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RAILWAY ACCOUNTS AND
STATISTICS
ONE OF A SERIES OF LECTURES IN A SYSTEMATIC COURSE.
A. J. COUNTY
ASSISTANT TO SECOND VICE-PRESIDENT,
THE PENNSYLVANIA RAILROAD COMPANY.
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LA SALLE EXTENSION UNIVERSITY
(NON-RESIDENT INSTRUCTION)
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RAILWAY ACCOUNTS AND
STATISTICS
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COUNTY
ASSISTANT TO SECOND VICE-PRESIDENT,
THE PENNSYLVANIA RAILROAD COMPANY,

VI
VII
TRUTH
CONOSERS

LA SALLE EXTENSION UNIVERSITY
[SELF-INSTRUCTION UNDER EXPERT GUIDANCE]
CHICAGO
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Transportation
Library
Copyright, 1911.
LASALLE EXTENSION UNIVERSITY.
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1
RAILWAY ACCOUNTS AND STATISTICS.
A. J. COUNTY.
This lecture discusses: Railways in the United States; railway growth; gov-
ernmental regulation; uniform accounts and statistics prescribed; uniform classi-
fication of revenues, expenses and statistics; annual report for the Government;
differences between old and new classifications; monthly reports for the Govern-
ment; governmental purposes in promulgating uniform accounting-Canadian and
Mexican Railways: Uniform accounting and statistics-North American railway
accounting; annual reports and statistics for stockholders; classification of operat-
ing expenses; watching revenues and expenses.
American railway officers have for many years been
deeply interested in the formulation and use of proper sta-
tistics and accounts, because without reliable statistics, and
the knowledge they convey, the railways could not be pro-
gressively, efficiently, or economically managed.
There were, however, other causes which made accounts
and statistics essential and forced their evolution, among
which may be mentioned: (1) Competition through par-
allel lines which the laws permit to be built in any section of
the country, accompanied by ruinous cutting and falling of
rates and fares for the carriage of persons, goods, and prop-
erty; (2) the recurring tides of great financial and indus-
trial prosperity or depression averaging about one every
decade; (3) the great distances covered by the lines, and the
physical and climatic hindrances to be avoided, or benefits
therefrom to be conserved; (4) the discipline of bankruptcy
of those companies which disregarded commercial prudence
or were being financially exploited, and were overtaken by
failure, followed by judicial sale and reorganization, requir-
ing full publicity and adequate financial and operating sta-
tistics before more funds could be obtained from bankers
or investors; and (5) the primary necessity of obtaining
a record of the transportation service performed on all divi-
sions of the railways, so as to control the cost of its conduct
and the net financial results.
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4.
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A. J. COUNTY
Whatever principles underlie their compilation can best
be shown by stating present American practice, accom-
panied by observations and conclusions as the result of ex-
perience so far acquired in the use of the present uniform
system. The requirements are twofold-first, govern-
mental, and second, for the owners, management, and all
others interested. Both requirements date from the incep-
tion of railways. Usage demanded that reports and statis-
tics for the owners and management should make the great-
est advancement, but it required an inflexible mandate from
the Government of the United States to submerge all in-
dividual railway preferences and place them sailing on the
broad sea of uniform accounting and statistics.
RAILWAYS IN THE UNITED STATES.
Railway Growth.
The great development of the United States and the con-
tinued prosperity and progress of that country are more
largely due to, and more dependent upon, its railways than
any other single factor. The expanse of territory occupy-
ing 3,000 miles from the Atlantic Ocean to the Pacific Ocean
and 2,000 miles from the Great Lakes to the Gulf of Mex-
ico, containing unrivalled agricultural and mineral wealth,
was touched only in a few places, and to a limited extent,
by the ocean, inland water and canal transportation routes,
and but sparsely inhabited before the advent of the rail-
way. The railways were therefore welcomed as the true
pioneers, and the country devoted its energies to their con-
struction as the quickest, most direct and economical meth-
od of bridging the great distances and overcoming the ad-
verse physical and climatic obstacles within its borders.
Prior to 1870, grants of lands, or money and franchises
were made, without any important limitations, by the Nat-
ional Government to encourage trans-continental lines.
across the western territories, and by various States and
RAILWAY ACCOUNTS AND STATISTICS
5
LO
municipalities, with the object of attracting population to
their borders and securing the great commercial rewards
and trade routes. The railways quickly spread throughout
the country, preceding, instead of, as in other new coun-
tries, following the settler, and, while the varying tides of
prosperity and depression have left great marks on these
commercial arteries on which the country is so dependent,
as well as on the fortunes of those who invested their money
therein and those who directed their operation, they have
evolved well-rounded and prosperous railway systems and
serve a population of between 80,000,000 and 90,000,000
people.
The growth briefly sketched in decades is as follows:
1830
1840
1850
1860
1870
•
1880
1890
1900
•
23 miles.
2,800
9,000
•
30,000
53,000
(6
•
93,000
•
164,000
193,345
On June 30th, 1909, there were 233,000 miles of railway,
which in the year ending on that date had operating reve-
nues of $2,494,000,000, or £500,000,000 sterling; operating
expenses including taxes of $1,751,000,000; and net opera-
ting revenues of $743,000,000, or £150,000,000 sterling.
Governmental Regulation.
It is not surprising that well-defined accounting and sta-
tistical methods should form a prominent feature in the
operation and management of these extensive and privately
owned systems, and that the National Government as well
as the State governments should desire to supervise their
accounts.
It will be recalled that the United States of America
consists of many independent and sovereign States, united
by a written Constitution, thereby forming the United
States, or National Government, which, in addition to exer-
6
A. J. COUNTY
cising certain powers in all of the States as granted by the
Constitution, directly governs the various territories not yet
formed into States. While a few railroad charters have
been granted by the National Government in the territories
from time to time under its control, because State govern-
ments did not exist therein, the railroad companies derive
their powers and privileges from charters granted by the
respective States in which the lines are located and operated,
and exercise their powers and privileges subject to the
laws of these States. The railways are owned by individual
stockholders who provide the capital therefor by the sale of
capital stock, bonds, and other forms of securities, and
are constructed, maintained and operated by directors
chosen by the stockholders, and officers and employes ap-
pointed by and subject to the directors in accordance with
the State laws. Nevertheless while privately owned and
operated, the transportation business and service so gen-
erally affects the entire country by serving its necessity
and convenience, that it is rightfully regarded in the nature
of a public service and interest, and is therefore subject to
regulation by the State, and as hereafter explained, by the
National Government. This public interest is not confined
to America, for it will be remembered that a large part of
the capital was obtained in other countries and therefore
these countries are interested in the welfare of American
railways, not only as investors, but also on account of the
export of agricultural, mineral, and other products.
Under the Constitution the National Government is
granted the power of regulating commerce with foreign na-
tions and among the several States, so that while all com-
merce within a State is subject to the authority of that
State, all interstate and international commerce is regu-
lated by the National Government. Around this plain con-
stitutional provision has grown in the past thirty years
a vast body of national legislation and judicial decisions.
The railroads were so necessary to the growth of the coun-
RAILWAY ACCOUNTS AND STATISTICS
7
try that little attempt at regulation was made prior to 1870,
but by building into new territory and by merger and con-
solidation the various lines became so extensive, and the
population and business of the entire country which they
serve have so well kept pace with their growth, that the
desire for more specific regulation by the State and National
governments became general. It naturally began in the
States, and, as the result of the "Granger Agitation" in the
Western States in the seventies, many State railroad com-
missions were appointed, with powers to enforce the laws
under which the railways existed, and especially to see that
railway rates and service should be reasonable and open
without discrimination to all individuals and communities.
Many of these railroad commissions, and among them some
of the most influential, like that of the State of Massachu-
setts, organized in 1869, possessed only advisory and rec-
ommendatory authority, and relied for their effectiveness
largely upon public opinion, but gradually the powers of
the commissions have been extended and become manda-
tory. During the past few years several of them under the
title of Public Service or Utility Commissions have been
given not only mandatory powers as to steam railways,
but their authority has been extended to electric railways,
telegraph and telephone lines and other transportation
agencies and their accounts, so that a uniform system of
accounting might be established, and the results published
by the State for the information of the authorities, the citi-
zens and security-holders. The powers of these commis-
sions extend not only to accounting, but in many cases to
approving the issues of stocks and bonds, and other impor-
tant matters not within the scope of this lecture, such as
betterment of the transportation service and facilities gen-
erally and the rates to be charged therefor, the consolida-
tion of parallel railways, the approving of railway contracts,
the inspection of railway properties and methods of opera-
tion at any time, and many other specific powers and duties.
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A. J. COUNTY
Uniform Accounts and Statistics Prescribed.
Railway regulation was not long confined to the State
authorities, for in the decade ending 1880, the question was
given extended consideration by the National Government,
but the necessity for national legislation was not apparently
ripe, and no decisive action was taken until the passage in
1887 of an act to regulate commerce, known as the Inter-
state Commerce Act. This act marked the first step of the
Government to prescribe a uniform accounting system for
interstate railways, by a commission called the Interstate
Commerce Commission. Many of the railway companies
had observed a general classification of operating expenses,
and the principles and practice of railway accounts and
statistics had been formulated and many of the railway
companies published admirable reports for years preceding
this act, but it is from the passage of this law, and the sub-
sequent notable expansion in railways and their revenues,
expenses and finances, that the public for the first time sees
a definite foundation for the present uniform accounting
and statistical system. The provisions of the Interstate
Commerce Act of 1887 regarding accounting, required an-
nual reports covering capital issues and payments; physical
characteristics; operating, traffic and financial statistics;
information as to rates and fares; and the contracts with
other railways. This act gave the Interstate Commerce
Commission the right in its discretion to prescribe a uniform
system of accounts.
Regulation by governmental commission was a new fea-
ture in the United States, and it should be recorded to the
credit of American railways that, instead of antagonizing
the legislation regarding uniform accounting, they formed
the Association of American Railway Accounting Officers
in 1888 with officers representing 72,000 miles of railway
and convened in the Spring of that year to consider a form
of annual report to be made to the National Government,
RAILWAY ACCOUNTS AND STATISTICS
9
and the Act of 1887 was made effective by the friendly co-
operation of the railways, for its provisions could not be en-
forced on account of the inadequacy of the money appropri-
ated. This co-operation between the railways and the
Government still continues, and while naturally the views
of the Government and railway officers have sometimes
differed, a great work has been accomplished which could
not have been effected in any other way, i. e., that of evolv-
ing a uniform classification of accounts so far as it is pos-
sible to obtain one. This was no easy task for a country
with competitive railway systems widely differing in geo-
graphical location, in the standard of their development,
and in the character of the through and local traffic and
their several interests, and it demanded wide experience,
mature judgment, and additional expense to reach sound,
broad-minded conclusions.
This act performed good service, but it did not produce
absolute uniformity in accounting or statistics. It gave
time for ample reflection, the development of uniform ac-
count headings, and the test of experience, and so paved
the way for the practice of uniform accounting, but after
nearly twenty years it was natural in this active young
country that its provisions should be modified and the pow-
ers of the Interstate Commerce Commission extended. This
was accomplished by the passage of the Act of 1906, known
as the Hepburn Act, which was designed to regulate more
important public questions than uniform accounting, but
the provisions regarding the latter were materially broad-
ened, and were coupled with heavy penalties for non-observ-
ance, which caused little surprise, as the law was passed in
the heat of public discussion as the concluding chapter in
legislation against railroad rebates.
Under this law of 1906, amending the Interstate Com-
merce Act of 1887, uniform accounts and statistics are now
kept and reported to the Commission by all railroads.
Its general provisions regarding our subject are that
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10
A. J. COUNTY
the Interstate Commerce Commission (consisting of seven
members appointed by the President of the United States,
with the consent of the Senate, to serve for a period of
seven years and devote their entire time and attention to
the business of the Commission) is authorized to require
annual reports from all railways engaged in interstate
commerce and to prescribe the manner in which the reports
shall be made, to require specific answers to all questions
upon which it may need information, and to prescribe a
time within which all railways subject to the provisions of
the Interstate Commerce Act shall have, as near as may
be, a uniform system of accounts and the manner in which
such accounts shall be kept. The Commission has at all
times access to all accounts, records and memoranda, sub-
ject to the act which regulates interstate commerce, and
it is unlawful for railways to keep any other accounts, rec-
ords or memoranda than those prescribed or approved by
the Commission, and the latter may employ special agents
or examiners with authority to examine any and all ac-
counts, records and memoranda kept by the railways. In
case of refusal to keep the accounts, records and memoranda
or to submit same to the inspection of the Commission or
its authorized examiners, a forfeit of $500 for each offense is
recoverable by the Government of the United States.
False entries, mutilation of records, or the keeping of
accounts or records other than those prescribed or approved
by the Commission is a misdemeanor, and, upon convicțion
in a proper court of the United States, a fine or term of
imprisonment or both fine and imprisonment may be im-
posed.
Examiners (employed by the Commission) are subject
to fine and imprisonment if they improperly divulge any
facts or information coming to their knowledge.
The annual reports are made under oath for the twelve
months ending June 30th in each year, and must be filed
before the 30th day of September next following, unless
RAILWAY ACCOUNTS AND STATISTICS
11
additional time is granted by the Commission. If the re-
ports are not filed or specific answer is not made to any
question authorized by the provisions of the act, the rail-
way in default shall forfeit to the United States the sum of
$100 for each and every day such default exists. The Com-
mission also has authority to require railways to furnish
monthly reports of earnings and expenses, and to impose
the forfeiture above provided. The Commission may pre-
scribe the forms of any and all accounts, records and mem-
oranda to be kept by the railways, including the accounts,
records and memoranda of the traffic movement as well as
of the receipts and expenditures of money.
In this same period the powers of the State Railroad
and Public Service Commissions were also extended, and
by co-operation between the State commissions and the In-
terstate Commerce Commission, a general scheme of uni-
form accounting has been established, based on the uniform
accounting system previously used, and revised with the
advice and assistance of railroad officers. The railways in
every reasonable way have tried to observe the system and
to assist the Commission, so that the classifications promul-
gated thereunder may be universally used by all lines, be-
come permanent, and satisfy all essential demands of the
governing powers, as well as those who have furnished
the money to construct and successfully administer the
railroad lines of the country.
With the exception of a few principles, the uniform ac-
counting system adopted by mutual co-operation, and made
compulsory by law, will prove practical in working, espe-
cially if dominated by good sense and patience on both
sides, and if the constitutional principles of railway regu-
lation and supervision, to which the State and National
governments are committed, are observed in lieu of railway
control or administration apparently sought to be obtained
through accounting or other methods, without assuming
the responsibility of ownership and management. Under
12
A. J. COUNTY
private ownership and governmental supervision and regu-
lation, the railways have grown in less than eighty years to
a commanding position, and have been the chief agencies
which have populated the country, developed its manufac-
turing, agricultural, mineral and other resources, and car-
ried prosperity with them, and, while their total net revenue
has materially increased, their rates to the public have
steadily decreased. They have continuously improved the
transportation service by capital expenditure ably seconded
by the use of surplus income, which corrected the necessary
bonus issues of capital stock in their early history for which
no cash was paid, and have also borne the constantly in-
creasing burden of various forms of taxation imposed by
the very communities which were founded, and their ma-
terial prosperity secured, by railroad construction and op-
eration. The record of private ownership and governmen-
tal supervision, judged from any reasonable stand-
ard, therefore, needs no defense.
Classification of Revenues, Expenses, and Statistics.
Under the Interstate Commerce Act, as amended in
1906, six classifications have been issued for steam railways
covering Operating Revenues; Operating Expenses; Road
and Equipment Expenditures for new lines or important
extensions of existing lines; Locomotive Miles, Train Miles,
and Car Miles; Outside Operations, Revenues, and Expens-
es; Expenditures for Additions and Betterments to exist-
ing lines, to which reference is hereafter made.
A very clear explanatory text accompanies all of these
classifications, showing what should be included in each
primary account. The Commission has also issued a form
of General Balance Sheet Statement, but this and the Class-
ification of Additions and Betterments, are open to modi-
fication, because a few principles have not been disposed of
to the mutual satisfaction of the railways and the Commis-
sion.
RAILWAY ACCOUNTS AND STATISTICS 13
Annual Report for the Government.
Monthly and yearly reports are required, and also reports
on special features may be called for. These reports and
classifications, which have been fully revised since 1906 and
issued by the Interstate Commerce Commission, constitute
the uniform accounting system, and reach a conclusion in
the tables which form the Annual Report to the Commis-
sion.
The requirements of each table (numbered below) in the
Annual Report will be examined and in this way the uni-
form classification of operating expenses, as well as the
principles of statistics of railways in operation, will be con-
sidered.
1. The name of the Railway Company, with a summary
of the laws under which it has been incorporated, and if an
amalgated or consolidated company, the name of the various
constituent companies.
2. The Directors and principal officers.
3-4. The active and inactive corporations controlled
by the respondent railway and the nature of that control.
5. Particulars as to stockholders' meetings, closing of
stock books, voting rights possessed by the shares; also
whether the respondent company is controlled by any other
corporation or individual and the nature of such control.
6-7. The name, termini and mileage of every railroad
company, the operations of which are included in the report,
whether fully or jointly owned, leased, or operated under
contract.
8. "Outside Operations" and "Other Properties" cov-
ered by the capital of the respondent company, consisting
of boat and ferry lines, harbor terminal transfers, cab and
omnibus service, hotels, restaurants, dining car service, and
other items. The other properties consist of government
land grants, coal, lumber, and other business properties not
included in the railway lines owned.
14
A. J. COUNTY
9. Railways acquired by respondent company for oper-
ation through lease or agreement; and railways assigned to
another company for operation through the same medium.
10-14. Statement of capital stock, funded debt, equip-
ment trust obligations, setting forth the various kinds of
capital stock, and the dividends declared thereon during
the year, also the various kinds of funded debt, whether
mortgage bonds, collateral bonds, plain bonds, debentures
and notes, income bonds, miscellaneous obligations or
equipment trust obligations (the latter being used to pur-
chase new locomotives and cars), of which a certain portion
of the principal matures every year. It will be noted in
these statements of stock and funded debt that the purpose
of the issue and amount realized therefor must be stated;
also the total par value of either stock or bonds held by
the company itself, whether in its treasury or in sinking or
other funds connected with the corporation.
14. To remind one that all railroads are not profitable,
there is a statement of certificates issued while the com-
pany is in the hands of a Court Receiver, instead of being
operated under the direction of a President or other offi-
cer, elected by the stockholders or appointed by the Board
of Directors.
14.
Current assets and liabilities in detail.
15. Security for the various forms of funded or bonded
debt, or other fixed obligations, outstanding.
16. Expenditures for Additions and Betterments. They
are divided under 32 primary accounts, showing whether
same were charged to capital, special funds or to surplus
income. These expenditures consist of additions to,
or betterments of, the existing railway, its facilities and
equipment.
In issuing the Classification of Expenditures for Addi-
tions and Betterments, the Statistician of the Interstate
Commerce Commission states:-
"As the Form of General Balance Sheet Statement to
RAILWAY ACCOUNTS AND STATISTICS
15
be promulgated by the Interstate Commerce Commission
to take effect on July 1, 1909, provides that all expenditures
for new construction and for additions and betterments
should be charged to the proper accounts under the caption
'Property Owned as Investment,' viz., the railroad and its
rolling stock, it is no longer permissible to charge such ex-
penditures to Income, Profit and Loss, or Special Funds in
such a manner as to exclude any expenditure for additions
and betterments from the property accounts in the balance
sheet."
Additions and Betterments include additional struc-
tures, facilities or equipment not taking the place of any-
thing previously existing, and the enlargement or improve-
ment of existing structures, facilities, or equipment, or the
proper portion of the cost of new structures or facilities of
an improved or higher class taking the place of others pre-
viously existing. Expenditures for additions and better-
ments amounting to less than $200 (with several excep-
tions) should be charged to the appropriate accounts under
Operating Expenses or Outside Operations, except as oth-
erwise provided in the classification. In case it becomes
necessary directly in connection with betterment or im-
provement work to abandon any property, the cost of re-
placing the abandoned property in kind, plus the cost of
removal but less the value of salvage, should be charged to
the appropriate accounts under Operating Expenses. In
case, however, the amount so chargeable is large, and its in-
clusion in a carrier's operating expenses for a single year
would unduly burden the operating expense accounts for
that year, the carrier may, if so authorized upon application
to the Interstate Commerce Commission, charge such cost
to the Property Abandoned Account provided in the Form
of General Balance Sheet Statement to be charged off to
operating expenses in a series of years. This may be pro-
vided for in advance by the reserve account mentioned in
the following paragraph.
$
16
A. J. COUNTY
When property is abandoned and not replaced, the orig-
inal cost (estimated, if not known) should be credited to the
appropriate additions and betterments accounts and
charged, less salvage, to Profit and Loss Account, to which
should also be charged all incidental expenses directly con-
nected with the abandonment. If so authorized upon appli-
cation to the Interstate Commerce Commission, however, a
carrier may set up operating expense depreciation accounts
under "Maintenance of Way and Structures" for the pur-
pose of creating a reserve to which (instead of Profit and
Loss) should be charged the original cost, less salvage, of
the property (other than land or equipment) abandoned,
and all incidental expenses directly connected with the
abandonment.
This classification applies exclusively to additions to, or
betterments of, existing main and branch lines and their
appurtenances and equipment. At the end of the year the
items are merged into Road and Equipment Account.
The
17-18. Road and Equipment Expenditures. These ex-
penditures are classified into three general accounts (I)
Road; (II) Equipment; and (III) General Expenditures,
and subdivided into forty-eight primary accounts.
purpose of Tables 17 and 18 is to show in detail the ex-
penditures during the year for new main and branch lines,
and extensions to existing lines, and additional equipment,
with a clear statement showing the amounts thereof charged
against capital, and charged to special funds or income, and
the total cost to date, with a summarized statement show-
ing cost per mile of railway, under each of the three general
accounts.
19-20. The Income Account embraces the grouping of
all the accounts covering Income for the year, and shows the
gross and net results thereof. The principal feature of the
Income Account is that the railway operations, revenues
and expenses are kept independent of any other operations
owned or directed by the company. This will be more
:
.
RAILWAY ACCOUNTS AND STATISTICS
17
clearly emphasized in dealing with the various revenue and
expense classifications.
21. Profit and Loss Account, in which must be shown
in detail all debits and credits of any kind made during the
year and the purposes of same.
22. Operating Revenues. It will be noted that these
are divided into two general accounts: (I) Revenue from
Transportation and (II) Revenue from Operations Other
Than Transportation, such as station and train privileges,
advertising in stations and on trains, news stands, parcel
room receipts, telegraph and telephone service, car service,
which is the demurrage charge against shippers for delays
in unloading cars, etc., all of which are incidental to trans-
portation, and are not outside or auxiliary operations. The
foregoing general accounts are divided into twenty-one pri-
mary accounts, including two primary accounts, known as
Joint Facilities Accounts, which are provided so as to sep-
arate revenues derived by a railroad from the operation of
joint tracks, terminals, or facilities, which are either pay-
able to, or receivable from, other companies.
In issuing this Classification of Operating Revenues,
the Statistician of the Interstate Commerce Commission
states: "It will be observed that the primary accounts are
so drawn as to show, first, the amount earned for the trans-
portation of freight, upon which should be based the com-
putation of revenue per ton per mile and revenue per freight
train mile; second, the amount earned for the transporta-
tion of passengers, from which may be computed the rev-
enue per passenger per mile; third, the amount earned from
all transportation on passenger trains, from which may be
computed the revenue per train mile; and fourth, other rev-
enue from transportation service, namely, switching rev-
enue, special service train revenue, and miscellaneous trans-
portation revenue. In addition to revenue from transpor-
tation, the Revenue Account includes additional primary
accounts which cover revenue from operations incident to
18
A. J. COUNTY
transportation, the expenses incident to which are included
in Operating Expenses."
+
23. Shows in detail all deductions from the Operating
Revenues, consisting of overcharges, over collections,
switching charges, fares refunded, etc. On account of the
large amount of work involved this classification in 23 items
has been waived for the present.
24-25. Showing all stocks of other railway corporations
owned, and the condition under which they are held by the
carrier, i. e., pledged or unpledged, and whether its own
stock, the stock of a company whose property forms a part
of the operating system, or the stock of a company not form-
ing part of the operating system, the dividends declared
thereon and the valuation at which the stocks so owned are
carried into the General Balance Sheet.
26-27. Similar tables for bonds.
28. Information required covering ownership of all
stocks and bonds other than those of railway companies.
The object of tables 24-28 is to afford a detailed view of the
securities and stocks of all kinds owned by the railway com-
pany, and the value at which they are reported to the stock-
holders, and also to indicate the range of the Company's
activities and interests.
29. Sinking, Improvement, Renewal, Injury, and other
Special Funds, held or set apart by the company for specific
corporate purposes. No funds for the benefit of employes,
such as sickness, accident, saving or insurance funds are
included.
30-32. Operating Expenses. These expenses are clas-
sified under five general accounts: (I) Maintenance of Way
and Structures; (II) Maintenance of Equipment; (III)
Traffic Expenses; (IV) Transportation; and (V) General
Expenses. These general accounts are further sub-divided
into 116 primary accounts. The ratio of the total of each
primary account to the general account under which it be-
longs and to the total Operating Expenses is also shown.
RAILWAY ACCOUNTS AND STATISTICS
19
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​In issuing this important classification, the Statistician
of the Interstate Commerce Commission stated: "It is em-
inently appropriate that public acknowledgement should be
made to the Association of American Railway Accounting
Officers, and to the standing and special committees ap-
pointed by that association, for their hearty co-operation in
working out the details of this Classification. In no other
way would it have been possible for the Commission to avail
itself of that special knowledge and expert experience nec-
essary for the successful accomplishment of the task under-
taken."
33. Outside Operations, detailed statement of, viz., ho-
tels and restaurants, ferry and boat lines, harbor terminal
transfers, cab and omnibus service, dining, sleeping, and
chair cars, etc., showing revenues, expenses and net revenue
or deficit of each class. Other Properties, Revenues, Ex-
penses, Taxes and Income or Loss on, such as land grants,
coal and lumber properties, etc., in detail.
In issuing this Classification the Statistician of the In-
terstate Commerce Commission states: "Outside Opera-
tions are facilities operated or services rendered by a rail-
way other than those incidental to transportation by rail,
the revenues and expenses of which, if included in the
carrier's accounts, impair the significance of statistics pre-
pared from such accounts. The purpose of these accounts
is to segregate from the accounts of transportation by rail
the revenues and expenses of all services not necessarily
incident to such transportation and not necessarily rend-
ered by all carriers operating under similar conditions.
"Transportation by rail' includes the receipt, transporta-
tion, and delivery of traffic, such storage of freight as is
necessary to the operation of the railway, all special facili-
ties necessary for the handling of special classes of traffic,
such as coal and ore docks, coal tranfers, and facilities for
the receipt and delivery of live stock, and such car ferries
as are actual substitutes for bridges and tunnels. It does
20
A. J. COUNTY
not include local collection and delivery (except switching),
or transportation by water, except car ferries as above pro-
vided.
The rule which should govern in determining what
items of expenses should be charged to outside operations
is that the rail expense accounts should show the full and
true cost of conducting transportation by rail, even though
such disposition results in an incomplete or partial state-
ment of the cost of conducting the outside operation. No
charge should be made to outside operations if the effect
of such charge would be to relieve the rail operation of an
expense that would be charged against it if no outside serv-
ice were operated. When a specific charge is made for the
service or commodity furnished by the outside operation,
such charge constitutes the revenue of the operation. When
the through rate contains an arbitrary division or allow-
ance, intended to cover the service of the outside operation
exclusively, such arbitrary division or allowance is to be
considered the revenue of the operation and is to be ap-
portioned on local as well as through business. Charges
against the operating carrier for services or product should
be at cost, and should be credited to the account entitled
"Other Operations, Cr.," which has been introduced in
operating expenses of outside operations for that purpose.
Whenever a credit is made to that account, a charge of like
amount should invariably be made to the appropriate op-
erating expense account of the rail department or of some
other outside operation.
The maintenance of facilities for transportation or other
service, or distinct portion thereof, assigned exclusively to
an outside operation should devolve upon the outside opera-
tion when separable from the expense of maintaining the
railway. The maintenance of facilities not so separable
should be borne by the railway when employed only inciden-
tally by the outside operation and by the outside operation
when employed only incidentally by the railway.
RAILWAY ACCOUNTS AND STATISTICS
21
34. Rents Receivable from use of joint tracks and joint
yards and terminals.
35. Rents Receivable from lease of road and Miscella-
neous Rents and other Miscellaneous Income.
36-37. Rents Payable. Other Deductions from Income
and result of operation of separately operated properties.
38-39. Hire of Equipment, divided under three headings:
(A) Equipment Leased, subdivided under Rents Accrued
Receivable and Rents Accrued Payable; (B) Equipment
Interchanged, divided under (I) Accrued on Equipment
Borrowed and (II) Accrued on Equipment Loaned; (C)
Private Cars, showing name of owner, description, number
of car miles, rate of compensation, and amount.
40. Taxes and assessments, divided under two head-
ings: (A) Company's owned and Proprietary Lines; (B)
Company's Leased and Operated Lines.
41-42. Comparative General Balance Sheet showing
changes that have taken place in the financial condition of
the company during the year covered by the report.
43. Extensions and physical changes of road. De-
creases in mileage by straightening line. Leases taken or
surrendered. Consolidations or reorganizations effected.
New Stocks and Funded Debt issued. Changes in holdings
of Stocks and Funded Debt. All other important financial
changes.
44. Contracts or agreements entered into with other
Companies or persons concerning transportation of freight
or passengers, such as transportation of mail for the Gov-
ernment and with Express, Sleeping, Parlor, and Dining
Car Companies, Telegraph and Telephone Companies, etc.
45. Employes, divided into eighteen classes, with num-
ber of days worked, total yearly compensation and average
daily compensation, with the total salaries distributed be-
tween Maintenance of Way and Structures, Maintenance
of Equipment, Traffic Expenses, Transportation Expenses,
General Expenses, and Outside Operations.
22
A. J. COUNTY
46-47. Traffic and Mileage Statistics, viz:-
Passenger Traffic:
1. Number of Passengers Carried Earning Revenue,
2. Number of Passengers Carried One Mile,
3. Number of Passengers Carried One Mile per Mile
of Road,
4. Average Distance Carried,
5. Total Passenger Revenue,
miles,
6. Average Amount Received from each Passenger,
7. Average Receipts per Passenger per Mile,
8. Total Passenger Service Train Revenue,
9. Passenger Service Train Revenue per Mile of Road,
10. Passenger Service Train Revenue per Train Mile.
Freight Traffic:
11. Number of Tons Carried of Freight Earning Revenue,
12. Number of Tons Carried One Mile,
13. Number of Tons Carried One Mile per Mile of Road,
14. Average Distance Haul of One Ton,
15. Total Freight Revenue,
miles,
16. Average Amount Received for each Ton of Freight,
17. Average Receipts per Ton per mile,
18. Freight Revenue per Mile of Road,
19. Freight Revenue per Train Mile.
Total Passenger and Freight Traffic.-Operating Reve-
nues; Operating Revenues per mile of road and per train
mile; similar statistics covering Operating Expenses; net op-
erating revenue or deficit and the operating revenue or de-
ficit per mile of road; average number of passengers per car
mile and per train mile; average number of passenger cars
per train mile; average number of tons of freight per loaded
car mile and per train mile; average number of freight cars
per train mile; average number of loaded and empty cars
per train mile; average mileage operated during the year.
Locomotive Mileage, Car Mileage and Train Mileage in
RAILWAY ACCOUNTS AND STATISTICS
23
revenue and non-revenue service, covering freight and pas-
senger traffic.
These are among the most important statistics required
by the Commission and are divided into sixty-six separate
items.
48-49. Freight Traffic movement (Company Material
excluded), divided between Products of Agriculture, Ani-
mals, Mines, Forests and Manufactures, Merchandise, and
subdivided in various commodities, and showing the ton-
nage originating on the road of the railway, the tonnage
received from other carriers, the total tonnage, and the per-
centage of the total tonnage represented by each commodity
and each group of Products.
50-54. Detailed description of equipment (viz., Loco-
motives, passenger and freight cars, and repair cars), its
capacity, the additions and retirements during the year, etc.
55. Mileage of single track, double track, third track,
fourth track, yard track, branches, sidings, etc. Mileage
divided by States operated and owned, the new lines con-
structed and miles of rails used therefor.
56. Tie renewals during year, number, and average
price; rail renewals during year, tons, weight per yard, and
average price at distributing point. Consumption of fuel
by locomotives divided between anthracite and bituminous
coal, cord wood, fuel oil, with the miles run and average
pounds consumed per mile for locomotives in various classes
of service.
57.
Accidents of all kinds and how incurred.
58. Characteristics of road by divisions and branches,
showing alignment and profile.
59. Bridges, trestles, tunnels, etc., material of which
constructed and their maximum and minimum length; over-
head highway crossings, overhead railway crossings.
Gauge of track. Telegraph Lines along the railway owned
or operated by the railroad company, or owned or operated
by another company, mileage thereof, etc.
24
A. J. COUNTY
This completes the present annual report requirements,
but I here insert and mark
60-61. The new form of General Balance Sheet. This
has been made partially historical, and laden with many ac-
counting technicalities that prevent it from being easily
understood by the investor, and it must inevitably undergo
further revision before reaching its permanent form. I also
add and mark as number
62. Ferry Lines, general and primary accounts, as an
illustration of what is now required as to each operation
outside of Railway Transportation.
Differences Between Old and New Classifications.
It will be interesting to note the chief differences be-
tween the mandatory new classifications placed in effect
since 1906 and the rather optional old classifications, which
are:
First. The separation from railroad results of all Reve-
nues and Expenses not incidental to rail transportation, the
revenues and expenses of which, if included in rail accounts,
would impair the value of statistics compiled therefrom.
All revenues and expenses not incidental to railway trans-
portation are embraced under the classification of "Outside
Operations."
Second. The net amount paid to any other companies for
the use of equipment instead of being an operating expense
is now a fixed or obligatory charge against Income-"Hire
of Equipment"-because to the extent that it is necessary
to hire equipment by paying rental therefor, a company is
deficient in investing the capital necessary to furnish suffi-
cient equipment for its own traffic and instead is using the
capital of other companies by paying an amount supposed
to represent interest thereon. This is not necessarily an
evidence of bad management as the line may be part of a
through route and dependent upon a connecting line for
a large part of its traffic, and therefore not in a position to
RAILWAY ACCOUNTS AND STATISTICS
25
*
dictate whose cars shall be used. The company receiving
a net payment for the hire of equipment cannot report it
among its operating revenues, or as a deduction from op-
erating expenses as heretofore, but must show it as a sep-
arate item under "Other Income," for the converse reason
to that given above. It is interest on capital used by others.
When the Hire of Equipment accounts, which of course cov-
ered principally the interchange of freight cars, were first
established, it was ordered that of the per diem charge,
which then had been fixed by the railroads at 50 cents, 12
cents thereof estimated to represent the cost of deprecia-
tion and maintenance should be either charged or credited
to Operating Expenses, but as this amount was entirely an
estimate, and as a large number of repairs had to be made
entirely at the expense of the using company, it was after-
wards concluded that the whole amount paid or received
was more in the nature of a rent than as a reimbursement
for repairs or depreciation. Since then this per diem charge
has been as low as 25 cents instead of 50 cents, because un-
der depressed business conditions all of the lines had many
idle cars.
Third.-Joint Facilities Accounts: These accounts like
Hire of Equipment can show either a debit or credit bal-
ance, dependent upon the extent to which a company uses
the tracks, terminals or facilities of other companies. Their
principal function is to eliminate duplication by showing
the entire cost of operating any jointly used terminal, sta-
tion, yard or tracks in the primary accounts of but one car-
rier, viz., the owning or operating company, instead of hav-
ing these charges distributed between primary accounts
of all the carriers participating in their use, and in this way
show the true cost of operation, regardless of their final dis-
tribution through the use of the Joint Facilities Accounts
of all companies concerned. They are also designed to
show under the primary expense accounts, first, the ex-
penses of the company's owned and operated lines, and sec-
26
A. J. COUNTY
2
ond, the net expenses of earning the revenue shown. In the
United States it has become a general practice to use part
of the tracks, terminals or facilities of other railway com-
panies instead of constructing independent facilities, which
would be a duplication of those existing and a waste of
capital. Such arrangements generally require the joint
user to pay to the owner a proportionate share, based on the
number of trains, cars and engines, or other traffic units, of
(1) interest on the valuation or cost of the tracks and facil-
ities used and (2) of the cost of maintenance, operation and
administration and taxes. Under the former methods the
owning company would charge its operating expenses with
all of the expenses of maintenance, operation and adminis-
tration of the joint facilities used with another company or
companies, and would include as part of its operating reve-
nues or other income the rental received from the using
company, and the using company would charge the entire
rental so paid; i. e., its share of the interest as well as the
operating cost to its own operating expenses or fixed
charges, or depending upon the judgment of its officers, the
rental, in whole or in part, might be used to affect the reve-
nues, operating expenses or fixed charges of both compan-
ies, the practice being by no means uniform, but the
amounts being reflected in the accounts of all companies,
being gross and not net, led to considerable duplication.
Under the present system of accounting, the amounts re-
ceived from the use of joint facilities are separated and
placed in special primary accounts. The proportion of the
interest upon the cost or value of the joint facilities and
the taxes received from the tenant company using the same
is not considered as operating revenue, but is reported in
the general income account as an item of other income un-
der the heading of "Joint Facilities-Rents" and is re-
garded as interest return to the owning company upon such
portion of its capital as is used by others. In the case of
the using company it is regarded as an obligatory interest
RAILWAY ACCOUNTS AND STATISTICS
27
charge and shown under the heading "Joint Facilities-
Rents," because to that extent it is paying interest upon the
capital for tracks, terminals and facilities which another
company has provided. The cost of maintenance, operation
and administration of such joint facilities is shown in sep-
arate itemized debit and credit primary accounts so that
only the net amount paid by a company becomes a part of
its operating and maintenance expenses, and if a net
amount is received it is treated as a separate and specific
credit and reduces the expenses to the amount actually
borne.
Fourth.-Formal Depreciation charges on equipment
have been made a part of Operating Expenses; and with
the consent of the Commission, Depreciation Accounts may
also be established for Maintenance of Way and Structures.
Fifth. - Premiums realized on the scale of Capital Stock
must be permanently carried in the Balance Sheet under
Capital Liabilities, thereby specifically ear-marking the
same for Capital Expenditures, and in this way prevent the
possibility of their being merged with the Profit and Loss
account and used otherwise than as above. This amount
can be off-set by any discount suffered on stock, but under
the laws of many States, railroad companies are prohibited
from selling their stock at less than
par.
Discount on Stock must be similarly carried in the Bal-
ance Sheet until extinguished by premiums realized on cap-
ital stock of the same class. If the stock is to be retired or
converted this can be charged to Profit & Loss or against
any premium realized on such stock at the date of its re-
tirement or conversion.
Premium realized on bonds or funded debt must be cred-
ited to Income in equal annual instalments during the life
of the bond as will extinguish the premium, or credited to
Profit & Loss. The credit to Income in any one year must
not exceed the amount of the annual instalment.
Discount on Bonds: The discount on Bonds is similarly
28
A. J. COUNTY
charged to Income or to Profit & Loss. If the premium
realized is greater than the discount on bonds, the latter
may be deducted from the premium and the balance shown
in the General Balance Sheet.
Discount on stock or bonds cannot be included in the
cost of railway or equipment but must be shown and dealt
with as above indicated. The preferable method would ap-
pear to be to at once charge the discount against Profit &
Loss so as not to leave too much to posterity or trust to
realizing premiums.
Sixth.-Expenditures for Additions or Betterments to
the railway, or its equipment over the cost of replacing in
like kind, or original cost, respectively, are not recognized
as elements of operating cost and can not be charged to
operating expenses, but must be shown upon the General
Balance Sheet as part of the cost of road or equipment.
The object claimed for the Depreciation Accounts was
to guard primarily against an overstatement or understate-
ment of the net revenues by including such depreciation as
part of the operating costs and to spread the charges for
replacement evenly over the years rather than have the
charge made or omitted as it suited the financial conven-
ience or necessity of the railways, and the purpose of Addi-
tions and Betterments Classification was to limit operating
expenses strictly to maintenance and operating outlays and
depreciation, and so guard against an understatement or
overstatement of net operating revenues by excluding
therefrom additions to, or improvements of, the property
or equipment, and at the same time including therein all
proper charges for replacement.
I may say here that while the provisions governing De-
preciation and Additions and Betterments are, from a theo-
retical standpoint, reasonably and logically expressed, and
the underlying principle of absolute uniformity is pre-
served, yet from a practical standpoint, a certain amount
of arbitrary control is exercised through the medium of
RAILWAY ACCOUNTS AND STATISTICS
29
these accounts, and proper operating results depend en-
tirely upon their reasonable enforcement. The provisions
enter the domain of railway management in deciding what
shall constitute an operating expense, and a capitalizable
asset. This is especially so when the fact is recognized that
all additions and betterments are not proper items for
capital issues, and should not from a practical standpoint
be carried into the General Balance Sheet as a capitalizable
asset. The accounting rule of the Commission for equip-
ment replacements is open to objection in that it requires
that operating expenses shall bear a replacement charge
only to the amount of the original cost of the discarded or
destroyed equipment, without regard to whether labor or
material costs have increased, by this difference under-
stating operation expenses, and also inflating the true value
of the equipment. In valuing any asset on the Balance
Sheet it is also desirable that if any deduction is to be made
because any part thereof has been paid out of the surplus
income, the fact should be clearly shown by deducting such
amounts, either specifically or otherwise, before carrying
the final cost of these so-called additions to, and better-
ments of, the road and equipment among the assets in the
General Balance Sheet, and thereby avoid off-setting such
payments by a rather obscure item in the liabilities of the
Balance Sheet as the accounting rules require.
An accounting system may be correct in theory, so far
as operating expenses go, when it provides for operating,
maintenance, replacement in kind, and depreciation
charges, and requires all beyond these charges to be con-
sidered as an addition to or betterment of the property to
be shown as a capital asset. Practically this is not the
case, because it does not provide a reserve against shrink-
ages in tariff rates, the trend of which has always been in
that direction; business depressions; increased taxes and
other governmental charges; the greater cost of material
and labor; or for contingencies based on sound business
30
A. J. COUNTY
素
​judgment and practices. Practical consideration of all
these elements dictates that adequate charges to expenses
for maintenance, operation, replacement, and depreciation
must be supplemented by the use of surplus income for
such additions and betterments to the property, which do
not materially increase the revenues of the railway, ma-
terially reduce its operating and maintenance expenses,
or substantially add to the value of the property as a whole.
Such expenditures should not enter into the Balance Sheet
as part of the capital assets, but such part thereof as may
be non-productive should be charged off to the total operat-
ing and maintenance expenses, before showing the net reve-
nue from transportation operations, such charges to be
clearly shown in the accounts so as not to impair the in-
tegrity of the operating statistics.
Monthly Reports For the Government.
Each report requires a statement of Operating Reve-
nues from Rail Operations, divided between Freight, Pas-
senger, Other Transportation and Non-Transportation;
Operating Expenses for Rail Operations, divided between
Maintenance of Way and Structures, Maintenance of
Equipment, Transportation Expenses, Traffic Expenses,
and General Expenses; Net Operating Revenue (or Deficit)
from Rail Operations; Total Revenues, Expenses and Net
Revenue (or Deficit) from Outside Operations. One
twelfth of Annual Taxes is deducted from the Total Net
Revenue, leaving the Operating Income. The number of
miles operated on the last day of the month for which the
report is made is also required to be shown. The above in-
formation is given for the month and for the period since
last annual report, compared with similar month and period
of previous year.
The information and statistics contained in the respec-
tive monthly and annual reports of the railways are com-
piled by the Interstate Commerce Commission and made
RAILWAY ACCOUNTS AND STATISTICS
31
the basis of its annual report to the United States Govern-
ment, which is admirable in its scope and the value of the
information conveyed. The Commission has established
the issue of a monthly report giving the operating results
for each system, and a summary for the entire country.
Governmental Purposes in Promulgating Uniform
Accounting.
The objects, so far as it is possible to ascertain them,
sought to be accomplished by the Interstate Commerce
Commission in promulgating a uniform statement of ac-
counts were, first, to insure the statement of revenues and
expenses of the railroads on a uniform and comprehensive
basis, and by monthly reports, special reports and annual
reports keep investors, railroad patrons, shippers, traders,
and the governmental authorities in possession of the facts;
second, to exclude from operating expenses the cost of all
additions and betterments and carry the same into the
General Balance Sheet as part of the cost of the railway or
its equipment and at the same time insure the inclusion
of all proper charges in operating expenses; third, to sat-
isfy, amid the widespread discussion of rates and the gen-
eral demand for a flat two-cent rate per mile for passenger
traffic, the desire for a uniform system of accounting to
compare and separate operating costs, the assumption be-
ing that after a reasonable return was paid upon the
amount invested in the railroads, or upon a valuation there-
of, railroads could be forced by legislative action to lower
rates, and that the question of rates was inseparably con-
nected with the cost of each service rendered; fourth, that
the use of railroad bonds as security for the issue of emer-
gency currency in time of stringency might be permitted,
provided the Government were in possession of all the facts
regarding the railroads; fifth, to have the facts regarding
railroad revenues and expenses stated in a uniform official
method for use in the arbitration of labor disputes; sixth,
32
A. J. COUNTY
so that the practice of governmental regulation through the
agency of the Interstate Commerce Commission and uni-
form accounting directed by that Commission and en-
forced, if necessary, by periodical examinations by its
agents and examiners, would lead to administrative super-
vision of the railroads as a business affecting the public in-
terest, and for that reason should be controlled.
It is not clear to me just how that control can be justly
and properly exercised without the responsibility attach-
ing to ownership and without conflict with the powers as
well as the constitutions and laws of the independent
and sovereign States under which the railroad corporations
are created. To realize these objects would further re-
quire that, instead of following the constitutional method
of reaching judicial conclusions respecting railroads
through the courts of law, the Interstate Commerce Com-
mission should be given judicial and inquisitorial, as well
as administrative powers. Government by commission
has not yet been sufficiently tested in America to enable
one to speak with certainty of the results, nor have the
commissions yet reached the extent of the powers that will
doubtless be conferred upon them, but whatever may be
the final result-governmental control or administrative
supervision, or whatever other term may be used—uniform
accounting is here to stay, and the few creases that now
exist in the structure will be ironed out in good time by the
Interstate Commerce Commission and the railways, and no
doubt the commissions of the various States will concur in
the final action.
CANADIAN AND MEXICAN RAILWAYS.
Uniform Accounting and Statistics.
The record of what has been accomplished in uniform
accounting in North America would not be complete with-
out including the Dominion of Canada, which has 24,104
RAILWAY ACCOUNTS AND STATISTICS
33
*:
miles of railway in operation, and while in relation to its
area it has the smallest, yet in proportion to its population
it has the largest, railway mileage of any country in the
world. These lines carry in a year 33,000,000 passengers
which travel an average of 64 miles; 67,000,000 tons of
freight, the average haul per ton being 197 miles. The
products of agriculture, animals, mines and forests trans-
ported in bulk and at low rates, made up 75 per cent of the
total freight tonnage. The revenues for the year ending
June, 1909, were $145,000,000, Operating Expenses, $104,-
000,000. Of the gross earnings 66 per cent were derived
from freight, while the United States railways derived
69 per cent from freight traffic; Great Britian, 50 per cent;
France, 53 per cent, and Germany, 65 per cent.
In Canada the history of railway extension is similar
to that of the United States as a great factor in develop-
ing the country and as an indispensable agency in popu-
lating its extensive area and placing its products in the
proper market. The Dominion Government, the Provinces
and the municipalities recognized the necessity for ade-
quate transportation facilities and liberally encouraged
railways, and Canada is now deriving the benefit of this
bounty and it will be a continuously increasing benefit, for
that country is yet in the infancy of its agricultural and
mineral development.
For over thirty years no uniform classification of rail-
way accounts existed and comparisons were not possible
either between its own railways or those of any other coun-
try. In 1907 a uniform accounting system was established
and the reporter for America is fortunate in being able to
say that with one important exception-the inclusion in
operating expenses of depreciation-the Canadian form
and classifications are uniform with those of the United
States. In lieu of depreciation of course a proper replace-
ment charge is included in operating expenses, and until a
more extended practical experience with depreciation has
34
A. J. COUNTY
been had in the United States it cannot be said that the
Canadian method is excelled. This uniformity must have
a material bearing on the relations between the two coun-
tries, because nearly all of the larger Canadian lines ex-
tend into the United States, while about twenty United
States railways are operating in Canada. The Dominion
report compiled by the Comptroller of Railway Statistics
and made by the Minister of Railways and Canals to the
Governor General, states that it took three years to make
the system complete the first to lay the foundation, the
second to build the superstructure, and in 1909, the edifice
assumed a definite shape.
Therefore, there are railways aggregating 257,000 miles
in length working under a uniform classification of ac-
counts and statistics, which could very properly be desig-
nated the American Uniform System, in the territory ex-
tending north of the twenty-sixth parallel of latitude and
lying between the Atlantic and Pacific oceans, embracing
adverse and diverse physical and climatic features, ranging
from snow-capped mountain ranges to marshy plains or
parched prairies, from tropical to arctic temperatures, with
just as varied temperaments of the peoples by whom it is
populated in congested cities and scattering settlements.
These railways serve a population numbering about 95,000,-
000; have gross earnings of $2,640,000,000 per annum; ex-
pend $1,855,000,000 per annum for operating expenses;
carry an annual tonnage of 1,600,000,000 tons, with a ton-
nage mileage of 231,543,000,000 miles, and 923,000,000 pas-
sengers traveling in the aggregate 31,116,000,000 miles in
one year, and employ 1,584,000 persons. Although a uni-
form system is promulgated respectively by the national
governments of the United States and Canada and in sub-
stance by the State governments and Provinces, railway
officers will remember that almost in its entirety it is a
definite evolution of the study and experience of over forty
years of the various railway lines, discussed with, and later
RAILWAY ACCOUNTS AND STATISTICS
35
adopted by, the governmental bodies with the advice and
assistance of railway officers.
So far as Mexico is concerned, a great part of its railway
mileage, although originally constructed by private com-
panies, is now owned by the Government and there are
many lines constructed and operated by private companies
under concessions by which, at the close of 99 years, the
Government takes possession, free of cost, except for the
rolling stock which is valued and purchased. No uniform
accounting system exists. Generally speaking, the rail-
ways follow the system devised by the country furnishing
the capital, modified to suit local conditions. The English
capitalists prefer the English system modified by chartered
accountants, and the American capitalists, the system used
in the United States prior to its revision since 1906, and
with the growth of the country it will doubtless be im-
proved.
NORTH AMERICAN RAILWAY ACCOUNTING.
Enough has been said as to broad features of the Uni-
form Classification and Accounting System, and the re-
quirements to satisfy the governing bodies, and I may now
proceed to railway practice especially for the use of stock-
holders and the management.
The railway systems of North America, and I refer to
Canada as well as to the United States, endeavor to have the
accounts and statistics convey a clear and comprehensive
idea of their physical and financial condition, so that hereto-
fore or at present no corporate or partnership undertak-
ings in this country give to their owners and the authorities
more useful or conclusive information. This is done, first,
through the medium of the annual and monthly reports fur-
nished to the National and State governments, as previous-
ly stated, second, by their own published monthly reports
of earnings and expenses and the annual reports of the
Board of Directors to the stockholders, also to the various
36
A. J. COUNTY
Stock Exchanges which require full reports of the com-
pany's affairs before securities will be listed by them, and
under their rules an annual report to the stockholders must
be issued in advance of the annual meeting.
Therefore all safeguards that arise from publicity are
enjoyed to the fullest extent by the railways, the inves-
tors, the public generally, and the authorities.
Annual Reports and Statistics for Stockholders.
While the forms and the contents of the Annual Re-
ports to stockholders differ radically, because each rail-
way company deals with its own particular conditions, the
statistics and accounts are compiled under uniform rules.
The principal features are the Income Account, showing
what has transpired in the way of current receipts and
expenditures during the year compared with the previous
year, and a General Balance Sheet, which shows the status
of all accounts at the end of the year. These have always
been shown by all companies, and, as the Income Account
is the most important index of what has happened during
the year, a typical form thereof is given on page 36.
•
In addition, nearly all of the roads give statistics of
mileage and road characteristics over which the transpor-
tation service is rendered; of the equipment in which the
traffic is conveyed; of the traffic carried; its mileage; train
lading; train mileage; tonnage and passengers; tonnage
and passenger mileage; average revenue, expenses and net
revenue or loss per ton and per passenger mile;
average revenue, expenses and net revenue or loss per
freight and passenger train mile; profit and loss
account, the financial returns, the investments of the
company in detail and the income therefrom; and many
other useful and interesting statistics, accompanied by
comparisons with the previous year, which is decidedly im-
portant, and by explanatory remarks of the President or
executive officers on behalf of the Directors covering the
RAILWAY ACCOUNTS AND STATISTICS
37
chief features in the report, and calling attention to im-
portant matters affecting the company.
Many railroads publish elaborate statistical tables,
samples of which are shown on pages 38 and 39 of this
lecture.
1909.
Comparison
with 1908.
Increase or
Decrease.
GROSS REVENUE..
Freight revenue.
•
Passenger revenue.
Mail revenue
•
Express revenue.
•
•
Other transportation revenue.
Non-transportation revenue.
Total
EXPENSES:-
•
•
Maintenance of way and structures.
Maintenance of equipment.
Traffic
.
Transportation
General
•
OPERATING EXPENSES, EXCLUDING TAXES.
Taxes
OPERATING EXPENSES, INCLUDING TAXES.
NET REVENUE from operation
DEDUCT: Rentals paid roads operated on basis of
net revenue
NET OPERATING REVENUE.
To which add: OTHER INCOME..
Interest from investments
Hire of equipment
Interest General Account.
Rents
GROSS INCOME
•
•
DEDUCT PAYMENTS:-
Fixed rentals of leased roads.
Interest on bonded debt
•
•
Interest on mortgages and ground-rents.
Interest Car Trusts
Sinking Funds
NET INCOME
From which deduct:-
Dividends
Appropriation for additions and betterments not
properly chargeable to Capital Account..
Surplus carried to Profit and Loss Account
•
It is the custom of the larger systems to issue these
annual reports in advance of the annual meetings of the
Company and as far as practicable to publish synopses
thereof in the daily or financial papers so that stockholders
38
A. J. COUNTY
Freight Traffic Statistics.
Miles of road..
Freight revenue (rail)
Per cent of total revenue.
Number of tons carried.
• •
•
Number of tons carried one mile.
•
Average miles each ton was carried.
• •
Number of tons carried per mile of road.
•
• •
Number of tons carried one mile per mile of road.
Freight revenue per mile of road.
Freight expenses per mile of road.
•
•
Net revenue from freight per mile of road.
Average revenue per ton (cents).
Average revenue per ton per mile (cents)
Average cost per ton per mile (cents)
Average number of tons in loaded car.
Average train load, tons..
•
•
Average number loaded cars in train.
Average number empty cars in train
Revenue freight train mileage..
·
•
Revenue freight train mileage per mile of road.
Freight revenue per revenue freight train mile (cents)
Freight revenue per revenue freight train mile (cents)..
Revenue freight locomotive mileage.
Revenue freight car mileage..
•
[]
Passenger Traffic Statistics.
Miles of road ..
Passenger revenue (rail)
Per cent of total revenue.
• •
•
Number of passengers carried
Number of passengers carried one mile.
Average miles each passenger was carried.
Number of passengers carried per mile of road.
No. of passengers carried one mile per mile of road..
Passenger revenue per mile of road.
Passenger expenses per mile of road.
Net revenue from passengers per mile of road.
Average revenue from each passenger (cents)
Average revenue per passenger per mile (cents)
Average cost per passenger per mile (cents)
Average number of passengers per train.
Passenger train mileage....
Passenger train mileage per mile of road.
Passenger revenue per train mile (cents)
Passenger expenses per train mile (cents)
Passenger train revenue.....
• •
•
•
•
•
Passenger train revenue per mile of road.
Passenger train revenue per train mile (cents)
Passenger train expenses per train mile (cents)
Revenue passenger locomotive mileage..
Revenue passenger car mileage.
•
•
•
·
•
•
1909.
Comparison
with 1908.
Increase or
Decrease.
1909.
Comparison
with 1908.
Increase or
Decrease.
RAILWAY ACCOUNTS AND STATISTICS
39
Revenue and Expenses* per Mile of Road.
1909.
Comparison
with 1908.
Increase or
Decrease.
Gross revenue per mile of road...
Operating expenses per mile of road.
Net revenue per mile of road...
•
Note.-Passenger expenses include charges specially appertaining to that
traffic, and also such proportion of the common expenses as its revenue train
mileage bears to the total mileage, after charging against Mail and Express
revenue their proportion of such common expenses.
Train mile revenue includes revenue from Mail and Express traffic.
Taxes are included in Expenses in computing above statistics.
*Per mile of track is also used.
before attending the meeting fully understand the com-
pany's condition, have an opportunity to request further
information from the management in order to intelligent-
ly decide whether their shares will be voted in support
of, or in opposition to, the management.
Classification of Operating Expenses.
So much has been well said and written regarding op-
erating expenses that I cannot hope to impart any great
freshness to the subject. The principles underlying their
classification have been understood for many years and
were observed by the railways to cover their particular
needs in controlling their expenses, but only since 1906
were their needs adjusted to a uniform basis. Again I must
extol our necessities beyond our virtues, because the per-
ceptions of railroad men have been quickened, first, by
following the uniform classification and agreeing in its re-
visions from time to time; second, by legislation enacted
in a large number of States attempting, irrespective of
conditions, to fix the maximum passenger fare at two cents
per mile, resulting in extended legal proceedings in which
the demonstration of the cost of passenger service and a
reasonable return on the investment in the passenger busi-
ness became prime factors (so far as the freight traffic is
concerned, the question of rate modifications has been, and
40
A. J. COUNTY
is, like the poor, ever with us, and prior to 1906 a greater
advance has been made in that branch of the service than
in the passenger business regarding questions of cost and
average results, but honors are now about even); third,
by the suggested adjustments in the compensation for
transporting the mails resulting in a like study for that
traffic.
Lastly, I must not forget financial and business depres-
sions which cause all new construction work to be discon-
tinued, and focus the attention of the executives and of-
ficers on the curtailment of operating expenses. This has
been the situation since the Autumn of 1907, when the
railways which had been enjoying a very heavy traffic and
had spent considerable sums in increasing their tracks and
facilities, suddenly found the pressure of yards crowded
with loaded cars changed to one of finding siding room
for the storage of empty cars. Since then, the railroad
profession has had an opportunity, amid the general dis-
cussion of accounts with the Interstate Commerce Com-
mission, rate proceedings before the various State com-
missions, and the decrease in traffic, to devote considerable
time to the question of a thorough study of operating ex-
penses and operating costs. An undoubted advantage was
thereby gained, resulting in a keener effort for greater
efficiency in traffic movement, and in further operating
economies (aside from wages and material prices), which
have not yet reached their limit.
The classification of operating revenues as hereinbe-
fore stated is divided into two general accounts: (1) Reve-
nue from Transportation, and (2) Revenues from Opera-
tions other than Transportation. The former is sub-di-
vided into eleven primary accounts and the latter which
consists of station and train vending privileges, car serv-
ice, news stand and parcel room receipts, etc., into eight
primary accounts. Operating revenues are finally sum-
marized under four heads. The following percentages in
RAILWAY ACCOUNTS AND STATISTICS
41
the United States indicate their relative importance for
the year ending June 30th, 1909:-
Freight Revenue
Passenger Revenue
•
•
68.88%
23.09%
Express, Mail, and other Transportation Revenue 7.11%
Non-Transportation Revenue
•
.92%
Railway operating expenses are uniformly classified
into five general accounts: (1) Maintenance of Way and
Structures; (2) Maintenance of Equipment; (3) Transpor-
tation Expenses; (4) Traffic Expenses; and (5) General
Expenses.
·
For the year ending June 30th, 1909, these expenses
required 66.12 per cent of the gross revenue, compared
with 69.67 per cent for the previous year, exclusive of taxes.
Taxes, however, should be included in expenses as a sep-
arate item, for while a Company and its management and
stockholders can exercise supervision over its expenses and
fixed charges, and determine to a large measure what they
shall be, it has not the same privilege with regard to taxes,
which constitute a lien having precedence over interest on
bonds and other obligatory charges, and is a primary ex-
pense that must be met before reaching the true net Op-
erating Revenue. In the year mentioned taxes exceeded
$89,000,000 and increased the operating ratio from 66.12
per cent to 69.76 per cent of the gross revenue.
The relative importance of the operating expenses in
the United States will be indicated in the following per-
centages of the total operating revenues and the total op-
erating expenses which they required in the year ended
June 30th, 1909:-
Percentage
of
Operating
Percentage
of
Operating
Revenues.
Expenses.
Maintenance of Way and Structures.
12.74%
•
19.27%
Maintenance of Equipment
15.03%
22.72%
Transportation Expenses
33.73%
51.01%
Traffic Expenses
2.02%
3.06%
General Expenses
•
2.60%
3.94%
There are other substantial expenses, known as fixed
42
A. J. COUNTY
charges, and while not a part of the operating expenses,
the results of railway operations cannot be considered as
conclusive without keeping them in mind. I refer to in-
terest on funded debt, other obligatory charges, and what
must precede them all-taxes, for with the growth of the
United States and the extravagance in municipal, state
and federal government expenditures, they all are increas-.
ing year after year, without any regard to railroad ex-
penses or revenues. The necessity, therefore, of limiting
capital expenditures is a duty that the management is
obliged to urge upon all departments so that every such
expenditure may be made with a definite result in view,
either of adding to the company's revenues, materially de-
creasing its operating expenses, or maintaining its progress
and supremacy in its own territory.
Of the operating expenses above indicated, the General
Expenses, Traffic Expenses, and probably 40 per cent of
the Maintenance of Way and Structures expenses and a
similar proportion of the Maintenance of Equipment ex-
penses are constant, and must continue irrespective of the
density of the traffic which is to be moved. But 70 per
cent or 75 per cent of the Transportation expenses, and at
least 60 per cent of Maintenance of Way and Structures
and Equipment Maintenance expenses are directly related
to, and caused by, train movement.
General Expenses are divided into the following pri-
mary accounts, which fully indicate their scope:-
Salaries and Expenses of General Officers.
Salaries and Expenses of Clerks and Attendants.
General Office Supplies and Expenses.
Law Expenses.
Insurance.
Relief Department Expenses for the conduct of Em-
ployes' Sickness, Accident, and Death Benefit Funds.
Pensions.
Stationery and Printing.
1
}
RAILWAY ACCOUNTS AND STATISTICS 43
1
Other Expenses.
General Administration Joint Tracks, Yards, and Term-
inals-Dr.
General Administration Joint Tracks, Yards, and Term-
inals-Cr.
Traffic Expenses, consisting of expenses for obtaining
traffic are divided into the following primary accounts:-
Superintendence.
Outside Agencies.
Advertising.
Traffic Associations.
Fast Freight Lines.
Industrial and Immigration Bureaus.
Stationery and Printing.
Other Expenses.
This brings us to what is regarded as the real operating
expenses of the road, for the maintenance of the railway
and structures, for maintenance of equipment, and for
transportation expenses, i. e., those connected with train
movement. Maintenance of Way and Structures Expenses
are divided into the following primary accounts:-
Superintendence.
Ballast.
Ties.
Rails.
Other Track Material.
Roadway and Track.
Removal of Snow, Sand, and Ice.
Tunnels.
Bridges, Trestles, and Culverts.
Over and Under Grade Crossings.
Grade Crossings, Fences, Cattle Guards, and Signs.
Snow and Sand Fences and Snowsheds.
Signals and Interlocking Plants.
Telegraph and Telephone Lines.
Electric Power Transmission.
44
A. J. COUNTY
Buildings, Fixtures, and Grounds.
Docks and Wharves.
Roadway Tools and Supplies.
Injuries to Persons.
Stationery and Printing.
Other Expenses.
Maintaining Joint Tracks, Yards, and Other Facili-
ties-Dr.
Maintaining Joint Tracks, Yards, and Other Facili-
ties-Cr.
Expenses for Maintenance of Equipment are divided
into the following primary accounts:-
Superintendence.
Steam Locomotives-Repairs.
Steam Locomotives-Renewals.
Steam Locomotives-Depreciation.
Electric Locomotives-Repairs.
Electric Locomotives-Renewals.
Electric Locomotives-Depreciation.
Passenger-train Cars-Repairs.
Passenger-train Cars-Renewals.
Passenger-train Cars-Depreciation.
Freight-train Cars-Repairs.
Freight-train Cars-Renewals.
Freight-train Cars-Depreciation.
Electric Equipment of Cars-Repairs.
Electric Equipment of Cars-Renewals.
Electric Equipment of Cars-Depreciation.
Floating Equipment-Repairs.
Floating Equipment-Renewals.
Floating Equipment-Depreciation.
Work Equipment-Repairs.
Work Equipment-Renewals.
Work Equipment-Depreciation.
Shop Machinery and Tools.
Power Plant Equipment.
RAILWAY ACCOUNTS AND STATISTICS
45
1
Injuries to Persons.
Stationery and Printing.
Other Expenses.
Maintaining Joint Equipment at Terminals-Dr.
Maintaining Joint Equipment at Terminals-Cr.
Transportation Expenses are divided into the following
primary accounts:-
Superintendence.
Dispatching Trains.
Station Employes.
Weighing and Car-Service Associations.
Coal and Ore Docks.
Station Supplies and Expenses.
Yardmasters and their Clerks.
Yard Conductors and Brakemen.
Yard Switch and Signal Tenders.
Yard Supplies and Expenses.
Yard Enginemen.
Enginehouse Expenses-Yard.
Fuel for Yard Locomotives.
Water for Yard Locomotives.
Lubricants for Yard Locomotives.
Other Supplies for Yard Locomotives.
Operating Joint Yards and Terminals-Dr.
Operating Joint Yards and Terminals-Cr.
Motormen.
Road Enginemen.
Enginehouse Expenses-Road.
Fuel for Road Locomotives.
Water for Road Locomotives.
Lubricants for Road Locomotives.
Other Supplies for Road Locomotives.
Operating Power Plants.
Purchased Power.
Road Trainmen.
Train Supplies and Expenses.
46
#
A. J. COUNTY
Interlockers and Block and Other Signals-Operation.
Crossing Flagmen and Gatemen.
Drawbridge Operation.
Clearing Wrecks.
Telegraph and Telephone-Operation.
Operating Foating Equipment.
Express Service.
Stationery and Printing.
Other Expenses.
Loss and Damage, Freight.
Loss and Damage, Baggage.
Damage to Property.
Damage to Stock on Right of Way.
Injuries to Persons.
Operating Joint Tracks and Facilities-Dr.
Operating Joint Tracks and Facilities-Cr.
For their own special purposes, railroads further divide
many of the primary accounts to keep a close watch upon
results.
Watching Revenues and Expenses.
Railroad management, whether in the transportation,
traffic, engineering, finance or accounting departments, is
a profession, and the larger and well-established railways
begin each year, not only with a record of what has been
accomplished in the past year, but with an estimate for the
current year made after consultation with the officers in
charge of the various departments, covering, first, the reve-
nues; second, a program of maintenance and replacement
expenditures to be paid out of current revenues, including
therein proper depreciation charges unless sufficient re-
placements are currently made to make good the annual
depreciation; third, an approximate estimate of other op-
erating expenses; fourth, an estimate of what should be
spent out of surplus revenues for betterments of and ad-
ditions to the railway and its equipment; and fifth, a list
RAILWAY ACCOUNTS AND STATISTICS
47
of expenditures for new railway construction equipment
and real estate, chargeable to capital account. Between
such capital expenditures, and the maintenance and re-
placement items charged in operating expenses, are the
expenditures above mentioned in "fourth" for betterments
and improvements which run concurrently in making re-
newals and which it has been the practice of conservatively
managed American roads to provide out of the surplus in-
come remaining after the payment of the operating ex-
penses, taxes, interest on funded debt, rentals, and other
obligatory charges.
Such betterments and improvements provided out of
surplus income may include such items as the elimination
of grade or level crossings, improvements in the grades
and alignment of the railway and in the yards and term-
inal facilities, and equipment, improvements in the design
and character of stations, bridges and other structures,
when they are betterments which add nothing to the orig-
inal plant other than the improvement which progress sub-
stitutes for the existing plant, or are necessary to keep the
railway and equipment up to the standard fixed by the re-
quirements of its business. These should not be capitaliz-
able because they do not substantially increase the reve-
nues, materially reduce expenses, or add an important ele-
ment of value to the property as a whole. This policy
has been pursued for so many years that very few of the
standard American railways could now be reproduced for
the par value of their outstanding stocks and bonds, and
it has been the chief means whereby the bonus stock issued
used for promotion rewards in their early history (known
as watered stock) have been corrected and the integrity
of the capital account restored and preserved. It would
be a matter of deep regret if this conservative policy should
be disrupted and such expenditures be forced into and re-
tained in capital account by governmental order.
As the year proceeds, the estimates above referred to
48
A. J. COUNTY.
are carefully supervised, and additions made to the con-
struction list as the exigencies of present and future traffic
demand of expenditures for branch and relief lines, ex-
tensions of terminals, yards, tracks, equipment, etc., up-
on the recommendation of the responsible officer in charge
of that branch of the service, and appropriations are voted
therefor by the Board of Directors, or other proper com-
mittee or executive officer.
With the question of expenditures for new railway
lines, facilities, and rolling stock definitely and prudently
decided, taking into consideration not only present but fu-
ture requirements, for a railroad is a permanent institution,
to produce and sell a product called "transportation," the
duty of efficient management is first devoted to the quantity
of traffic, its movement and the revenues therefrom, and
the cost of its conduct-its operating expenses.
It is the duty of the compiler of statistics to separate
the principal classes of traffic carried and ascertain, as far
as it is possible to do so, whether the service is rendered
at a profit or a loss. The railroads are, of course, obliged
to continue various train service especially for passenger
traffic, and also to carry many items of freight traffic, which
on the face of the returns cannot earn enough to pay either
their share of the maintenance and operating expenses
and other obligatory charges, or their part of the dividend,
and must look to the more profitable items for recompense,
so that rates are necessarily made on the value of the serv-
ice rendered and the risk assumed, and not on the cost of
transporting each commodity and the classes of passen-
ger traffic. The railways have separated costs to the ex-
tent of over two-thirds of their total expenditures between
the passenger and freight traffic, respectively, but one-third
of the cost, made up of items like maintenance of way, is
common to both passenger and freight traffic, and also the
taxes, interest on the investment, etc. These common costs
have been divided largely on the basis of train mileage,
RAILWAY ACCOUNTS AND STATISTICS
49
as being the most convenient, and, weighing all past and
present practical conditions, perhaps the most acceptable,
method, although locomotive and car mileage are used by
some roads.
The end of this cost accounting will not be reached un-
til the return and cost of every service rendered for both
passenger and freight traffic is resolved into units of lad-
ing and distance, reflecting the use that has been made of
the equipment, and the service rendered on each of the
larger divisions or sections of the railway, and compari-
sons made with previous years. The railways no longer
consist of short lines of single track which in the earlier
days could be supervised by a single officer and a small
staff, but of large systems with great stretches of four-
track lines. These require for their operation an exten-
sive and trained organization, and the advancement of the
art has been so great, due to the provision of additional
facilities and equipment, traffic density, rate changes, and
increased taxes, wages and prices of all kinds, that each
branch of the railroad business is becoming specialized and
the question of costs and net results is reaching the stage
of a highly organized industry.
The day of general facts and individual preference in
recording results is past, and statistics that fully tell the
story, and will bear the light of comparison, must be kept
to justify the efficiency of the operating officer, whose value
is demonstrated by the facility and economy with which
the traffic is moved, under the particular or peculiar condi-
tions applying to the part of the railway under his super-
vision, and the operating plant, consisting of the road, sta-
tions, shops and equipment, is maintained and operated.
Those lines with which I am most familiar operate the
railway by separating it into divisions, each in charge of
a Division Superintendent, having full authority, and re-
sponsible to a General Superintendent, who supervises sev-
eral divisions, and who in turn is responsible to the Gen-
50
A. J. COUNTY
eral Manager and the latter to the executive officers. There
are, of course, many companies which pursue a different
plan of organization, and effect results by different meth-
ods and different officers from those I describe.
The three branches of the service-Maintenance of
Way, Maintenance of Equipment (rolling stock), and
Transportation (train movement)-are confided for re-
sults to a Division Superintendent having anywhere from
150 to 250 miles of main railway mileage, with branches,
or a total track mileage, exclusive of sidings, of from 500
to 750 miles, depending on the traffic density and the dis-
trict served. Having the largest share of the operating ex-
penses, this operating branch of the service is at all times
subject to the greatest crossfire.
This quickened responsibility has led to a demand that
operating statistics and costs, which formerly were com-
piled in copperplate fashion after the close of the month,
should be promptly furnished so that defects could be
remedied, for the results of train, car and tonnage move-
ment, and costs must reach the man in charge promptly
after the train movement occurs, otherwise a railroad in
operation may soon deplete its revenues by the heavy ex-
penditures for labor and materials, for unremunerative
train and car mileage, and unless the cause is very marked,
and the inquiry promptly follows the cause, the manage-
ment can obtain only a general explanation for bad opera-
ting results, instead of the conservation of its funds. Tak-
ing the experience of 1907 as an illustration when con-
ditions changed from high water mark of traffic in the be-
ginning of the year to a business depression in the latter
part of the year, the operating officer could not immediate-
ly decide just where and what expenses should be im-
mediately reduced without facts promptly furnished to sup-
plement his judgment. It therefore became a matter for
decision as to what statistics were required to give a divi-
RAILWAY ACCOUNTS AND STATISTICS
51
sion officer adequate and prompt control of the situation
and to have his expenses well in control.
The Maintenance of Way and Structures and Main-
tenance of Equipment Expenses, amounting to 42 per cent
of the total expenses, are governed, first, by the definite
program allowances made at the beginning of the year, and
these or the other program allowances mentioned are not
exceeded except for special purposes approved by the chief
executive officer in charge of operations, and, if of suffi-
cient importance and not the ordinary and necessary ex-
penses for upkeep, require approval by the President and
the Board. These program estimates are based on, and
compared with, similar expenses and costs of previous
years on various bases, so that any unusual features of in-
crease or decrease must be fully explained before being
authorized. The changes in Division Superintendents or
other officers on a large and active railroad give a fresh
view of this question at least every few years. The divi-
sion or other officer must make his program estimates based
on personal knowledge and on the information given him
by his staff, composed of men trained in each branch of the
service, and they are subsequently subjected to the scrutiny
of the General Superintendent, and, in the case of Main-
tenance of Equipment Expenses, to that of the respective
Superintendents of Motive Power, the General Superinten-
dent of Motive Power, or other proper officer in charge of
motive power, and in the case of Maintenance of Way and
Structure Expenses, to the Chief Engineer of Maintenance
of Way, and finally all such reports are scrutinized by the
General Manager. It is clear that after so many trained
men have given their experience it is difficult to go far
astray in a proper annual expenditure, especially as after
its authorization its outgo is carefully guarded, and is sub-
ject to the orders of the Division Officer or his responsible
assistants in charge of railway and structures, and in
charge of the equipment handled in the shops. There is
52
A. J. COUNTY
also included as part of the maintenance and operating ex-
penditures a charge to provide for the replacement of the
equipment.
So far as expenses for maintenance of tracks, bridges,
stations, and structures, and maintenance of equipment are
concerned, which amount to about 42 per cent of the total
operating expenses, they necessarily are related to the ex-
tent of the train service, yet if business decreases and does
not justify it, a very large part can be deferred, provided
the railway and equipment has been heretofore maintained
in good working condition and repair.
Little credit has therefore in the past been given for
reducing Maintenance of Way or Equipment Expenses, be-
cause it has been the favorite method of "skimping the
property," whereas reduction in Transportation (Train
Movement) Expenses is regarded as an indication of effi-
cient management, but now that all expenses are shown
in detail in the railway reports and comparison with the
previous year, one is enabled to locate the items in which
the saving has been effected and prove to a certainty that
such has been the case, so that the old-time charge of
"skimping the property" by neglecting or deferring main-
tenance or other expenses can no longer be made unless
proved by actual results.
In Transportation Expenses, which amount to 51 per
cent of the total operating expenses and are so largely de-
pendent upon the train movement, costs of labor and sup-
plies, and traffic density, it is more difficult to effect econ-
omies without the closest supervision. In this branch of
the service it is very clear that results must promptly be in
the hands of the Superintendent, or labor costs, improper
train loading, slow movement, and excessive mileage will
seriously interfere with the results. All of this means close
watching and the necessity of quickly obtaining unit figures
as a warning and comparison.
Since two-thirds of the revenue of the American rail-
:
RAILWAY ACCOUNTS AND STATISTICS
53
ways arises from freight traffic, it is not surprising to find
that so much attention is directed to operations in that
service. The proper officers, with their staff officers and
others concerned, have constantly before them telegraphic
reports of yard and road conditions; also reports for slow
freight trains, showing the number of trains, number of
cars, gross lading of each car, train mileage, running time
between terminals, average speed, gross ton mileage, i. c.,
weight of car plus lading, and also the potential ton
mileage, which in effect is the maximum which the engine
could have hauled under ideal conditions. This is given for
comparison with actual gross ton mileage as regards effi-
ciency. As there are many fast freight trains containing
lading of a perishable nature which must be run at a fast
speed, independent of lading and other conditions, he also
has a statement of the gross ton miles of all freight trains
and the car mileage, loaded and empty, and the total, and
percentage of, loaded and empty cars.
The greatest attention is paid to the lading of the trains
so that economical movement may be made and payment of
overtime and other expenses avoided. The daily report
of the movement of loaded and empty cars past junction
or other strategie points, where trains mass in reaching a
terminal, showing comparisons with similar previous
periods, gives one of the first clues to the business of the
day and is about the quickest statistic telegraphed; then
comes the weekly return of revenues, divided between
freight, passenger, mail and express traffic, the freight oft-
en being divided between general merchandise and mineral
traffic, and for many roads this weekly information, al-
though approximate, is published in the newspapers. Pas-
senger train lading and results are closely watched, and the
Superintendent keeps in close touch with their movement
and car mileage. Further, for passenger trains, it is the
custom with many roads to take the earnings of each train
as often during the month as necessary to insure reliable
54
A. J. COUNTY
·
results and use them in reaching conclusions as to whether
trains should be removed or the service supplemented. A
statement is furnished monthly of tonnage of principal
commodities moved on the divisions. The monthly income
account of revenues and expenses for each company and
each division, and summarized for the company as a whole,
and with the necessary addition of other income and the
deduction of fixed charges and other obligatory payments
gives the first idea of total net income compared with the
same month and with a similar period of the previous year.
Statistics of cars, tons and passengers moved from the prin-
cipal stations; statistics of tonnage and passenger mileage,
including the average rates, costs and profit or loss per mile
from each ton and passenger; and the revenues, expenses
and net revenue or loss per train mile, all of these state-
ments are made up by division and comparisons and ex-
planations required of the various increases or decreases.
This information at the close of each month in the hands
of each operating official resolves itself down to the follow-
ing facts compared with the same month in the previous
years: Number of locomotives in service of various kinds
and the percentage in good condition, locomotive mileage
of all kinds, average locomotive mileage in the various
branches of service, average mileage between shoppings
for repairs during the month and the two months preced-
ing; passenger car mileage, average number of cars per
passenger train, passenger train detentions due to locomo-
tive failures or car failures; freight car mileage, east, west,
north and south, loaded and empty, and the percentage of
both; average number of cars per freight train; total gross
ton mileage; average gross ton per freight train and per
freight car; ton mileage; average speed; percentage of pas-
sengers and freight trains on time.
The above statement does not require the compilation
of operating costs, but closely following same is required
RAILWAY ACCOUNTS AND STATISTICS
55
a statement of operating costs, worked out upon the fol-
lowing basis:
Coal consumption; consumption of waste and lubrica-
ting material; cost of certain passenger (based on 1,000
passenger car miles) and freight (based on 1,000,000 gross
ton miles) expenses, including coal for locomotives, wages
of enginemen, firemen and trainmen, and supplies fur-
nished trainmen. Cost of certain yard expenses (based on
each 1,000 cars dispatched from the yard), including yard
locomotives, wages of enginemen, firemen, conductors and
brakemen, supplies (except for enginemen and firemen),
yard masters and their clerks, yard switching and signal
tenders. Cost of locomotive supplies furnished enginemen
and firemen per locomotive in service; engine house ex-
penses per locomotive handled; locomotive repairs per 100
locomotive miles. General movement expenses per 100
locomotive miles, covering lubrication, water, fuel, and
other supplies for road locomotives, repairs, renewals and
depreciation of road locomotives, engine house expenses for
road locomotives, road enginemen and trainmen, train sup-
plies and expenses.
As this information covers matters controlled largely
by the several Division Superintendents and their staff of-
ficers, and is compiled in the early part of the month fol-
lowing that in which the expense was incurred, with the
approximate expenditures for labor and material, the
remedy is largely first in their own hands but does not re-
main there, for the higher operating officers are subsequent-
ly furnished with the same information arranged to suit
their purposes, and explanations as to good or bad results
are demanded. The management further exercises its in-
fluence on expenditures dependent on many other condi-
tions, such as the present or anticipated financial and in-
dustrial conditions. The results of each month's workings
of the respective divisions, including all charges, whether
entirely under the Superintendent's control or not, are sent
56
A. J. COUNTY
to the Superintendent and other proper officers of the
operating and traffic departments to arouse their responsi-
bility and encourage their efforts to obtain more business,
or greater promptness and economy in the movement of
the business on the line, and to earn their proper propor-
tion of the fixed charges, dividends that should be paid and
amounts that should be provided for betterments out of
income. It is essential that the statistics of costs to be put
in possession of a divisional operating officer should first be
those over which he has control, that they may apply pro-
per remedies for unsatisfactory performances brought to
light by equitable comparisons, but such officers should not
be allowed to forget that other charges, such as taxes and
interest, exist, which are not chargeable to expenses, and
that dividends should be earned and paid. Statements of
the unit costs of handling tonnage, passengers and bag-
gage at the larger stations are also prepared and sent for
criticism to the various officers, and to ascertain why costs
are higher or lower at one station than another. On some
railways the chief features of expenditures are also ex-
hibited by chart and diagrams so that vivid pictures as
well as figures may drive home the facts. There are now
on several of the operating staffs, officers who are charged
with the duty of supervising operating costs of all kinds in-
cluding shop results, and to ascertain by personal examina-
tion and conference why better results cannot be obtained,
and create a wholesome spirit of emulation among the va-
rious officers and divisions to bring about these results. I
do not wish to convey the impression that all the railways
in the country compile and use all of the foregoing facts,
or that the American railway officer spends the most of his
time sitting at a desk, wearing a pair of spectacles, digest-
ing railway statistics, or has any greater love for them than
officers in other countries, but insofar as they are of as-
sistance to him he must, and does, study railway statistics.
Constant and personal familiarity with his operating, divis-
RAILWAY ACCOUNTS AND STATISTICS
57
!
ión, or departmental work, with the assistance of a trained
staff, enables him to discern promptly any danger signal of
loss of business or excessive cost. As the result of an
evolution in a chain of progress of which he is a part, he
must and does, profit by statistics, and improves the situa-
tion, by direct and immediate action taken on the ground
as the result of his consideration, or if he cannot do so, is in
a position to report to his superior officer reasons for such
inability, and receives the results of the more extended
experience of the latter, who will also probably warn other
officers.
I make no reference to the large number of reports con-
cerning the daily operating routine and management be-
cause they have become standard, and relate to different
features of the railway-ties, rails, its equipment, supplies,
shops, signals, and interlocking tests of all kinds, or to the
special studies as new problems arise. These are all taken
for granted as being necessary in every country.
The statistics and other information furnished by the
officers, agents and employes of each division must be such
so that when supplemented by the fixed charges and other
obligatory payments and dividends disbursed, the Comp-
troller, Auditor, or General Accounting Officer may com-
pile therefrom the respective monthly and annual reports
to the stockholders and to the National and State authori-
ties, and must comprehend the statistics hereinbefore in-
dicated.
CONCLUSIONS.
I need not advocate the necessity or advantages of a
uniform system of accounts or statistics, for that is behind
the railroads in North America, which are devoting their
energies to settling the few remaining points in connection
with the prescribed accounts in such a way as to make the
system finally effective and adapted to the varying in-
terests of the weak as well as the strong roads, and to
58
A. J. COUNTY
those companies which must observe special charter re-
quirements of the States or Provinces in which they are
incorporated. That such advancement has been made is
not due to any inherent virtue in American railway man-
agement, but rather to the necessities of development and
management already alluded to, which were stronger than
any inherent inclinations.
The experience of American railways removes all doubt
as to the results achieved by vital statistics, in the hands of
those directing and operating the various lines. Rates
have fallen, operating expenses, taxes and other charges
increased, but the growth of traffic has been handled with
greater economy because the operating and traffic officers
had full statistics for their constant reference and warning,
and these statistics were available for use in various forms
very soon after the traffic was moved or the expense in-
curred. The remedies have been applied in the shape of
larger cars, larger train loads, and cars constructed of more
durable materials, larger and more scientifically designed
freight classification yards and facilities, and the use of a
large part of the surplus income for improvements of the
grades, alignments and facilities, thereby restricting capi-
tal charges and making dividends a permanent feature by
deferring them until the condition of the railway and its
equipment justified their payment.
In stating these facts, I do not lay claim to any super-
iority for American methods, nor am I oblivious to the pro-
gress in accounting and statistics made by the railways of
other countries, from which we may learn a great deal.
The railroads in North America have by consolidation
and affiliations developed into large systems, each embrac-
ing from a few thousand to several thousand miles of main
running tracks, so that it is impossible to manage them ef-
ficiently without the assistance of vital and comprehensive
accounts and statistics of the service performed, the vol-
ume and character of the business done, the revenues, costs,
+
RAILWAY ACCOUNTS AND STATISTICS
59
?
and net revenues therefrom, and comparisons with other
periods compiled in such a way as to aid the efficient direc-
tion and management of the property, by quickening re-
sponsibility from the highest to the lowest, and from the
lowest to the highest officer. In America there is less time
and no more money to be wasted on statistics, unless useful,
than in any other part of the world.
(a) I take the broad ground, and from the list herein
stated it will be conclusive that no special statistic is be-
lieved to tell the whole story without others to supplement
and correct it. All statistics kept should demonstrate their
utility, and if not demonstrated should be abandoned.
Scarcely any two officers derive a like value from a similar
statistical statement because of their personal character-
istics and service in which they received their training, or
because the traffic or problems of their respective divisions
differ radically. (b) No matter what statistics are pre-
pared, it will always require (1) personal knowledge of the
road, its traffic, working conditions and standards to pro-
perly interpret them, so that they will act as a guide to,
and quicken that responsibility which results in efficient
operating results, and (2) men of ability, experience and
loyalty to produce such results. These results cannot now-
adays be achieved until the sense of responsibility and some
sort of comparative costs and results are given to foremen,
section men, station masters, yard masters, agents, and
train masters, as well as officers, so as to give them facts
covering the cost of labor and supplies involved in their
own work, and gradually interest them toward greater effi-
ciency by eliminating waste of materials, time, and effort.
This field is still a large and fruitful one, and the costs in-
volved are too large to take chances on results. (c) Un-
less statistics reach operating, traffic, and administrative
officers within a relatively short time after the operations
have taken place their value is largely lost and they then
serve purposes of record only. This can only be done with-
60
A. J. COUNTY
out duplicating working forces by the close working of the
operating and auditing officers. (d) Each operating and
traffic officer should have one or two recognized daily sta-
tistics summarized by weeks and for the month, agreed
upon with the auditing officers, depending upon the char-
acter of the division (i. e., whether it is one fed by traffic
from other divisions, or is a division located in strictly
competitive territory where traffic originates, or has other
special features) to keep him in touch with actual opera-
ting conditions upon his division affecting operating effi-
ciency and costs. The poorer the railway, the greater the
necessity for knowledge of this character, and the greater
the necessity for co-operation between operating traffic
and accounting officers. When weekly or monthly statis-
tics for a division are furnished, a separation should be
made between the statistics subject to the control of the
operating officer from those over which he has no control,
or only partial control, and a clear comparison of both sets
of statistics given with a similar month and period in the
previous year. Divisional operating officers through the
medium of monthly divisional income and expense accounts
should be given the facts regarding the proportion of the
fixed and other obligatory charges of the company which
the earnings of their division are expected to meet, over
and above the operating and maintenance charges. The
latter quickens a responsibility for earning a good margin
over operating expenses, and broadens the view of the of-
ficer. (e) A definite classification must be uniformly ob-
served so that (1) the statistics will at all times convey the
same meaning and insure proper comparison with the same
items for similar previous periods of the same road or
division with itself but not necessarily, however, with those
of any other railroad; (2) that railway revenues and ex-
penses be absolutely separated from all other operations
which the company conducts or in which it is interested;
(3) that in no system of uniform accounting should the de-
RAILWAY ACCOUNTS AND STATISTICS
61
sire for special information by railway or government of-
ficials lead them to make arbitrary decisions which strip
the operating expenses of everything except bare mainten-
ance charges, and force all above that into the capital ac-
counts. In the interest of the public and the railways the
capital accounts should be limited as much as possible, and
every encouragement given to make adequate charges to
expenses, since all transportation officers naturally try to
keep their expenses down rather than up, and so prove their
superior operating methods. Charges in excess of ordinary
maintenance can be so shown in the accounts that uniform-
ity will not be outraged. In the desire to standardize ac-
counts the efforts should be confined to principles and not
to details of management, for it must be remembered that
each railroad is a problem, and any attempt to mold all rail-
roads to one pattern will eventually be found ill-advised on
the part of the regulator, hurtful to the regulated, and an
incubus on individual and corporate efficiency. (f) While
the American accounting and statistical system is not abso-
lutely perfect, I do not know that it is excelled anywhere.
It has proved its benefit to the railroads, and enables in-
vestments in railroad securities to be made on a clear
knowledge of the physical and financial condition of the
companies.
The railways and their transportation services are
deemed to be of a public nature because the State confers
upon them the power to condemn and appropriate land for
their purposes subject to the payment of the proper value
therefor, and because of the dependence of the community
upon the transportation service. So far as the right of
eminent domain is concerned, the railways avail themselves
of it only as a last resort, after exhausting private negotia-
tions, because of the excessive prices awarded by court
juries or commissioners compared with the actual value of
the land, but although the railways are privately owned,
they are nevertheless granted this right because the use
62
A. J. COUNTY
of the land is for the public benefit. The real rasons why
the railways are a public benefit are because (1) they en-
rich the land owner from whom the right of way must be
purchased; (2) they create wealth for the State, municipali-
ties, and country through which the lines are constructed
by furnishing the means for the development of natural
resources, manufacturers, and other commodities, and quick-
ly and cheaply bring them to the proper market; (3) they in-
crease the revenues of the community by liberal payments
of taxes; (4) they constantly enlarge and improve their
facilities; (5) they precede instead of follow the settler,
thereby stimulating population and greatly extending and
serving the wants of the community as well as adding to
the ability by which such wants or luxuries are supplied
and satisfied; (6) they furnish a reliable avenue for invest-
ments of home and foreign moneys, and steady employment
for large bodies of all grades of laborers, artisans, clerks
and professional men; and (7) they open a large and con-
stant market for all kinds of materials and supplies con-
sumed over an extensive area.
Their permanence insures prosperity to the community
and while other industries may come and go with only a
temporary or partial effect, all suffer when the transporta-
tion service ceases or becomes insufficient.
It would be idle to deny that we are living in a new
era of progress in which the standards of living and prac-
tice have been materially improved and railways and other
transportation agencies have played no small part in dis-
seminating these higher standards of living and intelligence
throughout the world. They minister to the supply and
demand of the whole world, break down the barriers of
racial prejudice and provincialism, especially the railways
in a country of extensive natural resources and population
like North America, and nothing can permanently affect the
existence of the railways, the service they render, or the
charges for such service, that is not communicated to those
RAILWAY ACCOUNTS AND STATISTICS
63
countries who look to it as the sources for agricultural,
anineral, forestry and manufacturing products and to their
citizens who have invested their capital therein.
These factors have created a demand in all countries
for the standardization of railways as well as inquiries re-
garding their operating and financial results, and for the
use of standard units by which these results may be con-
veyed in unmistakable form and substance. Uniformity
of accounting and statistics will never admit of an actual
and final comparison of one railway with another without
a full knowledge of all the facts and conditions, nor will
average statistics ever form a reliable rate-making basis,
although in the days of keen competition these figures were
a guide to that end and when uniformly kept for a series
of years are a great advantage. It would nevertheless be a
distinct gain to the railway profession, to those whose mon-
eys are invested therein, and to the governments from
which railway powers are derived, if this responsibility
were so appreciated that a uniform system of railway re-
ports and particularly a uniform system of operating sta-
tistics, so far as the same can be made uniform, were to be
adopted by the International Railway Congress. For that
purpose, and fully appreciating the difficulties of reaching
a conclusion, I respectfully invite attention to the con-
densed classification of operating expenses hereto attached,
marked Appendix, used in this country by many railways.
It will be noticed that while this classification requires five
general accounts, only 44 primary accounts are required in
lieu of the 116 primary accounts in the classification for the
larger systems. Sufficient experience is now at the dis-
posal of the Congress to prove that a uniform classification
of operating expenses is practical and can by degrees be
evolved by the co-operation of all countries, and the great-
est benefit of all will be conferred upon the railways them-
selves by the publication of facts which testify to their skill-
ful operation and efficient management.
64
A. J. COUNTY
APPENDIX.
Condensed Classification of Operating Expenses used
by many railways in the United States. The larger sys-
tems use a more detailed classification with 116 primary
accounts.
I. Maintenance of Way and Structures:
1. Superintendence.
2. Maintenance of Roadway and Tracks.
3. Maintenance of Track Structures.
4.
Maintenance of Buildings, Docks, and Wharves.
5. Injuries to Persons.
6. Other Maintenance of Way and Structures Ex-
penses.
Total of Accounts Nos. 1 to 6.
7. Maintaining Joint Tracks, Yards, and Other Fa-
cilities-Dr.
8. Maintaining Joint Tracks, Yards, and Other Fa-
cilities-Cr.
Total-Maintenance of Way and Structures.
Ratio to Total Operating Expenses (per cent).
II. Maintenance of Equipment:
9. Superintendence.
10. Locomotives-Repairs.
11. Cars-Repairs.
12. Floating Equipment-Repairs.
13. Work Equipment-Repairs.
14. Equipment-Renewals.
15. Equipment-Depreciation.
16. Injuries to Persons.
17. Other Maintenance of Equipment Expenses.
Total of Accounts Nos. 9 to 17.
18. Maintaining Joint Equipment at Terminals-Dr.
19. Maintaining Joint Equipment at Terminals-Cr.
Total-Maintenance of Equipment.
Ratio to Total Operating Expenses (per cent).
RAILWAY ACCOUNTS AND STATISTICS
65
III Traffic Expenses:
20. Traffic Expenses.
Ratio to Total Operating Expenses (per cent).
IV. Transportation Expenses:
21. Superintendence and Dispatching Trains.
22. Station Service.
23. Yard Enginemen.
24. Other Yard Employes.
25. Fuel for Yard Locomotives.
26. All Other Yard Expenses.
27. Operating Joint Yards and Terminals-Dr.
28. Operating Joint Yards and Terminals-Cr.
29. Road Enginemen and Motormen.
30. Fuel for Road Locomotives.
31. Other Road Locomotive Supplies and Expenses.
32. Road Trainmen.
33. Train Supplies and Expenses.
34. Injuries to Persons.
35. Loss and Damage.
36.
Other Casualties.
37. All Other Transportation Expenses.
38. Operating Joint Tracks and Facilities-Dr.
39. Operating Joint Tracks and Facilities-Cr.
Total-Transportation Expenses.
Ratio to Total Operating Expenses (per cent).
V. General Expenses:
40.
41.
Administration.
Insurance.
42. Other General Expenses.
Total of Accounts Nos. 40 to 42.
43. General Administration Joint Tracks, Yards.
and Terminals-Dr.
44. General Administration Joint Tracks, Yards,
and Terminals-Cr.
Total-General Expenses.
66
A. J. COUNTY
$
*
Ratio to Total Operating Expenses (per cent).
Total-Operating Expenses.
Ratio of Operating Expenses to Operating Rev-
enues (per cent).
1
}

AILWAY ACCOUNTS AND STATISTICS
67
1
Questions.
1. Why are accounts and statistics essential to the ad-
vancement of railways?
2. What part does the National Government have in
the regulation of railways? The state government?
3. What powers are given the Interstate Commerce
Commission to regulate railway accounting?
4. Of what should Operating Revenues consist in the
annual report?
5. How are Operating Expenses classified in the an-
nual report to the Commission?
6. How should Freight Traffic movement be divided
in the annual report?
7. What change was made in 1906 in the classification
of Revenues and Expenses?
8. How does the new classification of Additions and
Betterments differ from the old?
9. Of what must the monthly reports for the Gov-
ernment consist?
10. What powers does the Interstate Commerce Com-
mission lack?
11. Wherein does the accounting system of Canada
differ from that of the United States?
12. How is railway accounting carried on in Mexico?
13. What are the principal features of the annual re-
port of a railway to the stockholders?
14. How are the accounts of Maintenance of Way and
Maintenance of Equipment compiled?
15. What reports must be examined by officers in
charge of freight transportation?
16. What results have followed the use of statistics by
directing and operating officers?

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