is not discovered until after the cred- it has been allowed. Debit Sales Discount Account: \ I. With the difference between the amount of the remittance re- ceived from a customer and the face of the bill, when this remittance is accepted for full payment of the bill as indi- cated by the terms. 1[ 2. For discount allowed on par- tial payments of bills subject to discount. (§ 167.) If 4. The Difference Between the Two Sides of this Account shows the net amount of discount allowed customers for prompt payment of goods purchased. It is shown with the trading accounts on the Profit and Loss statement ' as a deduction from the returns from sales. See note below. H 5. To Close the Sales Discount Account. When the journal entry to close the trading accounts has been made and posted, this account will balance and is ruled with single and double red lines and footed with black ink. 'r' if ■3 7:f 70 ^^ J/ 9 f . Illustration No. 60, Sales Discount Account for Exercise No. 61. NOTE. Deductions made by customers may be considered as an interest charge against the capital invested and not a reduction in the returns from sales, in which case it would appear as a "Deduction from Income." This is a question that must be decided by those interested in view of the conditions under which the business is being conducted. BOOKKEEPING AND ACCOUNTING. 117 Exercises in Merchandise Accounts. Prepare on ledger paper a Purchases, Sales, Inventory, Freight In, Sal es( Discount, Purchases Discount and Sales Rebates and Allowances account for each of these three exercises. Exercise No. 61 is the same as Illustrations Nos. 54-60. References are to §§ 139-146. Exercise N0/6I, Accounts with Merchandise. Apr. 2. Inventory of mercna»aise on hand, $1,000.00 (§ 143, If i). Paid freight on merchandise purchased, $229.80 (§ 140, % i). 13. Paid freight on merchandise purchased, $436.74 (§ 140, i[ i). 28. Paid Western Hay & Grain Co. amount due less $17.20, discount as per terms of the invoice (§ 145, % 3). 30. Paid freight on merchandise purchased, $765.29 (§ 140, ][ i). Total credit sales for the month, per sales book, $3,028.22 (§ 141, % 2b). Total credit purchases for the month, per purchases book, $5,247.85 (§ 139, II I)- Total purchases discount, per purchases discount column in the cash book, $27.45 (§ 145. ^ 3)- Total cash sales for the month, per sales column in the cash book-, $1,167.50 (§141, H 2b). May 3. Charged A. D. Munson's Personal account with $9.45, and C. W. Kee- land's with $12.05, for merchandise taken out of stock, for private use (§ 141, H 3)- . 7. Allowed W. H. Ingram credit for $1.09, overcharge in price on merchan- dise purchased by him (§ 141, 1[ i). 15. Allowed J. A. Bird credit for $27.50, $22.00 for 20 sacks of shorts at $1.10 returned for credit (§ 141, ^ i), and $5.50 for damaged goods (§ 142, H I). _ 16. Paid freight on merchandise purchased, $752.44. 18. Allowed W. H. Ingram credit for $19.07 and Short Bros. $29.99, total, $49.06, to equalize freight charges (§ 140, 1[ i). 24. Charged A. D. Munson's Personal account with $10.80, and C. W. Kee- land's with $10.80, total $21.60, merchandise taken out of stock for private use (§ 141, If 3). 25. Allowed' Short Bros, credit for $5.98 sales discount, being 1% of the sale made them on account (§ 146, If i). 26. Allowed W. H. Ingram credit for $3.70 sales discount, being 1% of the sale made him on account (§ 146, If i). 31. Paid freight on merchandise purchased, $430.15 (§ 140, If i). Credited Selling Expense with $86.00, the proportionate part of the drayage on merchandise purchased (§ 140, If la). Total credit sales for the month, per sales book, $5,128.24. Total credit purchases for the month, per purchases book, $5,942.97 (§ 139, Hi). , ,. , . , , Total purchases discount, per purchases discount column in the cash book, $106.91 (§ 145, i 3). Total cash sales for the month, per sales column in the cash book, $2,58 1 . 1 1 (§ 141, If 2b). Merchandise on hand, $4,627.60. When all transactions have been entered, close the balance of each account into the Profit and Loss account, rule, and. foot with tlack ink as in Illustrations Nos. 54-60. The inven- tory of merchandise on hand May 31 is entered on the debit side of the Inventory account below the ruling. The entry for the balance transferred to the Profit and Loss account is writ- ten with black ink in the illustration because each amount is posted from the journal. It is not necessary to construct the Profit and Loss account resulting from closing the trading accounts as the purpose of this exercise is to give practice in applying the debits and credits that are applicable to the trading accounts. ii8 BOOKKEEPING AND ACCOUNTING. Exercise No. 62, Accounts with Merchandise. July 2. Inventory of merchandise on hand, $5,627.85 (§ 143, H l). 3. Bought on account, $396.35 (§ 139, % i). 5. Sold on account, $162.95 (§ 141, If 2). 6. Sold for cash, $236.95 (§ 141, If 2). 7. Bought for cash, $397-62 (§ 139, If i). Paid freight on merchandise purchased, $45.60 (§ 140, % i). 10. Returned a part of merchandise purchased and received credit for $56.29. 12. Allowed a customer a credit of $10.65 for merchandise returned: 13. Deducted $13.50 from an invoice due a creditor for prompt payment. Sold on account, $427.65. 14. Sold for cash, $469.52. 16. Bought on account, $927.65. Paid freight on merchandise purchased, $29.85. 17. Allowed a customer credit for $18.65 for overcharge on a sale (§ 141, ^ i). 18. Bought on account, $216.75. 19. Paid freight on merchandise purchased, $16.50. 21. Bought for cash, $219.27. 23. Sold on account, $565.92. Bought for cash, $156.97. 28. Returned merchandise to a creditor and received credit for $41.27. 30. Sold for cash, $327.65. Aug. 9. Purchased on account, $219.65. Sold on account, $327.65. 15. Sold for cash, $156.90. 16. Paid freight on goods purchased, $72.65. 17. Bought on account, $250.12. 18. Received credit for $150.70, value of merchandise returned to a creditor because it was damaged (§ 139, % 3). Allowed a customer a credit of $25.60 for goods returned (§ 141, Tf i). 20. Deducted $12.50 from an invoice paid to a creditor for prompt payment. 22. Sold on account, $216.25. 23. Purchased on account, $429.80. Allowed a customer a discount of $16.80 for prompt payment of a bill. 24. Sold on account, $209.12. Allowed a customer a credit of $16.37 for an overcharge (§ 141, f i). 25. Purchased on account, $312.62. Sold for cash, $426.90. 27. Allowed a customer a discount of $5.90 for prompt payment of a bill. Received credit for $19.55, value of merchandise returned to a cred- itor because it was damaged. 29. Allowed a customer a credit of $14.20 for goods returned by him. Deducted $14.29 discount on an invoice paid a creditor. 30. Allowed a customer credit for $5.60 on account of damaged goods. 31. Merchandise on hand, $5,681.37. When all transactions have been entered, close the balance of each account into the Profit and Loss account, rule, and foot with black ink as in Illustrations Nos. 54-60. The inventory of merchandise on hand August 31 is entered on the debit side of the Inventory account below the ruling. The entry for the balance transferred to the Profit and Loss account is written with black ink in the illustration because each is posted, from the journal. It is not necessary to construct the Profit and Loss account resulting from closing the trading accounts as the purpose of this exercise is to give practice in applying the debits and credits that are applicable to the trading accounts. BOOKKEEPING AND ACCOUNTING. 119 Exercise No. 63, Accounts with Merchandise. Sept. I. Inventory of merchandise on hand, $16,427.95. 16. Paid freight on merchandise purchased, $462.79. 30. Paid freight on merchandise purchased, $572.45. Cash sales for the month per sales column in the cash book, $3,624.78. Credit sales, per sales book, $9,479.21. Credit purchases, per purchases book, $4,629.87. Oct. 5. Deducted discount from an invoice purchased, $86.27. 9. Returned a part of merchandise purchased and received credit for $142.87. 12. Allowed a customer a discount of $26.75 for prompt payment of a bill. 13. A customer returned a part of merchandise sold hiin and we allowed him credit for $36.82. 15. Paid freight bills for merchandise purchased, $862.75. 20. Deducted $72.56 discount from an invoice purchased. 21. A customer reports a part of goods sold him not as good as sample, and we allowed him a credit of $27.84 (§ 142, 1[ i). 24. Received credit for $109.34, merchandise returned to a creditor. 25. A creditor notified us that we made a mistake of $10.00 in deduct- ing discount and stated that our account had been debited with the amount of the error (§ 145, H i). 26. Received $9.72 from the railroad company for an error in a freight bill (§ 140, If 2). 27. A customer deducted $18.75 discount for prompt payment of a bill. 28. Allowed a customer credit for $57.82, merchandise returned. Deducted $61.85 discount from an invoice for prompt payment. 29. A customer made an error of $3.50 in calculating discount and his ac- count was charged with the amount (§ 146, TJ 3). 31. Paid freight bills on goods, $627.92. Cash sales, per sales column in the cash book, $4,592.81. Credit sales, per sales book, $10,627.45. Cash purchases, per purchases column in the cash book, $3,349.37. Credit purchases, per purchases book, $9,752.98. Merchandise on hand, per inventory, $14,693.21. When all transactions have been entered, close the balance of each account into the Profit and Loss account, rule, and foot with black ink as in Illustrations Nos. 54-60. The inventory of merchandise on hand October 31 is entered on the debit side of the Inventory account below the ruling. The entry for the balance transferred to the Profit and Loss account is written with black in the illustration because each amount is posted from the journal. It is not necessary to construct the Profit and Loss account resulting from closing the trading accounts as the purpose of this exercise is to give practice in applying the debits and credits that are applicable to the trading accounts. ACCOUNTS WITH EXPENSE. § 147. The Expenses of conducting a trading business may be divided into two distinct classes, one of which represents the cost of maintaining the office, and the other the cost of selling goods. As explained in § 29, one Expense account may represent all of these expenses, but it is better practice to keep an account with each class. In this set the General Administrative Expense account represents the cost of maintaining the office, and the Selling Expense account, the cost of selling goods. A further classification of these expense accounts may be made if desired ; this will be explained in the succeeding sets. I20 BOOKKEEPING AND ACCOUNTING. GENERAL ADMINISTRATIVE EXPENSE ACCOUNT. § 148. The Object of this Account is to show the total expenses incurred in the conduct of the business except those chargeable to Selling Expense, as ex- plained in § 149. The charges to this account include rent, salaries of partners, bookkeepers and office employees, depreciation of office equipment and store fix- tures, stationery, books, etc. Debit General Admr. Expense Acct. Credit General Admr. Expense Acct.: Hii. For any amounts received which reduce the charges to this account. For amounts received for the sale of property, the cost of which was charged to this account. 1i I. For partners' salaries. it 2. For rent. 11 3. For telephone, telegrams and miscellaneous services. If 12. If 4. For repairs on office equip- ment and store fixtures. ^ 5. For depreciation on office equip- ment and store fixtures. If 6. For salaries of all employees except those engaged in the selling department.* If 7. For license or other taxes levied for the privilege of doing business. If 8. For insurance on property pur- chased for sale and for use in the office and store room. ^ 9. For cost of property that will be consumed by its use, such as stamps, stationery, etc.f If 10. For amounts paid for collecting notes and drafts, and paid to the bank for issuing ex- change, collecting out-of- town checks, etc. If 13. The Difference Between the Two Sides of this Account shows the net cost of conducting the business, except amounts paid for selling expense. It is shown as a deduction from the gross profit on sales on the Profit and Loss statement. If 14. To Close the General Administrative Expense Account. When the journal entry to close the profit and loss accounts is made and posted, this account will balance and is ruled with single and double red lines and footed with black ink. *A separate account may be kept with the salaries of those engaged in the purchasing department; if the amount involved is large, this plan should be followed because it is an expense directly applica- ble to the purchases cost. fA special account may be kept with Office Supplies, if desired, in which case amounts paid for stationery, ink, pens, carbon paper, and other supplies used in the daily office routine are debited to this account. It is credited for amounts received that reduce the cost, and with the cost value of such property on hand at the close of the fiscal period. During the period, the balance of the account shows the cost value of office supplies; after the entry is made for the value of supplies on hand at the close of the fiscal period, the balance shows the cost of office supplies for the fiscal period; it will appear on the Profit and Loss statement as one of the general administrative expense items. In the same way accounts may be kept with Postage, Shipping Room Supplies, Warehouse Supplies, and other property that will be consumed by its use. These and the other accounts mentioned at the bottom of page 121 are not advised unless the amounts involved are large, as efficient accounting requires only necessary accounts. BOOKKEEPING AND ACCOUNTING. 121 ^^..^S-i-L^^i-tZ- JO p ■2. O O 3/ /- u &J 2. O li -^„^.^Y-S!^ /- ^r^ /"J ?v -jr // J 3 jS-3 J/ X o o / o J J jS-o J2- - f f ^ f J Au,^..u^ J" -^ o J'3 %.^,&.^..i^,,.^ J'9^ /"J Ihu^ 3/ A /t^ ^^ 3/ ^'- ^a Illustration No. 6i, General Administrative Expense Account for Exercise No. 64. SELLING EXPENSE ACCOUNT. § 149. The Object of this Account is to show the cost of selling goods. This includes amounts paid to clerks in the selling department, for delivery cost, advertising and other selling expenses. Debit the Selling Expense Account: \ I. For salaries paid employees for services rendered in selling merchandise. \ 2. For the cost of delivering mer- chandise.* \ 3. For amounts paid for advertising and traveling expense.* \ 4. For freight paid on merchandise which is to be delivered at the customer's freight station.* \ 5. For the depreciation and insur- ance on delivery equipment, unless a special account is kept with Delivery Expense. IT 8 The Difference Between the Two Sides of this Account shows the net cost of selling goods. The debit side is always the larger. It is shown as a deduction from the gross profit on sales on the Profit and Loss statement. If g To Close the Selling Expense Account. When the journal entry to close the profit and loss accounts has been made and posted, this account will balance and is ruled with single and double red lines and footed with black ink. *If desired the cost of delivery expense may be debited to a Delivery Expense account, adver- tising to an Advertising account, traveling expense to a Trave ing Expense account prepaid freight iisin„ to an ri.uv L s . , , j jg^t or express, to a Freight Out account. If the cost of ad- on ^merchandise to be dehvered^^^^ V , b^ ^^ Advertising Materials account Tnd tJeftrdln'^the'^amf wa^as th"^^ account explained in the note at the bottom of page 126. Credit the Selling Expense Account: 1[ 6. (a) For amounts received that reduce the cost of selling expense. (&) For any part of this account transferred to Fi;eight In or some other ac- count. T[ 7. For amounts received for serv- ices rendered to others by our delivery equipment, un- less a special account is kept with Delivery Expense. 122 BOOKKEEPING AND ACCOUNTING. Jo a.j /SZ ^'^' ^ / <3.M i'o ^V j- // 3- 2. ^a J/ /- ri 3> <^/ 1-J'O /'^ ^ 3. f sa ^ /- ^J -^.^^3^ A 3 7'^ 3 AC A / i> 3 j'^ k f s f « i>^it^^t'C4^tSU^^f'*C£ ^O'Z ^^ iS^^^-L-u^ C Z- f^C '9y^ ■Jy A 62 ■£■0 %^ J/ ^^ / a 3 ^^ Illustration No. 62, Selling Expense Account for Exercise No. 64 Exercises in Expense Accounts. Prepare on ledger paper a General Admin- istrative and Selling Expense account for each of these three exercises. Exercise No. 64 is the same as Illustrations Nos. 61 and 62. References are to §§ 148 and 149. Exercise No. 64, Expense Accounts. Apr. 30. Partners' salaries, $200.00 (§ 148, \ i). Total of the General Administrative Expense column on the credit side of the cash book, $206.85 (§ 148, \\ 2, 3, 4, 6, 7). Total of the Selling Expense column on the credit side of the cash book, $152.00 (§ 149). May I. Received $80.00 from Borches & Co., for use of delivery equipment dur- ing April (§ 149, \ 7). 5. Gave Gibson & Perin a check for $56.03 in payment for office stationery, fe3'53 (§ 148, \ 9) and advertising matter, $22.50 (§ 149, \ 3). 31. Partner's salaried, $200.00 (§ 148, \ i). Total of the General Administrative Expense column on the credit side of the cash book, $156.60. Total of the Selling Expense column on the credit side of the cash book, $280.00. At the close of the fiscal period, the proper accounts were debited with the following: insurance expired, $10.32 (§ 148, \ 8) ; the depre- ciation on office equipment and store fixtures, $33.53 (§ 148, \ 5); depreciation on delivery equipment, $45.00 (§ 149, \ 5); unpaid rent of warehouse for May, $50.00 (§ 148, \ 2); unpaid livery bill for May, $103.34 (§ 149. If 2). The proper accounts were credited with the following: stationery on hand, $16.00 (§ 148, If 11); the pro- portionate part of the drayage on merchandise purchased, $86.00 (§ 149, If 6b) ; amount due from Borches & Co., for the use of our delivery equipment, $62.50 (§ 149, \ 7). When all the transactions have been entered, close each account into the Profit and Loss account; enter the balance with black ink as in the illustrations. Rule each account with single and double red lines and foot with black ink. The entry to transfer the balance to the Profit and Loss account is written with black ink in the illustration because the entry IS posted from the journal and not transferred direct. BOOKKEEPING AND ACCOUNTING. 123 Exercise No. 65, Expense Accounts. June I. Paid telephone bill, $20.00 (§ 148, H 3). 5. Paid for stamps, $10.00 (§ 148, ^ 9). 6. Pay roll in selling department for the week, $40.00 (§ 149, ^ i). 8. Paid for varnishing office furniture, $5.75 (§ 148, jf 4). 10. Paid for stationery and blank books, $35.60 (§ 148, ^ 9). 12. Paid for shoeing horses, $2.50 (§ 149, f 2). 13. Pay roll in selling department for the week, $40.00. 15. Paid $18.00 for license (§ 148, If 7). 20. Paid $10.00 for stamps. Pay roll in selling department for the week, $40.00. 25. Paid for repairing floor in office, $12.00 (§ 148, % 4). 27. Pay roll in selling department for the week, $40.00. 30. Partners' salaries, $200.00 (§ 148, ^ i). Salaries of office help, $100.00 (§ 148, ^ 6). July 3. Pay roll in selling department for the week, $40.00. 6. Sold a customer stamps for $3.50 (§ 148, % 12). "^ 7. Paid collection charges on a note, $2.00 (§ 148, T[ 10). 10. Paid $16.50 freight on merchandise sold a customer which we had agreed to deliver (§ 149, 1[ 4). 11. Pay roll in selling department for the week, $40.00. Paid for board of horses, $35.00 (§ 149, 1[ 2). 13. Paid charges on a telegram, $1.00 (§ 148, ^ 3). 16. Received $26.80 for delivery service (§ 149, "f 7). 18. Pay roll in selling department for the week, $40.00. 23. Paid for repairs on scales, $2.50 (§ 148, ^ 4). 25. Pay roll in selling department for the week, $40.00. 31. Partners' salaries, $200.00. Salaries of office help, $100.00. At the close of the fiscal period, the proper accounts were debited with the depreciation on office equipment, $16.85 (§ 148, IT 5);" store fixtures, $13.50 (§ 1.48, ^ 5); delivery equipment, $18.00 (§ 149, 1| 5); General Administrative Expense account was debited with $201.92, 1-6 (two months) of the amount ($1,211.50) paid for insurance (§ 148, % 8) ; and Selling Expense with $33.33 unpaid pay roll (§ 149). Close each account as in the illustrations. Exercise No. 66, Expense Accounts. Aug. I. Paid rent in advance, $50.00. 2. Paid for telephone, $4.00. 3. Paid for license, $20.00. 15. Pay roll for office help, $36.50; clerks and drivers' salaries, $80.00 (§148, ie and §149, 1f2). . 22. Paid for papering office, $16.50. 31. Partners' salaries, $150.00. Pay roll for office help, $36.50; clerks and drivers' salaries, $80.00. Sept. I. Paid rent in advance, $50.00. Paid for board of horses, $60.00 (§ 149, H 2). 2. Paid advertising bill, $18.00 (§ 149, Ifs)- 3. Paid phone rent, $4.00. 10. Paid blacksmith's bill, $10.50 (§ 149- If 2). {Concluded on page 124.) 124 BOOKKEEPING AND ACCOUNTING. {Exercise No. 66 — Continued from page 123.) Sept. 14. Paid for repairs on store fixtures, $12.65. 15. Pay roll: Office help, $36.50; clerks and drivers, $80.00. 23. Paid for stamps, $20.00. 24. Bought office stationery, $11.60. 27. Sold stamps for $4.50 (§ 148, ^j 12). 30. Partners' salaries, $150.00. Pay roll: Office help, $36.50; clerks and drivers, $80.00. Oct. I. Paid rent in advance, $50.00. 2. Paid phone rent, $4.00. Paid for board of horses, $60.00. 10. Paid for repairs on office furniture, $9.60. 14. Collected for delivery service, $36.50 (§ 149, H 7). 15. Paid for stamps, $10.00. Paid advertising bill, $6.50. Pay roll: Office help, $36.^50; clerks and drivers, $80.00. 25. Paid $16.85 freight on merchandise delivered to a customer (§ 149, If 4). 31. Payroll: Office help, $36.50; clerks and drivers, $80.00. Partners' salaries, $150.00. At the close of the fiscal period, the General Administrative Expense account was debited with $22.50, }i (three months) of the amount ($90.00) paid for insurance. The proper accounts were debited with the depreciation on office equipment, $19.65; store fixtures, $12.50, and delivery equipment, $16.95. Close each account as in the illustrations. INSURANCE. § 150. Where there is a possibility of property being destroyed by fire or other accidental causes, the owner should be protected against such loss by insur- ance. To secure this protection, it is necessary to obtain a policy from an insur- ance company for which a premium must be paid. The policy is the contract or agreement with the insurance company. The premium is the amount paid for the protection. Insurance policies are usually issued for one year, and the premium is based on this time. If the policy is issued for a less time, what is termed the "short rate" will be charged, that is, the premium will be the proportionate part of the year with a small additional charge. 1[ I. Policy Record. A record of each policy should be kept in a specially prepared book which is known as the "Insurance Policy Record." This book is ruled to show the following information: date of the policy; the policy number; the name of the company issuing the policy; the property covered (merchandise, fixed assets, buildings, etc.); amount of insurance ; date of expiration; total premium; and if desired, the monthly expirations. The object of this record is to provide a iNxunANCE Policy I^ecokd, Dateof Policy /qo T^ameof Compaii/ "Property Iiu'ured Amount Expir&y Total Prenuum 3'7o /SS2./ JOOO /SOO sooo ^^^/i /f/7 £2. 7¥ ro 70 3S SO Illustration No. 63, Left page of Insurance Policy Record. BOOKKEEPING AND ACCOUNTING. 125 list of all insurance policies that the value of the insurance expired during the fiscal period may be readily ascertained. This record is also important in case of a fire or the loss of a policy. As a rule the agent of the insurance company will see that each policy is renewed, but it is advisable for the management to have a record of the insurance that the renewal of policies may not be neglected. See Illustration No. 63. INSURANCE ACCOUNT. § 151. The Object of this Account is to show the amount paid for insur- ance. As the property insured may be of different natures and affect different' operating accounts, it is best to charge all amounts paid for insurance to the Insur- ance account, and at the close of each fiscal period, credit this account with the insurance that has expired, and debit the operating account or accounts affected. Debit the Insurance A ccount: If I. With all amounts paid for in- surance premiums. Credit the Insurance Account: % 2. With insurance premiums re- funded on canceled policies. H 3. At the close of each fiscal period for the proportion of insurance expired. y/ZtuM^ ^f X!' C^3 . Vf -fa "^ J/ ^7 z <^ 7j^ i -* Illustration No. 64, Insurance Account. % 4. The Balance of this Account, after the credits have been entered, shows the amount of unexpired insurance. It is shown as a deferred charge to operations on the Balance Sheet. U 5. To Close the Insurance Account. This account is not closed unless it is necessary to transfer the balance to a new page. The balance is entered on the smaller side, the account ruled with single and double red lines, and footed with black ink. If closed direct, the balance is entered with red ink; if closed by a journal entry, it is written with black ink. NOTE. Some accountants advise crediting the Insurance account with the unexpired insur- ance and debiting the Deferred Charges to Operations account. When this plan is followed, the bal- ance of the Insurance account will show an operating cost. If no special departments are affected, it would be shown as an operating expense on the Profit and Loss statement. This plan is very satisfactory where the expired insurance does not affect a number of operating accounts. INJ"UDANCE Policy Becord. Monlhly Xxpiralioiu r?r?S\ Jan. Tab. March ' April nsy JURC^ July- Auj. .Tcpt. Oct Hm. Dec. Fbrvard -2,4'/ s-.'/r S.'^f .^.-/Z £¥f .Z.'/g- ^.-^ O ^ O a. ^ V J- -5" 3 3 O / f O ^ ^ "fcf^^^^t.^-^^^frn^^t^ 3 9 s r ^ 7 / 3 t 7 J- J ^ J ■> a- -i^-Z. lUustration No. 65, Debit Side of Cash Book, April, Partnership Set. *This indicates that twelve entries are omitted. BOOKKEEPING AND ACCOUNTING. 127 When separate departments are maintained, a special ruled purchases book is necessary in order to show the proper distribution. II I. Posting from the Purchases Book. Each person or firm from whom mer- chandise is purchased on account is credited with the amount of the purchase as indicated on the invoice. The posting is indicated by writing the ledger page on the invoice and the page of the purchases book in the ledger. The date of the invoice and the terms are indicated in the explanation column. The address of the creditor should be given in the ledger. The Purchases account is not debited with the amount of each invoice, but with the total credit purchases at the end of the month, or when the Trial Balance is to be taken. § 154, Sales Book. A carbon copy of the bill rendered to a customer pro- vides the most convenient record of credit sales, and is used almost exclusively by business concerns. The original is sent to the customer and the duplicate filed in a binder, the contents of this binder being the sales book record. To avoid the /Z^'^'^ ' v Date LF TJame of Account ChedcN? General Dr G-A-Expeofe jaiinjExpense C^^^£^e^r^ / /.so j^^^^^e^ O^s^-y^-i^y^ ^^^^^z.^'9'Zj^Ay a. .s ^aCf^n^^., /t%z.<^i-^>-t-c^.^ f f > Illustration No. 66, Credit Side of Cash Book, April, Partnership Set. *This indicates that fifteen entries are omitted. 128 BOOKKEEPING AND ACCOUNTING. loss of a bill or duplicate, bills and duplicates should be numbered the same and in consecutive order. U I. Cash Sales. Cash sales are not recorded with the credit sales. In a retail business these are usually taken care of through the cash register record, the total being entered direct in the cash book. In a wholesale business where there are few cash sales, the duplicate of the bill rendered the customer is entered in the sales book and his account charged with this amount; he is credited in the cash book with the cash received. Where the cash sales are numerous, it is best to provide a special binder in which to file them. H 2. Posting from the Sales Book. Each person or firm is charged with the amount of his purchase as indicated on the carbon copy of the bill. The number of the sale, or the page in the sales book is indicated in the folio column in the ledger account, and the ledger page is written on the duplicate bill to indicate posting. Special terms are entered in the explanation column of the ledger. The address of the customer is given in the ledger. The Sales account is not credited with the^ amount of each sale, but with the total of all credit sales at the end of the month or when the Trial Balance is to be taken. NOTE. Some accountants advise a journal entry for the totals of the purchases and sales books at the end of the month. When this plan is followed, the entry for the total of the purchases book would be Purchases Dr. and Accounts Payable or Purchases Ledger Cr. The entry for the total of the sales book would be Accounts Receivable or Sales Ledger Dr., and Sales Cr. If special ledgers are not kept with customers and creditors, the credit in the first entry and the debit in the second entry are checked. This plan facilitates auditing. § 155. *The Cash Book, is ruled with three money columns on each side as in Illustrations Nos. 65 and 66. The method of recording cash transactions is the same as that followed in the preceding set with the exception of the use of the extra columns. Amounts to be posted to separate accounts in the ledger are entered in the first column on either side ; amounts received for cash sales of merchandise, in the second column on the debit side; amounts deducted for prompt payment of invoices, in the third column on the debit side; amounts paid for general administrative ex- pense, in the second column on the credit side, and amounts paid for selling expense, in the third column on the credit side. The purpose of the two Special columns on each side is to save time in posting. 1[ I . Posting from the Debit Side of the Cash Book. Each amount entered in the first column is posted to the credit side of the account written on the same line with it. The amounts in the second and third colurhns are not posted until the end of the month when the total of each column is posted to the credit side of the account indicated at the top. II 2. Posting from the Credit Side of the Cash Book. Each amount entered in the first column is_ posted to the debit side of the account written on the same line with it. The second and third columns are not posted until the end of the month when the total of each column is posted to the debit side ©f the account indicated at the top. ^ 3. To Prove Cash. Foot the three columns on the debit side and place the totals in small pencil figures just beneath the blue line on which the last entry is *NOTE. The form of cash book described above is not considered the best by some account- ants, but is quite popular with many bookkeepers. It affords an accurate check on those transac- tions in which discount is deducted. By placing the discount deducted on the opposite side, errors made in deducting the discount from the amount of the bill or writing the check will be discovered, because the cash will not prove unless the deductions are correct. An error in adding the discount column will be discovered, because the cash will not prove unless this column is added correctly. One objection offered by accountants is that the net amount of cash received and paid is not shown. To ascertain the amount of cash received, add the totals of the first two columns on the debit side and deduct from this any discount entered on the credit side. To ascertain the amount of cash paid, add the totals of the three columns on the credit side and deduct from this the total of the third column on the debit side. Another form of the cash book in which this objection is overcome will be explained later in this set. BOOKKEEPING AND ACCOUNTING. 129 made. The total of line. Foot the three just beneath the blue is placed beneath the the three columns, on side. The difference this should equal the each of the three columns is written beneath the same blue columns on the credit side and place the total of each column line on which the last entry is made. The total of each column same blue' line. On a piece of scratch paper add the totals of the debit side and the totals of the three columns on the credit between these two amounts is the amount of cash on hand; amount in the bank and in the cash drawer. § 156. Auxiliary Books. The purpose of an auxiliary book is to provide additional information in regard to the transactions which are recorded in a book of original entry. The page of the auxiliary book where this information is pro- vided should be indicated in the book of original entry where the transaction is recorded. The auxiliary books used in this set are the check book, notes receiv- able book and notes payable book. Other auxiliary books will be illustrated in the succeeding sets. § 157. Check Book. As explained in § 105, banks provide blank checks bound in book form to be used by depositors for withdrawing money on deposit. The check book used in this set is provided with three checks to the page, as shown in Illustration No. 67. The Illustration also shows the method of keeping the bank account. ^^/^ 74^.^...^^^^>^J-'^ — X. _<^ Aa>- r^^:^K".y^^Y^^^ ,'% - -^^gfer-^ao-^ ^^ ^ ^INCjNNisgjt,, ^ .2_^a^ Y'^^^-o^^-^-^^^'T^^^-^^ Illustration No. 67, Check Book for Partnership Set. 130 BOOKKEEPING AND ACCOUNTING. NOTES RECEIVABLE -J^ld^/i 30 // (Prnfil fNotel DRAWER OR ENDORSER Z.?i^7ic.Ua'xvoi--t-&o. WHERE PAYABLE Illustration No. 68, Left Page of Notes Receivable Book. NOTES PAYABLE Date Received No (Draft) motel DRAWtR OR ENDORSER (Note) (Drarn MAKER OR DR.WVEE (Payer) IN WHOSE FAVOR (Payee) IVHERE PAYABLE /o '? J./ / .JZ^(rfi^tA>^v-€i~^ ^^t^y^ta^i-iSt' '5el<^ /5**«^ » ..V Illustration No. 69, Left Page of Notes Payable Book. § 158. Notes Receivable Book. This is an auxiliary book in which detailed information relative to notes and acceptances from customers is recorded. This information includesthe date, name of the person or firm from whom the note or acceptance is received, the endorser, bank where payable, date of issue, when due, and when paid or discounted. This book is ruled as shown in Illustration No. 68. 1[ I. To Audit the Notes Receivable Book. Each note or acceptance received is entered in the notes receivable book when received; when paid, the date of the payment is entered in the "When Paid" column. The total of the unpaid notes or accepted drafts as indicated by the record in the notes receivable book should be the same as the balance of the Notes Receivable account, also the total of the notes and accepted drafts on hand. When a note or accepted draft is sent to a bank or collection agency for collection, the date and "the name of the bank or collection agency is written in the "Remarks" column. The total of these should be included with the value of the notes on hand because they are not paid. Notes discounted at the bank should not be marked paid in the "When Paid" column unless the bank reports payment. The name of the bank and the date of discount should be written in the "Remarks" column. The value of these is not considered in the audit of the notes receivable book unless an account is kept with Notes Receivable Dis- counted, in which case, the balance of the Notes Receivable Discounted account would equal the total of the notes discounted as shown by the record in the notes receivable book. The record in the notes receivable book should be audited at least once each month. § 159. Notes Payable Book. This is an auxiliary book in which detailed information relative to notes signed and drafts accepted by the business is recorded. This information includes the date, the person or firm who received the note or acceptance, the bank where payable, date of issue, when due, and when paid. This book is ruled as shown in Illustration No. 69. BOOKKEEPING AND ACCOUNTING. 131 NOTES RECEIVABLE DATE OF PAPER | TIME WHEN DUE YEAR MONTH j RUN Ita \ '? "," .,,. ft Y '? .... ^.•■ » J... ■s- Infst /f/ . ■h^ / io^. •f 30 ^s-c ^Y' ;fcy / /;*/ 4i^,ca-M^%s- 'f "^ /^ JO . v 'f 97 iJ- /Y 'V 'f ■5f S.O .. v ■'f Joo ^A 'V >£»^ Z^,.Az-'>4j^ /y '1' 7?lr '/ .2/ J.S-C 300 /J. I 4<;« /5w J. I ip 'V Illustration No. 69, Right Page of Notes Payable Book. \i. To Audit the Notes Payable Book. Each note signed or draft accepted is entered in this book when issued ; the payment is indicated in the column pro- vided for this purpose. The total of the unpaid notes as shown by the notes payable book should agree with the balance of the Notes Payable account in the ledger. This audit is usually made once each month. BUSINESS FORMS. § 160. Business Letter. A business letter is a written communication relating to a business transaction, either completed or to be completed. _ A letter should be mechanically correct in form, brief but explicit, and contain all the required information. The important elements of a business letter are as follows : the date; the name and address of the person to whom the letter is written; the salutation; the body of the letter; the complimentary closing; the signature. The margin at the left and the right will depend upon the length of the letter, but it should not be less than one inch on each side. If the letter requires more than one page, the second page should not begin on the back of the first sheet. A carbon copy of each letter should be retained. It shows ignorance and a lack of business courtesy to answer a business letter on the original letter either on the back or front. See Illustration No. 70 for one form of a business letter. A business letter may be written with either a pen or typewriter, but should not be written with a pencil. The arrangement of the margin in the illustration is satisfactory for a typewritten letter. For a letter written with a pen, it is customary to allow the line beginning a paragraph the same space as is allowed for the margin, also to leave no blank lines between the name of the person to whom_ the letter is written and the salutation. The appearance of a business letter is just as im- portant as the personal appearance of a representative. No matter how well a letter may be constructed, if the arrangement is poor, it will have the same atten- tion as a carelessly dressed representative. 132 BOOKKEEPING AND ACCOUNTING. C.W KESUANO TELEPHONE 358 €3,Kfrtai«& k €0, DEALERS IN A-D MUNSON ^,5 6W«4^ ***■ TO BE *b AS REPRESENTEO Hay,Grain,Feed and Coal CEVCmiVATI.OHIO, April 7, 191 Young & Doyle , 1306 Grand Ave . , City. Gentlemen :- Replying to your letter of this date asking for price on Ko. 2 Hay in carload lots, will quote you $15.00 per ton, delivered at your place of business. We have a car in the yards and can have it placed on your siding tomorrow. Kindly advise us at once, as we could not make this price unless we were permitted to imload the oar at your warehouse. Very respectfully, C. W. KEEIAMD & CO. S/K per Illustration No. 70, Business Letter. § 161. A Statement of Account. This is a copy of a personal account as it appears on the ledger. It is customary to render a statement on the first of each month. This shows the balance at the beginning of the month, each bill rendered during the month, each credit for cash or other property accepted on account, and the balance due. The statement should show the date of each bill rendered and any special terms indicated on it. The balance as shown by the statement should be the same as the balance of the account in the ledger. The efficient bookkeeper will check these balances with those used in his Trial Balance before mailing the statements. See Illustration No. 71. BOOKKEEPING AND ACCOUNTING. 133 :„:,"/ ., MONTHLY STATEMENT OF ACCOUNT *■ "■ -"—- • FOLIO. ^ ■ MONTHLY STATEMENT OF ACCOUNT '- A IN ACCOUNT HAY, < INTEREST CMAB PAS r^ ^-^ z?!?z^.^ / iQi WITH ^-1«xiaMf Bohm, ,^A^ ^ MiIk per Bill ReiulemI ^^ ,iZ-jU /H? Md^ pn B,ll liindfTfi AJ^ ^A -^ X^^ ''/■/ •r7 /jr MONTHLY STATEMENT OF ACCOUNT IN ACCOUNT WITH ^^g'^i^^'V^S^^^^tf^^^^c^^^^g-Jg^^f^^^ C. W. KEELAND. a Co. HAY, GRAIN, FEED AND COAL INTEREST CHARCEO ON ALL BILLS ALL BILLS DUE FIRST OF T PAST DUE FOLLOWINO SAL HC MONTW Balaner r<- Md>«. ver Bill R<"ndrTtd J'^ ■7^^ ^ . ^a X^ ; MONTHLY STATEMENT OF ACCOUNT fc^^^^^ r.^ IN ACCOUNT WITH t^-^ t'^~7!=X-,^-7r-7fR'^^^,^r^.^^ C. W. KEELAND a CO. HAY, GRAIN, FEED AND COAL INTEREST CHARGED ON ALL BILLS ALL BILL! DUE FIRST OFT HE MONTH Balanrc ^:^^.C^- ^_ ,1/c/s? pfT Bill flenrfm-r/ ■„»>^ ^/ ^(rf^"^-' /-<=> ^■r ^^ ^7 SA •-TiC^ / 7.9 v^^f 7-'^ /'' wZ,n A^ MONTHLY STATEMENT OF ACCOUNT IN ACCOUnV WITH jg^^yl^-fg-feW^'^ ^^^i^^ C. W. KEELAND & CO. HAY, GRAIN, FEED AND COAL INTEREST CHARSEO ON ALL BILLS ALL BILLS DUE_ FIRST OF THE MONTH f PAS TDUC OLLOWIN a SALE Balanre ^^^Z'C^^ ^ MiiK pn- Bill Pendtred ^7- -->- - x-^^ ^^ JTe' ■l^f '^cC^ ^r ^^ ^./ y zj: ^^ ^^Z y^ -^' ■.jz^f -'€ y/ MONTHLY STATEMENT OF ACCOUNT ^ ^2£^iZ_19L M '^^^.^^ 9^ ^'Ay/i^C?-,<^..-tPT-pr!f IN ACCOUNT WITH C. W. KEELAND a CO. HAY, GRAIN, FEED AND COAL INTEREST CHARGED ON ALL BILLS ALL I / Balance ,^-i ^^ ■ ^ MJne. pfT Bill RendcTci c*^ r-/' y^^ .2^ ^^ ^7^^.^y ^^ 2- -7- ■Til 4r(P .^^^ ^^ ^ r^ Illustration No. 71, Statements of Accounts. KYPT A NATION This illustration shows the form of a statement to be rendered when the account with a customer has (a) one debit, (b) more than one debit, (c) one debit and one credit (e)ZreThanoSwt and more than one credit, (f) a baUince from a preceding month one debit and more than one credit. These correspond in form to those required of the student, May i, but ''^ "SlXraidlnluirrufd^beTeLtted'^ by"Jhe name of the firm and that of the person who receivSl the'^^oney; partial payments should be indicated only by the date and amount similar to the credits in the statements in the illustration. 134 BOOKKEEPING AND ACCOUNTING. § 162. Credit Bill. This is a statement sent by the seller to the buyer .showing that his account has been credited for the items described therein. A credit bill may be rendered for cash received, rebates allowed for damaged goods, errors in extensions of bills, etc. The form is similar to that of an invoice or bill. It is customary to print the credit bill with a different colored ink or on a different colored paper from that of the bill to distinguish between them. See Illustration No. 72. CREDIT BILL C. W. KEELAND & CO. DEALERS IN HAY. GRAIN. FEED AND COAL ^"^^^^.z^ /^ /g/ OMHBtT VQWRI AOCOW^tT A» ffOt-UON^S. Illustration No. 72, Credit Bill. § 163. Bill of Lading. This is a receipt issued by a transportation com- pany for property received for shipment. There are two forms of bills of lading, straight and order. These are issued by steam and electric railroads, express, and steamship companies. Bills of lading are made in triplicate and are supplied to the shipper by the transportation company, unless he wishes to use a special form. The form issued by a transportation company doing an interstate business is gov- erned by a ruling of the Interstate Commerce Commission. If the shipper pro- vides his own bill of lading it must conform with this form. By using two sheets of carbon paper the triplicate form can be made with one writing. One copy is retained by the transportation company, one by the shipper and the other is sent to the consignee. See "Special" on page 142. The form of the bill of lading required by the Interstate Commerce Commis- sion must be 8J^ inches wide and 7 inches long or 83^ inches wide and 11 inches long. A diiTerent color may be used for each copy of the triplicate form, but it is left to the shipper as to whether he uses one or more colors. The above discussion relates to the straight bill of lading which is issued for all shipments that are not to be paid for before delivery. The "order" bill of lad- ing will be discussed later. § 164. Telegram. A telegram is a communication or message sent by means of a telegraph company. There are two leading companies in the United States, The Postal Telegraph Cable Co., and the Western Union Telegraph Co. The charge for a message is based on the distance, the number of words in the mes- sage, and the time of sending it. See "Special" on page 142. BOOKKEEPING AND ACCOUNTING. 135 For use in connection witK the Standard form of Straight Bill of Lading approved by the Interstate Commerce Commission by Q Order No. 7S7 of June 27, 1908. Railroad Company sUpper. No.. THIS MFMOR ANDIIM I^ ^■t^f^^o^l^Bpent that a bill of l&dtnglias beep issued aodla Dot the Oripnal Bill oF Lading nor a copy or duplicate, covering the property named herein and is Intended solely for filing or record. Agents no._ RECEIVED, subject to the classifications and tanffs ia effect on the date of the receipt by the earner uf the property described m the Original Bill of Lading. From at 208 Commerce St... ,91 , C. W. KEELAND & CO., Illustration No. 73. Third Form of Bill of Lading. For use in connection with the Standard form of Straight Bill of Lading approved by the Interstate Commerce Commission by O Order No. 787 of June 27, 1908. THIC CHIPPINr ORTIFR must be legibly eUed in, in Ink, in Indelible Pencil, iniij OnirrinVj UIVUILIV ot m carbon and retained by ihe Agent. Railroad Company Shipper, No. Agents No.~. RECEIVED, subject to the classificataoos and tariffs m effect oa the date of issup of this Shipping Order at 208 Commerce St. 191.. C. W. KEELAND & CO., Illustration No. 73. Second Form of Bill of Lading. Uniform Bill of Lading—Standard form of Straight Bill of Lading approved by the Interstate Commerce Commission by i Order No. 787 of June 27, 1 908. B. & 0. S. W. Railroad Company Shippers No STRAiGHT Ml WLADING.rORi^ Ag..ts n...__ RECEIVED, subject to the classifications and tariffs in effect on the date of issue of this Original Bill of Lading. at 208 Commerce St - ' From 191 C. W. KEELAND & CO., The property described below, in apparent good order, cicept as noted contents and. condition of contents of pactages unknown). "Mr^ed. ioiisne? and destined as indicated ^.elow, which said Company agrees to carry to us usual place of dehyery at said destination if on its road, SthtS^? to deUver to another carrier on the route to said SesUnation. It is mutually agreed, as to each carrier of all or any of said property ove?nU or any portion of said route to desunatioo and as to each party at any time interested in all or any of said property, that every service tobe nerfonnetihVreunder shall be subject to all the conditions, wlether printed or .written, herein contnincd (mcluding conditions on back hereof), and which are agreed to by the shipper and accepted for himself and his a™'^5 The ratfl of Freight from to PittSbUrgll is in cents per 100 Lbs. IF...Timet III IF 1st Class IF 2d Class IF Rule 25 IF 3d Class F4lhClaii IF 5th Class IF 6th Class IF Special Consigned to-. Destination, ' W. H. Ingram (Mall address — Not for purposes of Dehvery ) 1873 Elm St. Pittsburgh , Penna. _ , , . State of County of Ron. Your line car imt.ai.... Allegheny Car No No. Packages 60 60 60 Description of Articles and Special Marks Weight (Sub. to Cor) scks. #1 Corn_. " _#2 _Corn_ Oats Class or Rate 6082/ 6114# 3849# Check Column If charges are to be prepaid, write or stamp here, "To be prepaid." Received S toapplyinprepayment of the chaiges on the property de- scribed hereon. Agent or Cashier. (The signature here ac- knowledges only the amount prepaid.) Charges Advanced. S C. W. KEELAND & CO., Shipper, Per B -Agent, Per- (Thi3 Bill of Lading is to be signed by the shipper and agent of the carrier issuing same.) Illustration No. 73. First or Original Form of BiU of Lading. NOTE— That part of illustrations of forms 2 and 3 not shown. Is the same as the lower part of the Illustration of the first or original form. Illustration No. 73, Original Bill of Lading and the two Copies. 136 BOOKKEEPING AND ACCOUNTING. There are four classes of telegrams — the fast day message, day letter, night message, and night letter. ^ I . The Fast Day Message is one on which the charge is based on ten words, and is accepted by the telegraph company to be sent as soon as received and delivered at its destination as soon as received. A fixed rate is charged for each word in excess of ten. POSTAL TELEGRAPH -COMMERCIAL CABLES RECEIVED AT THOMAS W. BAKER, PpoBrdont DELIVERY No. TELEGRAM ThB Postal Telograph-Cafale Company (Incorporated) transmits and delivers this message subject to the terms and conditions printed on the bacl( of this blank. May 12 igj Short Bros. , Cleveland. Number one com sixty seven cents Ijushel f. o. b. cars here. C. ff. KEELAND & CO. Illustration No. 74, Fast Day Message, If i. 1[ 2. A Day Letter is a message on which the charge is based on fifty words and is accepted by the telegraph company to be sent some time during the day and delivered when received at its destination. Fast day messages take precedence over day letters both in the sending and the delivering. A fixed rate is charged for each word in excess of fifty. NIGHT LETTER THE WESTERN UNION TELEGRAPH COMPANY INCORPORATED 26,000 OFFICES IN AMERICA CABLE SERVICE TO ALL THE WORLD ROBERT C. CLOWRV, Pr..lden1 BCLVtDERE BROOKS, Qansral Manapor necEivER B CHECK Send the following NIGHT LETTER .ubleot to I Un TT 1A tOf the termB on back hereof whioh are hereby agreetf to 1 WI Bt J ^ — J *f , ISri To Anderson, Peck i Fowler, Clinton, H. Y. Past freight Short BroSe , Cleveland, one car number one corn, and W. H. In- gram, Pittsburg, one oar number one hay. Show freight rate on bill of lading sent each consignee. Send invoice to us and charge to our account. Advise us freight rate on each shipment. C, W. KEELAND & CO. Illustration No. 75, Night Letter, ^4. BOOKKEEPING AND ACCOUNTING. 137 If 3. A Night Message is one on which the charge is based on ten words, and is accepted by the telegraph company to be sent during the night and delivered the next morning. The charge is less than that for the fast day message, with a fixed charge for each word in excess of ten. 1[ 4. A Night Letter is a message on which the charge is based on fifty words, and is accepted by the telegraph company to be sent during the night and delivered the next morning. The charge is the same as that for the fast day message, with an extra charge for each word in excess of fifty. § 165. A Certified Check is a personal check guaranteed by the bank on which it is drawn. It is certified by writing or stamping across the face the word "Certified" together with the name of the bank and the signature of the cashier or other official authorized to make certification. Certification may be required by the drawer or the holder. Checks are certified to prevent the drawer from with- drawing the funds on deposit before the check is presented. When the bank cer- tifies a check it becomes responsible for its payment. For this reason it is at once charged to the depositor's account. Illustration No. 76, Certified Check. GENERAL INFORMATION. § 166. Terms on Bills. These indicate special information in regard to the time of payment and the discount to be deducted. "2/10, n/30" indicates that, if payment is' made within 10 days, a discount of 2% may be deducted. If payment is made after that time, no discount will be allowed and the invoice is past due after the expiration of 30 days. "October i, 3/30, n/6o" indicates that if payment is made within 30 days from October i, a discount of 3% maybe de- ducted, but no discount is to be deducted if payment is made after that time and the invoice is past due after the expiration of 60 days. § 167. Part Payment of Invoices or Bills Subject to a Discount. It is not necessary to pay the full amount of an invoice or bill within the discount period in order to secure a discount on the payment. If a part payment is made, it is necessary to divide the amount of the payment by one hundred less the rate of discount in order to ascertain the value of the payment. If the face of the m- voice is $200.00 and the rate of discount 3%, it would require $194.00 for full pay- ment within the discount period. The amount of cash ($194.00) is not used m calculating the discount, which is calculated on the amount of the mdebtedness 138 BOOKKEEPING AND ACCOUNTING. ($200.00). When only a part payment is made, the amount of the cash is divided by 100 minus the rate in order to ascertain the value of the debit or credit resulting from the payment. The reason for this is because it is a percentage problem in which the difference (base minus the rate) and the rate are given and the base is required. The result of this division is the base; the difference between the base and the amount of the payment is the discount. Example: $190.00 is received as part payment of a sale which was subject to a 5% discount — $190.00 -h .95 (100 — .05) = $200.00. The customer is cred- ited with $200.00 and Sales Discount debited with $10.00. We send a check for $500.00 as part payment of an invoice subject to a 3% discount — $500.00 h- .97 (100 — .03) = $515.46. We charge the creditor with $515.46 and credit Purchases Discount with $15.46. Exercises in Receipts and Payments, Less Discount, in Full and in Part. Make the required entries in the cash book for the following exercises. Use the inside of a double sheet of journal paper and write the debit entries on the left, and the credit entries on the right. (§ 167.) Exercise No. 67. 1. January 9th, bought of L. H. Mabley, 3/10 — n/30, $162.95. Paid this amount in full by check, January i8th. (Make the entry for the payment, but not for the purchase.) 2. February 5th, sold M. D. Puterbaugh, 4/10 — n/30, $429.86. Received a check in payment of this on the 14th. 3. May 27th, bought from Union Mfg. Co., 3/10 — n/60, $529.48. Paid June 5th. 4. March 4th, bought of Anderson & Mumford, 5/10, 3/30 — n/60, $1,642.87. Made payments as follows: March 12th, $950.00; March 25th, $291.00; March 31st, $97.00; April 2d, $97.00; May 1st, the balance. 5. July i6th, sold F. W. Ellis, 3/10, 2/30 — n/60, $1,262.48; July 25th, re- ceived a check for $485.00; August 9th, $196.00; August 14th, $392.00; September 1st, $100.00; September 15th, the balance. 6. August loth, bought of Davis Bros., 6/10, 5/30, 3/60 — n/90, $2,992.50. Made payments as follows: August 19th, $1,586.00; August 31st, $50(JJbo; September 30th, $400.00; October 9th, $100.00; December ist, the balance. 7. July 3d, sold C. E. Huff, 5/10, 3/30, 2/60 — n/90, $2,556.98. Received payments as follows: July 12th, $1,200.00; July ' 31st, $500.00; August 26th, $400.00; September 2d, $100.00; October ist, $100.00; November 1st, the balance. 8. November i6th, bought from Cecil Bros., 3/10 — n/30, $526.49. Paid, November 24th. 9. April loth, sold J. T. Wissell, 4/10 — n/60, $397.62. Received check in full, April 20th. 10. September 14th, bought from R. N. Gardner, 2 /30 — n/60, $629.07. Paid, October 12th. 11. October nth, sold J. H. Schulmann, 4/10, 3/30, 1/60 — n/90, $729.62. Received payment as follows: October i8th, $300.00; November 8th, $250.00; December 6th, $100.00; January ist, the balance. 12. May 24th, bought of George Wolf & Sons, 7/10, 5/30, 3/60, 2/90 — n/120, $4,782.63. Paid as follows: June 3d, $2,000.00^ June 23d, $200.o^cA.-t^L.e^ CyL-d.ii.&Z^t' "1" ~J/ A i?- -J' (,2 ^ ^/ i.2. i9 So ^6. /■? U /f Illustration No. 77, Accrued Assets Account. BOOKKEEPING AND ACCOUNTING. 145 ACCRUED LIABILITIES ACCOUNT. § 182. The Object of this Account is to show the liabilities accrued, but not yet due, for 'services rendered to the business. These include interest owed on outstanding notes and accounts, taxes accrued but not paid, salaries and wages of employees accrued but not paid, and other unpaid obligations not shown by an account in the ledger. This account is not opened until the end of the fiscal period and is closed immediately after the books are closed. Debit Accrued Liabilities Account: Credit Accrued Liabilities Account: 1[ I. This account is not debited un- til it is closed, when it is debit- ed as explained in ^ 4. H 2. For the amount accrued but not yet due for services rendered to the business, such as, accrued interest, taxes, wages, rent, and insurance. A description of the liabilities may be written in the expla- nation column on the credit side, if desired. % 3. The Balance of this Account before the ledger is closed shows the amount accrued but not yet due for services rendered to the business. It is shown as a current liability on the Balance Sheet. ^ 4. To Close the Accrued Liabilities Account. This account is closed by a journal entry after all the profit and loss accounts in the ledger have been closed. The amounts credited to it are transferred to the proper service accounts. The name of each operating account affected is written in the explanation column on the debit side. The account is ruled with single and double red lines and footed with black ink. J/ s^ 3/ -i^^ A /- -Tff j?<^ /SJ Ji^ /J- 3 J^A Illustration No. 78, Accrued Liabilities Account. DEFERRED CHARGES TO OPERATIONS ACCOUNT. § 183. The Object of this Account is to show the amount of expense incurred in one fiscal period which is chargeable to the following period. This account is not opened until the end of the fiscal period and is closed immediately after the books are closed. 146 BOOKKEEPING AND ACCOUNTING. Debit the Deferred Charges Account: H I. For the value of stationery, stamps, advertising matter, coal and other property of this nature on hand. ^ 2. For the value of unexpired in- surance, interest paid in ad- vance, and other services of this nature. A brief description of the de- ferred charges may be written in the explanation column on the debit side, if desired. Credit the Deferred Charges Account: K 3. This account is not credited until it is closed, when it is credited as explained in H 5. % 4. The Balance of this Account before the ledger is closed shows the value of property or services paid for during this period which will not be consumed or used until the following period. It is shown as a special item following the fixed assets on the Balance Sheet. If 5. To Close the Deferred Charges to Operations Account. This account is closed by a journal entry after all the profit and loss accounts in the ledger have been closed. The amounts charged to it are transferred to the proper service accounts. The name of each operating account affected ' is written in the explanation column on the credit side. The account is ruled with single and double red lines and footed with black ink. =2^^~:dj£yl.yi^^ ^--^^^^^L^^.d^--'^i^(-^C^^ii^yL.ti.^^ -Ly /- J '^S f'-' "^^>i«v*C*.rfA:i^ /- ii a S 9"/ -c^U-iil.*-- A ^ <^<7f 96 J^^A^^«-*CAc^^C^ A / i 4/ / J'i aSl.Z.Ma^'.A^/ A 7 s- a 2 7S ■cCA>7^4.&ViSSi~: /- f dj J^^A.^^.^ ^ y ^ d ^7 -^3i^.^JjL, »^ / 7 /f 7 S f 3. i s dM.y^£^^ 7^ a 2. i^s- -^.^^Jj^ 7sa z ^-5- ^ J/ /- /is 7S ^ J/ *^ / (^a 7 yf jL.j!^ac^ //. /J S-3 AJ^'&.rr^S^. #- ^J-J AiS t;^^«-.^!--i-£*i^ /- ■S'7 7^,^ ec6»^£^(2^. A / SJ' Ji ^;grf:3^««.^ ^. h y sf 3S / a 7 / p- / a 7 -'/■ / £>IP7 /^ Illustration No. 80, Profit and Loss Account, in connection with Illustration No. 84. The name of each account is written in the explanation column for statistical purposes. This permits a comparison of the profits and losses for the current fiscal period with the preceding fiscal period without referring to the Profit and Loss statement. BOOKKEEPING AND ACCOUNTING. 149 TRADING ACCOUNT. § 186. The Object of this Account is to show the profit on sales for the current fiscal period. It shows the same facts as the trading accounts on the Profit and Loss statement, and may be shown as a separate account or as one section of the Profit-and Loss account. When shown as a separate account, it is debited with the items described in § 185, ^^ 1-5, and credited with the items described in § 185, 1[TJ 6-8. The balance, wlaich is the gross profit on sales, is closed into the Profit and Loss account by the journal entry made to close the trading accounts. The first part of Illustration No. 80 shows the Trading account. It is considered the better practice to close the trading accounts into the trading section of the Profit and Loss account. C. W. KEELAMD & CO. TRIAL BALAUCE, MAY 31, 191. ■ 1 C. ff. Keeland, Capital, 1500 00 1 C. ff. Kseland, Personal, 40 00 £ A. D. Munson, Capital, 1500 00 2 A. D. Munson, Personal, 50 00 4 Purchases, 4115 09 109 12 4 Purchases Discount, 46 75 4 Inventory, 1121 74 5 Sales, 26 91 4436 87 5 Sales Discount , 116 27 5 Sales Rehates and Allowances. 9 63 5 Freight In, 1241 86 7 Interest , 86 47 25 04 7 Insurance , 65 69 10 General Administrative Expense , 375 60 11 Selling Expense , 79 91 13 Office Equipment , 466 50 13 Store Fixtures, 204 00 14 Delivery Equipment , 450 00 16 Kotes Heceivahle, 645 65 16 notes Payatile , 2081 39 K Cash 1B36 66 /■ Accounts Receivable , 1353 01 v' Account sJPayable , 2395 82 12184 99 12184 99 13045.94 for board of horses for May, Inventory of merchandise on hand. May 31, 191,. , Accrued Assets: (Interest accrued on notes receivable , Bua from Borchee & Co. for delivery service rendered. Deferred Charges to Operations: Insurance expired. Stamps and stationery on hand. Accrued liabilities: Rent of warehouse , Due Webb livery Co. Unpaid pay roll , DepreelationB: Office Kquipment ,5^ Store Fixtures, 556 Delivery Equipment, 10% Re serve for Doubtfal Accounts: 1^ of debit balance of personal accounts. Illustration No. 8i, Trial Balance, Inventory, Accruals, Deferred Items, and Re- serves at the Close of the Fiscal Period, May 31. 3,69 62.50 10.32 16.00 50.00 70.00 33.34 I50 BOOKKEEPING AND ACCOUNTING. ADJUSTING JOURNAL ENTRIES AT THE CLOSE OF THE FISCAL PERIOD. § 187. At the close of the fiscal period prior to making the final Triai Balance, it is necessary to construct journal entries to take care of the following: expired insurance, depreciation on account of use of fixed assets, reserve set aside for doubtful accounts, accrued assets, accrued liabilities, deferred charges to operations and deferred credits to income. These entries are usually made in the order mentioned. § 188. Expired Insurance. The entry to transfer the expired insurance to the proper operating account or accounts will require one or more debits, and one credit, according to the class of property insured. Amounts paid for insurance on property purchased for use in the business and property purchased for sale are usually considered as one of the general expenses of the business; in- surance on buildings, as a charge to building expense; insurance on delivery equip- ment as a charge to selling expense. The amount of expired insurance is deter- mined from the policies or the insurance policy record (§ 150, 1| i). The illus- tration below shows the entry for the expired insurance, May 31, mentioned in Illustration No. 81. 31 Gen'l Admr. Expense Insurance Insurance expired for the .fiscal period. 32 32 § 189. Depreciation on Fixed Assets. The entry to charge the proper operating accounts with the depreciation on fixed assets will require one or more debits and one or more credits, according to the number of accounts which represent the fixed assets. Depreciation on office equipment is usually regarded as one of the general expenses of the business; depreciation on delivery equip- ment, as a selling expense; and depreciation on store fixtures, as a general expense or both general and selling expense, depending on the nature and use of the prop- erty. The illustration below shows the entry for the depreciations mentioned in connection with Illustration No. 81. The depreciation on store fixtures is consid- ered a part of the general expense. 31 Gen'l Admr. Expense Selling Expense Res. for Dep. of Office Equipment Res. for Dep. of Store Fixtures Res. for Dep. of Delivery Equipment Five per cent depreciation on cost of office equipment, store fix- tures and delivery equipment. 33 45 53 23 10 45 33 20 00 § 190. Reserve for Doubtful Accounts. The entry to set up a reserve for possible loss on account of doubtful accounts will require one debit and one credit. The amount of the reserve is determined by the management. As a rule, it is a certain per cent of the total credit sales or of the balance of the Accounts Receivable account. The illustration below shows the form of the entry for the reserve in Illustration No. 81. 31 Loss on Doubtful Accounts Reserve for Doubtful Accounts One per cent of amount due from customers as a reserve for doubtful accounts. 13 53 13 53 § 191. Accrued Assets. The entry to credit the proper service or operat- ing accounts with the value of the accrued assets will require one debit and one or more credits, according to the number of service or operating accounts BOOKKEEPING AND ACCOUNTING. 151 afifected. The fllustration below shows the entry for the accrued assets in Illustration No. 81. 31 Accrued Assets Interest Selling Expense Interest accrued on notes receivable and amount due from Borches & Co. for delivery service. 66 19 3 62 69 50 SO 103 34 § 192. Accrued Liabilities. The entry to charge the proper service or operating accounts with the accrued liabilities will require one or more debits, and on^ credit, according to the service or operating accounts affected. The illustration below shows the entry for the accrued liabilities in Illustration No. 81. 31 Gen'l Admr. Expense Selling Expense Accrued Liabilities Rent of warehouse for May, $50.00; due Webb Livery Co. for board of horses, $70.00; unpaid wages, $33.34. § 193. Deferred Charges to Operations. The entry to credit the proper operating account with the value of property on hand but not yet consumed will require one debit and one or more credits, according to the number of operating accounts affected. The illustration below shows the entry for the deferred charges to operations in Illustration No. 81. 153 34 , 31 Deferred Charges to Operations Gen'l Admr. Expense Stamps, stationery, etc., on hand. 16 16 C. W. KEElA.in).& CO. lEIAI BALAUCE, MAY SI, 191. 1 C. W. Keeland, Capital, 1500 00 1 C. W. Keeland, Personal, 40 00 z A. D. Munson, Capital, 1500 00 2 A. D. Manson, Personal, 50 00 4 Purchases, 4115 09 109 12 4 Purohasea Discount , 46 76 4 Inventory, 1121 74 S Sales, 26 91 4436 87 e Sales Discount, 116 27 e Sales Rebates and Allowances, 9 63 E ITeight in. 1241 86 7 Interest , 66 47 28 73 7 Insurance , 45 37 10 General Administrative Expense, 453 S^ 11 Selling Expense, 165 75 12 loss on Douttful Aoooiuits, 13 53 12 Reserve for Doubtful Accounts, 13 53 13 Office Equipment , 466 EO 13 Reserve for Depreciation of Office Equipment, 23 33 13 Store Fixtures, 204 00 13 Reserve for Depreciation of Store Pictures, 10 20 14 Delivery Equipment, 450 00 14 Reserve for Depreciation of Delivery Equip., 45 00 15 Accrued Assets, 66 19 15 Deferred Chfirges to Operations, 16 00 IE Accrued liebilitleB, 153 34 16 Botes Receivable, 645 65 16 Hotes Payable, 2081 39 / Cash, 1836 66 !/• Accounts Receivable, 1353 01 • Account B Payable, 2395 82 12434 08 1E434 08 Illustration No. 82, Trial Balance, May 31, after Entries for Accruals, Deferred Items and Reserves have been made and posted. 152 BOOKKEEPING AND ACCOUNTING. § 194. Deferred Credits to Income. The entry to charge the proper service accounts with the amount that is to be earned in the succeeding fiscal period will require one or more debits, according to the number of service ac- counts affected, and one credit. The purpose of this entry is to take out of the profits for this period that part of the profit which must be earned in the succeed- ing period, as explained in § 179. STATEMENT OF THE BUSINESS FOR A PARTNERSHIP. § 195. The Statement of the Business for a partnership does not diff^er from that of an individual or corporation except in the Capital accounts and the distribution of the profit. It consists of the Balance Sheet and the Profit and Loss statement, as explained in § 80. The following sections refer to Illustrations Nos. 83 and 84, and are based on the same facts concerning the statement of the business as explained in §§ 81 and 82. The illustrations may be used as a basis for making up a statement for a business conducted by either an individual, a partnership, or a corporation. § 196. Balance Sheet. This consists of the current assets, accrued assets, fixed assets, and deferred charges to operations; current liabilities, accrued lia- bilities, personal accounts of the partners, capital invested, and present capital. These are usually arranged in the order mentioned, but some accountants advise listing the fixed assets first. If I. Assets. The current assets consist of cash, notes receivable, accounts receivable less the reserve set aside for possible loss on account of doubtful accounts, inventory, and the accrued assets (an account due from Borches & Co. for delivery service, and interest accrued on Notes Receivable). The fixed assets are arranged in the order in which they appear on the ledger, the balance of the ledger account and the reserve for depreciation of each being shown separately. The deferred charges to operations (value of stamps, stationery, etc., on hand, and the value of the insurance as shown by the Insurance account) are shown last because they are assets that will be consumed by their use. 1[ 2. Liabilities. The liabilities are, notes payable, accounts payable, accrued liabilities (rent of warehouse, livery bill and unpaid pay roll) and amounts due the partners for salaries not withdrawn. • The difference between the total assets and total liabilities is the Present Capital or Partners' interests in the business. Each partner's share of the profit as shown by the Profit and Loss statement added to his investment equals his in- terest in the business, that is, his present investment (capital). See Illustration No. 83. § 197. Profit and Loss Statement. This shows, (a) the gross profit on sales, (b) the cost of operations, (c) other income, and (d) deductions from income. The facts in this statement are obtained from the accounts, Trial Balance and the inventory of merchandise on hand at the close of the current fiscal period. 1[ I. The Gross Profit on Sales is the result of the following: (a), the gross returns from sales (credit side of the Sales account) ; (b) , the returns by cus- tomers (debit side of the Sales account) ; (c), the rebates and allowances to customers (balance of the Rebates and Allowances account) ; (d) , discount allowed customers on account of prompt payment (balance of the Sales Discount account) ; (e) , the net returns from sales; (f), the inventory cost of merchandise on hand at the be- ginning of the period (balance of the Inventory account); (g), invoice cost of mer- chandise purchased during the period (debit side of the Purchases account); (h), freight on merchandise purchased (balance of the Freight In account); (i), returns, rebates and allowances (credit side of the Purchases account); (j), deductions BOOKKEEPING AND ACCOUNTING. 153 4 »-< 1^ •a 6 a o u u a a .0 t> bo ■H d Hi » E B e ■s § § ■H *» a Hi a +> CO Tl > ID - > g n IHH a h d MH -p a d a a -P < 1: a ra h CQ c\ m h 9 (Li hPi ' Pi hp. VO § gs ^1 l-l • H .q^ s<=i 01 < w •P ••") H a ^ n +a ■d •TJ • tJ P< -0^ -4"Jl d o> 10 n •1' n fH n HM 010 ton lOH n H i-i • en N n 10 ■* •* iH ■* W 00 00 io« o« 00 • • >Ot<3 • M h W) CO (D +> °! «« CD a .u •H M (0 ** Tl 43 rt -■o-^ §5 1 e e A h P. o • p © (D TJ OR 4a CO 00 <^ & 'd •H • ID (0 H f4 O 0) Op 4^ ^fd O o bo d .2^ 2 -a crj ■" C m m 9 W 2 "O •S .2 ■H q; S Oh CO CX) 6 c ni i-i c«.2 lu oj.fS ^^ 1^ cn ^ ■n 6 ho t: H m.S « ^ ^- 3 0) ™ o c! bo ^ M C c3 CoOO ^ "Xj' TO ■>- -M ra to ■"•ails ■^ C rs^ tn S S tJ ^ ^ -XI u °-< (U o CD n) Xi a M -a "3 a a c 0) ni '0 B -0 c 4J 1 ITt a C CQ J3 a Si "1 3 as f5 s tn 1 1 (U 0) 2 a m c u ^ H n 1; < s; L^ a 'rt-a X c a ts < *"* $i, 129.63, Civ^ $26.40; Purchases, Dr. $6,894.43, Cr. $391.84; Sales, Dr. $245.2^ Cr. $10,862.13; Sales Rebates and Allowances, Dr. $120.04; Sales Discount, Dr. $624.98, Cr. feS-So; Purchases Discount, Dr. $20.00, Cr. $391.64; General Administrative Expense, Dr. $752.08; Selling Expense, Dr. $372.45; Nptes Receivable, Dr. $1,010.24; Interest/ Dr. $17.95, Cr. $67.51; Office Equipment, Dr. $850.50; Reserve for Depreciation of Office Equipment, Cr. $19.42; Notes Payable, Cr. $2,500.00; Delivery Equipment, Dr. $350.00; Reserve for Depreciation of Delivery Equip- ment, Cr. $57.50; Personal Accounts Receivable, Dr. $4,168.43; Personal Accounts Payable, Cr. $3,795.16; Insurance, Dr. $150.00; Cash, Dr. $1,791.65. Inventory: Salable merchandise on hand, $3,618.92. Accrued Assets: Interest on notes receivable, %\2.^oi'^^^ Accrued Liabilities: Salaries of clerks in the selling department, $50.00; salaries of office employees, $25.00; rent unpaid, $75.00. ^,^ Deferred Charges to Operations: Office supplies on han(fi''^$29.75; catalogs on hand, $25.00. Expired insurance on office equipment and merchandise, $25.00.''" Depreciations: Office Equipment, 5%; Delivery Equipment, 5%.*^ Reserve for Doubtful Accounts, 1% of balance due from customers. *-^ Proceed as follows: (a^TVIake the jouraal entries for the expired insurance^J|_i88)r3epreciation on fixed assets (§ i895^eserve for doubtful accounts (§ 190), acTrued assete<§ 191), accrued liabilities ^192), deferred charges to operations (§ 193), and post them; (b)Hake a Trial Balance showing the accounts with these changes; (c) from this Trial Balance prepare a Balance Sheet (§ 196), and Profit and Loss statement (§ 197); (d) make the journal entry necessary to close the accounts on the Profit and Loss statement and the Profit and Loss account; profit divided equally (§§ 199 and 200); (e) close the partners' Capital accounts; (f) make the entry necessary to transfer the accrued assets, accrued liabilities and deferred charges to operations, to the proper service accounts (§ 202) ; (g) take a Proof Sheet. Exercise No. 69, Trial Balance, Day, Moxley, and Hatcher, Dec. 31, 191. Chas. Day, Capital, Dr. $650.00, Cr. $6,000.00; Wm. Moxley, Capital, Dr. $400.00, Cr. $4,000.00; H. D. Hatcher, Capital, Cr. $4,000.00; Chas. Day, Personal, {Concluded on page 160.) i6o BOOKKEEPING AND ACCOUNTING. (Exercise No. 69 — Concluded^ Dr. $44.19; Wm. Moxley, Personal, Cr. $115.19; H. D. Hatcher, Personal, Dr. $25.91; .Inventory, Dr. $4,862.24; Purchases, Dr. $10,864.48, Cr. $374.96; Sales Discount, Dr. $629.50, Cr. $10.00; Purchases Discount, Dr. $20.10, Cr. $586.46; Freight In, Dr. $1,051.67, Cr. $13.91; Sales, Dr. $236.52, Cr. $15,616.68; Sales Rebates and Allowances, Dr. $133.22; Cash, Dr. $4,680.52; Selling Expense, Dr. $1,036.82; Insurance, Dr. $300.00; General Administrative Expense, Dr. $1,450.79; Interest, Dr. $26.95, Cr. $56.98; Notes Receivable, Dr. $4,452.65; Notes Pay- able, Cr. $1,650.00; Office Equipment, Dr. $865.96; Reserve for Depreciation of Office Equipment, Cr. $85.55; Accounts Receivable, Dr. $3,586.42; Accounts Payable, Cr. $4,808.21 ; Delivery Equipment, Dr. $2,000.00. Inventory: salable merchandise on hand, $3,621.52. Accrued Assets: interest on notes receivable, $14.75. Accrued Liabihties: salaries of employees in selling departm.ent, $94.80; salaries of office employees, $100.00; unpaid rent, $100.00. Deferred Charges to Operations: office supplies on hand, $40.00; catalogs on hand, $54.00. Expired insurance on office equipment and merchandise, $100.00; expired insurance on delivery equipment, $50.00. Depreciations: Office Equipment, 5%; Delivery Equipment, 5%. Reserve for Doubtful Accounts, 2% of balance due from customers. (a) Make the journal entries for the expired insurance (§ 188), depreciation on fixed assets (§ 189), reserve for doubtful accounts (§ 190), accrued assets (§ 191), accrued liabilities (§ 192), deferred charges to operations (§ 193), and post them; (b) take a Trial Balance showing the accounts with these changes; (c) from this Trial Balance prepare a Balance Sheet (§ 196), and Profit and Loss statement (§ 197) I (d) make the journal entry necessary to close the accounts on the Profit and Loss statement and the Profit and Loss account, profit or loss shared equally by the partners (§§ 199 and 200); (e) close the partners' Capital accounts; (f) make the entry necessary to transfer the accrued assets, accrued liabilities and deferred charges to operations, to the proper service or operating accounts (§ 202). QUESTIONS. 1. Define accrued assets and give an example. (§ 176.) 2. Define accrued liabilities and give an example. (§ 177.) 3. Define deferred charges to operation and give an example. (§ 178.) 4. Define deferred credits to income and give an example. (§ 179.) 5. State the object of the Accrued Assets account. (§ 181.) How is it shown oh the Balance Sheet? (§181, If 3.) 6. State the object of the Accrued Liabilities account. (§ 182.) How is it shown on the Balance Sheet? (§ 182, 1[ 3.) 7. State the object of the Deferred Charges to Operations account. (§ 183.) How is it shown on the Balance Sheet? (§ 183, \ 4.) 8. State the object of the Deferred Credits to Income account. (§ 184.) 9. What is the object of the Trading account? (§ 186.) 10. Name the two methods of showing it in the ledger. 11. Why is the ledger closed? (§ 84.) 12. Name the two methods of closing the ledger. 13. Name the adjusting entries at the close of the fiscal period. (§§188-194.) 14. Name the two statements made at the close of the fiscal period. (§ 195.) 15. State the object of each. (§§ 196 and 197.) 16. What two methods are used in closing the ledger? (§ 198.) 17. Describe the entry to close the trading accounts. (§ 199.) 18. Describe the entry to close the profit and loss accounts. (§ 200.) 19. Describe the entry to transfer the profit to the Capital accounts. (§201.) 20. Describe the entry to close the Accrued Assets, Accrued Liabilities, and Deferred Charges to Operations accounts. (§ 202.) BOOKKEEPING AND ACCOUNTING. i6i PARTNERSHIP SET (Continued). JUNE. § 203. Introduction. The work in this month is a continuation of the prac- tice work of April and May and introduces the following: accounts with Consign- ments Outward, Consignments Inward, Commission, Sales Ledger (Accounts Receivable), Reserve for Doubtful Accounts, and Traveling Expense; Shipping Invoice; Account Sales; Shipments and Consignments; Special Column Journal; Special Column Cash Book; and C. O. D. Shipments. CONSIGNMENTS. § 204. Merchandise sent by the owner to another to be sold by him at the owner's expense and risk is known as a consignment. The owner is known as the consignor and the party to whom the merchandise is sent, the consignee. Formerly the selling of merchandise on consignment was very popular because it allowed the owner to retain title until sold, and also permitted him to receive the ben- efit of profit derived from an increase in market price. It is not so extensive now because the modern business man prefers to buy the goods he sells. An exception to this is merchandise of a perishable nature or goods, the cost of which will not justify the investment. An illustration of merchandise of a perishable nature is vegetables, poultry, eggs, live stock, etc.; an illustration of the other class is cotton, grain, etc. CONSIGNMENT OUTWARD ACCOUNT. § 205. The Object of this Account is to show the amount of expense incurred on merchandise shipped to be sold on consignment. This includes only those expenses which are paid by the consignor. The account is designated by the name of the person or firm to whom the consignment is made, the words "Con- signment Outward" and the number. No. i, indicating the first consignment. Additional consignments to the same party should be numbered in consecutive order. When merchandise is shipped on consignment, the consignor renders the con- signee an invoice of shipment (§ 208), setting forth the articles shipped, the cost, and all special conditions in connection with the consignment. No entry is made for the value of the merchandise on the general books because there is no change in ownership. However, a memorandum entry should be made either in the journal ' or a special book, setting forth the same facts as shown by the shipping invoice. If a part payment is made on account of the sales, the amount is credited to the Consignment Outward account. When tTie consignee renders an account of the sales (§ 209) of the merchandise sent him on consignment, the Consignment Outward account is credited with the net proceeds, or the net proceeds less the advances. No personal account is necessary with the consignee unless a remittance for balance due does not accompany the account sales. If the owner wishes to know the profit on each consignment of merchandise, he can ascertain this by deducting the gross cost (cost shown by the memorandum entry plus the charges, balance of the Consignment Outward account) from the net proceeds as shown by the account sales (§ 206, If 5). 1 62 BOOKKEEPING AND ACCOUNTING. Debit the Consignment Outward Acct.: Credit the Consignment Outward Acct.: Hi. For amounts paid by the con- II 2. signer for freight, drayage and other charges incurred in con- nection with the shipment to ^ 3. the consignee or its return to the consignor if not sold. For cash, notes, or acceptances, on account of the consign- ment. For the net proceeds shown on the account sales rendered by the consignee. >-/ (2y3 / 1- ^2. a. 7 jS-jS- £ 2- 9 s- ^ £1- lUustration No. 86, Consignment Outward Account for Exercise No. 70. % 4. The Difference Between the Two Sides of this Account shows the net returns from the consignment. It is shown on the Profit and Loss statement as one of the returns from the sale of merchandise, under the caption "Consign- ment Sales." If any part or all of the merchandise remains unsold, the value is shown on the Balance Sheet as an inventory of merchandise, but separate from the merchandise in stock. 1[ 5. To Close the Consignment Outward Account. The balance of this account may be closed into the Consignment Sales account at the time the account sales is received, or at the close of the fiscal period; the balance of the Consignment Sales account is closed by the journal entry made to close the accounts on the Profit and Loss statement. Exercises in Consignment Outward Accounts. Prepare on ledger paper a Consignment Outward account for each of these three exercises. Exercise No. 70 is the same as Illustration No. 86. References are to § 205. Exercise No. 70. Brown Bros., Consignment Outward, No. 1. Sept. 9. Shipped Brown Bros., Chicago, 500 bushels potatoes, cost $1.65 per bushel, to be sold on consignment. 10. Paid I36.50, freight on the potatoes shipped Brown Bros. 15. Received check for $200.00 from Brown Bros., on account of sales of the potatoes shipped them on consignment. 26. Received from Brown Bros, an account of the sales of the potatoes, with check for $755.62, net proceeds less advance payment. 30. At the close of the fiscal period, the balance is closed into the Consign- ment Sales account. Exercise No. 71. Wolf & Lott, Consignment Outward, No. 3. Oct. 3- 31. Shipped Wolf & Lott, New York, 200 bales of hay, 20,000 lbs., cost $15.00 per ton, to be sold on our account and risk. Paid $38.75, freight on hay shipped to Wolf & Lott. Received an account of sales of the hay shipped Wolf & Lott on con- signment, with check for the net proceeds, $261.75. BOOKKEEPING AND ACCOUNTING. 163 Exercise No. 72. Central Commission Co., Consignment Outward, No. 6. May 26. Shipped the Central Commission Co., New Yoric, 15,000 quarts straw- berries, cost 13c per qt., to be sold on consignment. May 27. Paid the Harold Transfer Co. $86.75 for drayage and loading the straw- berries on the car. June I. Paid fi.25 for telegram on account of shipment. 10. They accepted a five-day draft for $1,000.00, on account of shipment. 15. Received a check for $400.00 on account of shipment. 23. They sent us a note for $118.75, which was transferred to them in pay- ment for berries sold from the shipment. 26. Received check for $246.50, balance due as per account sales rendered. Show the profit or loss resulting from this consignment. CONSIGNMENT INWARD ACCOUNT. § 206. The Object of this Account is to show the amount due the con- signee or due from him. It is the account that the consignee keeps with the goods received from the consignor to be sold on consignment. An account is kept with each person or firm from whom consignments are received. The account is des- ignated by the name of the person or firm from whom the consignment is received, the words "Consignment Inward" and the number, "No. i" indicating the first consignment. Additional consignments inward made by the same party would be numbered in consecutive order. No entry is made on the general books at the time the merchandise to be sold on consignment is received, but a memorandum entry should be made in the journal or a special consignment book if there are a number of consignments. Merchandise on hand at the close of the fiscal period belonging to a consignment does not affect the Balance Sheet prepared from the books of the consignee because it does not belong to him. The only interest he has in the consignment is the freight and other charges which he may have paid. Debit the Consignment Inward A cct.: Credit the Consignment Inward A act.: If I. For amounts paid for freight, H 6. For cash or credit sales of mer- drayage, or any services in chandise belonging to the con- handling the merchandise be- signment. longing to the consignment. If 2. For amounts paid, notes given, or drafts accepted, as part payment of the goods sold. If 3. For the value of goods returned by customers or rebates al- lowed on account of damaged goods. If 4. For the charges made at the time the account sales is ren- dered, which are usually for drayage, storage, insurance and commission. If 5. For the net proceeds, which is If 6 minus the total of If If i, 3 and 4. 1 64 BOOKKEEPING AND ACCOUNTING. H 7. The Balance of this Account shows the amount due from or owed to the consignee. The amounts that appear on the debit side are charges, and the amounts on the credit side, sales. If the net charges exceed the sales, the consignor owes the consignee this amount. If the net sales exceed the charges, the consignee owes the consignor. The balance is shown either as a current asset or a current liability on the Balance Sheet. Merchandise on hand belonging to the consignment would not be shown on the Balance Sheet because it does not belong to the consignee. It is the property of the consignor and subject to his orders. 1[ 8. To Close the Consignment Inward Account. This account is not closed until the account sales is rendered and the balance due is paid. After the journal entry for the charges has been posted, the two sides are equal and the account is ruled with single and double red lines and footed with black ink. If there are any goods on hand, the value of these is shown on the account sales for the information of the consignor and a new memorandum entry made on the books of the consignee. Illus- tration No. 87 shows the form of the Consignment Inward account. ik^ '9' /2- (^K-^i*!/.,.*^..^-:*- ^- 7- ^A '9' f(. ^0 / ^ ^ •** df J ue> ^3 /6 '^uL^I^ &^ ■^f '^A 2.' z^J^s-"^ ai' -9^ Xi (2.// fa 97 3£ 3 3'r J T J9 33? S9' Illustration No. 87, Consignment Inward Account for Exercise No. 73. Exercises in Consignment Inward Accounts. Prepare on ledger paper a Consignment Inward account for each of these three exercises. Exercise No. 73 is the same as Illustration No. 87. References are to § 206. Exercise No. 73. Rosenbeck & Williams, Consignment Inward, No. 1. June 12. Accepted 500 bales, 49,561 lbs. of hay from Rosenbeck & Williams, Springfield, to be sold on consignment; paid $2.50 for unloading (^ i). 16. Sold for cash, 200 bales, 20,119 lbs. hay at $14.00 per ton (^ 6). 16. Gave the C. N. O. & T. P. Ry. Co. a check for $59.47; freight charges on consignment (^ l). 21. Sold for cash, 290 bales, 28,365 lbs. hay at $14.00 (1[ 6). 25. Rendered an account sales for 490 bales, 48,484 lbs.; 10 bales, 1,077 lbs., were too badly damaged to be sold. Our charges were 2c per bale drayage, ic per bale storage, 1% of the sales for insurance, and 5% of the sales for commission (If 4). Enclosed check for the net proceeds (H 5). BOOKKEEPING AND ACCOUNTING. 165 Exercise No. 74. Davis & Bros., Consignment Inward, No. 6. Nov. 5. Received from Davis & Bros, of Cleveland, 5,000 baskets of grapes, to be sold on consignment. 7. Gave the C. C. C. & St. L. Ry. Co. a check for $107.65 to pay freight on the grapes (Hi). 8. Sold for cash, 1,000 baskets grapes at 14c (1[ 6). 9. Paid 80c for telegram on account of consignment (1[ i). 12. Sold on account, 2,000 baskets grapes at 14G. 13. Accepted lo-day draft for $150.00 {^ 2). 14. Sold for cash, 500 baskets grapes at 14c. 16. Sold for cash, 1,500 baskets grapes at isJ^c. 20. Sent them an account sales; charges }^c per basket for storage, }^c per basket for drayage, $10.00 for insurance, and 4% of the sales for our commission (If 4) ; sent them check for the net proceeds less advances. Exercise No. 75. Florida Commission Co., Consignment Inward, No. 9. Make journal entries for the following transactions and post the entries that affect the Consignment Inward account. ' June 5. Received from the Florida Commission Co., Jacksonville, i.ooo water- melons to be sold on their account and risk. 6. Paid for unloading and transferring to the warehouse, $12.50. 7. Sold for cash, 200 melons at 28c. 9. Sold T. E. Burns Co., on account, 150 melons at 28c. 12. Paid 90c for telegram on account of consignment. 14. Collected 40c, retail price, for a melon which the driver ate. 15. Sold for cash, 300 melons at 27c. 17. Allowed T. E. Burns Co. credit for $1.40 for 5 melons which were in a bad condition when received by him (H 3). 18. Sent the consignor a check for $50.00 on account of consignment. 22. Sold W. R. Carter & Son, 100 melons at 26c. 27. Accepted ten-day draft for $75.00 on account of consignment. 28. Sold for cash, 125 melons at 27c. July 3. Sold the remainder of the melons for cash, $31.16. 6. Rendered an account sales and sent check for the net proceeds less advances. Our charges were ic per melon for drayage; ic per melon for storage; 1% of the net sales for insurance; 4% of the net sales for commission. COMMISSION ACCOUNT. § 207. The Object of tliis Account, as used in this set, is to show the net amount received as commission for selling merchandise on consignment. Debit Commission Account: Credit Commission Account: H I. For rebates that reduce the in- If 2. For amounts received from the come as shown by the credit consignoras commission, which gjjg is usually a certain per cent of the net sales. If 3. 7'/ze Difference Between the Two Sides of this Account shows the net amount of comniission received. It is shown as a special income on the Profit and Loss If 4. To Close the Commission Account. This account is closed into the Profit 166 BOOKKEEPING AND ACCOUNTING. and Loss account by the journal entry, which closes the accounts affecting the Profit and Loss statement. After this journal entry has been. posted, the account will balance and it is ruled with single and double red lines and footed with black ink. V iTT'7-z-'yyt-ti<^^il<,'tP'yi^ Ja Illust f,C ■s r J^ '9' 25 so 1 Account. /- A 97 S-7 jr ^7 3r rati on No. 38, Commissioi § 208. Invoice of Shipment. This is a business form used by the consignor on which to list the goods shipped on consignment, and is similar to a bill or invoice. It is customary to show the cost price of merchandise on the invoice of shipment that the consignee may know the cost and sell at such a price as will give the owner a profit. Illustration No. 89 shows the usual form. Invoice of Shipment Invoice of Shipped via. C. W. KEELAND a Co. Consignors. <^;^„g^^. f9r /n ~^^;^>7^7:>-^y'^l:? >'-z--<^^.^-l>^. to be sold for account and risk of .£2. ,-.^^^^— S'c^^^^.wA^^.-wOCy'-.^ yg^^T' ^a ^^ /^/^■^ (7 e> ^a ^^^^^^i ^-^ y^iP C (7 4^'f<^ \ a (7 Illustration No. 89, Invoice of Shipment. § 209. Account Sales. This is a business form on which the consignee makes his report to the consignor. It is arranged to show the quantity of merchandise re- ceived, the articles sold and the various charges. From this the owner may as- certain the quantity sold, the charges for selling, and the merchandise on hand belonging to the consignment. The net proceeds is the amount due the consignor (owner) for the sale of his merchandise; it is the gross sales less the charges (§ 206, \\ I, 3 and 4). The consignee may pay this or place it to the credit of the consignor's (owner) account. Illustration No. 90 shows a popular, form of an account sales. BOOKKEEPING AND ACCOUNTING. 167 Account Sales June 25 _!»_ T W Bosenbaok & ffllllams Addresi Serlngfleld Btlow please find account tales o f 600 tales. 49561 Its. Hay Sold by C. W. KEELAND & CO. Itrcetoed June 11 191 and told for account o f yourselves DATE CHARGES AMOUNT DATE SALES AMOUNT 6 IP F™{.h, 5? 47 6 16 200 bales. 20119 lbs. 14. OC 140 83 IE Oih^r ri,.,^ Lator 2 50 21 290 " 28365 " 14. OC 198 56 25 9 80 4 90 10 bales, 1077 lbs. , too 3 39 badly damaRed to be sold. 16 97 ■M*f 'PmrMHs 2^ 03 36 Tnl.l 339 39 Total Sales 339 39 1 B.I.... ty oheok 242 36 Illustration No. 90, Account Sales. NOTE. The discussion of consignment accounts in §§ 205 and 206 is applicable to a business that has an occasional consignment inward or consignment outward, and not to one that does an extensive commission business. A very thorough discussion of consignment accounts is given in Applied Theory of Accounts by Paul J. Esquerre, C. P. A., published by the Ronald Press Co., New York, and Principles of Accounting by John Raymond Wildman, C. P. A., published by The William G. Hewitt Press, New York. ACCOUNTS RECEIVABLE. § 210. Accounts receivable is a term used to represent the total amount due from the regular customers of the business. As a rule, these will be far more numerous than any other class of accounts. For this reason it is customary to group them in one or more special ledgers arranged alphabetically or geographically. When accounts with customers are kept in a special ledger or ledgers, or in a special part of the general ledger, it is better to keep one account which will show all the transactions in total. This may be named Accounts Receivable, Sales Ledger Account, A-C Ledger, D-E Ledger, City Ledger, Country Ledger, etc. Where the personal accounts are grouped in this manner and a special account kept to show the total, this account is used in taking the Trial Balance. When the Trial Balance has been proved, the accounts in the special ledger or ledgers are then proved with the account or accounts that represent them in the general ledger. The accounts in the general ledger are termed controlling accounts. . SALES LEDGER ACCOUNT. § 211. The Object of this Account is to show the total amount due on account from customers. It is a controlling account and represents the balance of the various accounts with customers in the sales ledger. This account is very popular with practicing bookkeepers because the Trial Balance from the general ledger may be proved to be correct without including the numerous accounts with customers, thus saving time in locating errors. 168 BOOKKEEPING AND ACCOUNTING. Credit Sales Ledger Account: With the total of the Sales Ledger column in the journal. With the total of the Sales Ledger column on the debit side of the cash book. With the total of the Sales Dis- count column on debit side of cash book. Debit Sales Ledger Account: H I. With the balance due from cus- If 4. tomers at the time the account is opened. H 5. % 2. With the amounts charged to customers in the journal or cash book. If 6. If 3. At the end of the month with the total credit sales for the month in the sales book. ^ 7. The Balance of this Account shows the amount due from customers and must be the same as the total of the various balances shown by the accounts in the sales ledger. The balance is proved to be correct after the general Trial Balance has been made and proved. It is shown as a current asset on the Balance Sheet. If 8. To Close the Sales Ledger Account. This account is not closed until it balances, unless it is necessary to transfer the balance to a new page, or it is .desired to rule the account and carry the balance down on the same page. The balance and the date of closing are entered on the debit side, the account ruled with single and double red lines and footed with black ink. The balance is carried down on the debit side below the ruling, or forwarded to the new page. / -^S^tA-y^-c^ t^ 3 Z^7 -TV Ja /^ /9 7 ds ,A/^tS«i~/ 2.^ / :2-'4 s-a Jo • Jji 1^9/' 3 97 ■^^.^<^ *- Z-3.£"^ /^ / ^j'ja 9^ / tP ^33 f~3 /^ / r' a- y-aA^ // Illustration No. 91, Sales Ledger Account. RESERVE FOR DOUBTFUL ACCOUNTS ACCOUNT. § 212. The Object of this Account is to show the net amount of the re- serve set aside to take care of possible loss on account of doubtful accounts. No matter how careful a credit man may be in extending credit, some of the accounts are almost sure to prove worthless. Unless this is considered at the time the State- ment of the Business is made, it will not show the real financial condition of the business. To provide for this a reserve is created at the close of the fiscal period, the amount of which is determined by the management. Debit Res. for Doubtful Accts. Acct.: Tf I . With the amount that can not be collected from a customer, this entry being made at the time the account has proved worthless. Credit Res. for Doubtful Accts. Acct.: If 2. At the close of each fiscal period with the percentage of ac- counts receivable considered uncollectible by the manage- ment. BOOKKEEPING AND ACCOUNTING. 169 H 3. The Balance of this Account shows the net amount of reserve available to take care of worthless accounts. It may be shown on the Balance Sheet as a deduction from accounts receivable or as a liability, preferably as a deduction. % 4. To Close the Reserve for Doubtful Accounts Account. This account is not closed until it balances, unless it is necessary to transfer the balance to a new page. The balance, together with the date of closing and the new page are entered on the smaller side with red ink, the account ruled with single and double red lines and footed with black ink. The balance is entered on the opposite side of the ac- count on the new page. NOTE. Some bookkeepers close those accounts that arc long past due and considered uncol- lectible into a Doubtful Accounts account and carry the balance in this account until assured that collection can not be made; the amount is then charged to the Reserve for Doubtful Accounts account. This plan may be advisable under certain circumstances, but as a rule it is better practice to leave the customer's account open in the ledger until it has proved uncollectible and then charge it direct to the Reserve account. The name of the account charged to the Reserve account should be Written in the explanation column. If a loose leaf ledger is used, the sheet on which the account is shown may be removed from the current binder and placed in a special binder for future reference. Sometimes accounts that are apparently uncollectible are collected, hence the advisability of keeping a record of those that are charged off. TRAVELING EXPENSE ACCOUNT. § 213. The Object of this Account is to show the expense incurred by traveling men, which includes railroad fare, hotel accommodations, salary, com- mission and other authorized expenditures. Traveling expenses are a part of the selling cost. Debit Traveling Expense Account: Credit Traveling Expense Account: *\ 1. For the salaries of traveling men. If 3. For any amount received that If 2. For amounts paid for railroad decreases the charges made to fare, hotel accommodations, this account. livery, etc., as shown by each traveling man's weekly or monthly report of expenses. If 4. The Difference Between the Two Sides of this Account shows the amount of expense incurred by traveling men. It is shown as a selling expense on the Profit and Loss statement. If 5. To Close the Traveling Expense Account. This account is closed into the Profit and Loss account by the journal entry that closes those accounts affecting the Profit and Loss statement. After this entry is posted, it will balance and is ruled with single and double red lines and footed with black ink. 2-3. A /- 77 / 1^ 2- /a Ja ■i^.>fa-Y^ ^^c '7f 7^ ■ ' 7 f / 79 7-5- / 7^7 7^ Illustration No. 92, Traveling Expense Account. I70 BOOKKEEPING AND ACCOUNTING. BOOKS OF ACCOUNT. § 214. The same books of original entry are used in June as in the pre- ceding months, i. e., the journal, sales book, purchases book and cash book. The same form of sales book and purchases book is used, but a change is made in the form of journal and cash book. These are explained in the following sections. § 215. Cash Book. This has the same ruling as in the preceding month, the only difference being in the use of the columns. 1[ I. Debit Side. Amounts received from customers are entered in the first column; discount on these payments, in the second column on the same line with the entry in the first column, and amounts received which affect accounts in the general ledger are entered in the third column. 1[ 2. Credit Side. Amounts paid that affect accounts in the general ledger are entered in the first column, discount on amounts paid creditors, in the second column, and amounts paid for selling expense are entered in the third column. % 3. To Prove Cash. Foot each of the three columns on the debit side, entering the totals in small pencil figures just beneath the blue line on which the last amount is entered. Foot the three columns on the credit side and enter the totals of each in small pencil figures just beneath the line on which the last entry is made. From the total of the first and third columns on the debit side, subtract the total of the first and third columns on the credit side. The difference is the cash balance as shown by the last balance on the check stub, or this balance plus cash and checks in the cash drawer. H 4. To Post from the Debit Side of the Cash Book. Each amount entered in the first column on the debit side is posted to the credit side of the account in the sales ledger written on the same line with it; each amount in the second column is posted to -the credit side of the account in the sales ledger written on the same line with it ; each amount in the third column is posted to the credit side of the account in the general ledger written on the same line with it. At the end of the month the total of the first column is posted to the credit side of the Sales Ledger account in the general ledger; the total of the second column is posted to the credit side of the Sales Ledger account, and also to the debit side of the Sales Discount account in the general ledger. The total of the third column is not posted. The total cash receipts are posted to the Cash account. 1[ 5. To Post from the Credit Side of the Cash Book. Each amount entered in the first column on the credit side is posted to the debit side of the general ledger account written on the same line with it; each amount in the second column is posted to the debit side of the general ledger account written on the same line with it. Amounts entered in the third column are not posted, the total being posted at the end of the month. At the end of the month the total of the first column is not posted ; the total of the second column is posted to the credit side of the Purchases Discount account; the total of the third column is posted to the debit side of the Selling Expense account. The total payments are posted to the Cash account. § 216. Special Column Journal. This is ruled with three money col- umns, General Ledger Dr., General Ledger Cr., and Sales Ledger Cr. The special Sales Ledger column is necessary when a Sales Ledger account is kept in the gen- eral ledger, otherwise each credit to an account in the sales ledger would have to be posted twice. When a transaction affects the credit side of an account that appears in the sales ledger, the amount is entered in the Sales Ledger Cr. instead of the General Ledger Cr. column. Amounts entered in this column are posted in the sales ledger to the credit side of the accounts affected. At the end of the month the total of this column is posted to the credit side of the Sales Ledger account in the general ledger. BOOKKEEPING AND ACCOUNTING. 171 C. O. D. Shipments. § 217. When a Sale is made and the purchaser agrees to pay for the mer- chandise when it is delivered, the terms are C. O. D., that is, "Collect on Delivery." If the customer resides in the same city, the delivery may be made by wagon or automobile; if he resides out of the city, delivery is made by express or freight. The purchaser should be required to pay in advance a part of the sale price if the C. O. D. shipment is to be made by express or freight. This provides against loss on ac- count of transportation charges if the shipment is refused. See "Special" on page 142. C.O.D. Bill Inclosed FOR GOODS SHIPPED TO Meridan Hotel Main & Sixth Sts. * ..2.6..«.15.Q- Amount of Bill S S^.7X^. Charges for Collecting and Return of Proceeds. ...Ms.ri.^aii , 9 onn • Postmaster: Forward to Address on Reverse'Side. INSTRUCTIONS:— "f.'^ «'"""»' '"-'"■""' "> ^""k, dollvered until Invoice Is paid. A C. O D pSckaBe must not be for warded Uvond onelnftl deatinatign. unless by siteclal lastructlons from Affsnt at ijmppLos Office IF CHARGES FOB RETUIM OF «OK£y ARE TO BE COLLECTED FROM CONSIGNEE, SHIPPER WILL PLEASE WRITE "YES." rt«: ' ^- ^. P '"?^'.'* refuaed or caonot bo dsllvered, the snlpoii .Office must be notified withm24 hours after arrrval and if not dlsposea of within .30 day.s after such notfcc it may be returned, subject to chawea both jvays. unless shipper requests further time. UNDER NO CIRCUM STANCES MOST IT 6E HEId LONGER THAN CO DAYS '-"^^" Perishable property, if refused by consignee, when valued at IIO.OC or less. must, fa the ab.sence of instructions, be sold iimiiedlately to JSfm '*!lV*''l.?'"'."'""S' of owners.. When valued at more Ihau *iu 00. iioUfy ghippine office by wire and await a reaioaaWo time fur ^ustructions before stupptng. no ?S!S;SB\.','H?';,"'""'1.<»' "■ 0- "■ PACKAGE. EKVELOPE OR INVOICiC. MOST bE tiTRICTLY COMItLlED WITH. **^"**' NO AGENT IS AUTHOKIZED TO DEVIATE THEREFROM Ai.„ff ".^-Si,P' "• '"■I"' '.i', »"'<»'?' o' woceeda by United fiiMeii Mall .OHcct to Shipper, using thiv envelope Way-Billed From . . Office ' Date... .. 19U If not delivered in 5 days, return to Auditor o{ Money Orders, Wells Fargb & Co Express .817 So. Fifth Ave., Chicago, III. STAMP HERE 0. W. Zealand & Co. 208 Commerce St. CINCINNATI, OHIO. Illu.stration No. 92a, Both Sides of a C. O. D. Express Envelope. 172 BOOKKEEPING AND ACCOUNTING. 1[ I. Freight Shipments. When a C. 0. D. shipment is to be made by freight, the package is addressed to the shipper at the address of the consignee. An "order" bill of lading (C. O. D. form) is used in place of the regular bill of lading. The name of the shipper appears in the space for that of the consignee, accompanied by the words "Notify C. A. Jones & Co." (name of consignee). When the bill of lading has been signed by the agent of the Railroad Company, a sight draft, drawn in favor of some bank or collection agency, is attached to the bill of lading and sent to the bank or agency for collection. The bill for the shiprnent is sent to the con- signee, the terms being "C. O. D.," or "Sight Draft attached to Bill of Lading." When the shipment arrives at its destination, the consignee is notified and it is delivered to him upon presentation of the original bill of lading. Since this is at- tached to the sight draft, it is necessary for him to pay the draft before he can obtain the shipment. The order bill of lading mentioned above does not differ materially from Il- lustration No. 73, except a blank space is provided on the back for the en- dorsement. This special form will be illustrated later in the course. ^ 2. Express Shipments. When a C. O. D. shipment is made by express, the Express Company will not deliver it until the purchaser pays the charges and the value of the shipment. A bill is made for the amount of the shipment and enclosed in a special envelope provided by the Express Company. The envelope, which is marked in large letters, "C. O. D.," accompanies the package. When it reaches its destination, the express agent notifies the purchaser to call and receive it, or sends it out by wagon. Upon payment of the amount mentioned in the bill and the express charges, the agent delivers the package to the purchaser. The Express Company remits the amount of the bill to the seller by its express money order or C. O. D. check, deducting a charge for issuing the money order, unless this charge has been collected from the purchaser. If the seller wishes the purchaser to pay the charges for issuing the money order or C. O. D. check to be sent him in payment of the shipment, he must indicate this on the C. O. D. envelope. Illus- tration No. 92a shows the form of special envelope provided by the express company for containing the invoice for a C. O. D. shipment. ANALYSIS AND COMPARATIVE RESULTS. § 218. The Purpose of Making an Audit is (a) to ascertain the correctness of the work of the bookkeeper, (b) to analyze the results, and (c) to obtain facts which will be of value to the management in the future operations of the business. All the work of the bookkeeper should be audited by an auditor at least once each year, but that part which relates to the final results and the comparison of these results with former periods may be performed by the bookkeeper. These com- parative statements should be prepared in such form that the manager may get the most out of them in the shortest possible time. The reason for this is made evident by the following quotation from "Auditing, Theory and Practice" by Robert H. Montgomery, C. P. A. : "The average business man has been trained from boyhood, to read facts and figures from continuous printed pages. The Trial Balance of a ledger means nothing to him, except that part of it which contains the accounts receivable and payable, and these must not be called 'Debit Balances' or 'Credit Balances' if we would avoid the chance of being misunderstood. "Many intelligent people fail to grasp the usual and conventional hypothesis underlying the theory of double entry bookkeeping, and therefore facts or figures presented to them in a technical or formal shape may not accomplish the intended result. "Probably the majority of business men have been shown Trial Balances from their books which mean nothing to them, and this applies to the usual monthly BOOKKEEPING AND ACCOUNTING. 173 balance as well as to the one made after closing the books. A Balance Sheet in conventional form is perfectly clear to the eye trained to read and understand figures and is perhaps as concise and satisfactory an exhibit as could be desired for the person who understands figures, but thousands of business men frankly acknowl- edge that they do not grasp the full importance of a financial statement in the accepted form. "But if the man who is entitled to know all the facts contained in these Balance Sheets can not or will not understand this method of presentation, it is the duty of the accountant to try another form and keep on trying until the results of his busi- ness become as interesting reading to him as the daily trade reports." The information referred to in this quotation includes not only the results from the operations of the business for the current period, but also a comparison of these results with the operations for previous periods. The desired information includes the net cost of merchandise purchased, the net returns from sales, the gross profit on sales, the merchandise returned by customers (debit side of the Sales account), the rebates allowed customers (balance of the Sales Rebates and Allow- ances account), the freight cost, the cost of selling the goods (Selling Expense account), the cost of conducting the business (General Administrative Expense account), and the profit for the period. This information includes the amount of increase or decrease and the percentage of increase or decrease. ^ I. Graphic Charts. One of the best methods of presenting comparative facts is by the use of a chart. The charts portray the situation far more graphically than columns of figures, and in many cases are more valuable to the business man. The following illustrations show the practical application of the charts. Full explanation is given in connection with each illustration. If the percentage of increase or decrease is desired, a table showing these facts should accompany the chart. The best place for a chart is on the wall of a private office, or in a specially prepared holder. Exercises in Purchases and Sales Charts. Prepare a chart for each of these three exercises. Exercise No. 76 is the same as Illustration No. 93. Use paper twice the size of the illustrations; rule in squares as in the illustrations and divide each square into five or ten units by lines. Exercise No. 76, Purchases and Sales. December 31, 1916, Purchases $5,000.00, Sales $4,000.00; January, 1917, Purchases $6,000.00, Sales $5,000.00; February Purchases $7,100.00, Sales $6,100.- 00; March Purchases $4,600.00, Sales $6,800.00; April Purchases $5,900.00, Sales $8,200.00; May Purchases $4,700.00, Sales $8,900.00; June Purchases $4,800.00, Sales $9,300.00; July Purchases $5,000.00, Sales $8,800.00; August Purchases $4,600.00, Sales $8,850.00; September Purchases $2,800.00, Sales $9,800.00; October Purchases $4,300.00, Sales $9,850.00; November Purchases $4,000.00, Sales $10,000.00; December Purchases $4,500.00, Sales $11,500.00. Exercise No. 77, Purchases and Sales. December 31, 1915, Purchases $4,200.00, Sales $3,900.00; January, 1916, Pur- chases $4,500.00, Sales $3,600.00; February Purchases $2,900.00, Sales $4,200.00; March Purchases $3,600.00, Sales $4,500.00; April Purchases $3,900.00, Sales $6,100,- 00; May Purchases $4,500.00, Sales $5,100.00; June Purchases $2,700.00, Sales $4,800.00; July Purchases $2,900.00, Sales $4,700.00; August Purchases $3,200.00, Sales $4,000.00; September Purchases $1,800.00, Sales $4,200.00; October Pur- chases $2,500.00, Sales $5,600.00; November Purchases $3,300.00, Sales $5,200.00; December Purchases $1,900.00, Sales $3,300.00. 174 BOOKKEEPING AND ACCOUNTING. Exercise No. 78, Purchases, Sales and Selling Expense. Dec. 31, 1916, Purchases $2,721.35, Sales $3,826.01, Selling Expense $550.00; Jan., 1917, Pur. $2,852.35, Sales $3,946.22, S. Expense $525.87; Feb. Pur. $3,129.- 75, Sales $4,456.29, S. Expense $603.55; Mar. Pur. $2,544.19, Sales $5,175.62, S. Expense $725.00; Apr. Pur. $3,987.62, Sales $4,998.75, S. Expense $800.00; May Pur. $2,652.91, Sales $6,547.22, S. Expense $950.00; June Pur; $1,998.45, {Concluded on page 175) Illustration No. 93, Purchases and Sales Chart. EXPLANATION. The purpose of this chart is to illustrate the cost of merchandise pur- chased, and the returns from sales for the year 1917. The figures are shown in Exercise No. 76. The solid line shows the sales and the dotted line the purchases, each beginning with December at the left of the January column and ending with December at the right of the December column. The figures at the left represent thousands; the months are given at the top. In practice work, the chart should be made much larger than the illustration. Special ruled paper may be purchased at a station- ery store for completing these charts; if not available, each square should be divided horizontally into ten equal units to provide for hundreds. BOOKKEEPING AND ACCOUNTING. 175 (Exercise No. 78, Continued from page 174.) Sales $5,15278, S. Expense $825.00; July Pur. $2,950.00, Sales $4,865.00, S. Ex- pense $750.00; Aug. Pur. $3,175-50, Sales $4,900.25, S. Expense $758.00; Sept. Pur. $2,192.65, Sales $5,548-90, S. Expense $850.00; Oct. Pur. $2,655.90, Sales $6,156.80, S. Expense, $1,005.00; Nov. Pur. $1,998.50, Sales $5,642.90, S. Ex- pense $950.00; Dec. Pur. $1,429.75, Sales $5,148.60, S. Expense $875.00. Use fioo.oo units in the purchases and sales, and Iso.oo units in the selling expense; show the selling expense at the bottom of the chart. Let each space equal $100.00 and divide in ten divisions. AKt Jan Peb nar Apr. AVay June July At>^ 9ept Oct. Nov Dec. 13 / 12 ^ \ II / 10 / \^ ^ /,.-• 9 / -' 8 \^ ^ / 7 6 5 4 • 3 2 , -_ . ^'■'■'^ ^ 1 Illustration No. 93a, Chart Showing Comparative Sales and Selling Expense. EXPLANATION. The purpose of this chart is to illustrate the monthly sales for 1917 com- pared with the monthly sales for 1916, also the expense of making the sales for 1917 compared with the expense of making the sales in 1916. The figures are given in Exercise No. 79. The sales for 1917 are represented by the solid line at the top, and the sales for 19 16 by the dotted line at the top. The selling expense for 1917 is represented by the solid line at the bottom, and the expense for 1916 by the dotted line at the bottom, each beginning with December at the left of the January column and ending with December at the right of the December column. The figures at the left represent thou- sands. The facts shown by this chart are valuable to the management in planning for 1918 business. 176 BOOKKEEPING AND ACCOUNTING. Exercises in Comparative Charts. Prepare a chart for each of these two exercises. Exercise No. 79 is the same as Illustration No. 93a. Exercise No. 79, Sales and Selling Expense. Sales Selling Expense 1916 1917 1916 1917 December, 1915 January February March April May . $8,000.00 7,000.00 8,000.00 8,500.00 9,500.00 10,600.00 12,000.00 10,500.00 9,000.00 8,500.00 10,000.00 11,000.00 12,000.00 $7,000.00 7,500.00 7,000.00 8,000.00 10,000.00 11,000.00 11,500.00 12,000.00 10,000.00 9,500.00 10,500.00 12,000.00 13,000.00 $ 700.00 800.00 1,000.00 1,100.00 1,200.00 1,300.00 1,500.00 1,400.00 1,200.00 1,100.00 1,200.00 1,300.00 1,400.00 $ 800.00 9oaoo 1,200.00 1,000.00 1,300.00 1,300.00 1,400.00 1,200.00 1,100.00 lulv . . September October 1,200.00 1,300.00 1,400.00 1,500.00 November December Exercise No. 80, Sales and Selling Expense. Sales Selling Expense 1916 1917 1916 1917 December, 1915 January. . $25,000.00 26,900.00 28,265.00 29,750.00 28,500.00 30,500.00 33,650.00 31,500.00 26,500.00 30,500.00 32,750.00 31,800.00 27,500.00 $27,500.00 28,000.00 31,500.00 32,000.00 31,000.00 34,000.00 29,100.00 25,000.00 32,400.00 33,500.00 36,000.00 28,500.00 $2,800.00 3,000.00 3,100.00 3,200.00 3,300.00 3,000.00 3,500.00 3,000.00 2,800.00 3,600.00 3,600.00 3,500.00 3,300.00 $3,200.00 3,300.00 3,500.00 3,600.00 3,500.00 4,000.00 3,200.00 2,900.00 4,000.00 4,000.00 4,200.00 3,800.00 March May June . . . Tuly August September October November December QUESTIONS. 1. Define consignments. (§ 204.) 2. What is the object of the Consignment Outward account? (§ 205.) 3. How is the balance shown on the Statement of the Business? (§ 205, f 4.) 4. How is the inventory shown on the Statement of the Business? (§ 205, f 4.) 5. How would the management ascertain the profit on each consignment? 6. What is the object of the Consignment Inward account? (§ 206.) 7. Distinguish between Consignments Inward and Consignments Outward. 8. How is the balance of the Consignment Inward account shown on the State- ment of the Business? (§ 206, % 7.) 9. How is the inventory of merchandise on hand belonging to consignments inward indicated on the Statement of the Business? (§ 206, ^ 7.) 10. What is the object of the Commission account? (§ 207.) 11. How is the balance shown on the Statement of the Business? (§ 207, f 3:) 12. What is the purpose of an invoice of shipment? (§ 208.) 13. What is the purpose of an account sales? (§ 209.) 14. Define accounts receivable. (§ 210.) 15. What is the object of the Sales Ledger account? (§ 211.) 16. How is the balance shown on the Statement of the Business? (§211, 1[ 7.) 17. What is the object of the Reserve for Doubtful Accounts account? (§ 212.) 18. What is the object of the TraveUng Expense account? (§ 213.) 19. How is the balance shown on the Statement of the Business? (§ 213, ^ 4.) 20. Describe the method of making C. O. D. freight and express shipments. BOOKKEEPING AND ACCOUNTING. 177 SINGLE ENTRY BOOKKEEPING. DECEMBER § 219. Single Entry Bookkeeping is the simplest method of keeping a record of business transactions. It requires a history of the business by means of accounts, the same as Double Entry. Usually only personal real accounts (§ 24) are kept, but sometimes impersonal real accounts are represented in a single entry ledger, such as, Cash, Notes Receivable, Notes Payable, etc. Each transaction does not aftect two or more accounts having equal debits and credits, though some of them may, depending entirely upon the accounts kept. Thus, if an account is kept with Notes Receivable, and a customer pays his account by note, the Notes Receivable account is debited for the same amount as the customer's account is credited. If the transaction is a sale for a note, or on account, only the Notes Receivable or customer's account is affected, because the merchandise accounts are not kept. Single Entry is best defined as any method that is not Double Entry, because the application of the method varies with the wishes of the proprietor or bookkeeper. Any account kept by the Double Entry method may be used in the Single Entry method. Thus, if a detailed account of the expense of the business is desired, an Expense account may be kept. If it is necessary to keep a record of the goods purchased and sold, one Merchandise account, or Purchases and Sales accounts (§ 39) may be kept. If a cash register is used, or there is not enough cash handled to justify the keeping of a Cash account, this may be omitted. From the above it will be seen that Single Entry is really no definite method of keeping books. Most business men understand that the Single Entry method means the keeping of personal accounts only, and, as a rule, a Single Entry set of books contains only personal accounts. § 220. Comparison. In Single Entry the record may be made according to the wishes of those interested, and any desired accounts kept; in Double Entry the record and accounts kept must conform to certain principles, which can not be changed; the name of an account might be changed, but its real meaning must remain the same. In Single Entry, the bookkeeper has no check on his accuracy in posting, footing accounts in the ledger, and making the Statement of tte Bus- iness; in Double Entry he knows by the Trial Balance that all items have been posted, the accounts in the ledger footed correctly, and that the Balance Sheet and Profit and Loss statements show the correct profit. In Single Entry, those interested in the business know (without proof) that they have made or lost the amount shown by the Statement of the Business, that is, if the work is done cor- rectly; in Double Entry they know (with proof) that the net profit or net loss is correct, and know the accounts that make up this profit or loss. Neither method will prevent or detect errors in calculations. It is for this reason the business man requires an accurate bookkeeper. The advantages of Double Entry are so apparent that this method is used by evei-v up-to-date business man who employs a bookkeeper, and by many who do not ' While Single Entry may be used in a small business, yet better results can (^Concluded on page 179) 1/8 BOOKKEEPING AND ACCOUNTING. Z. / / -.2. /SO / S ^ A#^.^?^^ J/p'eit^AJizm^c^/a^iz^ / ¥ /7 i, ■m^^a^Ma/ Qn/accit^^ y SO • €^^mA£y '^7?z^!a>^^e&^ .6i/eif&i 6S V-O ,/■ JaA^ ft^s-^&r^ £.¥ (,0 /3 ■ShviAa^myT^Ji^^Ccr Jl^^/J^ /9 i ¥&■ / J^Mcc^U'k/' Q^iya/o^/A^ S r^ 3/ J S-if / s SO / y/?'£:=&2/2Ai 63, 152 Illustrated 63,153 Exercises 65, 159, 160 Bank, Defined, § 100 77 Keeping the Bank Account, § 107. 81 Statement, Illustrated 79 Bill of Lading, Defined, § 163 134 Illustrated ^35 Bills or Invoices, § 69 47 Illustrated 48 Bookkeeper, §6 5 Bookkeeping, §1 5 Books of Account, § 54 31 Page Books of Classified Accounts, §56.. 31 Books of Original Entry, § 55 31 Buildings Account, Defined, § 116. 89 Illustrated 89 Exercises 91 Building Expense and Revenue Account, Defined, § 117 90 Illustrated 90 Exercises 91 Business Letter, § 160 131 Illustrated 132 Business Papers, § 68 47 Business Transactions, Defined, § 19 7 Capital, § 16 Capital Accounts, § 27 . Capital Account, §§38, Illustrated Exercises 129 ... 7 9 ■ 20, 99 .. . .21, lOI 21, 102-104 Cash Account Defined, § 34 11 Illustrated 12 Exercises 12, 13 Cash Book, Defined, §§ 62, 155, 215, 36, 128, 170 Illustrated, 36,37.54.55-126,127,200,201 Exercises 54~56 Certified Check, Defined, § 165. . . 137 Illustrated 137 Certified Public Accountant, § 9 . . . 6 Checking the Posting, § 64 38 Checks, Defined, § 94, ITi; §§105, 157 73,80,129 Illustrated 74, 80, 129 Instructions for Writing, § 106. . 80 Classification of Accounts, § 24. . . . 8 Closing the Ledger, Defined, § 84. . 67 Illustrated 68,69 C. O. D. Shipments, Defined, § 217. 171 Illustrated 171 Collecting Notes and Drafts, § 168. 139 Commercial Paper, Defined, § 87. . 71 Regarded as Cash, § 94 Illustrated Compound Journal Entries Illustrated Exercises Commission Account, § 207 Illustrated Consignments, § 204 §120 ■73 •74 75 75 • 95 95 95.96 165 166 161 i88 BOOKKEEPING AND ACCOUNTING. Page Consignment Inward Acct., § 206.. 163 Illustrated 164 Exercises 164, 165 Consignment Outward Acct., §205. 161 Illustrated 162 Exercises 162, 163 Correcting Errors, § 169 139 Credit Bill, Defined, § 162 134 Illustrated 134 Creditors' Accounts, § 37 17 Illustrated 17 Exercises ... 18-19 Customers' Accounts, § 36 14 Illustrated 15 Exercises I5i 16 Debits and Credits, Defined, § 21 . . 8 Deferred Charges to Operations, Defined, § 178 143 Deferred Charges to Operations Account, § 183 145 Illustrated 146 Deferred Credits to Income, § 179.. 143 Deferred Credits to Income Ac- count, § 184 146 Delivery Equipment Account, § 136. 108 Exercises 109, no Deposit Ticket, Defined, §§ 102, 103 78 Illustrated 78 Double Entry, §3 5 Draft, Defined, § 88 71 Sight, §89 71 Time, § 90 72 Original Use, § 91 72 Present Use, § 92 72 Illustrated 7i> 72 Duties of a Bookkeeper, § 71 49 Endorsement, Defined, § 95 76 Transfer, § 96 76 Receipt of Part Payment, § 97 . . 76 Accommodation, § 98 77 Illustrated 76, 77 Exchange, § 170 139 Expense Account, §§ 43, 147 . . .26, 119 Illustrated 26 Exercises 27 Face of a Note, § 93, If i 73 February, Introduction, § 86 71 Files, § 75 49 Fiscal Period, §§10, 76 6, 60 Fixed Assets, § 131 104 Freight In Account, § 140 112 Illustrated 112 Exercises 117-119 Page Furniture and Fixtures Account, Defined, § 112 85 Illustrated 85 Exercises 86 General Admin. Exp., § 148 120 • Illustrated 121 Exercises 122-124 General Information 47~49 General Rule for Debits and Credits, § 47 30 Special Rules, §§ 48-52 30, 31 Graphic Charts, Defined, § 218, f i . 173 Illustrated 174, 175 Exercises 173-176 Income or Revenue Accounts, § 28. 9 Index to Ledger, § 172 139 Insurance, § 150 124 Policy Record, Illustrated. . . . 124, 125 Insurance Account, § 151 125 Illustrated 125 Interest, Defined, § 118 92 Method of Calculating, §118, ^[4. 92 Interest Account, § 119 93 Illustrated 93 Exercises 94 Introduction, Accounts, §33 11 Introductory Set 47 Introduction, §67 47 Inventory, Defined, § 77 61 Liability, § 79 63 Resource, § 78 63 Illustrated 62 Inventory Account, §§ 41, 143... 23, 114 Illustrated 23, 114 Exercises 117-119 Invoice of Shipment, Defined, §208.. 166 Illustrated 166 January, Introduction, § 67 47 Journal, Defined, §§ 59, 216. . .31, 170 Illustrated 32, 68 Journalizing, § 59, If 2 33 Journal Entries to Close the Ledger, Defined, § 84, If 2; § 198 . . .67, 154 Illustrated 68, 156, 157 To Close Trading Accounts, § 199. 154 To Close Profit and Loss Ac- counts, § 200 156 Accruals and Deferred Items, § 202 157 June, Introduction, § 203 161 BOOKKEEPING AND ACCOUNTING. 189 Page Land Account, Defined, § 115 88 Illustrated 88 Exercises ■ 91 Ledger, Defined, § 63 38 Illustrated, Exercise No. 22. . . .39,40 Illustrated, January 57-59 Liability, § 13 6 Liability Accounts, § 26 8 License, § 74 49 Loss, § 15 7 Making a Deposit, § 103 78 March, Introduction, § 113 87 Merchandise Accts., §§39, 138.. . .22, no Merchandise Discount, § 144 115 Method of Determining Debits and Credits, § 46 30 Method of Recording Transactions, §53 31 Exercises 42-46 Note, Defined, § 93 IJlustrated Notes Payable Account, §110. Illustrated Exercises 72 73 83 83 84 Notes Payable Book, § 159 130 Illustrated 130, 131 Notes Receivable Account, § 109. . . 81 Illustrated 82 Exercises 82, 83 Notes Receivable Book, § 158. . . . 130 Illustrated 130, 131 Object of Investment, § 10 6 Office Equipment Account, § 132. . 105 Illustrated 105 Exercises 109, 1 10 Opening an Account with the Bank, §101 77 Operating Accounts, § 29 ... . 9 Order of Posting, § 65 .. 38 Outline of Accounts, Part I, § 32 . . . 10 Outline of Accts., Part II, §127. . .100 Partner's Personal Accounts, § 130. loi Illustrated 102 Exercises 102-104 Partnership Set, Introduction §121.. 97 Partnership, Defined, § 122 97 Object of Formation, § 123 . 97 Capital, § 124 97 Contract, § 125 98 Bookkeeping, § 126 99 Part Payments less Discount, § 167 . 137 Page Pass Book, § 104 79 Illustrated 79 Personal Accounts, § 35 13 Posting, Defined, § 58 31 Journal, § 59, If 1 33 Purchases Book, § 60, ^1f 2 and 3 33 Sales Book, § 61 , 1[^ 2 and 3 ; . . . 34 Cash Book, § 62, n 5, 6 and 7. . 37 Profit, § 14 6 Profit and Loss Acct., §§44, 185.. 27, 147 Illustrated . . .28, 148 Exercises 28, 29 Profit and Loiss Statement, Defined, §§ 18, 82, 197 7, 64, 152 Illustrated 64, 155 Exercises 65, 159, 160 Proof Sheet, Defined, §§ 85 . . . . 70 Illustrated 70, 158 Property, §11 6 Purchases Account, §§40, 139. . .22, in Illustrated 23, 1 1 1 Exercises 24,25, 117-119 Purchases Book, §§60,153. .33,126 Illustrated, Exercise No. 22 33 Illustrated, January. ... 49 Exercises 50 Purchases Disc. Acct., § 145. ... 115 Illustrated 116 Exercises 117 Real Estate, Defined, § 114 87 Receipt, Defined, § 70 48 Illustrated 48 Reconciliation of Bank Account, § 108 81 Recording Transactions, § 45 . . 30 Reserve Accounts, § 131, ^ i 104 Office Equipment Account, § 133. 106 Store Fixtures Account, § 135 . 107 Delivery Equipment Acct., § 137. 108 Doubtful Accounts, § 212 168 Rules for Taking a Trial Balance, § 173 139 Ruling II Sales Account, §§ 42, 141 24, 113 Illustrated 24, 113 Exercises 24, 25 11 7-1 19 Sales Book, Defined, §§ 61, 154 . .34, 127 Illustrated, Exercise No. 22 35 Illustrated, January 5i> 52 Exercises 5ii 53 Sales Discount Account, § 146. ... 116 Illustrated 116 Exercises 117-119 igo BOOKKEEPING AND ACCOUNTING. Page Sales Ledger Account, § 21 1 . . . 167, i68 Illustrated 168 Sales Reb. and Allow. Acct., § 142. . . 113 Illustrated 114 Exercises 117-119 Selling Exp. Accts., §149 121 Illustrated 122 Exercises 122-124 Signing Commercial Papers, § 99 . . 77 Single Entry, §2 5 Single Entry Set, §§219-227. . . 177-186 Six Column Statement, § 83 ... . 66 Illustrated 66 Special Loss Accounts, § 31 9 Special Profit Accounts, § 30 9 Statement of Account, § 161 132 Illustrated 133 Statement of the Business, §§ 80, 195 63, 152 Page Store Fixtures Account, § 134 107 Exercises 109, 1 10 Sundry Resource and Liability In- ventories, § 180 144 Telegram, Defined, § 164 134 Illustrated 136 Terms on Bills, § 166 137 Trading Account, § 186 149 Traveling Expense Account, § 213 169 Illustrated 169 Trial Balance, § 66 41 Illustrated 41, 60, 149, 151 Use of Red Ink in Bookkeeping. ... 11 Valuation Accounts, § 23 8 Writing Outgoing Papers, § 73 ... . 49 NUMERICAL INDEX. No. §1 §2 §3 §4 §5 §6 §7 §8 §9 §10 §11 § 12 §13 §14 §15 §16 §17 §18 §19 §20 §21 §22 §23 §24 §25 *(i6-23) (24) (25) (26) (27) (28) (29) Page 5 5 5 5 5 5 6 6 6 6 6 6 6 6 7 7 7 7 7 7 No. §26 §27 §28 §29 §30 §31 §32 §33 §34 §35 §36 §37 §38 §39 §40 §41 §42 §43 §44 §45 §46 §47 §48 §49 §50 (30) (31) (32) (33) (34) (35) (36) (37) (38) (39) (40) (44) (41) (41a) (41b) (42) (43) (51) (52)' (53. 54) SECTIONS. Page 8 9 9 9 9 9 10 II II 13 14 17 20 22 22 23 24 26 27 30 30 30 30 30 30 ^0. Page No. Page §51 -(55- 56). 30 §76... .... 60 §52. (57-58). 31 §77... ... 61 §53- 31 §78... ... 63 §54- .(46 ) 31 §79... .... 63 § 55 ■ •(47 ) .. 31 §80... ... 63 §56. .(48 ).. 31 §81... ... 63 §57 31 §82... ... 64 §58. .(60 ).. 31 §83... ... 66 §59. (49-50). 31 §84... ... 67 §60. .(64 ) 33 §85... 70 §61. .(65 ) .. 34 §86... 71 §62. .(66 .. 36 §87 .. 71 §63. .(59 > .. 38 §88... 71 §64. ,(6i .. 38 §89... 71 §65. .(67 .. 38 §90... 72 §66. .(62 ) 41 §91. . • 72 §67. (63 ) 47 § 92 . . . 72 §68, 47 §93-.. 72 §69. 47 §94-.. .. 73 §70. 48 § 95 . . • ... 76 §71. 49 §96... ... 76 §72. 49 §97 .. ... 76 §73. 49 §98... .... 77 §74- 49 §99-. • 77 §75- 49 §100. . . 77 •The numbers in parenthesis are the section numbers in the 1916 edition, pages may be one or two numbers different. In some cases the BOOKKEEPING AND ACCOUNTING 191 No. §101 § 102 §103 §104 §105 §106 §107 §108 §109 §110 § III §112 §113 §114 §115 §116 §117 §118 §119 § 120 § 121 § 122 §123 §124 §125 § 126 §127 §128 §129 §130 §131 §132 Page No. Page No. Page No. 77 §133- . 10& §165... 137 §197 ■•• 78 §134- 107 §166 ■ ■ ■ 137 §198. 78 §135- . 107 §167 137 §199 79 §136. . 108 §168 139 §200. 80 §137- . 108 § 169 139 §201. 80 §138. . no §170 139 §202. 81 §139- . Ill § 171 ■■ 139 §203. 81 §140. . 112 § 172 139 §204. 81 §141- ■ "3 § 173 139 §205. 83 § 142. 113 §174 141 §206. 84 §143- 114 §175 •• 143 §207 85 §144- ■ "5 §176 143 §208. 87 §145. • 115 §177 143 §209. .. 87 §146. . 116 §178 143 §210. .. 88 §147- . 119 §179 143 §211.. . 89 §148. . 120 §180 144 §212. ,. 90 §149- . 121 §181 144 §213- •■ 92 §150. . 124 §182 145 §214. ... 93 §151. ■ 125 §183 ■■ 145 §215. . 95 §152. . 126 §184 146 §216. .. 97 §153- . 126 §185 ..... 147 §217 ... 97 §154- . 127 §186 149 §218. .. 97 §155- . 128 §187 .. 150 §219. .. 97 §156. . 129 §188 ... 150 §220. .. 98 §157- 129 §189 .... 150 §221. .. 99 §158. • 130 §190 150 § 222 . . 100 §159- 130 §191 .' 150 §223. . 99 §160. 131 §192 ... 151 §224. .. 99 §161. ■ 132 §193 ... 151 §225. .. lOI §162. 134 §194 ... 152 §226.. .. 104 §163. 134 §195 . . .. 152 §227. .. 105 §164. • 134 §196 ... 152 Page ILLUSTRATIONS No. I . 3- • 4. . . 5*(4) 5a ... 5b (4a) 6(5). 7(6). 9 10 II 12 13 Page 12 15 17 21 23 23 24 26 28 32 33 35 36 37 39- 40 No. Page 14 41 15 (19) 48 16 (20) . 17(15)- 18(16). 19(17)- 20(18). , 21 51- -57> 48 49 ■52 54 55 59 22 60 23 (21) 62 24 (22) ; 63 25 (23) - - - - 64 26 (24) .... 66 27 (29)] 68 28 (25-27) . 69 No. Page No. 29 (28) . . . . - 70 44 30 - 70 45 31 - 71 46 32 ■ 72 47 33 • 73 48 34 - 74 49 35 - 74 50 36 - 75 51 37 - 75 52 38 - n 53 39 ■ 78 54 40 - 79 55 41 - 79 56 42 . 80 57 43 82 58 *The numbers in parenthesis are the illustration numbers in the 1916 edition, the pages may be one or two numbers different. In some cases 192 BOOKKEEPING AND ACCOUNTING. No. Page 59 "6 6o ii6 6l 121 62 122 63 124, 125 64 125 65 126 66 127 67 129 68 130,131 69 130. 131 No. Page 1 12 2 13 3 13 4 15 5 15. 16 6 16 7 18 8 18, 19 9 19.20 10 21 II 21 12 21 13 24,25 14 25 15 25 16 27 17 27 18 27 19 28 20 28 No. Page 70 132 71 ■ 133 72 • 134 73 • 135 74 . 136 75 ■ 136 76 ■ 137 77 • 144 78 145 79 146 No. 80 81 82 83 84 85 86 87 88 89 EXERCISES Page 148 149 151 153 155 158 162 164 166 166 No Page No Page 21 29 41 . 82,83 22 42 42 84 23 43,44 43 .. 84 24 44 44 84 25 45 45 86 26 45-46 46 86 27 50 47 .. 86 28 50 48 91 29 50 49 91 30 50,53 50 91 31 53 51 ... 94 32 ■ ■ • • 53 52 .. 94 33 54>'55 53 94 34 55,56 54 .95-96 35 . ... 56 55 102 36 65 56 103 37 65 57 103, 104 38 65 58 . . . 109 39 82 59 . . 109 40 82 60 109, no No. Page 90 167 91 168 92 169 92a 171 93 174 93a 175 94 178 95 179 96 184 97 185 No. Page 61 117 62 118 63 119 64 122 65 123 66 123, 124 67 138 68 159 69 159, 160 70 1 62 71 162 72 163 73 164 74 165 75 165 76 173 77 173 78 174.175 79 176 80 176