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Author: 
 
 Lisle, George 
 
 Title: 
 
 Accounting theory and 
 practice 
 
 Place: 
 
 Edinburgh 
 
 Date: 
 
 1909 
 
qM_ <?3>'2-6G-( 
 
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 PRESERVATION DIVISION 
 
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 i6£i9 tlsle, Qsorge 
 
 Qti9*ooountln)» in theory and ppaotioe, by (3oorg« 
 Lisle... New ed. rey. and.enl. Edihbtireh, 
 Greeti, 1909. 
 
 XTi, 427 p. tables, forms. 22 om. 
 
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 ACCOUNTING 
 
 IN 
 
 THEORY AND PRACTICE 
 
 ' 
 
ACCOUJSTTIJSG 
 
 IN 
 
 THEORY Ax\D PRACTICE 
 
 RULED EXERCISE BOOKS 
 
 FOR USE IN WORKING OUT THE EXAMPLES AND EXERCISES MAY 
 BE OBTAINED FROM THE PUBLISHERS, PRICE 6d. EACH. 
 
 No. 1. Ledger Exercise Book. 
 „ 2. Day Book, Invoice Book, and Journal Exercise Book. 
 
 CARD OF LOGARITHMS AND ANTI-LOGARITHMS 
 
 TO FOUR PLACES MAY ALSO BE HAD, PRICE Is. 
 
 BY 
 
 GEORGE LISLE, C.A., F.F.A. 
 
 TORMKRLY LECTURER ON BOOK-KEEPING AND THE PRINCIPLES OF ACCOUNTING AT THE HERIOT-WATT 
 
 COLLEGE, EDINBURGH ; AUTHOR OF ' BOOK-KEEPING AND FORMS OF ACCOUNTS 
 
 FOR COUNTl- COUNCILS,' CHAMBKRSS ' ELEMENTARY BOOK-KEEPING,' ETC, 
 
 AKD EDITOR OF THE ENCYCLOPiEDIA OF ACCOUNTING 
 
 NEW EDITION REVISED AND ENLARGED 
 
 EDINBURGH AND LONDON 
 
 WILLIAM GREEN & SONS 
 
 1909 
 
 An rights reserved 
 
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 <^ PEEFACE 
 
 The object with which this book has been prepared is to 
 supply the demand for a text -book dealing with the 
 principles of advanced book - keeping and accounting. 
 Accounting is a progressive science, and has made great 
 strides within recent years. The cumbrous forms and 
 vain repetitions of the older systems of accounting are 
 giving place to improved methods which have been evolved 
 through the desire to have the maximum of result with the 
 minimum expenditure of time and labour. Accountants, 
 solicitors, investors, and all business men should be familiar 
 with these improved methods. In fact, a knowledge of the 
 science of accounting is of use to all who receive or pay 
 away money, either for themselves or in trust for others, 
 and there is no condition of life in which it will not be 
 found of service. 
 
 An attempt has been made to define as exactly as 
 possible the various terms used in accounting. Many of 
 these terms are employed somewhat loosely, and this is 
 most undesirable in a science which is an important branch 
 of applied mathematics. 
 
 A large number of examples and exercises have been 
 given, together with the solutions. These serve to elucidate 
 the principles, and will at the same time enable the student 
 to effectively test his progress. 
 
 I have to record my indebtedness to my partner, 
 Mr. W. A. Middleton, for the great care with which he has 
 revised the proofs. 
 
 GEO. LISLE. 
 
 6 NoBTH St. Dayid Strskt, 
 Edinburoh. 
 
 It 
 
 « 
 
I 
 I 
 
 NOTE TO THE REVISED EDITION 
 
 The reception accorded to the First Edition of this work 
 renders another edition necessary, and the opportunity has 
 been taken to revise the text thoroughly and bring it up 
 to date. 
 
 The recent alterations on Company Law by the Acts of 
 1900 and 1907, and the Consolidation Act of 1908, together 
 with the issue of a Revised Table A applicable to Joint Stock 
 Companies involved extensive amendments on the text ; and 
 the Finance Act of 1907, which introduced radical changes 
 in Income Tax law, entailed practically the rewriting of the 
 chapter on Income Tax. Numerous minor alterations have 
 also been given effect to in the endeavour to make the work 
 thoroughly reliable. 
 
 Ik.Wld'A'Ji-JLi'.''.';:^ ^ 
 

 CONTENTS 
 
 Accounting 
 
 The Business of an Accountant 
 
 Book-Eeepino 
 
 Closing Entries 
 
 Peactical Book-Keeping 
 
 1. The Cash Book 
 
 2. The Invoice Book 
 
 3. The Day Book 
 
 4. The Journal 
 
 5. The Ledger 
 
 Practical Book-Keeping further developed . . . , 
 Exercises , . 
 
 Single Entry . 
 
 Trial Balance of Books kept by Single Entry 
 
 To pass from Single Entry to Double Entry .... 
 
 Profit 
 
 Profit and Loss Accounts 
 
 The Goods Account 
 
 Stock-Taking 
 
 Raw Material 
 
 Partially Manufactured and Completed Goods 
 
 Goods sold on Commission ....,., 
 
 Arrangement of Profit and Loss Accounts .... 
 
 Trading Account 
 
 Manufacturing Accounts 
 
 The Trial Balance 
 
 The Connection between the Trial Balance, Profit and Loss 
 Account, and Balance Sheet 
 
 Assets 
 
 Liabilities 
 
 PAGE 
 1 
 
 8 
 
 4 
 15 
 
 22 
 23 
 24 
 25 
 
 25 
 26 
 
 32 
 39 
 
 42 
 45 
 
 45 
 
 47 
 
 49 
 
 51 
 
 52 
 53 
 53 
 53 
 
 55 
 
 59 
 61 
 63 
 
 65 
 67 
 67 
 
jm ACCOUNTING IN THEORY AND PRACTICE 
 
 PAOB 
 
 Capital 68 
 
 Balance Sheets 69 
 
 On which side of the Balance Sheet the Assets should be 
 
 placed 70 
 
 A full and fair Balance Sheet 74 
 
 Arrangement of Balance Sheets 76 
 
 The Double Account Form of Balance Sheet .... 79 
 
 Statements of Affaius and Statements of Assets and 
 
 Liabilities 82 
 
 Statement of Affairs of a Bankrupt 83 
 
 A Deficiency Account 89 
 
 Exercises 93 
 
 Accounts of Branches . 95 
 
 Departments 98 
 
 Exercises . 99 
 
 The Ledger, and Classification of Ledger Accounts . 104 
 
 Ledger Accounts 105 
 
 Personal Accounts 106 
 
 Real or Property Accounts . . . . . . 106 
 
 Nominal Accounts 106 
 
 To balance Ledgers separately 107 
 
 To analyse the Accounts in a Ledger .... 109 
 
 Check Ledgers 113 
 
 Thb Card or Loose -Leaf System op keeping Ledger 
 
 Accou:<Ts 114 
 
 The Card System applied to a Shareholders' Ledger . . 115 
 
 Cards for Shareholders' Ledger 117 
 
 Reserves and Reserve Funds . . . . . . 118 
 
 Investment Fund 119 
 
 Secret Reserves 119 
 
 Redemption Fund 120 
 
 Debenture Reserve Fund 120 
 
 Sinking Funds 121 
 
 Contingent Fund • . . . 121 
 
 Debenture Bond Sinking Fund 122 
 
 Colliery Sinking or Redemption Funds . • , ^ . 128 
 
 Realisation and Liquidation Accounts . , . » . 130 
 
 Consignment Accounts ....•.«• 131 
 
 Joint Accounts r . 131 
 
 Exercises , . . 132 
 
 Revenue Account 132 
 
 Statement of Receipts and Payments 133 
 
 Income and Expenditure Account 133 
 
 CONTENTS 
 
 Xlil 
 
 PAGE 
 
 Suspense Accounts 134 
 
 Goodwill 134 
 
 Depreciation . 137 
 
 Insurance 142 
 
 Fire Insurance 143 
 
 Marine Insurance 145 
 
 Life Assurance 147 
 
 Accident and Guarantee Insurance 148 
 
 Bills of Exchange 149 
 
 Apportionment 152 
 
 The use of Interest Tables in apportioning Sums for different 
 
 periods 153 
 
 The Apportionment Act of 1870 154 
 
 Commercial Apportionments 157 
 
 Rents 160 
 
 Fore-hand Rents 153 
 
 Heritors* Assessment 154 
 
 Casualties 154 
 
 Rent Charges .164 
 
 Minister's Stipend 164 
 
 Wages and Salaries to Servants and Workmen . . . 165 
 
 Annuities i65 
 
 Interest on Money lent 165 
 
 Dividends and Interest upon Shares and Debentures in Public 
 
 Companies iqq 
 
 Interim Dividends and Bonuses 166 
 
 Bonuses returned as Capital i67 
 
 Stocks and Shares bought and sold i67 
 
 Profit from Private Partnerships 169 
 
 Apportionment of Rents under the Land Clauses Act, 1845 . 169 
 
 Exceptions to Apportionment • 170 
 
 Burdens and other Deductions . . . . . 1 70 
 
 Property not producing Revenue 371 
 
 Examples of Apportionment 172 
 
 Table of Particulars necessary for apportionment of Dividends 
 
 of certain Companies 174 
 
 Trust and Executry Accounts 175 
 
 Model Set of Trust Transactions 176 
 
 Account of Charge and Discharge of the Intromissions of 
 
 Trustees |80 
 
 Trust Ledger Accounts is6 
 
 Exercises ^qq 
 
 Partnership 194 
 
 Goodwill in Partnership 195 
 
 Interest on the Capital Accounts of Partners . . . 197 
 
•m 
 
 wmmmm 
 
 xiv ACCOUNTING IN THEORY AND PRACTICE 
 
 CONTENTS 
 
 XT 
 
 Partnekship — Continued 
 
 Division of Profits 205 
 
 I. Profits to be divided in proportion to each Partner's 
 
 Capital 206 
 
 II. Profits to be divided in proportion to each Partner's 
 Capital and the time such Capital has been in the 
 
 Business 206 
 
 III. Profits to be divided in proportion to certain fixed 
 
 Ratios 210 
 
 Assumption of a Partner 211 
 
 Dissolution of Partnership 213 
 
 Partnership Transactions worked out 219 
 
 Exercises 223 
 
 Joint-Stock Companies' Books 233 
 
 The Minute Book 233 
 
 The Application and Allotment Book 234 
 
 Register of Transfers 236 
 
 Shareholders' Ledger , , 235 
 
 Shareholders' Ledger, Alternative Form .... 235 
 
 Debenture Ledger 240 
 
 Form of Allotment Letter 241 
 
 Form of Letter of Regret 242 
 
 Form of Call Letter 243 
 
 Exercises 244 
 
 The conversion of a Private Firm into a Joint-Stock Company 248 
 
 Exercises 260 
 
 Manffacttrers' Accounts 252 
 
 First Method — Manufactured Goods and Finished Goods pur- 
 chased kept in one Account 253 
 
 Second Method — Showing the Cost of the Goods manufactured 254 
 Third Method— Showing the Profit on Manufacturing and 
 
 Profit on Trading separately 255 
 
 Exercises 257 
 
 Cost Accounts 261 
 
 Items of Cost 263 
 
 Material 264 
 
 Labour , 264 
 
 Direct and Indirect Expenses 264 
 
 Engineers' Accounts 265 
 
 Contracts not completed at date of Balance .... 267 
 
 To ascertain the Profit on the Goods Account without 
 
 actually taking Stock 267 
 
 To find the Cost Value of Goods destroyed by Fire . . 271 
 
 Exercise 272 
 
 The Accounts of Professional and other Non-manufacturing 
 
 AND Non-trading Concerns 272 
 
 Exercises , . 273 
 
 
 (I 
 
 British Currency . ^^2^ 
 
 Gold . . 277 
 
 Silver . . , ^7/ 
 
 Bronze zJ 
 
 Legal Tender. . ] [ '.[',,] 278 
 
 Indian Currency . 
 
 278 
 
 United States Currency . , , oq« 
 
 ••••». zoO 
 
 French Currency. 
 
 281 
 
 German Currency 
 
 281 
 
 Table of Foreign Moneys ... 
 
 ***••• 283 
 
 Foreign Currencies and their treatment in Home Accounts 285 
 
 Foreign Branches °^ 
 
 Rules for the conversion of Foreign Currencies ! ' 288 
 
 The treatment of Rupees in Home Accounts * 290 
 First Method-C^h Transactions only recorded' in London 
 
 S««ks 291 
 
 Second Method- AW Transactions recorded and converted at 
 
 rate of Exchange ruling when Transactions took place 293 
 
 Third Method— Conyersion at average rate of Exchange . 295 
 
 The Foreign Exchanges ...... 297 
 
 diagram ' .* ' 299 
 
 Mint Par .... 300 
 
 The Course of the Exchanges .... 1 . 300 
 
 Income Tax 
 
 ^Mx^jaa AAA .,.,,, ... 302 
 
 Schedule A .... * ^no 
 
 Schedule B ^^^ 
 
 Schedule C ... t^t 
 
 Schedule D ... «^ 
 
 Schedule E ....'.'!!'* 3^ 
 
 E^e^'ci^ '.'!!! 309 
 
 The Preparation of Income Tax Tables .... 309 
 
 Rates of Local Authorities . . „.« 
 
 '••••• 310 
 
 Loans repayable by Instalments 
 
 314 
 
 Redemption of Leases 
 
 322 
 
 Hire-purchase System of acquiring Railway Waggons . 324 
 Investigations .... 
 Percentage Statements 
 
 -Ptr5i ife^Aorf-Using four-pla<Je Logarithms .' ' * * off 
 
 Second Method-VaingT8^h\ea of Frodncta . * ' ' 339 
 Thtrd Method-Reducing the Divisor to a Decimal and 
 multiplying 
 
 Curves and Diagrams 
 
 344 
 
XVI 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 PAOK 
 
 Reconciliation Statements 345 
 
 The Duties and Responsibilities of an Auditor . . . 848 
 
 First Audits .860 
 
 Cash on hand • 850 
 
 Partnership Accounts ... .... 850 
 
 Companies 361 
 
 Partial Audits 862 
 
 Audits ... 868 
 
 Commercial Audits ... . . » 863 
 
 OflSce Regulations to Prevent Fraud 863 
 
 The Average Due Date 864 
 
 Exercises 366 
 
 Interest on Current Accounts 356 
 
 I. Using Interest Tables 867 
 
 II. By Means of Products 358 
 
 Decimals op £1 368 
 
 Logarithms 365 
 
 Table for finding the Days between two given Dates . 369 
 
 Table showing Days as Decimal Fractions of a Year. . 373 
 
 Table of Logarithms 376 
 
 Answers to Exercises 381 
 
 Index *23 
 
 ACCOUNTING 
 
 ACCOUNTING IS THE SCIENCE WHICH TREATS OF THE METHODS 
 OF RECORDING TRANSACTIONS ENTERED INTO IN CON- 
 NECTION WITH THE PRODUCTION AND EXCHANGE OF 
 WEALTH, AND WHICH SHOWS THEIR EFFECT UPON ITS 
 PRODUCTION, DISTRIBUTION, AND EXCHANGK 
 
 In the following pages an attempt has been made to 
 provide a text-book from which may be learned the broad 
 and fundamental principles of Accounting. These principles 
 are general and universal in their application, and, when 
 once grasped, may be applied to any business or financial 
 transaction, no matter how novel or how complicated. 
 Accounting is a branch of applied mathematics, and it is 
 only when it is regarded as such that its principles can be 
 applied with invariable accuracy, and will always, when so 
 applied, bring out the correct results. The accountant is 
 continually coming across businesses with which he is un- 
 familiar, but, as the principles governing all accounts are 
 the same, and are applicable to any accounts, he is never at 
 a loss, but shows by his manipulation of the facts and 
 figures submitted to him that his work is independent of 
 any particular business. 
 
 There are two main branches of the business of an 
 accountant : — 
 
 1. His work as an accountant. 
 
 2. His work as an auditor. 
 
 The training for these two branches is almost identical, 
 and is best acquired at the same time; but all the same 
 
 B 
 
ACCOUNTING IN THEORY AND PRACTICE 
 
 . 
 
 there are very clear lines of demarcation between these two 
 divisions of the work of an accountant The work of the 
 accountant is largely creative, while the work of the auditor 
 is inspective or critical. The accountant, as such, devises 
 the method by which a set of financial transactions is to be 
 recorded, and either himself carries out, or superintends the 
 carrying out of, the systenL It is his province to enable 
 men by the benefit of his advice to make businesses which 
 are already profitable even more remunerative, and to 
 render profitable businesses which are being conducted at a 
 loss. He ascertains the interest of an individual or the 
 interests of many individuals in businesses or funds, and 
 adjusts the interests of parties itdtr se, seeing that each 
 party really gets what he is entitled to. The function of 
 the auditor is to inspect, examine, and audit accounts which 
 are already completed. Sometimes the two functions run 
 into each other, as when the auditor has to write up or close 
 the accounts of a concern. In fact, in general practice an 
 auditor has very often to balance the books of a concern, 
 and when books of account do not balance it is too 
 frequently the custom to leave them over till the auditor 
 arrives to find the error and himself complete the book- 
 keeper's work. 
 
 The duties of an accountant include book-keeping in 
 all its branches and applications, from the method of keeping 
 the Postage Book or Petty Cash Book in a retail business to 
 the elaborate and yet charmingly explicit accounts of the 
 National Exchequer. Perhaps no better historical exem- 
 plification of the development of accounting can be found 
 than is displayed in the improvements made within recent 
 years in the annual accounts of the country as published 
 by the Government. All practical accounting being based 
 upon a thorough knowledge of book-keeping, the student, 
 before taking up the principles of accounting, should have 
 gone through a complete course of the study of book-keeping, 
 either in a class under a competent teacher, or by using one 
 of the many satisfactory hand-books which have been 
 published on the elementary principles of book-keeping. 
 
 ACCOUNTING 
 
 THE BUSINESS OF AN ACCOUNTANT 
 
 The work of accounting may be classed under the 
 followmg heads ; — 
 
 Mercantile and Manufacturing Accounting, which 
 relates to the accounts of tradeis and manufacturers, and 
 includes shipping. 
 
 Mining Accounting. 
 
 Financial Accounting, which includes the accounts of 
 banks, insurance and investment companies, and bmlding 
 societ/ies. ® 
 
 trust^woX'''' ^''°°™™''' ^^»'<=^ '"olwdes executry and 
 Public Accounting and Finance in connection with 
 
 Tni"!:.. VT".'^.""""""'' P''"'^ "''"^""il^' sc'-ool boards, 
 and other public bodies. 
 
 Company Work, embracing investigations into businesses 
 with the view of their being formed into companies ; work 
 « secretary manager, director, or auditor ; investi^tions 
 
 Bankruitcy Work, embracing the preparation of 
 Statcnents of Affairs and the work of trusteeunder tru^I 
 deeds and m sequestrations. 
 
 Investment and Financial Work, including the invest- 
 nient of money, floating loans for buighs or corpfrat^rand 
 obtaining loans for and financing private indivfduaT 
 
 Investigations into business concerns of all descriptions 
 
 propeity and the management of landed estates 
 
 SX '''"""'""' '" "'^•'^S investigations into 
 
ACCOUNTING IN THEORY AND PRACTICE 
 
 BOOK-KEEPING 
 
 BOOK-KEEPING 
 
 BOOK-KEEPING IS THE ART OF RECORDING BUSINESS TRANS- 
 ACTIONS WITH THE VIEW OF HAVING A PERMANENT 
 RECORD OF THEM AND OF SHOWING THEIR EFFECT 
 UPON WEALTH. 
 
 Each individual business transaction has a two-fold effect, 
 and it may be useful to look on this effect as having a 
 positive and also a negative character. Thus, if a merchant 
 sells goods for £5 of cash, it is evident that the merchant's 
 cash is increased and that his stock of goods is decreased. 
 The effect of the transaction may thus be considered positive 
 as regards the cash, and negative as regards the goods. As 
 book°keeping records this two-fold effect, it is spoken of as 
 " book-keeping by double entry." A Ledger Account is a 
 statement showing on the one hand all the positive or 
 increasing effects on the subject of the account, and on the 
 other hand all the negative or decreasing effects on the 
 subject of the account, in consequence oi the transactions 
 which have occurred during a given period. These accounts 
 form in the aggregate the Ledger. The Ledger is thus the 
 book showing the accounts relating to a series of business 
 transactions, wherein these transactions are analysed and 
 recorded so as to show the effect of each transaction in- 
 dividually and the effect of the transactions as a whole. 
 The Ledger is therefore the essential book in book-keeping, 
 and once its functions have been properly grasped the 
 respective places occupied by all other books, and the uses 
 of these books, will be clearly understood and appreciated. 
 In order to illustrate the methods of book-keeping, and to 
 show the principles upon which it is founded, a model set of 
 business transactions are given, and have been treated in 
 three different ways. In the first place, the transactions are 
 treated in a purely theoreticul manner ; next, as they might 
 be treated in actual practice ; and lastly, as they might be 
 treated in actual practice, with further improvements and 
 developments. These transactions are supposed to be 
 
 spread over a year, and, although they are very simple, any 
 one who thoroughly understands their treatment as now 
 submitted will have acquired a competent knowledge of 
 book-keeping. 
 
 The Transactions of William Wood, Merchant 
 
 William Wood took stock on 1st January. The 
 following statement shows his liabilities and his assets :— 
 
 Statement of Affairs as at 1st January. 
 LiaMIities. jgsets. 
 
 Due to Jack & Co. 
 
 £300 
 
 Due by J. Collins 
 Goods in stock 
 Sum in bank 
 Cash on hand 
 
 £800 
 
 600 
 
 150 
 
 50 
 
 His transactions throughout the year were as follows : 
 
 Jan. 2. Paid cash for goods purchased 
 
 Purchased goods on credit from Scott 
 
 & Tait 
 
 Gave Scott & Tait bill at three months 
 
 6. J. Collins settles his account for £800 
 
 by paying in cash . 
 
 And is allowed as discount . 
 Paid into bank 
 
 7. Paid Jack & Co., in settlement of their 
 
 account for £300, cheque for . 
 
 They allowing as discount . 
 
 9. Sold goods for cash . 
 
 Sold goods to J. Collins 
 
 Received from J. CoUins bill due in 
 
 three months .... 
 
 Discounted J. Collinses bill, and received 
 
 in cash 
 
 Discount charged 
 Apr. 5. Gave cheque in payment of bill due 
 
 to-day 
 
 June 30. Paid for half-year's rent to' this date 
 
 Paid wages .... 
 Dec. 1. Sold goods to W. Simpson . 
 
 £40 
 
 400 
 
 400 
 
 760 
 
 40 
 
 700 
 
 285 
 
 15 
 
 20 
 
 500 
 
 500 
 
 495 
 
 6 
 
 400 
 
 35 
 
 100 
 
 650 
 
 
 
 
 
 
 
 
 
ACCOUNTING IN THEORY AND PRACTICE 
 
 Dec. 1. Paid to account of rent for half-year 
 
 ending 3l8t inst. .... 
 
 Purchased from Jack & Co. goods on 
 
 credit ...••• 
 
 Gave Jack & Co. bill at three months . 
 
 Gave Jack & Co. cheque for 
 
 They allowing as discount . 
 5. Sold goods to J. Collins . . . 
 
 7. Purchased goods from Scott & Tait on 
 
 credit ...••• 
 Received cash from J. Collins 
 Received bill from J. Collins at three 
 
 months ....•• 
 
 8. Paid into bank 
 
 Purchased goods from Jack & Co. on 
 
 credit ...••• 
 
 Gave cheque to Scott & Tait as pay- 
 
 ment to account .... 
 
 31. Paid wages to date .... 
 
 Cash taken during year by William 
 
 Wood for his own use . 
 
 Trial Balance to be taken at this stage. 
 
 Dec 31. Value of goods on hand at this date . 
 Amount due for rent to date 
 
 £15 
 
 490 
 
 280 
 
 200 
 
 10 
 
 1830 
 
 
 
 
 
 
 
 
 
 
 
 
 
 1000 
 1230 
 
 
 
 
 
 
 
 300 
 900 
 
 
 
 
 
 
 
 370 
 
 
 
 
 
 770 
 100 
 
 
 
 
 
 
 
 600 
 
 700 
 20 
 
 
 
 
 The Transactions of William Wood, Merchant 
 Recorded using the Ledger only. 
 
 William Wood is supposed to have taken stock on 1st 
 January. His object in so doing was to prepare a State- 
 ment of his Affairs as at that date. It is evident that if he 
 wishes to keep a proper record of his business transactions, 
 he must begin his books on 1st January by incorporating 
 in them the exact position of his business on that date. 
 From his Statement of Affairs it will be observed that his 
 only liability was £300 due to Jack & Co. This sum 
 being due to Jack & Co., they are creditors of the business 
 for the amount, and accordingly an account is opened in 
 the Ledger headed Jack & Co., and on the right or credit 
 side of this account is placed the £300. William Wood 
 havin^T brought this liability into the business, his account, 
 
 BOOK-KEEPING 
 
 ■ 
 
 called the Capital Account, must be charged or debited with 
 the £300, as he is indebted to the business for the business 
 having, as it were, taken over the liability. To keep a 
 record of these transactions it will be observed that the 
 entry in the Capital Account is debited as follows : " Jan. 1. 
 To Jack & Co., £300," and Jack & Co.'s Account has 
 on the credit side the following entry: "Jan. 1. By 
 Capital, £300," the entry in each account referring back to 
 the other account. The Assets at 1st January are as 
 follows : — 
 
 Due by J. Collins . 
 
 . £800 
 
 
 
 
 
 Goods in stock 
 
 . 600 
 
 
 
 
 
 Sum in bank . 
 
 . 150 
 
 
 
 
 
 Cash on hand 
 
 . 50 
 
 
 
 
 
 These assets having been brought into the business, 
 William Wood credits himself with each item individually, 
 as shown in his account J. Collins is debited with £800, 
 because he is indebted to that extent to William Wood. 
 Similarly, the Goods Account is debited with £600, the 
 Bank Account with £150, and the Cash Account with £50. 
 
 The transactions throughout the year will now be 
 taken up in detail. 
 
 Jan. 2. Paid Cash for Goods Purchased, £40. 
 
 It is evident that the goods have come in and that cash 
 has gone out, and the Goods Account is therefore debited 
 and the Cash Account is credited with the £40, the entry 
 being made in the Goods Account "To Cash," and in 
 tlie Cash Account "By Goods." This rule of each entry 
 in each account referring by name to the Ledger Account 
 where the opposite entry will be found is carried on 
 throughout. 
 
 Jan. 2. Purchased Goods on credit from 
 Scott & Tait, £400. 
 
 Here goods having come in, the Goods Account must be 
 debited, and Scott & Tait must be credited, as by the 
 transaction they become creditors for the £400. 
 
ACCOUNTING IN THEORY AND PRACTICE 
 
 BOOK-KEEPING 
 
 fill 
 
 Jan, 2. Gave Scott & Tait Bill at three nwrUliSt £400. 
 
 The meaning of this transaction is that Scott & Tait, 
 who are creditors of William Wood for the goods purchased 
 from them, got William Wood to acknowledge on a piece of 
 stamped paper that he was so indebted to them, and would 
 pay them cash at the end of three months. So far as 
 William Wood is concerned, therefore, he is now no longer 
 due Scott & Tait £400 on an open account, but is due £400 
 on a bill payable. It is therefore necessary for William 
 Wood to record this alteration of his liability in his Ledger, 
 and accordingly Scott & Tait are debited and Bills Payable 
 Account credited with the £400. 
 
 Jan. 5. J. Collins settles his Account for £800 5y paying 
 in Cash £760, and is allowed as Discount £40. 
 
 If J. CoUins's Ledger Account be referred to, it will be 
 seen that it is debited with £800. As he now settles his 
 indebtedness, it is necessary that he should be credited : — 
 
 By Cash . 
 Discount 
 
 )» 
 
 £760 
 40, 
 
 and the Cash Account will fall to be debited with the £760 
 of cash which has come in, and the Discount Account to be 
 debited with the £40 allowed J. Collins as discount 
 
 Jan, 5. Paid into Bank, £700. 
 
 The cash having been paid out, the Cash Account must 
 be credited and the Bank Account is debited, because the 
 bank has received the money, and is therefore indebted to 
 the business for it. 
 
 Jan. 7. Paid Jack & Co., in settlement of their Account of 
 £300, Cheque for £285. TJiey allowing as Discount £15. 
 
 If Jack & Co's Account is referred to in the Ledger, it 
 will be seen that there is £300 at their credit. As William 
 
 Wood has settled this by cheque, and by being allowed 
 discount, it is necessary to enter on the debit side of their 
 account "To Bank, £285," and "To Discount, £15," and 
 to credit the bank with £285, as the bank will duly meet 
 the cheque, and to credit Discount with £15. 
 
 Jan. 9. Sold Goods for Cash, £20. 
 
 As the cash has come in, the Cash Account is debited 
 with £20, and as the goods have gone out, the Goods 
 Account is credited with £20. 
 
 Jan. 9. Sold Goods to J, Collins, £500. 
 
 J. Collins having received these goods is indebted for 
 them, and his account should be debited. The goods 
 having gone out, the Goods Account is credited. 
 
 Jan. 9. Received from J. Collins Bill due in 
 three montJis, £500. 
 
 William Wood has received from J. Collins a piece of 
 stamped paper acknowledging that he is due the £500, and 
 agreeing to pay it in three months. J. Collins was debited 
 with £500 in respect of the goods, but the £500 was 
 simply due on his open account. The debt in the form of 
 a bill is of more value, as J. Collins, having once put his 
 name to the bill, cannot dispute the indebtedness. It is 
 therefore necessary to credit J. Collins's Account " By Bills 
 Receivable, £500," and to debit the Bills Eeceivable 
 Account with the £500. 
 
 Jan. 9. Discounted J. Collins's Bill, and received in 
 Cash £495. Discount charged, £5. 
 
 This bill is at the debit of Bills Receivable, and until it 
 is discounted is an asset of £500. Having been discounted, 
 the nature of the asset has changed, and it is necessary to 
 wipe this bill out by entering on the credit side of the 
 Bills Receivable Account "By Cash, £495," and "By 
 
lO 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 BOOK-KEEPING 
 
 II 
 
 111 
 
 Discount, £5." It only remains to enter the £495 on the 
 debit side of the Cash Account and the £5 ou the debit 
 side of the Discount Account. 
 
 ^pr. 5. Gave Cheque in payment of BUI due to-day, £400. 
 
 The bank must get credit for having paid this cheque, 
 and accordingly the Bank Account is credited. The Bills 
 Payable Account is debited, as the bill is no longer a 
 liability. 
 
 Juru 30. Paid for Half-years Bent to this date, £35. 
 
 Cash having gone out^the Cash Account is credited and 
 the Kent Account debited. 
 
 June 30. Paid Wages, £100. 
 
 The Cash Account is credited and the Wages Account 
 is debited. 
 
 Dec. 1. Sold Goods to W, Simpson, £050. 
 
 W. Simpson is debited because he has received the 
 goods, and is therefore indebted for them, and the Goods 
 Account is credited, as the goods have gone out. 
 
 Dec, 1. Paid to Account of Rent for Half-year 
 ending Zlst December, £15. 
 
 The Cash Account is credited and the Kent Account is 
 debited. 
 
 Dec. 1. Purchased from Jack & Co. Goods on 
 
 credit, £490. 
 
 The Goods Account is debited, because the goods have 
 come in, and Jack & Co. are credited, because they have 
 sent the goods. 
 
 Dec. 1. Gave Jack & Co. Bill at three montlis, £280. 
 Gave Jack & Co. Cheque for £200. 
 They allowing as Discount £10. 
 
 Jack & Co.*s Account should be debited as follows :— 
 
 ^.0 Bills payable . 
 
 . £280 
 
 „ Bank 
 
 . 200 
 
 „ Discount . 
 
 . 10 
 
 and Bills Payable, Bank, and Discount should be credited 
 with the respective entries. 
 
 Dec. 5. Sold Goods to J. Collins, £1830. 
 
 J. Collins should be debited, as he received the goods, 
 and the Goods Account should be credited, as the goods 
 have gone out 
 
 Dec. 7. Purchased Goods from Scott db Tail on 
 
 credit, £1000. 
 
 The Goods Account should be debited, because the 
 goods have come in, and Scott & Tait should be credited, 
 because they have sent the business the goods. 
 
 Dec. 7. Received Ca^h from J. Collins, £1230. 
 
 Received BUI from J, Collins at three months, 
 £300. 
 
 It is quite evident that J. Collins should be credited 
 "By Cash, £1230," and "By Bills receivable, £300," and 
 the Cash and Bills Keceivable Accounts debited. 
 
 Dec. 8. Paid into Bank, £900. 
 
 The bank should be debited, as they have received, and 
 are therefore indebted for, the cash, and the Cash Account 
 should be credited, as that amount of cash has been paid. 
 
12 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 BOOK-KEEPING 
 
 13 
 
 Dec. 8. Purchased Goods from Jaxk & Co, on 
 
 credit, £370. 
 The Goods Account should be debited, as the goods have 
 come in, and Jack & Co. should be credited. 
 
 Dec. 8. Gave Cheque to Scott & Tait as PaymerU to 
 
 Account, £770. 
 
 Scott & Tait should be debited, as they receive the 
 cash, and the bank should be credited, as they pay it out on 
 behalf of William Wood. 
 
 Dec. 31. Faid Wages to date, £100. 
 
 The Cash Account should be credited and Wages 
 Account debited. 
 
 Dec 31. Cash taken during Year by William Wood 
 
 for his own use, £600. 
 
 It is quite evident that Cash should be credited, as the 
 
 cash has gone out, and William Wood having taken the 
 
 money for his own use, he should be debited with the 
 amount. 
 
 It will have been observed that in recording all these 
 transactions for every debit there has been a corresponding 
 credit, and, accordingly, if the Ledger is added up at this 
 stage, the total of the debit side will agree with the total of 
 the credit side. This is shown in the Trial Balance. 
 
 Ledger Accounts before making Closing Entries 
 
 /. Collins. 
 
 Jan. 1. To Capital 
 
 . £800 
 
 
 
 
 
 Jan. 5. 
 
 By Cash . 
 
 £760 
 
 
 
 
 
 9. ., Goods 
 
 600 
 
 
 
 
 
 
 ,, Discount . 
 
 40 
 
 U 
 
 
 
 Dec. 5. ,, do. . 
 
 . 1830 
 
 
 
 
 
 9. 
 
 „ Bills re- 
 
 
 
 
 
 5150 
 
 
 
 
 
 
 ceivable . 
 
 500 
 
 
 
 
 
 r 
 
 
 
 
 Dec. 7. 
 
 „ Cash . . 
 „ Bills re- 
 ceivable. 
 
 1230 
 
 300 
 S850 
 
 
 
 
 
 
 
 
 
 
 
 W. Simpson. 
 
 Deo. 1. To Goods . . £650 { 
 
 Jack & Co. 
 
 Jan 7. To Bank . 
 
 ,, Discount 
 Dec. 1. ,, Bills pay 
 able . 
 
 „ Bank . 
 
 ,, Discount 
 
 £285 
 
 
 
 
 
 15 
 
 
 
 
 
 280 
 
 
 
 
 
 200 
 
 
 
 
 
 10 
 
 
 
 
 
 790 
 
 
 
 
 
 Jan. 1. By Capital 
 Dec. 1. ,, Goods 
 
 8. 
 
 If 
 
 do. 
 
 £300 
 
 490 
 
 370 
 
 1160 
 
 Scott & Tait. 
 
 Jan. 2. To Bills pay- 
 
 
 Jan. 2. By Goods 
 
 . £400 
 
 able . £400 
 
 
 
 Dec. 7. ,, do. 
 
 . 1000 
 
 Dec. 8. „ Bank . 770 
 
 
 
 
 1400 
 
 1170 
 
 
 
 
 
 
 
 
 
 Bills Payable. 
 
 Apr. 5. To Bank . . £400 
 
 Jan. 2. By Scott & Tait £400 
 Dec. 1. „ Jack k Co. . 280 
 
 680 
 
 Bills Receivable. 
 
 Jan. 9. To J. Collins 
 Dec. 7. „ do. 
 
 .£500 
 
 . 300 
 
 800 
 
 
 
 
 
 
 
 
 
 Jan. 9. By Cash . 
 „ Discount 
 
 . £495 
 
 5 
 
 600 
 
 
 
 
 
 
 
 
 
 Goods. 
 
 Jan. 1. To Capital 
 2. 
 
 Dec. 1. 
 7. 
 8. 
 
 . £600 
 
 , Cash . . 40 
 
 , Scott & Tait 400 
 
 , Jack k. Co. 490 
 
 , Scott & Tait 1000 
 
 , Jack k Co. 370 
 
 £900 
 
 Jan. 9. By Cash . 
 
 £20 
 
 
 
 
 
 „ J. Collins 
 
 500 
 
 
 
 
 
 Dec. 1. ,, W. Simp- 
 
 
 
 
 son. 
 
 650 
 
 
 
 
 
 5. ,, J. Collins . 
 
 1830 
 
 
 
 
 
 
 5000 
 
 
 
 
 
I 
 
 14 ACCOUNTING IN THEORY AND PRACTICE 
 
 Rent, 
 
 June 30. To Ca?h . 
 
 Dec. 1. 
 
 »* 
 
 do. 
 
 £35 
 15 
 50 
 
 Wages, 
 
 June 30. To Cash . 
 
 Dec. 31. 
 
 tf 
 
 do. 
 
 £100 
 100 
 £00 
 
 Discount. 
 
 Jan. 5. To J. Collins 
 
 9. ,, Bills receiv- 
 
 able 
 
 40 
 
 
 
 Jan. 7. By Jack k Co. 
 
 . £15 
 
 
 
 
 
 
 
 Dec. 1. „ do. 
 
 . 10 
 
 
 
 
 
 5 
 
 
 
 
 25 
 
 
 
 
 
 45 
 
 
 
 
 
 
 
 
 
 Capital, 
 
 
 
 
 
 Jan. 1. To Jack k Co. 
 Dec. 31 „ Cash . 
 
 . £300 
 
 . 600 
 
 900 
 
 
 
 
 
 Jan. 1. 
 
 By J. Collins . 
 ,, Goods 
 . , Bank . 
 ,, Cash . 
 
 £800 
 
 600 
 
 150 
 
 50 
 
 1600 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Bank. 
 
 Jan. 1. To Capital 
 5. ,, Cash . 
 
 Dec. 8. 
 
 >) 
 
 do. 
 
 £160 
 
 
 
 
 
 Jan. 7. 
 
 By Jack k Co. 
 
 £285 
 
 
 
 
 
 700 
 
 
 
 
 
 Apr. 6. 
 
 ,, Bills pay- 
 
 
 
 
 900 
 
 
 
 
 
 
 able 
 
 400 
 
 
 
 
 
 1750 
 
 
 
 
 
 Dec. 1. 
 
 ,, Jack k Co. 
 
 200 
 
 
 
 
 
 
 
 
 8. 
 
 „ Scott ATait 
 
 770 
 1655 
 
 
 
 
 
 
 
 Cash, 
 
 Jan. 1. 
 
 To Capital 
 ,, J. Collins . 
 
 £50 
 
 
 
 
 
 Jan. 2. 
 
 By Goods 
 
 £40 
 
 
 
 
 
 5. 
 
 760 
 
 
 
 
 
 5. 
 
 ,, Bank 
 
 700 
 
 
 
 
 
 9. 
 
 ,, Goods 
 
 20 
 
 
 
 
 
 June 30. 
 
 ,, Rent 
 
 35 
 
 
 
 
 
 
 ,, Bills receiv- 
 
 
 
 
 
 „ Wages . 
 
 100 
 
 
 
 
 
 
 able 
 
 495 
 
 
 
 
 
 Dec. 1. 
 
 ,, Rent 
 
 15 
 
 
 
 
 
 Dec 7. 
 
 „ J. Collins . 
 
 1230 
 
 
 
 
 
 8. 
 
 „ Bank 
 
 900 
 
 
 
 
 
 
 
 2555 
 
 
 
 
 
 31 
 
 „ Wa^es . 
 „ W.Wood. 
 
 100 
 
 
 
 
 
 
 
 
 
 
 
 600 
 
 
 
 
 
 
 
 
 
 
 
 
 2490 
 
 
 
 
 
 CLOSING ENTRIES 
 
 ic 
 
 Trial Balance 
 
 as at 31st December. 
 
 
 
 
 Vr. 
 
 
 
 Cr. 
 
 
 
 J. Collins .... 
 
 £3,130 
 
 
 
 
 
 £2,830 
 
 
 
 
 
 W. Simpson . , , . 
 Jack & Co. . . ■ 
 
 650 
 
 
 
 
 
 
 
 
 790 
 
 
 
 
 
 1,160 
 
 
 
 
 
 Scott &Tait. 
 
 1,170 
 
 
 
 
 
 1,400 
 
 
 
 
 
 Bills payable 
 
 400 
 
 
 
 
 
 680 
 
 
 
 
 
 Bills receivable 
 
 800 
 
 
 
 
 
 500 
 
 
 
 
 
 Goods 
 
 2,900 
 
 
 
 
 
 3,000 
 
 
 
 
 
 Rent 
 
 50 
 
 
 
 
 
 
 
 
 Wages . , , . 
 
 200 
 
 
 
 
 
 
 
 
 Discount .... 
 
 45 
 
 
 
 
 
 25 
 
 
 
 
 
 Capital 
 
 1 900 
 
 
 
 
 
 1,600 
 
 
 
 •i 
 
 Bank 
 
 1,750 
 
 
 
 
 
 1,655 
 
 
 
 
 
 Cash 
 
 2,555 
 
 
 
 
 
 2,490 
 
 
 
 
 
 
 £15,340 
 
 
 
 
 
 £15,340 
 
 
 
 _0 
 
 CLOSING ENTRIES 
 
 The accuracy of the posting of the Ledger having been 
 80 far determined by the agreement of the totals of the Trial 
 Balance, the closing entries involving the preparation of 
 the Profit and Loss Account and Balance Sheet may now be 
 proceeded with. 
 
 Goods Account, 
 
 The first account requiring adjustment is the Goods 
 Account The following is an abstract of the Goods 
 Account as it at present stands in the Ledger : — 
 
 Abstract of Goods Account 
 
 Jan. 1. To Stock on 
 
 
 Dec. 31. By Sales 
 
 . £3000 
 
 hand at 
 
 
 
 \ 
 
 this date 
 
 £600 
 
 
 
 Dec. 31. ,, Purchases 
 
 2300 
 
 
 
 It is important to note the various items of which this 
 account consists, and these will be readily seen from the 
 above abstract. On the debtor side there is the cost of 
 goods which were in stock at the beginning of the year and 
 the cost of the goods purchased since, and on the credit 
 side there is the total sales which have been made 
 during the year. The debit side therefore shows the 
 
 I 
 
1' 
 
 i6 ACCOUNTING IN THEORY AND PRACTICE 
 
 
 ,i 
 
 total cost of the goods which have been in the shop or 
 warehouse during the year, and the credit side contains the 
 total price realised for the goods which have been sold. All 
 the goods, however, have not yet been sold, and, to arrive at 
 the profit from the purchase and sale of the goods, it is neces- 
 sary that the goods on hand at the close of the year should be 
 allowed for. The value of the goods on hand at the close 
 of the year would be arrived at by actually going over the 
 goods and preparing a priced inventory of them. Suppose that 
 this has been done, and that the value of the goods, taken at 
 cost price, is £700, it is evident that if this sum is deducted 
 from the debit side of the Goods Account, the total of the 
 debit side will then represent the cost of the goods which 
 have been actually sold, and as on the credit side there is 
 the price realised for these goods that have been sold the 
 difference between the two sides will give the gross profit on 
 the goods. Instead of deducting the goods on hand at the 
 close of the year from the debit side, the effect will be the 
 same if the amount is entered on the credit side, and as the 
 goods on hand at the close of the year may be looked upon 
 as the balance of the Goods Account, the simplest plan is to 
 enter the amount on the credit side as the balance. The 
 credit side will then amount to £3700, and the debit side 
 to £2900, and the difference, £800, will be the gross 
 profit on goods. The gross profit on goods should be trans- 
 ferred to the Profit and Loss Account, where all the profits 
 and all the charges or losses are collected together, and this 
 is done by entering on the debit side of the Goods Account 
 "To Profit and Loss, £800." The abstract of the Goods 
 Account will then appear as follows : — 
 
 Abstract of Goods Account 
 
 Jan. 1. To Stock on 
 
 hand at 
 
 this date £600 
 Dec. 31. „ Purchases 2300 
 „ Profit and 
 
 Loss . 800 
 
 Dec. 31. By Sales . £8000 
 „ Balance 700 
 
 Jan. 1. To Balance 
 
 £3700 
 £700 
 
 £3700 
 
 CLOSING ENTRIES 
 
 17 
 
 Rent Account 
 
 AcctT"lTZ'^'''''''''^''''''^i''''^'-' « the Kent 
 Account IhiB account appears as foUows :— 
 
 Setit Aceoant. 
 
 June 30. To Cash . 
 Dec. 1. ,, do. 
 
 ■ £35 
 
 ■ 15 
 
 The account is at present deb ted with £50 but t\,. 
 rent of the shop or warehouse i, f-rn ' * 
 
 woni^ „-^f *k ^ "arenouse is £70 per annum, and it 
 would not therefore do to transfer £50 to the Profit and 
 Ix>ss Account, but £70 must be transferred. If tS Lt^ 
 « made on the credit side of the Bent Account " S 
 
 folloTs^ " ^''' ^•='="""' ^' *!>- appear as 
 ^ent Account. 
 
 June 30. To Caah 
 Dec. 1. „ do. 
 
 31. I, Balance . 
 
 £35 
 
 15 
 
 20 
 
 £70 
 
 Dec. 31. By Profit and 
 
 Loss . £70 
 
 Jan. 1. By Balance 
 
 W'ages. 
 
 -detrttc^dt id'el'-BTp^fil^rr ''/ '"^'^'^ 
 the amount transferal ^ '^ ^''' ^^^^'" "^^ 
 
 •Discount, 
 
 debif';l"tet\h?r?/T'"* ^'"'"' -"^ — of the 
 « transferred Lth« '"^' °^ ^^^^ ""-^ this amount 
 
 Account *^' '*'"' ^^^ ^ the Profit and Loss 
 
i8 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 BOOK-KEEPING 
 
 19 
 
 ! I 
 
 I 
 
 Profit and Loss Account, 
 
 There have now been transferred into the Profit and Loss 
 Account aU the profits of the business for the year, these 
 appearing on the credit side, and on the debit side are 
 placed all the charges incurred in earning this profit, namely 
 rent, wages, and discount The difference between the two 
 sides is £510, which is the net profit As the net profit 
 belongs to the owner of the business, it should be transferred 
 to his account namely, the Capital Account, by entering on 
 the debit side of the Profit and Loss Account " To Capital, 
 £510." 
 
 Balance Sheet. 
 
 All that now remains to be done is to balance off each 
 of the accounts, and carry down the balances. All the debit 
 balances represent assets, and the credit balances represent 
 liabmties, including capital In the Balance Sheet are 
 shown on the one side all the assets, and on the other all 
 the liabilities, including capital. 
 
 Completed Ledger Accounts 
 J. Collins. 
 
 Jan. 1. To Capital 
 9. ,, Goods 
 
 Dec. 5. 
 
 «» 
 
 do. 
 
 £800 
 
 500 
 
 1830 
 
 Jan. 1. To Balance 
 
 £3130 
 . £300 
 
 Jan. 5. By Cash 
 
 ., Discount . 
 9. ., Bills re- 
 ceivable 
 Dec. 7. .. Cash 
 
 „ Bills re- 
 ceivable 
 31. ,, Balance . 
 
 £760 
 
 40 
 
 500 
 
 1230 
 
 300 
 
 300 
 
 £3130 
 
 IF. Simpson. 
 
 Dec. 1. To Goods 
 
 Jan. 1. To Balance 
 
 £650 
 
 
 
 £650 
 
 
 
 £650 
 
 
 
 Dec. 31. By Balance . £650 
 
 £650 
 
 Jack & Co. 
 
 Jan. 7. To Bank . £285 
 ,, Discount . 15 
 Dec 1. ,, Bills pay- 
 able . 280 
 „ Bank 200 
 ,, Discount - 10 
 81. ,, Balance . 370 
 
 
 
 
 0| 
 I 
 
 
 
 Jan. 1. By Capital 
 Dec. 1. „ Goods 
 do. 
 
 8. 
 
 •t 
 
 £300 
 490 
 370 
 
 £1160 
 
 £1160 
 
 Jan. 1. By Balance . £370 
 
 Scott & Tait. 
 
 Jan. 2. To Bills pay- 
 
 able . £400 
 
 Dec. 8. ,, Bank , 770 
 
 81. „ Balance . 230 
 
 £1400 
 
 Jan. 2. By Goods 
 Dec. 7. „ do. 
 
 £400 
 1000 
 
 £1400 
 
 Jan. 1. By Balance . £230 
 
 Bills Payable. 
 
 Apr. 5. To Bank 
 Dec. 31. „ Balance 
 
 £400 
 280 
 
 
 
 
 
 
 
 £680 
 
 
 
 _0 
 
 
 
 Jan. 2. By Scott & 
 
 Tait . £400 
 Dec. 1. „ Jack & 
 
 Co. . 280 
 
 £680 
 
 Jan. 1. By Balance . £280 
 
 Bills Receivable. 
 
 Jan. 9. To J. Collins 
 ^«c. 7. „ do. 
 
 £500 
 300 
 
 £800 
 
 Jan. 9. By Cash 
 
 ,, Discount 
 
 £495 
 
 
 Dec. 31. „ Balance . 300 
 
 Jan. 1. To Baknce . £300 
 
 £800 
 
20 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 BOOK-KEEPING 
 
 21 
 
 Goods, 
 
 I 
 
 Jan. 1. ToCapitel 
 2. ,, Cash . 
 
 „ Scott & 
 Tait 
 Dec. 1. „ Jack & Co. 
 ,, Scott & 
 
 Tait 
 ,, Jack & Co. 
 „ Profit and 
 Loss 
 
 £600 
 40 
 
 7. 
 
 8. 
 81. 
 
 400 
 490 
 
 1000 
 370 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Jan. 9. By Cash . 
 „ J. Collins 
 
 Dec 1. 
 5. 
 
 £20 
 
 „. . 500 
 
 W. Simpson 650 
 
 J. Collins .1830 
 
 31. >, Balance 
 
 700 
 
 800 
 £3700 
 
 £3700 
 
 Jan. 1. To Balance . £700 
 
 Rent. 
 
 June 30. To Cash . 
 Dec. 1. ,, do. . 
 
 31. ,, Balance . 
 
 £35 
 15 
 20 
 
 Dec. 31. By Profit and 
 Loss 
 
 £70 
 
 
 £70 
 
 £70 
 
 
 Jan. 1. By Balance . 
 Wage^ 
 
 £20 
 
 June 30. To Cash 
 Dec 31. „ do. 
 
 £100 
 100 
 
 Dec 31. By Profit and 
 Loss 
 
 tint. 
 
 £200 
 
 
 £200 
 
 Disco 
 
 £200 
 
 Jan. 6. To J. Collins 
 9. „ Bills receiv 
 able . 
 
 . £40 
 6 
 
 Jan. 7. By Jack k Co. 
 Dec. 1. ,, do. 
 
 81. „ Profit and 
 Loss 
 
 £15 
 10 
 
 20 
 
 
 £45 
 
 
 £45 
 
 
 Capital 
 
 
 Jan. 1. To Jack k Co. 
 Dec 31. „ Cash 
 
 ,, Balance 
 
 £300 
 
 600 
 
 . 1210 
 
 Jan. 1. By J. Collins 
 ,, Goods 
 ,, Bank 
 ,, Cash 
 
 Dec. 31. „ Profit and 
 Loss 
 
 £800 
 
 600 
 
 150 
 
 50 a 
 
 510 
 
 
 £2110 
 
 £2110 
 
 Jan. 1. By Balance . £1210 
 
 Bank 
 
 Jan. 1. To Capital 
 5. ,, Cash . 
 Deo. 8. ,, do. . 
 
 £150 
 700 
 900 
 
 Jan. 1. To Balance 
 
 £1750 
 £95 
 
 Jan. 
 Apr. 
 
 Dec. 
 
 7. By Jack k Co. £285 
 6. ,, Bills pay. 
 
 able . 400 
 
 1. ,, Jack k Co. 200 
 
 8. ., Scott & Tait 770 
 31. ,, Balance . 95 
 
 £1760 
 
 Cash. 
 
 Jan. 1. To Capital . £50 
 
 5. ,, J. Collins . 760 
 
 9. ,, Goods . 20 
 ,, Bills receiv- 
 
 able 495 
 
 Dec. 7. ,, J. Collins . 1230 
 
 Jan. 1. To Balance 
 
 £2555 
 £65 
 
 Jan. 2. 
 
 By Goods 
 
 . £40 
 
 
 
 
 
 5. 
 
 ,, Bank 
 
 . 700 
 
 
 
 
 
 June 30. 
 
 ,, Rent 
 
 35 
 
 
 
 
 
 
 ,, Wages 
 
 100 
 
 
 
 
 
 Dec. 1. 
 
 ,, Rent 
 
 15 
 
 
 
 
 
 8. 
 
 „ Bank . 
 
 900 
 
 
 
 
 
 31. 
 
 . . Wages 
 
 100 
 
 
 
 
 
 
 „ W. Wood 
 
 600 
 
 
 
 
 
 
 ,, Balance . 
 
 65 
 
 
 
 
 
 £2555 
 
 Profit and Loss. 
 
 Dec. 31. To Rent. 
 )i Wages 
 ,, Discount 
 n Capital 
 
 £70 
 
 200 
 
 20 
 
 510 
 
 £800 
 
 Dec. 31. By Goods . £800 
 
 £800 
 
 Balance Sheet as at 31st December. 
 
 Liabilities. 
 
 Assets 
 
 Due to Jack and Co. 
 Due to Scott k Tait 
 Bills payable 
 Rent outstandine 
 Capital , ^ 
 
 Cc 
 
 . £370 
 
 
 
 .'ait 
 
 230 
 
 
 
 • 
 
 280 
 
 
 
 ? 
 
 20 
 
 
 
 • 
 
 . 1210 
 
 
 
 
 £2110 
 
 
 
 Due by J. Collins 
 Due by W. Simi»son 
 Bills receivable . 
 Goods on hand . 
 Cash in bank 
 Cash on hand 
 
 dC300 
 
 650 
 
 300 
 
 700 
 
 95 
 
 65 
 
 £2110 
 
 onlJ\'"" "r,^^^" ^J'"^". by means of Ledger Accounts 
 only, how all the business transactions of WiUiam Wood 
 
22 ACCOUNTING IN THEORY AND PRACTICE 
 
 may be properly and sufficiently recorded. It is seen 
 exactly how it is that he has made a profit on his business, 
 and what his assets and liabilities consist of. It is thus 
 apparent that the essential book in book-keeping is the 
 Ledger, and that all the results which book-keeping is 
 capable of affording may be obtained by the use of the 
 Ledger alone. In practice, however, it would be found 
 almost impossible to keep accounts in the way that has 
 been illustrated by means of a Ledger only, but it is 
 important to remember that the whole theory of book- 
 keeping is contained in the Ledger, and that any additional 
 books which it may be found advisable to use are simply 
 branches or parts of the Ledger system, and can only be 
 properly understood and correctly used when they artj 
 looked upon as such. These same transactions of William 
 Wood will now be treated in a way which is more in 
 harmony with actual practice. 
 
 PRACTICAL BOOK-KEEPING 
 
 In devising a set of books for any business concern, 
 there are certain points which the accountant should care- 
 fully keep in mind. It should be such a system of book- 
 keeping as will not involve the keeping of too many clerks 
 nor the procuring of too expensive books. The great secret 
 of achieving economy in the book-keeping of an establish- 
 ment is to utilise the original entries to the fullest extent. 
 No scroll-books should ever be used, but the entries should 
 be at once written into the proper book of record as the 
 transaction takes place, and each book of record should, if 
 possible, be so arranged as to be utilised in preparing the 
 Profit and Loss Account and Balance Sheet. Another 
 criterion of a good system of book-keeping, and one which 
 often effects great saving of time, is to have the books so 
 arranged that it is possible in the event of any errors 
 getting into the books to trace them readily. Where it is 
 possible to localise errors the irksome labour of going over 
 the whole of the books until all the errors are found is 
 
 BOOK-KEEPING IN PRACTICE 
 
 23 
 
 obviated. In a good system of book-keeping the books 
 should be so arranged and sub-divided that the clerks of 
 the establishment can have access to them as they require. 
 No excuse should ever be accepted that one clerk cannot 
 get on with his work because another clerk is using the 
 book he requires. Under a well-airanged system of book- 
 keeping it is very easy to avoid this. To sum up, that 
 system of book-keeping is the best in which the fullest 
 effect is given to the following : — 
 
 1. The utilising of the original entries. 
 
 2. The localising of errors. 
 
 3. The accessibility of the books to the clerks of the establish- 
 
 ment 
 
 The trarisactioTis of William Wood as they might 
 he recorded in actioal practice. 
 
 Having treated the transactions of William Wood in a 
 purely theoretical manner, it now remains to illustrate how 
 these transactions might be treated in a practical way. It 
 is evident that if the business was of any size at all the 
 transactions connected with cash might become so extensive 
 as to necessitate a clerk being employed to devote his sole 
 tinae to attending to the cash. In such a case it is quite 
 evident that it would be of advantage instead of having the 
 cash account in the Ledger to keep it in a separate book 
 which the cashier could have always in front of him. 
 Similarly, a separate book might be kept for goods received 
 and a separate book for goods sold. The books necessary 
 to record the transactions of William Wood might therefore 
 be the following : — 
 
 1 . Cash Book, for cash transactions. 
 
 2. Invoice Book, for goods purchased. 
 
 3. Day Book, for goods sold. 
 
 4. Journal. 
 
 5. Ledger. 
 
 1. The Cash Book 
 
 The Cash Book which is given has three money columns 
 on each side, headed Discount, Bank, and Cash, and the 
 
i 
 
 i 
 
 til 
 lit 
 
 24 ACCOUNTING IN THEORY AND PRACTICE 
 
 BOOK-KEEPING IN PRACTICE 
 
 use of these columns is easily understood. The Discount 
 column on the debtor side is for the purpose of inserting 
 opposite the name of the customer the amount of discount 
 allowed to the customer when a settlement takes place. 
 The Discount column on the credit side is for discount 
 allowed by creditors at settlement. The Bank column on 
 the debtor side is for the purpose of containing all sums 
 paid into bank, and the Bank column on the credit side 
 is for the purpose of containing the amounts of all cheques 
 which are issued on the bank. It will be observed that 
 the Bank column on the debtor side starts with the cash in 
 bank at the beginning of the year, and that the cash in 
 bank at the close of the year — £95 — is entered in the 
 credit column. The Bank columns contain all the entries 
 exactly as they appear in the Bank Pass Book, and there is 
 thus no necessity of keeping a Bank Account in the 
 Ledger. The Cash column on the debtor side is for cash 
 actually received, and the Cash column on the credit side of 
 the Cash Book is for cash actually paid away. 
 
 All the items on the debit side of the Cash Book should 
 be posted to the credit side of some account in the Ledger, 
 and all the items on the credit side of the Cash Book 
 should be posted to the debit side of some account in the 
 Ledger, except the purely cash transactions with the Bank 
 and the Cash and Bank balances. The only transactions in 
 the Cash Book which are not posted are the payments of 
 cash into bank or cash received from bank, which are given 
 effect to through the Cash and Bank columns. It will be 
 observed that only the balance of the discount, namely £20, 
 is posted to the Ledger. 
 
 2. The Invoice Book, 
 
 The Invoice Book is for the purpose of containing the 
 details of all goods purchased. It thus practically takes 
 the place of the debit side of the Goods Account in the 
 Ledger, and to form the Ledger Account it is only necessary 
 to post the total of the Invoice Book, either weekly or 
 monthly, as may be thought desirable, to the debit of the 
 
 25 
 
 Goods Account. The details of the Invoice Book are posted 
 to the credit of the various accounts with the exception of 
 the cash items which have already appeared on the credit 
 side of the Cash Book. 
 
 3. The Day Book, 
 
 The Day Book is for the purpose of containing the 
 details of the goods sold. It is thus really the credit side 
 of the Goods Account in detail To the Goods Account in 
 the Ledger the total of the Day Book should be credited, 
 weekly or monthly, as required^ The individual items in 
 the Day Book are posted to the debit of the different 
 customers' accounts in the Ledger, with the exception of any 
 purely cash items which have already appeared on the 
 debit side of the Cash Book. 
 
 4. The Journal. 
 
 The Cash Book, the Invoice Book, and the Day Book 
 are called the books of original record, because the trans- 
 actions are recorded in them just as they take place. 
 These books are all posted into the Ledger direct. In most 
 businesses there are some transactions which are not 
 contained in the books of original record which require to 
 appear in the Ledger, and for all such items it is desirable 
 to use the Journal. The Journal is solely for the purpose 
 of keeping a record of the debiting and crediting of items 
 in the Ledger, and is practically used for : — 
 
 1. Opening entries. 
 
 2. Entries which cannot be conveniently carried through the 
 
 books of original record. 
 
 3. Closing entries. 
 
 In the Journal submitted it will be observed that the 
 opening entries are all given, although perhaps the bank 
 and the cash items might have been posted direct from the 
 Cash Book. The entries throughout the year refer to bills 
 payable and bills receivable and to the totals of the Invoice 
 Book and Day Book. When bill transactions are numerous 
 
f 
 
 26 ACCOUNTING IN THEORY AND PRACTICE 
 
 BOOK-KEEPING IN PRACTICE 
 
 27 
 
 it is desirable to keep a special book for bills payable and 
 bills receivable, which may be used as the Bill Journal. 
 The other entries relate to the closing of the books. 
 
 5. The Ledger, 
 
 The Ledger is given all in one, although in most 
 businesses it is very desirable to have the Ledger divided 
 into : — 
 
 1. The Customers' Ledger or Debtors' Ledger, for Customers' 
 
 Accounts. » , * X 
 
 2. The Purchases Ledger or Creditors' Ledger, for accounts 
 with creditors or with those from whom goods are purchased. 
 
 3. The General Ledger, for all other accounts. 
 
 Where, as in most businesses, it is desired that the 
 clerks should not know what profit is being earned or what 
 the amount of the capital is, a Private Ledger should also 
 be kept. The other ledgers may be balanced apart from 
 the Private Ledger by keeping in the General Ledger an 
 account headed " Private Ledger Account " for all trans- 
 actions which require to be entered through the other 
 books, but which really belong to the Private Ledger. 
 
 If a Private Ledger were kept in the present system, 
 no Goods or Capital Accounts would be required, and the 
 Private Ledger Account in the General Ledger would be as 
 follows : — 
 
 Private Ledger Acffnint. 
 
 Jan. 1 . To Jack & Co. . £300 
 Dec. 31. Cash, W. 
 Wood 
 
 ,, Rent . 
 
 ,, Wages 
 
 .. Discount 
 
 ,. Purchases 
 
 .. Balance 
 
 
 
 . 600 
 
 
 
 
 
 60 
 
 
 
 
 
 . 200 
 
 
 
 
 
 20 
 
 
 
 
 
 . 2300 
 
 
 
 
 
 . 530 
 
 
 
 
 
 £4000 
 
 
 
 _0 
 
 Jan. 1. By J. Collins £800 
 
 „ Bank . 160 
 
 ,. Cash . 60 
 
 Dec. 31. „ Sales . 3000 
 
 £4000 
 
 3. 
 
 o© 
 
 ^ ■« o 
 
 000 
 000 
 
 000 
 000 
 
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 o 
 
 US O O O O O U3 
 CO O rt O O O CO 
 
 
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 51 
 
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 CO 
 
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 ^ g 
 
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 c2 ^ 
 
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 P^ CO 
 
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 r* O 
 
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 s 
 
 d 
 
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 O TJ 
 
 rO O 
 
 <=^- 1^ 
 
 p2 r« '^ 
 
 ^ «? 
 
 OQ o 2 
 
 '^ a 
 
 2 ^ a 
 
 ^=5 S 
 
 rP g 
 
 CO C*_4 .2 
 
 O -M 
 
 o .^ 
 
 ^ '^ «J 
 
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 CO -<^ S 
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28 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 
 Invoice Book 
 
 
 
 
 
 Jan. 2. 
 
 Dec. 1. 
 7. 
 8. 
 
 To Cash 
 
 „ Scott k Tait . 
 
 ,, Jack k Co 
 
 „ Scott k Tait . 
 „ Jack & Co. . 
 
 Goods . 
 
 Dr. 
 
 £40 
 400 
 490 
 1000 
 370 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £2300 
 
 
 
 J 
 
 Day Book 
 
 Jan. 9. 
 
 Dec. 1. 
 5. 
 
 Jan. 1. 
 
 2. 
 
 9. 
 
 Dec. 1. 
 
 t. 
 
 31. 
 
 By Cash . 
 ,, J. Collins 
 ,, W. Simpson 
 ,, J. Collins 
 
 Goods 
 
 Cr. 
 
 £20 
 
 500 
 
 650 
 
 1830 
 
 £3000 
 
 Journal 
 
 J. Collins .... Dr. 
 Goods . . . • •! 
 
 Bank 
 
 Cash ,, 
 
 To W. Wood, Capital Account 
 for assets at this date 
 
 W. Wood, Capital Account . Dr, 
 
 To Jack k Co. 
 for liability at this date 
 
 Scott & Tait . 
 
 To Bills payable 
 
 Bills receivable 
 To J. Collins . 
 
 Jack k Co. . 
 
 To Bills ijayable 
 
 Bills receivable 
 To J. Collins . 
 
 Goods . . . 
 To Sundries . 
 for total of Invoice Book 
 
 Sundries 
 
 To Goods 
 for total of Day Book 
 
 Carry forward 
 
 Dr 
 Dr 
 Dr 
 Dr 
 
 Dr 
 
 Dr, 
 
 £800 
 
 
 
 
 
 
 
 
 600 
 
 
 
 
 
 
 
 
 150 
 
 
 
 
 
 
 
 
 50 
 
 
 
 
 
 
 
 
 
 
 
 £1600 
 
 
 
 
 
 300 
 
 
 
 
 
 
 
 
 
 
 
 300 
 
 
 
 
 
 £1900 
 
 
 
 
 
 £1900 
 
 
 
 
 
 400 
 
 500 
 
 280 
 
 300 
 
 400 
 
 500 
 
 280 
 
 300 
 
 2300 9 
 
 
 
 2300 
 
 
 
 
 
 3000 
 
 
 
 3000 
 
 
 
 
 
 £6780 
 
 
 
 £6780 
 
 
 
 
 
 BOOK-KEEPING IN PRACTICE 
 
 29 
 
 Journal — Continued 
 
 Dec 31. 
 
 Brought forward 
 
 Goods (New Account) . . Dr. 
 
 To Goods (Old Account) . 
 for goods on hand at this date 
 
 Rent (Old Account) . . Dr. 
 
 To Rent (New Account) 
 for rent accrued to date unpaid 
 
 Goods 
 
 To Profit and Loss 
 
 Profit and Loss 
 To Rent . 
 ,, Wages 
 ,, Discount . 
 ,, Capital 
 
 Dr. 
 
 . Dr. 
 
 £6780 
 
 
 
 
 
 700 
 
 
 
 
 
 20 
 
 
 
 
 
 800 
 
 
 
 
 
 £6780 
 
 700 
 
 20 
 
 800 
 
 800 
 
 
 
 
 
 70 
 
 
 
 
 
 
 200 
 
 
 
 
 
 
 20 
 
 
 
 
 
 
 510 
 
 
 
 
 
 £9100 
 
 £9100 
 
 
 
 
 
 Ledger 
 
 J, Collins. 
 
 Jan. 1. To Capital 
 
 . £800 
 
 
 
 
 
 Jan. 5. 
 
 By Cash . . £760 
 
 
 
 
 
 9. ,, Goods 
 
 . 500 
 
 
 
 
 
 
 ,, Discount . 40 
 
 
 
 
 
 Deo. 5. ,, do. 
 
 . 1830 
 
 
 
 
 
 9. 
 
 ,, Bills receiv- 
 able . 500 
 
 
 
 
 
 
 
 
 
 Dec. 7. 
 
 ,, Cash . .1230 
 ,, Bills receiv- 
 
 
 
 
 
 . 
 
 
 
 
 
 able . . 300 
 
 
 
 
 
 
 
 
 
 31. 
 
 ,, Balance . 300 
 
 
 
 
 
 
 £3130 
 
 
 
 _0 
 
 £3130 
 
 
 
 _0 
 
 Jan. 1. To Balance 
 
 £300 
 
 W. Simpson. 
 
 Dec. 1. To Goods . 
 
 .£650 
 
 
 
 
 
 Dec. 31. By Balance 
 
 . £650 
 
 
 £650 
 
 
 
 
 
 
 £650 
 
 Jan. 1. To Balance 
 
 .£650 
 
 
 
 
30 ACCOUNTING IN THEORY AND PRACTICE 
 
 BOOK-KEEPING IN PRACTICE 
 
 3> 
 
 Jack & Co. 
 
 Jan. 
 Dec. 
 
 7. 
 
 1. 
 
 31. 
 
 To Bank 
 
 ,, Discount . 
 
 ,, Bills pay. 
 
 able 
 , , Bank 
 ,, Discount . 
 ,, Balance . 
 
 £285 
 15 
 
 280 
 
 200 
 
 10 
 
 370 
 
 
 
 
 
 
 
 
 
 Jan. 1. 
 
 Dec. 1. 
 
 8. 
 
 Jan. 1. 
 hTait. 
 
 By Capital . 
 ,, Goods 
 }i do. 
 
 m 
 
 By Balance 
 
 £300 
 490 
 370 
 
 
 
 
 
 
 
 
 
 
 £1160 
 
 
 Scott d 
 
 £1160 
 
 
 
 
 
 
 £370 
 
 
 
 
 
 Jan. 
 Dec. 
 
 2. 
 
 8. 
 31. 
 
 To Bills j«y- 
 
 able 
 ,, Bank 
 „ Balance . 
 
 £400 
 770 
 230 
 
 
 
 
 
 Jan. 2. 
 Dec. 7. 
 
 Jan. 1. 
 ^ayable. 
 
 By Goods 
 M do. . 
 
 By Balance . 
 
 £400 
 1000 
 
 
 
 
 
 
 
 
 £1400 
 
 
 
 £1400 
 £230 
 
 
 
 
 
 
 
 
 Bills 1 
 
 
 
 Apr. 
 Dec. 
 
 5. 
 31. 
 
 To Bank . 
 n Balance 
 
 . £400 
 . 280 
 
 
 
 
 Jan. 2. 
 Dec. 1. 
 
 By Scott k Tait 
 ,, Jack k Co. 
 
 .£400 
 . 280 
 
 
 
 
 
 
 
 
 £680 
 
 
 
 
 £680 
 
 
 
 _0 
 
 i Jan. 1. By Balance . £280 
 
 Bills Receivable. 
 
 Jan. 9. To J. Collins 
 Dec. 7 „ do. 
 
 Jan. 1. To Balance 
 
 £500 
 300 
 
 £800 
 £300 
 
 Jan. 9. By Cash . 
 
 tt Discount 
 Dec. 31. „ Balance 
 
 £495 
 
 5 
 
 300 
 
 £800 
 
 Rent. 
 
 June 30. To Cash . 
 Dec. 1. »« do. . 
 31 ., Balance 
 
 £35 
 
 15 
 
 20 
 
 £70 
 
 Dec. 31. By Profit and 
 
 Loss . £70 
 
 £70 
 
 Jan. 1. By Balance . £20 
 
 Wages. 
 
 June 30. To Cash . 
 Dec 31. „ do. . 
 
 £100 
 100 
 
 £200 
 
 Dec. 31. By Profit and 
 
 Loss . £200 
 
 £200 
 
 Discount. 
 
 Dec. 31. To Cash . . £20 
 
 £20 
 
 Dec. 31. By Profit and 
 
 Loss . £20 
 
 £20 
 
 Capital. 
 
 Jan. 1. To Jack k Co. 
 Dec. 31 „ Cash 
 
 ft 
 
 Balance 
 
 £300 
 
 600 
 
 1210 
 
 £2110 
 
 it 
 
 Bank 
 Cash 
 
 Jan. 1. By J. Collins £800 
 
 ,, Goods . 600 
 
 160 
 
 50 
 
 £1600 
 
 510 
 
 £2110 
 
 Dec. 31. ,, Profit and 
 Loss . 
 
 Jan. 1. By Balance . £1210 
 
 Goods. 
 
 Jan. 1. To Capital . £600 
 
 Dec. 31. ,, Purchases 2300 
 ,, Profit and 
 
 Loss . 800 
 
 Jan. 1. To Balance 
 
 £3700 
 £700 
 
 Dec. 31. By Sales . £3000 
 „ Balance . 700 
 
 £3700 
 
 Profit and Loss Account. 
 
 Dec 31. To Rent 
 „ Wages 
 f, Discount 
 ,1 Capital 
 
 £70 
 
 
 
 
 
 200 
 
 
 
 
 
 20 
 
 
 
 
 
 510 
 
 
 
 
 
 £800 
 
 
 
 
 
 Dec. 31. By Goods . £800 
 
 £800 
 
32 ACCOUNTING IN THEORY AND PRACTICE 
 
 BOOK-KEEPING IN PRACTICE 
 
 Balance Sheet as at Slst December. 
 Liabilities. Assets. 
 
 33 
 
 Due to Jack k Co. 
 Due to Scott & Tait 
 Bills payable 
 Rent outstanding 
 Capital 
 
 £370 
 
 
 
 
 
 230 
 
 
 
 
 
 280 
 
 
 
 
 
 20 
 
 
 
 
 
 1210 
 
 
 
 
 
 £2110 
 
 
 
 
 
 Due by J. Collins 
 Due by W. Simpson 
 Bills receivable . 
 Goods on hand . 
 Cash in bank 
 Cash on hand 
 
 £300 
 
 650 
 
 800 
 
 700 
 
 95 
 
 65 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £2110 
 
 PEACTICAL BOOK-KEEPING FURTHER 
 
 DEVELOPED 
 
 THE TRANSACTIONS OF WILLIAM WOOD AS THEY MIGHT BE 
 RECORDED IN ACTUAL PRACTICE, WITH FURTHER IM- 
 PROVEMENTS AND DEVELOPMENTS ON THE METHOD 
 ALREADY SHOWN. 
 
 The method of recording the transactions of William 
 Wood may be still further improved. A method of 
 keeping these transactions is now submitted which has 
 several advantages over those already shown, and it may 
 be well to point out exactly what these advantages are. 
 The books kept under this system are ; — 
 
 1. Columnar Cash Book 
 
 2. Invoice Book. 
 
 3. Day Book. 
 
 4. Journal. 
 
 5. Ledgers; — 
 
 (a) Customers* Ledger or Debtors' Ledger, for cus- 
 tomers' accounts. 
 
 (J) Purchases Ledger or Creditors* Ledger, for accounts 
 with creditors or with those from whom goods 
 are purchased. 
 
 (c) The General Ledger, for all other accounts. 
 
 The Cash Book. 
 
 It will be observed that in the form of columnar Cash 
 Book now submitted both debit and credit transactions are 
 
 entered immediately after the date. There is thus never 
 any break in the page. In the form of Cash Book formerly 
 given if the number of debit transactions was not the same 
 as the number of credit transactions a portion of the page 
 had to be left blank. In the form now submitted no such 
 blank can occur. It will be observed that the Cash and 
 Bank columns, both debit and credit, are the same as in the 
 form of Cash Book already given. The other columns 
 consist of the folio columns and monetary columns for 
 the purpose of analysing the receipts and payments, and 
 containing the discounts. By means of the analytical 
 columns a Cash Abstract may be at any time prepared, and 
 the ledgers may be balanced separately. 
 
 The posting of this Cash Book, so far as the details of 
 the Customers' and Creditors* Accounts are concerned, is 
 carried out exactly on the lines of the Cash Book already 
 described. Detailed accounts may also be kept for any of 
 the other items in the analytical columns, or the totals of 
 these analytical columns may be posted either weekly or 
 monthly to the General Ledger. In the example given the 
 columns are totalled and posted at the end of the year. 
 
 Invoice Book, Day Book, and Journal 
 
 These books are used exactly in the manner already 
 described, and, being the same as in the former set, are not 
 repeated. 
 
 The Ledgers, 
 
 The Ledger Accounts which should be specially noted, 
 and the working of which should be carefuUy followed, are 
 the "Abstract of Customers* Ledger ** and the « Abstract of 
 i'urchases Ledger,'* contained in the General Ledger. These 
 accounts are prepared in practice from the weekly or 
 monthly totals of the Day Book and Invoice Book, together 
 with the totals of the Sales column, the Purchases column 
 and the Discount columns in the Cash Book. The great 
 advantage of these accounts is that they verify at any 
 time the amount due by customers or due to creditors as 
 
34 ACCOUNTING IN THEORY AND PRACTICE 
 
 BOOK-KEEPING IN PRACTICE 
 
 35 
 
 AVILLIAM WOOD, 
 
 Cash 
 
 Dr. 
 
 
 
 
 
 
 
 
 *.. 
 
 Discount. 
 
 Sales. 
 
 Fol. 
 
 Bank. 
 
 Cash. 
 
 
 
 
 £ «. d. 
 
 1 
 
 £, 9, d. 
 
 
 £ 5. d. 
 150 
 
 £ s. d. 
 50 
 
 1899 
 Jan. 1 . 
 
 2. 
 
 To Capital 
 By Goods . 
 
 
 40 
 
 760 
 
 
 700 
 
 760 
 
 5. 
 7. 
 
 To J. Collins . 
 
 By Bank, sum jiaid in 
 
 „ Jack k Co. . 
 
 
 
 20 
 
 
 
 20 
 
 9. 
 
 To Goods . 
 
 
 5 
 
 495 
 
 
 
 495 
 
 Apr. 6. 
 June 30. 
 
 „ Bills receivable . 
 By Bills i>iiyable 
 ,, Rent . 
 „ Wages . 
 
 
 
 1 
 
 
 
 Dec. 1. 
 
 ,, Rent . 
 
 
 
 
 
 
 
 
 ,, Jack & Co. . 
 
 
 
 1230 
 
 
 
 1230 
 
 1 
 
 7. 
 
 To J. Collins . 
 
 
 
 
 
 900 
 
 
 8. 
 
 By Bunk, sura paid in 
 „ Scott &Tait. 
 
 
 1 
 1 
 
 
 
 
 31. 
 
 „ Wages . 
 
 
 
 
 
 
 
 « 
 
 „ William Wood — 
 1 Account . 
 
 ,, Balances . . 
 
 •Carital 
 
 45 
 
 2505 
 
 1750 
 
 2555 
 
 MERCHANT m LONDON" 
 
 Book 
 
 Or. 
 
 CMh. 
 
 Bank. 
 
 Pol. 
 
 Purcliasea. 
 
 Discount. 
 
 Wages. 
 
 Rent, Rates, 
 
 Gas, and 
 
 Insurance. 
 
 Charges. 
 
 Other 
 Payments. 
 
 £ «. 
 
 d. 
 
 i, 9. d. 
 
 
 £ «. d. 
 
 £ «. d. 
 
 £ 5. d. 
 
 £ «. d. 
 
 £ «. d. 
 
 £ «. d. 
 
 40 
 
 
 
 
 
 40 
 
 
 
 
 
 
 700 
 
 
 
 285 
 400 
 
 
 2S5 
 400 
 
 15 
 
 
 
 
 
 35 
 
 
 
 
 
 
 
 
 35 
 
 
 
 100 
 
 
 
 . 
 
 
 
 
 100 
 
 
 
 
 15 
 
 
 
 200 
 
 
 200 
 
 10 
 
 
 15 
 
 
 
 900 
 
 
 
 770 
 
 
 770 
 
 
 
 
 
 
 100 
 
 
 
 
 
 
 
 100 
 
 
 
 
 600 
 
 
 
 
 
 
 
 
 
 
 600 
 
 65 
 
 
 
 95 
 
 
 
 
 
 
 
 
 2555 
 
 
 
 1750 
 
 1695 0i25 
 
 200 
 
 50 
 
 1 
 
 600 
 
ii 
 
 i i 
 
 36 ACCOUNTING IN THEORY AND PRACTICE 
 
 contained in the Customers' Ledger and Purchases Ledger. 
 The three ledgers may thus be balanced separately at any 
 time, and an error in the books is at once localised into one 
 or other of the three ledgers. It will be observed that the 
 Bills Keceivable Account is kept in the Customers* Ledger, 
 and the Bills Payable Account in the Purchases Ledger ; an 
 alternative method is to keep these accounts in the General 
 Ledger, in which case the necessary adjusting entries must 
 be made in the Abstract Accounts for the bills received and 
 accepted. 
 
 CusTOBiERs' Ledger 
 J. Collins. 
 
 Jan. 1. To Capital 
 
 9. ,, Goods 
 Dec. 5. ,, do. 
 
 £800 
 
 600 
 
 1830 
 
 
 
 
 
 
 
 
 
 
 £3130 
 
 Jan. 5. By Cash 
 
 ,, Discount 
 „ Bills 
 
 9. 
 
 Dec. 7. 
 
 81. 
 
 re- 
 ceivable 
 , , Cash 
 Bill^ re- 
 ceivable 
 ,, Balance . 
 
 II 
 
 £760 
 
 40 
 
 500 
 
 1230 
 
 300 
 
 300 
 
 
 
 
 
 
 
 
 
 
 Jan. 1. To Balance . £300 
 
 £3130 
 
 W. Simpson. 
 
 Dec. 1. To Goods 
 
 Jan. 1. To Balance 
 
 £650 
 
 £650 
 £650 
 
 Dec. 31. By Balance . £650 
 
 £650 
 
 Bills Receivable. 
 
 Jan. 9. To J. Collins 
 Dec. 7. .. do. 
 
 II 
 
 Jan. 1. To Balance 
 
 £500 
 300 
 
 
 
 
 
 
 
 £800 
 
 
 
 
 
 £300 
 
 
 
 
 
 Jan. 9. By Cash . £495 
 Discount . 5 
 
 II 
 
 Dec. 31. ,, Balance 
 
 800 
 £800 
 
 
 BOOK/KEEPING IN PRACTICE 
 
 37 
 
 Purchases Ledger 
 Jack & Co. 
 
 Jan. 7. To Bank 
 
 ,, Discount . 
 Dec. 1. ,, Bills pay- 
 able 
 ,, Bank 
 ,, Discount . 
 31. ,, Balance . 
 
 £285 
 15 
 
 280 
 
 200 
 
 10 
 
 370 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £1160 
 
 Jan. 1. By Capital 
 Dec. 1. ,, Goods 
 8. , , do. 
 
 £300 
 490 
 370 
 
 £1160 
 
 Jan. 1. By Balance . £370 
 
 Scott & Tail. 
 
 Jan. 2. To Bills pay- 
 able . £400 
 Dec. 8. ,, Bank . 770 
 31. „ Balance . 230 
 
 £1400 
 
 Jan. 2. By Goods 
 
 Dec. 7. 
 
 do. 
 
 Jan. 1. By Balance 
 Bills Payable, 
 
 £400 
 1000 
 
 £1 400 
 £230 
 
 Apr. 6. To Bank . £400 | Jan. 2. By Scott & Tait £400 
 Dec. 31. „ Balance . 280 Dec. 1. „ Jack k Co. 280 
 
 £680 
 
 £ 680 
 Jan. 1. By Balance . £280 
 
 General Ledger 
 Abstract of Customer^ Ledger. 
 
 Jan. 1. To Balance . £800 
 Dec. 31. „ Day Book 3000 
 
 
 
 
 
 
 
 Dec. 31. By Cash . £2505 
 ,, Discount . 45 
 „ Balance . 1250 
 
 
 
 
 
 
 
 
 
 £3800 
 
 
 
 
 
 £3800 
 
 
 
 
 
 Jan. 1. To Balance . £1250 
 
 
 
 
 
 
 
 
 Abstract of Purchases Ledger. 
 
 Dec. 31. To Cash 
 
 ,, Discount 
 ,, Balance 
 
 . £1695 
 
 25 
 
 . 880 
 
 
 
 
 
 
 
 
 
 Jan. 1. By Balance 
 Dec. 31. ,, Invoice 
 Book 
 
 Jan. 1. By Balance 
 
 . £300 
 . 2300 
 
 
 
 
 
 
 
 
 £2600 
 
 
 
 
 
 £2600 
 
 
 
 _0 
 
 
 
 
 . £880 
 
 
 
 
 
38 ACCOUNTING IN THEORY AND PRACTICE 
 
 BOOK-KEEPING IN PRACTICE 
 
 39 
 
 Goods. 
 
 Jan. 1. To Capital ^ £600 
 
 Dec. 31. „ Purchases 2300 
 ,, Profit and 
 
 Loss . 800 
 
 £3700 
 
 Jan. 1. To Balance . £700 
 
 Dec. 31. By Sales 
 
 „ Balance 
 
 . £3000 
 . 700 
 
 £3700 
 
 Rent, 
 
 Dec. 31. To Cash . £.50 
 „ Balance . 20 
 
 £70 
 
 Dec. 31. By Profit and 
 
 Loss . £70 
 
 £70 
 
 Jan. 1. By Balance , £20 
 Wages. 
 
 Dec. 31. To Cash. . £200 
 
 £200 
 
 Dec. 31. By Profit and 
 
 Loss . £200 
 
 £200 
 
 
 Discount. 
 
 
 
 
 Dec. 31. To Cash 
 
 . £45 
 
 Dec. 31. By Cash 
 
 „ Profit and 
 Loss 
 
 £25 
 20 
 
 
 
 
 
 
 
 
 £45 
 
 £45 
 
 
 
 
 
 Capital. 
 
 Jan. 1. To Jack k Co. £300 
 
 Dec. 31. ,, Cash 600 
 
 „ Balance . 1210 
 
 £2110 
 
 Jan. 1. By J. Collins. £800 
 Groods . 600 
 
 I) 
 
 i> 
 
 Bank 
 Cash 
 
 Dec. 31. ,, Profit and 
 Loss 
 
 150 
 
 50 
 
 510 
 
 £2110 
 
 Jan. 1. By Balance . £1210 
 Profit and Loss Account. 
 
 Dec. 31. To Rent 
 ,, Wages 
 ,, Disrount . 
 „ Capital . 
 
 £70 ! Dec. 31. By Goods 
 
 200 
 
 20 
 
 510 
 
 £800 
 
 £600 
 
 £800 
 
 Balance Sheet as at 31st December. 
 
 Liabilities. 
 
 Assets. 
 
 Due to creditors : — 
 On open accounts 
 On bills payable 
 
 Rent outstanding 
 Capital . • 
 
 £600 
 280 
 
 £880 
 
 20 
 
 1210 
 
 Due by customers : — 
 On open accounts 
 On bills receivable 
 
 Goods on hand . • 
 
 Cash : — 
 
 In bank £95 
 
 On hand 65 
 
 £950 
 300 
 
 £1250 
 700 
 
 
 
 
 £2110 
 
 160 
 
 £2110 
 
 Exercises. 
 
 Treat the following particulars and transactions in the 
 same way as those of William Wood have been treated on 
 pp. 27-32. 
 
 1. On 1st January the position of Adam White, 
 Merchant, was as follows : — 
 
 Liabilities. 
 
 Ai^sets. 
 
 Due to 
 Son . 
 Bills payable 
 
 George 
 
 Tait & 
 
 . £200 
 . 150 
 
 Due by John Harvey 
 Bills receivable 
 Goods on hand 
 Bank . 
 
 £300 
 
 100 
 
 800 
 
 500 
 
 His transactions during the year were as follows : — 
 
 Jan. 3. Received cash for bill due to-day . 
 4. Paid cash for goods purchased 
 
 Purchased goods on credit from George 
 Tait & Son ..... 
 
 Paid bill due to-day by cheque 
 Gave George Tait & Son bill at three 
 months ...... 
 
 7. John Harvey settles his account for £300 
 by paying in cash 
 And is allowed as discount 
 Paid into bank .... 
 
 Purchased goods from Husk & Co. 
 Sold goods for casli 
 
 £100 
 30 
 
 500 
 150 
 
 
 
 
 
 
 
 
 
 
 
 
 
 700 
 
 . 285 
 
 
 
 
 
 15 
 
 
 
 
 
 . 300 
 
 
 
 
 
 . 400 
 
 
 
 
 
 105 
 
 
 
 
 
» 
 
 40 ACCOUNTING IN THEORY AND PRACTICE 
 
 BOOK-KEEPING IN PRACTICE 
 
 41 
 
 I 
 
 J 
 
 Jan. 9. Sold goods to John Harvey . 
 
 Received from John Harvey bill due in 
 
 three months .... 
 Discounted John Harvey*8 bill, and re 
 ceived in cash .... 
 Discount charged . 
 Paid into bank .... 
 Paid Rusk & Co. cheque for . 
 Discount allowed by them 
 Apr. 7. Gave cheque in payment of bill due to-day 
 Dec. 2. Sold goods to John Harvey . 
 
 3. Purchased from George Tait & Son goods 
 
 on credit ..... 
 
 Gave George Tait & Son bill at three 
 
 months ..... 
 Gave George Tait & Son cheque for 
 Discount allowed by them 
 5. Sold goods to John Harvey . 
 Purchased goods from Rusk & Co. 
 Received bill from John Harvey at three 
 
 months ..... 
 
 Received cash from John Harvey . 
 
 Purchased goods from George Tait & Son 
 
 on credit ..... 
 
 31. Paid wages to date in cash . 
 
 Paid rent to date by cheque . 
 
 Cash taken during year by Adam White 
 
 for his own use .... 
 
 Trial Balance to be taken here. 
 Value of goods on hand at this date . 
 
 6. 
 
 £1000 
 
 1000 
 
 990 
 
 10 
 
 1100 
 
 388 
 12 
 
 700 
 
 800 
 
 1000 
 
 425 
 
 75 
 
 2000 
 700 
 
 2000 
 500 
 
 900 
 350 
 200 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 1500 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 190 
 
 3000 
 
 2. On 1st January the position of William Inglis, 
 Merchant, was as follows : — 
 
 Liahilities. 
 
 Assets. 
 
 Due to A. Ross k Co. . £300 
 Bills payable . . 250 
 
 Due by John Adamson 
 Bills receivable 
 Goods on hand 
 Bank . 
 
 £600 
 
 200 
 
 1000 
 
 500 
 
 His transactions during the year were as follows : — 
 
 Jan. 2. Received cash for bill due to-day . . £200 
 
 4. Paid cash for goods purchased . 100 
 Purchased goods on credit from A. Ross 
 
 & Co 2000 
 
 ! 
 
 Jan. 4. Paid bill due to-day by cheque 
 
 Gave A. Ross & Co. bill at two months 
 7. John Adamson settles his account for 
 JB500 by paying in cash . 
 And is allowed as discount 
 Paid into bank .... 
 
 Sold goods for cash 
 9. Sold goods to John Adamson 
 
 Received from John Adamson bill due in 
 three months .... 
 
 Discounted John Adamson's bill, and re 
 ceived in cash .... 
 
 Discount charged . 
 Paid into bank .... 
 
 Mar. 7. Gave cheque in payment of bill due to 
 uay ...... 
 
 Dec. 2. Sold goods to John Adamson 
 
 3. Purchased from A. Ross & Co. goods on 
 credit ..... 
 
 Gave A Ross & Co. cheque for 
 Discount allowed by them 
 5. Sold goods to John Adamson 
 
 Purchased goods from A. Ross & Co. 
 
 C. Received cash from John Adamson 
 
 Discount allowed to him 
 
 31. Paid wages to date in cash . 
 
 Paid rent to date in cash 
 
 Cash taken during year by William Inglis 
 
 for his own use . . . . 
 
 Trial Balance to be taken here. 
 Value of goods on hand at this date 
 
 £250 
 2300 
 
 475 
 
 25 
 
 550 
 
 60 
 
 3000 
 
 2970 
 
 30 
 
 2970 
 
 2300 
 1200 
 
 1500 
 
 1425 
 
 75 
 
 900 
 
 200 
 
 1140 
 
 60 
 
 600 
 
 200 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 3000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 400 
 
 1000 
 
 3. On 1st January Peter Glen commenced business as 
 a merchant with £100 of cash on hand, and £2400 of 
 cash in bank. 
 
 His transactions during the year were as follows : — 
 
 Jan. 3. Gave cheque for office fittings and 
 
 furniture £200 
 
 4. Paid cash for goods purchased 70 
 Purchased goods on credit from James 
 
 Watt & Co 1500 
 
42 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 Jan. 7. 
 
 Sold goods to John Reid 
 
 . £1200 
 
 
 
 
 
 
 Sold goods for cash 
 
 50 
 
 
 
 
 
 9. 
 
 John Reid settles his account for £120C 
 
 
 
 
 
 by paying in cash 
 
 1140 
 
 
 
 
 
 
 And is allowed as discount 
 
 60 
 
 
 
 
 
 
 Paid into bank . . . . . 
 
 1140 
 
 
 
 
 
 
 Paid James Watt & Co. cheque for 
 
 1425 
 
 
 
 
 
 
 Discount allowed by them 
 
 75 
 
 
 
 
 
 10. 
 
 Purchased goods from James Watt & Co. 
 
 . 2000 
 
 
 
 
 
 
 Sold goods for cash . . . , 
 
 80 
 
 
 
 
 
 
 Sold goods to John Reid 
 
 3000 
 
 
 
 
 
 
 Paid James Watt & Co. cheque for 
 
 . 1900 
 
 
 
 
 
 
 Discount allowed by them 
 
 100 
 
 
 
 
 
 Dec. 2. 
 
 Sold goods to John Reid 
 
 900 
 
 
 
 
 
 3. 
 
 Purchased from James Watt & Co. goods 
 
 
 
 
 
 on credit ...... 
 
 2100 
 
 
 
 
 
 
 Received cash from John Reid 
 
 2850 
 
 
 
 
 
 
 Discount allowed to him 
 
 150 
 
 
 
 
 
 31. 
 
 Paid wages to date in cash 
 
 400 
 
 
 
 
 
 
 Paid rent to date in cash 
 
 . 150 
 
 
 
 
 
 
 Cash taken during year by Peter Glen fox 
 
 
 
 
 
 his own use . . . . . 
 
 500 
 
 
 
 
 
 
 Paid into bank .... 
 
 . 1500 
 
 
 
 
 
 Trial Balance to be taken here. 
 Dec. 31. Value of goods on hand at this date . 2000 
 
 SINGLE ENTRY 
 
 BOOKS KEPT UPON A PARTIAL OR INCOMPLETE SYSTEM OF 
 BOOK-KEEPING ARE SAID TO BE KEPT BY SINGLE ENTRY. 
 
 It has been shown that under a complete system of book- 
 keeping, or in book-keeping by double entry, as it is called, 
 the Ledger Accounts are so arranged that one set clearly 
 shows the assets and liabilities of a business concern and 
 the other set the profits and losses, and both sets result in 
 showing and confirming the net profit or loss. Where this 
 is not done the system is incomplete, and the books are said 
 to be kept by single entry. Such books may be in all 
 stages of incompleteness. Thus, very often the only Ledger 
 
 SINGLE ENTRY 
 
 43 
 
 Accounts kept are the Customers' Accounts. Sometimes 
 the Creditors' Accounts are also kept. In fact, single-entry 
 book-keeping so called may be said to deal only with 
 personal accounts. In books so kept the charges to 
 customers and the obligations to creditors are recorded in 
 the same manner as in double-entry book-keeping, but the 
 complementary accounts relating to goods and profit and 
 loss, and the important principle of the equality of the 
 debits and credits, are altogether absent. No detailed 
 Profit and Loss Account can as a rule be prepared, and there 
 is no satisfactory check on the accuracy of the results as is 
 provided by the balancing of books which have been kept 
 by double entry. The only check on the accuracy of the 
 posting is to go over it all again and tick off each item as it 
 is ascertained to be correct. 
 
 The net profit or loss for any period can be ascertained 
 from books imperfectly kept if the Capital Account, or Capital 
 Accounts in the case of a partnership, have been properly 
 kept for the period so as to show the capital at the begin- 
 ning, the transactions not connected with the business, in- 
 eluding sums taken out of or paid into the business, and 
 the capital at the close of the period. Thus, if a Statement 
 of Affairs has been prepared at the beginning of the period, 
 the surplus shown is the capital at that time, and from a 
 similar Statement of Affairs as at the end of the period the 
 capital then in the business may be ascertained. The profit 
 must be the increase in the capital during the period plus 
 any capital withdrawn during the period and less any sums 
 invested in the business during the period. 
 
 Suppose that the capital in a business was £800 at 
 the beginning of the year, and that during the year £300 
 was taken by the owner as his personal drawings in cash, 
 and £60 of goods were used by the owner for his private 
 consumption. Then if the capital at the end was £900, it 
 is evident that the profit must have been £460. The 
 following might be the Statement of Affairs at the end of 
 the year of such a business : — 
 
 I 
 
44 ACCOUNTING IN THEORY AND PRACTICE 
 
 Statement of Affairs of T. J. Smith 
 as at 31st December. 
 
 Liahiliiies, 
 
 Assets. 
 
 Due to creditors . . £300 
 Capital . . 900 
 
 Made up thus : — 
 Capital at 
 
 IstJau. £800 
 Dedttet — 
 Cash draw- 
 ings £300 
 Goods 
 used 60 
 
 360 
 
 
 
 
 
 
 
 £440 
 
 Profit for 
 year, being 
 amount re- 
 quired to 
 make up 
 capital to 
 
 £900 . 
 
 . 460 
 
 
 
 
 
 
 
 Capital 
 above 
 
 as 
 . £900 
 
 
 
 
 
 
 
 
 
 
 
 
 £1200 
 
 
 
 
 
 Due by customers . £600 
 
 Valuation of goods on 
 
 hand . . 600 
 
 Cash on hand 100 
 
 £1200 
 
 The rule for finding the profit from books kept by single 
 entry where complete Capital Accounts have been kept, or 
 where it is possible to prepare them, may be shortly stated 
 as follows : — 
 
 Prepare a Statement of Affairs as at the close of the 
 period, and so ascertain the capital at the end of the period. 
 Prepare a Capital Account, or Capital Accounts if the business 
 is a partnership, for the period. From the capital brought 
 out by the Statement of Affairs deduct the capital showji 
 by the Capital Account or the Capital Accounts prepared. 
 The difference is the net profit for the period. If the 
 capital shown by the Capital Accounts is greater than the 
 capital shown by the Statement of Affairs, the result of the 
 period's transactions is a loss. 
 
 t 
 
 SINGLE ENTRY 
 
 45 
 
 Trial Balance of Books kept by Single Entry. 
 
 A partial trial balance of books kept by single entry 
 may be prepared in the form of an Abstract of Customers' 
 Accounts and an Abstract of Creditors' Accounts, as on p. 37. 
 
 To pass from Single Entry to Double Entry, 
 
 After the profit has been ascertained, and the Capital 
 Accounts have been duly credited with their shares, all that 
 is necessary to convert books kept by single entry into 
 double entry is to see that in the ledger or ledgers each 
 of the assets appears on the debit side, and each of the 
 liabilities, including the capital, appears on the credit side. 
 No new ledger is required, and the additional labour involved 
 in keeping books under a proper system is so trifling and 
 the advantages to be derived so great that no one is justified 
 in not adopting a complete and satisfactory method of keep- 
 ing accounts. 
 
 Example. 
 
 H. Cooper and W. Fulton have been in partnership for 
 a year on an equal footing. They have kept their books by 
 single entry. At the end of the year their assets and 
 liabilities were as follows : — 
 
 Goods .... 
 
 Cash .... 
 
 Heritable Property 
 
 Due by T. Ross . 
 
 H. Cooper, Capital Account 
 
 W. Fulton, Capital Account 
 
 Due to J. Watson 
 
 Assets. 
 
 £800 
 
 85 
 
 1000 
 
 900 
 
 Liabilities. 
 
 £385 
 
 400 
 
 1500 
 
 It is required to find the profit for the year, and to 
 show the Journal entries necessary to open a new set of 
 books to be kept by the firm. 
 
 The Statement of Affairs of the firm as at 31st 
 December is as follows : — 
 
If! 
 
 Ill 
 
 46 ACCOUNTING IN THEORY AND PRACTICE 
 
 Statement of Affairs as at Slst December. 
 Liabilities. Assets. 
 
 Due to J. Watson 
 Capital 
 
 £1500 
 1285 
 
 £2785 
 
 Due by T. Rosa . 
 Goods on hand 
 Heritable property 
 Cash on hand 
 
 £900 
 
 800 
 
 1000 
 
 85 
 
 £2785 
 
 The profit for the year is £500, as follows : — 
 
 Capital of the firm at the close of the year, 
 as above ...... 
 
 Deduct — 
 The credit balance shown on the partners* 
 accounts : — 
 
 H. Cooper . . . £385 
 W. Fulton . . . 400 
 
 X1285 
 
 — 785 
 
 Leaving as profit for the year . . . £500 
 
 Each partner is entitled to half of this profit, or £250 each. 
 
 Crediting the partners with £250 each, the capital of £1285 
 belongs to the partners in the proportions shown below : — 
 H. Cooper: — 
 
 Credit balance £385 
 
 Share of profit ..... 250 
 
 £635 
 
 W. Fulton :— 
 
 Credit balance . 
 Share of profit . 
 
 £400 
 250 
 
 650 
 
 £1285 
 
 The Journal entries necessary to open the new set of 
 books are therefore as follows : — 
 
 
 Journal. 
 
 
 
 
 
 
 
 
 Jan. 1. 
 
 Goods 
 
 Dr. 
 
 £800 
 
 
 
 
 
 
 
 
 
 Cash 
 
 »» 
 
 85 
 
 
 
 
 
 
 
 
 
 Heritable property 
 
 tf 
 
 1000 
 
 
 
 
 
 
 
 
 
 T. Ross 
 
 I • 
 
 900 
 
 
 
 
 
 
 
 
 
 To Balance .... 
 
 . 
 
 
 
 
 £2785 
 
 
 
 
 
 
 Balance 
 
 Dr. 
 
 2785 
 
 
 
 
 
 
 
 
 
 To H. Cooper, Capital Account 
 
 • 
 
 
 
 
 635 
 
 
 
 
 
 
 „ W. Fulton, Capital Account 
 
 • 
 
 
 
 
 650 
 
 
 
 
 
 
 „ J. Watson .... 
 
 • 
 
 
 
 
 1500 
 
 
 
 
 
 PROFIT 
 
 47 
 
 It will be observed that by this method of making the 
 Journal entries a Balance Account is opened which is 
 debited and credited with the same amount, namely £2785. 
 To debit the whole of the assets to the whole of the liabili- 
 ties, and omit the Balance Account altogether, is quite 
 permissible. 
 
 PROFIT 
 
 The return from capital employed in business or trade 
 is divided by economists into^ 
 
 1. Interest on the capital itself. 
 
 2. A premium of insurance to cover the risk of losing the 
 
 capital. 
 
 3. Wages of management or superintendence for the owner 
 
 of the capital when he manages the business. 
 
 The interest on capital invested in a mercantile or 
 manufacturing concern is usually reckoned as 4^ or 5 per 
 cent, that being the rate which a borrower would have to 
 pay for money to be so invested, and as a rule a lender 
 would stipulate for a life policy or some other asset as 
 collateral security. The interest so paid to the lender 
 includes the premium of insurance to cover the risk of 
 losing the capital. A merchant in business for himself 
 therefore expects the business to yield him : — 
 
 1. Interest on the capital he has invested in the business, 
 because he could invest this money elsewhere, and he would 
 receive interest upon it. 
 
 2. A premium of insurance to cover the risk of losing his 
 capital. The rate of this premium will vary according to the 
 nature of the business. 
 
 3. The merchant expects a further sum in respect that he 
 devotes his time to his business, and could earn a salary as 
 manager of another business if he were not in business for 
 himself. 
 
 What is meant by insurance of the risk of losing capital 
 will be readily understood from an example. British 
 consols at the present time yield an investor 2 per cent, 
 while Brazilian bonds yield as much as 7 per cent. In 
 
\V 
 
 4S ACCOUNT/JVC IN THEORY AND PRACTICE 
 
 the case of consols the whole return may be looked upon as 
 interest, as the security is the best that can be got, but in 
 the case of Brazilian bonds, while £2 of the return on each 
 £100 invested may be regarded as the interest on the 
 capital employed, the balance of £5 should be looked upon 
 as an insurance premium to be set aside to cover the con- 
 tingency of the capital never being received. No wages of 
 management enters into the return, as the bondholder, 
 unfortunately for him, is not allowed to manage the finances 
 of Brazil. 
 
 Proht consists of the surplus remaining over 
 from the employment of capital after defraying all 
 the necessary expenses and outlay incurred in its em- 
 ployment, and after the capital has been replaced or 
 
 PROVISION MADE FOR ITS REPLACEMENT. If THERE ARE NOT 
 SUFFICIENT ASSETS LEFT TO REPLACE THE CAPITAL, THE RESULT 
 OF THE VENTURE OR EMPLOYMENT IS A LOSS. It should be 
 
 observed that this definition of Profit is from an economist's 
 point of view, and while absolutely true in theory cannot 
 always be employed in practice to ascertain what may be 
 profit as defined by an Act of Parliament or some other 
 deed regulating a business. Under an Act of Parliament 
 there is sometimes included under the term " profit " what 
 is not embraced by this definition. Such statutory or legal 
 profit must be distinguished from the profit above defined. 
 
 The profits of a concern for any given period are 
 immediately ascertainable if there exists a statement of the 
 liabilities and assets of the concern at the beginning and at 
 the end of the period, together with a note of the sums 
 which may have been withdrawn not connected with the 
 business during the period. Thus, if a merchant's State- 
 ment of Affairs shows that at 1st January he had a capital 
 of £500, and at the 31st December of the same year a 
 capital of £600, and it is known that during the year he 
 has drawn from his business for his own personal expenses 
 at the rate of £4 per week, or £208 per annum, it is clear 
 that the profit made during the year has been £308, made 
 up of the increase in the capital, £100, 'plvs the expenses 
 of living, amounting to £208. Had the £208 not been 
 
 PROFIT AND LOSS ACCOUNTS 
 
 49 
 
 drawn out of the business the capital at 31st December 
 would have been £808, and the difference between 
 this sum and the original capital of £500 gives £308 as 
 the profit, as formerly. In books kept by single entry this, 
 as has already been shown, is the method of arriving at the 
 profit But, while it is satisfactory to know the amount of 
 profit, it is better also to know exactly how the profit has 
 arisen, so that the turnover and the charges of one year 
 may be compared with those of another year, and the 
 business made even more profitable. 
 
 PEOFIT AND LOSS ACCOUNTS 
 
 THE PROFIT AND LOSS ACCOUNT AS A LEDGER ACCOUNT 
 IS THE ACCOUNT IN WHICH ARE COLLECTED ON THE 
 CREDIT SIDE ALL THE SOURCES OF PROFIT, AND ON 
 THE DEBIT SIDE ALL THE CHARGES INCURRED IN 
 MAKING THE PROFIT DURING A GIVEN PERIOD. IF 
 THE CREDIT SIDE OF THE PROFIT AND LOSS ACCOUNT 
 IS GREATER THAN THE DEBIT SIDE THERE IS A 
 PROFIT, BUT IF LESS THERE IS A LOSS. 
 
 When a separate division of this account is kept, under 
 the name of the Manufacturing, or Trading, or Goods 
 Account, the balance of these accounts appears on the 
 credit side of the Profit and Loss Accoi;nt proper as the 
 gross profit. There is also placed upon the credit side of 
 the Profit and Loss Account in such cases the income from 
 other sources. On the debit side appear the expenses of 
 distribution and the charges of management connected with 
 the general conduct of the business, such as rent, taxes, 
 msurance, office expenses, clerks, advertising, etc. 
 
 Sometimes a third division is made in the Profit and 
 Loss Account, to which are carried any extraordinary profits 
 or losses which are quite apart from the usual transactions 
 of the business. 
 
 In the final division of the Profit and Loss Account is 
 shown how the profit is apportioned. 
 
 E 
 
50 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 THE GOODS ACCOUNT 
 
 51 
 
 In preparing Protit and Loss Accounts with vanous 
 branches, and in distributing the different items of which 
 they consist under a proper classification and arrangement so 
 as to make the statements the most serviceable which can 
 be produced for the particular business concerned, there is 
 the fullest scope for the skill and judgment of the ac- 
 countant However complicated the accounts themselves 
 may be the Profit and Loss Account and its various 
 branches should be so framed that they almost force one to 
 grasp their salient features. Different businesses require 
 different modifications, so that the accounts of each business 
 may display in the best manner possible the essential 
 elements of the revenue and expenditure of that particular 
 
 business 
 
 The facts to be ascertained and shown in the Profit and 
 
 Loss Account and its branches are, shortly : — 
 
 1 The turnover of the business, both as a whole and in 
 each 'department, where the accounts of each department are 
 
 ^^^V^^^txpenditure, as a whole and in each department, 
 which is directly due to the volume of busmess done. 
 
 3 The gross profit is ascertained, both as regards the whole 
 business and each department, from the above particulars. 
 
 4 Tiie expenditure which is due to the establishment or 
 relates to the conduct and management of the business as a 
 whole, and is not so directly due to the turnover, but depends 
 more upon the premises or constitution of the business and 
 would practically not change much with any change in the turn- 
 
 '^''^'5 The profit or loss which is due to the business apart 
 from any alteration that the profit or loss may sustam through 
 the capital being insufficient or excessive. This is arrived at by 
 
 deducting 4 from 3. „ „ r • i. * 
 
 6. The net profit, after making all allowances for interest 
 
 and discount, which is apportionable to capital. 
 
 To attain these results it is necessary to divide the 
 Profit and Loss Account into various sections, and this 
 may be done either by balancing off one account m 
 occasion requires or separate accounts may be opened. 
 Sometimes separate accounts show the division in a clearer 
 
 manner than the method of having one Profit and Loss 
 Account with rests. 
 
 The Profit and Loss Account and its branches for a 
 given period should contain all the profits for that period, 
 and all the charges incurred or expended in making the 
 profit during the same period. Thus in preparing a yearly 
 Profit and Loss Account of a farm, the whole crop for that 
 year must be included in some form or other on the credit 
 side, and the whole charges incurred in obtaining the crop, 
 including the rent for one year, must be debited. In 
 preparing Profit and Loss Accounts for broken portions of a 
 year, all such charges as rent, taxes, insurance, and other 
 periodical payments, must be apportioned for the period 
 embraced by the account 
 
 THE GOODS ACCOUNT 
 
 A GOODS ACCOUNT FOR A GIVEN PERIOD IS AN ACCOUNT 
 SHOWING THE TRANSACTIONS CONNECTED WITH GOODS 
 WHICH HAVE TAKEN PLACE DURING THAT PERIOD. 
 
 In an ordinary merchant's business the first division 
 of the Profit and Loss Account is the Goods Account. 
 The Goods Account is opened at the beginning of each 
 financial period by the value of the stock of goods being 
 entered upon the debit side. The purchases during the 
 period are entered upon the debit side, and the sales upon 
 the credit side. Upon the credit side is also entered the 
 value of the goods on hand at the close of the financial period. 
 The difference between the two sides is the gross profit 
 upon the goods if the credit side is the greater, but the 
 loss upon goods if the debit side is the greater. 
 
 In the ordinary form of a Goods Account as above 
 explained the stock on hand at the close of the year is 
 entered on the credit side, and has practically the effect of 
 cancelling the cost of these unsold goods which has already 
 heen entered on the debit side of the account. This is the 
 most convenient method for book-keeping purposes, but for 
 
52 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 STOCK-TAKING 
 
 53 
 
 purposes of comparison, and to show in the account itself 
 the actual cost of the goods sold, it is necessary to deduct 
 the stock on hand at the end of the year from the debit 
 side of the Goods Account, where is found the value of the 
 stock at the beginning of the year, and the purchases 
 during the year. There is thus shown on the debit side of 
 the Goods Account the actual cost of the goods which have 
 been disposed of during the year. The important factor in 
 a Goods Account is not the cost of the goods which have 
 been purchased during the year, but the cost of the goods 
 which have been used. Thus, suppose at the beginning of 
 the year the goods on hand are valued at £1000, that 
 durmg the year the price of the goods purchased amounted 
 to £5000, and that at the end of the year the goods were 
 valued at £400, it is evident from the following statement 
 that the actual cost of the goods sold during the year 
 amounted to £5600 : — 
 
 Value of goods on hand at the beginning 
 
 of the year £1000 
 
 Price of goods purchased during the year . 5000 
 
 
 
 
 Cost of goods in warehouse during the 
 
 year at one time or another . . £6000 
 
 Deduct — 
 Value of goods on hand at the end of the 
 
 year 400 
 
 Cost of goods actually used during the 
 
 year . . . . £5600 
 
 STOCK-TAKING 
 
 STOCK-TAKING IS THE EXAMINING, FINDING THE VALUE, AND 
 PREPARING A PRICED INVENTORY, OF GOODS OR MER- 
 CHANDISE ON HAND AT A PARTICULAR MOMENT OF 
 TIME. 
 
 It is done periodically at each financial balancing time 
 of a business, with the view of the value of the goods on 
 
 hand being incorporated in the accounts of the concern. 
 It is also done at other times, such as when a Statement of 
 Affairs of a debtor is required for the information of his 
 creditors, or for inventory and confirmation purposes when 
 the owner of a business dies. The price put upon the 
 goods will thus vary according to the purposes for which 
 the inventory is prepared. Where the object of stock- 
 taking is for the purpose of being incorporated in the 
 accounts of a going concern, the goods should be priced at 
 cost, on the footing that the business is a going concern. 
 In the case of a bankrupt business the values will be such 
 as the stock may be expected to realise under a forced sale. 
 For confirmation purposes the prices are lower. 
 
 Itaw Material. 
 
 In the absence of any extraordinary shrinkage in the 
 market value, raw material should be valued at cost price, 
 plus all subsequent direct charges in connection with the 
 goods in stock, such as freight, duty, and the cost of any 
 direct labour expended upon the goods. Where the market 
 value is under this figure, the basis should be market 
 prices. 
 
 Partially Manufactured and Completed Goods. 
 
 All goods in stock which are partially manufactured or 
 are completed should be valued at the prime cost of the 
 raw material, 2?to the freight, duty, and other direct charges, 
 together with the cost of any direct labour. Sometimes a 
 percentage is added for general management expenses so 
 far as they have been expended in the manufacture of the 
 goods, but it is safer not to do this, as when it is done there 
 is a risk of the profit from the selling of the goods being 
 anticipated. 
 
 Goods sold on Commission, 
 
 The Goods Account of a merchant who, in addition to 
 his ordinary business, sells goods on commission requires to 
 be carefully adjusted, so that the correct gross profit on 
 
 I 
 
I*' 
 
 I 
 
 « 
 
 54 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 sales, and the ratio of expenses to sales, may be correctly 
 determined. In some concerns commission transactions are 
 kept by themselves, being entered through a Commission 
 Journal, or through special columns in the Purchase Day 
 Book and Sales Day Book. In other concerns, however, 
 the goods sold on commission are entered in the ordinary 
 Purchase Day Book and Sales Day Book, along with the 
 ordinary purchases and sales. Where it is possible to 
 allocate the proportion of expenses due to the commission 
 business it is best to have a separate Profit and Loss 
 Account for goods sold on commission. Where this cannot 
 be done, the assumption must be made that the sales on 
 commission cost the same as the other sales, and the proper 
 method of treating the Goods Account will be seen from 
 the following example. Suppose the ordinary sales amount 
 to £5000, the goods costing £3000, that the goods sold 
 on commission realised £1000, and that the commission 
 amounts to £150. Taking the expenses of the whole 
 business as £1200, the Profit and Loss Account, with the 
 relative percentages, would be as follows: — 
 
 Profit and Loss Account for Year. 
 {Correct Method.) 
 
 To Purchases 
 „ Gross profit 
 
 Per Cent. 
 6000 £3000 
 40-00 2000 
 
 100-00 £5000 
 
 To5000-6000thsof 
 expenses of 
 
 £1200 . . 20-00 £1000 
 „ Profit down . 20-00 1000 
 
 By Sales 
 
 Per Cent. 
 10000 £5000 
 
 10000 £5000 
 
 By Gross profit . 4000 £2000 
 
 40-00 £2000 
 
 To Expenses of commis- 
 sion sales, 1000- 
 eOOOths of £1200 . £200 
 „ Net profit ... 950 
 
 £1150 
 
 40-00 £2000 
 
 By Profit on trading 
 „ Commission 
 
 £1000 
 150 
 
 £1150 
 
 If the sales on commission are not included, then the 
 Profit and Loss Account would appear as follows : — 
 
 STOCK-TAKING 
 
 55 
 
 Profit and Loss Account for Year. 
 {Ohjedionable Method.) 
 
 To Cost of goods 
 ,, Gross profit 
 
 Per Cent. 
 . 60-00 
 . 43-00 
 
 . 24-00 
 . 19-00 
 
 £3000 
 2150 
 
 By Sales 
 ,, Commission 
 
 By Gross profit 
 brought down . 
 
 Per Cent. 
 100-00 
 
 43-00 
 
 £5000 
 150 
 
 
 £5150 
 
 £1200 
 950 
 
 £5150 
 
 To Expenses . 
 „ Net profit . 
 
 £2150 
 
 
 43-00 
 
 £2150 
 
 43-00 
 
 £2150 
 
 In the second Profit and Loss Account the gross profit 
 appears as 43 per cent of the sales, and the expenses as 
 24 per cent of the sales, whereas the correct percentages 
 should be 40 and 20, as shown in the first Profit and 
 Loss Account. These latter results apply only to the 
 trading exclusive of the commission business; the figures 
 in the first example show that the commission business 
 results in a loss after charging its percentage of expenses. 
 
 Arrangement of Profit and Loss Accounts. 
 
 A pro forma Profit and Loss Account, which is applicable 
 to most businesses, and works very satisfactorily, is given. 
 This form is of great advantage in preparing percentage 
 statements, and in comparing the accounts of different 
 years. A merchant using such divisions is enabled to 
 determine what must be his minimum turnover in order to 
 meet his fixed charges, and may localise any leakage or 
 extravagance in management. He can also ascertain in 
 what directions economies may be effected. The account is 
 divided into four sections, as follows : — 
 
 First Section, — The Trading Account shows on the 
 credit side the total sales, after deducting purely 
 trade discounts and returns. On the debit side is 
 placed the cost of the goods used, including any 
 outlay for the carriage inwards of such goods, and 
 after deducting purely trade discounts on the price. 
 There is also entered on the debit side all expenditure 
 directly connected with the sales, or which reduces the 
 
h 
 
 56 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 PROFIT AND LOSS ACCOUNT 
 
 57 
 
 price realised for the goods, such as commission and 
 salaries of travellers and travellers* expenses, wages 
 of salesmen, carriage outwards of goods sold, and cash 
 discounts allowed on sales. All these charges depend 
 to a large extent upon the turnover. This first 
 section of the account may be headed "Trade 
 Account," and the balance upon it is gross profit, 
 which is carried down to the second section. 
 
 Sicond Sedim. — The ordinary Business Profit and Loss 
 Account has on the credit side the gross profit, 
 together with any income not directly connected with 
 sales, such as rent of premises, forming part of the 
 heritable property belonging to the concern let to 
 tenants, and revenue in the form of royalties from 
 patents. On the debit side are all the fixed charges 
 not directly connected with the sales, and which do 
 not vary much with the rise or fall of the turnover, 
 such as rent, rates, taxes, salaries of office staff and 
 management. There is also debited in this section 
 business losses, such as loss through bad debts, and any 
 small loss through defalcations. The balance on this sec- 
 tion of the account may be looked upon as the ordinary 
 business profit, and is carried down to the next section. 
 
 Third Section. — The Net Profit Account has on the 
 credit side the balance brought down from the 
 previous section, being the ordinary business profit 
 for the period. There is also entered on the credit 
 side of this section any income connected with capital, 
 such as revenue from investments belonging to the 
 concern, interest earned, and cash discounts obtained, 
 which depend upon the capital in the concern. This 
 section is debited with charges connected with 
 capital, such as interest on loans. These all depend 
 on and vary with the amount of capital in the business. 
 The balance of this section, being the net profit, is 
 carried down to the next section. 
 
 Fourth Section. — The Profit and Loss Appropriation 
 Account. This section is credited with the amount 
 of the unallocated profit from the previous fiscal 
 
 period, together with the balance of net profit from the 
 third section. On the debit side is shown how this 
 profit has been allocated, whether in the form of 
 interest on partners' capital, share of profit allocated to 
 capital, or profit reserved for any special purpose. If 
 the business is that of a public company, the dividend 
 paid on the shares is debited to this account, together 
 with any sum carried to the reserve fund, and the 
 balance unappropriated is carried forward, and appears 
 in the next Profit and Loss Appropriation Account. 
 
 The form of the account given should be carefully 
 studied, but its utility can only be appreciated in practice. 
 By the use of such divisions, and by comparing the accounts 
 of one year with another, any looseness in the management 
 of a business, or anything which might endanger its stability, 
 can as a rule be at once detected, and measures taken to 
 prevent further loss. 
 
 Profit and Loss Account 
 
 MetJwd of Division where it is required to compare one Year 
 
 with another. 
 
 Expenditure, 
 
 Income, 
 
 To Cost of goods used 
 (including carriage 
 inwards, and after 
 deducting purely 
 trade discounts) . £ 
 
 ,, Expenditure directly 
 connected with sales, 
 or which reduces the 
 price realised for the 
 goods, such as — 
 
 Commission and 
 salaries of tra- 
 vellers, and tra- 
 vellers' expeuses 
 
 Wages of sales- 
 men 
 
 Wages of porters 
 
 Carriage out« 
 wards of goods 
 sold 
 
 Cash discount al- 
 lowed on sales 
 
 By Sales (after deduct- 
 ing purely trade 
 discounts) . . £ 
 
 Carry forward £ 
 
 Carry forward £ 
 
 )n 
 
9Si 
 
 I 
 
 58 ACCOUNTING IN THEORY AND PRACTICE 
 
 Brought forward £ 
 To Balance carried 
 down, being gross 
 profit 
 
 To Fixed charges not 
 directly connected 
 with sales and not 
 varying ranch with 
 the turnover, such 
 
 as- 
 
 «> 
 
 Rent, rates, taxes £ 
 
 Repairs and up- 
 keep of offices . 
 
 Salaries of office 
 staiT and man- 
 agement . 
 
 Depreciation 
 
 Business losses, such 
 
 t> 
 
 Bad debts . 
 Defalcations 
 
 Balance carried down 
 being profit on or 
 diuary business 
 
 To Expenses connected 
 with capital, such 
 as — 
 
 Interest on loans 
 
 „ Balance carried down, 
 being net profit . 
 
 £* 
 
 To Allocation of profit : — 
 
 Interest on capital £ 
 Profit allocated to 
 
 capital 
 Profit allocated to 
 
 reserve 
 
 „ Profit unappropriated, 
 carried forward 
 
 Brought forward £ 
 
 £ 
 
 By Balance brought down, 
 being gross profit . £ 
 ,, Income not directly 
 connected with sales, 
 such as — 
 Rent of stores or 
 premises belong- 
 ing to the busi- 
 ness let to 
 tenants 
 Revenue from roy- 
 alties . • 
 
 £ 
 
 By Balance brought down, 
 being profit on ordin- 
 ary business 
 
 ,, Income connected with 
 capital, such as — 
 
 Revenue from in- 
 vestments . 
 Interest earned 
 Cash discounts ob- 
 tained, which de- 
 pend upon the 
 amount of capital 
 in the business . 
 
 By Balance brought down, 
 being net profit . £ 
 
 TRADING ACCOUNT 
 
 59 
 
 TKADING ACCOUNT 
 
 THB TRADING ACCOUNT IS THE SECTION OF THE PROFIT AND 
 LOSS ACCOUNT OF A TRADING CONCERN WHICH SHOWS 
 ON THB CREDIT SIDE THE AMOUNT REALISED FOR THE 
 GOODS SOLD, AND ON THE DEBIT SIDE THE ACTUAL 
 COST OF THE GOODS AND THE EXPENDITURE DIRECTLY 
 CONNECTED WITH SALES. 
 
 The cost of the goods includes the cost price of 
 material, freight, duty, and all other outlay incurred in 
 acquiring possession, together with the wages spent in 
 rendering the goods marketable. The goods at the 
 beginning of the period and at the end of the period 
 embraced by the account are entered in some form or other 
 in the Trading Account or one of its branches, in order to 
 charge only the goods actually sold. The goods on hand 
 have not been realised, and it is only the cost of the goods 
 actually realised which should be charged against the price 
 realised. The gross profit shown by the Trading Account 
 is carried to the credit of the next section of the Profit and 
 Loss Account, which is usually called " The Profit and Loss 
 Account," where any income not immediately connected 
 with sales is also shown. On the debit side are the 
 establishment expenses. The profit shown is carried to the 
 next section of the Profit and Loss Account. 
 
 The Trading Account shows what is usually called the 
 " gross profit " of a concern, or the difference between the 
 price realised for the goods and the cost of the goods. In 
 some businesses the goods are sold almost in the same 
 condition in which they were purchased, but in other con- 
 cerns a considerable amount of labour is spent in rendering 
 the goods marketable. On the following page are shown 
 the Trading Accounts of a business having two separate 
 departments, and practically selling the goods in the same 
 condition as when they were purchased. 
 
6o ACCOUNTING IN THEORY AND PRACTICE 
 
 TRADING ACCOUNT 
 
 6i 
 
 Example of Trading and PKonx and Loss Accounts 
 
 HAT AND CAP DEPARTMENT 
 
 Trading Account. 
 
 Dec. 31. To Cost of goods :— 
 Stock at begin- 
 ning of year . £1300 
 Purchases dur- 
 ing year (less 
 returns) . 3000 
 
 £4300 
 
 Deduct — 
 Stock at end of 
 year 2100 
 
 £2200 
 200 
 
 ,, Cliarges 
 
 ,, Profit and Loss 
 
 Account, for 
 
 gross profit . 2600 
 
 £5000 
 
 Deo. 31. By Sales (leaa 
 returns) . 
 
 . £5000 
 
 £5000 
 
 HOSIERY DEPARTMENT 
 
 Trading Account. 
 
 
 Dec 31. To Stock of goods :— 
 Stock at begin- 
 ning of year . £200 
 Purchases dur- 
 ing year (less 
 returns) . 300 
 
 Deduct— 
 Stock at end of 
 year 
 
 £500 
 150 
 
 Dec. 81. By Sales (leas 
 returns) 
 
 . £000 
 
 £350 
 
 „ Charges . . 50 
 
 ,, Profit and Loss 
 
 Account, for 
 
 gross profit . 200 
 
 £600 
 
 £600 
 
 ProjU and Loss Account. 
 
 Dec. 31. To Rent . 
 ,, Salaries 
 ,, Expenses . 
 ,, Carriages . 
 ,, Depreciation 
 
 ,, Balance carried 
 down 
 
 £200 
 
 350 
 
 100 
 
 30 
 
 25 
 
 £705 
 
 2095 
 
 £2800 
 
 Dec. 31. By Hat and Cap De- 
 partment, gross 
 profit . . £2600 
 ,, Hosiery Depart- 
 ment, gross 
 profit . . 200 
 
 Dec. 31. To Interest on loan 
 and bank over- 
 draft 
 ,, Balance carried 
 down 
 
 £60 
 2185 
 £2245 
 
 Dec. 31. To Interest on capi- 
 tal :— 
 W. Watt . 
 R. Ross 
 
 »i 
 
 Balance, being net 
 profit divisible 
 as follows : — 
 W.Watt, 
 
 frds £1410 
 R. Ross, 
 ird . 705 
 
 £40 
 30 
 
 £70 
 
 £2800 
 
 Dec. 31. By Balance brought 
 
 down . . £2095 
 Discount on pur- 
 chases . . 150 
 
 i> 
 
 £2245 
 
 Dec. 31. By Balance brought 
 
 down . . £2185 
 
 2115 
 
 £2185 
 
 £2185 
 
 Manufacturing Accounts 
 
 In preparing Manufacturing Accounts the first section of 
 the Profit and Loss Account usually consists of the Manu- 
 facturing Account. This account may be in several 
 different forms. In the example given it is used merely 
 for the purpose of ascertaining the cost of manufacturincr 
 the goods, and is debited with the cost of raw material used 
 the wages of production, the rent and taxes of factor/ 
 depreciation on machinery, sundry stores, and any other direct 
 charges of manufacture. A Manufacturing Account, however 
 may also be used for the purpose of showing the profit on 
 «ie manufacturing department as apart from the tradin- 
 
62 ACCOUNTING IN THEORY AND PRACTICE 
 
 department This is done by crediting the Manufacturing 
 Account with the price at which the goods manufactured 
 could be purchased elsewhere. In the example submitted 
 the next section is the Trading Account, and the other 
 sections are prepared on the lines already indicated. 
 
 Manufacturing Account. 
 
 Dec. 31. To Cost of raw mate- 
 
 
 Dec. 31. 
 
 By Trading Account, 
 
 rial : — 
 
 
 
 being cost of 
 
 Stock at begin- 
 
 
 
 manufacturing . £7710 
 
 ning of year . 
 
 £700 
 
 
 
 Purchases dur- 
 
 
 
 
 ing year 
 
 5000 
 
 
 
 
 £5700 
 
 Deduct— 
 
 
 
 
 Stock at end of 
 
 
 
 1 
 
 year 
 
 900 
 
 
 1 
 
 
 £4800 
 
 „ Wages 
 
 2500 
 
 
 
 ,, Rent and taxes 
 
 
 
 
 of factory 
 
 300 
 
 
 
 ,f Depreciation on 
 
 
 
 
 machinery 
 
 60 
 
 
 
 „ Sundry stores 
 
 50 
 
 
 
 £7710 
 
 £7710 
 
 Trading 
 
 Accotmt. 
 
 Dec. 31. To Manufacturing 
 
 Dec. 31. 
 
 By Sale* . . £16.280 
 
 Account, 
 
 
 
 
 cost of 
 
 
 
 
 manufactur- 
 
 
 
 
 ing . . £7,710 
 
 
 
 ,. Salesmen's 
 
 
 
 
 salaries 
 
 300 
 
 
 
 „ Travellers' 
 
 
 
 
 salaries and 
 
 
 
 
 commission 
 
 200 
 
 
 
 „ Discount on 
 
 
 
 
 Sales . 
 
 300 
 
 \, 
 
 
 £8,510 
 
 „ Profit and 
 
 
 
 
 Loss Ac- 
 
 
 
 
 count, for 
 
 
 
 
 gross profit. 
 
 7,770 
 
 
 
 £16,280 
 
 £16,280 
 
 THE TRIAL BALANCE 
 
 63 
 
 Profit and Loss Account. 
 
 Dec. 31. To lient of ware- 
 house . . £200 
 Salaries of clerks 250 
 Depreciation on 
 
 fi.ctures . . 120 
 
 Office expenses . 200 
 
 Advertising . 30 
 
 Reserve for bad 
 
 debts . . 120 
 
 »» 
 
 »< 
 
 Dec. 31. By Trading Account, 
 
 gross profit . £7770 
 
 £920 
 
 ., Balance carried 
 
 down . . 6850 
 
 Dec 81. To Interest on loan 
 „ Balance carried 
 down 
 
 £7770 
 £50 
 
 7000 
 
 £7770 
 
 Feb. 
 
 Dec. 31. 
 
 £7050 
 
 5. To Dividend Ac- 
 count, for 
 dividend at 6 
 per cent de- 
 clared to-day £6,000 I 
 Reserve fund 
 for amount 
 transferred 
 this day . 1,500 
 
 Balance . . 7,100 
 
 Dec. 31. By Balance brought 
 down, being 
 profit on busi- 
 ness for year . £6850 
 ,, Discount on pur- 
 chases , . 200 
 
 £7050 
 
 It 
 
 £14,600 
 
 Jan. 1. By Balance brought 
 forward from 
 last year . £7,600 
 Balance brought 
 down, being 
 net profit for 
 year 7,000 
 
 Dec. 31. 
 
 £14,600 
 
 THE TRIAL BALANCE 
 
 A TRIAL BALANCE IS A STATEMENT OF THE LEDGER 
 ACCOUNTS PREPARED AFTER THE BOOKS OF A CONCERN 
 HAVE BEEN POSTED UP, BUT BEFORE THE CLOSING 
 ENTRIES ARE MADE, SHOWING IN TWO PARALLEL 
 MONEY COLUMNS EITHER THE TOTAL OF THE DEBIT 
 AND THE TOTAL OF THE CREDIT SIDE OF EACH LEDGER 
 ACCOUNT, OR THE DIFFERENCE BETWEEN THE DEBIT SIDE 
 AND THE CREDIT SIDE OF EACH LEDGER ACCOUNT. 
 
 ^^^There are thus two methods of preparing a Trial 
 
\ 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 First Method, By abstracting the totals of the debit and 
 credit sides of each Ledger Account. — The Trial Balance may 
 be prepared by abstracting the totals of the postings to the 
 debit side of each Ledger Account and the totals of the post- 
 ings to the credit side of each Ledger Account. By this means 
 the books are not only brought to a balance, but, should the 
 totals of the two sides of the Trial Balance not agree, the 
 error may be localised to the one side or to the other side 
 of the Trial Balance, as by summing the totals of the 
 different books of original entry and taking account of the 
 balances at the beginning of the period it can be ascertained 
 what the tot«ds of the Trial Balance should amount to. 
 
 Second Method. By abstracting the Ledger Balances. — The 
 second method, by the abstraction of the balances of each 
 Ledger Account, has the additional advantage over the first 
 method that from it, as it gives the differences between the 
 two sides of each of the Ledger Accounts, the preparation of 
 the final Balance Sheet and of the balancing of the books, 
 once the Trial Balance is found to agree, is facilitated. By 
 this second method the risk is greater of the Trial Balance 
 not balancing at first, in consequence of the risk there is of 
 making mistakes in subtracting the two sides of each Ledger 
 Account By the addition of two money columns to the first 
 method the Trial Balance on the basis of the second method 
 may be at once formed, immediately the Trial Balance by 
 the first method is found to agree. 
 
 While the agreement of the debits and credits of the 
 I^edger Accounts is not a positive proof of the correctness of 
 the Ledger, certainly without the totals balancing it is 
 positively known that the Ledger Accounts cannot be correct 
 A Trial Balance should invariably be drawn up before 
 making the closing entries and preparing the Profit and Loss 
 Account of a concern. 
 
 In most businesses it is desirable that a Trial Balance 
 should be taken at regular intervals. Thus, in businesses 
 where the accounts are only balanced off finally and a Profit 
 and Loss Account prepared once a year, it is often desirable 
 to have a Trial Balance of the books quarterly, or even 
 monthly. In the case of banks there is usually a Trial 
 
 THE TRIAL BALANCE 
 
 65 
 
 I 
 
 Balance taken weekly. In the case of merchants where it 
 is desirable that the position of the accounts should be 
 regularly brought before the principals of the business, it is 
 advisable to take a Trial Balance monthly. In the case of 
 traders and manufacturers a quarterly or half-yearly Trial 
 Balance is usually found sufficient Where a regular Trial 
 Balance is taken and the accounts do not vary much, it is of 
 advantage to have a Trial Balance Book ruled with two, 
 four, or twelve sets of money columns on each page. By this 
 means the names and folios of each account need not be 
 rewritten at each period of balancing. 
 
 The connection between the Trial Balance, Profit and 
 Loss Account, and Balance Sheet. 
 
 In order to show the connection between the Trial 
 Balance, Profit and Loss Account, and the Balance Sheet, and 
 to demonstrate the close relation which they bear to one 
 another, there is given a statement showing how in the 
 transactions of William Wood the Profit and Loss Account 
 and Balance Sheet are derived from the Trial Balance and 
 the particulars taken at stock-taking. The preparation of 
 such statements will be found very useful in enabling the 
 student to acquire a complete mastery of the principles of 
 book-keeping. It wiH be observed that the Trial Balance is 
 not the same as that already submitted, but that the 
 differences between the two sides of each Ledger Account or 
 the balances, are given instead of the totals of each side 
 The Tnal Balance shows that there is a sum at the credit of 
 Goods of £100 ; to this sum is added the value of the stock 
 ^^ol^^^^^ ^^®^ December, amounting to £700, making in aU 
 ^«00 as the gross income from Goods to be entered in the 
 mfit and Loss Account In the case of rent, which is given 
 as an example of a Charges Account, the Trial Balance shows 
 a debit balance of £50, which is the amount which has been 
 actually paid during the year. At the time of stock-takinf? 
 tbere is £20 due for rent, which, being added to the £50 
 paid, makes £70 as the total charge for the year to be 
 entered in the Profit and Loss Account It will well repay 
 
 F 
 
\ 
 
 £6 
 
 III 
 
 I. I 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
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 77/^ TRIAL BALANCE 
 
 67 
 
 the student if he has worked out a set of business transac- 
 tions in the ordinary way, and has prepared therefrom a 
 Profit and Loss Account and Balance Sheet, to prepare such 
 a statement as that shown, as he will thereby get a proper 
 grasp of the close relationship which exists between the 
 Trial Balance, as modified by the stock-taking, and the 
 Profit and Loss Account and Balance Sheet 
 
 Assets. 
 
 The assets of a business consist of all the property and 
 rights belonging to the business which have a money value. 
 Business assets may be divided into floating assets and fixed 
 assets. 
 
 Floating assets are those which may be sold or realised 
 without interfering with the plant or machinery of a 
 business or its business operations, as cash, goods, customers' 
 accounts, and bills receivable. So far as floating assets are 
 available as funds out of which current obligations may be 
 met, they form the working capital of a business. 
 
 Fixed assets are those which represent capital sunk in 
 a business in the form of plant, machinery, or ground, such 
 as buildings, railway lines, and all fixed machinery. 
 
 Sometimes business assets are divided into three, as 
 follows : — 
 
 1. Permanent, as heritable property 
 
 2. Wasting, as machinery. 
 
 3. Floating, as given above. 
 
 Liabilities, 
 
 The liabilities of a business consist of all the sums due 
 to outside creditors as distinguished from the sums due to 
 the partners or shareholders. Business liabilities may be 
 divided into floating liabilities and fixed liabilities. 
 
 Floating liabilities are those claims by creditors which 
 will have to be met within a short period, such as creditors* 
 accounts, bills payable, and bank overdrafts. 
 
 Fixed liabilities are those permanent obligations of a 
 concern which are not usually paid off till the concern 
 
iM 
 
 li 
 
 68 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 BALANCE SHEETS 
 
 69 
 
 1 
 
 is wound up, such as debenture debt and mortgages. 
 Liabilities may be classed into : — 
 
 On open accounts. 
 
 On bills payable ; by the debtor accepting a bill the amount 
 of the debt is fixed, and, as a rule, the date of its repayment. 
 
 A preferable liability or claim is one which has a preference 
 of payment over other debts, as Crown taxes. 
 
 A secured liability is one in respect of which the creditor is 
 entitled to receive payment out of the security which he holds. 
 
 A contingent liability is one in respect of a claim which has 
 not yet arisen, but of which there is some probability. 
 
 Ca'piic.l, 
 
 The student of accounting will have done well if he has 
 read Adam Smith's Wealth of Nations. The definition 
 given by Adam Smith of Capital is that it is wealth set 
 aside for productive purposes. Wealth so employed to 
 produce a surplus or profit to the industrial community is 
 distinguished as " social capital." From a commercial point 
 of view capital is wealth employed to yield a profit, includ- 
 ing in the term " profit " interest on money lent, and may 
 be called, in contradistinction to social capital, " individual 
 capital." Thus money lent to a spendthrift to be used for 
 his own personal gratification may be classed under the 
 heading of " individual capital " so far as the lender is 
 concerned, but not being used for the benefit of the 
 community is not " social capital." 
 
 The capital of a business concern at a particular 
 
 MOMENT OF TIME MAY BE DEFINED, FOR PURPOSES OF ACCOUNT- 
 ING, AS THE SURPLUS OF THE ASSETS OF THE CONCERN OVER 
 THE LIABILITIES TO THE CREDITORS OF THE CONCERN. If 
 
 this definition is applied to the Balance Sheet of a joint- 
 stock company it would include as capital not only the 
 money subscribed by the shareholders, but also any reserve 
 fund, together with the undivided profit of the company. 
 While from an economic point of view this would be 
 correct, in such cases the word "capital" is usually 
 restricted to the paid-up capital only. 
 
 BALANCE SHEETS 
 
 A BALANCE SHEET IS A CONCISE STATEMENT COMPILED FROM 
 THE BOOKS OF A CONCERN WHICH HAVE BEEN KEPT BY 
 DOUBLE ENTRY, SHOWING ON THE ONE SIDE ALL THE 
 LIABILITIES AND ON THE OTHER SIDE ALL THE ASSETS 
 OF THE CONCERN AT A PARTICULAR MOMENT OF TIME. 
 
 It is prepared for the purpose of showing the financial 
 condition of the concern at the particular moment of time, 
 and should be so classified and arranged as to give the 
 clearest and fullest idea of the financial condition of the 
 concern. The balances shown by the Trial Balance having 
 been adjusted by the closing entries giving effect to the 
 valuations of stock, unexpired charges, reserves, and other 
 particulars, the balances remaining are liabilities so far as 
 they are credit balances, and assets so far as they are debit 
 balances. The customers and creditors, and other items 
 involving many items, are not given in the Balance Sheet 
 in detail, but are contained in separate schedules or lists, or 
 in a Balance Book kept for the purpose. If the assets 
 exceed the liabilities the Balance Sheet shows a surplus, 
 which is due to the owner or owners of the business, and 
 foi-ms the capital of the concern. Capital is therefore the 
 surplus of assets over liabilities, or the measure of the 
 indebtedness of a business to the owners in respect of 
 money invested in the business and accumulated profits. 
 It is the principal sum invested or remaining in a business. 
 Book-keeping is so complete and thorough that even the 
 owner of a business is looked upon as an outsider, and his 
 account, called the Capital Account, is credited with what 
 he puts into the business, because, as he means to get back 
 again what he puts in, he becomes a creditor of the 
 business for it, and he also gets credit for any profit the 
 business earns, as he is entitled to that also. The Capital 
 Account was formerly sometimes called the Stock Account, 
 but this use of the word " stock " is now almost obsolete, 
 
2 
 
 \ 
 
 70 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 BALANCE SHEETS 
 
 71 
 
 and it is as well, to prevent confusion, to keep the word 
 " stock " for the goods and merchandise. 
 
 In the case of a company, as for example one registered 
 under the Companies Act of 1862, where the capital is 
 fixed, the surplus of assets over liabilities may consist of 
 the capital, of a reserve created for the benefit of the 
 shareholders and the stability of the company, and of the 
 unappropriated or undivided profit. 
 
 If the liabilities exceed the assets the Balance Sheet 
 shows a deficiency, and the amount of the deficiency is the 
 measure of insolvency of the concern, or the indebtedness 
 of the owners to the business for losses incurred. The 
 
 BALANCE SHEET MAY THUS BE DEFINED AS A STATEMENT 
 OF THE LIABILITIES OF A CONCERN (CREDIT BALANCES AS 
 TAKEN FROM THE LEDGER), INCLUDING THE CAPITAL, RESERVE, 
 AND UNAPPROPRIATED PROFIT, ON THE ONE SIDE, AND THE 
 ASSETS OF THE CONCERN (DEBIT BALANCES AS TAKEN FROM 
 THE LEDGER), INCLUDING ANY DEFICIENCY, ON THE OTHER. 
 
 The main distinction between a Profit and Loss Account 
 and a Balance Sheet is that the Profit and Loss Account 
 shows the progress of the business during a period of time, 
 while the Balance Sheet shows the position of the concern 
 at a particular moment of time. The difference is similar 
 to that between a biography and the portrait of an 
 individual. 
 
 On which Side of the Balance Sheet the Assets 
 should he placed. 
 
 When a book-keeper has completed those entries known 
 as " closing " entries, including the preparation of the Profit 
 and Loss Account, and has balanced off all the Ledger 
 Accounts, carrying down the balances to begin the accounts 
 for the next year, he usually prepares a Statement of the 
 Ledger Balances, arranging all the debit balances in the 
 left 'money column, and all the credit balances in the right 
 money column, in some such form as the following, which 
 is the Balance of the books of William Wood : — 
 
 Statement of Ledger Balances as at 31st December 
 
 Customers' Ledoeii 
 J. Collins . 
 W. Simpson 
 
 Ckeditors' Ledger 
 Jack & Co. 
 Scott k Tait 
 
 General Ledger :— 
 
 Bills i>ayable 
 
 Bills receivable 
 
 Goods 
 
 Rent . 
 
 Capital 
 Bank of Scotland 
 Cash on Hand 
 
 It will be observed that in the foregoing statement all 
 the balances of the accounts appear just as they are in the 
 Ledger after the balances have been carried down, that is, 
 the debit balances are entered in the debit column and the 
 credit balances in the credit column. The particulars above 
 given in the Statement of Ledger Balances, if thrown into 
 the form of a Balance Sheet, would appear as follows : — 
 
 Balance Sheet as at 31st December. 
 
 Dr. 
 
 
 Cr. 
 
 £ 
 
 *. 
 
 d. 
 
 £ 
 
 s. d. 
 
 300 
 
 
 
 
 
 
 
 650 
 
 
 
 
 
 
 t 
 
 950 
 
 
 
 
 
 
 
 
 370 
 
 
 
 
 
 
 230 
 
 
 
 600 
 
 
 
 
 
 
 280 
 
 
 
 300 
 
 
 
 
 
 t 
 
 
 700 
 
 
 
 
 
 20 
 1210 
 
 
 
 
 95 
 
 
 
 
 
 
 
 65 
 
 
 
 
 
 
 
 2110 
 
 
 
 
 
 2110 
 
 
 
 Assets, 
 
 {Correct Form.) 
 
 Liabilities. 
 
 Due by customers 
 Bills receivable . 
 Goods on hand 
 In Bank of Scotland 
 Cash on hand 
 
 £950 
 
 
 
 
 
 300 
 
 
 
 
 
 700 
 
 
 
 
 
 95 
 
 
 
 
 
 65 
 
 
 
 
 
 £2110 
 
 
 
 
 
 Due to wholesale houses £600 
 Bills payable . , 280 
 Rent accrued to date . 20 
 
 Capital 
 
 £900 
 1210 
 
 £2110 
 
 In the above Balance Sheet it will be observed that the 
 assets appear on the left side and the liabilities on the right 
 
 l^» 
 
72 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 BALANCE SHEETS 
 
 n 
 
 ♦ 
 
 I 
 
 side of the statement, just as they appear in the Ledger. 
 It will be observed further that the contractions Br, and 
 O., for debtor and creditor, are not used as part of the 
 heading. This is because the Balance Sheet is best 
 regarded not as an account but as a Statement of Ledger 
 Balances. In a set of books kept completely by double 
 entry, and in which even the balancing of the accounts is 
 done through the medium of the Journal, an account is 
 used entitled the "Balance Account," into which all the 
 balances are transferred at the close of the year, and in 
 which the Ledger Accounts would appear as they are given 
 in the above Statement of Ledger Balances. For the 
 opening entries a Balance Account would also be used, 
 but the items would necessarily appear on opposite sides 
 from the closing Balance Account. The Balance Sheet, if 
 given in the form above shown, is thus practically a copy 
 of the closing Balance Account. From this point of view 
 the assets should undoubtedly be placed on the left side of 
 the Balance Sheet, which corresponds to the debit side of 
 the closing Balance Account. Further, all balances which 
 represent assets are debit balances, and accountants naturally 
 come to associate assets with the debit or left side of either 
 an account or a statement. So that theoretically the left 
 side is the side upon which the assets should appear in the 
 Balance Sheet. In practice, however, the assets are usually 
 to be found upon the right side, and it may prove interesting 
 as well as instructive to investigate the matter further. 
 The fundamental idea of a Balance Sheet is that it is a 
 statement showing how the Ledger Accounts of a concern 
 stand at a particular moment of time. It would be 
 unnecessary if we could see and comprehend at one view 
 the contents of a set of ledgers. As we are unable to do 
 this we prepare a Balance Sheet, but why in the process 
 the assets which are on the debit side and the liabilities 
 which are on the credit side, as according to the principles 
 of accounting they ought to be, should change places, it is im- 
 possible to justify. The custom seems to have arisen through 
 the influence of the forms given in Acts of Parliament, 
 chiefly the Companies Act, 1862, which must have been 
 
 prepared by those unacquainted with the theory of accounts. 
 The Profit and Loss Account is taken from the Ledger, and 
 the sides are not transposed, and there is no logical reason 
 why the sides in the Balance Sheet should be reversed 
 when the items in it are supposed to be the balances 
 remaining in the Ledger, after certain balances have been 
 taken to the Profit and Loss Account. In the accounts of 
 public undertakings, such as railways, formed under the 
 sanction of Acts of Parliament, when the receipts and 
 expenditure on account of capital must be published, the 
 Capital Account, in the form prescribed, has the items as 
 they appear in the Ledger, but the Balance Sheet, the 
 form of which is also prescribed, has the items reversed. 
 The form of Balance Sheet in which the assets appear upon 
 the left side is both theoretically the correct form and in 
 practice is the most convenient form to use. It is the form 
 adopted on the Continent, in America, and, in fact, through- 
 out the world, with the exception of the United Kingdom. 
 Until recent years it was the form almost universally 
 adopted in Scotland. Prior to about the passing of the 
 Companies Act, 1862, it was the form chiefly adopted in 
 England, but is so no longer. It is known by the name of 
 the Continental or Scotch form. The form prescribed in 
 the original Table A of the Companies Act, 1862, had the 
 liabilities on the left side, and this form has now been 
 generally adopted throughout the United Kingdom. The 
 Scotch form, however, is still largely used in Scotland, even 
 for companies under the Companies Acts, which apply to 
 Scotland. The practice is so diverse that there are firms of 
 accountants in which one of the partners invariably uses 
 one form and the other partner as invariably the other. It 
 is certainly most desirable that the form of Balance Sheet 
 with the assets on the left side, which is founded on correct 
 principles, should become universal, but this could now, in 
 view of existing statutes where the form which is contrary 
 to the true principles of accounting is prescribed, only be 
 brought about by an Act of Parliament. Such an Act 
 would no doubt cause a little temporary inconvenience, but 
 this would be nothing compared to the advantage of having 
 
 tin 
 
I 
 
 74 A ceo UN TING IN THEOR Y AND PR A CTICE 
 
 BALANCE SHEETS 
 
 75 
 
 J5 
 
 all Balance Sheets uniform and conforming to the best 
 traditions, and the accepted practice of the rest of the 
 world. As, however, it is most desirable that uniformity 
 should be observed, and considering that by certain Acts 
 of Parliament and Orders by the Board of Trade and 
 Local (Government Boards forms are prescribed in which 
 the liabilities appear on the left side, and as, after all, 
 when one gets used to the form there is no risk of con- 
 fusion, the student should adopt the English form always. 
 It is supported on the ground that, as the Balance Sheet is 
 the account of a concern, that concern should be credited 
 with all the assets and debited with all the liabilities of 
 the concern. The objection to this is, that the statement 
 is not an account at all but a balance or abstract of the 
 ledger balances. Whichever fomi is used, the contractions 
 " Dr." and " Cr." should never be put upon a Balance Sheet, 
 because, as already stated, it is not an account. The 
 simplest way of avoiding confusion on this point when 
 dealing with Balance Sheets is to regard every Balance 
 Sheet as a Schedule consisting of two parts set side by side, 
 one part setting out the Assets and the other the Liabilities,' 
 and to abstain from regarding the items on the two sides 
 as either debits or credits, but to look upon them as merely 
 assets and liabilities as designated by the list-headings. 
 
 A Full and Fair Balance Sheet. 
 
 The Companies Act of 1862 did not specially state how 
 the Balance Sheet of a company was to be prepared, but the 
 original Table A or model Articles of Association appended 
 to the Act laid down in Clause 81 that the Balance Sheet 
 should contain " a summary of the property and liabilities of 
 the company arranged under the heads appearing in the form 
 annexed " to that table, or as near thereto as circumstances 
 admitted. The form referred to in this clause was not included 
 in the Kevised Table A issued by the Board of Trade on 30th 
 July 1906. Clause 94 of the original Table A laid down that 
 the auditors' report should state whether in their opinion the 
 Balance Sheet was " a full and fair Balance Sheet " containing 
 
 the particulars required by the company's Articles and " pro- 
 perly drawn up so as to exhibit a true and correct view of 
 the company's affairs." Section 21 of the Companies Act, 
 1907, prescribes that every public company registered under 
 the Companies Acts shall file a copy of its annual Balance 
 Sheet, giving such particulars as will disclose how the value 
 of its fixed assets have been arrived at. The phrase " full 
 and fair Balance Sheet " is still retained in Auditors' Reports 
 on company Balance Sheets. 
 
 The Balance Sheet, whether of a company or of a private 
 concern, should be, as mentioned above, " full and fair." All 
 the assets should be stated at their fair value, and the 
 liabilities should be fully shown. The Balance Sheet should 
 not conceal any weakness in the financial position of the 
 concern, but should give the fullest information to the 
 shareholders and the general public, consistent, of course, 
 with the proper conduct of the business. In some cases it 
 might be advisable not to reveal too much in consequence 
 of the competition of similar concerns, but what is really 
 the failing of Balance Sheets is that they reveal too little 
 and not too much. The Balance Sheet formerly given in the 
 Scotch form is now given in the English form, but it has been 
 varied slightly to show a better method of grouping the 
 assets, and it has further been assumed that the Balance 
 Sheet is that of a company with a paid-up capital of £700. 
 
 Balanxe Sheet as at 31st December. 
 (English Form.) 
 
 Liabilities. 
 
 Assets. 
 
 Due to Creditoks — 
 On open accounts 
 On bills payable 
 
 £600 
 280 
 
 £880 
 Rent accrued to date 20 o 
 
 Due to Shareholders — 
 Capital . . £700 
 Undivided profit 610 
 
 1210 
 
 £2110 
 
 Due by Customers — 
 On open accounts . 
 On bills receivable . 
 
 Goods on Hakd 
 
 Cash — 
 
 In bank £95 
 
 On hand . 65 
 
 £950 
 
 300 
 
 £1250 
 
 700 
 
 160 
 £2110 
 
76 ACCOUNTING IN THEORY AND PRACTICE 
 
 BALANCE SHEETS 
 
 77 
 
 ; • 
 
 The following might have been the Profit and Loss 
 Account of this company for the year : — 
 
 Profit and Loss Account for the Year. 
 Expenditure. Income. 
 
 To Cost of goods 
 
 . £2200 
 
 
 
 ,, Rent 
 
 70 
 
 
 
 ,, Wages . 
 
 200 
 
 
 
 ,, Discount 
 
 20 
 
 
 
 ,, Protit for year 
 
 610 
 
 
 
 
 
 
 
 
 
 £3000 
 
 By Sales 
 
 £3000 
 
 £3000 
 
 If the Balance Sheet in the English form and the 
 Profit and Loss Account of this company were printed in 
 the annual report to the shareholders, as is usually the 
 case, it will be observed that the net profit of £510 would 
 appear on the left side of the Balance Sheet, and also on 
 the left side of the Profit and Loss Account. It is more in 
 keeping with our ideas of book-keeping by double entry 
 that these items should appear on opposite sides, as they 
 would do if the Scotch form of Balance Sheet were adopted. 
 
 Arrangement of Balance Sheets, 
 
 Much skill may be displayed in grouping the various 
 items of a Balance Sheet so as to give the fullest information 
 in the form in which it will be most readily understood, 
 and most available for the purposes for which the Balance 
 Sheet is to be used. 
 
 In arranging the assets a very good rule is to place 
 them in the order in which they are easiest of realisation ; 
 that is, to begin with the assets which are most easy to 
 realise, and conclude with those which would be most 
 difficult to realise. Under this method the most available 
 asset, namely cash, whether in hand or in bank, would 
 come first, although it is often placed last on the footing 
 that it is an asset which is already realised and is on 
 hand, available to meet any of the liabilities. As cash, 
 whether in bank or in hand, is equally available, the amount 
 in bank and in hand should, although shown separately. 
 
 be added together and appear under one leading heading. 
 Any investments, which could be immediately realised, 
 would follow the cash. The amount due by customers or 
 trade debtors should come next, and, under branch headings, 
 the amount due by customers in respect of bills receivable 
 and on open accounts should be shown separately, as a 
 debt due under a bill receivable is more directly available 
 to liquidate any liability, and is less likely to be success- 
 fully disputed, than a debt due on an open account. The 
 open accounts should be classified into "good" and 
 "doubtful," and any provision or reserve for loss, either 
 through bad debts or discount, should be deducted from the 
 total before carrying out the amount into the main column. 
 Goods on hand which are manufactured or ready for sale 
 come next. Then goods which are in process of manu- 
 facture and to be used in manufacturing and stores. There- 
 after the value of fixed plant, machinery, and other similar 
 assets should be given in detail, and any additions on account 
 of expenditure during the period embraced by the accounts, 
 and deductions in respect of depreciation, should be shown. 
 Any heritable property, whether in land or buildings, would 
 come next Thereafter the less real and more speculative 
 assets may be given, if there are any, such as patent rights, 
 copyrights, and goodwill 
 
 The liabilities due to outside creditors should be stated 
 before the liabilities to shareholders or owners of the busi- 
 ness, although in the form prescribed by Table A, and already 
 referred to, this was not done. The liabilities to the public 
 should be stated in the order of priority of the claims, or 
 of the powers the creditors have of enforcing them. The 
 amount due to unsecured creditors should be given first, 
 and it is well to show separately the amounts due to 
 creditors under bills payable and on open accounts. The 
 sundry unpaid but accrued charges for rent, taxes, wages, 
 etc., should come next. Mortgages against heritable property 
 sometimes appear among the assets as deductions from the 
 property conveyed in security, but it is better as a rule 
 in the accounts of a going concern to show them among 
 the liabilities. Borrowed capital, whether in the form of 
 
k 
 
 I! 
 
 78 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 Balance Sheet as at 
 Liabilities. 
 
 Trade Creditors : — 
 
 Due under bills payable . £ 
 Due OD open accounts . 
 
 Sundry Charges accrued 
 
 TO DATE : — 
 
 Rent . £ 
 
 Taxes . 
 Wages, etc. . 
 
 Loans over Heritable 
 Property : — 
 Amount due 
 over the 
 security of 
 
 £ 
 
 Interest due 
 and ac- 
 crued 
 
 Other Loans (including 
 interest to date) 
 
 Amount due to aatside 
 creditors . . . £ 
 
 Due to Shareholders : — 
 Capital . £ 
 Reserve 
 Profit 
 
 Were there a debit 
 balance on the Profit and 
 Loss Account, such debit 
 balance should be deducted 
 Irom the amount due to 
 shareholders. 
 
 Assets 
 
 Cash — 
 On hand 
 In bank 
 
 Investments . 
 Due by Customers :- 
 Bills receiv- 
 able . . £ 
 Open ac- 
 counts : — 
 Good 
 Doubtful . 
 
 Deduct — 
 Reserve for 
 d iscount 
 and bad 
 debts . 
 
 Stock on Hand 
 as valued by 
 
 £ 
 
 Manufactured 
 goods . 
 
 Goods in pro- 
 cess of manu 
 facture 
 
 Raw material 
 
 Stores . 
 
 Plant, Machi- 
 nery, etc. : — 
 Amount in last 
 Balance 
 Sheet . . £ 
 Expended 
 since . 
 
 Deduct — 
 Depreciation . 
 
 Heritable 
 Property : — 
 Land . £ 
 
 Buildings 
 
 Goodwill and 
 other assets of 
 an indetermin- 
 able or contin- 
 gent value 
 
 . £ 
 
 DOUBLE ACCOUNT FORM OF BALANCE SHEET 79 
 
 ordinary loans on personal security or debentures, should 
 then be detailed. After stating all the liabilities to outside 
 creditors, and showing the total due to such creditors by 
 summing the amounts, the amount due to partners or to 
 shareholders should be given separated into capital, reserve 
 and undivided or unallocated profit. The liabilities and 
 capital should never be stated and summed altogether as 
 one, but the amount due to outside creditors and to the 
 shareholders should be shown separately. In the case of 
 a limited company a debit balance on the Profit and Loss 
 Account should not be entered among the assets, but should 
 be deducted from the capital or other sums due to the 
 shareholders. 
 
 THE DOUBLE ACCOUNT FORM OF BALANCE 
 
 SHEET 
 
 The double account form of Balance Sheet, as it is called, 
 which is prescribed for companies formed to undertake 
 public works under sanction of Acts of Parliament, is of 
 some interest. Its distinctive feature is that, since the 
 money authorised to be spent is provided for a specific 
 purpose, such as the construction of a railway, the fixed 
 assets and fixed liabilities are separated from the floating 
 assets and floating liabilities of the concern. The fixed 
 assets and fixed liabilities are kept in an account called 
 the Receipts and Expenditure on Capital Account, and the 
 floating assets and floating liabilities form the General 
 Balance Sheet of the concern. The Capital Account is 
 credited with the capital receipts, whether in the form of 
 share capital or loan capital, and is debited with the capital 
 expenditure incurred in acquiring the property or con- 
 structing the works for which the capital receipts were 
 expressly authorised by the special Act of Parliament to 
 be received. The excess of the capital receipts over the 
 amount expended as capital expenditure shows the amount 
 of the capital receipts which have not been applied to their 
 specific purposes and are still available ; while any excess 
 of capital expenditure over capital receipts shows the 
 
 f 
 
f 
 
 * 
 
 80 ACCOUNTING IN THEORY AND PRACTICE 
 
 expenditure of revenue in fixed assets in addition to the 
 capital receipts authorised to be so spent. The balance of 
 the Capital Account is carried to the General Balance Sheet, 
 and represents either the indebtedness of capital to revenue 
 or revenue to capital. In such cases the ordinary rules 
 for the valuation of assets do not apply. The capital is 
 raised for a certain purpose, and must be expended on that 
 purpose. The Capital Account is for the purpose of seeing 
 that the money contributed for any public work is used 
 for the construction of such works. The idea is that no 
 further sums should be spent on such capital expenditure 
 once the total has been expended, but that the works should 
 be kept in repair and in a state of efficiency out of the 
 revenue receipts. Parliament having made these provisions 
 thought it unnecessary to stipulate for the periodical 
 valuation of the works themselves, and practically said 
 that as these works would be permanently carried on they 
 might be valued at their initial cost, and this Capital Ex- 
 penditure Account will show how much they have cost and 
 what proportion of the sum authorised to be borrowed 01 
 received by the company from its shareholders is still on 
 hand. 
 
 Even, however, in accounts kept upon the double 
 account system, allowance for depreciation may be made in 
 the General Balance Sheet, where the floating assets and 
 liabilities are shown as distinct from the capital assets and 
 expenditure shown in the Capital Account. While the 
 Act under which the Capital Account is kept makes no 
 provision for depreciation, a Depreciation Account may be 
 formed out of available revenue, and the balance of this 
 account will faU to be included as a liabUity in the General 
 Balance Sheet. It should be remembered, however, when 
 fixed assets are maintained out of revenue, as is done in such 
 undertakings, that an annual depreciation provision is un- 
 necessary; the limit of such provision is the sum required 
 to bring down the book values of the assets to their second- 
 hand values, at which they are maintained in efficiency. 
 The figures in the example should be read as thousands of 
 pounds instead of pounds. 
 
 DOUBLE ACCOUNT FORM OF BALANCE SHEET 
 
 m 
 
 H 
 
 iz; 
 
 < 
 
 < 
 
 En 
 O 
 
 s 
 
 s 
 
 t 
 
 8 
 
 OQ 
 
 CO O 
 
 oO O 
 Eh 
 
 -2 « S «« « 
 
 be o ::3 -M jf • 
 
 •'"' o *-• O 
 
 J5 r? a> ^ 03 rt 
 
 3 O o 0"< 
 
 a k f- <3i 
 OCQ O 
 
 G 
 
wmw 
 
 i 
 
 II 
 
 83 ACCOUNTING IN THEORY AND PRACTICE 
 
 General Balance 
 
 Liabilities. 
 
 Sheet as at 31st December. 
 
 Assets, 
 
 Net Revenue Account . 
 
 Unpaid dividends and 
 interest . 
 
 Guaranteed dividends 
 and interest pay- 
 able. 
 
 Temporary loans . 
 
 Debts due to other com- 
 panies 
 
 Sundry outstanding ac- 
 counts 
 
 Fire insurance fand on 
 station works and 
 buildings . 
 Insurance fund on 
 
 steamboats 
 Depreciation Account . 
 
 £1000 
 10 
 
 100 
 400 
 
 1000 
 
 3300 
 
 
 
 
 
 
 
 
 
 
 
 
 
 90 
 
 100 
 2000 
 
 
 
 
 Capital Account — bal- 
 ance at debit . . £2000 
 
 Cash at bankers, cur- 
 rent account . 
 
 Consols and Govern- 
 ment securities 
 
 Shares of other com- 
 panies not charged 
 as capital expendi- 
 ture . . . • 
 
 General stores, stock, 
 and material in 
 hand 
 
 Traffic accounts due to 
 
 300 
 3000 
 
 1000 
 
 the Company . 
 
 Amounts due by other 
 companies 
 
 Amounts due by Clear- 
 ing House 
 
 Amounts due by Post 
 Office 
 
 Sundry outstandini? ac- 
 counts . 
 
 £8000 
 
 1000 
 
 500 
 
 20 
 
 30 
 
 10 
 
 140 
 
 £8000 
 
 STATEMENTS OF AFFAIRS AND STATEMENTS 
 OF ASSETS AND LIABILITIES 
 
 A STATEMENT SHOWING THE ASSETS AND LIABILITIES OF A CON- 
 CERN WHICH IS NOT PREPARED FROM A SET OF BOOKS 
 PROPERLY KEPT ON THE PRINCIPLES OF DOUBLE ENTRY 
 WHERE ALL THE LEDGER ACCOUNTS ARE BROUGHT TO A 
 PERFECT BALANCE, BUT IS PREPARED, EITHER WHOLLY OR 
 PARTLY, FROM INFORMATION GOT OUTSIDE OF, AND NEVER 
 INCORPORATED COMPLETELY IN, LEDGER ACCOUNTS, IS 
 CALLED A " STATEMENT OF AFFAIRS." 
 
 A Statement of Affairs and a Balance Sheet are often 
 confused, but, while both statements deal with the same 
 subjects, it is best to keep strictly to the definitions which 
 have been given. A further distinction is also desirable 
 between a Statement of Affairs of a solvent concern and 
 such a state when prepared of a bankrupt concern for the 
 information of creditors. The Statement of Affairs prepared 
 
 STATEMENTS OF AFFAIRS IN BANKRUPTCY 
 
 83 
 
 of a solvent concern, where the books are kept by single 
 entry, is best designed as a Statement of Assets and 
 Liabihties. A Statement of Affairs for creditors, being 
 prepared for a special purpose, is further removed in form 
 from the Statement of Assets and LiabiHties of a goincr 
 concern than a Balance Sheet, of which they are both 
 varieties. When it is proposed to place the books of a con- 
 cern on a proper footing, which have not hitherto been kept 
 by double entry, a Statement of Affairs or Statement of 
 Assets and Liabilities is prepared on the same Hnes and 
 showing the same facts as a Balance Sheet would have done 
 had proper books been kept, and from this statement the 
 new set of books is properly opened. 
 
 StaterrwrU of Affairs of a Bankrupt 
 A Statement of Affairs of a bankrupt, when prepared 
 for the information and guidance of the creditors, is best 
 amnged slightly differently from an ordinary Statement of 
 Affairs of a going business. Such a statement should show 
 on the one side, under appropriate heads, all the liabilities 
 of the business at the date of the state, whether actual 
 provisional, or contingent, distinguishing whether these 
 liabihties are preferable or ordinary, or are secured partly 
 or wholly by certain of the assets of the concern beinc. held 
 by certain of the creditors, in security of their claims" On 
 the other side all the assets of the concern should be shown 
 valued either on the footing that the business is a goinc^ 
 concern, at break-up prices, or on some other fixed principle 
 of valuation, according to the purpose for which the state- 
 ment is required. Such a statement should show clearlv 
 these assets which are free to be divided among the ordinary 
 unsecured creditors and those which are subject to special 
 liabihties or claims, which must be Hquidated out of such 
 assets before the balance of the amount realised for these 
 assets IS available to meet the claims of the ordinary 
 c editors. Sometimes it is advisable for the accountant to 
 submit a Statement of Affairs prepared on the footin- of 
 tbe business as a going concern, together with a sintilar 
 statement on a break-up basis. The Statement of Affairs 
 
f 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 STATEMENTS OF AFFAIRS IN BANKRUPTCY 85 
 
 is specially prepared with the view of revealing the condition 
 of the affairs of a concern and the probability of the different 
 creditors, preferable, secured, partly secured, and ordinary, 
 receiving payment in full or having to accept a dividend on 
 their claims. In preparing such a statement, therefore, an 
 investigation is required which goes beyond ordinary book- 
 keeping, but it is usually most satisfactory if the statement 
 is prepared on the basis of the properly balanced books of 
 the concern, and supplemented from other sources. 
 
 The statement should contain not only all the liabilities 
 that may appear on the debtor's books, but all others which 
 may be enforcible, and even contingent claims, such as any 
 liability through the bankrupt's name being upon bills of 
 exchange which have been discounted by the bankrupt, or 
 otherwise put into circulation with his name upon them, 
 and which may not be met at maturity, should be included. 
 Preferable claims for taxes, rent, wages and salaries, so 
 far as they are preferable and require to be paid in full out 
 of the assets of the estate, should be deducted from the 
 assets in order to show the net estate available for division 
 among the ordinary creditors, although the details of all such 
 preferable claims should be entered among the Uabilities but 
 not included in the total. 
 
 The claims of fully secured creditors are entered on the 
 Liabilities side, but the amounts are not carried out to the total 
 column, but are deducted from the assets forming the specific 
 security held, the balance only of these assets, being the 
 amount not required to meet the claims, is available for the 
 ordinary creditors, and is entered in the Assets column. Claims 
 partly secured are entered among the liabilities, and the 
 amount to which they are secured is deducted from them, and 
 the balance which is unsecured and which will fall to receive 
 a dividend with the unsecured creditors appears in the Total 
 Liabilities column. The corresponding asset appears in detail 
 among the assets, but its value is not extended in the Total 
 Asset^ column. The object of these adjustments is to show 
 clearly the net assets which will be available for the ordinary 
 creditors, and the total amount of the claims of the ordinary 
 creditors' which will come against the available assets. 
 
 A Statement of Affairs should always have appended to 
 it schedules showing the fullest particulars of the different 
 entries which appear in the state in slump. Thus the 
 names and addresses of the creditors should be given, the 
 nature of the debt, whether a trading debt or for borrowed 
 money, and the particulars of any security held. 
 
 The assets of an insolvent estate are usually more 
 difficult to ascertain and value than the liabilities. Even 
 where the book or nominal valuation can be ascertained, it 
 is usually necessary to write down that value considerably, 
 to show what will be the amount likely to be received! 
 The bankrupt himself is often of great help in such matters,* 
 but it is often advisable, in order that the creditors may 
 have before them a statement which they can rely upon as 
 giving a correct view of the estate, for the accountant to 
 call in an expert who, from his personal knowledge and 
 experience, is in a position to fix accurately the value of 
 the assets on the footing of the business as a going concern, 
 or to determine their break-up value. It is always desirable 
 to show the nominal or book value of the assets, together 
 with what they may be expected to produce on realisation, 
 as it enables the amount of the difference which is due to a 
 forced realisation to be determined. The book debts should 
 be classified into good, doubtful, and bad. The doubtful 
 debts are included at the figure they are expected to produce, 
 and the bad are of course merely shown upon the face of 
 the state, but are not included in the addition of the assets. 
 The assets most readily realisable are placed first, and those 
 least realisable last in the state. The dividend shown to the 
 ordinary creditors, exclusive of expenses of realisation, is given 
 ma note. In the case of the insolvency of an individual, his 
 private assets, such as his household furniture, his Hfe policy, 
 and the value of any expectancy he may have to succeed 
 to property, must be included in his Statement of Affairs. 
 
 From the Statements of Affairs submitted the above 
 explanations will be better understood, but the efficiency of 
 the method of displaying all the assets and liabilities at 
 one glance, and of the various deductions and cross references, 
 can only be appreciated and learned in actual practice. 
 
 % 
 
86 A ceo UNTING IN THEOR Y AND PR A CTICE 
 
 STATEMENTS OF AFFAIRS IN BANKRUPTCY 87 
 
 T. BROWN & CO.. 
 Statement of Affairs 
 
 MERCHANTS, LONDON 
 as at 31st December. 
 
 I 
 
 Showing the Gross Liabilities, the Liabilities expected 
 Ordinary Creditors, the Cost or Book Value of the Assets, 
 
 Liabilities 
 
 Ordinary unsecured creditors : — 
 
 Trade creditors 
 
 Loans 
 
 Creditors on heritable bond fully 
 
 secured 
 
 Deducted from Assets. 
 
 Creditors partially 
 
 SECURED . . . £1300 
 Deduct — 
 Value ofsecurity per Assets 1000 
 
 Contingent liability in respect of bills 
 discounted by Bankrupt, and accom- 
 modation bills, to amount of £8000, of 
 which there will rank on this estate 
 
 Preferable claims : — 
 
 Rates and taxes . . .£60 
 
 Wages 50 
 
 Rent 100 
 
 Deducted from Assets £210 
 
 Grofls 
 Liabilities. 
 
 £ 
 
 s. 
 
 d. 
 
 8,000 
 
 
 
 
 
 2,000 
 
 
 
 
 
 10,000 
 7,000 
 
 1,300 
 
 1,500 
 
 210 
 
 20,010 
 
 Expected to 
 rauk. 
 
 £ t. d. 
 
 8,000 
 2,000 
 
 10,000 
 
 300 
 
 1,500 
 
 11,800 
 
 to rank against the Assets available for division among the 
 and the Amount the Assets are estimated to realise. 
 
 Assets 
 
 Cash : — 
 On hand ....... 
 
 In bank 
 
 GrOODS 
 
 Customers' accounts : — 
 
 Good .... £4000 
 Doubtful (estimated to 
 
 realise £100) . . 650 
 
 Bad .... 1200 
 
 £5850 
 
 Machinery, fittinos, fixtures, uten- 
 sils, etc 
 
 Heritable property .... 
 
 Valued at . . JtQOOO 
 
 Deduct — 
 
 Bond, per Liabilities . 7000 
 
 Investments assigned to creditors 
 Valued at . . £1000 
 
 and deducted from Liabilities. 
 
 CJost or Book 
 Value. 
 
 £ 
 
 8. 
 
 d. 
 
 30 
 
 
 
 
 
 250 
 
 
 
 
 
 280 
 1,300 
 
 5,850 
 
 3,000 
 12,000 
 
 1,500 
 
 23,930 
 
 Deduct — 
 Preferable claims per Liabilities 
 
 Assets available for division among the ordinary 
 
 creditors 
 
 Equal to a dividend of 13s. 9d. per £ on claims of 
 £11,800, exclusive of expenses of realisation. 
 
 Deficiency 
 
 Estimated to 
 realise. 
 
 £ 8. d. 
 
 30 
 
 250 
 
 280 
 950 
 
 4,100 
 1,000 
 
 2,000 
 
 8,330 
 210 
 
 8,120 
 
 3,680 
 
 111,800 
 
gg 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 T. Brown & Co. 
 Deficiency Account, 
 
 To Loss from shrinkage 
 in value of assets, 
 as shown in the 
 State of AflFairs : — 
 Groods . . . £350 
 Customers' Accounts 1,750 
 Macliinery, etc. . 2,000 
 Heritable property 3,000 
 Investments. . 500 
 
 «i 
 
 £7,600 
 
 Loss through lia- 
 bility in respect of 
 bills discounted and 
 accommodation bills 1,500 
 
 Cash drawn by part- 
 ners : — 
 
 First 
 year £2000 
 
 Second 
 year 5000 
 
 Third 
 year 3500 
 
 10,500 
 
 
 
 
 
 
 
 £19,600 
 
 By Capital— cash put 
 into business at 
 commencement £5,000 
 „ Profit shown by 
 accounts : — 
 First 
 year £5000 
 Second 
 year 3000 
 Third 
 year 2920 
 
 10,920 
 
 „ Deficiency, as per 
 Statement of 
 Affairs . . 3,680 
 
 £19,600 
 
 
 I 
 
 The Statement of Affairs of T. Brown & Co., and the 
 relative Deficiency Account, are worth careful study. The 
 firm is supposed to have been in business for three 
 years. They started with a capital of £5000. Their 
 accounts show that their profit for the three years was 
 £10,920, and their drawings amounted to slightly under 
 that, namely £10,500. At the end of the three years, 
 therefore, as shown by their books, the capital they had in 
 the business was £5420. That this was the capital at the 
 date of the Statement of Affairs is seen from the following 
 statement : — 
 
 The book value of the assets was . . £23,930 
 The gross liabilities, after deducting the 
 
 contingent claim of £1500, was . . 18,510 
 
 Leaving as the capital 
 
 £5,420 
 
 STATEMENTS OF AFFAIRS IN BANKRUPTCY 89 
 
 In spite, however, of having this capital, the firm had 
 been reckless in incurring liabilities, and were unable to 
 meet their obligations, in consequence of which they had 
 to suspend payment, as otherwise certain of the creditors 
 would have secured payment at the expense of the others. 
 The Deficiency Account shows clearly how from loss on a 
 forced realisation an apparently solvent firm may pay a 
 very small dividend. 
 
 A Deficiency Account. 
 
 The Statement of Affairs of a bankrupt, showing the 
 amount of his deficiency, should, where possible, be accom- 
 panied by a Deficiency Account, showing in detail the 
 causes of the bankruptcy. Such an account should be 
 credited with the capital at the commencement of the 
 business or at the last ascertainable date of solvency, and 
 the capital since put into the business, together with any 
 profit earned. The Deficiency Account should be debited 
 with all losses made as shown in the accounts of the debtor, 
 together with the loss and shrinkage on assets as valued 
 in the Statement of Affairs. The account should also be 
 debited with the debtor's drawings. The balance of the 
 account should be the exact amount of the deficiency, as 
 shown by the Statement of Affairs, if the books have been 
 correctly kept and due allowance made for all differences on 
 valuation. A Deficiency Account when carefully prepared 
 is of great value in determining the causes which have led 
 to insolvency. 
 
 Examjple, 
 
 From the foUowing particulars, which have been taken 
 from the books of the insolvent debtors and other sources of 
 information, a Statement of the Affairs as at 30th June 1899 
 of Boss & Todd, who are unable to meet their liabilities, 
 and have suspended payment, has been prepared, and is 
 submitted. There is also given a Deficiency Account ex- 
 plaining the deficiency: — 
 
90 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 STATEMENTS OF AFFAIRS IN BANKRUPTCY 91 
 
 II 
 
 Particulars. 
 
 Gash on hand ..... 
 Customers' Accounts : — 
 
 Good 
 
 Doubtful, £300, estimated to produce 
 
 Bad 
 
 Goods valued at ... . 
 
 Heritable property, cost £3 000, estimated 
 to be worth .... 
 Note. — ^This property is assigned to 
 creditors for £2300. 
 Shares held ..... 
 Note. — These shares are assigned in 
 security of a debt of £400. 
 Creditors : — 
 
 Ordinary unsecured — 
 On open accounts 
 On bills payable .... 
 Partially secured by shares 
 Fully secured over heritable property 
 Preferable claims for taxes, wages 
 and salaries .... 
 Partners' drawings : — 
 
 W. Ross 
 
 R. Todd ..... 
 
 £200 
 
 2000 
 
 
 
 
 
 100 
 
 
 
 
 
 500 
 
 
 
 
 
 1900 
 
 
 
 
 
 2500 
 
 150 
 
 5000 
 
 
 
 
 
 1000 
 
 
 
 
 
 400 
 
 
 
 
 
 2300 
 
 
 
 
 
 100 
 
 2000 
 2850 
 
 
 
 
 ^ 
 ^ 
 ^ 
 
 it 
 
 o 
 
 5 CM 
 
 o o 
 00 
 
 00 
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 1950 
 
 
 
 00 
 
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 PQ 
 
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 When the business was commenced on 31st December 
 1 8 9 6, W. Ross put into it £2 5 and R Todd £2900. The 
 first year resulted in a profit of £3000, but the next 
 eighteen months showed a loss of £4300. No provision 
 was made in the accounts for bad debts. 
 
 From the above particulars the student should carefully 
 prepare a Statement of Affairs of the firm as at 30 th June 
 1899, and should thereafter prepare a Deficiency Account. 
 When he has got the Deficiency Account properly balanced 
 he should compare his results with the Statement of Affairs 
 and Deficiency Account now submitted, which differ in 
 several points from the example already given. 
 
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9^ ACCOUNTING IN THEORY AND PRACTICE 
 
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 2850 
 
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 STATEMENTS OF AFFAIRS IN BANKRUPTCY 93 
 
 1. From the following information prepare a Statement 
 of Affairs for the information of creditors : — 
 
 The Heritable Land Society 
 
 Unsecured creditors . 
 
 • 
 
 • 
 
 • 
 
 £200,000 
 
 
 
 Creditors fully secured on property 
 
 • 
 
 ■ 
 
 6,000 
 
 
 
 Property held by secured 
 
 
 
 
 
 
 creditors 
 
 £12,000 
 
 
 
 
 
 
 
 Creditors for rates, taxes, 
 
 
 
 
 
 
 and wages (preferential) 
 
 
 
 
 300 
 
 
 
 Bill of exchange (good) 
 
 22 
 
 
 
 
 
 
 
 Book debts 
 
 27,000 
 
 
 
 
 
 
 
 Good, £1000. 
 
 
 
 
 
 
 Doubtful, £25,000 
 
 
 
 
 
 
 (produce £2000). 
 
 
 
 
 
 
 Remainder bad. 
 
 
 
 
 
 
 Property .... 
 
 56,000 
 
 
 
 
 
 
 
 Loans on mortgage (pro- 
 
 
 
 
 
 
 duce £60,000) . 
 
 170,000 
 
 
 
 
 
 
 
 Office furniture 
 
 100 
 
 
 
 
 
 
 
 Cash at bankers 
 
 900 
 
 
 
 
 
 
 
 Cash on hand . 
 
 100 
 
 
 
 
 
 
 
 2. Wallace & Gribb, Merchants, are unable to meet their 
 obligations. From their books and their own testimony 
 the following particulars of their condition are ascertained : — 
 
 £50 
 
 Cash on hand ....... 
 
 Customers' Accounts : — 
 
 Good 1000 
 
 Doubtful, £100, but estimated to produce . 60 
 
 Bad, £200 
 
 Property (estimated to produce £2000), cost 3000 
 
 Bills receivable, good ..... 800 
 
 Other securities (£800 pledged with partially 
 secured creditors ; remainder held by the fully 
 secured creditors) ...... 7000 
 
 Stock Exchange losses . . . . .3000 
 
 Trade expenses 2300 
 
 Creditors, unsecured 6000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
94 ACCOUNTING IN THEORY AND PRACTICE 
 
 Creditors, partially secured 
 
 Creditors, fully secured 
 
 Preferential claims : wages, salaries, and taxes 
 
 Wallace, capital 
 
 Gibb, capital . 
 
 Wallace, drawings . 
 
 Gibb, drawings 
 
 Business losses 
 
 £6300 
 
 4000 
 
 160 
 
 2500 
 
 3900 
 
 2000 
 
 1 500 
 
 1900 
 
 Prepare a Statement of Affairs, showing the liabilities 
 and the assets with respect to their realisation and liquida- 
 tion ; also a Deficiency Account, showing such of the above 
 stated particulars as would account for the deficiency shown 
 by the Statement of Affairs. 
 
 3. William Arnot, a Liverpool merchant, tradin<y to 
 the West Coast of Africa, finding himself on 1st July 
 unable to meet his engagements, asks you to make up his 
 Statement of Affairs for submission to his creditors. 
 
 You find from his books and other sources of informa- 
 tion the following facts regarding his affairs : — 
 
 £9,000 
 2,300 
 
 Unsecured creditors 
 
 Fully secured creditors ..... 
 Who hold security of the value of £3000. 
 Partly secured creditors .... 35,000 
 
 Who hold securities of the value of £20,000. 
 Preferable claims . . . . . . 800 
 
 Bills payable 20,000 
 
 Book debts in England (good) . . . 1,000 
 Book debts (doubtful), £200, estimated to 
 
 produce 
 
 Book debts (bad), £300, of no value. 
 
 Stock in Liverpool, cost £1500, estimated to 
 
 produce 
 
 Stock and book debts, less sundry liabilities at 
 
 four stations on the coast .... 
 
 Of which it is estimated there will be a 
 
 loss on realisation of stock of £6000, 
 
 and of book debts £9000. 
 
 Four station buildings, plant, steamers, and 
 
 carrying craft, £40,000, expected to 
 
 realise 20,000 
 
 Office furniture, £300, estimated to realise . 200 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 75 
 
 1,200 
 36,000 
 
 
 
 
 
 
 
 
 
 
 
 ACCOUNTS OF BRANCHES 
 
 95 
 
 Cash in hand ...... 
 
 Cash at bankers ...... 
 
 Heritable property held by fully secured 
 creditors ....... 
 
 Shares held by partly secured creditors . 
 
 £4 
 
 80 
 
 3,000 
 
 20,000 
 
 Show his position, and make out his Deficiency Account 
 from six years ago, when he had a capital of £42,000. 
 The profits for the first three years appear by the books to 
 have been £3000, £4000, and £5284, and the losses in 
 the three subsequent years £1500, £2500, and £3000 
 respectively, after allowing £2000 a year for interest upon 
 capital His withdrawals have been at the rate of £4000 
 a year. 
 
 ACCOUNTS OF BRANCHES 
 
 The book-keeping of a business with one or more 
 branches may be so conducted by getting daily or weekly 
 returns from the branches as to incorporate the whole trans- 
 actions of the branches in the books kept at the head office. 
 This method, however, necessitates practically the keeping 
 of duplicate accounts, as it is usually essential that complete 
 accounts be kept at the branches, and treats the business of 
 the branch more as an agency than as a branch. The more 
 usual plan, and the method by which the full advantage of 
 a branch establishment is secured, is to have what is 
 practically a complete system of book-keeping at each of 
 the branches. An account for each branch is kept in the 
 head office books in which all the transactions between the 
 head office and the branch are recorded, and each branch 
 keeps a corresponding account in the branch books for the 
 head office. These two accounts must necessarily show the 
 same balances, but on opposite sides of the respective ledgers. 
 At the date of the annual balance a Trial Balance is made 
 of the books at the branch, and this, together with the 
 stock sheets, and any other particulars required to complete 
 the Profit and Loss Account and Balance Sheet, is forwarded 
 to the head office. At the head office the Trial Balance 
 and other particulars may be used to prepare a Profit and 
 
I# 
 
 96 ACCOUNTING IN THEORY AND PRACTICE 
 
 I 
 
 d 
 
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 «« 
 
 
 ^ 
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 -s 
 
 ^ 
 
 3 
 
 & 
 
 1 
 
 xi 
 
 1 
 
 1 
 
 Together. 
 
 d 
 
 £ 8. d, 
 900 
 
 9,000 
 
 1,400 
 500 
 
 
 
 
 2 
 
 00 
 
 s' 
 
 £ 8. d. 
 2,600 
 
 800 
 5,500 
 
 500 
 2,400 
 
 
 
 
 2 
 
 oo 
 
 c 
 
 n 
 
 d 
 
 £ 8. d. 
 100 
 
 2000 
 600 
 
 
 
 
 2 
 
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 £ 8. d. 
 600 
 
 200 
 1500 
 
 300 
 
 
 
 
 2 
 
 1 
 1 
 
 £ 
 
 £ 8. d. 
 800 
 
 7000 
 1400 
 
 
 
 
 
 
 
 
 O) 
 
 *■ 
 
 £ 8. d. 
 2000 
 
 600 
 4D00 
 
 600 
 2100 
 
 
 
 
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 ACCOUNTS OF BRANCHES 
 
 97 
 
 Loss Account and Balance Sheet of the branch alone, or the 
 Branch Trial Balance may be incorporated with the Trial 
 Balance of the head office and other branches. The Branch 
 Trial Balance and Head Office Trial Balance of a business 
 keeping its accounts in this form are shown, together with 
 the relative Profit and Loss Accounts and Balance Sheet 
 
 The Profit and Loss Accounts of the head office and of 
 the branch, together with the Joint Profit and Loss Account 
 and the Joint Balance Sheet, corresponding to the Trial 
 Balance on the opposite page, would be as follows : 
 
 Eead Office Profit and Loss Accmird, 
 
 Dec. 31. To Cost of 
 
 goods . £3900 
 
 ,, Expenses. 2100 
 
 „ Profit . 1000 
 
 £7000 
 
 Dec. 31. By Sales . £7000 
 
 £7000 
 
 Branch Profit and Loss Accaard. 
 
 Deo. 31. To Cost of 
 
 goods . £1400 
 
 ,, Expenses 300 
 
 ., Profit . 300 
 
 £2000 
 
 Dec. 31. By Sales . £2000 
 
 £2000 
 
 JoItU Profii and Loss Account. 
 
 Dec. 31. To Cost of 
 
 goods . £5300 
 
 „ Expenses 2400 
 
 „ Profit . 1300 
 
 £9000 
 
 Dec. 31. By Sales . £9000 
 
 £9000 
 
 Joint Balance Sheet as at 31st December. 
 
 Liabilities. 
 
 Creditors . 
 
 Capital 
 
 Profit 
 
 . £1400 
 . 1300 
 
 £900 
 
 2700 
 £3600 
 
 Assets. 
 
 Customers . 
 Goods . , 
 
 £2600 
 1000 
 
 £3600 
 
> 
 
 I 
 
 h ( 
 
 98 ACCOUNTING IN THEORY AND PRACTICE 
 
 The Head Office Account in the Branch Ledger, where 
 the profit was shown in the branch books, would simply be 
 credited with the net profit earned by the branch. 
 
 If the profit was not shown in the branch books, the 
 accounts in these books relating to profit would be closed 
 by being transferred to the Head Office Account, as 
 follows . — 
 
 Head Office Account. 
 
 Jan. 1. To Stock 
 Dec. 31. ,, Purchases 
 ,, Expenses 
 ,, Balance 
 
 £200 
 
 1600 
 
 300 
 
 500 
 
 
 
 
 
 
 Dec. 31. By Balance 
 .. Sales 
 
 £2500 
 
 £500 
 2000 
 
 £2500 
 
 It will be observed that the account is debited with 
 the stock at the beginning of the year, because the stock 
 would not be entered in the books of the branch if it was 
 not desired to show the profit in these books. 
 
 DEPARTMENTS 
 
 In businesses, where it is at all possible, it is usually 
 of great advantage to keep Departmental Accounts. A 
 merchant who keeps such accounts is able to tell which 
 departments of his business pay best, and which depart- 
 ments are not so remunerative, or may even be involving a 
 loss. He knows, therefore, which departments of his 
 business he should further develop, and he will endeavour 
 to put the departments which are unremunerative upon a 
 satisfactory footing. Thus, a tea, coffee, and spice merchant, 
 by keeping separate accounts for each article in which he 
 deals, ascertains the gross profit he is making on the 
 separate articles. It is quite possible that a merchant may 
 make a loss on a certain class of articles, but may be willing 
 to continue to sell at an unremunerative rate in order to 
 encourage the sale of other articles upon which his profit is 
 satisfactory. To enable separate departments to be kept all 
 
 DEPARTMENTS 
 
 99 
 
 that is necessary is to have the Invoice Book and Day Book 
 ruled with money columns for each separate department, and 
 a column for the total Where sales and purchases in the 
 various departments are not made with the same people, 
 separate Invoice Books and Day Books for each department 
 may be kept, but, as a rule, the columnar method works 
 more satisfactorily. 
 
 The Invoice Book and the Day Book of John Dent, 
 whose transactions are given in the first exercise, are as 
 follows : — 
 
 Invoice Book 
 
 
 
 Total. 
 
 Silk. 
 
 Cloth. 
 
 Velvet. 
 
 Jan. 2. 
 
 8. 
 Dec. 3. 
 
 6. 
 
 To Webster k Co. 
 ,, Bank 
 
 , , Webster t, Co. 
 M do. 
 
 £ 8. d. 
 
 1300 
 
 400 
 
 2100 
 
 2200 
 
 £ 5. d. 
 800 
 
 1200 
 
 £ 5. d. 
 500 
 
 900 
 
 £ t. d, 
 
 400 
 
 2200 
 
 6000 
 
 2000 
 
 1400 
 
 2600 
 
 Day Book 
 
 
 Total. 
 
 Silk, 
 
 Cloth. 
 
 Velvet. 
 
 
 £ s. d. 
 
 £ 5. d. 
 
 £ 
 
 8. d. 
 
 £ 8. d. 
 
 By T. Henry 
 
 1300 
 
 
 600 
 
 
 
 700 
 
 ,, Cash . 
 
 800 
 
 800 
 
 
 
 
 „ T. Henry 
 
 4600 
 
 1500 
 
 1200 
 
 
 
 1900 
 
 ,, Cash . 
 
 400 
 
 
 
 
 400 
 
 ,, John Dent, Capital 
 
 
 
 
 
 
 Account 
 
 45 
 
 45 
 
 
 
 
 
 7145 
 
 2345 
 
 1800 
 
 
 
 3000 
 
 Exercises, 
 
 1. John Dent is in business as a silk, cloth, and velvet 
 merchant. His Balance Sheet at the beginning of the year 
 was as follows : — 
 
rfl 
 
 lOO 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 DEPARTMENTS 
 
 II 
 
 
 Assets. 
 
 
 
 
 
 T. Henry . 
 Bills receivable 
 Bank . 
 Stock on hand : — 
 
 Silk 
 
 Cloth . 
 
 Velvet . 
 
 • • 
 » • 
 
 . £200 
 , 300 
 . 600 
 
 « 
 ■ 
 
 
 
 
 
 
 
 
 
 
 
 . JBIOOO 
 
 . 1500 
 
 900 
 
 1000 
 . 100 
 
 
 
 
 
 
 
 Furniture and fittings 
 
 • • 
 
 • 
 
 
 
 
 
 £4500 
 
 
 
 
 Liabilities. 
 
 
 
 
 Webster & Co., Bradf( 
 Bills payable 
 Capital 
 
 3rd 
 
 • • 
 
 * • 
 
 
 • 
 
 . £2000 
 . 800 
 . 1700 
 
 
 
 
 
 
 £4500 
 
 
 
 His transactions throughout the year were as follows :— 
 
 Jan 2. Purchased from Webster 
 
 &Co. ... Silk 
 
 Cloth 
 
 3. Purchased for cheque . . Velvet . 
 5. Sold to T. Henry . . Cloth 
 
 Velvet . 
 
 7. Received for bill receivable due to-day . 
 Gave Webster & Co. bill payable in 
 
 six months . . . • • 
 
 20. Paid bill due to-day . . • • 
 
 July 2. Received for bills receivable due to-day . 
 Received from T. Henry 
 
 Sold for cash . . Silk . 
 
 10. Paid bill due to-day • • / 
 Dec 3 Purchased from Webster & Co. Silk 
 
 Cloth . 
 
 Accepted bill drawn by Webster & Co. 
 Gave them cheque . . . • 
 
 £800 
 
 
 
 
 
 600 
 
 
 
 
 
 400 
 
 
 
 
 
 600 
 
 
 
 
 
 700 
 
 
 
 
 
 1000 
 
 
 
 
 
 3300 
 
 
 
 
 
 800 
 
 
 
 
 
 600 
 
 
 
 
 
 2300 
 
 
 
 
 
 800 
 
 
 
 
 
 3300 
 
 
 
 
 
 1200 
 
 
 
 
 
 900 
 
 
 
 
 
 2000 
 
 
 
 
 
 100 
 
 
 
 
 
 ll 
 
 lOI 
 
 Dec. 5. 
 
 Purchased from Webster & Co. Velvet £2200 
 
 
 
 
 
 7. 
 
 Sold to T. Henry . . . Silk . 
 
 1500 
 
 
 
 
 
 
 Cloth . 
 
 1200 
 
 
 
 
 
 
 Velvet . 
 
 1900 
 
 
 
 
 
 
 Sold for cash . Velvet . 
 
 400 
 
 
 
 
 
 
 Received from T. Henry bill at three 
 
 
 
 
 
 months 
 
 4000 
 
 
 
 
 
 31. 
 
 John Dent took in cash for his personal 
 
 
 
 
 
 use 
 
 500 
 
 
 
 
 
 
 Drew from bank for personal use 
 
 350 
 
 
 
 
 
 
 Took for his personal use during 
 
 
 
 
 
 year. . . . Silk 
 
 45 
 
 
 
 
 
 
 Paid wages 
 
 20 
 
 
 
 
 
 
 Rent and taxes paid .... 
 
 150 
 
 
 
 
 
 
 The stock on hand at the end of the 
 
 
 
 
 
 year was as follows : — 
 
 
 
 
 
 Silk 
 
 400 
 
 
 
 
 
 
 Cloth 
 
 300 
 
 
 
 
 
 
 Velvet . 
 
 708 
 
 
 
 
 
 Prepare accounts showing the profit separately on silk, 
 cloth, and velvet. Prepare Profit and Loss Account and 
 Balance Sheet as at end of the year, writing off 10 per cent 
 from furniture and fittings for depreciation. 
 
 2. The following is the Balance Sheet as at 30th 
 June of Tod & Dick, Wholesale Warehousemen, who are 
 interested in the profits of the business in the proportion of 
 two- thirds to Tod and one- third to Dick. 
 
 The firm took stock on 31st December following, and 
 after making all necessary reserves and adjustments the 
 result was as set forth in the following particulars. 
 
 Prepare the following : — 
 
 (a) Trial Balance. 
 
 {b) Departmental Trading Accounts, showing net profit of 
 
 each department, 
 (e) Final Accounts and Balance Sheet. 
 
 I 
 
102 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 DEPARTMENTS 
 
 103 
 
 
 Balance Sheet as at 30th June. 
 
 Sundry trade creditors upon open account 
 Sundry trade creditors upon bills payable 
 Sundry cash creditors . • • 
 
 Interest and discount reserved . . . 
 Sundry creditors for rent, rates, taxes, salaries, 
 
 and wages . . . • 
 
 Capital — 
 
 Tod . . . .£15,000 
 Dick .... 6,000 
 
 £10,000 
 
 20,000 
 
 40,000 
 
 1,000 
 
 
 
 
 
 
 
 
 
 
 
 1,000 
 
 i 1,000 
 £93,000 
 
 Balance at bankers .... 
 Cash in hand ...••• 
 
 Sundry trade debtors upon open account . 
 Sundry trade debtors upon bills receivable in 
 hand ....••• 
 
 Sundry debtors upon loans .... 
 Stock in trade • • 
 
 Fixtures, fittings, and trade utensils 
 Business premises ...... 
 
 31s/ December, 
 
 Sundry trade creditors upon open account 
 
 Sundry trade debtors upon open account . 
 
 Bills payable 
 
 Bills receivable on hand 
 
 Balance at bankers 
 
 Cash on hand 
 
 Sundry cash creditors . 
 
 Sundry debtors upon loans 
 
 Fixtures, fittings, and trade utensils 
 
 Business premises ... * 
 
 Partners* drawings — 
 
 Tod 
 
 Dick . . . . • 
 
 £1,000 
 
 100 
 
 40,000 
 
 2,900 
 1,000 
 40,000 
 1,000 
 7,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £93,000 
 
 £18,000 
 
 29,000 
 
 10,000 
 
 3,000 
 
 2,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 100 
 
 
 
 
 
 28,000 
 
 1,000 
 
 950 
 
 
 
 
 
 
 
 
 
 6,500 
 
 
 
 
 
 1,000 
 400 
 
 
 
 
 
 
 
 Departmental Account 
 
 Departments 
 
 Stock, 30th June . 
 Stock, 31st December 
 Purchases .... 
 
 Sales 
 
 Working expenses (including 
 depreciation) 
 
 Nal. 
 £28,000 
 27,000 
 51,000 
 56,000 
 
 6,700 
 
 No. 2. 
 
 £7,000 
 
 6,000 
 
 10,000 
 
 15,950 
 
 1,300 
 
 No. 8. 
 
 £5,000 
 5,000 
 9,000 
 
 14,000 
 
 1,000 
 
 Total. 
 £40,000 
 38,000 
 70,000 
 85,950 
 
 9,000 
 
 3. From the following particulars prepare a Cash 
 Book and a columnar Day Book and Invoice Book. Post 
 into Ledger, and prepare Profit and Loss Account, showing 
 separately the profit on cinnamon, nutmegs, and mace. 
 Use the Journal for all entries not originated in the books 
 above given, and prepare final Balance Sheet. 
 
 Assets. 
 
 Cinnamon on hand, valued at 
 Nutmegs, do. do. 
 
 Mace do. da 
 
 Cash .... 
 B. Adams 
 Bills receivable 
 
 W. Perkins 
 
 Liability, 
 
 Transactions during Year. 
 
 Sold cinnamon for cash .... 
 Bought nutmegs from W. Perkins 
 Bought mace from T. Scott for . 
 
 Paid him that sum, less discount, £3. 
 Bill receivable became due, and was duly met 
 Sold parcel of goods to B. Adams — 
 
 Cinnamon ..... 
 
 Nutmegs ...... 
 
 Mace ...... 
 
 Drew upon B. Adams for full amount now owing 
 Paid W. Perkins 
 
 And gave him a bill for . 
 
 . £1200 
 
 
 
 
 
 750 
 
 
 
 
 
 300 
 
 
 
 
 
 . 2000 
 
 
 
 
 
 125 
 
 
 
 
 
 . 200 
 
 
 
 
 
 . £800 
 
 
 
 
 
 . £200 
 
 
 
 
 
 350 
 
 
 
 
 
 . 120 
 
 
 
 
 
 . 200 
 
 
 
 
 
 . 700 
 
 
 
 
 
 100 
 
 
 
 
 
 . 200 
 
 
 
 
 
 ^ 1125 
 
 
 
 
 
 500 
 
 
 
 
 
 . 500 
 
 
 
 
 
I04 ACCOUNTING IN THEORY AND PRACTICE 
 
 THE LEDGER 
 
 105 
 
 I 
 
 r 
 
 ii 
 
 I' 
 
 Sold goods for cash — 
 
 Nutmegs ... ... JB800 
 
 Mace 200 
 
 Paid oflBce expenses . . . . . .100 
 
 The stock on hand at the close of the year was 
 valued as follows — 
 
 Cinnamon ...... 480 
 
 Nutmegs ...... 470 
 
 Mace (all sold) . • . « . 
 
 4. From the following particulars of the business of 
 R Hay & Sons, Wine Merchants, prepare Departmental 
 Accounts, showing the gross profit on whisky, brandy, and 
 gin and wines, and Profit and Loss Account for the year. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Whisky. 
 
 £700 
 
 900 
 
 1500 
 
 2120 
 
 300 
 
 Brandy. Oin and 
 Wines. 
 
 £400 £6000 
 
 500 5000 
 
 1000 5800 
 
 1900 9500 
 
 200 2000 
 
 TotaL 
 
 £7,100 
 6,400 
 8,300 
 
 13,520 
 2,500 
 
 Stock in hand 1st January . 
 Stock in hand 31st December 
 Purchases .... 
 
 Sales 
 
 Duty and charges 
 
 The following additional payments and allowances have 
 been made during the year : — 
 
 Carriage . 
 
 Wages and salaries . 
 
 Stationery and stamps 
 
 Kent 
 
 Eates and taxes 
 
 Discount allowed to customers 
 Trade discounts received . 
 
 £50 
 300 
 10 
 50 
 18 
 100 
 150 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 THE LEDGER, AND CLASSIFICATION OF 
 LEDGER ACCOUNTS 
 
 THE LEDGER IS THE BOOK OF ACCOUNT IN WHICH BUSINESS 
 TRANSACTIONS ARE ARRANGED, CLASSIFIED, AND RE- 
 CORDED SO AS TO SHOW HOW EACH PERSON STANDS 
 IN RELATION TO THE BUSINESS, AND THE AGGREGATE 
 EFFECT OF THE TRANSACTIONS. 
 
 The financial statements of which a Ledger is made up 
 are called Ledger Accounts, and are headed with a title 
 
 descriptive of their contents. In each Ledger Account the 
 transactions are separated into debits and credits. The 
 money column on the left is reserved for the debit entries, 
 and the money column on the right for the credit entries. 
 The date and particulars are usually also separated, and 
 where they relate to debit transactions are put upon the 
 debit side, and where they relate to credit transactions on 
 the credit side of the account. The main feature is that 
 the Ledger should have separate money columns for debit 
 and credit entries. The application of the terms "debit" and 
 " credit " as applied to accounts is very easily followed in 
 the case of an account headed with the name of a customer 
 who purchases goods from the business. If he receives 
 goods on credit it is clear that his account must be debited 
 with the price of the goods, as he is indebted to the 
 business for them. When the customer pays his goods 
 he must get credit for having done so. The application of 
 the words " debtor " and " creditor " to impersonal accounts 
 is not so easily followed. 
 
 Ledger Accounts. 
 Ledger Accounts may be divided into : — 
 
 1. Personal : those showing the transactions with persons, 
 as Customers' Accounts and Creditors' Accounts. 
 
 2. Impersonal : all other accounts. 
 
 Impersonal Accounts may be divided into : — 
 
 1 . Real or property : those having to do with material 
 matter, such as stores, raw material, and cash. 
 
 2. Nominal, or accounts affecting revenue : those recording 
 facts as to profits and losses, such as wages and rent 
 
 The Goods Account is only a pure real account when 
 it shows the balance of goods on hand at the close of a 
 fiscal period. At other times it partakes of the nature of a 
 revenue account as well as of a real account 
 
io6 ACCOUNTING IN THEORY AND PRACTICE 
 
 THE LEDGER 
 
 107 
 
 \ \ 
 
 Personal Accounts. 
 
 Personal Accounts are accounts with persons, and show 
 the transactions between the business and the persons with 
 whom there are transactions which require to be recorded 
 as personal transactions. They resolve themselves into two 
 heads, debtors and creditors, or sales and purchases in a 
 manufacturing or trading business. By keeping the Debtors' 
 Accounts in one ledger, and the Creditors' Accounts in 
 another ledger, the accounts can be more easily referred to, 
 and one clerk may be posting purchases while another is 
 posting sales. The Debtors' Ledger is also entitled the 
 Sales Ledger or Sold Ledger, and the Creditors' Ledger the 
 Purchases Ledger or Bought Ledger. These ledgers may be 
 further subdivided where required. Thus the Sales Ledger 
 may be divided into Home Sales Ledger and Foreign Sales 
 Ledger ; also Town Sales Ledger and Country Sales Ledger. 
 The customers in the Town Sales Ledger may be arranged 
 alphabetically, and the Country Sales Ledger may be 
 arrantred so that the Customers' Accounts in the different 
 towns may come together, and the towns themselves may 
 appear in alphabetical order. 
 
 Real or Property Accounts. 
 
 Real or Property Accounts are those which represent 
 cash and real goods of all kinds, such as land, buildings, 
 plant, machinery, patents, stocks, ships, shares, goods, 
 merchandise, consignments, and assets of all descriptions 
 except Customers' Accounts, which are personal. 
 
 Nominal Accounts. 
 
 Nominal Accounts are those which represent income or 
 expenditure, such as wages, salaries, travelling expenses, 
 general expenses, rents, taxes, gas, water, etc. The Real 
 and Nominal Accounts should usually have a ledger to 
 themselves. In such a ledger the Real Accounts should 
 come first, and the others should follow in the order in 
 which they appear in the Profit and Loss Account 
 
 To balance Ledgers separately. 
 
 It is usually advisable where a merchant's transactions 
 are numerous to keep his accounts so that his ledgers may 
 be balanced separately, as by this means any errors in the 
 books may be at once localised, and the difficulties of 
 tracing them, and the time thereby wasted, very much 
 reduced. A merchant also often wishes to know the total 
 amount due by his customers and the amount that he is 
 due to his creditors, and it is a considerable advantage if 
 this can be ascertained without balancing the individual 
 accounts and preparing a Statement of Ledger Balances in 
 the usual way of the Customers' Ledger and the Creditors' 
 Ledger. It is a considerable advantage if the General 
 Ledger, which contains the accounts relating to property, 
 profit and loss, and capital, can be balanced independently 
 of the individual accounts of the customers and creditors. 
 The ledgers kept in a merchant's business are usually three, 
 as follows : — 
 
 1. The Customers' Ledger, containing the individual accounts 
 of each customer or trade debtor. 
 
 2. The Creditors' Ledger, containing the individual account 
 of each trade creditor. 
 
 3. The General Ledger, containing all the other accounts, being 
 those which relate to property, profit and loss, and capital. 
 
 To enable these three ledgers to be balanced in- 
 dependently of one another, the books of original entry 
 are kept so that all the items which are to be posted to 
 the Customers' and Creditors' Accounts are arranged in 
 money columns so that the totals of these columns can 
 be posted to accounts kept in the General Ledger, 
 headed " Customers' Accounts " and " Creditors* Accounts," 
 or " Customers' Ledger " and " Creditors* Ledger." With 
 only a Customers' Ledger, a Creditors* Ledger, and a 
 General Ledger this would involve columns in the Cash 
 Book for the receipts on behalf of customers and payments 
 to creditors, any occasional payments to customers or 
 receipts from creditors being adjusted by deductions from 
 the respective columns in the Cash Book or by a Journal 
 
i. 
 
 11 
 
 I 
 
 I 
 
 I 
 
 io8 ACCOUNTING IN THEORY AND PRACTICE 
 
 entry. The " Customers' Accounts " and " Creditors' 
 Accounts " in the General Ledger are practically abstracts 
 of the Customers' and Creditors' Ledgers, and may with 
 advantage be headed " Abstract of Customers' Ledger " and 
 " Abstract of Creditors' Ledger." Sometimes the two accounts 
 in the General Ledger are headed " Abstract of Customers' 
 Accounts " and " Abstract of Creditors' Accounts." The 
 " Customers' Account " is opened by having placed on the 
 debit side in one slump sum the total balances due by 
 customers at the date of opening the account There would 
 also be on the debit side the goods sold to customers as 
 shown by the weekly or monthly totals of the Day Book, 
 and on the credit side would appear the cash received from 
 customers, goods returned, and discount allowed to customers. 
 The General Ledger can thus be balanced independently 
 of the Customers' and Creditors' Ledgers, and when the 
 balances of these ledgers are ready, the statements of ledger 
 balances would show the same balances as are shown by 
 the Customers' and Creditors' Accounts in the General 
 Ledger. Sometimes a customer has also an account as 
 a creditor, and all transfers between his two accounts must 
 be entered in the Customers* and Creditors' Accounts in 
 the General Ledger, as well as in his individual accounts. 
 By this method the General Ledger contains all the particu- 
 lars necessary to balance the books, and immediately the 
 books of original entry are written up, summed, and their totals 
 posted, and the General Ledger Accounts completed, the Profit 
 and Loss Account and Balance Sheet of the concern may be 
 prepared. The Customers' and Creditors' Ledgers may be 
 posted up, and the individual accounts balanced off, and 
 statements of the balances prepared as found convenient 
 
 One of the great advantages of the method is, that by 
 it any mistakes in the books are at once localised, as it can 
 be ascertained whether the mistake is in the Customers* 
 Ledger, the Creditors' Ledger, or the General Ledger. Thus, 
 if the Trial Balance of the General Ledger " is out," by 
 preparing the Statement of the Customers' Ledger Balances, 
 and comparing the total amount thereby shown to be due by 
 customers with the balance shown by the Customers' Account, 
 
 THE LEDGER 
 
 109 
 
 and by comparing the total amount due to creditors as shown 
 by the List of Creditors' Ledger Balances with the balance 
 shown in the Creditors' Account in the General Ledger, the 
 error may be localised into one or other of the ledgers. 
 
 If the total of the Self-Balancing Ledger does not agree 
 with the balance shown in the abstract account in the 
 General Ledger, of which the Trial Balance agrees, then 
 since the error must be in the Self-Balancing Ledger, by 
 taking a Trial Balance of the Self-Balancing Ledger, showing 
 the totals of the two sides of each account, the sum of 
 these totals should agree with the totals of the abstract 
 account in the General Ledger, and so the error may be 
 still further localised to one side of the Self - Balancing 
 Ledger. 
 
 Again, the Customers' Ledger and the Creditors* Ledger 
 may be further subdivided. Thus the Customers' Ledger 
 may be divided into a ledger for Town Accounts and 
 another for Country Accounts. In this case it would be 
 necessary for the Sales Day Book to have two money 
 columns, one for town items and the other for country 
 items. Or a method which works even better in practice 
 is to have one Sales Day Book for town customers and 
 another Sales Day Book for country customers. 
 
 To make a ledger belonging to such a system of 
 accounts as has been indicated absolutely self-balancing, 
 it is only necessary to have in it an abstract similar to the 
 one in the General Ledger, but with all the items which 
 appear on the debit side in the General Ledger on the 
 credit side in the abstract account in the other ledger, 
 and the items which appear on the credit side in the 
 General Ledger on the debit side. The method of keeping 
 such accounts is shown in the third method of recording 
 the transactions of William Wood given on pages 32 to 39. 
 
 To analyse the Accounts %n a Ledger, 
 
 It is sometimes necessary where a set of books is 
 being checked or investigated to prepare a complete 
 analysis of the Ledger Accounts so as to show the sources 
 
1^ 
 
 no ACCOUNTING IN THEORY AND PRACTICE 
 
 Analysis of the Ledger of William Wood 
 
 Fol. 
 
 Name of Account. 
 
 Dr. 
 
 Balances at 
 
 beginning. 
 
 Caah. 
 
 Discount. 
 
 J. Oollins 
 
 W. Simpson 
 Jack k Co. 
 
 Scott & Tait . 
 
 Bills payable . 
 
 Bills receivable 
 
 Goods . 
 Rent ■ 
 
 Wages 
 
 Discount . 
 Capital . 
 
 Add— 
 Cash Sales 
 Cash Purchases 
 Balances : — 
 
 Bank . 
 
 Caiih 
 
 £ s. d. 
 800 
 
 £, s. d.\ £ *. d. 
 
 285 
 
 200 
 
 770 
 
 400 
 
 600 
 
 35 
 
 15 
 
 100 
 
 100 
 
 300 I 600 
 
 150 
 50 
 
 40 
 
 95 
 C5 
 
 1900 2705 
 
 15 
 10 
 
 Day Book. 
 
 JouniaL 
 
 £ 
 
 s. 
 
 d. 
 
 500 
 
 
 
 
 
 1830 
 
 
 
 
 
 650 
 
 
 
 
 
 £ 5. d. 
 
 280 
 
 400 
 
 500 
 
 300 
 
 2300 
 
 20 
 
 20 
 
 45 
 
 3000 
 
 3780 
 8000 
 
 6780 
 
 THE LEDGER 
 
 III 
 
 TAKEN BEFORE MAKING THE TrIAL BALANCE 
 
 Cr 
 
 Balance* 
 at end. 
 
 £ B. d. 
 
 Cr. 
 
 Balances at 
 beginning. 
 
 370 
 230 
 
 280 
 
 100 
 
 £ t. d. 
 
 Cash. 
 
 Discount. Invoice Book. 
 
 £ B. d. £. 5. d. 
 760 40 
 
 1230 
 
 300 
 
 £ s. d. 
 
 JoumaL 
 
 490 
 
 370 
 
 400 
 
 1000 
 
 £ 
 
 5. 
 
 d. 
 
 500 
 
 
 
 
 
 300 
 
 
 
 
 
 400 
 280 
 
 495 5 
 
 700 
 
 1680 
 
 1600 
 
 1900 
 
 3000 
 
 20 
 
 150 
 50 
 
 2705 
 
 40 
 
 Dr. 
 
 Balances 
 
 at end. 
 
 £ s. d. 
 
 300 
 650 
 
 300 
 
 50 
 
 200 
 
 20 
 
 45 
 
 2300 
 
 4480 
 2300 
 
 6780 
 
 95 
 65 
 
 1680 
 
112 ACCOUNTING IN THEORY AND PRACTICE 
 
 CHECK LEDGERS 
 
 "3 
 
 I. 
 
 from which the various items in these Ledger Accounts are 
 derived. The analysis is carried out on a large sheet of 
 paper ruled with perpendicular money columns, with a 
 column for the folio of the book of original entry before 
 each money column. Each account is taken, and each item 
 of the account is entered in the analysis sheet in its appro- 
 priate column. Where the folio in the book of original 
 entry is given this also is entered on the analysis sheet. 
 Thus the debit columns in the analysis sheet would begin 
 with a column for the debit balances, and the other 
 columns would be for the items in the books of original 
 entry, such as the Sales Day Book, the Cash Book, and the 
 Journal, together with a column for any credit balance 
 entered on the debit side before closing off the account. As 
 already pointed out, the folio of the book of original entry is 
 entered against each item. The items on the credit side of 
 each account are treated in the same way, item by item, 
 there being columns for the credit balances at the beginning 
 of the account, for the different books of original entry, such 
 as the Invoice Book, Cash Book, and Journal, and any debit 
 balance entered on the credit side before closing off the 
 account. Each account thus stretches across the analysis 
 sheet, and occupies as many of the horizontal lines as there 
 are items in the column containing the greatest number of 
 items. The next account is entered on the first clear line 
 on the analysis sheet Each page of the analysis sheet is 
 thus independent, and in fact each account can be balanced 
 by itself, but it is usually sufficient to balance each sheet. 
 When the totals of the columns in the analysis sheets are 
 completed they should be reconciled with the corresponding 
 totals of the books of original entry, and where there is any 
 difference it can be readily traced by checking the items 
 from the analysis sheet into the book of original entry, if 
 the folios have been entered on the analysis sheet 
 
 On the two preceding pages is an analysis of the Ledger 
 of William Wood given on pages 29 to 31, and the agree- 
 ment of the totals of the columns with the books of original 
 record is at once seen. The balances at the close of the 
 year are those given on page 66. 
 
 CHECK LEDGEES 
 
 In checking the posting of a set of books where there 
 are numerous entries, and which have not been kept so 
 that each ledger may be balanced separately, it is possible 
 with very little additional trouble to prepare Check Ledgers, 
 which enable any errors to be at once localised. ° In 
 checking the posting of a set of books when that is done 
 in the order in which the items are posted, namely from 
 the books of original record into the ledgers, it usuaUy 
 falls to a junior clerk to call out the original entries, and a 
 senior clerk checks them into the ledgers. While the 
 senior clerk is searching for the folio upon which the entry 
 IS to be found, the junior clerk writes up the Check Ledgers, 
 which are represented upon sheets of paper ruled with 
 money columns. The method can be best followed by an 
 illustration, and on the next page is given the Cash Book 
 Check Ledger Slips of the set of books of WiUiam Wood, 
 of which the Cash Book is given on page 34. 
 
 The Customers' Ledger is checked as follows : 
 
 Balance due by customers at beginning of year . £800 
 lotal of Day Book . . . £3000 
 
 Deduct — 
 Cash sales . . . . 20 
 
 2980 
 
 
 
 
 
 Deduct — 
 Credits through Cash Book . 
 
 £3780 
 2530 
 
 Balance due by customers at close of year . £1250 
 
 This is the balance shown by the Customers' Ledger as 
 due by customers at the close of the year. No adjustment 
 lor cash sales and cash purchases is necessary if these are 
 treated aa belonging to the Customers' and Purchases 
 Ledgers respectively. 
 
 \ 
 
114 ACCOUNTING IN THEORY AND PRACTICE 
 
 THE CARD LEDGER 
 
 "5 
 
 \\ 
 
 \ 
 
 «: 
 
 Cash Book Check Ledger Figures 
 
 Cash D«btor. 
 
 Customen' 
 Ledger. 
 
 General 
 Ledger. 
 
 £760 
 40 
 
 495 
 
 5 
 
 1230 
 
 £150 
 50 
 
 20 
 
 £2530 
 
 £220 
 2530 
 
 
 £2750 
 
 
 Cash Creditor. 
 
 FnrehaMS Ledger. 
 
 General Ledger. 
 
 £285 
 
 15 
 
 400 
 
 200 
 
 10 
 
 770 
 
 £40 
 
 35 
 
 100 
 
 15 
 
 100 
 600 
 
 £1680 
 
 £890 
 1680 
 
 Discount £45 
 25 
 
 £2570 
 
 20 
 65 
 95 
 
 Balances 
 
 £2750 
 
 THE CARD OR LOOSE-LEAF SYSTEM OF 
 KEEPING LEDGER ACCOUNTS 
 
 The Card or Loose-Leaf system of keeping Ledger 
 Accounts, which has found considerable favour in America, 
 works very satisfactorily in some businesses. By this 
 method, instead of the Ledger Accounts being in bound 
 volumes, they are kept upon loose sheets or cards in a box 
 or case. When it is proposed to open a new account, a 
 card or loose sheet, ruled like a Ledger Account, is taken 
 and headed with the name of the account. When a sheet 
 is completely filled, the account is continued on another 
 loose sheet, and Ledger Accounts which are finished and 
 which will not be again required are at once removed. 
 The ledger thus consists only of accounts which are in use, 
 
 |l i 
 
 and, in preparing a Trial Balance, the trouble of going over 
 accounts which have no balance upon them is saved. The 
 accounts may further be arranged in any order, either 
 alphabeticaUy, according to the names of the accounts; 
 or geographically, according to the towns, or according to 
 the streets where the persons reside, or in any other way 
 that may be found desirable. The advantages of the 
 method are : — 
 
 L The account of one person, or the account relating to the 
 same kind of transaction may be extended as required to any 
 extent by merely adding more sheets as found necessary. 
 
 2. Accounts when closed may be removed at once. 
 
 3. The accounts may be arranged in any order, and this 
 order may be altered at any time. 
 
 4. The trouble of opening a new ledger is done away with. 
 
 5. An account or any number of accounts may be taken 
 out and given to separate clerks to be copied without dis- 
 turbmg the others. 
 
 In connection with this system of keeping ledgers an 
 efficient index to each ledger must be provided. If the 
 sheets are arranged alphabetically, however, the index may 
 be dispensed with. The sheets may be paged in the same 
 way as the pages of an ordinary ledger. 
 
 The Card System applied to a Shareholders' Ledger. 
 
 The card system may be applied with advantage to the 
 keeping of a Shareholders' Ledger or of a Debentureholders' 
 Ledger. The work in connection with the transfer of 
 shares once the transfers have been registered in the 
 Transfer Register, consists mainly in the irksome routine 
 ot debitmg the account of each transferor, and crediting 
 the account of each transferee with the shares. The labour 
 of this IS much reduced by the card system, and the work 
 practically results into simply lifting one card with the shares 
 noted upon it from its place beside the transferor's name 
 to Its place beside the name of the transferee. In the 
 apphcation of the method to a Shareholders' Ledger no chan«>e 
 IS required in the other books of the system, such as the 
 
i} 
 
 r. 
 
 (I 
 
 1 1 
 ■ > 
 
 i ,1 
 'I 
 
 ii6 ACCOUNTING IN THEORY AND PRACTICE 
 
 Allotment Book or Kegister of Transfers. The cards are 
 kept in a cabinet specially prepared for their reception 
 such as is used in libraries catalogued on the card system. 
 The name of each shareholder is written at the top of a 
 card, a specimen of which is shown, and the particulars of 
 the shares are entered upon a shorter card, a specimen of 
 which is also shown. Upon each name-card the name, 
 designation, address, and the distinctive number of the 
 shareholder is given. Upon each share-card are contained 
 the particulars of each block of shares held, showing their 
 distinctive numbers and their total amount. In the 
 specimens given particulars have been filled in. The 
 share-cards, upon which are contained particulars of the 
 shares held by any individual shareholder, are placed in 
 front of his name-card. The share-card contains a space 
 for the date and number of each transfer. Both cards are 
 perforated near their lower edge so that when the cards are 
 arranged in their drawer a rod may be passed through to 
 fix them in their places. The name-cards are arranged in 
 alphabetical order. In posting a transfer from the Kegister 
 of Transfers all that requires to be done is to take the 
 share-card containing the particulars of the shares trans- 
 ferred from in front of the transferor's name-card, place the 
 date and number of the transfer upon it, and deposit it in 
 front of the transferee's name-card. When blocks of shares 
 are split, or a share-card is completely fiUed up, new share- 
 cards are used, and the old ones are cancelled. 
 
 To prepare a list of shareholders at any time all that 
 requires to be done is to copy out the names and holdings 
 from the cards. No index is required, as the names are 
 arranged alphabetically. 
 
 When circulars are being addressed to the shareholders 
 any number of clerks may be employed, and the work com- 
 pleted in as short a time as desired. The system is so 
 simple that with ordinary care no error need ever be made, 
 but should a mistake occur it can be readily traced by 
 means of the references on the share-cards. 
 
 The following are specimens of the cards referred to : — 
 
 THE CARD LEDGER 
 
 117 
 
 Cards for Shareholders' Ledger 
 
 No 
 
 Name 
 
 Designation. 
 Address. 
 
 Shares 
 
 From 56421 
 
 To 56520 
 Amount 100 
 
 Date. 
 
 Transfer 
 No. 
 
 Date. 
 
 Transfer 
 No. 
 
 o 
 
 Date. 
 
 Transfer 
 No. 
 
ii8 ACCOUNTING IN THEORY AND PRACTICE 
 
 RESERVES AND RESERVE FUNDS 
 
 no 
 
 Nl 
 
 H ! 
 
 ■ , i 
 f ' . ' 
 
 : M 
 
 It 
 
 RESERVES AND RESERVE FUNDS 
 
 A RESERVE IS AN AMOUNT SET ASIDE OUT OF PROFITS, OR 
 OTHER CREDIT BALANCE NOT REPRESENTING A LIABILITY 
 TO OUTSIDE CREDITORS, BY DEBITING THE PROFIT AND 
 LOSS OR OTHER ACCOUNT AND CREDITING THE RESERVE 
 OR RESERVE FUND ACCOUNT. 
 
 A reserve is formed out of profit where it is thought 
 for any reason to be undesirable to pay away the full 
 amount of the profit shown in the Profit and Loss Account. 
 The profits must have been such as might have been 
 distributed in the form of dividends, but are retained 
 with the view of the capital being strengthened and 
 augmented. The reserve should therefore be formed by 
 debiting the Profit Appropriation Account and crediting the 
 sum to the Reserve Fund Account A reserve may be 
 available for equalising dividends or for meeting extra- 
 ordinary losses. When a reserve is provided for any 
 distinct object or contingency it should be specially desig- 
 nated so as to ear-mark the fund. As, for example. 
 Reserve for Equalising Dividends, Reserve for Bad Debts, 
 Reserve for Depreciation, Reserve for loss on Investments, 
 etc. With reference to such reserves, it must be noted 
 that a reserve for bad debts or for depreciation is not a 
 reserve so far as bad debts have been incurred or deprecia- 
 tion has actually taken place, but are only reserves so far 
 as the amount reserved is in excess of current require- 
 ments. Reserves for Bad Debts and Depreciation are better 
 termed Allowances for Bad Debts and Depreciation when 
 they refer to present requirements. Similarly with Reserve 
 against loss on Investments. A reserve to be such must 
 form part of the surplus of assets correctly valued over all 
 liabilities to outside creditors, capital, aad unappropriated 
 profits. In a new company, for example, there can be no 
 Reserve Fund until all such assets as Preliminary Expenses 
 have been wiped out. Again, there can be no Reserve 
 
 Fund until any debit balance on the Profit and Loss 
 Account is wiped out 
 
 Sometimes when shares or debentures are issued at a 
 premium the total premiums received, after deducting the 
 expenses of the issue, are credited to a Reserve Fund, which 
 is used generally to strengthen the financial position of the 
 company. Various terms are applied to a reserve, such as 
 Reserve Fund, Reserve Account, Surplus, Margin, and Rest. 
 
 Investment Fund, 
 
 When a Reserve Fund in place of being merely such 
 as we have defined it has a corresponding amount of cash 
 used to purchase securities which are held as available for 
 the purposes of the reserve, the Reserve Fund is sometimes 
 designated as an Investment Fund. It is perhaps, however, 
 preferable to still call the fund the Reserve Fund, and to 
 place the investment connected with it under the head 
 '* Reserve Fund Investments " on the assets side of the 
 Balance Sheet A reserve is as truly a reserve whether a 
 corresponding sum is invested outside the business or 
 remains in the business. In fact, the sum so invested may 
 remain iutact, but the reserve may disappear through the 
 depreciation of the assets of a concern or through direct 
 losses. 
 
 Secret Reserves, 
 
 Certain large financial concerns, such as banks and 
 insurance offices, have sometimes very large secret reserves. 
 These are formed by writing down, for example, the figure 
 at which the buildings stand in the accounts to a nominal 
 sum, by maintaining investments at cost which have 
 permanently appreciated in value, and by the omission 
 altogether of assets from the Balance Sheet which might 
 fairly be included. The practice is not to be commended, as 
 it is quite as incorrect, although less harmful in its results, 
 to understate a company's position as to overstate it Some 
 companies thus practically defraud one race of shareholders 
 for the benefit of their posterity. 
 
I 
 
 I20 ACCOUNTING IN THEORY AND PRACTICE 
 
 Redemption Fund. 
 
 A REDEMPTION FUND IS SIMILAR TO A RESERVE FUND 
 IN THAT IT IS SET ASIDE OUT OF PROFITS, USUALLY BY 
 EQUAL YEARLY INSTALMENTS, SO THAT WHEN A FUNDED 
 DEBT OR OTHER OBLIGATION MATURES THE REDEMPTION FUND 
 WILL EQUAL THE AMOUNT OF THE OBLIGATION, AND THERE 
 WILL BE AN ACCUMULATED SURPLUS OF ASSETS OUT OF 
 
 WHICH TO REDEEM IT. Had the profits been divided there 
 would have been no cash or other available assets out of 
 which to meet the obligation. The creation of such a fund 
 results in profits being withheld from division by way of 
 dividend, and thus makes possible the redemption of the 
 debt out of the resulting accumulation of assets. When the 
 obligation is paid off, the Redemption Fund still remains, and 
 must then either be treated as an ordinary Reserve Fund or 
 carried back to the Profit and Loss Account. 
 
 Debenture Reserve Fund, 
 
 It is sometimes provided in the Articles of Association 
 of a company that an annual sum is to be set aside out of 
 profits to pay off its debentures at the end of a certain 
 time. The result of such a provision is to form a Redemp- 
 tion Fund, which may be called the " Debenture Reserve 
 Fund," which at the date when the debentures mature 
 should have at its credit a sum equal to the amount of the 
 debentures. The directors should, of course, have watched 
 to see that they had sufficient cash to meet the debentures, 
 and when these are paid the Debenture Account would be 
 debited with the amount, and the directors thus find 
 themselves with a credit balance equal to the amount of 
 the debentures paid off on the Debenture Reserve Account 
 The balance of the Debenture Reserve Fund Account may, 
 therefore, after the debentures have been paid off, either 
 be re-transferred to the Profit and Loss Account, where it 
 will be available for appropriation to other purposes, such as 
 an ordinary Reserve Fund, 
 
 r 
 
 I 
 
 SINKING FUNDS 
 
 121 
 
 SINKING FUNDS 
 
 A SINKING FUND IS A FUND SET ASIDE OUT OF ASSETS 
 AND ACCUMULATED AT INTEREST FOR THE PURPOSE OF 
 MEETING A DEBT. 
 
 Thus the fund set aside annually by a government, 
 and invested, along with the interest on the annual 
 instalments, with the view of redeeming at some future 
 date the liabilities of the government to its stockholders, 
 is a Sinking Fund properly so called. The main dis- 
 tinction between a Sinking Fund and a Reserve Fund 
 or Depreciation Fund is that a Sinking Fund is formed of 
 specific assets set aside and ear-marked to be used in the 
 payment of some liability, whereas a Reserve Fund is set 
 aside out of profits to be used should occasion require to 
 write down some asset, and is frequently represented by the 
 ordinary trade assets. The Sinking Fund is a debit balance 
 in the ledger and an asset. The Reserve Fund is a credit 
 balance and a liability. A Sinking Fund is sometimes formed 
 by companies to redeem such liabilities as debentures and 
 mortgages. 
 
 Contingent Fund. 
 
 A CONTINGENT FUND, LIKE A SINKING FUND, IS SET 
 ASIDE OUT OF CASH OR OTHER ASSETS, USUALLY OF THE 
 NATURE OF OCCASIONAL OR EXTRAORDINARY RECEIPTS NOT 
 RECEIVED FOR ANY PARTICULAR PURPOSE. The fund is USed 
 
 for payments for which there are no other available funds. 
 The expression " Contingent Fund " should never be used 
 for a Reserve Fund, but the name should be kept strictly 
 for such an asset as has been defined. The Contingent 
 Fund is an asset, whereas the Reserve Fund appears among 
 the liabilities. In a friendly society fines paid by the 
 members in respect of non-attendance at meetings or non- 
 acceptance of office are sometimes accumulated in such a 
 fund apart from the regular accounts of the society alto- 
 
122 ACCOUNTING IN THEORY AND PRACTICE 
 
 I' 
 
 i 
 
 getlier, and the fund is useful when any contingency arises 
 requiring the disbursement of money which cannot be paid 
 out of any of the other funds. 
 
 Debenture Bond Sinking Fund. 
 
 An everyday instance of a Sinking Fund is found in the 
 case of a debenture bond purchased at a premium, and 
 redeemable at par at the end of a fixed number of years. 
 Under such circumstances the interest received cannot all 
 be treated as income ; part of it must be applied year by 
 year to wipe off the premium so that immediately before 
 maturity the Investment Account may stand debited with 
 the par value only of the bond. The annual income is 
 termed the nominal interest; the balance after provision 
 has been made for writing off the premium is the true 
 interest, or, as it is technically termed, the yield of the in- 
 vestment Thus, suppose £104 is paid for a £100 deben- 
 ture bond, redeemable at the end of 10 years, and bearing 
 interest meanwhile at 5 per cent per annum. Here 5 per 
 cent is the nominal interest, or the interest on the par value 
 of the bond, but the interest on the actml capital invested, 
 in other words, the yield of the investment, is only 4|- per 
 cent, the difference representing capital repaid which should 
 be re-invested. In the case of curatories and judicial fac- 
 tories under the Court it is usually necessary to set aside 
 each year a portion of the income from all bonds and stocks 
 purchased at a premium and redeemable within a given 
 number of years. Thus Colonial Government stocks when 
 redeemable and purchased at a premium must be reduced 
 from what they cost to their redeemable value by having 
 so much written off the figure at which they are valued 
 each year, so that when they are redeemed the cash re- 
 ceived will be the same as the value put upon them in the 
 accounts. 
 
 The Ledger Account for such an investment as that 
 given above would be as follows : — 
 
 SINKING FUNDS 
 
 123 
 
 £100 FIVE PER CENT DEBENTURE BOND 
 
 Eedeemable Ist January 1910 at par. — Yield of Investment, 
 
 4 J per cent, 
 Dr, Cr, 
 
 1900. 
 Jan. 1. 
 Dec. 31. 
 
 To Cash . . £104 
 „ Interest (4^ per 
 cent on £104) . 4 
 
 
 13 
 
 
 
 7 
 
 1900. 
 Dec. 31. 
 
 1901. 
 Dec. 31. 
 
 1902. 
 Dec. 31. 
 
 By Cash (nominal 
 interest re- 
 ceived) . 
 ,, Balance 
 
 By Cash 
 ,, Balance . 
 
 By Cash 
 ,, Balance . 
 
 £5 
 103 
 
 
 13 7 
 
 
 £108 
 
 • 
 
 To Balance . . £103 
 ,, Interest (4^ 
 per cent on 
 £103:138. 7d.) 4 
 
 £108 
 
 13 
 
 13 
 
 13 
 6 
 
 7 
 
 7 
 
 4 
 11 
 
 £108 
 
 13 7 
 
 1901. 
 Jan. 1. 
 Dae. 31. 
 
 £5 
 103 
 
 
 6 11 
 
 
 £108 
 
 6 11 
 
 1902. 
 Jan. 1. 
 Dec. 31. 
 
 To Balance . . £103 
 ,, Interest (4^ 
 per cent on 
 £103 : 6s. lid.) 4 
 
 £107 
 
 6 
 
 13 
 
 19 
 
 11 
 
 
 11 
 
 £5 
 102 
 
 
 19 11 
 
 
 £107 19 11 
 
 and so on each year. 
 
 Here it will be seen that in the first year 6s. 5d. of the 
 premium is wiped off; in the second year 6s. 8d. ; in the 
 third year 7s., and if the account be continued to its close 
 it will be found that the sum of all these " repayments of 
 capital" is £4, and that the debit will be reduced to £100 
 by the time the bond will have reached maturity and be 
 paid off at its par value. 
 
 The student will ask how he is to ascertain that such 
 an investment yields him 4 J per cent, or, conversely, such 
 a debenture bond being offered him, how he is to ascertain 
 the price that will yield him 4J per cent, or any other 
 desired return, on his investment These questions form a 
 chapter in the Theory of Annuities-Certain, which hardly 
 falls within the scope of this work. The problem is, how- 
 
124 ACCOUNTING IN THEORY AND PRACTICE 
 
 
 ever, capable of a simple solution by means of interest and 
 annuity tables. Thus, suppose I am offered a bond such 
 as has been described, and I wish to ascertain what annual 
 return the investment will yield. I have to pay £104, and 
 for this I am to receive (1) an annuity of £5 for 10 years, 
 and (2) repayment at par, namely £100, at the end of 10 
 years. Now the rate of interest I wish to ascertain is that 
 rate at which the present values of the interest and the 
 capital added together will amount to £104. I take my 
 tables and first try, say, 4| per cent 
 
 Present value at 4f per cent of 
 
 an annuity of £5 for 10 years . 
 Present value at 4f per cent of 
 
 £lOOreceivableatendof lOyears £100 x -62872= 62872 
 
 £5 x7-816 = £39-080 
 
 £101-952 
 
 The value of the annuity (7-816 per unit) and the 
 capital (-62872 per unit) have been taken too low, that is, 
 at too liigh a rate of interest; in other words, the price 
 asked, 104, would not enable me to realise 4 J per cent 
 Try 4 J per cent 
 
 Present value at 4J per cent of 
 
 an annuity of £5 for 10 years . £5 x 8011 =£40055 
 
 Present value at 4J per cent of 
 
 £100 receivable at end of 10 years £100 x -65954= 65954 
 
 £106-009 
 
 Here, on the other hand, the rate of interest tried is 
 evidently too low. If I wanted to realise only 4 J per cent 
 I could afford to pay £106. 
 
 Try now an intermediate rate, say 4J per cent 
 
 Present value at 4 J per cent of 
 
 an annuity of £5 for 10 years . £6x7-913 = £39565 
 
 Present value at 4 J per cent of 
 
 £100 receivable at end of lOyears £100 x -64393= 64-393 
 
 £103-958 
 
 SINKING FUNDS 
 
 125 
 
 I have thus, as near as possible, hit upon the correct rate, 
 and have found that if I pay £104 (more accurately 
 £103 : 19s. 2d.), for the bond in question, the return on my 
 investment will be 4 J per cent. 
 
 The converse problem of finding what price I should 
 pay in order to realise a stipulated return on my outlay is, 
 of course, solved in the same manner, but without the 
 necessity of successive trials. I simply value the £5 per 
 annum and the £100 payable 10 years hence at the stipulated 
 rate of interest, and the sum of their values is the price I 
 should pay. Thus if I want to realise ^\ per cent I shall 
 pay £106009 ; if 4j per cent, £103-958 ; if 4| per cent, 
 £101-952. 
 
 The bond dealt with above bears interest at a nominal 
 rate per annum. In practice, interest is usually payable 
 half-yearly. But all that has been said applies if we 
 substitute in the above example the words "20 periods" 
 for "10 years," treat the bond as bearing 1\ per cent per 
 'p&riod for 20 periods, and select the annuity and present 
 values accordingly. The resulting yield will be the yield 
 per 'period. 
 
 The bond may be purchased, not at a 'premium, but at 
 a discount. But the same principles hold good. The true 
 yield in such a case will be higher than the nominal rate 
 of interest, and will be ascertained as above; the debit 
 entries in the Loan Account will exceed the credits, and thus 
 the loan will be gradually ivritten up to the par value of 
 the bond. 
 
 These brief explanations will, it is hoped, enable any 
 one to calculate for himself the yield on a simple debenture 
 bond. But those who deal frequently with such invest- 
 ments have no need to be their own computers. Various 
 Bets of tables, such as those of Nash, have been published, 
 from which the information required can be obtained at a 
 glance. 
 
 In what has preceded it is assumed (1) that the pay- 
 ments of nominal interest will be regular and uniform, and 
 (2) that the first payment of interest falls due a full year 
 (or period) after the date of purchase, in other words, that 
 
126 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 the bond IS acquired immediately after a payment of interest 
 has been made. This latter condition does not usually hold 
 m practice. Bonds are bought and sold daUy, and the 
 purchaser usuaUy acquires with them the next due interest 
 coupons, no matter how soon they may be payable In 
 such cases the actual price paid must be discounted for the 
 fractional period elapsed before itis made the basis forcalculat- 
 mg the yield. The discounting is usually effected by simply 
 knocking off the amount of TuminaX irUerest already accrued 
 Thus suppose I buy on Ist July, at £106j, a bond for 
 £100, o per cent interest, the first interest coupon of which 
 is payable on the 1st January following. £2 :10s of in- 
 terest has thus accrued, and is presumably included in the 
 price. Deducting it, we have £104, the price as at 1st 
 January preceding, and this will form the basis for ascertain- 
 ing the yield. The Ledger Account will of course be debited 
 with £106 J actuaUy paid on 1st July. Then, on the 1st 
 January foUowing, the first instalment of interest, £5 will 
 fall to be credited. The corresponding debit, however, is 
 only for half a year in respect of the price paid, and should 
 be arrived at as follows. The yield will be 4 J per cent, as 
 shown above, if the bond be a 1 y eai^ one. The duccmnted 
 prue on which the yield was estimated is £104 A full 
 year's interest on this at 4j per cent is £4 : 13s. 7d.'; deduct 
 £2 :10s included in the actual price, debit the balance, 
 £2 : 3s 7d., and the account will then be in the same position 
 ^ If the purchase had been made a full year previously at 
 £104, as shown in the example already given. 
 
 In the case of a bond payable in a foreign currency 
 the element of exchange may enter and complicate matters' 
 
 ^ ^^J"" ^""^""P^^ *^^^ ^^ American railway bond 
 
 tor, say, ^500, with coupons attached for $25 each ie 5 
 per cent. On the London Stock Exchange the value of the 
 dollar IS usually taken at 4s. Thus, if the price were 
 1U4, a purchaser would have to pay £500 x 1*04 divided 
 by 5, or £1 04. But in all probability he wHl receive more 
 than 4s. per dollar, both on his interest coupons and on the 
 bond at Its maturity; in fact, 4s. Id. per dollar may safely 
 be anticipated as a minimum. At this rate £104 is 
 
 SINKING FUNDS 
 
 127 
 
 equal to $509*4, being a premium of only 1*88 per cent on 
 the $500 bond. Thus, by paying at the rate of 4s. per 
 dollar, and receiving interest and capital at the rate of 4s. Id., 
 the nominal premium is reduced by 212 per cent, and the 
 yield will be increased accordingly. 
 
 One other point may be referred to. It is not necessary 
 to burden the Ledger Account with both debit and credit 
 entries in respect of interest. From the example already 
 given in detail of the £100 five per cent debenture bond, it 
 will be seen that the capital is written down by 6 s. 5d. the 
 first year ; 6s. 8d. the second year ; 7s. the third year, and 
 so on. These instalments of Sinking Fund are all that need 
 appear in the Ledger Account The whole interest as re- 
 ceived would go to the credit of the Interest Account, and 
 the instalments of Sinking Fund would be journalised as 
 follows : — 
 
 1900. Dec. 31. 
 1901 Dec. 81. 
 1902. Dec. 31. 
 
 Dr. 
 
 Dr. 
 
 Interest .... 
 To £100 five per cent 
 debenture bond 
 Interest 
 To £100 five per cent 
 debenture bond 
 Interest .... Dr 
 To £100 five per cent 
 debenture bond 4 
 
 £0 
 
 6 5 
 
 
 
 6 8 
 
 
 
 7 
 
 £0 6 5 
 6 8 
 7 
 
 and so on each year. 
 
 This method has one advantage in the case of loans 
 affected by a foreign exchange — any profit or loss arising 
 from incidental variations of exchange is at once carried to 
 the Interest Account, and is not suffered to affect the Loan 
 Account. The first instalment of Sinking Fund having been 
 ascertained, the succeeding instalments are easily calculated, 
 
 for they form a geometrical series with the ratio 1+ — , 
 
 where K is the yield per cent. Thus, in the above example 
 6s. 8d. = 6s. 5d. plus 4j per cent ; 7s. = 6s. 8d. plus 4i 
 per cent, and so on. 
 
1 28 A ceo UNTING IN THE OR Y AND PR A CTICE 
 
 COLLIERY SINKING OR REDEMPTION FUNDS 
 
 Provision is, as a rule, made in the Articles of Associa- 
 tion of a colliery company for the time when the coal will 
 become exhausted, or for the expiry of the lease, when the 
 fixed plant and workings which have been put down and 
 opened up at considerable cost will be of very little value. 
 The precise value of the fixed plant and other capital outlay 
 of a colliery at any particular time is a question more for a 
 mining expert than for an accountant, and very often in 
 such questions it is of great advantage for an accountant 
 and a mining expert to have a conference, so that they 
 may advise the colliery company what is the best course 
 to pursue in the special circumstances of each case. The 
 mining expert can tell how long the coal will last, and the 
 accountant can tell what sum it will be necessary to set aside 
 each year in order to replace the Capital of the company. 
 It is very desirable to have some scientific basis upon which 
 to calculate the Redemption Fund, so that when the colliery 
 is completely worked out or the lease has expired the 
 capital of the shareholders may be used for the purpose of 
 leasing another coal-field, or may be returned to the share- 
 holders. When the specific gravity of the coal is known, 
 together with the average thickness of the various seams, 
 and the total area included in the lease, the quantity of coal 
 in the coal-field may be calculated with considerable 
 accuracy. The total quantity of coal and the probable 
 annual output being known, the date of exhaustion when 
 the Sinking Fund will be required to replace the capital 
 may be ascertained. There are various ways in which the 
 Sinking Fund to provide for the capital to be repaid to the 
 shareholders, or to be used in the leasing of another field, 
 may be formed. Thus, the same sum may be set aside each 
 year and invested outside the business of the colliery in 
 some security so that these instalments, with the interest 
 that has accumulated, will amount to the sum required. 
 Again, sums of the same amount may be debited to the 
 
 \ 
 
 CO LURRY SINKING FUNDS 
 
 129 
 
 Profit and Loss Account and credited to a Reserve Account 
 in the books of the colliery, and interest at the required 
 rate may also be credited each year, but no separate invest- 
 ment may be made. Again, an equal annual sum may be 
 set aside each year of such an amount as without interest 
 will amount to the sum required. The annual output of a 
 colliery varies very much one year with another, and an 
 equal annual sum is of course felt most in poor years. A 
 preferable method is to make the payments to the Sinking 
 Fund depend on the profits for the year, and this is done by 
 setting aside a fixed rate per ton of coal raised or sold. 
 This method works very satisfactorily on the whole, and by 
 it each ton of coal bears its equal share of the expenses of 
 pit sinking and making the colliery. Thus, if £50,000 is 
 expended upon sinking shafts and general colliery formation 
 expenses, and the total quantity of coal in the field is 
 estimated at twenty-four millions of tons, a rate of Jd. per 
 ton will provide the necessary Sinking Fund by the time the 
 coal is worked up. This method, although it errs on the 
 safe side, leaves out of account the question of interest, and 
 assumes that the money will simply remain in the colliery. 
 If the Sinking Fund is invested outside the business, or if the 
 fund, although left in the business, is credited with interest 
 each year, the amount per ton required to be set aside will 
 only be about one-half. Assuming that in the above case 
 the coal would be exhausted in fifty years, and that the 
 annual output would be 480,000 tons per annum, the 
 annual sum required to be set aside and invested at 3 per 
 cent to provide £50,000 in fifty years is £443 : 5s. 6d. 
 This sum, divided by the annual output, gives less than ^d. 
 per ton as the amount required to be set aside in respect of 
 each ton of coal raised. Of course it is evident that if more 
 coal is raised each year so that the coal becomes exhausted 
 in less than fifty years the Sinking Fund will not be 
 sufficient ; on the other hand, if less coal is raised, and the 
 colliery lasts beyond the fifty years, the Sinking Fund will 
 be more than sufficient in consequence of the operation of 
 interest. Almost all colliery Sinking Funds require to be 
 carefully revised and adjusted every few years. The 
 
I 
 
 I I 
 
 130 ACCOUNTING IN THEORY AND PRACTICE 
 
 simplest method of all, and one which requires no adjusting, 
 is to set aside the same sum each year. Thus, suppose a 
 pit cost £19,000 to sink, and that the lease is for thirty 
 years, at the end of which time the break-up value of the 
 machinery will be £1000. It is evident that £18,000 
 must be written off during the thirty years. The simplest 
 way to accomplish this is to charge £600 per annum. 
 This method has the advantage of simplicity, and when the 
 amount of depreciation is fixed there is no temptation to 
 adjust it each year so as to enable a dividend to be paid. 
 
 REALISATION AND LIQUIDATION ACCOUNTS 
 
 A REALISATION AND UQUIDATION ACCOUNT IS AN ACCOUNT 
 SHOWING THE RESULT OF THE LIQUIDATION OP A 
 BUSINESS OR ESTATE. 
 
 It is debited with the total assets as shown in the 
 Balance Sheet or Statement of Affairs of the concern as at 
 the date of the commencement of the liquidation, and is 
 credited with the liabilities to outside creditors. It is there- 
 after credited with the assets as realised and charged with the 
 liabilities as they are liquidated, together with tlie expenses 
 of realisation and the cost of liquidation. 
 
 Realisation and Liquidation Accounts are sometimes 
 prepared in the form of Accounts Charj][e and Discharae. 
 The liquidator charges himself with the whole estate as at 
 the date of liquidation. The Charge also contains in an inner 
 column the estate actually realised. Any surplus on realisa- 
 tion is added, and any deficiency or loss on realisation is 
 deducted from the Charge. On the Discharge side of the 
 account appear the payments made to creditors, the expenses 
 of realisation, the cost of the liquidation, and any return of 
 share capital made to the shareholders. 
 
 JOINT ACCOUNTS 
 
 131 
 
 CONSIGNMENT ACCOUNTS 
 
 A CONSIGNMENT ACCOUNT IS AN ACCOUNT KEPT BY A 
 MERCHANT, CALLED THE CONSIGNEE, WHO RECEIVES 
 GOODS CONSIGNED TO HIM FOR SALE, AND SHOWS ON 
 THE DEBIT SIDE THE EXPENSES AND COMMISSION 
 CHARGED IN CONNECTION WITH GOODS RECEIVED FROM 
 ANOTHER MERCHANT, CALLED THE CONSIGNER, AND 
 ON THE CREDIT SIDE THE AMOUNT REALISED FOR THE 
 GOODS. 
 
 The goods are sent at the risk of the consigner, and 
 remain his property till sold. The corresponding account in 
 the books of the consigner is headed merely " Consignment 
 Account " or " Consignment Outwards Account." The state- 
 ment which the consignee renders to the consigner when the 
 transaction is completed is called an "Account Sales," 
 and enables the consigner to write up his Ledger Account. 
 The balance is remitted by the consignee either by cash or 
 bill, or transferred to the current account of the consigner. 
 
 JOINT ACCOUNTS 
 
 A JOINT ACCOUNT, OR JOINT ADVENTURE ACCOUNT, AS IT liS 
 SOMETIMES CALLED, RECORDS THE COMMERCIAL TRANS- 
 ACTIONS OF A PARTICULAR KIND, USUALLY OF A 
 TEMPORARY NATURE, ENTERED INTO JOINTLY BY 
 SEVERAL PAIITIES WHO COMBINE TOGETHER FOR THE 
 PURPOSE, AND CONTRIBUTE THE CAPITAL AND THE 
 SERVICES, AS MAY BE ARRANGED, AND AGREE TO 
 SHARE THE LOSSES OR PROFITS IN CERTAIN PROPORTIONS. 
 
 One of the parties may act as manager, although they 
 may all have a share in the management, and when the 
 speculation or venture is completed the manager combines 
 all the transactions in the Joint Account, ascertains the 
 balance due to or by each of the parties, and settles with 
 
il^« 
 
 132 ACCOUNTING IN THEORY AND PRACTICE 
 
 bis CO -venturers. The debit side of tbe Joint Account 
 contains all tbe outlay, and tbe credit side all tbe receipts 
 or income. 
 
 f 
 
 Eoaercises, 
 
 1. Brown imports goods on joint account on equal terms 
 witb Smitb; the goods cost £1000, which was paid by 
 Brown; tbe freight and insurance cost £65, which Smith 
 paid. The goods realise £1170, which is received by Smith. 
 Draw up an account, showing the profit on tbe venture and 
 the amount payable by Smitb to Brown. 
 
 2. R Allan and T. Dick agreed to import into this 
 country from Australia a quantity of timber. On 1st 
 March they opened a banking account in their joint names, 
 to tbe credit of which K. Allan paid £700 and T. Dick 
 £500. They agreed to divide profits or losses in pro- 
 portion to these amoimts. From this account £900 was 
 remitted to Australia for cost of timber, £50 for agent's 
 charges, and £200 was paid for freight and other charges. 
 On 1st December they bad realised by various sales £1200, 
 which had been paid to the Bank Account, and each partner 
 had been paid thereout the amount he had advanced. They 
 agreed to close the adventure, Allan taking over tbe unsold 
 timber at the price of £200. Make out the accounts, and 
 show how the transaction would be closed. 
 
 KEVENUE ACCOUNT 
 
 Tbe Profit and Loss Account is often called tbe Revenue 
 Account, but it is perhaps better to keep tbe expression 
 "Revenue Account" as the generic term embracing all 
 accounts dealing with income, earnings, or profit, against 
 which appear the cost, expenses, and losses connected 
 therewith. In a concern not conducted for profit the 
 revenue transactions are embraced in an account called the 
 Revenue Account or the Income and Expenditure Account 
 
 INCOME AND EXPENDITURE ACCOUNT 133 
 
 STATEMENT OF RECEIPTS AND PAYMENTS 
 
 A Statement of Receipts and Payments is a summarised 
 Cash Account, showing on the debit or receipts side, properly 
 analysed under appropriate headings, the total money 
 received during tbe period embraced by the account. The 
 credit or payment side shows tbe cash disbursed during the 
 period to which tbe account relates. These receipts and 
 payments may be earnings and expenses relating to other 
 periods than that covered by tbe account, the only requisite 
 being that tbe cash was actually received or actually paid 
 during the period embraced by the account. The state- 
 ment shows the balance of cash on hand at the beginning 
 of tbe period and tbe balance of cash on hand at the close 
 of tbe period. 
 
 INCOME AI^D EXPENDITURE ACCOUNT 
 
 An Income and Expenditure Account, or Revenue 
 Account, as it is sometimes called, should have on the credit 
 side tbe whole income of the society or concern to which 
 the account relates for the period embraced in the account. 
 Part of this income may have been received and part may 
 still be due, but whether received or due, so long as it is 
 the income relating to the period, and it is considered that 
 it will be received, it must be brought into the account. 
 Similarly, tbe whole expenses properly chargeable during 
 tbe period or against the income, whether these expenses 
 Iiave been paid or are still due, must be included on the 
 debit or expenditure side. Tbe income outstanding at the 
 close of tbe account forms an asset and the expenditure 
 still due a Hability of tbe concern, and should appear in the 
 Balance Sheet of tbe concern at the close of the period. 
 The Income and Expenditure Account is prepared from, and 
 must reconcile witb, the cash received and paid during the 
 period, together with the assets and liabilities of tbe concern 
 at tbe beginning and end of the period. The balance of 
 the Income and Expenditure Account is the surplus, or 
 excess of income over expenditure, if tbe income side is'the 
 
 i 
 
 ! 
 
 \ 
 
 \ 
 
'i\ 
 
 \ 
 
 134 ACCOUNTING IN THEORY AND PRACTICE 
 
 GOODWILL 
 
 135 
 
 !i 
 
 greater, or the deficiency of the concern, or the excess of 
 expenditure over the income, if the expenditure side is the 
 greater. This surplus or deficiency will be that for the 
 period embraced in the accounts, unless there is a balance 
 carried over from the previous year. It is always advisable, 
 however, to indicate the exact surplus or deficiency attribut- 
 able to the period embraced in the account 
 
 SUSPENSE ACCOUNTS 
 
 A SUSPENSE ACCOUNT IS AN ACCOUNT OPENED FOR THE 
 PURPOSE OF HAVING POSTED TO IT ITEMS WHICH THE 
 BOOK-KEEPER IS UNABLE FOR THE TIME TO DETERMINE 
 THE PROPER DESTINATION OF. 
 
 This may arise through a dispute as to the intention of 
 parties, and upon settlement the item is transferred to its 
 proper account. Sometimes cash is received in the form of 
 a bank order or post office order, and through the omission 
 of the ender the cashier has no clue to the object of the 
 payment. In such a case the Suspense Account is the 
 correct place to post the receipt to pending inquiries. A 
 Suspense Account should never be used for any other 
 purpose. 
 
 GOODWILL 
 
 GOODW'ILL IS THE MONETARY VALUE PLACED UPON THE 
 CONNECTION AND REPUTATION OF A MERCANTILE OR 
 MANUFACTURING CONCERN, AND DISCOUNTS THE VALUE 
 OF THE TURNOVER OF A BUSINESS IN CONSEQUENCE 
 OF THE PROBABILITIES OF THE OLD CUSTOMERS CON- 
 TINUING. 
 
 It is the value of the connection and reputation which a 
 business has acquired during its existence, and these warrant 
 the expectation that the turnover will continue so long as the 
 business is conducted by the same parties, under the same 
 
 name, upon the same principles, or in the same premises. 
 Lord Eldon's definition was : " The goodwill of a trade is 
 nothing more than the probability that old customers will 
 resort to the old place." Goodwill is seldom met with in 
 the accounts of private concerns, but it is almost always 
 to be found in the Balance Sheets of limited li bility 
 companies which have been formed out of existing busi- 
 nesses sold at a price in excess of the value of the tangible 
 assets. 
 
 How Valued, 
 The value of the goodwill of a business depends upon : — 
 
 1. The place. 
 
 2. The name. 
 
 3. On the chance of no one stepping in connected with the 
 
 old firm to compete. 
 
 A purchaser of the goodwill of a business requires to 
 consider and weigh all these points carefully. He should 
 further consider how far the business is really personal to 
 the seller, and so not transferable. The business of a 
 contractor, for example, is largely personal, and cannot as a 
 rule be transferred. 
 
 The question of the value of the goodwill of a business 
 may arise : — 
 
 1. Upon the dissolution of a firm, which may arise from : — 
 
 (1) The death of a partner. 
 
 (2) The voluntary retirement of one of the partners. 
 
 (3) The bankruptcy of one of the partners. 
 
 2. Upon the sale of a concern : — 
 
 (1) To a new proprietor. 
 
 (2) On the conversion of the old concern into a limited 
 
 liability company. 
 
 (3) Upon a new partner being assumed. 
 
 It is usual when a partner dies for his co-partners to 
 take possession of the whole of the goodwill, including the 
 deceased's share. They should pay heavier for it than 
 if the deceased partner were still living and had volun- 
 tarily retired, because he might have competed with them 
 in business after receiving his share of the goodwill. 
 
 V 
 
I 
 
 136 ACCOUNTING IN THEORY AND PRACTICE 
 
 DEPRECIATION 
 
 137 
 
 III 
 
 1 
 
 The bankruptcy of one of the partners of a business has, as 
 a rule, an adverse influence upon the goodwill, but may 
 still leave the goodwill as an asset of considerable amount. 
 All depends upon the special circumstances of the business. 
 It is the custom to base the value of the goodwill of a 
 business on a certain number of years' or months* purchase 
 of the average net profits for, say, the three or five years 
 immediately previous to the date of valuation. In the 
 liquor trade the value of goodwill is sometimes based upon 
 the quantity of liquor consumed in the year. The turnover 
 of spirits can always be determined accurately from the 
 Government Permit Book, and in such a business the ratio 
 of profit to turnover should not vary much. Sometimes 
 the interest on the capital employed and an aUowance for 
 personal management is deducted from the profit before 
 arriving at the net profit upon which a certain number of 
 years' purchase is to be taken as the goodwill If a business 
 requiring a capital of £3000, upon which the interest at 5 
 per cent would be £150, and yielding a profit of £1000 per 
 annum, was worth (£1000 -£150) x 3, or £850x3,= 
 £2550 ; another similar business yielding the same profit, 
 and requiring only £2000 of capital, would be worth, it is 
 evident, (£1000 - £100) x 3, or £900 x 3, = £2700. Simi- 
 larly, a business requiring a man's undivided attention is 
 not worth so much as another business yielding the same 
 profit and employing the same capital, but requiring only 
 half the attention of one man. For purposes of comparison, 
 therefore, at aU events a value must be placed not only 
 upon the capital to be employed, but upon the services 
 requiring to be rendered. It is only upon the surplus profits 
 after charging all the expenditure in earning the profit that 
 goodwill should be calculated, and the reliability of each 
 source of profit should be considered, the number of years' 
 purchase of the profit from the department or source showing 
 the steadiest ratio being greater than that of the more pre- 
 cariousprofits from the other departments or sources of revenue. 
 The amount given in practice for goodwill is as follows : — 
 
 Wholesale or retail trading businesses, 1 to 4 years' pur- 
 chase of the profits. 
 
 Manufacturing concerns, 1 to 3 years' purchase of the 
 
 profits. 
 Professional concerns, 1 to 2 years' purchase of the profits. 
 
 In the case of a compulsory purchase, say by a railway 
 company or corporation, under powers of an Act of Parlia- 
 ment, 10 to 25 per cent would require to be added to the 
 sum arrived at on the above basis to come to a reasonable 
 sum for such disturbance. 
 
 It was formerly the practice to give the seller of a 
 business a certain proportion of the profits made during 
 succeeding years in respect of goodwill. From a buyer's 
 point of view this was a very satisfactory method, as it 
 made the amount payable depend upon results; but from 
 the seller's point of view the method proved unsatisfactory, 
 as the buyer did not exert himself so much as he would 
 have done had all the profits belonged to himself. 
 
 DEPRECIATION 
 
 Depreciation is the diminution in the value of an asset, 
 and may be due to various causes. Thus in the case of 
 machinery, it may be due to wear and tear or to the 
 machinery becoming obsolete. In the case of heritable 
 property, it may be due to objectionable works being started 
 in the locality, or to economic causes. The subject is a 
 very wide one, because different classes of assets depreciate 
 at different rates. When capital is spent in the purchase 
 of machinery, plant, land, or buildings with the view of a 
 profit being earned, provision must be made for the replace- 
 ment of the capital before the return from the expenditure 
 can be regarded 'c& income. Depreciation is thus a charge 
 upon revenue. The object of writing off depreciation from 
 the sums at which assets appear in one Balance Sheet is to 
 make allowance for any diminished value, so that these 
 assets may appear in each Balance Sheet at their true value. 
 
 In determining the rate of depreciation the main facts 
 to be kept in view in reference to any particular subject 
 are : — 
 
13^ ACCOUNTING IN THEORY AND PRACTICE 
 
 DEPRECIA TION 
 
 139 
 
 r 
 
 I 
 
 I 
 
 1. The original cost. 
 
 2. The annual repairs required. 
 
 3. The probable life. 
 
 4. The market value. 
 
 5. The break-up or residual value. 
 
 In allowing depreciation the rate may be calculated 
 upon the onginal value or upon the diminished value from 
 which the depreciation of previous years has already been 
 written off Where the depreciation is on the original cost 
 a much lighter rate is sufficient than where the depreciation 
 is calculated on the diminished value. The more usual way 
 is to calculate depreciation on the diminishing values The 
 effect of so calculating depreciation is that in later years the 
 aUowance for depreciation is lighter, but this is counter- 
 balanced by the repairs being as a rule heavier in these 
 years. Thus, if the life of a machine be taken as twelve 
 yeaK, and it is considered that the residual value of the 
 machme at the end of twelve years will be 10 per cent 
 of the origmal cost, then depreciation at the rate of 7i 
 per cent on the original cost will require to be written off 
 each year. To arrive at the same result if the percentaae 
 is written off the decreasing value each year, it will be 
 necessary to write off depreciation at the rate of 17-46 per 
 cent per annum from the decreasing value. 
 
 To FIND THE RATE OF DEPRECIATION TO BE WRITTEN OFF 
 THE DECREASING VALUE OF AN ASSET EACH YEAR SO THAT 
 WHEN THE ASSET HAS TO BE REALISED THE VALUE OF THE 
 ASSET AS APPEARING IN THE BOOKS MAY BE THE SAME AS THE 
 RESIDUAL VALUE WHICH THE ASSET WILL REALISE. 
 
 Let V represent the present value of the asset \ 
 
 R the residual value after n years ; 
 
 n the number of years at the end of which the asset 
 will be required to be sold, when it wiU onlv be 
 worth R ; ^ 
 
 d the depreciation per unit per annum. 
 
 It is evident if d is the depreciation per unit per 
 annum that the value of the asset at the end of the first 
 year will be V - V^ = V (1 - rf). This value of the asset 
 at the end of the first year will depreciate during the 
 
 !M 
 
 
 second year at the same rate as the value of the asset dur- 
 ing the first year. Hence the value of the asset at the end 
 of the second year will be N {l-d){l-d) = N {l'-d)\ 
 and so on at the end of each year. Hence at the end of 
 n years the value of the asset will be V (1 -<i)*, but this 
 sum is R, hence we have the equation : — 
 
 V(l-(ir = Ri 
 The rate of depreciation per cent is 100 x d, or 
 
 100 1 1 
 
 m- 
 
 Take the following example : — 
 
 Suppose that £1000 is the value at the beginning of a 
 certain period of an asset, and that five years afterwards 
 the value wiU be £400. It is required to find the per- 
 centage of depreciation to be written off each year from the 
 decreasing value to leave £400 five years hence. To find 
 
 Here V=1000. 
 
 R= 400. 
 
 n= 5. 
 Hence we have 
 
 = 1-9204120. 
 (|^n = -83256; 
 
 .-. 1 -(|)n = rf = . 16745; 
 and 100 <i= 16-745. 
 
 '3\ 
 
 I 
 
4 
 
 140 
 
 1' 
 
 ii 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 yalue of asset at beginning of period 
 
 Depreciation on £1000 at 16745 per cent 
 
 yalue at end of first year 
 
 Depreciation on £832-55 at i6-745 per cent 
 f^alue at end of second year 
 
 Depreciation on £G93-U at 16-743 per cent 
 
 Value at end of third year 
 
 Depreciation on £577o"8 at 16-745 per ient . 
 Value at end of fourth year 
 
 Depreciation on £480-45 at 16-745 per cent '. 
 
 ^•^^ <U end of fifth year as given . . . _ 
 
 ,l,.-ii^''^ ""^/^ statement, wlien converted into 
 shdlu^gs, and pence, may be put into the foUoig 
 
 £1000 
 167-45 
 
 £832-55 
 139-41 
 
 £693-14 
 116-06 
 
 £57708 
 96-63 
 
 £480-45 
 80-45 
 
 £400 
 
 pounds, 
 form : — 
 
 SCHEDULE 
 Showing the amount of deprecution at ^a-jAK „ 
 
 WRITTEN OFF EACH YEAR FR^tL DE^^^ 
 
 OF AX ASSET COSTING £1000 FOR^I,^ ykI^^^^ 
 
 AT THE END OF THE FI.T2 YeTs T^ l.^^. ^ ^^ 
 
 ASSET STANDS AT £400 ^^^ ^^ ™^ 
 
 Year. 
 
 1 
 2 
 3 
 4 
 5 
 
 I decreasing Value 
 of Asset. 
 
 £> s. d. 
 
 Depreciation 
 each Year. 
 
 Remainder 
 at end of Year. 
 
 d. 
 
 1000 I 167 9 
 
 832 11 
 693 2 10 
 577 1 8 
 480 9 
 
 139 8 2 
 
 116 1 2 
 
 96 12 8 
 
 80 9 
 
 - 
 
 i 600 
 
 £ 
 
 8. 
 
 d. 
 
 832 
 
 11 
 
 
 
 693 
 
 2 
 
 10 
 
 577 
 
 1 
 
 8 
 
 480 
 
 9 
 
 
 
 400 
 
 
 
 
 
 DEPRECIATION 
 
 141 
 
 The formula used above, V (1 - rf)** = E, may be used tx) 
 find any one of the values involved when the other three 
 are given. Thus, if it is required to find the number of years 
 in which the value of a ship will be reduced one-half, if 
 depreciation is written off the value of the ship at the rate 
 d per unit on the annually decreasing value, we have to 
 substitute in the equation V = 1 and R = J, and we get at 
 once (1 —(£)* = J. Or, working the question out from first 
 principles, we may take 1 as the original value of the 
 ship. At the end of the first year, after vrriting off deprecia- 
 tion, the value will be (1 — <^) ; at the end of the second 
 year, since (l—d) will decrease at the same ratio as 1 did 
 the first year, the value will be {l-d) {\ -d) = {l—d)^. 
 And so on, so that at the end of the nth year the value 
 will be (1— <£)**; but the value is also J, hence we have 
 (1— <^* = J. To solve this equation take logarithms of 
 both sides, and we have w log (1 — e?) = log 1 —log 2. 
 
 Hence 
 
 w= - 
 
 log 2 
 
 log (1 - d)- 
 
 If we take the value of the ship as £1000, and d 
 •J. 6 745, as in the former example, we get 
 
 r» SBC - 
 
 log 2 
 
 log 2 
 
 log (1- -16745) 
 -3010 -3010 
 
 log 
 
 -83255 
 
 1-9204 
 = 3*78 years. 
 
 - -0796 
 
 On referring to the schedule on the opposite page, it 
 will be seen that at the end of four years the value of the 
 asset is £480 : 9s., and as in the present case we wish to 
 find when the value of the ship costing £1000 will be 
 reduced to one-half, namely £500, we see that the formula 
 giving 3**78 years is correct 
 
*' 
 
 
 i 
 
 I 
 
 i 
 
 142 ACCOUNTING IN THEORY AND PRACTICE 
 
 mSUEANCE 
 
 INSURANCE IS A CONTRACT BY WHICH A PERSON, CALLED 
 THE INSURER OR UNDERWRITER, IN CONSIDERATION OF 
 A CERTAIN SUM OF MONEY, CALLED THE PREMIUM, 
 BECOMES BOUND TO INDEMNIFY ANOTHER PERSON, CALLED 
 THE INSURED OR ASSURED, TO A SPECIFIED EXTENT IN 
 THE EVENT OP A CERTAIN CONTINGENCY OCCURRING 
 DURING THE TIME THE CONTRACT IS IN FORCE. 
 
 The contingency may be certain risks to which the 
 insured or his property is exposed, or certain liabUities 
 which he may incur. He may insure himself against the 
 risk of accidents happening to him, his property against the 
 risk of fire, and his business from loss through any of his 
 employees meeting with an accident and claiming acrainst 
 him under the Employers' LiabiHty Acts. A written 
 statement or deed, on duly stamped paper, caUed a policy 
 of insurance, is by statute requisite to the constitution of 
 the contract. The policy specifies the name of the insured, 
 the risk covered, the premium paid, the duration of the 
 policy, and the general conditions upon which the insurance 
 is effected. The policy is signed by the insurer. A policy 
 of insurance being a contract of indemnity, the subject 
 insured must be one in which the insured has an interest 
 otherwise such poHcies might be used for waging or 
 gaming. The words assurance, assurer, and assured are 
 sometimes limited to life subjects, and the words insurance, 
 insurer, and insured to other subjects, such as property. 
 
 The different forms of insurance may be shortly grouped 
 as follows — 
 
 1. Fire insurance. 
 
 2. Marine or maritime insurance. 
 
 3. Life assurance. 
 
 4. Accident and guarantee insurance. 
 
 5. There are many other minor forms of insurance, such as 
 agamst loss of licences, death of animals from natural causes, etc. 
 
 FIRE INSURANCE 
 
 M3 
 
 FIKE INSURANCE 
 
 FIRE INSURANCE IS A CONTRACT BY WHICH THE INSURER 
 UNDERTAKES, IN CONSIDERATION OF THE PREMIUM, TO 
 INDEMNIFY THE INSURED AGAINST LOSS THROUGH FIRE 
 TO A SPECIFIED EXTENT TO THE PROPERTY WHICH IS 
 THE SUBJECT-MATTER OF THE INSURANCE. 
 
 The deed embodying the contract is called a fire 
 insurance policy, and is for a specified time, usually a year, 
 but is renewable on payment of a further premium. The 
 contract being one of indemnity, the insured must have an 
 interest in the subjects covered by the policy at the time 
 of the damage. Immediately property insured changes 
 hands the policy should be endorsed by the company to the 
 new owner, otherwise it is of no use. Thus, when any one 
 buys a house he should insure it or get an assignation to an 
 existing policy immediately his offer is accepted, and he 
 should not wait until he has paid the price. 
 
 If a policy contains, as is usually the case, what is 
 called an " average clause," the insurer is only liable to pay 
 such a proportion of the loss as the sum insured bears to 
 the whole value of the property, part of which only is 
 insured. Thus, if a warehouse worth £1500 is insured for 
 £1000, and £600 of damage is done to the warehouse 
 by fire, the amount payable under a policy with an 
 average clause would only be ^^f^ths, or frds, of £600, 
 which is equal to £400, the idea being that the policy 
 covers the whole property and each separate article of it to 
 an average extent of two-thirds of its value, otherwise the 
 insured would enjoy the benefit of an insurance extending 
 over the whole of his property, £1500, although he paid a 
 premium for only £1000 of it. This practice is perhaps 
 not widely enough known, and many people imagine when 
 they are under-insured that, as the whole property will not 
 likely be lost, the whole damage will be recovered from the 
 insurance company in the event of partial loss, but this is 
 not the case. 
 
 I, 
 
I 
 
 144 ACCOUNTING IN THEORY AND PRACTICE 
 
 MARINE INSURANCE 
 
 145 
 
 Tlie rate ot premium is quoted at so much per cent, 
 and varies according to the risk. The following are some 
 of the premiums for first-class risks, that is, those where the 
 buildings are of brick or stone, and slated or tiled, without 
 stove or external hazard : — 
 
 Private dwelling-houses • . . . . 
 
 Household furniture therein .... 
 
 Stables and contents ... . . 
 
 Shops, non-hazardous, from . , , . 
 
 Bakers' shops, with oven 
 
 Do. without oven .... 
 
 Boat builders ... 
 
 Bootmakers ...... 
 
 Grocers ..... 
 
 Butchers 
 
 Hotels ..... 
 
 • • • • 
 
 Confectioner, dressmaker, draper, milliner, hosier, 
 furniture dealer, tobacconist, upholsterer . 
 
 Is. 6d. 
 2s. 
 
 2s. 6d. 
 2s. 
 
 2s. 6d. 
 2s. 
 
 5s. to 21i 
 2s. 6d. 
 2s. 6d. 
 
 28. 
 
 28. 6d. 
 38. 6d. 
 
 These are specimens of the rates of the best fire 
 insurance companies in the country, which are associated 
 together by an agreement under which they do not compete 
 for business by under-cutting each other, but charge the 
 same premium under the same conditions for the same risk. 
 These companies are called tariff companies. No policy is 
 issued for a less premium than 2s. A policy may be 
 obtained for one day, as in the case of a bazaar. Policies 
 for seven years may usually be effected for six years' 
 premiums paid down. In annual policies fifteen days' 
 grace is allowed for the payment of the renewal premium. 
 
 The rent of a property may be insured, so that in the 
 event of the total destruction of the property the revenue 
 derivable from the property is paid by the insurance 
 company during the period in which the property is un- 
 tenantable or is being rebuilt. 
 
 As a rule, where buildings are in blocks the rate of 
 premium for each separate portion of the block is the 
 highest rate chargeable for any particular portion of the 
 block. Thus, the rate for dwelling-houses in the same 
 block as shops is 2s. or upwards, in place of Is. 6d., the 
 rate for houses in blocks where there are no shops. 
 
 The stamp on a fire insurance policy is for Id., no 
 matter what the amount. 
 
 A fire insurance policy may be vitiated : — 
 
 1. If the fire is caused through the wilful act or with 
 
 the connivance of the insured. 
 
 2. Through wilful misstatement or false description of 
 
 the risk at the time of effecting the insurance, or 
 if the claim for loss or damage is fraudulent. 
 .3. Tlirough the erection of any stove or heating apparatus 
 or other alteration in the building so as to materially 
 alter the nature of the risk without the sanction of 
 the insurance company. 
 
 Loss of business profits through fire are not covered by 
 an ordinary fire policy, but profits and standing charges, such 
 as interest on borrowed capital, may be made the subject of 
 a separate contract; nor are deeds, bonds, script, bills of 
 exchange, money, or boolcs of account, except at their value 
 as paper. A fire insurance company has usually the right 
 under its policies to re-instate the property which may be 
 damaged or destroyed instead of paying the amount of the 
 loss in cash. 
 
 The commission allowed to agents for the collection of 
 fire premiums by the tariff companies is at the rate of 15 
 per cent on the premiums collected. 
 
 MARINE INSURANCE 
 
 MARINE INSURANCE IS A CONTRACT WHEREBY A PERSON 
 HAVING AN INTEREST DEPENDING UPON THE SAFETY OF 
 PROPERTY EXPOSED TO RISK AT SEA MAY BE INDEMNIFIED 
 BY PAYING A SUM, CALLED A PREMIUM, TO THE INSURER 
 OR UNDERWRITER. 
 
 The subjects insured must be lawfully insurable. Thus 
 an insurance of contraband articles is not enforcible. The 
 contract of insurance being one of indemnity, the insured 
 must have an insurable interest in the subjects insured at 
 the time of the loss, because unless he is to sustain damage 
 from the loss he does not require to be indemnified. AH 
 
^ 
 
 146 ACCOUNTING IN THEORY AND PRACTICE 
 
 LIFE ASSURANCE 
 
 147 
 
 the risks incident to a sea voyage may be insured against. 
 These consist of : — 
 
 1. The goods or cargo carried, including their cost, the 
 expenses of shipment, and the cost of their insur- 
 ance. 
 
 %. The ship itself, including the value of the ship at the 
 outset of the voyage, the cost of the outfit stores, 
 provisions for the crew, wages paid or due, and also 
 the cost of insuring the ship. This insurance is 
 spoken of as insurance on hull and outlay, or on the 
 whole ship and blie expenditure connected with its 
 outfit. 
 
 3 The freight, which is lost through the goods not 
 being delivered, and the cost of insuring the freight. 
 Tl»e insured is thus guaranteed against loss through 
 freight not being received in consequence of the 
 vessel being lost. 
 
 Insurances are made either under time policies, that is, 
 policies for a certain period, usually a year, or under voyage 
 policies, that is, policies covering a specific voyage. 
 
 Valued policies are those in which the property or 
 goods insured are valued, and the values stated at the time 
 of effecting the insurance. In open policies no values are 
 stated, the sum in the policy is the limit of the insurer's 
 liability, and when a loss occurs the values must be proved. 
 
 The ordinary form of Lloyd's policy contains three chief 
 stipulations : — 
 
 First. The insurers take upon themselves certain specific 
 risks through wliich loss may happen to the owners 
 of the vessel or cargo during a certain term or 
 duration of the insurance which is clearly set forth. 
 
 Second. There is what is called the "sue and labour 
 clause," under which the insured must exert every 
 effort to save the property insured when in peril, 
 and the insurers agree to contribute towards any 
 expenses which may be incurred. 
 
 Third. Petty claims are avoided by excluding, except in 
 events specified, claims below a certain percentage 
 of the total sums at risk, or from claims for damage 
 to certain goods of a specially hazardous description. 
 
 When the master of a ship cuts away masts or cables 
 and throws goods overboard to lighten the ship (jettison) 
 
 with the view of saving the remainder of the ship and 
 cargo, the loss so occasioned is brought into a "general 
 average," in which the ship, cargo, and freight bear a 
 proportionate share of the sacrifice made for the common 
 good, and this is borne by the underwriters in proportion to 
 the insurances. " Particular average " loss is a loss for which 
 no contribution can be levied, it must be borne alone by the 
 owners of the goods sustaining the loss. Such loss is not 
 a sacrifice for the general benefit, hence the freedom from 
 liability of the other goods and gear. 
 
 When the insurer has to pay for total loss, he is entitled 
 to the goods abandoned and all the rights and claims of the 
 insured connected with the abandonment. 
 
 LIFE ASSUEANCE 
 
 LIFE ASSURANCE IS A MUTUAL CONTRACT BY WHICH AN 
 INSURANCE COMPANY UNDERTAKES TO PAY A CERTAIN 
 SUM UPON THE DEATH OF THE ASSURED, OR UPON 
 HIS ATTAINING A CERTAIN AGE, AND THE ASSURED 
 BECOMES BOUND TO PAY CERTAIN SUMS IN NAME OF 
 PREMIUM. 
 
 The holders of a life assurance policy must have an 
 interest in the life of the assured at the time of effecting the 
 policy. A man, it has been held, has an unlimited interest 
 in his own life, and may legally assure it for any amount. 
 Life assurance, however, is not necessarily a contract of 
 mdenmity, and the whole sum is payable on the death of the 
 assured, or on the maturing of the policy otherwise. The 
 contract, in fact, is one of mutual risk. In the case where 
 a creditor assures the life of his debtor, or has a life policy 
 assigned to him in security, the policy does become, however, 
 an indemnity one. 
 
 There is great variety in life assurance business, and 
 in the nature of the risks assured. The great majority of 
 the policies, however, are for the whole term of life, and 
 are payable only on the death of the assured. Such an 
 assurance can be effected either by a uniform annual 
 
'il 
 
 li 
 
 148 ACCOUNTING IN THEORY AND PRACTICE 
 
 A 
 
 !l 
 
 H 
 
 
 premium payable till death, by increasing or decreasing 
 premiums, by a limited number of premiums, or by one 
 single premium paid at the time of effecting the policy. 
 
 Endowment assurances are assurances for securing the 
 payment of a sum on attaining a specified age, or at death, 
 if that occur before attaining such age. Policies for a 
 limited number of years are frequently effected in connection 
 with loan transactions, but such short-term assurances do 
 not form satisfactory securities for loans, because in the 
 event of the period covered by the policy being survived, if 
 the borrower's life is then uninsurable in consequence of ill- 
 health a new policy cannot be taken out. 
 
 Joint life assurances are those effected on the lives of 
 
 two or more persons, where a sum of money is to be payable 
 
 as soon as one of them dies, or on the death of the survivor. 
 
 Survivorship assurances are those which effect the 
 
 assurance of a sum to be paid at the death of one life, 
 
 should that event occur during the existence of another life. 
 
 Written notice of the assignation of a life policy must 
 
 be sent to the head office or one of the head offices of an 
 
 insurance company before it is effectual. On receiving 
 
 such notice, together with a fee of not more than Ss., the 
 
 company is bound to make an acknowledgment of the 
 
 assignation. To facilitate the office making such an 
 
 acknowledgment, it is usual to send notices of assignation in 
 
 duplicate, when the office returns one copy bearing a 
 
 memorandum that the other has been received. 
 
 The stamp duty on a life insurance policy amounts to Is. 
 per cent, on the sum insured. 
 
 ACCIDENT AND GUARANTEE INSURANCE 
 
 ACCIDENT INSURANCE IS A CONTRACT SIMILAR TO THAT OF 
 LIFE INSURANCE, UNDER WHICH THE INSURER CON- 
 TRACTS TO PAY A CERTAIN SUM IN THE EVENT OF 
 INJURY OR DEATH FROM ACCIDENT. 
 
 It is to a limited extent a contract of indemnity. The 
 existence of such a policy, and any payment received under 
 
 BILLS OF EXCHANGE 
 
 149 
 
 it, does not prevent the assured from recovering damages in 
 respect of his injury, or his representatives recovering 
 damages in the event of his death, from those responsible 
 for the accident. 
 
 Guarantee insurance is a contract under which the 
 insurer becomes bound to implement a financial 
 obligation upon failure of the person primarily 
 responsible for its fulfilment. 
 
 The insurer is also called the guarantor or surety, and 
 the insured is usually the creditor or the employer. 
 
 BILLS OF EXCHANGE 
 
 A BILL OF EXCHANGE IS AN UNCONDITIONAL ORDER IN WRITING, 
 ADDRESSED BY ONE PERSON [CALLED THE DRAWER] TO 
 ANOTHER [CALLED THE DRAWEE], SIGNED BY THE PERSON 
 GIVING IT, REQUIRING THE PERSON TO WHOM IT IS 
 ADDRESSED TO PAY ON DEMAND OR AT A FIXED OR 
 DETERMINABLE FUTURE TIME A SUM CERTAIN IN MONEY 
 TO OR TO THE ORDER OF A SPECIFIED PERSON, OR TO 
 BEARER. — BILLS OF EXCHANGE ACT, 1882, SEC. IIL 
 
 A bill is called an acceptance after the drawee has 
 signed it in token of his agreeing to the request. The 
 drawee is then called the acceptor. 
 
 An inland bill is a bill which, on the face of it, purports 
 to be drawn and payable within the British Islands. 
 
 A foreign bill is a bill in connection with foreign trade, 
 or one which does not come under the above definition. 
 
 A bill may be drawn in the form of a promise to pay, 
 when it is called a promissory note. 
 
 Every bill and promissory note, except a bill payable 
 on demand, must be written upon a piece of paper having an 
 ad valorem stamp previously impressed upon it. It cannot 
 be afterwards stamped, except in the case of it having 
 been impressed with a stamp of sufficient amount but of 
 
i 
 
 i 
 
 f 
 
 if ^ 
 
 III 
 
 150 ACCOUNT/AG IN THEORY AND PRACTICE 
 
 improper denomination. Bills or notes drawn or made out of 
 the United Kingdom before being presented for payment or 
 endorsement, or being negotiated in an}^ way, require to 
 have affixed to them and cancelled an adliesive stamp of the 
 proper amount. The ad vcUorcm duty chargeable is at the 
 rate of Is. per cent. On a bill payable on demand the 
 duty is Id., and may be denoted by an adhesive stamp. The 
 following is an example of an ordinary inland bill : — 
 
 Edinburgh, 29th May 19. 
 
 Two months after date, pay to me or my 
 order the sum of One hundred pounds Sterling 
 for value received. 
 
 (Signed) David Brown. 
 
 To Messrs. Charles Dods & Company, 
 Merchants, 
 
 London. 
 
 The following is the form of the above bill as a 
 promissory note: — 
 
 London, 2i)th May li) 
 
 Two months after date, we promise to pay to 
 you or your 01 dor the sum of One hundred pounds 
 Sterling for value received. 
 
 (Signed) Charles Dods S: Company. 
 
 To Mr. David Brown, 
 Edinburgh. 
 
 Charles Dods & Co. accept the bill when it is in the 
 first form by signing their name either across the face of the 
 bill or underneath the signature of David Brown. David 
 Brown may then endorse the bill and hand it over to a 
 third party, who in his turn may pass the document on to 
 another party ; the endorsation having the effect of assign- 
 ing the debt. Bills of exchange are usually negotiated 
 finally by bankers. 
 
 BILLS OF EXCHANGE 
 
 i5» 
 
 Foreign bills of exchange are sometimes drawn in sets 
 of two or three, each bill being sent by a different route, so 
 that the risk of one bill of the set not turning up is very 
 little. Only one of the set requires to be stamped. The 
 following is an example of a foreign bill : — 
 
 Paris, 29th May 
 
 At one month after sight of this our first of exchange (second 
 and thii d of same tenor and date being unpaid) pay to our order 
 the sum of One hundred pounds Sterling for value leceived. 
 
 (Signed) A. F. RoGET ET FiLS. 
 
 To Messrs. Charles Dods & C( ., 
 Merchants, 
 London. 
 
 Bills are regarded by a merchant as bills receivable or 
 bills payable, according as the cash which they represent is 
 l»ayable or receivable by him. If a debt of £100 is due to 
 a merchant by one of his customers, he might have some 
 difficulty in recovering the asset, because he would have to 
 prove his debt. If the customer, however, accepts a bill 
 payable to the merchant, the nature of the asset is changed, 
 because what was formerly due on an open account is now 
 due in the form of a bill receivable. When a merchant 
 receives the cash for a bill the form of his asset is again 
 changed from a debt due on a bill receivable to actual cash on 
 hand. Similarly, if a merchant is due to one of his creditors 
 £100, that creditor would require to properly constitute 
 his claim before he could enforce payment, but once the 
 merchant has accepted a bill for the amount it changes his 
 liability from a liability on an open account to a liability 
 under a bill payable. 
 
 The peculiar privilege of bills is that payment of the 
 amount may be enforced summarily, without the necessity of 
 an action for constituting the claim. 
 
 The Bills of Exchange Act of 1882 codifies the law in 
 regard to bills of exchange, cheques, and promissory notes. 
 
 ■ ^ 
 
 1 
 
152 ACCOUNTING IN THEORY AND PRACTICE 
 
 APPORTIONMEKT 
 
 APPORTIONMENT IS THE DIVISION OF A SUM INTO PRO- 
 PORTIONATE PARTS ACCORDING TO THE RIGHTS AND 
 INTERKSTS OF DIFFERENT PARTIES, OR THE DIVISION OF 
 A WHOLE INTO PARTS PROPORTIONED TO THE RIGHTS 
 OF CLAIMANTS. 
 
 Thus, if an annuity of £400 per annum is payable to A 
 at the terms of Whitsunday and Martinmas, so long as he is 
 alive, with the provision that A's heirs are to get a pro- 
 portionate part for the period up to the date of his death 
 should he die between terms, then in the event of A dying 
 on the 26th of November his heirs will be entitled to 
 receive the proportionate part for the fifteen days from 11th 
 November, when he received his last payment, to the 26th 
 November, when he died, that is, his heirs will be entitled 
 to receive -g^^ths of £400. This sum, amounting to 
 £16 :8s. 9d., might be payable on the 26th November, the 
 date of A's death, if a provision to that effect were con- 
 tained in the deed under which the annuity was payable, 
 but in the absence of such a provision it would be payable 
 at the next term following A's death, namely Whitsunday. 
 It is important to observe that in making this allocation we 
 have looked upon the annual sum and have taken the 
 proportion upon that for the number of days during which 
 A was entitled to receive the annuity. Had we considered 
 merely the £200 which fell due at Whitsunday, and taken 
 into account the number of days between 11th November 
 and 15th May, namely 185 days, the sum we would have 
 brought out as payable to A's heirs would have been xVs^^'^ 
 of £200, which is equal to £16 :4s. 4d., so that by this 
 method A's heirs would get 48. 5d. less than by the 
 con-ect method. Although this latter method is sometimes 
 adopted, it is not the correct one, because the £200 really 
 represents a half-year's payment, and is therefore in 
 respect of 182i-days. If we take xV'ji^^''' ^^ £200 we get 
 £16 : 8s. 9d., as before. 
 
 \ 
 
 \ 
 
 APPORTIONMENT 
 
 »53 
 
 An apportionment may be (1) in respect of time, where, 
 as in the above example, the claimants' interests are 
 successive ; and (2) in respect of estate, as where a house 
 and lands, let on lease at one entire rent, are left by the 
 owner in his will to different parties, that is, the house to 
 one party and the lands to another, in which case the entire 
 rent would be apportioned according to the respective values 
 of the house and of the lands. In the case of a furnished 
 house, let at an entire rent, it would not be fair to apportion 
 in the ratios of the value of the house and furniture, as the 
 furniture is so much more perishable. A fairer proportion 
 might be got by taking the ratio of 4 per cent on the value 
 of the house to 10 per cent on the value of the furniture, 
 the house by this method being considered as worth 25 
 years* purchase, and the furniture as worth 10 years' 
 purchase. 
 
 The use of Interest Tables in apportioning Sums for 
 
 different periods. 
 
 Where a number of sums have to be apportioned over 
 different periods of time, it is very serviceable to have an 
 easy method of making the apportionment. Interest tables, 
 showing the interest on different sums for any number of 
 days at 5 per cent, such as the well-known tables of the 
 late Mr. James Laurie, published by Messrs. George 
 Eoutledge & Sons, are very useful for this purpose. The 
 rule to use is, shortly, as follows: — To find the pro- 
 portionate SUM FOR A certain NUMBER OF DAYS, HAVING 
 GIVEN THE SUM PER ANNUM, MULTIPLY THE SUM PER ANNUM 
 
 BY 20 {i.e. reduce pounds to shillings), AND FIND FROM the 
 
 TABLE THE INTEREST AT 5 PER CENT ON THIS NUMBER OF 
 
 POUNDS FOR THE GIVEN PERIOD. Thus in the foregoing 
 example the amount per annum is £400, which multiplied 
 by 20 gives £8000, and the interest on £8000 for 15 
 days at 5 per cent is £16 : 8s. 9d., as already found. The 
 reason why interest tables at 5 per cent may be used for 
 such questions is seen if we consider that if S be the sum 
 with which we enter or look up the tables of interest at 5 
 
 I 
 
Il 
 
 154 ACCOUNTING IN THEORY AND PRACTICE 
 
 per cent for 15 days, the result given in the table is 
 
 365 
 
 15 1 
 1 /^^ = S ^ "^F? ^ it: If we enter the table with 
 
 100 ODD 20* 
 
 S X 20, we get as our result S x 20 x ^?- x — , which is 
 
 365 20 
 
 1 fC 
 
 equal to S x -— :, what we wish. 
 365 
 
 In apportioning any sum under £18 :5s. (365 
 
 shillings) over different numbers of days, the same tables 
 
 may be used in a slightly different way. Since the interest 
 
 on a sum for a certain number of days is equal to the 
 
 interest on the number of days looked upon as pounds for 
 
 the number of days there are pounds in the sum, we have 
 
 only to look upon the number of days as the sum, and the 
 
 Bum as the number of days. Thus, to allocate £13 over 
 
 40, 93, and 500 days, we have merely to find from the 
 
 tables the interest on £40, £93, and £500, for 13x20 = 
 
 260 days at 5 per cent, and we get £1 : Ss. 6d., £3 : 6s. 3d., 
 
 and £17 :16s. 2d. 
 
 The Apportionment Act of 1870. 
 
 At common law sums payable at regular periods of 
 time are not apportionable, apart from some special provision 
 in the deed under which the sum is payable. Thus, at 
 common law if the liferenter of a property died the day 
 before the term upon which his liferent was payable, his 
 heirs or executors were formerly entitled to nothing more 
 than if he had died the moment after receiving the previous 
 term's payment. The objections to such a state of matters 
 are easily seen. The person in receipt of an annuity, 
 believing that he will receive a payment on the term day, 
 may live fully up to his income, and may incur obligations 
 in view of what lie expects to receive ; but if he dies the day 
 before the term the annuity would not be payable, and 
 unless he left other funds the obligations he had undertaken 
 would never be implemented. The hardships created by 
 regular payments such as rents and annuities not being 
 apportionable, where no such provision was made in the 
 
 f 
 
 r 
 
 
 APPOR TIONMENT 
 
 155 
 
 deed regulating the payment of the rent or annuity, resulted 
 in the passing of an Act for the more effectually securing 
 the payment of rents, in the eleventh year of the reign of 
 George II. (the Distress for Rent Act, 1737), which did not 
 apply to Scotland. A further and wider Act, known as the 
 "Apportionment Act of 1834," which was held to apply to 
 Scotland, was also passed, and in 1870 a most important 
 and still wider Act was passed which extends the principle 
 of apportionment to all cases where apportionment is 
 possible, except to the case of annual sums made payable 
 in policies of assurance. The main provisions of " The 
 Apportionment Act, 1870," which was passed on 1st August 
 1870, and which is the most recent statute dealing with the 
 matter, are as follows : — 
 
 " II. Rents and periodical payments shall accrue from 
 
 DAY TO DAY, AND BE APPORTIONABLE IN RESPECT OF TIME. — 
 From and after the passing of this Act all rents, annuities, 
 dividends, and other periodical payments in the nature of income 
 (whether reserved or made payable under an instrument in 
 writing or otherwise), shall, like interest on money lent, be con- 
 sidered as accruing from day to day, and shall be apportionable 
 in respect of time accordingly." 
 
 "III. Apportioned part of rent, etc., shall be payable 
 
 WHEN THE NEXT ENTIRE PORTION SHALL HAVE BECOME DUE. — 
 
 The apportioned part of any such rent, annuity, dividend, or 
 other payment shall be payable or recoverable in the case of a 
 continuing rent, annuity, or other such payment, when the entire 
 portion of which such apportioned part shall form part shall 
 become due and payable, and not before ; and in the case of a rent, 
 annuity, or other such payment determined by re-entry, death, 
 or otherwise, when the next entire portion of the same would 
 have been payable if the same had not been so determined, and 
 not before." 
 
 Section IV. of the Act contains provisions making the entire 
 portion of the rent or other periodical payment payable to the 
 heir, from whom the apportioned part is recoverable by the 
 executors or other parties entitled to the same, less "all just 
 allowances." 
 
 "V. Interpretation of terms. — In the construction of 
 this Act — 
 
 "The word * rents* includes rent - service, rent -charge, 
 and rent-seek, and aho tithes and all periodical 
 
}\ 
 
 I 
 
 t 
 
 I 
 
 156 ACCOUNTING IN THEORY AND PRACTICE 
 
 ]\*iyments or renderings in lien of or in the nature 
 of rent or tithes." 
 **The word 'annuities' includes salaries and pensions." 
 "The word 'dividends' includes (besides dividends 
 strictly so called) all payments made by the name 
 of dividend, bonus, or otherwise out of the revenue 
 of trading or other public companies, divisible 
 between all or any of the members of such respective 
 companies, whether such payments shall be usually 
 made or declared at any fixed times or otherwise; and 
 all such divisible revenue shall, for the purposes of 
 this Act, be deemed to have accrued by equal daily 
 increment during and within the period for or in 
 respect of which the payment of tlie same revenue 
 shall be declared or expressed to be made, but the 
 said word * dividend ' does not include payments in 
 the nature of a return or reimbursement of capital." 
 
 " ^^I- Act not to apply to poucies of assurance. 
 
 Nothing in this Act contained shall render apportionable any 
 annual sums made payable in policies of assurance of any de- 
 scription." 
 
 "VII. Nor where stipulation made to the contrary. 
 
 The provisions of this Act shall not extend to any case in which 
 it is or shall be expressly stipulated that no apportionments shall 
 take place." 
 
 Questions of apportionment occur chiefly in connection 
 with testamentary deeds where the liferent of an estate is 
 left to one party, and the capital, or fee of the estate, to 
 another. It is most important, therefore, in such cases to 
 determine the exact amount of the capital of the estate 
 which is liferented, and the various provisions of the Act, 
 so far as not modified by the testamentary writings or trust 
 deed, must be exactly given effect to. 
 
 It is important to observe that, according to Section V. 
 of the 1870 Act, all revenue from trading or other public 
 companies must be deemed to have accrued by equal daily 
 increments during the period in respect of which the pay- 
 ment of the revenue " shall be declared or expressed to be 
 made." The date of the actual payment of the revenue is 
 of no moment, but the important factor is the period for 
 which the revenue is " declared or expressed to be made." 
 
 APPORTIONMENT 
 
 157 
 
 Some companies are very particular in stating on the 
 counterfoils of their dividend warrants the period during 
 which a dividend paid has been earned, but others give no 
 indication whatever, and it is often difficult to determine 
 the period even from the Balance Sheet and Annual Eeport. 
 The result of giving effect to the provisions of the Act of 
 1870, where the estate to be liferented consists largely of 
 shares, the dividends upon which are payable a considerable 
 time after the period during which they have been " made," 
 is that the liferenter may not receive any income for a yeai 
 or more after the testator's deatL This loss, however, is 
 made up to the liferenter or his heirs when the shares are 
 sold or when he dies. Testators, to obviate this hardship, 
 frequently provide for the payment of a slump sum at the 
 first term occumng after death. 
 
 Under the Act of 1870, therefore, rents, annuities, 
 dividends, and other periodical payments of the nature of 
 income, are to be considered, like interest on money, as accru- 
 ing from day to day, and apportionable in respect of time 
 accordingly, and the apportioned part is payable when the 
 next entire portion is payable. The Act vests in a life- 
 renter or proprietor and transmits to his executors the rent 
 due for the period he survives of a broken term, the rent so 
 vested being the proportion for the period he lived into the 
 tern\ 
 
 Commerdcd Apportionments. 
 
 In balancing the books of a commercial or manufactur- 
 ing concern at any particular date, there are usually certain 
 charges, such as rent, taxes, fire insurance, interest, feu-duty, 
 etc., which have only been partially paid during the period 
 covered by the Profit and Loss Account, and which so far 
 as accrued have to be allowed for and charged against the 
 profit. These charges appear in the Balance Sheet as a 
 liability under the general heading of " Charges accrued," or 
 under specific headings, such as "Kent accrued to date." 
 Similarly, if rents or taxes are paid in advance, an apportion- 
 ment has to be made, and the amount reserved goes to increase 
 the profit, and appears in the Balance Sheet as an asset under 
 
4' 
 
 I 
 
 158 ACCOUNTING IN THEORY AND PRACTICE 
 
 the heading of " Charges paid and unexpired," or under 
 specific headings, such as " Rent paid in advance." 
 
 The purpose of a Profit and Loss Account being to show 
 the profit for a specific period, the whole income for that 
 period must be taken into account, whether it has been 
 received or is still due, and any income so outstanding 
 appears as an asset in the Balance Sheet. Care, however, 
 should be taken that all accruing income from rents, interest, 
 etc., which appears as an asset is a good asset and likely 
 to be received, as under no other heading are assets so often 
 overestimated in Balance Sheets. 
 
 In balancing the accounts of a concern yearly or half- 
 yearly, apportionments almost always have to be made if 
 any degree of accuracy is desired, and where a concern 
 changes hands, as in the case of the conversion of a business 
 into a limited liability company, or on the assumption of a 
 new partner, or where it is required to find the amount due 
 to a retiring partner, or to the representatives of a deceased 
 or bankrupt partner, apportionments require to be ver}* 
 carefully made so as to be absuhitely fair to all parties. 
 Most items that occur annually are easily apportioned and 
 present no difficulty, but in the case of rents or dividends 
 payable half-yearly, quarterly, or monthly, considerable care 
 must be exercised to arrive at correct results. Thus, to 
 take a practical example : Suppose the business books of a 
 concern are balanced at 30 th June, what is the proportion 
 of the rent which should be taken as a liability, supposing 
 the last half-yearly payment of rent was duly paid on 15th 
 May ? If the half-yearly rent is taken as £100, the follow- 
 ing solutions may be given to the question : — 
 
 46 
 
 1. ^^ of £200 (the annual rent) 
 
 365 
 
 or 
 
 46 
 182J 
 
 of £100 
 
 £25:48. Id. 
 
 2.^^ of £100 
 or 
 
 £100 less ;^* of £100 
 
 1 oU 
 
 ► = £25:118. Id. 
 
 A PPOR TIONMENT 
 
 159 
 
 Since the 28 th of May is the removal term, and the 
 rent paid on the 15 th May is for occupation up to the 28 th, 
 the following additional solutions may be given of the 
 question if the period of occupation be held to govern the 
 apportionment, and not the date of payment of the rent : — 
 
 ^. :^ of £200 
 
 365 
 
 or 
 
 33 
 
 of £100 
 
 = £18 :1s. 8d. 
 
 4. ^ of £100 
 
 or 
 
 1 'ii 
 
 £100 les8~\ of £100 
 lo4 
 
 = £17 :18s. 8d. 
 
 Of the four solutions the first and third are correct on the 
 assumptions made, as they treat the payment as a yearly 
 one. The second and fourth solutions are not correct, as 
 they treat a payment for half a year, or 182|^ days, as a 
 payment for 180 or 184 days. In arriving at the above 
 solutions the days have been counted as from the 15th or 
 28th of May, these dates being thus adopted as the dates of 
 entry. Suppose, however, that the business was begun on 
 the 11th or 28th of November, then the result of countinor 
 the days from the 15th or 28th of May is to charge the 
 Profit and Loss Account with rent for half a year plus 46 
 or 33 days, that is, for 228 J days or 215j days, whereas 
 the number of days between the 11th and 28 th November 
 and the 30th June is 231 days and 214 days. In such a 
 case, therefore, it would be more correct if the 11th and 
 28th November be taken as the dates to count from, and 
 the following additional solutions may be given : — 
 
 5. ^ of £200 /«ss£100 = £26:lls. 6d. 
 000 
 
 914. 
 
 6. li^ of £200 less £100 = £17 : 5s. 2d. 
 000 
 
1 
 
 (• 
 
 
 
 i6o ACCOUNTING IN THEORY AND PRACTICE 
 
 ij'rom the above it will be seen that the correct method 
 to employ depends upon the special circumstances of each 
 case. The principle, however, always remains the same — that 
 the rent should be charged according to the amount accrued 
 during the period embraced by the Profit and Loss Account. 
 
 Itents. 
 
 In Scotland the rents of houses and shops are, with 
 few exceptions, payable at Whitsunday (15th May) and 
 Martinmas (11th November), and the year runs as a rule 
 from the Whitsunday term. Although the rents are payable 
 on these dates, possession of the subjects is not given to the 
 tenant as a rule until 28th May, and he is entitled to 
 occupy them for a full year from that date. Similarly, a 
 tenant who gets entry at Martinmas obtains possession 
 on 28th November, and does not remove until 28th 
 November in the following year. In view of the fact that 
 the rents are due for the actual possession of the subjects, 
 one would have assumed that the apportionment would fall 
 to be made as from the date on which the possession com- 
 menced, and in commercial apportionments the removal 
 terms should as a rule be taken. Thus, in balancing the 
 accounts of a hotel which closes its books on the 30th 
 June, where the rent payable is £1200 per annum, the 
 correct sum to appear as a liability in the Balance Sheet, 
 and to be charged in the Profit and Loss Account as 
 accrued to 30 th June would, on the assumption of a 
 Whitsunday entry, and that the rent due at 15 th May 
 has been paid, be the proportion of £1200 for the thirty- 
 three days between 28 th May and 30 th June, because the 
 last instalment of rent, namely £600, paid on 15th May 
 was for possession up to 28th May, and to apportion from 
 15 th May would be to charge in the Profit and Loss 
 Account the rent for the period from 15th May to 28th 
 May twice. Similarly, if the proprietor of a house die on 
 20 th May, one would have supposed that his executor 
 could have no right whatever to share in any apportion- 
 ment of the rent payable by a tenant who did not get 
 
 APPOR TIONMENT 
 
 i6i 
 
 possession of the house until eight days after the death, 
 viz. 28th May. But that is not the interpretation which 
 has been given to the Act by the Court. In the leading 
 case of Campbell v. Campbell, 18th July 1849, 11 Dunlop, 
 1426, it was in effect settled that the apportionment 
 should take place from 15th May, the term when the 
 rents were legally payable, and not from the term when 
 possession was actually obtained. 
 
 The circumstances in the case of Campbell were as 
 follows : — Campbell of Lochnell, heir of entail in possession 
 of the estates, died on 18th May 1846, that is, three 
 days after the legal term of Whitsunday. The farms 
 upon the estate were grass farms. The entry was at 
 Whitsunday, but the first half-year's rent was, under the 
 lease, payable at Martinmas thereafter, and the second 
 at Whitsunday following, and so on. The executor of the 
 deceased Lochnell claimed at common law the rents legally 
 due at Whitsunday, but conventionally payable at Martin- 
 mas 1846, and under the Act a proportion of the second 
 half-year's rents of crop 1846, payable at Whitsunday 
 1847, effeiring to the three days between the term and 
 Lochnell's deatL The Court sustained that claim. The 
 view taken was that the half-year's rents payable at 
 Martinmas 1846 had wholly vested in the late Lochnell, 
 being rents for the crop of a half-year during the whole 
 of which the tenants derived their rights from him as 
 proprietor, and which were legally payable at Whitsunday, 
 when he was still in life. As to the rents payable at 
 Whitsunday 1847, these were also rents legally due for 
 a half-year, during part of which Lochnell had been 
 proprietor. 
 
 This case was decided with special reference to the 
 Apportionment Act of 1834, and before the existing Act 
 of 1870 was passed. But in the decisions that have been 
 given under the Act of 1870, CampbeU's case has been 
 recognised as a binding authority. 
 
 Thus in 1892 Lord Low decided in a case where the 
 late Mr. H. M. Horsbrugh was judicial factor, and where 
 there waa a large amount of house property in Edinburgh 
 
i62 ACCOUNTING IN THEORY AND PRACTICE 
 
 f \ 
 
 belonffing to the estate, that the terms at which the rents 
 were payable, namely 15 th May and 11th November, were 
 the correct periods to count from. The Accountant of Court 
 had wished to take the removal terms. 
 
 An interesting case on the subject is Graham (Tennent's 
 executor) v, Lawson, decided by Lord Low on 2nd 
 November 1897, and reported in the Scottish Law Reporter, 
 vol. XXXV. p. 72. In that case a liferentrix let a house 
 for five years, with entry at Whitsunday, at a rent payable 
 half-yearly at Whitsunday and Martinmas, the first half- 
 year's rent being payable at Martinmas for the half-year 
 preceding. She died on 14th June 1896, and her 
 executor sued the tenant for the half-year's rent due at 
 Martinmas 1896. He maintained that the whole of the 
 half-year's rent vested in the liferentrix by her survivance 
 of the term of Whitsunday 1896, but Lord Low held that 
 the executor was only entitled to the portion of the rent 
 effeiring to the period between Whitsunday and the date of 
 death. His lordship's opinion is very clear and instructive, 
 and should be read by all who wish to understand this 
 abstruse subject 
 
 In view of these decisions of the Court, an accountant 
 should meantime apportion rents between the heir and 
 executor as from the 15 th May or 11th November to the 
 date of death. 
 
 The rent of land is payable in respect of its productive 
 quality, and hence each year's crop should have allocated 
 to it its respective year's rent. The possession of land for 
 agricultural purposes is thus from year to year, although 
 the rent is as a rule payable in two equal portions half-yearly. 
 To the majority of farms in Scotland entry is given at 
 Martinmas, because at that term the crop of that summer 
 has been reaped, and the land requires to be prepared for 
 the next crop. The first half-year's rent naturally falls to 
 be paid at the Whitsunday following, for possession up to 
 that date, and the balance at Martinmas. These are called 
 the legal terms of payment. In the case of a pastoral 
 farm where the entry is at Whitsunday, the first payment 
 of a half-year's rent is legally due at the date of entry 
 
 APPORTIONMENT 
 
 163 
 
 and the second payment at Martinmas, the two together 
 being for the crop of grass of that year. Where rent is not 
 paid at the legal terms, we have fore or fore-hand rent when 
 It IS accelerated, and ba^jk or back-hand rent when it is post- 
 poned. These fore-hand and back-hand terms of payment 
 are called the conventional or contractual terms of payment 
 as distinguished from the legal terms. In questions of 
 apportionment the rule is that the legal terms govern the 
 apportionment except where the rent is fore-hand, so that 
 to accelerate the terms of payment of rent may have an 
 effect on the interests of heirs, but postponing it has none. 
 When the owner of an estate dies, the rents effeiring to his 
 executor are all arrears of rents payable but not paid at the 
 date of death, and the apportioned parts of rents legally due 
 accrued to the date of death. 
 
 Fore-hand Rents. 
 Fore-hand rents are those which by the terms of the 
 lease are payable in advance of the terms at which such rents 
 are legally due House-rent, for example, is legally payable 
 half-yearly, each payment being for occupancy for the half- 
 year preceding; if the lease stipulated for payment half- 
 yearly in advance, that would be a fore-hand rent. Fore-hand 
 rents are not apportionable ; what a landlord collects under 
 his lease he retains, so that the executors of such a proprietor 
 do not disburse a proportion to the heir in consequence of 
 his death between terms, neither have they a claim on the 
 iieir for a proportion of the subsequently-due rent. 
 
 The distinction between grass-farm rents (which are Wall v 
 payable in advance of occupancy) and rents which are con- 
 tracted to be paid in advance of the legal terms should be 
 noted; the latter are fore-hand rents, as already dealt with 
 the former are not. Accordingly, while the fore-hand rents 
 are not apportionable, the grass-farm rents are so, so that 
 when the proprietor of a grass-farm dies between Whitsunday 
 and Martinmas his executors not only retain the Whitsunday 
 rent already collected, but also claim from the heir a pro- 
 portion of the Martinmas rent equal to the period from 
 Whitsunday to the date of death. 
 
I' I 
 
 I 
 
 164 ACCOUNTING IN THEORY AND PRACTICE 
 
 Heritors* Assessment, 
 
 Heritors* assessment is chargeable against the heir if it 
 was imposed by the heritors after the truster's death, even 
 although it was levied for the purpose of defraying accounts 
 incurred prior to the truster's death. 
 
 Heritors' assessment being levied on the heritors does 
 not fall upon the liferenter, but is chargeable to capital. 
 
 Castcalties, 
 
 Duplicands and casualties, whether payable under con- 
 tracts entered into prior or subsequent to 1874 Conveyancing 
 Act (see sec. 23), are revenue; the rule is uniform. Duplicands 
 are not apportionable over the period of years during which 
 they accrue (per Lord Ardwall in case of Macdougall's Factor, 
 27th Nov. 1908). See also Curie's Trs. (1903). S.L.T. 1908, 
 
 xvi. 532. 
 
 Bent Charges. 
 
 Eent charges consist partly of capital and partly of 
 revenue from the receiver's point of view, as each instal- 
 ment consists of interest and capital repaid. From the 
 point of view of the payer the total instalment should be 
 apportioned, and the proportion charged against the life- 
 renter for the period during which he liferented the estate*. 
 
 Minister's Stipend, 
 
 When minister's stipend is a "just allowance " under 
 Section IV. of the Act of 1870, and forms a deduction from 
 rents, it is apportionable. The stipend from teinds is pay- 
 able on 11th November, or on 15th May and 11th November, 
 for the year closing at 11th November if payable in money, 
 but if in kind it is held as payable for the year closing on 
 the 29th September, and should be apportioned accordingly. 
 
 So far as the minister and his representatives are 
 concerned, however, the Apportionment Act does not apply. 
 The matter is regulated by the Statute 1672 c. 13. If the 
 minister die after Whitsunday, his executors, whoever they 
 are, take the first half of the stipend as executry, and his 
 widow and nearest of kin, according to their rights, the 
 other half of that year's stipend. This latter half is 
 
 APPOR TI ON ME NT 
 
 165 
 
 technically called ann or annat. If the minister survive 
 Michaelmas (29th September) the whole year's stipend is 
 executry, and the next half forms the ann, and goes to 
 the next of kin. 
 
 Wages and Salaries to Servants and Wo7'kmen. 
 
 In the case of a heritable estate the wages and salaries 
 of servants and workmen are apportionable to the extent 
 that the heir has received the benefit of their services since 
 the death of the predecessor. 
 
 Annuities, 
 
 Annuities payable during the life of an annuitant, dud 
 which terminate on his death, are apportionable under the 
 Act; so that an annuity created by a will, unless other 
 stipulation is made under the will, is apportionable for the 
 period between the date of death and the first term's 
 payment ; also, when the annuitant dies his executors are 
 entitled to receive a proportion of the annuity in respect of 
 the period from the last term's payment to the date of 
 death. Thus in the case of an annuity of £5 payable on 
 the last day of each month, left by a truster who died on the 
 5th August, the first instalment would be the apportionable 
 part, namely £4 : 5 s. 6d., for the twenty -six days between the 
 5 th and 3l8t August, and would be payable on 31st August. 
 
 Interest on Money lent. 
 
 As interest on money lent accrues from day to day, it 
 can very easily be divided between those claiming succes- 
 sively. As pointed out under the heading of Commercial 
 Apportionments, care must be taken where interest is 
 payable at particular terms that in calculating the alloca- 
 tions the original term of the investment of the money 
 is taken as the date to count from, and in the case of a 
 liferent interest, the apportionments at the beginning and 
 at the end of the liferent should be so calculated as to give 
 the liferenter the interest for the exact number of days to 
 which he was entitled to it. 
 
i66 ACCOUNTING IN THEORY AND PRACTICE 
 
 \ 
 I 
 
 4 
 
 fill 
 
 Dividends anil Interest upon Shares and Debentures 
 
 in Public Companies. 
 
 All dividends and interest upon shares and debentures 
 in public companies should be apportioned according to the 
 period for which the interest or dividend is " declared or 
 expressed to be made," regardless of the actual date of 
 payment 
 
 Suppose a truster died on the 26th November who 
 held shares upon which a dividend was paid on the 15 th 
 May of the following year in respect of profit earned during 
 the year ending 31st December of the year of death, then 
 of that dividend fffths would fall to capital, and the 
 balance, ^^ths, being the proportion for the period from 
 26th November to 31st December, would fall to income. 
 
 Interim Dividends and Bonuses. 
 
 Some companies pay an interim dividend ; that is, for 
 the convenience of its shareholders the company, although 
 balancing its books once a year, does not wait until the end 
 of the year before declaring a dividend, but pays a sum to 
 account, usually slightly under what the rate of the annual 
 dividend is expected to be. After the close of the year, 
 when the profit is ascertained, the balance of the dividend 
 is paid. In all such cases where questions of apportion- 
 ment arise it is necessary to consider the dividend for the 
 whole year. Thus, suppose a company pays an interim 
 dividend at the rate of 6 per cent per annum in July to 
 account of the dividend for the year then current, and pays 
 in January, after the profit for the year closed on 31st 
 December has been ascertained, a dividend at the rate of 
 8 per cent for the half-year to 31st December, making 
 altogether a dividend at the rate of 7 per cent for the 
 whole year: then it is on the basis of a 7 per cent 
 dividend for the whole year that any apportionment should 
 be made. Thus if a truster died on 31st May, the correct 
 apportionment of the dividends on the shares which fell to 
 capital would be found by assuming that the dividend was 
 
 i 
 
 APPORTIONMENT 
 
 167 
 
 one at the rate of 7 per cent per annum, and allocating for 
 the period from 1st January to 31st May. In actual 
 practice this is worked out as foUows : On the receipt of 
 the interim dividend at the rate of 6 per cent in July, the 
 proportion effeiring to capital, being the amount for the 
 period from 1st January to 31st May, would be ascertained 
 and placed to the credit of capital. On the receipt of the 
 dividend for the next half-year, which would be received in 
 January, the proportion thereof which would be required to 
 bring the dividend from 1st January to 31st May already 
 allocated at 6 per cent up to 7 would then be placed to 
 capital. Further, suppose a truster die on 26 th November, 
 after having received the interim dividend at the rate of 
 
 6 per cent payable in July, the portion of the dividend 
 paid in January following which would have to be placed 
 to capital would be f f gths of the dividend at the rate of 
 
 7 per cent per annum, less the amount of the interim 
 dividend actually received. The portion effeiring to 
 revenue would be ^\ths, being for the period from 26th 
 November to 31st December at the rate of 7 per cent per 
 annum. 
 
 Bonuses returned as Capital. 
 
 Bonuses not paid as dividends in the ordinary way, but 
 as capital refunded, should be treated as capital. 
 
 Stocks and Shares bought and sold. 
 
 If the provisions of the Apportionment Act of 1870 are 
 given effect to at the beginning and end of a liferent, then 
 the same methods of apportionment must be applied when 
 the stock is bought or sold. Thus if stock is bought on 
 behalf of a trust where the estate is liferented, then the 
 purchase price must be considered as including in it the 
 dividend accrued to which, had the stock been held from 
 the beginning of the trust, the liferenter's executor would 
 be entitled if the liferenter had died on the day of the 
 purchase, and this proportion of the dividend or dividends 
 as received must be treated as capital. Similarly, when 
 
I 
 
 168 ACCOUNTING IN THEORY AND PRACTICE 
 
 stock is sold by such a trust the price received must be 
 considered as including in it the dividend accrued to which 
 the liferenter's executor would have been entitled if the 
 liferenter had died on the day of the sale, and the pro- 
 portion of the dividend or dividends so arrived at must be 
 treated as income. 
 
 There are certainly a number of decisions which are 
 agaiust this view, but there can be no doubt that this is 
 the only logical method to adopt. It is mathematically 
 true, and always results in the liferenter getting the revenue 
 for the exact number of days he has been alive and entitled 
 to it. Any other method of apportionment results in 
 absurdities and in hardships to either the liferenter or fiar. 
 
 Suppose a beneficiary entitled to the liferent of a trust 
 estate dies on 15th April 1899, and that on the previous 
 day, namely 14th April 1899, £2300 had been expended 
 by the trust in the purchase of 100 Clydesdale Bank 
 shares, costing £23 per share; then, if the purchase price 
 is to be apportioned, the amount falling to the liferenter's 
 executor would be 5s. 6d., as follows : — 
 
 Dividend of £50, being half of year's dividend 
 at the rate of 10 per cent, payable in August 
 1899, for the half-year to 31st December 
 1898 
 
 Proportion of dividend at 10 per cent accrued 
 from 31st December 1898 to 15th April 
 1899 (date of death of liferenter), 105 days 
 
 £50 
 
 28 15 4 
 
 Deduct — 
 
 Amount of purchase price effeiring to capital, 
 being the above £50, and £28 : 98. lOd., pro- 
 portion of dividend from 31st December 
 1898 to 14th April 1899, paid for out of 
 capital in purchase price of £2300 
 
 £78 15 4 
 
 78 9 10 
 
 £0 5 6 
 
 This is exactly equivalent to one day's revenue of the 
 stock, which is the precise amount which should be received 
 
 APPORTIONMENT 
 
 169 
 
 by the liferenter's executor, seeing the liferenter only lived 
 one day after the purchase of the stock. 
 
 If it is held that the cost of the stock purchased is not 
 apportionable, but that the Act applies at the termination 
 of the liferent, the amount effeiring to the liferenter's 
 executor would be £78 : 15s. 4d., as follows : — 
 
 Dividend of £50, being half of year's dividend 
 at the rate of 1 per cent, payable in August 
 1899, for the half-year to 31st December 
 1898 £50 
 
 Proportion of dividend at 10 per cent accrued 
 from 31st December 1898 to 15th April 
 1899 (date of death of liferenter) . . 28 15 4 
 
 £78 15 4 
 
 The liferenter's executor would thus receive £78 : 15s. 4d. 
 in place of 5s. 6d., the correct amount. This clearly shows 
 the absurdity which results from applying the Apportion- 
 ment Act of 1870 at the termination of a liferent and not 
 also when stock is bought The same reasoning applies to 
 the case of the sale of stock. 
 
 Profit from Private Partturships. 
 
 Profits from private partnerships, even where they are 
 paid at regular periods, are not apportionable under the Act ; 
 such apportionment is regulated by the Partnership Act, 
 1890, sec. 42. 
 
 Apportionment of Bents under the Land Claiises Act, 1845. 
 
 Under this Act, when part of land held under a lease is 
 acquired for any purpose under the Act apportionment takes 
 place. In terms of Section 119 of the Act, "the rent 
 payable in respect of the lands comprised in such lease 
 shall be apportioned between the lands so required and the 
 residue of such lands, and such apportionment may be 
 settled by agreement between the lessor and lessee of 
 such land on the one part and the promoters of the under- 
 taking on the other part; and if such apportionment be 
 not so settled by agreement between the parties, such 
 
I70 ACCOUNTING IN THEORY AND PRACTICE 
 
 apportionment shall be settled by two justices, and after 
 Buch apportionment the lessee shall, as to all future accruing 
 rent, be liable only as to so much of the rent as shall be so 
 apportioned in respect of the lands not required for the 
 purposes of the special Acts." 
 
 Exceptions to Apportionmoa. 
 
 The Apportionment Act of 1870 does not apply in the 
 following cases :— 
 
 Where specially excluded by the terms of the deed. 
 
 The profits of a private partnership. 
 
 Annual sums made payable in policies of assurance. 
 
 Dividends or bonuses declared not as ordinary dividends but 
 
 as capital payments. 
 Fore-hand rents. 
 Minister's stipend, so far as the receiver of the stipend it 
 
 concerned. 
 
 Burdens and other Deductions. 
 
 Under Section IV. of the Act of 1870, " all just allow- 
 ances " are deductible from the rents and other sums to be 
 apportioned. In the case of trust estates it is often 
 convenient to show the periods and the corresponding 
 deductions in a separate statement at the end of the 
 account, as follows : — 
 
 State showing Apportionment of Burdens 
 
 APPORTIONMENT 
 
 171 
 
 Nature of Borden. 
 
 Date of 
 Payment. 
 
 Period for which 
 Burden applicable. 
 
 Number of 
 days from 
 
 beginning of 
 
 period to 
 
 date of 
 
 death (26th 
 
 November). 
 
 A 
 
 mount 
 
 Chargeable against 
 
 paid. 
 
 Executor. 
 
 Heir. 
 
 Feu duty . 
 Poor and School 
 
 Rates 
 County Rates 
 Property tax, Sch. 
 
 (A) . . . 
 
 Nov. 30 
 
 Feb. 1 
 „ 10 
 
 » 12 
 
 Year to Mart. 
 
 Year to Whit, 
 do. 
 
 Year to 5th April 
 
 15 
 
 195 
 195 
 
 235 
 
 £ 
 
 6 
 
 4 
 
 7 
 26 
 
 10 
 
 
 
 
 
 
 To 
 
 d. 
 
 
 
 
 
 
 
 £ 
 
 
 3 
 2 
 
 4 
 
 «. 
 
 7 
 
 4 
 2 
 
 10 
 
 d. 
 10 
 
 1 
 9 
 
 2 
 
 10 
 
 9 2 
 
 2|15 
 
 1117 
 1 
 
 2| 9 
 
 ^ 
 
 i6["6' 
 
 d. 
 2 
 
 11 
 3 
 
 10 
 2 
 
 
 
 
 
 
 
 10 4 
 
 Property not producing Revenue. 
 
 Where property is left not producing revenue, but under 
 instructions to have it realised, and the proceeds of the 
 investment liferented, it is only fair where the realisation 
 is delayed for some years, for the ultimate benefit of the 
 estate, that the liferenter should receive an equivalent for 
 acceding to the delay. If there are no funds out of which 
 the liferenter can be paid, then at all events when the 
 property is realised the liferenter is entitled to receive a 
 share of the proceeds. The amount which the liferenter is 
 entitled to on the realisation is the difference between the sum 
 realised and its value when the liferenter became entitled 
 to receive the revenue, discounted at the rate of interest 
 represented by the annual income which might have been 
 received had the property been realised at once. Thus, 
 supposing a certain property has not yielded any revenue, in 
 the meantime is liferented as from 1st January 1899, and is 
 realised on 1st January 190-4 for £1000; then on 1st January 
 1904 the share falling to the liferenter of the £1000 would 
 be £137: Vs. lOd. (that being the difference between £1000 
 and the value of that sum five years before, discounted at 3 
 per cent, £862 : 12s. 2d.) If 3 per cent is the rate of return 
 on investments before deducting income tax, then the rate 
 taken above should be 3 per cent, less the rate of income tax. 
 
 Supposing part of the estate left to B, the widow of A, in 
 liferent consisted of a fully-paid insurance policy of £1000 
 on the life of C. On C's death, ten years after B became a 
 widow, the £1000 would be payable, and on receipt 
 £744 : Is. lid. would go to capital, and £255 : 18s. Id. to 
 the widow, as shown by the following statement : — 
 
 Total amount received from insurance company £1000 
 
 DediLct — 
 Value of £1000 ten years \go, discount at 3 
 
 percent ... . . 744 1 11 
 
 £255 18 1 
 
 Giving the widow the £255 : 18s. Id. is equivalent to 
 giving her the interest at 3 per cent on the £744 : Is. lid. 
 
173 ACCOUNTING IN THEORY AND PRACTICE 
 
 ;l 
 
 Iff 
 
 t 
 
 annually from the date when she entered upon the liferent 
 of the estate. 
 
 Care must be taken to distinguish such cases from those 
 securities which should have produced income, but are bad 
 and there is delay or loss in realising them. Thus, if the 
 interest on a bond falls into arrear, and the security has to be 
 realised : when it is realised the full interest duly compounded 
 is due to the liferenter, if there is a sufficient amount realised 
 to pay the interest so compounded, and the original amount 
 of the bond ; but if there has been loss on the realisation of 
 the security, then the rules of equity appear to warrant that 
 the total sum realised should be divided between the fiar and 
 the liferenter in the ratio of the original bond to the annual 
 interest in arrear accumulated at compound interest. 
 
 Examples of Apportionment. 
 
 £500 capital stock of the National Bank of Scotland, 
 Limited, was sold for £1595 by the trustees of J. Smith, 
 who died on 15th August 1890, and the net proceeds were 
 received on 1st July 1891. Two dividends at the rate of 15 
 per cent were received on 1st January and 1st July 1891 
 for the bank's financial year ending 1st November 1890, 
 the amount of dividend on each occasion being £37 : 10s. 
 
 To find what proportion of the dividends received and 
 of the net proceeds of £1595 is applicable to revenue. 
 The liferenter is entitled to the proportion of the dividend 
 on £500 at 15 percent from 15th August 1890 to 1st 
 November 1890. He also is entitled to tlie dividend at the 
 rate of 15 per cent on £500 from 1st November 1890 to Ist 
 July 1891, as the £500 stock would be earning that dividend 
 during the period. These two amounts are as follows : — 
 Proportion of dividend on £500 at 15 per 
 cent from 15th August to 1st November 
 1890, 78 days (£75 x 78-^365) . . £16 7 
 Proportion of dividend on £500 at 15 j)er 
 cent from Ist November 1890 to Ist 
 July 1891 at 15 per cent, 242 days 
 (£75 X 242 -f 365) . . . . 49 14 6 
 
 Total apphcable to revenue . £G5 15 1 
 
 APPORTIONMENT 
 
 173 
 
 £65 : 15s. Id. is the interest at 15 per cent on £500 
 from 15th August 1890 to 1st July 1891 (78 + 242 = 
 320 days), as it should be. 
 
 A testator died on 30th June 1897, leaving £2000 of 
 National Bank of Scotland stock to be liferented, and the 
 fee given to the Royal Infirmary. The National Bank of 
 Scotland close their books on the 1st November in each 
 year, and the dividend made during the year is payable in 
 January and July following in equal portions. The 
 dividends received would be as follows : — 
 
 On 12th July 1897, balance of 
 dividend at 15 per cent for year 
 ending Ist November 1896 . 
 
 On nth January 1898, first half of 
 dividend at 16 per cent for year 
 ending 1st November 1897 . 
 
 On 12th July 1898, second half of 
 dividend at 16 per cent for year 
 ending 1st November 1897 
 
 , £150 
 
 £160 
 
 160 
 
 320 
 
 The whole dividend of £150 received on 12th July 1897 
 would go to capital, being for the period while the testator 
 
 was alive. 
 
 The dividend received on 11th January 1898 being to 
 account of the dividend for year to 1st November 1897, the 
 liferenter is entitled to receive his share for the 124 days 
 from 30th June to Ist November 1897, and similarly with 
 the second portion of the dividend when received. The life- 
 renter would therefore get : — 
 
 On nth January 1898, Hi^hs of £160 
 On 12th July 1898, da do. 
 
 £54 
 54 
 
 7 U 
 7 U 
 
 £108 14 3 
 
 This is the interest on £2000 for 124 days at 16 per 
 cent, as it should be. 
 
 The following table shows the particulars necessary for 
 apportionment of dividends of certain companies : — 
 
174 ACCOUNTING IN THEORY AND PRACTICE 
 
 It 
 
 Table SHOWING Capital, Date of Closing Accounts, and Date when 
 Dividends payable of Banks, Insurance Companies, and Railway 
 Companies in Scotland. 
 
 Name. 
 
 Banks, 
 Bank of Scotland . 
 
 British Linen Bank 
 
 Clydesdale Bank, Ltd. . 
 
 Commercial Bank of 
 Scotland, Ltd. 
 
 National Bank of Scot- 
 land, Ltd. 
 
 North of Scotland and 
 Town and County 
 Bank, Ltd. 
 
 Royal Bank of Scotland 
 
 Union Bank of Scotland, 
 Ltd. 
 
 National Insur 
 
 ••} 
 
 I B 
 
 ance Company J 
 
 Standard Life Assor- 
 ance Company 
 
 Railways. 
 Caledonian Railway Co. 
 
 Edinburgh and Bathgate 
 
 Railway Company 
 Highland Railway Co. . 
 
 1 Midland Railway Co. . 
 
 North British Railway , 
 Company 
 
 Share. 
 
 Paid 
 up. 
 
 150 
 Stock 
 
 50 
 100 
 500 
 
 20 
 
 Stock 
 50 
 
 Insubanoe Cos. 
 
 Caledonian Insurance 25 
 
 Company 
 City of Glasgow Life 25 
 
 Assurance Company 
 Edinburgh Life Assur- 100 
 
 ance Company 
 Life Association of Scot- 40 
 
 land 
 National Guarantee and 20 
 
 Suretyship Associa- 
 tion, Ltd. 
 North British and Mer- 25 
 
 cantile Insurance Co. 
 Northern Assurance I 100 
 
 Company, Ltd. I 
 
 Si'ottish Union and 
 
 20 
 10 
 
 60 
 
 £ 
 100 
 
 100 
 10 
 20 
 
 100 
 4 
 
 100 
 10 
 
 5 
 
 2i 
 20 
 
 8f 
 2 
 
 6i 
 10 
 
 1 
 
 3| 
 
 12 
 
 Paid up 
 CapitaL 
 
 £ 
 1,325,000 
 
 1,250,000 
 
 1,000,000 
 
 1,000,000 
 
 1,000,000 
 
 652,000 
 
 2,000,000 
 1,000,000 
 
 107,500 
 60,000 
 
 100,000 
 87,500 
 50,000 
 
 687,500 
 300,000 
 
 2.39,145 
 60,855 
 
 120,000 
 
 Accounts close. 
 
 28th February 
 15th January 
 3l8t December 
 31st October 
 Ist November 
 30th September 
 
 2nd Sat. October 
 2nd April 
 
 Slst December 
 20th January 
 Slst December 
 5th April 
 31st Mav 
 
 Dividends payable. 
 
 October previous and April 
 following. 
 
 September previous and 
 March following. 
 
 February and Augtist follow- 
 ing in equal portions. 
 
 July previous and January 
 following. 
 
 January and July following 
 in equal portions. 
 
 May previous and November 
 following. 
 
 June previous and December 
 following. 
 
 May and November follow- 
 ing in equal portions. 
 
 May and November follow- 
 ing in equal portions. 
 
 April and October following 
 in equal portions. 
 
 April and October following 
 in equal portions. 
 
 Interim dividend in May and 
 balance in November. 
 
 Interim dividend in December 
 previous, balance in July. 
 
 31 8t December 
 
 
 The particulars of capi- 
 tal of these Com- 
 panies are constantly 
 chan^ng. The ac- 
 counts are closed 
 half-yearly, and the>« 
 dividend then paid is 
 in respect of the half- 
 year, and should be 
 apportioned accord- 
 ingly. 
 
 31st Decembei May and Novem ber following 
 
 in equal portions. 
 Interim dividend in Dec., 
 balance in June following. 
 
 |3l8tDecember|'*^"?® ^"^ December follow- 
 ) i j mg m equal portions. 
 
 15th November | May and Nov. following. 
 
 Slst Jan. and 
 
 Slst July 
 Slst Jan. and 
 
 Slst July 
 l^8th Feb. and 
 
 Slst Aug. 
 SOth June and 
 
 Slst Dec. 
 Slst Jan. and 
 
 Slst July 
 
 April and Oct. respectively. 
 
 February and August respec- 
 tively. 
 
 April and October respec- 
 tivelv. 
 
 Au^st and February respec- 
 tively. 
 
 April and October respec- 
 tively. 
 
 TRUST ACCOUNTS 
 
 175 
 
 TEITST AND EXECUTRY ACCOUNTS 
 
 The preparation of Trust and Executry Accounts affords 
 considerable scope for the ability of an accountant, as in 
 connection with such accounts there are usually intricate 
 questions relating to the interpretation of the deed con- 
 stituting the trust, and to the apportionment of sums 
 between capital and revenue. The usual form in which 
 these accounts are prepared is that of an Account of Charge 
 and Discharge, although sometimes the ordinary form of 
 Ledger Accounts is used. For the sake of comparison a 
 model set of trust transactions is given, and the accounts 
 are shown as they might be submitted by the trustees : — 
 
 I. In the form of an Account Charge and Discharge. 
 II. In the form of Ledger Accounts. 
 
 When Trust Accounts are kept in the Ledger form the 
 fullest information may be at once obtained as to the 
 position of the trust at any particular time, and from these 
 Ledger Accounts the Account of Charge and Discharge may 
 be prepared at the close of each period. The agent or 
 factor in the trust usually keeps an account in his Ledger 
 for the trust, and this Ledger Account practically forms 
 the Account Current of the Trustees' Intromissions. In 
 preparing the Account of Charge and Discharge the 
 Account Current is sometimes submitted as an appendix, 
 as it shows the transactions of the trustees in the order in 
 which they took place, and from it may be ascertained the 
 daily balance due to or by the factor. 
 
 The will or trust settlement constituting the trust or 
 executry should be carefully perused, and short notes upon 
 it prepared. The object of preparing these notes is to 
 obviate continual reference to the trust deed itself, and 
 they should show at a glance the provisions of the trust. 
 Upon the terms of the settlement will depend to a lar^e 
 extent the form in which the accounts should be kept. 
 Thus, if the estate has merely to be realised and, after all 
 
176 ACCOUNTING IN THEORY AND PRACTICE 
 
 the debts and expenses have been paid, the money is to be 
 divided among certain beneficiaries, the accounts will be 
 very simple. If, on the other hand, the estate is to be life- 
 rented, capital and revenue will require to be very carefully 
 distinguished, and the principles of the Apportionment Act, 
 so far as not modified by the trust deed, will require to 
 be given efifect to. In preparing the Account of Charge 
 and Discharge, where capital and revenue have to be dis- 
 tinguished, it is sometimes advisable to have an account for 
 the capital and another for the revenua With only one 
 account the revenue and capital transactions appear under 
 leading headings, and then in the report which usually 
 precedes the account, or in a separate abstract, the capital 
 and revenue are carefully distinguished, and the respective 
 balances shown. 
 
 In ordinary Executry or Trust Accounts it is usually 
 best to begin the first account with the inventory of the 
 estate as at the date of death, and to have this as the first 
 item of the charge against the trustees. By this means 
 there is no chance of any of the estate being omitted. 
 
 Modec JSe^ of Trust Transactions. 
 
 The method of keeping Trust Accounts will be best seen 
 from the following example : — 
 
 William Slater, Merchant, died on 31st March 1899, 
 leaving a trust disposition and settlement for the following 
 purposes : — 
 
 1. Payment of debts and expenses. 
 
 2. Payment of a legacy of £1000 to his daughter Jane. 
 
 3. His heritable estate to go to his son John. 
 
 4. His moveable estate to be liferented by his widow. 
 
 5. On his widow's death the moveable estate to go to his 
 
 daughter Jane. 
 
 The following is a copy of the inventory of the estate as 
 prepared shortly after the date of death : — 
 
 TRUST ACCOUNTS 
 
 177 
 
 Inventory of Estate, 
 
 I. Moveable estate : — 
 
 1. Cash in house 
 
 2. Household furniture .... 
 
 3. Value of 400 shares of £50 each, £10 
 
 paid, of the Clydesdale Bank, Limited, 
 at JiZ^ . . . . . , 
 
 4. Life poUcy, No. 79,810, with the Lanca- 
 
 shire Insurance Company 
 6. Deposit receipt with the Bank of Scot- 
 land, dated 14th October 1898, 
 for . . . £400 
 Interest to date 3 17 2 
 
 £50 
 400 
 
 9,050 
 3,000 
 
 6. Rents accrued to date as follows : — 
 
 Smith Crescent — Proportion of £600 
 rental to date . • • . 
 
 403 17 2 
 
 226 6 
 
 £13,129 17 8 
 
 II. Heritable estate : — 
 
 The heritable property consisted of four villas at Smith 
 Crescent, the rental of which amounted to £600 ; feu- 
 duty, £60. These villas were valued at £9000, which is 
 arrived at to satisfy the requirements of the Inland 
 Revenue, as follows : — 
 
 The rental as given in the "Valuation Roll 
 
 ras . 
 
 • • 
 
 • 
 
 £600 
 
 Deduct — 
 
 
 
 
 Feu-duty 
 
 £60 
 
 
 
 
 Landlord's taxes . 
 
 45 
 
 
 
 
 Repairs at 7 J per 
 
 
 
 
 cent on rental . 
 
 45 
 
 
 
 150 
 
 
 value , 
 
 • 
 
 Net annual 
 
 £450 
 
 Taken at 20 years' purchase the estimated saleable 
 value is £9000. 
 
 Il 
 
178 ACCOUNTING IN THEORY AND PRACTICE 
 
 TRUST ACCOUNTS 
 
 179 
 
 The following may be taken as the account in the 
 Factor and Law Agent's Ledger, showing his intromissions 
 with the funds of the estate from Slst March 1899, when 
 the testator died, to 10th June 1900, the date of the death 
 of the lif erentrix : — 
 
 The Trustees of the late William Slateb 
 
 The Trustees of the late William Slater — C(mid, 
 
 1899. 
 May 14. 
 
 1899. 
 Apr. 1. 
 
 17. 
 
 18. 
 19. 
 
 20. 
 May 13. 
 
 By Cash found in deceased's re 
 
 positories 
 To Funeral expenses paid . 
 „ Dr. Robertson, for attend 
 ance on deceased on death 
 bed .... 
 By Amount in life policy, No 
 79,810, with the Lanca 
 shire Insurance Company 
 To Paid the following accounts — 
 Servants' wages 
 James Thomson, Stationer 
 Thomas Paterson, sum in 
 I.O.U. by deceased, 
 dated 1st January 1898 
 James Davie, Wine Mer- 
 chant . . . . 
 David Bennet, Ironmonger 
 John Boyd, Solicitor, busi- 
 ness account 
 William Monteith, Tailor 
 
 and Clothier 
 Alexander Elliot, Grocer , 
 ,, Collector of Inland Revenue, 
 for estate duty at 4 per 
 cent on net value of 
 estate, £12,300, £492 
 Interest to date 
 (19 days at 8 
 per cent) . 16 4 
 
 ,, Legacy paid to Jane Slater, 
 daughter of deceased 
 
 By Proceeds of sale of 400 shares 
 of £50 each, £10 paid, of 
 tno Clydesdale Bank, 
 Ltd., at 23, less expenses, 
 £45 
 
 Carry forward . 
 
 16. 
 
 Cash paid. 
 
 £30 
 
 10 10 
 
 30 
 16 6 
 
 631 6 
 
 64 10 6 
 
 12 2 6 
 
 17 2 6 
 
 21 6 
 
 30 8 6 
 
 492 15 4 
 1,000 
 
 £2,244 16 4 
 
 Gash receivttd. 
 
 £60 
 
 3,000 
 
 Nov. 11. 
 
 12. 
 
 1900. 
 Alay 16. 
 
 9.155 
 
 £12,206 
 
 16. 
 June 10. 
 
 Brought forward . 
 By Uplifted deposit receipt for 
 £400, dated 14th October 
 1898, with interest to 
 date .... 
 ,, Received the following half- 
 year's rents of villas at 
 Smith Crescent : — 
 David Watson 
 William Riddell . 
 Adam Munro 
 James Jenkinson . 
 To John Slater, son of deceased, 
 proportion of rents due to 
 nim as heir to heritable 
 property for period from 
 Slst March to 15th May 
 1899 . . £73 19 6 
 litis — Propor- 
 tion of taxes, 
 etc., paid by 
 deceased for 
 period to 15th 
 May 1899 . 10 
 
 i> 
 
 Cash, paid loan of £10,300 
 over Allan Street property 
 at 4 per cent . 
 By Interest for half-year to date 
 on bond for £10,300 at 
 4 per cent over Allan 
 Street property, less tax, 
 £6 : 17s. 4d. . 
 Liferentrix, paid her to 
 account .... 
 
 To 
 
 By Interest for half-year to date 
 on bond for £10,300 at 
 4 per cent over Allan 
 Street property, less tax, 
 £6 : 17s. 4d. . 
 
 To Liferentrix, paid her to 
 account .... 
 
 ,, Commission to factor . 
 
 ,, Business account and out- 
 lays by law agent, as 
 taxed ... 
 
 ,, Miscellaneous expenses 
 Balance in hands of factor 
 
 i> 
 
 Cash paid. 
 
 £2,244 15 4 
 
 Cash received. 
 
 63 19 6 
 10,300 
 
 150 
 
 200 
 50 
 
 75 3 6 
 10 
 
 214 8 8 
 
 £12,205 
 
 406 1 8 
 
 76 
 
 100 
 
 75 
 
 50 
 
 \ 
 
 199 2 8 
 
 199 2 8 
 
 £13,308 7 
 
 £13,308 7 
 
i8o ACCOUNTING IN THEORY AND PRACTICE 
 
 Amoant in 
 Inventory. 
 
 £50 
 
 8,000 
 
 9,050 
 
 403 17 
 
 226 
 
 ACCOUNT OF CHAKGE and DISCHARGE of the INTROMIS- 
 
 From 31st March 1899 (date of death of testator) 
 
 Charge 
 I. On account of Capital, 
 
 1. Estate as given up in inventory : — 
 
 (1) Cash in house 
 
 (2) Household furniture 
 
 (3) Value of 400 shares of £50 each, of which £10 is 
 
 paid, of the Clydesdale Bank, Ltd., at 22| . 
 
 (4) Life policy, No. 79,810, with the Lancashire Insur- 
 
 ance Company 
 
 (5) Deposit receipt with the Bank of Scotland, dated 
 
 14thOctober 1898, for. 
 Interest to date of death 
 
 (6) Rents accrued 
 
 6 
 
 £12,729 17 8 
 
 £400 
 3 17 
 
 
 2 
 
 2. 
 
 Rents of villas at Smith Crescent, proportion of 
 yearly rental of £600 to date of death 
 
 Heritable estate : — 
 
 Four villas at Smith Crescent, 
 valued for estate duty purposes at 
 
 Note. — In terms of the trust disposition this pro- 
 
 £9000 
 
 3. 
 
 perty has been conveyed by the trustees 
 to John Slater, Esq., son of the truster. 
 Funds and estate realised: — 
 1899. 
 Apr. 1. Cash found in deceased's 
 repositories 
 18. Amount in life policy, No. 
 79,810, with the Lanca- 
 shire Insurance Company 
 May 13. Proceeds ofsale of 400 snares 
 of Clydesdale Bank, Ltd. , 
 at 23, less expenses, £45 . 
 
 14. Uplifted deposit receipt for 
 
 £400, dated 14th October 
 1898, with interest to date 
 
 15. Proportion of half - year's 
 
 rents of £300 to 3l8t 
 March 1899 . 
 
 Deduct applicable to Revenue — 
 Proportion of dividend on Clydes- 
 dale Bank shares, held from 3l8t 
 March to 13th May 1899, in- 
 eluded in sellingprice £47 2 c" 
 Interest on deposit 
 receipt for £400 from 
 31st March to 14th 
 May 1899 . . 14 6 
 
 Deduct — 
 Amount in inventory , 
 
 Gain on realisation . 
 
 £50 
 
 3,000 
 
 9,155 
 
 405 1 8 
 
 226 6 
 
 £12,836 2 2 
 
 £50 
 400 
 
 9,050 
 
 3,000 
 
 
 
 
 403 17 2 
 
 48 7 
 
 £12,787 15 2 
 12,729 17 8 
 
 Carry forward 
 
 226 6 
 
 £13,129 17 8 
 
 57 17 6 
 
 £13,187 15 2 
 
 TRUST ACCOUNTS 
 
 181 
 
 SIGNS OF THE TRUSTEES of the late WILLIAM SLATER, Esq. 
 to 10th June 1900 (date of death of liferentrix). 
 
 Discharge 
 
 I. Payments affecting Capital, 
 
 1. Deathbed and funeral expenses: — 
 1899. 
 
 Apr. 17. Paid funeral expenses 
 
 „ Dr. Robertson, for attendance on deceased on 
 deathbed 
 
 2. Debts due bt deceased paid:— 
 
 1899. 
 Apr. 19. Paid servants' wages . 
 
 James Thomson, Stationer . 
 Thomas Paterson, sum in 1. 0. U. by 
 
 deceased, dated Ist January 1898 
 James Davie, Wine Merchant 
 David Bennet, Ironmonger . 
 John Boyd, Solicitor, business 
 
 account .... 
 William Monteith, Tailor and 
 
 Clothier .... 
 Alexander Elliot, Grocer 
 
 • > 
 I* 
 
 >i 
 
 £30 
 15 
 
 
 6 
 
 531 5 
 54 10 
 12 2 
 
 
 6 
 6 
 
 17 2 
 
 6 
 
 21 
 30 8 
 
 6 
 6 
 
 8. Duty paid to the Crown: — 
 
 1899. 
 Apr. 19. Paid collector of Inland Revenue estate duty at 4 per 
 cent on net value of estate, £12,300 .... 
 
 4. Leoacy PAID: — 
 1899. 
 Apr. 20. Paid legacy to Jane Slater, daughter of deceased . 
 
 6. Expenses of realisation and administration chargeable to 
 Capital : — 
 
 1899. 
 
 June 10. Commission to factor . 
 
 Business account and outlays by law 
 
 agents, as taxed 
 Miscellaneous expenses 
 
 Deduct — Projx)rtion of above charge- 
 able to Revenue 
 
 IL Irwestments made, 
 
 1899. 
 
 May 15. Paid sum in loan by trustees over Allan 
 Street property at 4 per cent, entered 
 in Discharge, Branch IV. 
 
 £50 
 
 
 
 
 
 75 
 10 
 
 3 
 
 
 6 
 
 
 £135 
 
 3 
 
 6 
 
 15 
 
 3 
 
 6 
 
 £10,300 
 
 Carry forward 
 
 £30 
 10 10 
 
 £40 10 
 
 711 10 
 
 492 
 
 1,000 
 
 120 
 
 £2,364 
 
 £2,364 
 
 K 
 
 m 
 
i82 ACCOUNTING IN THEORY AND PRACTICE 
 
 Charge — continued. 
 
 V On account of Capital — continued. 
 
 Brought forward 
 4. Rents received and taxes kecovebed feom heir : — 
 1899. 
 May 15. Received the following half • year's rents of 
 
 villas at Smith Crescent : — 
 
 David Watson . £75 
 
 William Riddle . 100 
 
 Adam Munro 75 
 
 James Jenkinson . 50 
 
 Deduct — Proportion of above 
 applicable toCapital, carried 
 to Branch I. (3) of Charge 
 
 Paid to John Slater, son of deceased 
 and heir to property, the above 
 proportion falling to him as 
 heir . . . £73 19 6 
 
 Less — Proportion 
 of landlord s taxes 
 paid by deceased 
 for the period 
 from 31st March 
 to 15th May 1899 
 
 10 
 
 11. On account of Revenue, 
 
 1899. 
 Nov. 11. Received half-year's interest on 
 bond for £10,300 at 4 per cent, 
 less tax, £6 : 17s. 4d. 
 1900. 
 May 15. Received do. do. 
 
 Add — Proportion of dividend 
 on Clydesdale Bank shares, 
 held from 31st March to 
 13th May 1899, effeirinflf to 
 revenue as per Branch I. 
 (3) of Charge . 
 
 Interest on de- 
 posit receipt 
 fromSlstMarcli 
 to 14th May 
 1899 per Branch 
 I. (3) of Charge 
 
 Sum of the Cuakue 
 
 £300 
 226 6 
 
 £73 19 6 
 
 63 19 6 
 
 £199 2 8 
 199 2 8 
 
 £398 5 4 
 
 48 7 
 
 £13,187 15 a 
 
 10 
 
 £13,197 15 9 
 
 446 12 4 
 
 £13.644 7 9 
 
 TRUST ACCOUNTS 
 
 183 
 
 Discharge — continued. 
 
 Brought forward 
 
 III. Payments affecting Revenue, 
 
 1. Payments to liferentrix: — 
 
 1899. Nov. 12. Paid to account 
 
 1900. May 16. do. 
 
 2. Expenses of management and miscellaneous 
 charges : — 
 
 1899. 
 Apr. 19. Paid collector of Inland Revenue 
 interest on estate duty, 19 days at 3 
 per cent . . . 
 Proportion of expenses of 
 administration charge- 
 able against Revenue, per 
 Branch I. (5) of Discharge 
 
 IV. Estate as at lOth June 1900. 
 
 Bond for £10,300 over Allan Street property at 
 
 4 per cent 
 
 Household furniture ..... 
 Cash balance in hands of factor . . 
 
 £2,364 
 
 Sum of the Discharge 
 Equal to that of Charge. 
 
 365 18 10 
 
 10,914 8 8 
 
 £13,644 7 6 
 
Ill 
 
 184 ACCOUNTING IN THEORY AND PRACTICE 
 
 ABSTRACT of ACCOUNT CHARGE AND DISCHARGE 
 OF THE INTROMISSIONS of the TRUSTEES of the 
 LATE WILLIAM SLATER, Esq. 
 
 From 3l8t March 1899 (date of death of testator) to 10th June 
 1900 (date of death of liferentrix). 
 
 Charge 
 
 I. On account of Capital : — 
 
 1. Estate as given up in inven- 
 
 tory 
 
 2. Heritable estate . 
 
 • ^9000 
 Conveyed to John Slater, Esq. 
 3. Gain on realisation of funds and estate. 
 i. Taxes recovered from heir .... 
 
 II. On account 0/ Hevenue . • . . 
 
 Sum of the Charqe 
 
 £18,129 17 8 
 
 67 17 6 
 10 
 
 £13,197 15 2 
 446 12 4 
 
 £13,644 7 6 
 
 Discharge 
 
 I. On account of Capital : — 
 
 1. Deathbed and funeral ex 
 
 penses 
 
 2. Debts due by deceased 
 
 3. Duty paid 
 
 4. Legacy paid 
 
 5. Expenses . 
 
 II. Investments made 
 
 III. Payments affecting Revenue : — 
 
 1. Payments to liferentrix 
 
 2. Expenses .... 
 
 IV. Estate as at lOth June 1900 . 
 
 . £10,300 
 
 £350 
 15 18 10 
 
 I- 
 
 Sum of thk Discharge 
 Equal to that of Charge. 
 
 £40 10 
 
 711 10 
 
 492 
 
 1,000 
 
 120 
 
 £2,364 
 
 365 18 10 
 10,914 8 8 
 
 £13,644 7 6 
 
 The position of affairs at 10th June 1900 was therefore 
 as follows : — 
 
 TRUST ACCOUNTS 
 
 185 
 
 I. As Regards Capital 
 
 Receipts on account of Capital 
 Payments on account of Capital 
 
 Capital of the trust estate 
 
 II. As Regards Revenue 
 
 Receipts on account of Revenue 
 Payments afTecting Revenue . 
 Balance of Revenue due to representa- 
 tives of liferentrix . . . . 
 
 £446 12 4 
 365 18 10 
 
 £13,197 15 2 
 2,364 
 
 £10,833 15 2 
 
 80 13 6 
 
 Total estate at \(ith June 1900 
 
 £10,914 8 8 
 
 The liferentrix having died on 10th June 1900, the 
 capital of the trust estate now belongs to the testator's 
 daughter Jane, and accordingly, after settlement of any 
 Government duties payable and the expenses of winding 
 up the estate, the whole capital funds could be handed 
 over to her. The balance of Revenue, amounting to 
 £80 :13s. 6d., belongs to the representatives of the life- 
 rentrix, and should be handed over to them, together with 
 the interest on the bond of £10,300 from 15th May to 
 10th June 1900, which would be received on 11th 
 November 1900, less any expenses chargeable against 
 Revenue. In the event of the liferentrix leaving a will 
 in favour of her daughter Jane, it would be unnecessary, 
 of course, to make any apportionment, and the whole funds 
 could be handed over to her at once. 
 
 The trustees* intromissions, recorded in the form of 
 Ledger Accounts, are now submitted, together with Balance 
 Sheet as at 10th June 1900. The Cash Account is not 
 shown, as that has already been given in the Account 
 Current so far as the entries are concerned. To complete 
 the following Ledger Accounts, a Cash Account, or a Cash 
 Book with the money columns on opposite sides to those 
 shown on page 178, would be necessary. 
 
 I 
 
ir 
 
 i86 ACCOUNTING IN THEORY AND PRACTICE 
 
 WILLIAM SLATEK'S TEUST 
 Ledger Accounts 
 
 Capital Account. 
 
 1899. 
 Mar. 31. To Debts due at de- 
 cease, per 
 account 
 „ Deathbed and 
 funeral ex- 
 penses . 
 
 »• 
 
 Balance carried 
 down . 
 
 1899. 
 Apr. 19. To Cash, estate 
 duty . • 
 1900. 
 Jane 10. ,, Legacy to Jane 
 Slater . 
 ,, Expenses . 
 „ Balance of capi- 
 tal at this date 
 
 £711 10 
 
 40 10 
 
 £752 
 
 12,377 17 8 
 
 £ 13,129 17 8 
 
 £492 
 
 1,000 
 
 120 
 
 10,833 15 2 
 
 £12,445 15 2 
 
 1899. 
 Mar. 31. By Cash in house . 
 Household fur- 
 
 f) 
 
 niture . 
 „ Clydesdale Bank 
 
 shares . 
 „ Amount in life 
 
 policy . 
 „ Deposit receipt 
 
 and interest . 
 ,, Rents 
 
 1899. 
 Apr. 1. By Balance brought 
 down 
 1900. 
 June 10.,, Bents and taxes 
 recovered 
 , , Clydesdale Bank 
 shares, ^ain on 
 realisation . 
 
 1900. 
 June 10. By Balance . 
 
 £50 
 
 400 
 
 9,050 
 
 3,000 
 
 403 17 2 
 
 226 6 
 
 £13,129 17 8 
 
 £12,377 17 8 
 
 10 
 
 57 17 6 
 
 £12,445 15 2 
 
 £10,833 15 2 
 
 Cask in House, 
 
 1899. 
 Mar. 31. To Capital, for 
 amount of 
 cash found in 
 deceased's re- 
 positories 
 
 £50 
 
 1S99. 
 
 Apr. 1. By Cash Account 
 
 £50 
 
 £50 
 
 Household Furniture, 
 
 £50 
 
 1899. 
 Mar. 31. To Capital 
 
 1900. 
 Jane 10. To Balance 
 
 £400 
 
 £400 
 
 1900. 
 June 10. By Balance . 
 
 £400 
 
 TRUST ACCOUNTS 
 
 187 
 
 May 13. 
 
 ti 
 
 1899. 
 Mar. 31. To Capital, for 400 
 snares £50 
 each, of which 
 £10 is paid, at 
 22| 
 Liferentrix, for 
 
 Sroportion of 
 ividend from 
 31st March to 
 13th May 1899 
 included in 
 selling price . 
 Capital, gain on 
 realisation 
 
 1900. 
 June 10. 
 
 II 
 
 Clydesdale Bank Shares, 
 
 £9050 
 
 1899 
 May 13. By Proceeds of sale 
 of 400 shares 
 of £50 each, of 
 which £10 is 
 paid, at 23, less 
 expenses, £45 
 
 47 2 6 
 57 17 6 
 
 £9155 I 
 
 £9155 
 
 1 
 
 £9155 
 
 Life Policy. 
 
 1899. 
 Mar. 81. To Capital, amount 
 in policy No. 
 79,810 . 
 
 £3000 
 
 1899. 
 Apr. 18. By Cash, from Lan- 
 cashire Insur- 
 ance Company 
 
 £3000 
 
 Deposit Receipt. 
 
 1899. 
 
 Mar. 31. To Capital, amount 
 in deposit 
 receipt, dated 
 14th October 
 1898, with in- 
 terest to date, 
 £3 : 17s. 2d. . 
 
 May 14. ,, Liferentrix, for 
 interest on 
 deposit re- 
 ceipt from 3 1st 
 March to date 
 
 £403 17 2 
 
 14 6 
 £405 1 8 
 
 1899. 
 
 May 14. By Cash, being 
 amount in 
 deposit re- 
 ceipt uplifted, 
 with interest 
 to date . « 
 
 £405 1 8 
 
 £405 1 8 
 
1 88 ACCOUNTING IN THEORY AND PRACTICE 
 
 Rents and Taxes recovered. 
 
 1899. 
 
 Mar. 31. To Capital, propor- 
 tion of yearly 
 rental of £600 
 to date . 
 
 May 15. ,, Cash, John 
 Slater, propor- 
 tion of half- 
 year's rents 
 due to him 
 as heir for 
 period from 
 31st March 
 to 15th May 
 1899 . 
 Capital . 
 
 £226 6 
 
 •t 
 
 73 19 6 
 10 
 
 £310 
 
 1899. 
 May 15. By Cash, for the 
 following half- 
 year's rents: — 
 David Watson . 
 William Riddell 
 Adam Munro . 
 James Jenkinson 
 
 ** 
 
 Cash, John Slater, 
 for proportion 
 of taxes paid 
 by deceased to 
 15th May 1899 
 
 £75 
 
 100 
 
 75 
 
 50 
 
 £300 
 
 10 
 
 £310 
 
 Debts due by Deceased, 
 
 1899. 
 Apr. 19. To Cash, for the following 
 accounts : — 
 
 Servants' wages £30 
 James Thomson, 
 Stationer . 15 6 
 
 Thomas Pater- 
 
 son, sum m 
 1.0. U. bv de- 
 ceased, dated 
 1st Jan. 1898 
 
 James Davie, 
 Wine Merchant 
 
 David Bennet, 
 Ironmonger . 
 
 John Boyd, 
 Solicitor 
 
 William Mon- 
 teith, Tailor 
 and Clothier . 
 
 Alexander Elliot, 
 Grocer . 
 
 531 5 
 
 54 10 6 
 
 12 2 6 
 
 17 2 6 
 
 21 6 
 
 30 8 6 
 
 £711 10 
 
 1899. 
 
 Mar. 31. By Capital, for the following 
 accounts : — 
 
 Servants' wages £30 
 James Thomson, 
 Stationer . 15 6 
 
 Thomas Pater- 
 eon, sum in 
 I.O.U. by de- 
 ceased, dated 
 
 1st Jan. 1898 531 5 
 
 James Davie, 
 Wine Merchant 54 10 6 
 David Bennet, 
 Ironmonger . 12 2 6 
 
 John Boyd, 
 
 Solicitor . 17 2 6 
 
 William Mon- 
 teith. Tailor 
 
 and Clothier . 21 6 
 
 Alexander Elliot 
 Grocer . . 80 8 6 
 
 £711 10 
 
 TRUST ACCOUNTS 
 
 189 
 
 Deathbed and Funeral Expenses. 
 
 1899. 
 Apr. 17. To Cash, funeral ex- 
 penses 
 „ Cash, Dr. Robert- 
 eon, for attend- 
 ance on deceased 
 on deathbed 
 
 £30 
 
 10 10 
 £40 10 
 
 1899. 
 Mar. 31. By Capital, funeral ex- 
 penses . . £30 
 ,, Capital, Dr. Robert- 
 son, for attend- 
 ance on deceased 
 on deathbed . 10 10 
 
 £40 10 
 
 Legacy, 
 
 1899. 
 Apr. 20. To Cash, legacy to 
 
 Jane Slater . £1000 
 
 1900. 
 June 10. By Capital 
 
 . £1000 
 
 B(ynd over Allan Street Property. 
 
 1899. 
 May 15. To Cash, amount in 
 loan by trus- 
 tees over Allan 
 Street property 
 at 4 percent. £10 ,300 
 1900. === 
 
 June. 10. To Balance . . £10,300 
 
 1900. 
 June 10. By Balance 
 
 . £10,300 
 
 Expenses of Bedlisaiion and Administration. 
 
 1900. 
 June 10. To Commission to 
 factor . 
 Business account 
 and outlays by 
 law agent, as 
 taxed 
 Miscellaneous 
 expenses . 
 
 f> 
 
 *« 
 
 £50 
 
 75 3 6 
 
 10 
 
 £135 3 6 
 
 1900. 
 June 10. By Capital, for share 
 of total ex- 
 penses . 
 ,, Liferentrix, share 
 of expenses 
 
 £120 
 15 3 6 
 
 £135 3 6 
 
I90 ACCOUNTING IN THEORY AND PRACTICE 
 
 lAferentrix. 
 
 1899. 
 Apr. 19. 
 
 Nov. 11. 
 
 1900. 
 May 16. 
 June 10. 
 
 To Cash, interest on 
 
 estate duty . 
 
 ,, Cash to account . 
 
 do. 
 
 Expenses of reali- 
 sation and 
 administration 
 
 Balance due life- 
 rentrix at 
 this date • 
 
 )> 
 
 *t 
 
 £0 15 4 
 
 160 
 
 200 
 
 16 8 6 
 
 80 13 6 
 
 £446 12 4 
 
 1899. 
 May 13. By Clydesdale Bank 
 snares, for pro- 
 
 Sortion of divi- 
 end from 31st 
 March to 13th 
 May 1899, in- 
 cluded in sell- 
 ing price 
 14. ,, Deposit Receipt 
 Account, in- 
 terest from 31st 
 March to 14th 
 May 1899 
 Nov, 11. ,, Cash, half-year's 
 interest on 
 bond over Al- 
 lan Street pro- 
 perty at 4 per 
 cent, less tax, 
 £6 : 17s. 4d. . 
 
 £47 2 6 
 
 1900. 
 May 16. 
 
 i> 
 
 do. do. 
 
 1900. 
 June 10. By Balance 
 
 WILLIAM SLATER'S TRUST 
 
 Balance Sheet of the Trust as at 10th June 1900. 
 Liabiliiies. A.tsets. 
 
 Capital of the trust 
 Due to lifeesntrix . 
 
 . £10,833 15 2 
 80 13 6 
 
 £10,914 8 8 
 
 14 6 
 
 199 2 8 
 
 199 2 8 
 
 £446 12 4 
 
 £80 13 
 
 Bond over Allan Street 
 
 PROPERTY at 4 PER CENT £10,300 
 
 Household furniture . 400 
 
 Cash in hands of factor. 214 8 8 
 
 £10,914 8 8 
 
 Exercises, 
 
 1. Prepare Executorship Accounts from the following 
 particulars : — 
 
 W. Smith died on 28th November 1899, leaving a trust 
 disposition and settlement, which directed that after payment 
 
 TRUST ACCOUNTS 
 
 191 
 
 of all his just and lawful debts, the following legacies should be 
 made, appointing his executor residuary legatee. 
 
 To his widow, that part of the heritable property consisting 
 of his residence and the household effects therein, and the income 
 from £5000 to be invested. 
 
 To his son and daughter, £4000 each, and half share each of 
 the above £5000 at the widow's death. 
 
 The inventory made up for estate duty purposes was as 
 follows : — 
 
 L Moveable estate: — 
 
 Cash in house 
 
 • 
 
 » 
 
 • 
 
 £50 
 
 
 
 
 
 Cash in Private Bank Account 
 
 • 
 
 240 
 
 
 
 
 
 Household effects as 
 
 valued 
 
 • 
 
 • 
 
 700 
 
 
 
 
 
 Business assets — 
 
 
 
 
 
 
 
 Stock 
 
 £6000 
 
 
 
 
 
 
 
 
 Book debts 
 
 4000 
 
 
 
 
 
 
 
 
 Cash in hand . 
 
 400 
 
 
 
 
 
 
 
 
 Balance at bank 
 
 2000 
 
 
 
 
 
 
 
 
 Fixtures, fittings. 
 
 
 
 
 
 
 
 and trade 
 
 
 
 
 
 
 
 utensils 
 
 1000 
 
 
 
 
 
 13,400 
 
 
 
 
 
 
 
 
 
 
 
 £14,390 
 
 
 
 
 
 II. Heritable estate: — 
 
 The heritable estate consisted of — 
 The residence of deceased, valued at 
 Five houses, valued at 
 
 (To be sold according to will.) 
 
 £3000 
 3000 
 
 £6000 
 
 The cash transactions from 28th November 1899 (date 
 of death of testator) to 30th June 1900 (date of closing of 
 accounts) were as follows : — 
 
192 ACCOUNTING IN THEORY AND PRACTICE 
 
 
 1899. 
 Not. 30. By Cash found in deceased's re 
 positories 
 „ Cash uplifted from Private Bank 
 Account .... 
 Dec. 20. To Funeral expenses 
 
 ,, Private debts of deceased : — 
 James Anderson, Clothier 
 George Boak, Grocer 
 David Ramsay, Ironmonger 
 John Lees, Merchant 
 1900. 
 May 4. By Snm received for business assets 
 taken over by Mr. John Elder 
 To Business debts of deceased paid : — 
 Messrs. Mitchell h Welsn 
 Messrs. Munro & Eraser . 
 Messrs. Robertson & Davie 
 15. ,, Legacies to son and daughter, 
 £4000 each .... 
 Dy Price of heritable property, con- 
 sisting of five houses, sold per 
 directions of will . 
 ,, Rents of five houses for half-year 
 
 to date, less taxes . 
 To Amount invested for liferent of 
 widow in bond over heritable 
 
 f)roperty at 4 per cent . 
 lector of Inland Revenue 
 for estate duty at 4 per 
 cent on net value of estate, 
 £12,500 . . £500 
 Interest on £500 
 from 28th Nov. 
 
 1899 to 30th June 
 
 1900 (214 days at 
 
 8 per cent) . . 8 15 11 
 
 Cuhpaid. 
 
 «. d. 
 
 30 
 
 50 
 
 10 
 
 15 
 
 5 
 
 
 
 
 
 
 
 
 
 
 
 Cash received. 
 
 £ s. d. 
 
 50 
 
 240 
 
 „ Law expenses .... 
 „ Balance remaining in hands of 
 
 executor after payment of all 
 
 debts and legacies . 
 
 13,500 
 
 1,000 
 100 
 500 
 
 
 
 
 
 
 
 
 
 
 8,000 
 
 5,000 
 
 508 15 11 
 71 4 1 
 
 1,700 
 
 16,990 
 
 3,000 
 200 
 
 16,990 
 
 2. John Eoberts dies on 10 th January, bequeathing his 
 entire property, after payment of all debts and funeral 
 expenses, to the following beneficiaries, viz. one -fifth to 
 John Koberts, jr., one-fifth to George Koberts, one-fifth to 
 William Koberts, three-tenths to Mary Eoberts, and one- 
 tenth to Frank Smith. 
 
 TRUST ACCOUNTS 
 
 193 
 
 The inventory lodged by his executors was as follows : — 
 
 Stocks and shares . . . £4000 
 
 ]\Iortgages .... 6000 
 
 Furniture and wearing apparel . 100 
 
 Cash in bank .... 40 
 
 There are two executors, and their transactions are as 
 follows : — 
 
 Cash reckipts: — 
 
 Stocks and shares sold .... £3,341 
 
 Mortgages realised .... 4,656 
 
 Furniture and wearing apparel sold . 50 
 
 Dividends collected on stocks and shares . 1,800 
 
 Interest collected on mortgages . . 2,400 
 
 Interest received on deposits in bank 100 
 
 Heritable estate sold .... 1,000 
 
 Rents collected . . . . . 720 
 
 Cash in bank at decease, uplifted . 40 
 
 Cash disbursements :— 
 
 Funeral expenses . 
 
 Expenses of obtaining confirmation 
 
 General legal expenses . 
 
 Repairs to heritable property . 
 
 Stationery, postage, etc. 
 
 Accountant's fee . 
 
 Debts of deceased . , 
 
 X axes ... 1 
 
 Insurance .... 
 
 John Roberts, Jr., to account of legacy 
 
 George Roberts, to account of legacy 
 
 William Roberts, to account of legacy 
 
 Mary Roberts, to account of legacy 
 
 Frank Smith, to account of legacy 
 
 The inventory at the date on which they wish to account 
 
 is as follows : — 
 
 Stocks and shares . . . £1000 
 
 Mortgages . . . 1280 
 
 Cash in bank .... 877 
 
 Make up' summary statement of the Executors* Accounts 
 showing the balance due each legatee. 
 
 £14,107 
 
 
 
 
 
 £30 
 
 
 
 
 
 200 
 
 
 
 
 
 400 
 
 
 
 
 
 220 
 
 
 
 
 
 10 
 
 
 
 
 
 80 
 
 
 
 
 
 500 
 
 
 
 
 
 800 
 
 
 
 
 
 10 
 
 
 
 
 
 ;acy . 2,200 
 
 
 
 
 
 y . 2,500 
 
 
 
 
 
 icy . 2,220 
 
 
 
 
 
 3,100 
 
 
 
 
 
 960 
 
 
 
 
 
 £13,230 
 
 
 
 
 
I 
 
 194 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 PAETNERSHIP 
 
 PARTNERSHIP IS THE RELATION WHICH SUBSISTS BETWEEN 
 PERSONS CARRYING ON A BUSINESS IN COMMON WITH 
 A VIEW OF PROFIT. — PARTNERSHIP ACT, 1890, SEC. 1. 
 
 By the Companies Act, 1862, no partnership consisting 
 of more than twenty persons may be formed for the 
 purpose of carrying on any business without being registered 
 as a company under that Act, unless it is incorporated 
 under some other Act. In the case of a banking company 
 the partnership may not consist of more than ten persons 
 without being so registered. A partnership limited to a 
 particular adventure or speculation is distinguished as a 
 
 joint adventure. 
 
 A partnership may be formed without any deed, but it is 
 better to have it constituted by a formal contract of co- 
 partnery, setting forth the agreement of the parties as to 
 the business to be conducted, the duration of the partner- 
 ship, the contribution of the capital, the division of the 
 profits and losses, the general management, and the dissolu- 
 tion of the partnership. 
 
 Under the Partnership Act of 1890 the advance of 
 money in the form of a loan to a person engaged in 
 business under a contract in writing with such person that 
 the lender is to receive a rate of interest varying with 
 the profits, or is to receive a share of the profits arising 
 from carrying on the business, does not of itself constitute 
 the lender a partner, but in the event of the bankruptcy 
 of the trader the lender of the money is not entitled to 
 recover the money lent or the interest or profits due to 
 him until the claims of the other onerous creditors have 
 
 been satisfied. 
 
 A deed of co-partnery, after stating the name of the 
 firm and the business which it is proposed to conduct, 
 should give the date of the commencement and the duration 
 of the partnership. The capital which is to be originally 
 
 
 PARTNERSHIP 
 
 195 
 
 contributed by each partner or to be afterwards put into 
 the business should also be sfeated. Sometimes it is 
 desirable that either partner in respect of devoting his 
 whole time to the business should receive a salary before 
 the divisible profits are ascertained, so that in the event of 
 there being no profits such partner still draws his salary. 
 Interest on the capital employed should also be charged 
 before arriving at the divisible profits. Even when the 
 capital of a partnership at starting is the same, during the 
 progress of the partnership, in consequence of circumstances 
 arising, the proportions of the partners' capital change, and 
 to make a fair allowance for this it is very desirable that 
 there should be a stipulation in the deed of co-partnery 
 that interest is to be allowed at the rate of say 4 or 5 
 per cent upon all sums at the credit of the partners, and 
 charged on all sums at their debit. The effect of this is 
 that the partners receive interest in respect of the money 
 they have in the business. The proportion in which the 
 profits and losses of the business are to be allocated should 
 be strictly defined. To prevent a partner drawing out too 
 much capital, and thereby endangering the stability of the 
 business, some limitation is usually placed upon the rights 
 of partners to withdraw capital. Provision should be made 
 in all contracts of co-partnery for a periodical Balance 
 Sheet of the firm being prepared and docquetted by the 
 partners as approved of within a specified time. Provision 
 should be made for the dissolution of the firm, and for any 
 disputes which may arise in the course of the co-partnery 
 or at its termination being referred to arbiters, who should 
 be named in the deed. If the arbiter is not named in the 
 deed the Court may make the appointment on the application 
 of any partner (Arbitration (Scotland) Act, 1894, sees. 2 and 3). 
 
 Goodwill in Partnership. 
 
 Sometimes when a new partner is assumed in an 
 established firm it is agreed that he shall, in respect of 
 being taken into the business, pay a certain sum in respect 
 of goodwill. This sum may be treated in various ways. 
 The cash he pays may be paid direct to the original owner 
 or owners of the business, or the sum may be paid in cash 
 
196 ACCOUNTING IN THEORY AND PRACTICE 
 
 into the business, and credited to the Capital Account of 
 the orii^inal owner or owners. By this treatment the 
 partners of the original firm get the full benefit of the 
 payment made in respect of goodwill. On the other hand, 
 the new partner may pay the sum into the business, and 
 such sum may be placed to the credit of the Groodwill 
 Account, thereby writing down the amount at which goodwill 
 then stands on the firm's books. In this case the original 
 partners merely benefit in the proportion in which they are 
 in future to share the profits, and the incoming partner 
 benefits to the extent that he is to share the profits, as the 
 amount will eventually be divided up in some form or 
 other. Thus, if £600 is paid by B for the goodwill of a 
 business, and that sum is handed in cash to A, or on being 
 paid into the business is placed to A's credit in the partner- 
 ship accounts, then A benefits to the extent of £600 ; but if 
 the sum is placed to the credit of Goodwill Account, and A 
 is entitled to two-thirds of the profits, then he only benefits 
 to the extent of £400, so that it would be quite the same 
 thing if B gave A £400 in cash, except, of course, that 
 the business would not have the benefit of the additional 
 
 capital. 
 
 When a partner is taken into a business it is of the 
 greatest importance that a correct Balance Sheet is prepared 
 as the basis on which he is assumed. Sometimes a Balance 
 Sheet as at the date of the commencement of the partner- 
 ship is appended to the deed of co-partnery. Sometimes also 
 the old partners guarantee the assets, and in the event of 
 them not realising their book value the loss is borne by the 
 
 original partuei-s. 
 
 Not only at the beginning, but also at the end of a 
 partnership, it is important that the basis should be a 
 correct Balance Sheet of the concern. 
 
 When there is a provision that after a certain date the 
 division of profits is to be altered, one partner receiving a 
 lart^er ratio and the other a correspondingly smaller ratio, 
 it is essential that great care should be taken to see that 
 the Balance Sheet of the firm as at the date when the 
 alteration takes place is an exact one. Thus in a partner- 
 
 INTEREST ON PARTNERS' CAPITAL 
 
 197 
 
 ship where the junior partner is entitled to receive one- 
 third of the profits for the first three years, but is after- 
 wards entitled to receive one-half, at the end of the third 
 year if any of the assets of the firm are omitted and are in- 
 cluded in the fourth year's account, the result would be that 
 the junior partner would receive one-half of these omitted 
 assets, whereas he is only entitled to receive one -third. 
 On the other hand, if any liability were omitted the junior 
 partner would suffer, because he would be charged with 
 one-half of such omitted liability, whereas his proper pro- 
 portion is only one-third. 
 
 Under the Limited Partnerships Act, 1907, a firm may 
 consist of one or more general partners liable for the whole 
 of the firm's debts and one or more limited partners whose 
 liability is limited to the sums which they are registered as 
 lial)le to contribute. 
 
 INTEKEST ON THE CAPITAL ACCOUNTS OF 
 
 PARTNERS 
 
 Where partners contribute the capital and take their 
 drawings exactly in the same proportion as they share the 
 profits, there is no necessity for making any provision for 
 calculating interest upon their Capital Accounts. But such 
 a state of matters very seldom exists, and as a rule it is 
 most desirable that with the view of taking into account 
 the capital of each partner which contributes to the profits 
 of the business, interest should be allowed upon each 
 partner's capital and charged upon his drawings. Each 
 partner thus obtains, irrespective of his share of the profits 
 and prior to the divisible profits being ascertained, interest 
 upon the money he has invested in the business, as if it 
 were invested in a savings bank. 
 
 The rate of interest usually taken is 5 per cent, and in 
 most contracts of co-partnery it is most desirable that there 
 should be a stipulation that interest at this rate is to be 
 allowed upon all the capital invested in the business, and 
 charged upon the capital withdrawn. Where the interest 
 actually earned upon the capital of the business is at the 
 rate of 5 per cent, the result of this arrangement is abso- 
 lutely fair under all circumstances, but it is interesting to 
 investigate the effect of charging interest where the rate 
 
198 A ceo UNTING IN THEOR Y AND PR A CTICE^ 
 
 1 I 
 
 III 
 
 actually earned is higher or lower. The following is given 
 
 as an illustration. 
 
 Assume that in a business £700 of profit is earned, and 
 that interest is charged and allowed at the rate of 5 per 
 cent on the partners' capital, and that the capital at the 
 beginning of the year was as follows : — 
 
 W. Clay 
 T. Watt 
 
 . £1000 
 6C0, 
 
 and that these amounts are not altered during the year. 
 The provision in regard to profit is that W. Clay gets two- 
 thirds and T. Watt one-third. The Profit and Loss Appro- 
 priation Account and the Capital Accounts would be as 
 follows : — 
 
 Frojii and Loss Appropriation Account. 
 
 D«c 31. To Partners, for iuteiest 
 on their capital : — 
 W. Clay . . . '^50 
 T. Watt ... 30 
 
 
 
 
 
 
 
 £80 
 
 Dec. 31. By Profit for year . . £700 
 
 „ Partners, for share of 
 profit : — 
 W. Clay £413 6 8 
 T. Watt 206 13 4 
 
 620 
 £700 
 
 JF. Clay, Capital Account. 
 
 £700 
 
 Dtc 81. To Balance 
 
 . £1463 6 8 Jan. 1. By Balance • ^ • . • "^l^OO 
 
 Dec. 31. „ Profit and Loss (in- ,^ ^ ^ 
 
 tercst) . . 60 
 
 „ Profit and Loss 413 6 8 
 
 £1463 6 8 
 
 T. Watt, Capital Account. 
 
 Dec. 31. To Balance 
 
 :il 
 
 £836 13 4 I Jan. 1. By Balance . ^ • ^. • 
 Dec. 31. „ Profit and Loss (in- 
 terest) 
 „ Profit and Loss 
 
 £836 13 4 
 
 £1463 6 
 
 8 
 
 
 £600 
 
 30 
 206 13 
 
 
 
 
 4 
 
 £836 13 
 
 4 
 
 INTEREST ON PARTNERS' CAPITAL 
 
 199 
 
 If any additional money invested in the business would 
 have resulted in an additional gain equivalent to 5 per cent 
 on the amount so invested, it is evident that the partner 
 who provided this sum would get the whole additional profit, 
 and this is as it should be. Suppose, however, that any 
 additional capital paid into the business would have resulted 
 in an additional profit equivalent to 10 per cent on the 
 capital so put in. If W. Clay pay £1000 additional into 
 the business at 1st January, the additional profit would be 
 £100, and the Profit and Loss Appropriation Account and 
 partners' Capital Accounts would be as follows : — 
 
 Projit and Loss Appropriation Accmnt. 
 
 Dec. 31. To Partners, for interest 
 on their capital : — 
 W. Clay . . . £100 
 T. Watt . . . 30 
 
 Dec. 31. By Profit lor year . £800 
 
 £130 
 
 „ Partners, for share of 
 profit : — 
 W. Clay £446 13 4 
 T. Watt 223 6 8 
 
 670 
 £800 
 
 JF. Clay, Capital Account. 
 
 £800 
 
 Dec. 31. To Balancti 
 
 £2546 13 4 Jan. 1. By Balance. . . £2000 
 Dec. 31. ,, Profit and Loss (in- 
 terest) . . 100 
 ,, Profit and Loss . 446 13 4 
 
 £2546 13 4 
 
 £2546 13 4 
 
 T. Watt, Capital Account. 
 
 Due. 31. To Balance . 
 
 £853 G 8 
 
 Jan. 1. By Balance . 
 Dec. 31. ,, Profit and Loss (in- 
 terest) 
 ,, Profit and Loss 
 
 £600 
 
 30 
 223 
 
 
 
 
 6 
 
 
 
 
 8 
 
 £853 6 8 
 
 £853 
 
 6 
 
 _8 
 
I 
 
 200 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 Of the additional profit of £100 due to the extra 
 capital put into the business by W. Clay, he gets 
 ^83:68. 8d., equivalent to 8 J per cent on the additional 
 capital ; and the balance, £16 : 13s. 4d., goes to T. Watt. 
 It therefore pays W. Clay to put the £1000 into the 
 business, unless he can earn a larger rate than 8 J per cent 
 
 elsewhere. 
 
 On the other hand, if it is assumed that only 1 per cent 
 is made by the firm on the additional capital of £1000 paid 
 in by W. Clay, then the Profit and Loss Appropriation 
 Account and partners* accounts would be as follows • — 
 
 Profit and Loss Appropriation Account. 
 
 Dec. 31. To Partners, for interest 
 on their capital : — 
 W. Clay . . £100 
 
 T. Watt. . . 30 
 
 Dec. 31. By Profit for year . £710 
 
 £130 
 
 „ Partners, for share of 
 profit : — 
 W. Clay £386 13 4 
 T. Watt 193 6 8 
 
 580 
 £710 
 
 £710 
 
 PT, Clay, Capital Account. 
 
 Dec 31. To Balance 
 
 £2486 13 4 
 
 £2486 13 4 
 
 Jan. 1. By Balance. . . £2000 
 Dec. 31. ,, Profit and Loss (in- 
 terest) . 100 
 „ Profit and Loss . 386 13 4 
 
 £2486 13 4 
 
 T. jrattj Capital Account. 
 
 Dec. 31. To Balance 
 
 £823 6 8 
 
 £823 6 8 
 
 Jan. 1. By Balance . . . £600 
 Dec. 31. ,, Profit and Loss (in- 
 terest) . . . 30 
 „ Profit and Ix>s» , 193 6 8 
 
 £823 6 8 
 
 INTEREST ON PARTNERS' CAPITAL 
 
 201 
 
 W. Clay gets £23 : 6s. 8d. of additional profit, which is 
 equivalent to 2^ per cent on the additional capital he has 
 put into the business. T. Watt, however, gets £13 : 6s. 8d. 
 less profit, so that he loses by the additional capital being 
 put in. It pays W. Clay to invest his money in the 
 business so long as he is unable to get a greater rate than 
 2 J per cent elsewhere. 
 
 IrUtrest to he allowed on the Excess and charged on the. 
 Deficiency of the Capital of each Partner beyond or 
 under a certain fixed Sum, 
 
 Deeds of co-partnery very often contain provisions 
 which it is exceedingly difficult to interpret, and it is fre- 
 quently desirable that the partners should sign an additional 
 agreement explaining what the intention of the stipulations 
 in the deed of co-partnery exactly is. When there is a 
 provision such as the above in a deed of co-partnery, the 
 simplest way of giving effect to the provision is to calculate 
 interest on each partner's account as it stands, including his 
 drawings, and when the total interest for the period is thus 
 ascertained to deduct from it the interest on the stipulated 
 sum for the period. Thus, suppose W. Hay and R White 
 are in partnership under the firm of Hay & White, and 
 that the deed of co-partnery stipulates that interest at 5 
 per cent is to be allowed on the excess and charged on the 
 deficiency of the capital beyond or under £1000 in the 
 case of W. Hay and £800 in the case of R. White, and 
 that the profits thereafter have to be divided in the propor- 
 tion of two-thirds to W. Hay and one-third to R. White. 
 The working-out of the partners' accounts and the Profit 
 and Loss Account, giving effect to these stipulations, would 
 be as follows : — 
 
202 ACCOUNTING IN THEORY AND PRACTICE 
 
 W. Hay, Capital Account. 
 
 June 30. To Cash 
 Deo. 31. ,, Balance 
 
 Interest to 
 81st Dec. 
 
 £5 £200 
 . 1915 16 8 
 
 £2115 16 8 
 
 Interent to 
 81st Dec. 
 
 Jan. 1. By Balance £75 
 Dec. 31. ,, Interest. 
 ,. Protit . 
 
 £1500 
 
 20 
 
 595 16 8 
 
 £2115 16 8 
 
 R. White, Capital Accmmt. 
 
 June SO. To Cash 
 Dec. 31. ,, Interest 
 ,, Balance 
 
 Interest to 
 Slst Dec 
 
 £3 15 £150 
 
 13 15 
 
 734 3 4 
 
 £397 18 4 
 
 Interest to 
 Slst Dec 
 
 Jan. 1. By Balance £30 £600 
 Dec. 31. „ Protit . . . 297 18 4 
 
 £897 18 4 
 
 Profit and Loss Appropriation Account. 
 
 ii 
 
 Dec. 31. To W. Hay, Capital Ac- 
 
 
 
 Dec. 31. By J 
 
 count, for interest : — 
 
 
 
 1 
 
 Interest on account 
 
 
 
 II ' 
 
 for year . . . £70 
 
 
 
 
 
 
 Deduct— 
 
 
 
 
 „ Interest on £1000 50 
 
 
 
 
 
 
 £20 
 
 
 
 
 
 
 ,, Partners* accounts, for 
 
 
 
 
 share of net protit : — 
 
 
 
 
 W. Hay, 
 
 
 
 
 two- thirds £595 16 8 
 
 
 
 
 R. White, 
 
 
 
 
 one-third. 297 18 4 
 
 
 
 
 893 
 
 15 
 
 
 
 
 £913 
 
 15 
 
 _0 
 
 
 „ R. White, Capital Ac- 
 count, for interest : — 
 Interest on 
 £800 . £40 
 Deduct — 
 Interest on 
 his account 26 5 
 
 13 16 
 
 £913 15 
 
 Interest to he allowed on the Excess and charged an the 
 Deficiency of the Capital of ea^h Partner beyond or 
 umier a certain fixed Ratio. 
 
 When there is such a stipulation in a deed of co- 
 partnery, interest should be calculated on the partners' 
 individual accounts, and the sum of this interest is the 
 
 INTEREST ON PARTNERS' CAPITAL 
 
 203 
 
 total interest on the capital, and the proportion of each 
 partner may thus be ascertained. If the actual interest on 
 any partner's account exceed the amount brought out by 
 this proportion, he should be credited with the difference, 
 but if the actual interest on any partner's account is less 
 than that brought out by the proportion his account should 
 be debited with the difference. Thus, suppose that in the 
 previous illustration the stipulation in the deed of co- 
 partnery was that the capital was to be provided in the 
 proportion of two-thirds by W. Hay and one-third by 
 K. White, and that interest was to be allowed on the 
 excess and charged on the deficiency of the capital of each 
 partner beyond or under this ratio. 
 
 The total interest on W. Hay's account is £70 and on 
 R White's £26 : 58., so that the total interest on the capital 
 of the firm is £96 : Ss. The portion of this effeiring to 
 W. Hay is two-tliirds, or £64 : 3s. 4d. As his account shows 
 £70, he must be credited with £5 : 16s. 8d. The portion 
 effeiring to R White is £32 : Is. 8d., and as the interest on 
 his account is only £26: 5s., he must be debited with 
 
 £5: 16s. 8d. 
 
 Giving effect to these entries, the Capital and Profit and 
 Loss Accounts would be as follows : — 
 
 W. Hay, Capital Account. 
 
 Interest to 
 Slst Dec. 
 June 30. To Cash .£500 £200 
 
 Dec. 31. ,, Balance 
 
 1905 16 8 
 
 £2105 16 8 
 
 Interest to 
 3l8t Dec. 
 Jan. 1. By Balance £75 £1500 
 Dec. 31. ,, Interest . . 5 16 8 
 
 .. Protit . . . 600 
 
 £2105 16 8 
 
 R. White, Capital Account. 
 
 Interest to 
 Slst Dec. 
 June 30. To Cash . £3 15 £150 
 Dec. 31. ,, Interest 
 „ Balance 
 
 5 16 8 
 
 744 3 4 
 
 £900 
 
 Interest to 
 Slst Dec. 
 Jan. 1. By Balance £30 ' £600 
 
 Dec. 31. „ Profit 
 
 300 
 
 £900 
 
204 ACCOUNTING IN THEORY AND PRACTICE 
 
 Profii and Loss Appropriation Account. 
 
 Dec. 31. To W. Hay, Capital 
 Account, for 
 interest : — 
 Interest on ac- 
 count for year 
 Deduct — 
 Proportion of 
 £96 : 5s., being 
 two-thirds of 
 total interest . 
 
 £70 
 
 II 
 
 Partners' Ac - 
 counts, for share 
 of net profit: — 
 W. Hay, 
 
 t w o - 
 
 thirds £600 
 R. White, 
 
 o n e • 
 
 third 300 
 
 64 3 4 
 £5 16 8 
 
 900 
 £905 16 8 
 
 Dec. 31. By 
 
 Profit earned 
 for year 
 R. White, 
 Capital Ac- 
 count, for 
 interest : — 
 Propor- 
 tion of 
 £96 : 58., 
 being one- 
 third of 
 total in- 
 terest £32 
 Dedttet — 
 Interest 
 on ac- 
 count 
 foryear 26 5 
 
 1 5 
 
 This method of allowing interest on the excess and 
 charging it on the deficiency of the capital of each partner 
 beyond or under a certain ratio gives the same results as 
 allowing and charging interest in the usual way, always 
 provided that the proportion of capital held by each partner 
 is the same as his proportion of the profit The following 
 are the accounts as drawn up in the usual way, and it will 
 be seen that the partners* balances of capital are the same 
 as given above, as the capital held by the partnera was 
 two-thirds and one-third, and the profits were allocated 
 also in the proportions of two-thirds and one-third. 
 
 fF, Hay, Capital Account. 
 
 June 30. To Cash 
 Dec 31. ,, Balance . 
 
 PARTNERSHIP^DIVISION OF PROFITS 205 
 
 £900 
 
 June 30. To Cash 
 Dec. 31. ,. Balance . 
 
 £150 
 744 3 4 
 
 Jan. 1. By Balance . . . £600 
 Dec. 31.,, Interest Cr. £30 
 
 Dr. 3 15 
 
 26 5 
 
 .. Profit . . . . 267 18 4 
 
 £894 3 4 
 
 1 
 
 £894 3 4 
 
 Profit and Loss Appropriation Account. 
 
 5 16 8 
 
 £905 16 8 
 
 Dec. 31. To Interest on partners' 
 capital : — 
 W. Hay . . £70 
 R. White . . 26 6 
 
 „ Partners' accounts, for 
 share of net profit : — 
 W. Hay, two- 
 thirds £535 16 8 
 R. White, 
 one-third 267 18 4 
 
 £96 5 
 
 803 15 
 €900 
 
 Dec. 31. By Profit earned for year £900 
 
 £900 
 
 £200 
 1905 16 8 
 
 £2105 16 8 
 
 Jan. 1. By Balance . . £1500 
 
 Dec. 31. ,, Interest Cr. £75 
 
 Dr. 6 
 
 70 
 
 „ Profit . , . 535 16 8 
 
 £2105 16 8 
 
 DIVISION OF PROFITS 
 
 The division of the profits of partnerships is governed 
 by the contract of co-partnery, and by the provisions of the 
 Partnership Act of 1890. The contract of co-partnery 
 must be carefully read by the accountant, and all its 
 stipulations given effect to. Sometimes contracts through 
 being drafted by those not skilled in accounting contain 
 provisions which if given effect to would have exactly the 
 opposite effect of the intention of the parties, and in such 
 cases great common sense and tact are requisite in framing 
 the accounts. Where the provisions of a contract have 
 not been exactly given effect to, the partners should be 
 requested to put a docquet upon the deed of co-partnery 
 making the necessary alteration upon it. Very often an 
 accountant is asked to revise the draft of a deed of 
 co-partnery, and in such cases he has an opportunity of 
 seeing that all the provisions relating to his department 
 will express the intentions of the parties. 
 
2o6 ACCOUNTING IN THEORY AND PRACTICE 
 
 I 
 
 I. Profits to he divided in proportion to each 
 Partner's Capital. 
 
 Sometimes the division of the profits of a co-partnery 
 is made according to the capital which each partner puts 
 into the business. In such cases each partner is credited 
 with the said amount in an account headed with the name 
 of the partner, and the words " Capital as fixed in Deed 
 of Co-partnery " are added. These accounts are always 
 kept at the same figure, and other accounts are opened for 
 the drawings of the partners and such other items as would 
 ordinarily appear in the Capital Accounts. 
 
 Rule. 
 
 To allocate the profit made by partners in proportion 
 to each partner's capital as fixed in the deed of co-partnery, 
 divide the profit to be allocated by the total capital as fixed 
 in the deed of co-partner}-. This will give the profit which 
 effeirs to each £1 of capital, and by multiplying this sum by 
 the capital of each partner the share falling to each is 
 ascertained. 
 
 Thus, suppose the profit to be divided is £900, and 
 that Black's capital is £3200 and Brown's capital £2100. 
 Then the total capital is £5300, and each £1 of capital is 
 
 £900 
 therefore entitled to t^tx^, equal to 3s. 4'755d. This sum 
 
 multiplied by 3200 gives £543 : 8s. Od. as Black's share 
 of profit, and multiplied by 2100 gives £356 : 12s. Od. as 
 Brown's share. 
 
 II. Profits to he divided in Proportion to each Partner* s Capital 
 and the time such Capital has heen in the Bicsiness. 
 
 Dividing the profits according to the amount of each 
 partner's capital and the time it was of service to the 
 co-partnery is practically the same as dividing the profits 
 in the form of interest on the partners' accounts. 
 
 Pule. 
 
 To divide the profits of a co-partnery according to the 
 amount of each partner's capital and the time it has been 
 
 PARTNERSHIP— DIVISION OF PROFITS 
 
 207 
 
 in the business, multiply the sums on the credit side of 
 each partner's account by the portion of time from the date 
 of payment to the close of the account, and deduct from 
 the sum of these products the sum of the products of the 
 debit side formed in the same way. This will give the 
 net products for each partner, and the profit to be allocated 
 should be divided according to these products. 
 
 Thus, suppose the profit to be divided is £700, and the 
 Capital Accounts for the year were as follows : — 
 
 W. Boss, Capital Account. 
 
 Dr. 
 Aug. 1. To Cash 
 
 Oct. 1. 
 
 do. 
 
 £500 
 200 
 
 Jan. 1. By Balance 
 May 1. ,, Cash 
 Nov. 1. ,, do. 
 
 Cr 
 
 £1000 0' 
 300 
 200 
 
 A. Scott J Capital Account. 
 
 Dr. 
 
 Jan. 1. By Balance 
 June 1. ,, Cash . 
 
 Dec. 1. 
 
 do. 
 
 Cr. 
 
 £600 
 
 500 
 
 50 
 
 On the basis that the time is taken in months the 
 question is worked out as follows : — 
 
 fV, Moss — 
 
 1000 X 12 12,000 
 
 300 X 8 2,400 
 200 X 2 400 
 
 Deduct — 
 
 14,800 
 
 A Scott— 
 
 500x5 
 
 2500 
 
 200x3 
 
 600 
 
 600 X 12 
 
 7200 
 
 500 X 7 
 
 3500 
 
 50 X 1 
 
 50 
 
 3,100 
 11,700 
 
 10,750 
 22,450 
 

 208 ACCOUNTING IN THEORY AND PRACTICE 
 
 W. Koss is entitled to g-y^^^^ ^^ ^*^^^' ®^"*^ ^ 
 £364: 168. 3d., and A. Scott to ^l^^ths of £700, equal 
 
 to £335 : 38. 9d. 
 
 The average capital of each partner is found by divid- 
 ing their net products by 12. Thus 
 
 W. E08S, ^^^, equals £975. 
 
 A. Scott, ^^~. equals £895 : 16s. 8d., 
 
 and the question practically resolves itself into dividing the 
 profits according to the average capital of the partners. 
 
 On the more correct basis that the time is taken in 
 days, the profit of £700 would be divided as follows :— 
 
 W. Boss- 
 
 1000 X 365 
 300 X 244 
 200 X 60 
 
 365,000 
 73,200 
 12,000 
 
 450,200 
 
 Deduct- 
 
 500 X 152 
 200 X 91 
 
 76,000 
 18,200 
 
 A Scott— 
 
 94,200 
 356,000 
 
 600 X 365 
 
 500 X 213 
 
 50 X 30 
 
 219,000 
 
 106,500 
 
 1500 
 
 327,000 
 683,000 
 
 W. Ross is entitled to ^ll^^ths of £700, equal to 
 
 683,000 
 
 327,000 
 £364 : 173. 3d., and A. Scott to 
 
 ths of £700, equal 
 
 683,000 
 
 to £335 : 2s. 9d. The difference by this more correct 
 method is one shilling in favour of W. Eoss. 
 
 Suppose again that A and B enter into a series of trans- 
 actions as partners, on the footing that the profits at the end 
 
 PARTNERSHIP—DIVISION OF PROFITS 
 
 209 
 
 of the year are to be divided according to the amount of the 
 capital each has subscribed, and the time it has been in- 
 vested. Suppose, further, that the profit is £1000, and the 
 capital transactions as follows : — 
 
 Dec. 31. A pays in cash .... 
 B do. .... 
 
 Feb. 28. A do. ... 
 
 May 31. B do. .... 
 
 If a month is taken as the unit of time the profit is 
 divided as follows : — 
 
 £2000 
 
 
 
 
 
 1500 
 
 
 
 
 
 600 
 
 
 
 
 
 500 
 
 
 
 
 
 A. Deo. 31. 
 Feb. 28. 
 
 B. Dec 31. 
 May 81. 
 
 Capital. 
 
 Months to 
 8l8t Dec. 
 
 Product. 
 
 £ <. 
 
 2000 
 
 600 
 
 d. 
 
 
 
 12 
 10 
 
 £ s. d. 
 
 24,000 
 
 6000 
 
 1500 
 500 
 
 
 
 
 12 
 
 7 
 
 30,000 
 
 18,000 
 3500 
 
 
 
 
 21,500 
 
 A's capital is thus equal to £30,000 for one month, and 
 B*8 capital is equivalent to £21,500 for one month. The 
 profit of £1000 thus falls to be divided : — 
 
 A=£1000x 
 B=£1000x 
 
 30,000 
 
 30,000 + 21,600 
 
 21,500 
 30,000 + 21,500 
 
 = £582 10 6 
 
 = 417 9 6 
 
 £1000 
 
•<*■ 
 
 2IO ACCOUNTING IN THEORY AND PRACTICE 
 
 PARTNERSHIP— DIVISION OF PROFITS 
 
 211 
 
 ■ 
 
 If a day is taken as the unit of time we have : — ■ 
 
 A. Dec. 31. 
 Feb. 28. 
 
 B. Dec. 31. 
 May 31. 
 
 Capital. 
 
 Days to 
 31st Dec. 
 
 Product. 
 
 £ a, d. 
 
 2000 
 
 600 
 
 365 
 306 
 
 £ 8. d. 
 730,000 
 183,600 
 
 1500 
 500 
 
 365 
 214 
 
 913,600 
 
 547,500 
 107,000 
 
 
 
 654,500 
 
 A's capital is thus equal to £913,600 for one day, and 
 B's capital to £654,500 for one day. The profit of £1000 
 falls to be divided thus : — 
 
 913,600 
 
 A = £1000x 
 
 B = £1000x 
 
 913,600 + 654,500 
 
 654,500 
 913,600 + 654,500 
 
 = £582 12 4 
 
 = 417 7 8 
 
 £1000 
 
 III. Profits to he divided in 'proportion to certain 
 
 fixed ratios. 
 
 The most usual way to divide the profits of a co- 
 partnery is in proportion to certain ratios which are fixed by 
 the deed of co-partnery. Before these ratios are applied to 
 the net profit, allowance must be made for any salary to the 
 partners and interest on the partners' Capital Accounts. 
 
 Bide. 
 
 To allocate the net profit made by partners in proportion 
 to certain fixed ratios, add the ratios together, divide the 
 profit to be allocated by this figure, and multiply the result 
 by the numerator of each partner. 
 
 Thus, to divide £900 of net profit among A, B, and C 
 in the proportion of 2, 3, and 4, we have as the addition of 
 the ratios 9. Dividing the £900 by 9 we get £100, which 
 
 multipHed by 2, 3, and 4 gives £200, £300, and £400 as 
 the shares of A, B, and C respectively. 
 
 Similarly, to divide £1200 among A, B, and C in the 
 proportion of -J^, -J-, and J. Reducing the ratios to one 
 common denominator, we obtain 2, 3, and 1 as the ratios, 
 after reducing to the common denominator, 6. Dividing 
 £1200 by 6 we obtain £200, and £200 multiplied by 2, 
 3, and 1 gives £400, £600, and £200 as the share of A, 
 B, and C respectively. 
 
 Assumption of a Partner. 
 
 The following is the Balance Sheet of the firm of Cowan 
 & Company at 3l8t December. It has been arranged 
 by the two partners that a third partner, R Wilson, is to 
 be taken into partnership, and he pays on 31st December 
 £36,000 into the old firm's Bank Account. Of this sum 
 £28,000 is to be placed to the credit of R Wilson, and 
 the balance of his payment to the old partners as considera- 
 tion for being taken into partnership. The old partners are 
 to share the £8000 in proportion to their capital, but 
 are to leave it in the business. For the new partnership 
 4 per cent is to be written off the book debts in respect of 
 bad debts and discount, the value of the stock on hand is 
 to be reduced to the extent of 5 per cent, and the copy- 
 rights, printing plant, and office fixtures and furniture were 
 valued mutually, as follows : — 
 
 Copyrights 
 
 Printing plant and oifice 
 
 Fixtures and furniture 
 
 £24,000 
 
 25,000 
 
 1,700 
 
 The other assets and liabilities were to be taken as they 
 appear in the Balance Sheet The following are the accounts 
 of the old partners, and the Balance Sheet of the new firm 
 as at 1st January, giving effect to the cash payment by 
 R Wilson and the above values : — 
 
212 ACCOUNTING IN THEORY AND PRACTICE 
 
 COWAN h CO.. PRINTERS AND PUBLISHERS 
 
 Balance Sheet as at 3 1st December. 
 
 Liabilities, 
 
 Assets, 
 
 Due to trade creditors . £15,000 
 
 Loans 
 
 Capital : — 
 J. Cowan 
 W. BeU 
 
 £30,000 
 20,000 
 
 7,000 
 
 60,000 
 
 £72,000 
 
 Book debts . . . £8,000 
 Stock :— 
 
 Books . £4,000 
 
 Paper, ink, etc. 3,000 
 
 7,000 
 
 Copyrights . . . 25,000 
 
 Printing plant and oflSce 30,000 
 
 Fixtures and furniture . 1,600 
 
 Bank of Scotland . . 600 
 
 £72,000 
 
 1- 
 
 J, Cowarif Capital Account. 
 
 Dec 31. To Share of depreciation, being 
 |ths of the decrease in the 
 values of assets taken over by 
 new firm, as follows : — 
 
 Book debts . £192 
 Stock . . 210 
 Copyrights . 600 
 Plant and 
 oflSce . 3,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £4,002 
 Deduct — 
 Share of in- 
 
 
 
 
 
 crease m 
 value ot 
 fixtures and 
 furniture . 120 
 
 
 
 
 
 £3,882 
 „ Balance . . 30,918 
 
 
 
 
 
 
 
 £34,800 
 
 
 
 _0 
 
 )l 
 
 Dec. 31. By Balance £30,000 
 
 Share of £8000 
 paid by R. 
 Wilson in re- 
 spect of part- 
 nership (fths 
 of £8000) . 4,800 
 
 £34,800 
 
 PARTNERSHIP^DIVISION OF PROFITS 
 
 213 
 
 W, Bdlf Capital Account 
 
 Dec. 31. To Share of deprecia- 
 tion, being fths of 
 the decrease in the 
 values of assets 
 taken over by new 
 firm, as follows: — 
 Book debts 
 Stock 
 
 Copyrights 
 Plant and office 
 
 Deduct — 
 Share of increase 
 in value of 
 fixtures and 
 furniture 
 
 „ Balance 
 
 £128 
 
 140 
 
 400 
 
 2,000 
 
 £2,668 
 
 80 
 
 
 
 
 
 £2,588 
 20,612 
 
 
 
 
 
 
 
 £23,200 
 
 
 
 
 
 »« 
 
 Deo. 31. By Balance . . £20,000 
 Share of £8000 
 paid by R. Wilson 
 in respect of 
 partnership (fths 
 of £8000) . . 3,200 
 
 £23,200 
 
 COWAN & CO., PRINTERS AND PUBLISHERS 
 Balance Sheet of new firm as at 1st January. 
 Liabilities. Assets. 
 
 Due to trade creditors . 
 
 Loans 
 
 Capital : — 
 J. Cowan . £30,918 
 
 W. Bell . . 20,612 
 R. Wilson . 28,000 
 
 £16,000 
 7,000 
 
 
 
 
 
 
 
 79,630 
 
 £101,630 
 
 Book debts . 
 Stock : — 
 
 Books 
 
 Paper, ink, etc. 
 
 £3,800 
 2,860 
 
 Copyrights . 
 Printing plant and office 
 Fixtures and furniture 
 Bank of Scotland 
 
 £7,680 
 
 6,650 
 
 24,000 
 
 25,000 
 
 1,700 
 
 36,500 
 
 
 
 
 
 
 
 £101,630 
 
 Dissolution of Partnership. 
 
 Under the deed of co-partnery of the firm of Millar, 
 Nimmo, & Orr the three partners were interested in the 
 profits of the business in the ratio of 2, 3, and 4 respec- 
 tively, and 5 per cent was to be allowed on their capital 
 before dividing the profits. In the event of the death of 
 any of the partners, it was provided that the amount due 
 
¥ 
 
 214 ACCOUNTING IN THEORY AND PRACTICE 
 
 \\ 
 
 to his representatives should be the sum at his credit in 
 the books of the concern at the date of the last annual 
 balance, together with any sums since paid into the business 
 by the deceased, interest on his capital, and a sum in respect 
 of profit since the last balance to the date of death, based 
 on the average yearly profits for the three years preceding 
 the date of last balance, less any drawings from the business 
 since that date. The balance so ascertained was to be 
 paid to the representatives of the deceased partner in three 
 equal instalments, for which bills were to be granted by 
 the remaining partners, payable in three, six, and nine 
 months from the date of death, and these bills were to 
 include interest at the rate of 5 per cent. It was further 
 provided that in the event of the decease of a partner the 
 goodwill of the business was to be valued at one year's 
 purchase of the average profits for the three years immedi- 
 ately preceding, and the share of the deceased partner was 
 to be credited to his account. W. Orr died on 30 th June. 
 The average annual profits during the three years ending 
 31st December immediately preceding the death of W. Orr 
 amounted to £18,000. From the following Trial Balance 
 as at 30 th June it is required to prepare a Trading 
 Account, Profit and Loss Account for the six months. Partners' 
 Accounts, and the Balance Sheet of the firm as at that date, 
 after giving effect to the transactions consequent on the 
 death of W. Orr. The amount to be credited to the 
 partners in respect of interest on capital for the six months 
 was £900, as follows: — 
 
 A. Millar . 
 J. Nimmo . 
 W. Orr . 
 
 £200 
 
 250 
 
 450 
 
 £900 
 
 Charge 5 per cent on the value of the factory to the 
 Trading Account in respect of rent of factory, and write off 
 10 per cent from the plant for depreciation for the six 
 months. The stock on hand at 30 th June amounted to 
 £5300. 
 
 
 PARTNERSHIP— DIVISION OF PROFITS 
 
 215 
 
 Trial Balance as at 30 th June. 
 
 Stock at 1st January . 
 Purchases .... 
 Factory wages and salaries 
 Discount received, less discount 
 
 allowed 
 Sales . . . 
 
 Bills receivable 
 Bills payable 
 Office salaries . 
 Office expenses . 
 Customers' Accounts 
 Bad debts . 
 Cash 
 
 Travelling expenses . 
 Factory rates and taxes 
 Office rent, rates, taxes, 
 
 surance 
 Factory 
 
 Plant and machinery 
 Office fixtures and fittings 
 Trade creditors 
 Interest 
 
 A. Millar, Capital Account 
 J. Nimmo, do. 
 
 W. Orr, do. 
 
 and in 
 
 £10,000 
 
 160,000 
 
 25,000 
 
 2,000 
 
 400 
 
 200 
 
 50,000 
 
 1,500 
 
 3,000 
 
 800 
 
 100 
 
 200 
 
 6,000 
 
 2,000 
 
 250 
 
 800 
 
 £262,250 
 
 £2,000 
 200,000 
 
 5,000 
 
 15,000 
 
 9,000 
 11,750 
 19,500 
 
 
 
 
 
 £262,250 
 
 Trading Account 
 For Six Months ending ZOth June, 
 
 Jan. 1. To Stock 
 
 £10,000 
 
 
 
 
 
 June 30. 
 
 By Sales 
 
 . £200,000 
 
 
 
 
 
 lane 30. ,, Purchases 
 
 160,000 
 
 
 
 
 
 
 . Stock 
 
 5,300 
 
 
 
 
 
 
 £170,000 
 
 
 
 
 
 
 „ Factory, wages, 
 
 
 
 
 
 
 
 
 
 and salaries . 
 
 25,000 
 
 
 
 
 
 
 
 
 
 
 ,, Factory rates 
 
 
 
 
 
 
 
 
 
 and taxes 
 
 100 
 
 
 
 
 
 
 
 
 
 
 „ Rent of factory 
 
 300 
 
 
 
 
 
 
 
 
 
 
 ,, Depreciation at 
 
 
 
 
 
 
 
 
 
 10 per cent on 
 
 
 
 
 
 
 
 
 
 plant and ma- 
 
 
 
 
 
 
 
 
 
 cnmery . 
 
 200 
 
 
 
 
 
 
 
 
 
 
 
 £195,600 
 
 
 
 
 
 
 „ Profit and Loss 
 
 
 
 
 
 
 
 
 
 Account 
 
 9,700 
 
 
 
 
 
 
 
 
 
 
 
 £205,300 
 
 
 
 
 
 £205,300 
 
 
 
 J 
 
2i6 ACCOUNTING IN THEORY AND PRACTICE 
 
 Profit and Loss Account 
 For Six Months ending 30th June. 
 
 June 30. To OflBce expenses :— 
 
 
 
 
 June 30. 
 
 By Trading Account £9,700 
 
 
 
 
 
 Salaries 
 
 £400 
 
 
 
 
 
 
 ,, Trading Account, 
 
 
 
 Rent . 
 
 200 
 
 
 
 
 
 
 for rent of factory 300 
 
 
 
 
 
 General expenses 
 
 200 
 
 
 
 
 
 
 „ Discount . . 2,000 
 
 
 
 
 
 
 £800 
 
 
 
 
 
 
 „ Travelling ex- 
 
 
 
 
 
 
 
 
 penses . 
 ,, Bad debts . 
 
 800 
 
 
 
 
 
 
 
 
 
 1,500 
 
 
 
 
 
 
 
 
 
 „ Interest 
 
 800 
 
 
 
 
 
 
 
 
 
 ,, Interest on capital : 
 
 — 
 
 
 
 
 
 
 
 A. Millar £200 
 
 
 
 
 
 
 
 
 J. Nimmo 250 
 
 
 
 
 
 
 
 
 W. Orr 460 
 
 900 
 
 
 
 
 
 
 
 
 
 £4,800 
 
 
 
 
 
 
 a, W.Orr, sum credited 
 
 
 
 
 
 
 
 
 to his account in 
 
 
 
 
 
 
 
 
 terms of deed of co- 
 
 
 
 
 
 
 
 
 partnery (Iths of 
 
 
 
 
 
 
 
 
 £9000) 
 
 4,000 
 
 
 
 
 
 
 
 
 
 „ Balance of net 
 
 
 
 
 
 
 
 
 profit, allocated 
 
 
 
 
 
 
 
 
 thus : — 
 
 
 
 
 
 
 
 
 A. Millar, 
 
 
 
 
 
 
 
 
 |ths . £1280 
 
 
 
 
 
 
 
 
 J. Nimmo, 
 
 
 
 
 
 
 
 
 {ths . 1920 
 
 3,200 
 
 
 
 
 
 
 
 
 
 £12,000 
 
 
 
 
 
 £12,000 
 
 
 
 _0 
 
 The partners* accounts are as follows • — 
 
 A. MUlai^s Capital Account 
 
 June 30. To Balance . • £10,480 
 
 £10.480 
 
 Jaue 30. By Balance . . £9,000 
 ,, Interest on 
 
 capital . 200 
 
 „ Share of profit 
 
 (|thsof£3200) 1,280 
 
 £10,480 
 
 PARTNERSHIP^DIVISION OF PROFITS 
 
 217 
 
 /. Nimmds Capital Account, 
 
 June 30. To Balance . . £13,920 
 
 £13,920 
 
 June 30. By Balance . . £11,750 
 , , Interest on 
 
 capital . 250 
 
 ,, Share of profit 
 
 ( Jths of £3200) 1,920 
 
 £13,920 
 
 W. Orr's Capital Account. 
 
 June 30. To Balance carried 
 
 June 30. 
 
 By Balance • 
 
 £19,500 
 
 
 
 
 
 to W.Orr's Re- 
 
 
 ,, Interest on 
 
 
 
 
 presentatives* 
 
 
 capital 
 „ Profit and Loss, 
 
 450 
 
 
 
 
 
 Account . £31,950 
 
 
 
 
 
 
 ■ 
 
 for share of 
 
 
 
 
 
 
 profit per deed 
 
 
 
 
 
 
 of co-partnery 
 
 
 
 
 
 
 (|ths of £9000) 
 
 4,000 
 
 
 
 
 
 
 
 ,, Share of good- 
 
 
 
 
 I 
 
 
 will (^ths of 
 
 
 
 
 
 
 £18,000) 
 
 8,000 
 £31,950 
 
 
 
 
 
 
 £31,950 
 
 
 
 The above balance of £31,950 is to be paid to W. Orr's 
 representatives in three equal portions, for which bills 
 were to be granted at three, six, and nine months, with 
 interest at 5 per cent added. Three months' interest on 
 £10,650 at 5 per cent is £133 : 2s. 6d., so that the amounts 
 of the bills would be as follows : — 
 
 First bill at 3 months . 
 Second bill at 6 months 
 Thu-d bill at 9 months . 
 
 £10,783 2 6 
 10,916 5 
 11,049 7 6 
 
 The Journal entries for the transactions consequent on 
 the death of W. Orr would be as follows ; — 
 
I 
 
 2i8 ACCOUNTING IN THEORY AND PRACTICE 
 
 Journal, 30th June. 
 
 i'iotit and Lostt Account, lor 
 capital 
 To A. Millar . 
 ,, J. Kimmo . 
 „ W. Orr 
 
 interest on 
 
 Dr 
 
 Goodwill .... 
 
 To W. Orr, Capital Account 
 
 Profit and Loss Account, for net profit Dr 
 To A. Millar, Capital Account . 
 ,, J. Nimmo, do. 
 
 ,, W. Orr, do. 
 
 W. Orr's Capital Account . . I>r. 
 To AV. Orr's Representatives' Account 
 
 Interest Br. 
 
 To W. Orr's representatives, lor in- 
 terest on — 
 Bill at 3 months £133 2 6 
 Bill at 6 months 266 5 
 
 Bill at 9 months 399 7 6 
 
 W. Orr's representatives . . Dr. 
 To Bills payable, for the following 
 bills : — 
 
 Bill at 3 months £10,783 2 6 
 Bill at 6 months 10,916 5 
 Bill at 9 months 11,049 7 6 
 
 £900 
 
 8,000 
 7,200 
 
 31,950 
 798 15 
 
 32,748 15 
 
 £200 
 250 
 450 
 
 8,000 
 
 1,280 
 1,920 
 4,000 
 
 31,950 
 
 793 15 
 
 32,748 16 
 
 W. Orr*s Representatives* Account, after carrying the 
 balance from W. Orr's Capital Account and after giving 
 effect to the bill transactions, would be as follows : — 
 
 W. Orr^s RepreseTiiatives, 
 
 June 30. To BiUs payable . £32,743 15 
 
 I 
 
 June 30. By Balance, carried 
 from W. Orr's 
 Capital Ac- 
 count . . £31,950 
 ,, Intereston bills 
 granted for 
 balance due — 
 
 Istbill £133 2 6 
 
 2nd bill 266 5 
 
 did bill 399 7 6 
 
 i 
 
 £32,748 15 
 
 798 16 
 £32,748 15 
 
 PARTNERSHIP TRANSACTIONS WORKED OUT 219 
 
 From the Journal entries it will be observed that an 
 account is opened for goodwill, and the £8000 is debited 
 to it, as that is the cost of goodwill to the new firm. 
 
 The Interest Account is also debited with £798 : 15s., 
 which will be carried to the Profit and Loss Account for the 
 next period, and appears as an asset in the Balance Sheet 
 prepared after the death of W. Orr. 
 
 The Balance Sheet prepared immediately after W. Orr's 
 death, and giving effect to all the transactions consequent 
 thereon, is as follows : — 
 
 Balance Sheet as at 30th June 
 (after giving effect to the transactions consequent on W. Orr*s death). 
 
 Liabilities. Assets. 
 
 Due to creditors : — 
 
 
 
 Due by customers : — 
 
 
 
 On open account . 
 
 £15,000 
 
 
 
 On open account 
 
 £50,000 
 
 
 
 On bills payable . 
 
 5,000 
 
 
 
 On bills receivable 
 
 2,000 
 
 
 
 
 £20,000 
 
 
 
 £52,000 
 
 
 
 Due to "W. Orr's repre- 
 
 
 
 Value of factory . 
 
 6,000 
 
 
 
 sentatives ON BILLS 
 
 
 
 Plant and machinery 
 
 1,800 
 
 
 
 PAYABLE .... 
 
 32,748 15 
 
 
 
 Office fixtures and fit- 
 
 
 
 Capital :— 
 
 
 
 tings . . . . 
 
 250 
 
 
 
 A. Millar £10,480 
 
 
 
 Interest on bills pay- 
 
 
 
 J. Nimmo 13,920 
 
 
 
 able EFFEIRINO TO NEXT 
 
 
 
 
 24,400 
 
 
 
 period . . . . 
 
 798 15 
 
 
 
 
 
 
 Goodwill . . . . 
 
 8,000 
 
 
 
 
 
 
 Stock . . . . 
 
 5,300 
 
 
 
 
 
 
 Cash 
 
 3,000 
 £77,148 15 
 
 
 
 
 £77,148 15 
 
 _0 
 
 
 
 X 
 
 PAKTNEKSHIP TKANSACTIONS WOEKED OUT 
 
 A Trading Account, a Profit and Loss Account, Partners' 
 Capital Accounts, and a Balance Sheet have been prepared 
 from the following particulars, and are shown here. 
 
 T. Hall and W. Blyth enter into partnership on 1st 
 January, when they purchase a going business. T. Hall 
 contributes £2500 and W. Blyth £1500, and the profit or 
 loss is to be divided in the same proportion. T. Hall is to be 
 entitled to a salary of £250 and W. Blyth to a salary of £600 
 before dividing the profit Interest is to be allowed on the 
 capital at the beginning of the year at the rate of 5 per cent 
 
li 
 
 220 ACCOUNTING IN THEORY AND PRACTICE 
 
 At 3l8t December the Trial Balance of the business 
 was as follows : — # 
 
 T. Hall, Capital Account 
 
 W. Blyth, Capital Account . 
 
 Stock at beginning of year 
 
 Purchases 
 
 Sales 
 
 Consignments 
 
 Book debts receivable, including consign- 
 ments 
 
 Creditors 
 
 Borrowed capital 
 
 Plant and fixtures 
 
 Wages 
 
 Salaries 
 
 Rent and taxes 
 
 Trade charges 
 
 Interest and discount . . . . 
 
 Commission 
 
 Gosh in bank .....! 
 
 £2,500 
 1,500 
 
 8,000 
 4,000 
 
 2,600 
 1,000 
 
 420 
 
 £19,920 
 
 At 31st December the stock on hand was valued at 
 £3957. The proportion of insurance premiums paid but 
 unexpired amounted to £15. On 31st December a quarter's 
 rent in advance was paid, amounting to £48, and is included 
 in the item of £250. Keserve 2 per cent on the total sales 
 and consignments for loss through bad debts. Provide for 
 interest on borrowed capital for three months ending 31st 
 December at 4 per cent 
 
 Trading Account, 
 
 Jan. 1. To Stock at beginning 
 
 of year . . £2,000 
 
 Dec. 31. 
 
 f> 
 
 Purchases 
 
 10,000 
 
 I. 
 
 n 
 
 £12,000 
 Deduct—' 
 Stock on hand at 
 31st December . 3,957 
 
 Cost of Groods 
 Wages . 
 
 £8,043 
 2,270 
 
 t> 
 
 £10,313 
 Profit and Loss Ac- 
 count, being gross 
 profit . . . 2,107 
 
 £12,420 
 
 Dec 31. By Sales . . . £8,000 
 ,, Sales on consignment 4,000 
 .. Commission . . 420 
 
 PARTNERSHIP TRANSACTIONS WORKED OUT 221 
 
 Profit and Loss Account for the Year ending Slst December. 
 
 Dec. 31. To Rent and taxes : — 
 Cash paid • 
 
 Deduct — 
 Rent paid in ad- 
 vance 
 
 Dec. 31. By Trading Account, for 
 
 gross profit . . £2107 I 
 
 £250 
 48 
 
 ,, Trade charges : — 
 Cash paid £300 
 Deduct — 
 Insurance un- 
 expired IS 
 
 ,. Interest and discount : — 
 
 Amount dur- 
 ing year £200 
 
 Interest due 
 on borrowed 
 capital 10 
 
 , , Bad debts reserve: — 
 2 per cent on turn- 
 over of £12,000 
 
 I Salaries . • 
 
 ,, Balance carried down 
 
 Deo. 31. To Interest on partners' 
 capital : — 
 T. Hall 
 W. Blyth . 
 
 }i 
 
 Partners' salaries : — 
 T. Hall . £250 
 W. Blyth . 600 
 
 £202 
 
 
 
 
 
 285 
 
 
 
 
 
 210 
 
 
 
 
 
 240 
 
 
 
 
 
 200 
 
 
 
 
 
 £1137 
 
 
 
 
 
 970 
 
 
 
 
 
 £2107 
 
 
 
 
 
 £125 
 
 
 
 
 
 75 
 
 
 
 
 
 £200 
 
 
 
 
 
 850 
 
 
 
 
 
 £1050 
 
 
 
 
 
 II 
 
 Dec. 31. By Balance brought 
 down 
 
 Partners' Capital Ac- 
 counts, for share of 
 net loss, after charg- 
 ing interest on capi- 
 tal and salaries to 
 partners : — 
 T. HaU (Iths 
 of £80) £50 
 
 W. Blyth (f ths 
 of £80) 30 
 
 £2107 
 
 £970 
 
 80 
 
 £1050 
 
 £12,420 
 
II 
 
 222 ACCOUNTING IN THEORY AND PRACTICE 
 
 Partners' Accounts 
 r. Hdlj Capital Accouni, 
 
 Dec. 31. To Cash, drawings 
 
 Profit and Loss Ac- 
 count (|ths of £80) 
 Balance , . 
 
 i> 
 
 tt 
 
 £300 
 
 60 
 2525 
 
 £2875 
 
 Jan. 1. By Cash . . . £2500 
 
 Dec. 31. ,, Interest on above 
 for one year at 5 
 per cent . 125 
 
 Profit and Loss Ac- 
 count, for salary . 250 
 
 II 
 
 JF. Bhjthf Capital Account. 
 
 HALL AND BLYTH 
 Balance Sheet as at 31 st December. 
 
 Liabilities. 
 
 Assets, 
 
 Trade creditors . 
 
 Borrowed capital : — 
 Amount of loan 
 Interest to date 
 quarter at 4 per 
 
 Partners Capital : — 
 T. Hall 
 W. Blyth . 
 
 * m m 
 
 £1000 
 (for 
 cent) 10 
 
 £2525 
 1445 
 
 £2500 
 
 1010 
 
 Due by customers : — 
 
 Amount due 
 Dedtcet — 
 
 Reserve for bad debts at the 
 rate of 2 per cent on total 
 sales and consignments . 
 
 £2875 
 
 Dec. 31. To Cash, drawings 
 
 £700 
 
 
 
 
 
 Jan. 
 
 1. 
 
 By Cash 
 
 £1500 
 
 
 
 
 
 „ Profit and Loss Ac- 
 
 
 
 
 Dec. 
 
 31. 
 
 ,, Interest on above 
 
 
 
 
 count (fths of £80) 
 
 30 
 
 
 
 
 
 
 
 for one year at 5 
 
 
 
 
 ,, Balance . • 
 
 1445 
 
 
 
 
 
 
 
 per cent 
 „ Profit and Loss Ac- 
 count, for salary . 
 
 75 
 
 600 
 
 
 
 
 
 
 
 
 £2175 
 
 
 
 
 
 £2175 
 
 
 
 
 
 £3000 
 
 240 
 
 3970 
 
 
 
 Stock on hand . 
 
 Plant and fixtures 
 
 Charges paid in advance : — 
 Insurance premiums 
 Rent .... 
 
 • 
 • 
 
 £2760 
 
 3957 
 
 400 
 
 
 
 
 
 
 
 
 
 
 
 £15 
 48 
 
 
 
 
 
 
 Cash in bank . . . 
 
 • 
 
 63 
 300 
 
 
 
 
 
 
 
 £7480 
 
 
 
 £7480 
 
 
 
 _0 
 
 PARTNERSHIP 
 
 223 
 
 Eocercises, 
 
 1. X and Y agree to enter into partnership on 1st 
 January. Each brings £3000 in cash into the business. 
 They agree to take over heritable property worth £5000 
 belonging to X. Y brings into the business goods worth 
 £2000 and book debts valued at £2800. Prepare a 
 Balance Sheet of the new firm as at 1st January. 
 
 2. X and Y are in partnership together on equal terms. 
 X's capital at the beginning of the year was £2000 and 
 Y's £1000. X has drawn £200 at the end of each quarter, 
 and Y has drawn £300 at the end of each half-year. The 
 profit for the year has amounted to £1500. Show the 
 partners* Capital Accounts at the close of the year, allow- 
 ing interest at the rate of 5 per cent on the capital, and 
 charging interest at the same rate on the partners' drawings. 
 
 3. A and B, partners in a mercantile business, share 
 profits and losses equally. At the end of five years the 
 partnership terminated, and the Balance Sheet showed the 
 following : — 
 
 Liabilities. 
 
 Assets. 
 
 Creditors . . . £3000 
 Bills payable . .1000 
 Capital : — 
 
 A . £3000 
 
 B . 1000 
 
 4000 
 
 
 
 
 
 
 
 
 
 
 
 Accounts receivable . 
 
 Goods 
 
 Plant and machinery 
 
 Cash in bank . 
 
 £3000 
 
 4000 
 
 400 
 
 600 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £8000 
 
 
 
 _0 
 
 £8000 
 
 
 
 _0 
 
 Subsequently the business as it stands (except cash in 
 bank) was sold for £5500, the purchaser taking over the 
 liabilities. Make final adjustments and closing entries, 
 and show the amount each partner receives. 
 
 4. Messrs. Smith and Brown embarked in business, 
 agreeing to share profits equally, and to receive 5 per cent 
 interest on their capital from time to time. The partners 
 were to receive salaries of £300 and £200 per annum, to 
 be charged to Salaries Account. At the end of a year the 
 capital paid in was as follows : — 
 

 224 ACCOUNTING IN THEORY AND PRACTICE 
 
 SmiiK 
 
 Jan. 1. Cash 
 Mar. 31. ,» 
 July 15. „ 
 
 . £500 
 . 400 
 . 600 
 
 
 
 
 
 Brown, 
 
 Jan. 1. Cash . 
 Mar. 15. 
 July 1. 
 
 >• 
 
 f> 
 
 . £500 
 . 300 
 . 600 
 
 On 31st December the books were closed, and it was 
 found that there was a profit of £2000 before charging 
 partners' salaries. Prepare Capital Accounts, showing 
 amount due to each partner. 
 
 5. Messrs. Thin and Black are partners in business, 
 sharing profits and losses equally. From the following 
 Trial Balance of their Ledger at the close of the year 
 prepare a Profit and Loss Account, Capital Accounts of the 
 two partners, and a Balance Sheet as at the close of the 
 year. 
 
 John Thin, Capital Account . 
 Richard Black, Capitol Account 
 Bank . 
 Goods . 
 Bills receivable 
 Bills payable 
 Trade expenses 
 Interest 
 Wages . 
 
 Sundry book aa;ounts receivable 
 C^. do, payable 
 
 £3000 
 
 
 
 
 
 800 
 
 
 
 
 
 3200 
 
 
 
 
 
 100 
 
 
 
 
 
 30 
 
 
 
 
 
 350 
 
 
 
 
 
 800 
 
 
 
 
 
 £8280 
 
 
 
 
 
 £2000 
 1800 
 
 2100 
 
 2380 
 £8280 
 
 Total of inventory of goods on hand at close of year, 
 £2500. 
 
 6. The capital of three partners. A, B, and C, in a 
 manufacturing business on 1st January was £25,000, of 
 which A owned one-fifth, B two-fifths, and C two-fifths. 
 On 31st December, one year thereafter, the condition of the 
 business was found to be as follows : — 
 
 Assets. Liabilities. 
 
 Land and buildings . £16,000 
 
 Plant and machinery 7000 
 
 Stock on hand . . 2000 
 
 Book debts . . 6000 
 
 Cash in bank . . 3000 
 
 £34,000 
 
 Creditors 
 
 £8000 
 
 Partners' withdrawals :— A, £1500 ; B. £1000 ; C, £2000. 
 
 PARTNERSHIP 
 
 225 
 
 After crediting interest on capital at the credit of each 
 partner at the beginning of the year at the rate of 5 per 
 cent, show the net result for the year, and distribute the 
 same, in the proportions of the partners' capital, to the 
 partners' accounts. Prepare partners' Capital Accounts, 
 showing the condition of each at the end of the year. 
 
 7. Messrs. Smith & Black are partners on equal 
 terms, and they agree to dissolve partnership on 30 th June. 
 The following is the balance of their books at that date : — 
 
 Customers' Accounts 
 Creditors' Accounts 
 Machinery and plant 
 Stock in trade 
 Bank . 
 Profit and Loss Account 
 Smith, Capital Account 
 Black, Capital Account 
 
 £7,000 
 
 
 
 
 
 
 
 
 
 
 
 £8.000 
 
 
 
 
 
 3,000 
 
 
 
 
 
 
 
 
 4,000 
 
 
 
 
 
 
 
 
 
 
 
 1,000 
 
 
 
 
 
 
 
 
 1,500 
 
 
 
 
 
 
 
 
 2,000 
 
 
 
 
 
 
 
 
 1,500 
 
 
 
 
 
 £14,000 
 
 
 
 
 
 £14.000 
 
 
 
 _0 
 
 Black is to take over the business on the footing of the 
 above balance, subject to 10 per cent being written off 
 Customers' Accounts for bad debts, and 5 per cent being 
 written ofif machinery and plant for depreciation. Show 
 how this arrangement will be carried out, and how much 
 Black will have to pay Smith. 
 
 8. A and B have been in partnership for some years, 
 sharing the profits equally, and on 31st December their 
 Balance Sheet was as follows : — 
 
 Balance Sheet as at 31st December. 
 Liabilities. Assets. 
 
 Creditors . 
 
 Capital Accounts :- 
 A . £9,800 
 B . 10,000 
 
 £2,000 
 
 19,800 
 £21,800 
 
 Customers . . £10,000 
 
 Goods , . . 7,000 
 
 Plant and machinery 4,000 
 
 Bank ... 800 
 
 £21,800 
 
 They resolve to assume C as a partner as at 1st 
 January. The members of the new firm are to share 
 
 Q 
 
 J H 
 
226 ACCOUNTING IN THEORY AND PRACTICE 
 
 PARTNERSHIP 
 
 227 
 
 
 profits equally. In respect of being assumed as a partner 
 C agrees to pay A and B each a sum equivalent to one 
 yearns profits based on the average for the last three years, 
 and is to place £10,000 in the business as his capital. It 
 is agreed that from the assets appearing in the above 
 Balance Sheet 5 per cent is to be reserved off Customers* 
 Accounts for discount and bad debts, and 10 per cent is to 
 be written off machinery and plant for depreciation. The 
 annual average profit for the past three years is £1500. 
 In settlement of the transaction C pays £13,000 into the 
 firm's Bank Account on 1st January. Prepare Balance 
 Sheet of the new firm immediately thereafter. 
 
 9. John Kay and William Mackay start in business 
 as wholesale warehousemen on 1st January. £12,000 was 
 brought in by John Kay, and £8000 by William Mackay. 
 The profits are to be divided in proportion to the capital 
 brought in. On 31st December stock was taken, and 
 amounted to £12,600, and the Trial Balance of the books 
 at that date was as follows : — 
 
 Purchases .... 
 
 Sales 
 
 Freight and carriage 
 Salaries and wages 
 Rent, rates, taxes, and insurance 
 Travelling expenses 
 Discount and commission 
 Gas and fuel .... 
 Office and petty expenses 
 Trade debtors 
 
 Bank 
 
 Trade creditors 
 John Kay, Capital Account 
 W. Mackay, Capital Account . 
 John Kay, Drawing Account . 
 W. Mackay, Drawing Account 
 
 £28,750 
 
 
 
 
 
 
 
 
 
 
 
 4:20, 400 
 
 
 
 
 
 120 
 
 
 
 
 
 
 
 
 570 
 
 
 
 
 
 
 
 
 220 
 
 
 
 
 
 
 
 
 190 
 
 
 
 
 
 
 
 
 70 
 
 
 
 
 
 
 
 
 40 
 
 
 
 
 
 
 
 
 120 
 
 
 
 
 
 
 
 
 4,320 
 
 
 
 
 
 
 
 
 6,750 
 
 
 
 
 
 
 
 
 
 
 
 2,750 
 
 
 
 
 
 
 
 
 , 12,000 
 
 
 
 
 
 
 
 
 ' 8,000 
 
 
 
 
 
 1,200 
 
 
 
 
 
 
 
 
 800 
 
 
 
 
 
 
 
 
 
 £43,150 
 
 
 
 £43,150 
 
 
 
 
 
 Prepare from the above data the necessary closing 
 
 entries, and make out the Profit and Loss Account and 
 
 Balance Sheet, showing the exact position of the firm at 
 31st December. 
 
 10. The following is the Trial Balance of Brown & 
 Smith, who are equally interested in the business, as at 
 31st December: — 
 
 Stock on hand at beginning of year 
 
 Purchases during year 
 
 Sales during year . . 
 
 Stock on hand at end of year, £7000. 
 
 Discount .... 
 
 Rent, rates, and taxes 
 
 Wages .... 
 
 Salaries .... 
 
 Expenses 
 
 Stationery and postages . 
 
 Bills payable . 
 
 Bills receivable 
 
 Creditors' open accounts . 
 
 Customers' open accounts 
 
 Bank .... 
 
 Brown, Capital Account . 
 
 Smith, Capital Account . 
 
 Jt:8,000 
 40,000 
 
 1,500 
 
 2,000 
 
 500 
 
 250 
 
 100 
 
 2,000 
 
 6,000 
 
 1,000 
 
 £50,000 
 300 
 
 £60,350 
 
 3,000 
 4,000 
 
 1,500 
 1,550 
 
 £60,350 
 
 The partners agree to dissolve on the footing that Smith 
 retires from the business and is to get one-half of the good- 
 will of the business, which is to be taken as worth three 
 years' profits of the average for the last three years, in- 
 cluding the year of which the above is the Trial Balance. 
 The profits for the two previous years have been £3500 
 and £3000. In ascertaining the profit for the last year 
 reserve 5 per cent on Customers' Accounts and Bills 
 Keceivable for bad debts. Show the partners' Capital 
 Accounts and the Balance Sheet of the business after Smith 
 has been paid by cheque the balance due to him. 
 
 11. William Johnston and Edward Brown entered into 
 partnership on 1st January, under the style of Johnston & 
 Brown, as wholesale and general ironmongers. On 1st 
 January Johnston paid in as his capital £3000, and 
 Brown £2000. The profits are to be divided in propor- 
 tion to the capital brought in. Interest at 5 per cent 
 is to be charged on their respective drawings. On 31st 
 December stock was taken, and amounted to £1000. 
 The Trial Balance of the books as at that date was as 
 follows : — 
 
228 ACCOUNTING IN THEORY AND PRACTICE 
 
 PARTNERSHIP 
 
 229 
 
 Plant and machinery . 
 Ofl&ce furniture and fittings 
 Horses, carts, and harness . 
 
 Purchases 
 
 Sales 
 
 Rent, rates, taxes, and insurance 
 
 Office and general expenses 
 
 Freight and carriage . 
 
 Horse keep . . • • 
 
 Discounts and allowances . 
 
 Interest, commission, and bank charges 
 
 Printing, stationery, and advertising 
 
 Travelling expenses . 
 
 Salaries and wages 
 
 William Johnston, Capital Account 
 
 Edward Brown, Capital Account 
 
 William Johnston, drawings on 80th June 
 
 Edward Brown, drawings on 30th June 
 
 Trade debtors 
 
 Trade creditors 
 
 £1,800 
 
 
 
 
 
 
 
 
 100 
 
 
 
 
 
 
 
 
 200 
 
 
 
 u 
 
 
 
 
 6,000 
 
 
 
 
 
 
 
 
 
 
 
 £8,500 
 
 U 
 
 
 
 150 
 
 
 
 
 
 
 
 
 130 
 
 
 
 
 
 
 
 
 120 
 
 
 
 
 
 
 
 
 80 
 
 
 
 
 
 
 
 
 40 
 
 
 
 
 
 
 
 
 30 
 
 
 
 
 
 
 
 
 20 
 
 
 
 
 
 
 
 
 130 
 
 
 
 
 
 
 
 
 1,000 
 
 
 
 
 
 
 
 
 
 
 
 3,000 
 
 
 
 
 
 
 
 
 2,000 
 
 
 
 
 
 700 
 
 
 
 
 
 
 
 
 600 
 
 
 
 
 
 
 
 
 3,000 
 
 
 
 
 
 500 
 
 
 
 
 
 £14,000 £14,000 
 
 Prepare Profit and Loss Account, having first dealt 
 with the interest referred to in the preliminary paragraph, 
 pass the profit or loss, as the case may be, to the partners' 
 accounts, and prepare a Balance Sheet as at 31 st December. 
 
 12. A, B, and C enter into partnership on 1st January. 
 A contributes £1800, B £1200, and C £600. The profits 
 and losses are to be divided in the same proportion. 
 The partners agree that before dividing the profits there 
 shall be charged as an expense of the business, and placed 
 to their individual credit, salaries as follows: A £100, B 
 £100, and C £50. At 31st December the Trial Balance 
 of their books showed the following : — 
 
 Capital, A 
 
 ,, B 
 
 „ C 
 
 Cash on hand and in bank 
 
 Stock at 1st January .... 
 
 Purchases 
 
 Sales 
 
 Plant and fixtures . . • 
 Book debts receivable, including consign- 
 ments .• *>ioo 
 
 Consignments outwards, price realised . 
 
 Trade creditors 
 
 Loan Account 
 
 Interest 
 
 Salaries 
 
 Wages 
 
 
 
 
 £1,800 
 
 1,200 
 
 600 
 
 
 
 
 
 
 
 
 
 £400 
 
 
 
 
 
 
 
 
 2,100 
 10,300 
 
 
 
 
 
 
 
 6,500 
 
 
 
 
 
 400 
 
 
 
 
 
 
 
 
 4,100 
 
 
 
 
 
 6,700 
 
 2,890 
 
 1,200 
 
 50 
 
 
 
 
 
 
 
 
 
 
 
 650 
 
 
 
 
 
 
 
 
 400 
 
 
 
 
 
 
 
 
 Brought forward 
 
 Rent, rates, and insurance, etc. 
 
 Interest and discount 
 
 Losses on Exchange 
 
 Commissions 
 
 Drawings, A (including salary of £100) 
 B (including salary of £100) 
 (including salary of £50) 
 
 £18,350 
 200 
 250 
 400 
 
 550 
 450 
 350 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £19,940 
 
 610 
 
 £20,550 £20,550 
 
 Their inventory of stock on hand at 31st December 
 amounted to £2300. Unexpired insurance premium, £5. 
 Rent paid in advance, £10. 
 
 Prepare a Trading Account (cost as against proceeds), a 
 Profit and Loss Account, and a Balance Sheet ; also partners* 
 Capital Accounts as at 31st December, allowing 5 per cent 
 interest on capital at the begiuuing of the year, and reserving 
 3 per cent for losses on book debts. 
 
 13. From the following particulars of the business of 
 Smith & Brown prepare a Manufacturing Account, a 
 Profit and Loss Account, and Capital Accounts for the year, 
 together with a Balance Sheet as at 31st December. 
 
 John Smith, Capital Account . 
 
 Do. Drawings Account 
 William Brown, Capital Account 
 
 Do. Drawings Account 
 
 Bills payable . 
 Bills receivable 
 Stock at beginning of year 
 Purchases 
 Sales 
 
 Customers' Accounts 
 Creditors 
 
 Machinery Account 
 Buildings 
 Wages . 
 Office furniture 
 Rent 
 
 Cash on hand and in bank 
 Power, etc. 
 Travelling expenses 
 Commission 
 Discount off purchases 
 Discounts to customers 
 Freight outwards . 
 Fire insurance 
 Interest and bank charges 
 Horse keep 
 Advertising . 
 Bad debts written ott 
 Sundry Expenses . 
 
 Carry forward 
 
 £18,350 £19,940 
 
 £900 
 
 600 
 
 885 
 
 3,000 
 
 6,000 
 
 2,000 
 
 3,500 
 
 1,000 
 
 4,000 
 
 280 
 
 300 
 
 250 
 
 300 
 
 150 
 
 200 
 
 160 
 
 110 
 
 80 
 
 60 
 
 70 
 
 85 
 
 100 
 
 170 
 
 £4,000 
 
 3,000 
 
 500 
 
 16,000 
 600 
 
 100 9 
 
 I 
 
 £24 200 
 
 £24,200 
 
230 ACCOUNTIXG IN THEORY AND PRACTICE 
 
 The stock on hand at end of year was valued at £4000. 
 Provide 5 per cent on book debts for bad debts and 
 discount. Write 7 per cent off machinery and office 
 furniture for depreciation. Carry forward unexpired fire 
 insurance, £20. Provide for three days' wages, £40. 
 Partners to get 5 per cent interest on capital at beginning 
 of year (namely £4000 and £3000). 
 
 Smith to get £700 a year and Brown £400 in respecc 
 of salaiy. Profits thereafter to be divided equally. 
 
 14. John Kichards, Mechanical Engineer, agreed to take 
 his manager, Eobert Low, into partnership as at 1st January, 
 the latter arranging to bring in as his capital the sum of 
 £5000, the profits to be divided in proportion to the capital 
 of each partner. On 1st January the balance of John 
 Kichards' books which was accepted by Low was as 
 follows : — 
 
 Stock in trade 
 
 Plant and machinery 
 
 Land and buildings 
 
 Patent rights — 2 years unexpired 
 
 Book debts .... 
 
 Trade creditors 
 
 Bank 
 
 John Richards, Capital Account 
 
 J r sets. 
 
 £4,500 
 
 2,000 
 
 3,000 
 
 400 
 2,500 
 
 LiahilUics. 
 
 
 
 
 
 
 
 
 £2,900 
 1,500 
 8,000 
 
 
 
 
 
 
 
 
 
 
 
 £12,400 £12,400 
 
 On 31st December the Trial Balance of the books stood 
 as follows, but nothing had been written off in respect of 
 plant and machinery and patent rights. Stock was taken 
 by the partners, and amounted to £5000. 
 
 Trial Balance as at 31st December. 
 
 Stock at 1st January 
 
 Purchases . . . . . 
 
 Plant and macliinery 
 
 Land and buildings 
 
 Patent rights . . . , , 
 
 Book debts 
 
 Wages ...... 
 
 Rent, rates, taxes, etc. . . 
 
 £4,500 
 7,000 
 2,250 
 3,000 
 
 400 
 3,200 
 1,500 
 
 100 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Carry forward 
 
 . £21,950 
 
 
 
 
 
 PARTNERSHIP 
 
 23* 
 
 Brought forward 
 Coal and lighting . 
 
 Carnage 
 
 Trade expenses 
 
 John Richards, Capital Account 
 Robert Low, Capital Account 
 John Richards, Drawing Account 
 Robert Low, Drawing Account 
 Bank ..... 
 
 Sales 
 
 Creditors 
 
 £21,950 
 
 
 
 
 
 
 
 
 150 
 
 
 
 
 
 
 
 
 100 
 
 
 
 
 
 
 
 
 150 
 
 
 
 
 
 
 
 
 
 
 
 £8,000 
 
 
 
 
 
 
 
 
 5,000 
 
 
 
 
 
 600 
 
 
 
 
 
 
 
 
 400 
 
 
 
 
 
 
 
 
 1,400 
 
 
 
 
 
 
 
 
 
 
 
 10,000 
 
 
 
 u 
 
 
 
 
 1,750 
 
 
 
 C 
 
 £24,750 
 
 
 
 
 
 £24,7f>0 
 
 
 
 
 
 Prepare Profit and Loss Account and Balance Sheet, 
 after writing off 5 per cent from plant and machinery and 
 £200 from patent rights, and show the exact position of 
 the two partners as at 31st December. 
 
 15. Robert Gow and William Erskine, trading as 
 Eobert Gow & Co., had been in business as general traders 
 for some years, and their books were made up on the 31st 
 December with a view to taking in their foreman, Peter 
 Scott, as from the 1st January. The position of the business 
 at that date was as follows : — • 
 
 Land and buildings 
 
 Fixtures and fittings 
 
 Stock on hand 
 
 Debtors . . . . 
 
 Bank . . . . 
 
 Creditors 
 
 Robert Gow, capital 
 
 William Erskine, capital 
 
 £2,000 
 
 400 
 
 3,000 
 
 1,800 
 
 2,000 
 
 £1,200 
 6,000 
 2,000 
 
 £9,200 £9,200 
 
 Peter Scott brought in as his capital the sum of £1000, 
 and the profits were to be divided in the proportion of 
 six-ninths to Gow, two-ninths to Erskine, and one-ninth 
 to Scott. The partners were to draw as against profits, 
 on the 1st of each month, the respective sums of £100, 
 £33 : 68. 8d., and £16 : 13s. 4d. 
 
 On the 31st December the books were made up, and 
 the book-keeper presented to the partners the following as 
 the Trial Balance : — 
 
 i 
 
 (I 
 
 II 
 
232 ACCOUNTING IN THEORY AND PRACTICE 
 
 tl 
 
 Land and buildings 
 
 £2,300 
 
 
 
 
 
 
 
 
 Fixtures and fittings 
 
 400 
 
 
 
 
 
 
 
 
 Stock 
 
 3,000 
 
 
 
 
 
 
 
 
 Debtors 
 
 • • 
 
 3,600 
 
 
 
 
 
 
 
 
 Creditors 
 
 
 
 
 
 £1,100 
 
 
 
 
 
 Bank 
 
 • • • < 
 
 800 
 
 
 
 
 
 
 
 
 Purchases 
 
 
 5,000 
 
 
 
 
 
 
 
 
 Rent, rates, taxes, and insurance 
 
 400 
 
 
 
 
 
 
 
 
 Freight and carriage 
 
 70 
 
 
 
 
 
 
 
 
 Salaries and wages 
 Coals, gas, and lighting 
 
 430 
 
 
 
 
 
 
 
 
 40 
 
 
 
 
 
 
 
 
 Printing, stationery, and advertising 
 
 5 60 
 
 
 
 
 
 
 
 
 General office expenses . 
 
 50 
 
 
 
 
 
 
 
 
 Discount and commission 
 
 150 
 
 
 
 
 
 
 
 
 Robert Gow, drawings . 
 
 1,200 
 
 
 
 
 
 
 
 
 William Erskine, drawings 
 
 400 
 
 
 
 
 
 
 
 
 Peter Scott, drawings 
 
 200 
 
 
 
 
 
 
 
 
 Sales 
 
 
 
 
 8,000 
 
 
 
 
 
 Robert Gow, capital 
 
 
 
 
 6,000 
 
 
 
 
 
 William Erskine, capital 
 
 
 
 
 2,000 
 
 
 
 
 
 Peter Scott, capital 
 
 
 
 
 1,000 
 
 
 
 
 
 
 £18,100 
 
 
 
 £18,100 
 
 
 
 
 
 JOINT-STOCK COMPANIES' BOOKS 
 
 233 
 
 The stock was taken by the foreman and partners 
 jointly, and amounted to the sum of £2100. 
 
 Prepare a Profit and Loss Account, apportion the profit 
 or loss, as the case may be, to the respective partners, and 
 make out a Balance Sheet as at 31st December. 
 
 16. On 31st December 1896, Fraser, one of the partners 
 of the firm of Eoss & Eraser, purchased for £3000 Ruby 
 Diamond Co. shares. The expenses of the purchase, amount- 
 ing to £9, were charged to the Profit and Loss Account 
 of the firm. The arbiter, under the contract of co-partnery, 
 decided, on 31st December 1898, that the purchase was 
 ultra vires of the contract of co-partnery. Ross is entitled 
 to two-thirds of the profit and Fraser to one-third, and in- 
 terest is allowed on their accounts at the rate of 5 per cent. 
 At 31st December 1898 the Ruby Diamond Shares Account 
 in the Ledger of the firm had £3000 on the debit side, and 
 no dividends had been received. What entries will be re- 
 quired in the books of the firm as at 31st December 1898 
 to put matters right ? Show the entries which will require 
 to be made in the partners' accounts. 
 
 JOINT-STOCK COMPANIES' BOOKS 
 
 The books of account peculiar to joint-stock companies 
 are those relating to the shares and debentures. The Com- 
 panies Acts prescribe the following statistical books which 
 must be kept : — 
 
 Register of Members; 1862 Act, sec. 25. 
 
 Annual List of Members and Summary; 1862 Act, sec. 26. 
 
 Register of Mortgages; 1907 Act, sec. 10 (not apphcable to 
 
 Scottish Companies). 
 Minute Book; 1862 Act, sec. 67. 
 Register of Directors and Managers ; 1862 Act, sec. 45— applied 
 
 to all companies by 1900 Act, sec. 20. 
 
 The Minute Booh, 
 
 A Company Minute Book is for the purpose of contain- 
 ing the minutes of the meetings of the shareholders and of 
 the directors. Sometimes one book is kept for the minutes 
 of the shareholders* meetings and another for the minutes 
 of meetings of the directors and committees of the directors. 
 The secretary of the company writes up the minutes. A 
 Scroll Minute Book is of considerable convenience. Minutes 
 may be kept on the principle of giving a short account of 
 everything of importance said or done at a meeting, or they 
 may simply contain a record of the actual resolutions passed 
 or of the findings of the meetings. In the case of directors' 
 minutes it is usual to give the names of directors present, 
 but in the case of shareholders this cannot always be done, 
 although it is advisable to do it as far as possible. The 
 minutes are read and confirmed by the next meeting as to 
 their being records of facts, but in the case of companies 
 they are not formally approved of as decisions. The minutes 
 should be authenticated by the signature of the chairman of 
 the meeting at which they are approved, or of the chairman 
 who presided at the meeting of which the minute is a 
 record. Sometimes the secretary also signs each minute. In 
 
234 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 engrossing the minutes in the Minute Book no space should 
 be°left between each minute except what is sufficient for 
 the signatures. 
 
 The Application and Allotment Book. 
 
 When a company is being floated, or when it is pro- 
 posed to issue further capital, a prospectus is usually issued 
 containing the necessary particulars to induce investors or 
 speculators to put their money into the concern. A form 
 of application for shares usually accompanies each prospectus. 
 The chief point to be careful about in preparing a form of 
 application for shares is, that it must contain an application 
 for a definite number of shares or debentures and a definite 
 undertaking to accept the shares or debentures allotted. 
 The application must be signed by the person or persons 
 applying. Applications for shares may be withdrawn up to 
 the time of allotment. The application has, as a rule, to be 
 made through the bankers of the company, and it is lodged 
 with them, together with a deposit of so much per share 
 and a certain percentage of the debentures applied for. The 
 banker gives a receipt on the form appended to the form of 
 application, and retains the applications themselves on behalf 
 of the company. These applications may be received from 
 the bankers when the period within which applications may 
 be lodged has expired, and the applications having been 
 alphabetically arranged, the Application and Allotment Book, 
 a specimen of which is submitted, may then be filled up. 
 Sometimes, however, the applications are so numerous that 
 if it is desired, as is often the case, that the allotment should 
 be made within a very short period of the closing of the lists, 
 the applications should he obtained from the bank as soon 
 as they are lodged, and the accountant should have sheets 
 ready ruled similar to the Application and Allotment Book, 
 and a sufficient staff of clerks to write up these sheets. 
 Each sheet should have a letter of the alphabet at the head. 
 These separate sheets, having been written up, are arranged 
 alphabetically and summed, and their totals entered on 
 abstract sheets. The secretary, manager, or promoters of 
 
 JOINT-STOCK COMPANIES' BOOKS 
 
 235 
 
 the company should, in the event of the shares being over- 
 applied for, go over the lists and insert in the " proposed 
 allotment " column how they consider the shares should be 
 allotted, being careful to prefer those who are likely to 
 influence favourably the business of the concern. When 
 the directors meet the shares will be actually allotted, and 
 the "shares allotted" column filled in. When there are 
 two classes of shares, or shares and debentures, sometimes 
 separate application letters are issued for each class, and 
 when this is so, different coloured papers should be used for 
 the application letters, and a separate set of application and 
 allotment sheets should be used. 
 
 Immediately after the directors have allotted the shares 
 the allotment letters and letters of regret should be sent out, 
 and the Return of Allotments required under sec. 7 of the 
 1900 Act must be made within one month. 
 
 The great advantage of loose sheets is that any number 
 of clerks may be employed upon the work at one time. 
 Wlien it is no longer necessary to have the sheets separate, 
 they may be bound up into one or more volumes, and form 
 the Application and Allotment Book. 
 
 Register of Transfers. 
 
 After the shares have been once allotted all subsequent 
 alterations on the holdings are entered through the Register 
 of Transfers. A form of Register of Transfers is submitted. 
 It is practically a Share Journal, and the headings sufficiently 
 explain its use. 
 
 Shareholders* Ledger. 
 
 A form of Shareholders' Ledger is submitted. The left 
 side of the page is for the purpose of showing the shares 
 acquired and the shares disposed of, and the right side of 
 the page is the Cash Account of the shareholder, so far as 
 the shares he holds are concerned. Both accounts are kept 
 on the usual principles of debit and credit, and the headings 
 fully show the method of using it. This ledger also forma 
 the Register of Members prescribed by the Act. 
 
 i 
 

 
 2 36 A ceo UNTING IN THEOR Y AND PR A CTJCE 
 
 Application and 
 
 Date of 
 Application. 
 
 No. 
 
 Name. 
 
 Designation. 
 
 Address, 
 
 Shares 
 
 applied 
 
 for. 
 
 PoL 
 
 Deposit Proposed 
 paid. Allotment. 
 
 Register 
 
 f 
 
 Transferor's 
 
 Date of „^ . 
 
 Name. 
 
 Na of 
 Certiiicate. 
 
 Ledger 
 folio. 
 
 Shares transferred. 
 
 Numbered 
 
 From 
 
 To 
 
 Number 
 of Shares, 
 
 Amount 
 paid up. 
 
 • I 
 
 JOINT-STOCK COMPANIES* BOOKS 
 
 237 
 
 Allotment Book 
 
 Sliares 
 aUotted. 
 
 No. of 
 
 Allotment 
 
 Letter. 
 
 Numbers of 
 Shares allotted. 
 
 From 
 
 To 
 
 Amount 
 
 due on 
 
 Allotment. 
 
 Cash returned. 
 
 Date 
 
 Fol. 
 
 Amount. 
 
 Remarks. 
 
 OF Transfers 
 
 
 
 
 Date 
 
 
 Transferee's 
 
 Oonsideratlon. 
 
 Transfer 
 
 passed 
 
 by Directors. 
 
 Name. 
 
 Designation. 
 
 Address. 
 
 No. of 
 Certificate. 
 
 Ledger 
 foUo. 
 
 t 
 
 
 
 
 
 
 
 1 
 
 
 
 I 
 
238 ACCOUNTING IN THEORY AND PRACTICE 
 
 Shareholders' 
 
 Name. 
 
 Designation 
 
 Share Account 
 
 Sharks disposed of. 
 
 Shares acqttirkd. 
 
 Balamcbi. 
 
 1 
 Date. 
 
 Pol. 
 
 Numbered 
 
 Shares 
 
 disposed 
 
 of. 
 
 Date. 
 
 FoL 
 
 Numbered 
 
 Shares 
 acquired. 
 
 No. of 
 Certificate. 
 
 Date. 
 
 Shares 
 held. 
 
 From 
 
 To 
 
 From 
 
 To 
 
 ' 
 
 
 
 
 
 1 
 
 
 
 
 
 
 
 
 Shareholder-s' Ledger — Preference 
 
 Name 
 
 Designation 
 
 Shares disposed op. 
 
 rreference. 
 
 Shares 
 disposed of. 
 
 Paid up. 
 
 Ordinary. 
 
 Numbered 
 
 From 
 
 To 
 
 Shares 
 disposed of. 
 
 Paid up. 
 
 JOINT-STOCK COMPANIES' BOOKS 
 
 239 
 
 LSDGEIi 
 
 Address 
 
 Shareholaeis^ Cash Account. 
 
 Dr, 
 
 Or, 
 
 Date. 
 
 Eirtry, 
 
 Amount payable. 
 
 Date. 
 
 Entry. 
 
 Cash paid. 
 
 ANP ORDrXARY SHARES TOGKTOER 
 
 Address 
 
 Shares acquired. 
 
 Date, 
 
 • 1 
 
 S. 1 
 
 Preference. 
 
 Ordinary. 
 
 Numbered 
 
 Shares 
 acquire<l. 
 
 Paid up. 
 
 No. of 
 Certificate. 
 
 Numbered 
 
 Shares 
 acquired. 
 
 Paid up. 
 
 No. of 
 Certificate. 
 
 From 
 
 To 
 
 From 
 
 To 
 
 
 
 
 
 
 
 
 
 
 
 , 
 
 
 
 
 
 I 
 
 t I 
 
r' \ 
 
 240 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 Shareholders Ledger — Preference and Ordinary 
 
 Shares together. 
 
 A form of Shareholders' Ledger is also given for use 
 where it is desired to keep a record of the preference and 
 ordinary shares held by each individual together. As a rule 
 separate books are kept, but it is sometimes desirable to 
 have the holdings of each individual together. It will be 
 observed that no separate Cash Account is given. 
 
 Debenture Ledger, 
 A simple form of Debenture Ledger is given. This 
 form is suitable for a Shareholders' Ledger where the shares 
 are in the form of stock. 
 
 \ 
 
 Debenture Ledger 
 
 Name 
 
 Designation 
 
 Address. 
 
 stock diRposed of. 
 
 Dale. 
 
 Folio. 
 
 Amount. 
 
 Stock acquired. 
 
 Date. 
 
 FoUo. 
 
 Amount. 
 
 No. of 
 Certificate. 
 
 JOINT>STOCK COMPANIES* BOOKS 
 
 241 
 
 S3 
 O 
 
 I 
 I 
 
 I 
 
 g 2 
 
 •*3 e^ 
 
 •g 
 
 O O 
 
 I- 
 
 i <=> 
 s ^ 
 
 o 2 
 
 2 S 
 
 c «5 
 
 «^ 
 
 *o -> 
 
 6 
 
 I 
 
 2 
 
 § 
 •s 
 
 .a 
 
 eo 
 
 i^(?r7n of Allotment Letter. 
 THE NATIONAL REALISATION COMPANY, LIMITED 
 Na 
 
 Sir, 
 
 Allotment Letter 
 
 6 NoETH St. David Street, 
 Edinbueoh. 
 
 I Stamp I 
 
 , We beg to inform you that, in pursuance of your 
 
 apphcation, the directors have allotted to you shares of 
 
 ^^^ ^^ this company, in terms of the prospectus 
 
 We shall be glad, therefore, if you wiU kindly pay the sum 
 ^l ^ » ^i°g per share, the amount due on 
 
 allotment, on or before the instant, to the company's 
 
 bankers, as under. 
 
 Your obedient Servants, 
 
 Lisle and Middleton, 
 
 To John Smith, Esq., Secretaries. 
 
 16 Ross Terrace, Glasgow. 
 
 (This portion to be retained by the bankers.) 
 
 THE NATIONAL REALISATION COMPANY, LIMITED 
 
 Banker's Receipt for Allotment Money 
 (being per share called up). 
 
 Edinburgh. 
 
 Received of John Smith, Esq., the sum of 
 
 being per share due on allotment of 
 
 ordinary shares of. each in the above company! 
 
 For the Bank of Scotland, 
 
 Cashier. 
 
 (This portion, when receipted by the bankers, must be 
 preserved by the shareholder, to be exchanged for the share 
 certificate in due course.) 
 
 R 
 
242 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 Form of Letter of Regret, 
 THE NATIONAL REALISATION COMPANY, LIMITED 
 
 No. 
 
 6 North St. David Stbkbt, 
 Edikburoh. 
 
 Sib, 
 
 We regret to inform you that the directors are 
 unable to allot you any ordinary shares of this company, in 
 compliance with your application for shares of the 
 
 company. ,. -j 
 
 We enclose cheque for £ , bemg the amount paid 
 
 by you on the above-mentioned application, and shall be glad 
 if you will sign the form of receipt attached to the cheque sent 
 herewith, and present the same for payment through your 
 
 bankers. 
 
 We are. Sir, 
 
 Your obedient Servants, 
 
 Lisle and Middleton, 
 
 Secretaries. 
 
 To William Robertson, Esq., 
 3 High Street, Leith. 
 
 THE NATIONAL REALISATION COMPANY, LIMITED 
 No 
 
 To The Bank of Scotland, 
 
 Pay to William Robertson, Esq., or order, the 
 receipt below being signed, the sum of 
 
 For The National Realisation Co., Limited. 
 
 Director. 
 Lisle and Middleton, 
 
 Secretaries, 
 
 Receipt, 
 
 Received from The National Realisation Co., Limited, the 
 g^m of , being the amount deposited by me on 
 
 application for shares in the same. 
 
 Id. 
 Stamp. 
 
 JOINT-STOCK COMPANIES* BOOKS 
 
 243 
 
 8 
 
 pq 
 
 A 
 
 ■4.3 
 OQ 
 
 u 
 
 « 
 
 d 
 q> o 
 
 •5 a 
 
 o *« 
 
 a 
 
 a* 
 
 £ 
 1 
 
 M 
 
 OB 
 
 s 
 
 Form of Call Letter, 
 
 THE NATIONAL REALISATION COMPANY, LIMITED 
 
 Notice of First Call of per Share, Ordinary 
 
 Shares (making per share called up). 
 
 No 
 
 Sir, 
 
 5 North St. David Street, 
 Edinburgh. 
 
 We beg to give you notice that the first call of 
 per share has this day been made by the board, in 
 accordance with the terms of the prospectus. 
 
 On the ordinary shares held by you in this 
 
 company, the call amounts to 
 
 This amount should be remitted to the company's bankers, 
 the Bank of Scotland, on or before the 
 
 We are. Sir, 
 
 Your obedient Servants, 
 
 Lisle and Middleton, 
 
 Secretaries, 
 To John Smith, Esq., 
 
 16 Ross Terrace, Glasgow. 
 
 (This portion to be retained by the bankers.) 
 
 THE NATIONAL REALISATION COMPANY, LIMITED 
 No 
 
 Banker's Receipt for First Call of per Share on 
 
 Ordinary Shares, payable 
 
 (making per share 
 
 called up). 
 
 Received the day of from J. Smith, 
 
 Esq., the sum of , being first call of per 
 
 share, due , on shares in the above company. 
 
 For the Bank of Scotland, 
 
 Cashier, 
 
 (This portion when receipted by the bankers must be pre- 
 served by the shareholder, to be exchanged in due course for 
 the share certificate.) 
 
 ili 
 
 II 
 
244 ACCOUNTING IN THEORY AND PRACTICE 
 
 COMPANIES 
 
 245 
 
 Sxerdses. 
 
 1. A private manufacturing corporation, with the view 
 of being floated, desires a certificate of its average annual 
 profits for three years ; after charging up all costs, expenses, 
 and depreciation, and an allowance for bad debts, it is found 
 that the profits for the first year were £5000, for the second 
 year £6000, plus £2000 profit on sale of investments, 
 and for the third year £7000, plus £3000 profit on the 
 sale of real estate. Give the annual average profit to be 
 certified. 
 
 2. From the following particulars prepare the Balance 
 Sheet of the Scottish Union Bank as at Slst December, 
 and the Profit and Loss Account for the year ended at 
 that date. 
 
 Capital 
 
 Reserves 
 
 Notes issued 
 
 Customers' credit balances 
 
 Unpaid dividends 
 
 Gross profits 
 
 Bad debts . 
 
 Expenses . 
 
 Interim dividend paid 
 
 Balance of profit brought forward 
 
 Cash in hand 
 
 Cash at call 
 
 Investments 
 
 Stamps in hand 
 
 Premises 
 
 Customers' debit balances 
 
 
 £114,430 
 
 
 146,210 
 
 
 89,700 
 
 
 897,530 
 
 
 240 
 
 
 82,490 
 
 £3,000 
 
 
 11,500 
 
 
 6,720 
 
 
 
 1,660 
 
 88,135 
 
 
 44,230 
 
 
 828,465 
 
 
 505 
 
 
 37,260 
 
 
 762,355 
 
 
 £1,231,160 
 
 £1,231,160 
 
 3. The Balance Sheet of a limited company was as 
 under : — 
 
 Liabilities, 
 
 Capital issued, 16,000 
 shares of £10 each 
 Less calls in arrear . 
 
 Assets, 
 
 Creditors 
 
 £150,000 
 7,500 
 
 £142,500 
 17,800 
 
 £160,300 
 
 Expenditure on Capital 
 
 Account . 
 Book debts . 
 Stock .... 
 Cash .... 
 Profit and Loss Account 
 
 £74,800 
 
 32,100 
 
 19,900 
 
 5,700 
 
 27,800 
 
 £160,300 
 
 The company obtained the consent of the court to a 
 reduction of its capital by making each £10 share into a 
 £5 share in order that the debit on its Profit and Loss 
 Account might be written off, and the Expenditure on 
 Capital Account reduced. 
 
 Prepare revised Balance Sheet, giving effect to the 
 reduction. 
 
 4. The Balance Sheet of a joint-stock company as at 
 1st January was as follows : — 
 
 Liabilities. jssets. 
 
 Creditors, open accounts 
 
 Bills payable . 
 
 Capital 
 
 Profit and Loss Account 
 
 £3,200 
 6,000 
 
 40,000 
 6,100 
 
 £55,300 
 
 Land and buildings 
 Plant and machinery 
 Horses and waggons 
 Patents and goodwill 
 Goods on hand 
 Accounts receivable 
 Cash in bank 
 
 £10,000 
 17,000 
 3,000 
 4,100 
 9,800 
 7,000 
 4,400 
 
 £55,300 
 
 A year later, on 31st December, after an audit of the 
 books and accounts, the Balance Sheet was as follows :— 
 Lia^ities, jgsets. 
 
 Creditors, open accounts . 
 
 Mortgage s^qOO 
 
 S^fi? AT \ ' ' • 40,000 
 rront and Loss Account : — 
 
 Balance last year . £6,100 
 Profit this year . . 4,680 
 
 10,780 
 
 £3,400 ; Land and buildings . 
 K AAA pjf^jji; j^jj^ machinery : — 
 
 Balance, 1st Jan. £17,000 
 Less depreciation 1,700 
 
 Horses and waggons : — 
 Balance, Ist Jan. £3,000 
 Less depreciation 450 
 
 Patents and goodwill 
 Goods on hand . 
 Accounts receivable . 
 Agency investments . 
 Cash in bank . 
 
 £59,180 
 
 £10,400 
 
 15,300 
 
 2,550 
 4,100 
 13,000 
 G,600 
 3,000 
 4,230 
 
 £59,180 
 
 I 
 
 II 
 
246 ACCOUNTING IN THEORY AND PRACTICE 
 
 \\S 
 
 From the foregoing it will be seen that for the year a 
 net profit of £4680 has been earned, while the accounts 
 receivable are smaller, and the cash balance on hand is less 
 than at the beginning of the year, though no dividend has 
 in the meantime been paid. Prepare statement showing 
 what has become of the profits earned. 
 
 5. The directors of a manufacturing company, before the 
 closing and auditing of the books for the half-year ending 
 3l8t December, declare out of the net earnings of the 
 company a dividend for the half-year of 4 per cent per 
 annum on the preferred stock of £40,000, and of 3 per cent 
 per annum on the ordinary stock of £40,000. There has 
 been brought forward from the last half-year an undivided 
 balance of profit of £1600, and after the audit of the books 
 the Trial Balance is found to be as follows : — 
 
 Trial Balance as at 31st December. 
 
 Preterred stock 
 
 Ordinary stock 
 
 Sales .... 
 
 Bills payable 
 
 Accounts payable . . 
 
 Profit and Loss Account 
 
 Property and buildings . 
 Plant and machinery 
 
 Patents and goodwill 
 
 Stock on hand, Ist July 
 
 Purchases 
 
 Wages .... 
 
 Coal ... . 
 
 Salaries, general 
 
 Do. management . 
 
 Insurance 
 
 Repairs 
 
 Discount and allowances 
 
 Freight .... 
 
 Discount and interest . 
 
 Cash in bank 
 
 Investments . 
 
 Miscellaneous expenses . 
 
 Book debts . 
 
 
 
 
 £40,000 
 
 
 
 
 
 
 
 
 40,000 
 
 
 
 
 
 
 
 
 87,670 
 
 
 
 
 
 
 
 
 10,400 
 
 
 
 
 
 
 
 
 4,000 
 
 
 
 
 
 
 
 
 1,600 
 
 
 
 
 
 £13,000 
 
 
 
 
 
 
 
 
 16,000 
 
 
 
 
 
 
 
 
 32,000 
 
 
 
 
 
 
 
 
 11,600 
 
 
 
 
 
 
 
 
 83,000 
 
 
 
 
 
 
 
 
 35,200 
 
 
 
 
 
 
 
 
 2,400 
 
 
 
 
 
 
 
 
 4,400 
 
 
 
 
 
 
 
 
 2,000 
 
 
 
 
 
 
 
 
 350 
 
 
 
 
 
 
 
 
 400 
 
 
 
 
 
 
 
 
 2,500 
 
 
 
 
 
 
 
 
 600 
 
 
 
 
 
 
 
 
 300 
 
 
 
 
 
 
 
 
 8,200 
 
 
 
 
 
 
 
 
 6,200 
 
 
 
 
 
 
 
 
 1,720 
 
 
 
 
 
 
 
 
 18,800 
 
 
 
 
 
 
 
 
 
 £183,670 
 
 
 
 
 
 £183,670 
 
 
 
 The stock on hand at 31st December is £10,600. 
 Prepare Profit and Loss Account and Balance Sheet from 
 the above, giving effect in the accounts to depreciation at 
 
 COMPANIES 
 
 247 
 
 the rate of 6 per cent per annum on plant and machinery, 
 and an allowance of 5 per cent on book debts to provide 
 for bad accounts ; also create a liability in the Balance 
 Sheet for the dividends declared as above stated. 
 
 6. From the following particulars prepare Trading and 
 Profit and Loss Accounts for the year, and Balance Sheet 
 as at 31st December, of Hugh Rose and Co., Limited. 
 
 Tkial Balance 
 
 Capital . 
 
 Sundry creditors . 
 
 Bills payable 
 
 Profit and Loss, balance from previous 
 
 year . 
 Interim dividend paid 
 Cash on deposit . 
 Cash at bank 
 Cash in hand 
 Land and buildings 
 Fixtures and furniture 
 Sundry debtors 
 Fire insurances 
 Goodwill 
 
 Stock at beginning of year 
 Purchases 
 Sales . 
 
 Discounts obtained 
 Rent 
 
 Rates and taxes 
 Gas, electric light, and 
 Wages . 
 Commissions 
 Advertising . 
 
 Price lists, printing and postages 
 Carriage, and packing material 
 General trade expenses 
 Interest .... 
 Discounts allowed 
 Annual painting of premises 
 Bad debts .... 
 Preliminary expenses . 
 Salaries .... 
 
 water 
 
 £1,500 
 
 6,000 
 
 200 
 
 100 
 
 12,000 
 
 700 
 
 3,250 
 
 £10,000 
 
 15,000 
 
 2,000 
 
 1,000 a 
 
 200 
 
 
 
 
 
 
 
 
 3,000 
 
 
 
 
 
 
 
 
 10,000 
 
 
 
 
 
 
 
 
 60,000 
 
 
 
 
 
 
 
 
 
 
 
 80,000 
 
 
 
 
 
 
 
 
 2,000 
 
 
 
 
 
 3,000 
 
 
 
 
 
 
 
 
 500 
 
 
 
 
 
 
 
 
 600 
 
 
 
 
 
 
 
 
 4,500 
 
 
 
 
 
 
 
 
 
 
 
 1,500 
 
 
 
 
 
 900 
 
 
 
 
 
 
 
 
 1,600 
 
 
 
 
 
 
 
 
 1,500 
 
 
 
 
 
 
 
 
 400 
 
 
 
 
 
 
 
 
 500 
 
 
 
 
 
 
 
 
 80 
 
 
 
 
 
 
 
 
 70 
 
 
 
 
 
 
 
 
 200 
 
 
 
 
 
 
 
 
 1,000 
 
 
 
 
 
 
 
 
 700 
 
 
 
 
 
 
 
 
 
 
 £111,500 
 
 £111,500 
 
 
 
 _0 
 
 The stock on hand at the close of the year was valued 
 at £9000. Write off £500 from preliminary expenses, 
 and reserve £50 of fire insurance premiums paid in 
 advance. 
 
 1 
 
248 ACCOUNTING IN THEORY AND PRACTICE 
 
 The conversion of a Private Firm into a Joint-Stock 
 
 Company, 
 
 When a private firm is converted into a joint-stock com- 
 pany it is usual to introduce a new set of books altogether, 
 but it is sometimes more convenient for the new company 
 to continue to use the books of the old firm. The method 
 of treating the accounts of a private firm when it is con- 
 verted into a joint-stock company, and where it is desired 
 to continue the use of the books of the old firm will be 
 seen from the following example : — 
 
 The firm of Eoss & Carr, Iron Merchants, of which 
 W. Eoss and A. Carr are the sole partners, is registered as 
 a limited liability company. The new company take over 
 the whole assets and liabilities of the old firm as at Ist 
 January. The following is the Balance Sheet of the old 
 firm: — 
 
 EOSS & CAEE 
 
 Balance Sheet as at 31st December. 
 
 ki 
 
 Liabilities. 
 
 Assets, 
 
 
 Creditors* Accounts 
 Bills payable . 
 
 Partners' capital : — 
 W. Ross . 
 A. Carr 
 
 . £7,000 
 2,000 
 
 £9,000 
 
 . £11,000 
 6,000 
 17,000 
 
 £26,000 
 
 Customers' Accounts 
 Goods 
 Warehouse 
 Bank of Scotland 
 
 . £8,000 
 
 14,000 
 
 . 3,000 
 
 . 1,000 
 
 
 £2«.000 
 
 f 
 
 The new firm is to have a capital of £50,000, divided 
 into 50,000 shares of £1 each. It is proposed to issue at 
 present only £30,000. The amount payable to the 
 vendors is £20,000, of which £15,000 is payable in cash 
 and £5000 in 5000 shares of £1 each, to be held as fullv 
 paid. The remainder of the capital issued, £25,000, is 
 fully subscribed. 
 
 ^ 
 
 COMPANIES 
 
 249 
 
 It is required to show the entries which it is necessary 
 to make in the books of the old firm on the footing that 
 the company is to use these books. It is evident that 
 since £20,000 is the purchase price, and as the partners' 
 capital is only £17,000, that £3000 is the amount paid 
 for goodwill, and accordingly an account for goodwill must 
 be raised. If the partners share the profits of the old 
 firm in the proportion of two-thirds to W. Eoss and one- 
 third to^A. Carr, then £2000 of the goodwill must be 
 credited to W. Eoss, and £1000 of the goodwill to A. Carr. 
 On the further assumption that the shares are to be allotted 
 to the old partners in equal proportions, the necessary 
 Journal entries in the old books of the firm would be as 
 follows : — 
 
 Journal 
 
 Dr. 
 
 Dr. 
 
 Goodwill 
 
 To W. Ross . 
 ,, A. Carr . 
 W. Ross 
 A. Carr . 
 Sundry shareholders 
 
 ToCapiul . . . . 
 
 If the cash paid by the shareholders 
 
 on their shares is paid through the Bank 
 
 of Scotland, the following entry would 
 
 require to be made :•— 
 
 Bank of Scotland . .Dr. 
 
 To sundry shareholders . 
 If the partners of the old firm are 
 Mttled with by cheque on the Bank of 
 Scotland, the entry would be :— 
 
 W. Rosa. . . , Dr. 
 
 A. Carr .... 
 To Bank of ScotUnd 
 
 £3,000 
 
 2,500 
 
 2,500 
 
 25,000 
 
 25,000 
 
 II 
 
 10,500 
 4,500 
 
 £2,000 
 1,000 
 
 30,000 
 
 25,000 
 
 15,000 
 
 The partners' accounts, after these transactions had been 
 carried out, would appear as follows : — 
 
 JF. Boss, Capital Account. 
 
 Dec. 31. To Capital (new 
 
 company) . £2,500 
 Bank of Scot- 
 land . . 10,500 
 
 II 
 
 £13,000 
 
 Dec. 31. By Balance 
 ,, Goodwill 
 
 £11,000 
 2,000 
 
 £13,000 
 
250 ACCOUNTING IN THEORY AND PRACTICE 
 
 A, Carr, Capital Account, 
 
 Dec. 31. To Capital (new 
 company) . 
 Bank of Scot- 
 land . 
 
 >> 
 
 £2500 
 
 4500 
 
 £7000 
 
 Dec. 31. By Balance 
 „ Goodwill 
 
 £6000 
 1000 
 
 £7000 
 
 If the books of the old firm were not continued by the 
 new company the closing entries to be made in the old 
 books would be as follows : — 
 
 Ross, Carr, k Co., Limited . . Dr. 
 
 
 £29,000 
 
 
 To Customers .... 
 
 
 
 £8,000 
 
 ,, ijrOOClS ..... 
 
 
 
 14,000 
 
 ,, Warehouse .... 
 
 
 
 3,000 
 
 ,, Bank of Scotland . 
 
 
 
 1,000 C 
 
 , , W. Ross (share of goodwill) 
 
 
 
 2,000 
 
 ,, A. Carr (share of goodwill) 
 
 
 
 1,000 
 
 Creditors Dr. 
 
 
 7,000 
 
 
 Bills payable . . . . ,, 
 
 
 2,000 
 
 
 W. Ross (shares; , 
 
 
 2,500 
 
 
 W.Ross (cash) . . . . ,, 
 
 
 10,500 
 
 
 A. Carr (shares) . . . . , , 
 
 
 2,500 
 
 
 A. Carr (cash) . . . . ,, 
 
 
 4,500 
 
 
 To Ross, Carr, k Co., Limited 
 
 
 
 29,000 
 
 I 
 
 The opening entries in the books of Boss, Carr, and 
 Co., Limited, would be as follows : — 
 
 Customers . 
 (}oods . 
 Warehouse . 
 Bank of Scotland 
 Goodwill 
 
 To Ross k Carr 
 
 Ross k Carr 
 
 To Creditors . 
 ,, Bills payable 
 „ Capital . 
 .. Bank of Scotland 
 
 Dr. 
 
 II 
 
 Dr 
 
 £8,000 
 
 14,000 
 
 3,000 
 
 1,000 
 
 8,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 29,000 
 
 £29,000 
 
 7,000 
 
 2,000 
 
 5,000 
 
 15,000 
 
 
 
 
 
 
 
 
 
 
 
 
 lb 
 
 Exercises. 
 
 1. Tod and Co. dispose of their business to a company 
 for £50,000 upon the following terms, viz, — 
 
 £10,000 in cash. 
 
 £40,000 in fully paid shares of £1 each. 
 
 Hi 
 
 mi 
 
 COMPANIES 
 
 251 
 
 The assets taken over by the company consist of: — 
 
 Stock-in-trade . 
 
 Book debts 
 
 Fixtures, fittings, and utensils 
 
 Plant .... 
 
 £30,000 
 
 8,000 
 
 1,000 
 
 1,500 
 
 Show the entries to be made in the books of the com- 
 pany to record these transactions. 
 
 2. A private firm having assets consisting of land and 
 buildings, £10,000 ; plant and machinery, £15,000 ; 
 book debts, £7000 ; stock on hand, £8000 ; and lia- 
 bilities consisting of bills payable, £3000 ; transfers its 
 entire business on 1st January to a joint -stock company 
 for £15,000 in debentures, £15,000 in preference shares, 
 and £15,000 in ordinary shares. 
 
 Show the closing entries and Ledger Accounts in the 
 books of the old firm, and the opening entries in the books 
 of the joint-stock company. 
 
 3. A company is incorporated to purchase the three 
 concerns. A, B, and C, doing the same class of business. 
 The assets, the liabilities, and the average annual net profits 
 of each concern for the past five years are as follows : — 
 
 Assets as valued 
 Liabilities . . . . 
 
 Annual net profits, average, 
 five years . 
 
 A 
 
 £20,000 
 6,000 
 
 2,000 
 
 B 
 
 £30,000 
 10,000 
 
 3,000 
 
 c 
 
 £40,000 
 15,000 
 
 1,000 
 
 It is required to know what amount of stock of the 
 new company should be allotted to each concern as equit- 
 able compensation for net assets and goodwill, and the 
 matter is referred to you for report What should be the 
 amount of the capital of the new company, and how 
 should it be apportioned to A, B, and C? 
 
 4. The Eiverside Gas Company, Limited, is formed to 
 take over as a going concern the assets and liabilities of a 
 private firm of gas manufacturers. The capital of the 
 company is £21,000 in 21,000 shares of £1 each. A, B, 
 
r 
 
 I 
 
 I 
 
 252 ACCOUNTING IN THEORY AND PRACTICE 
 
 C, D, E, F, and G take 3000 shares each, and pay them 
 fully up. The company pays £13,000 to the old firm in 
 cash, and takes over a heritable bond for £3000, which is 
 the only liability of the old finn. 
 
 On making an inventory of the property for the purpose 
 of distribution to proper accounts, the following values, 
 exclusive of goodwill, are put upon the assets : — 
 
 Land and buildings .... 
 
 Coal-gas plant, machinery, and fittings 
 Water-gas plant, machinery, and fittings 
 Mains ...... 
 
 Meters ...... 
 
 Supplies ...... 
 
 Office furniture and fixtures 
 
 £5,000 
 
 2,200 
 
 1,800 
 
 G,000 
 
 300 
 
 700 
 
 150 
 
 £16,150 
 
 Frame the necessary entries to open the company's 
 books, and prepare a Balance Sheet, showing how the com- 
 pany stands after giving effect to the above transactions. 
 
 MANUFACTURERS' ACCOUNTS 
 
 The accounts of manufacturers may be treated in 
 various ways, according to their special requirements. The 
 following transactions are supposed to be the transactions of 
 a manufacturer and trader who not only manufactures 
 goods with the view of selling them, but also purchases 
 finished goods, which he sells along with the goods of his 
 own manufacture. There are three different methods 
 shown in which the transactions may be treated, and the 
 method to be adopted in any particular case will depend 
 upon the nature of the business and the requirements of 
 the manufacturer. The distinction between the three 
 methods will be best appreciated after they have been 
 worked out in detaiL 
 
 
 MANUFACTURERS' ACCOUNTS 
 
 253 
 
 Manufacturer's Accounts 
 Tra'nsactions for the Year, 
 Jan. 1. Value of stock on hand at beginning of 
 Raw material .... 
 Goods in process of manufacture 
 Finished goods 
 
 Dec. 31. Purchases during year : 
 
 Raw material .... 
 Finished goods 
 ^ages \ 
 
 Sales 
 
 • . . 
 
 Trading price of goods manufactured 
 
 during the year .... 
 
 Value of stock on hand at end of year : 
 
 Raw material 
 
 Goods in process of manufacture 
 
 Finished goods 
 
 year : — 
 £800 
 200 
 1,000 
 
 
 
 
 
 4,500 
 
 1,500 
 
 5,000 
 
 15,300 
 
 11,600 
 
 700 
 
 100 
 
 900 
 
 Dr. 
 
 First Method. — Manufactured Goods and Finished 
 Goods purchased kept in one Account 
 
 By the first method the Trading Account is shown for 
 the year, and the result of the transactions is seen to be a 
 profit of £4000, but no attempt is made to distinguish the 
 amount of profit made from manufacture and from the 
 purchase and sale of finished goods. Only one account is 
 kept, namely the Trading Account, as under : 
 
 Trading AccomUfar Year. 
 
 J*n. 1. To Stock on hand at be- 
 ginning of year : — 
 Raw material 
 Goods in process of 
 
 manufacture 
 Finished goods . 
 
 Cr. 
 
 Dec 31. 
 
 If 
 
 Parchases during 
 year : — 
 Raw material 
 Finished goods 
 „ Wages . 
 „ Gross profit, carried 
 to Profit and Loss 
 Account . . 
 
 £800 
 
 200 
 
 1,000 
 
 £2,000 
 
 4,500 
 1,500 
 5,000 
 
 
 
 
 
 
 
 
 
 4,000 
 £17,000 
 
 Dec. 31. By Sales . . . £15^300 
 
 ,, Stock on hand at end 
 
 of year : — 
 
 Raw material £700 
 
 Goods in pro- 
 cess of manu- 
 facture . 100 
 
 Finished goods 900 
 
 
 
 1,700 
 
 £17,000 
 
254 A ceo UNTING IN THEOR Y AND PR A CTICE 
 
 MANUFACTURERS' ACCOUNTS 
 
 255 
 
 Second Method. — Showing the Cost of the Goods 
 
 Manufactured 
 
 By the second method a Manufacturing Cost Account 
 is kept, by means of which the cost of the goods actually 
 manufactured during the year is ascertamed, and this is 
 debited to a separate Trading Account, which shows the 
 profit upon the goods manufactured and purchased. This 
 method is preferable to the first, because by it the cost of 
 manufacturing the goods is ascertained, and it is useful to 
 compare the cost of goods manufactured in any one year 
 with that of other years. 
 
 Manufacturing Cost Account 
 
 Dr. 
 
 Cr. 
 
 Jan. 1. To Stock on hand at 
 beginning of year : — 
 
 Raw material . . £800 
 Goods in process 
 
 of manufacture. 200 
 
 Dec 31. ,, Purchases— Raw 
 material 
 „ Wages . 
 
 £1,000 
 
 . 4,500 
 
 . 6,000 
 
 £10,500 
 
 Deo. 31. By Stock on hand at end 
 of year : — 
 lUw material 
 Goods in process 
 of manufacture . 
 
 ,, Trading Account, for 
 cost of goods manu- 
 factured during year 
 
 £700 
 
 100 
 
 £800 
 
 9,700 
 
 £10,500 
 
 Trading Account. 
 
 Jan. 1. To Stock of finished goods 
 
 at beginning of year £1,000 
 Dec. 31. „ Manufacturing Cost 
 
 Account, for cost 
 
 of goods manu- 
 factured during 
 
 year . . • 9,700 
 
 „ Purchases, finisheii 
 
 goods . ... 1,500 
 „ Gross profit, carried 
 
 to Profit and Loss 
 
 Account . . . 4,000 
 
 £16,200 
 
 Dec. 31. By Sales . . £15,300 
 
 ,, Stock of finished 
 goods on hand at 
 end of year . 900 
 
 £16,200 
 
 Third Method. — Showing thb Profit on Manufacturing 
 AND Profit on Trading separately 
 
 The third method is the most satisfactory, as by it the 
 profit from the manufacture of the goods is ascertained. 
 This is accomplished by crediting the goods manufactured 
 during the year at the ordinary trading prices at which 
 they could be purchased from other manufacturers to the 
 Manufacturing Account, and debiting this sum to the Trad- 
 ing Account. The Manufacturing Account thus shows the 
 profit on the manufacturing department, and the Trading 
 Account the profit on trading. The manufactured goods 
 are charged at the same price as the finished goods could 
 be purchased. On the assumption that the trade price of 
 the goods manufactured during the year is £11,600, it will 
 be seen from the Manufacturing Account that the profit on 
 manufacturing is £1900, and that the profit from trade is 
 £2100, making, as before, a total gross profit of £4000. 
 
 Manufacturing Account. 
 
 Dr. 
 
 Jan. 1. To Stock on hand at 
 beginning of year : — 
 
 Raw material . 
 
 Goods in process of 
 manufacture . 
 
 Dec 31. ,, Purchases — Raw 
 material 
 Wages . 
 
 £800 
 
 200 
 
 £1,000 
 
 •> 
 
 •I 
 
 4,500 
 5,000 
 
 £10,500 
 
 Profit and Loss Ac- 
 count, for profit on 
 manufacturing de- 
 partment 
 
 1,900 
 £12,400 
 
 Cr. 
 
 Dec. 31. By Trading Account, for 
 trade price of goods 
 manufactured dur- 
 ing the year. . £11,600 
 ,, Stock on hand at 
 end of year : — 
 Raw material £700 
 Goods in pro- 
 cess of manu- 
 facture . . 100 
 
 
 
 800 
 
 £12,400 
 
256 ACCOUNTING IN THEORY AND PRACTICE 
 
 MANUFACTURERS' ACCOUNTS 
 
 257 
 
 Abstract of Cost 
 
 Accounts for Year 
 
 \ 
 
 Number of 
 Contract. 
 
 Balance 
 
 exi)ended as at 
 
 beginning of 
 
 Year of 
 
 unsettled 
 
 Contracts. 
 
 Wagei. 
 
 Stores. 
 
 Material 
 
 Plant 
 
 Special 
 outlay. 
 
 Expense*. 
 
 34 
 35 
 36 
 37 
 
 General 
 
 £ «. d. 
 
 50 
 
 10 
 140 
 
 £ 5. d. 
 120 
 
 350 
 
 180 
 
 70 
 
 4280 
 
 £ <. d. 
 
 £ 5. d. 
 100 
 
 320 
 
 150 
 
 60 
 
 3970 
 
 £ «. d. 
 
 1 
 
 £ 9. d. 
 
 £ «. d. 
 
 
 200 1 5000 1 4600 1 
 
 1 
 
 1 
 
 Trading Account. 
 
 Jan. 1. To Stock of finished goods 
 
 at beginning of year £1,000 
 
 Dec. 31. ,, Manufacturing Ac- 
 count, for trade price 
 of goods manu- 
 factured during year 11,600 
 „ Purchases of finished 
 
 goods during year . 1,500 
 ... Profit and Loss Ac- 
 count, for profit on 
 trade during year . 2,100 
 
 
 
 
 £16,200 
 
 Dec. 31. By Sales . . . £15 300 
 ,, Stock of finished 
 goods on hand at 
 end of year . . 900 
 
 £16,200 
 
 Abstract of Cost Accounts for Tear. 
 
 There is submitted an Abstract of Cost Accounts for 
 year with the above transactions filled in, although the 
 form is general and of wider application, so that all the 
 columns are not used up by these somewhat restricted 
 illustrations. The uses, however, of these other columns 
 will be readily understood from their headings. 
 
 
 
 
 
 
 
 1 
 
 1 
 
 
 
 
 Balance 
 
 
 1 
 
 Profit. 
 
 
 TotaL 
 
 
 Contract Price 
 received. 
 
 Stores 
 
 sold or 
 
 returned. 
 
 Plant sold 
 
 or 
 returned. 
 
 Loss. 
 
 expended as 
 
 at close of 
 
 year of 
 
 unsettled 
 
 Contracts. 
 
 Total. 
 
 £ 
 60 
 
 s. 
 
 
 d. 
 
 
 £ 
 330 
 
 8. 
 
 
 d. 
 
 
 £ 8. d. 
 330 
 
 £ 5. d. 
 
 £ 5. d. 
 
 £ «. d. 
 
 £ 5. d. 
 
 £ 
 330 
 
 5. d. 
 
 
 170 
 
 
 
 
 
 850 
 
 
 
 
 
 850 
 
 
 
 
 
 850 
 
 
 
 70 
 
 
 
 
 
 400 
 
 
 
 
 
 400 
 
 
 
 
 
 400 
 
 
 
 30 
 
 
 
 
 
 160 
 
 
 
 
 
 130 
 
 
 
 
 30 
 
 160 
 
 
 
 1570 
 
 
 
 
 
 
 9,960 
 
 
 
 
 
 9,890 
 
 
 
 
 70 
 
 9,960 
 
 
 
 1900 
 
 
 
 11,700 
 
 
 
 
 
 11,600 
 
 
 
 
 100 
 
 11,700 
 
 
 
 Exercises, 
 
 1. W. Allan is a wholesale clothing manufacturer. On 
 Ist January his stock was £7000. During the half-year 
 ended 30th June his transactions were: — 
 
 Purchases 
 
 Sales ...... 
 
 Wages (making) .... 
 
 Wages (cutting-foreman and warehouse) 
 
 Salesman and office expenses . 
 
 Rent, rates, and insurance 
 
 Travelling and commission . 
 
 Advertising and other trade expenses 
 
 Discounts and bad debts 
 
 Bank interest and charges 
 
 Interest paid on loan 
 
 Stock on hand at end of half year . 
 
 Prepare Trading and Profit and Loss 
 these figures. 
 
 2. From the following particulars of the business of 
 W. S. Black prepare Trading Account and Profit and Loss 
 Account for the year, and Balance Sheet as at the close of 
 the year. 
 
 8 
 
 £8,000 
 
 13,000 
 
 2,400 
 
 300 
 
 500 
 
 100 
 
 310 
 
 200 
 
 350 
 
 50 
 
 50 
 
 8,000 
 
 Accounts from 
 
258 ACCOUNTING IN THEORY AND PRACTICE 
 
 Trial Balance as at Slst December. 
 
 Stock at beginning of year 
 
 Rent, rates, taxes, etc. 
 
 Oeneral expenses 
 
 Sales 
 
 Parchases 
 
 Capital £7000 
 
 Less Drawings . . . 1000 
 
 Trade creditors 
 
 Petty cash expended 
 
 Petty cash on hand 
 
 Bills receivable 
 
 Bills payable 
 
 Bank 
 
 Wages and salaries 
 
 Carriages 
 
 Discount 
 
 Bad debts 
 
 Customers 
 
 Stock at end of year, £2500. 
 
 £3,000 
 
 . , 
 
 600 
 
 
 800 
 
 
 
 £30,000 
 
 25,000 
 
 
 
 6,000 
 
 
 3,000 
 
 98 
 
 
 5 
 
 
 2,000 
 
 
 
 1,000 
 
 1,200 
 
 
 1,300 
 
 
 300 
 
 
 1,100 
 
 2,000 
 
 150 
 
 
 7,047 
 
 
 £42,000 
 
 £42,000 
 
 s 
 
 
 3. From the following Trial Balance of the books of 
 John Dick as at 31st December prepare Trading Account, 
 Profit and Loss Account, and Balance Sheet 
 
 John Dick, capital 
 
 John Dick, drawings 
 
 Stock-in-trade, 1st January 
 
 Purchases 
 
 Wages (manufacturing) 
 
 Bills receivable 
 
 Bills payable 
 
 Trade creditors 
 
 Advances on consignments 
 
 Bank balance 
 
 Goods sold . 
 
 Consignments 
 
 Fire insurance 
 
 Book debts . 
 
 Reserve and Contingency Fund 
 
 Machinery and plant 
 
 Discount 
 
 Reut, rates, and taxes . 
 
 Bad debts 
 
 Trade expenses 
 
 
 £18,000 
 
 £1,800 
 
 
 12,500 
 
 
 41,750 
 
 
 7,890 
 
 
 1,450 
 
 
 
 7,900 
 
 
 6,225 
 
 
 2,400 
 
 3,710 
 
 
 
 53,100 
 
 3,100 
 
 
 60 
 
 
 11,100 
 
 
 
 850 
 
 3,100 
 
 
 310 
 
 
 700 
 
 
 660 
 
 
 345 
 
 
 £88,475 
 
 £88,475 | 
 
 Stock-in-trade at 31st December, £16,400. 
 
 MANUFACTURERS' ACCOUNTS 
 
 259 
 
 Allow for depreciation on machinery and plant at the 
 rate of 5 per cent, and include wages outstanding, £20, and 
 rent outstanding, £30. 
 
 4. The Trial Balance of a manufacturing firm, taken at 
 31st December, was as follows : — 
 
 L^ 
 
 Capital, A . . 
 
 Do. B . 
 Plant and machinery . 
 Purchases 
 
 Sales .... 
 Stock on hand at 1st January 
 Wages .... 
 Salaries 
 
 Travelling exi)enses 
 Interest 
 
 Stationery and printing 
 Rents ana taxes . 
 
 Discounts and allowances 
 
 Fuel .... 
 
 Insurance 
 
 Freight 
 
 General expenses . 
 
 Bank .... 
 
 Creditors 
 
 Accounts receivable 
 
 Rent of steam-power 
 
 Cash on hand 
 
 Loan Account . . 
 
 
 
 
 £8,000 
 
 
 
 
 4,000 
 
 £7,000 
 
 
 
 
 
 
 7,600 
 
 
 
 
 
 19,000 
 
 3,000 
 
 
 
 
 
 
 4,800 
 
 
 
 
 
 
 1,200 
 
 
 
 
 
 
 500 
 
 
 
 
 
 
 120 
 
 
 
 
 
 
 240 
 
 
 
 
 
 
 700 
 
 
 
 
 
 
 250 
 
 
 
 
 
 
 600 
 
 
 
 
 
 
 230 
 
 
 
 
 
 
 300 
 
 
 
 
 
 
 120 
 
 
 
 
 
 1,000 
 800 
 
 5,000 
 
 
 
 
 
 300 
 
 40 
 
 
 
 
 
 
 1,400 
 
 
 
 
 
 
 £33,100 
 
 
 
 
 
 £33,100 
 
 The stock on hand at 31st December amounted to 
 £5000 ; each partner is to be credited with 5 per cent on 
 his capital for one year before profits are ascertained; 
 5 per cent to be written off book debts for discount; 10 
 per cent to be written off machinery and plant for depre- 
 ciation ; unexpired insurance to the extent of £40 to be 
 taken into account ; net profit to be divided two-thirds to 
 A and one-third to B. Draft Journal entries for closing the 
 books, and prepare Trading Account and Profit and°Loss 
 Account, together with final Balance Sheet. 
 
 5. From the following particulars of the business of 
 Jamieson & Robb, Timber Merchants and Wood Turners, 
 prepare Trading and Profit and Loss Accounts, and Balance 
 Sheet as at the close of the year. 
 
26o ACCOUNTING IN THEORY AND PRACTICE 
 
 Trial Balance as at 31st December. 
 
 \ 
 
 J. Jamieson, Capital Account 
 
 R. Robb, Capital Account 
 
 Sales 
 
 Stock at 1st January 
 
 Purchases (timber) 
 
 Bills payable 
 
 Debtors 
 
 Creditors 
 
 Carriage, cartage, and horse expenses 
 
 Repairs and maintenance 
 
 Coal .... 
 
 Gas and water 
 
 Oil, grease, and waste . 
 
 Feu -duty 
 
 Rates, taxes, and insurance 
 
 Bank interest 
 
 Discounts and allowances 
 
 Bad debts ... 
 
 Buildings, fixed machinery, and plant 
 
 Horses, carts, harness, etc. . 
 
 Loose tools, utensils, and furniture 
 
 Wages . 
 
 Salaries 
 
 Incidental expenses 
 
 Partners' salaries . 
 
 Cash at bank 
 
 Cash in hand 
 
 Bills receivable 
 
 £2,500 
 8,000 
 
 4,200 
 
 600 
 
 
 
 
 
 100 
 
 
 
 
 
 70 
 
 
 
 
 
 20 
 
 
 
 
 
 40 
 
 
 
 
 
 50 
 
 
 
 
 
 70 
 
 
 
 
 
 20 
 
 
 
 
 
 200 
 
 
 
 
 
 60 
 
 
 
 
 
 4,000 
 
 
 
 
 
 400 
 
 
 
 
 
 150 
 
 
 
 
 
 1,000 
 
 
 
 
 
 400 
 
 
 
 
 
 100 
 
 
 
 
 
 300 
 
 
 
 
 
 800 
 
 
 
 
 
 20 
 
 
 
 
 
 1,000 
 
 
 
 
 
 £5,000 
 
 4,000 
 
 10,000 
 
 3,000 
 2,000 
 
 £24,000 
 
 I 
 
 £24,000 
 
 Stock at 31st December, £3000. 
 
 Make provision for the following : — 
 
 Depreciation on buildings, etc., £200. 
 Accruing incidental expenses, £50. 
 Discount 5 per cent on debtors* balances. 
 Loss on debtors' balances, £40. 
 
 The net profit is divisible between the partners in pro- 
 portion to their capital at Ist January. 
 
 6. Prepare Profit and Loss Account and Balance Sheet 
 from the following Trial Balance, as at the 31st of December, 
 of the business of J. Purves, Tobacco Manufacturer : 
 
 J. Purves, capital . 
 Sales .... 
 Tobacco purchased 
 Loan on mortgage . 
 Machinery and plant 
 Land and buildings 
 
 Carry forward 
 
 £800 
 
 2,000 
 
 1,500 
 2,000 
 
 £4,500 
 10,000 
 
 1,000 
 
 £6,300 
 
 £15,500 
 
 li 
 
 COST ACCOUNTS 
 
 Brought forward 
 Creditors 
 
 Wages .... 
 Customers 
 
 Boxes, labels, etc., for year 
 Rates and taxes 
 Bills receivable 
 Insurance 
 
 Carriage .... 
 Petty cash and postages . 
 Stock at beginning of year 
 Cash at bank and in hand 
 
 £6,300 
 
 5,000 
 
 1,000 
 
 500 
 
 40 
 
 500 
 
 10 
 
 150 
 
 100 
 
 2,000 
 
 1,400 
 
 £17,000 
 
 26] 
 
 £15,500 
 1,500 
 
 £17,000 
 
 Charge depreciation on land and buildings at 3 per cent, 
 and on machinery and plant at 5 per cent. Provide for 
 interest on loan (one year) at 5 per cent, and a^ a provision 
 for bad debts and discounts reserve 6 per cent on the balance 
 due by customers— £1000. The value of stock at the end 
 of year was £2040, and there was £5 of stamps on hand 
 
 COST ACCOUNTS 
 
 A COST ACCOUNT IS A STATEMENT SHOWING ON THE DEBIT 
 SIDE THE ACTUAL COST OF PRODUCING A CERTAIN ARTICLE 
 OR SET OF ARTICLES, AND ON THE CREDIT SIDE THE 
 ACTUAL PRICE RECEIVED FOR THE ARTICLE OR ARTICLES. 
 
 The ideal Cost Account is one which is kept as a part 
 of the double-entry book-keeping. Under such a perfect 
 system the Manufacturing or Trading Account is done away 
 with, and its place is taken by as many departmental or 
 separate cost accounts as there are departments or different 
 articles manufactured. 
 
 An ESTIMATED COST ACCOUNT IS A STATEMENT SHOWING 
 ON THE DEBIT SIDE THE ESTIMATED COST OF PRODUCING A 
 CERTAIN ARTICLE OR SET OF ARTICLES OF THE SAME KIND, 
 AND ON THE CREDIT SIDE THE ESTIMATED PRICE TO BE 
 RECEIVED FOR THE ARTICLE OR ARTICLES WHEN COMPLETED 
 
 An Estmiated Cost Account is not of course a Ledger 
 Account, and never forms part of the book-keeping of a 
 
./" 
 
 
 262 ACCOUNTING IN THEORY AND PRACTICE 
 
 COST ACCOUNTS 
 
 263 
 
 1' 
 
 concern, but is prepared with the view of an estimate being 
 given or a price quoted for the production of certain articles 
 or the doing of certain work. 
 
 A Cost Account is prepared from the items which 
 ordinarily appear or which may be entered in the Trading 
 and Profit and Loss Accounts. It enables a manufacturer 
 to see what is the cost of the material and labour expended 
 and the profit he is earning upon each article or contract. 
 Such Cost Accounts enable the manufacturer to see what is 
 the average cost of labour and material, and are invaluable 
 in preparing estimates. Without their aid a manufacturer 
 is groping in the dark when he tries to estimate, but with 
 their assistance he knows exactly what price he can quote 
 for any work so as to make a certain profit. With the 
 assistance of such Cost Accounts estimates may be prepared 
 with absolute certainty. With the valuable knowledge ob- 
 tained of the expenses of similar work the contractor can 
 with confidence venture to quote for new contracts. All 
 that is necessary is for the contractor to turn up his old 
 Cost Accounts, and, having made the necessary alterations in 
 consequence of the change in the cost of material or in the 
 rates of wages, he can offer for the work, knowing exactly 
 what profit it will yield him. 
 
 Each business requires to be specially considered in 
 devising a set of Cost Accounts, and no set of forms of Cost 
 Accounts is suitable for every business. Thus a colliery Cost 
 Account is based on the cost of a ton of coal either brought 
 to the surface or sold. A brickwork and slate quarry Cost 
 Account may be based on the number of bricks and slates 
 produced, if these are all of the same size, or by the ton. 
 
 In such a business as a printing office, where each job 
 is, as a rule, separately " costed " with the view of the Day 
 Book being written up, by having a Day Book with columns 
 for the items of cost, such as paper, ink, other material, 
 wages, other expenses, and selling price, the cost may be 
 incorporated in the system of book-keeping by totalling 
 these items of cost at the end of each month and creditin<» 
 the accounts representing these items, and debiting Cost 
 Account with the total cost. Thus the Wages Account 
 
 
 would be credited with the total wages for each month, and 
 the Cost Account debited. There might at the end of the 
 year be a deficiency in the Wages Account, which would 
 represent wages not chargeable to any particular job ; but 
 taking this into account, the amount of the difference would 
 show the degree of accuracy with which the allocations had 
 been made. If the departments in the printing office were 
 kept separate, it would be better to have a separate Cost 
 Day Book for each of the separate departments. 
 
 In considering the best form of Cost Accounts to adopt 
 it is necessary to consider what the cost consists of. 
 
 Prime cost, as its name implies, is the first cost, and 
 may be defined as the sum expended in purchasing a com- 
 plete article which is sold as purchased, or the amount 
 expended upon raw material, together with the wages 
 expended in producing the article. The cost is the prime 
 cost, together with all other direct expenses of production 
 or indirect expenses of distribution. The net profit is the 
 difference between the selling price and the cost. 
 
 Direct expenses other than material and wages are those 
 expenses which may be charged directly to a particular job 
 or department of a business, such as wages of foreman, 
 outlay for fuel, light and heat, rent and taxes of factory, 
 insurance, and depreciation where it can be separately 
 charged. These direct expenses are, it will be observed, 
 largely the expenses of production. 
 
 Indirect expenses are those which cannot be directly 
 charged to a particular piece of work or department. They 
 are, as a rule, expenses of distribution, of financing the 
 business, and of general control and management. They 
 include office salaries and expenses, provision for bad debts, 
 interest on loans and capital. 
 
 The various items of cost may be grouped shortly as 
 follows : — 
 
 lUviis of Cost. 
 
 1. Material (including carriage inwards). 
 
 2. Labour. 
 
 3. Direct and departmental expenses of production : — 
 
 i 
 
 
264 ACCOUNTING IN THEORY AND PRACTICE 
 
 COST ACCOUNTS 
 
 265 
 
 Wages of superintendence. 
 Buildings and plant : — 
 
 Light. 
 
 Heat. 
 
 Rent, taxes, and insurance. 
 
 Depreciation and upkeep. 
 
 4. Indirect expenses of distribution and general manage- 
 ment : — *=» 
 
 Salaries. 
 OflSce expenses. 
 Interest and finance. 
 Bad debts. 
 
 Material, 
 
 Goods purchased specially for any particular job are 
 charged at once through the Invoice Book to that job 
 Other purchases of raw material are charged to the Stores 
 Account or to the various expenses accounts. Goods given 
 out of the stores are credited to the Stores Account, and 
 debited to the particular job. 
 
 Lahour. 
 
 As often as the wages sheets are prepared an analysis 
 18 made of the total amount paid in wages, classified accord- 
 ing to the work upon which each workman has been engaged 
 The Wages Account is debited with the wages paid! and 
 credited with the wages incurred for each different iob- 
 the Cost Account of each job being debited. 
 
 Bireet and Indirect Expenses. 
 
 These, so far as not directly chargeable to each job are 
 charged as a percentage on the wages charged to the 'job 
 or as a percentage on the wages and material, whichever 
 may be most suitable for the special circumstances of the 
 business^ The percentage is debited to the job, and credited 
 to the Direct and Indirect Expenses Account. In a purely 
 distributing business the expenses are best reckoned as a 
 percentage of the purchase price. In a manufacturiua 
 
 concern usually the percentage should be upon the wages. 
 In colliery companies, for example, the expenses are best 
 treated by reckoning so much per ton of coal raised or sold. 
 When the account of each completed job is balanced off, 
 the balance is carried to the Profit and Loss Account, and is 
 the profit or loss upon that job. 
 
 Engineers' Accounts. 
 
 In a large engineering factory, where the raw material 
 is manufactured into various kinds of engines or parts of 
 engines, it is evident that a thorough system of Cost 
 Accounts is essential for the proper management of the 
 business. Only by knowing the exact cost which has been 
 expended in making an engine of a certain pattern can an 
 estimate with safety be prepared for manufacturing another 
 engine of the same pattern. 
 
 To understand the system of keeping the accounts of a 
 large engineering factory it is necessary first to consider 
 briefly the work to be done. Suppose the factory is an 
 extensive engineering factory, where the raw material is 
 received and made into locomotives, marine and other 
 engines, boilers, cranes, steam-hammers, and such like. 
 To arrive at the proper method of treating the accounts 
 of such an establishment, it is necessary to thoroughly 
 understand the various classes of expenditure. For the 
 purposes of accounting such engineering expenditure may 
 be divided into the following three classes : — 
 
 L Direct charges of production, called prime cost. 
 This consists of all expenditure for raw material, 
 wages, and other expenses directly chargeable to 
 the manufacture of the article. This expenditure 
 is in direct proportion to the amount of the busi- 
 ness done or to the turnover. 
 
 II. Expenditure incurred in the different depart- 
 ments OR SHOPS, CALLED SHOP ESTABLISHMENT 
 CHARGES. The expenditure under this head con- 
 sists of the wages of the foremen, general labourers, 
 tool -makers, watchmen, etc., and expenditure on 
 
266 ACCOUNTING IN THEORY AND PRACTICE 
 
 COST ACCOUNTS 
 
 267 
 
 II 
 
 II 
 
 power and general stores. This expenditure is less 
 dependent upon the Yolume of work done than that 
 included under prime cost. 
 
 III. General establishment expenses, including office 
 expenses for clerks, salaries, stationery, etc. The 
 salaries of the managers and chief officials, rents, 
 rates, taxes, insurance, lighting and heating, wages 
 of store-keeper, gate-keeper, time-keeper, messengers, 
 upkeep and repairs of buildings and plant, trade 
 expenses, travellers' salaries and commissions, and 
 advertising. 
 
 The expenditure under the third head is more general 
 and less direct than under either of the other heads, and 
 does not depend so directly upon the volume of the work 
 done. The turnover of the business might be doubled 
 without any material increase in the expenditure in this 
 department. The expenditure under the third head could 
 not be charged to any one of the departments, but embraces 
 them all. The ratio of the expenditure in the three 
 branches is constantly changing, and this necessitates the 
 keeping of the three branches separate in making up 
 estimates. 
 
 The most important head in estimating is, of course, the 
 prime cost. The prime cost having been calculated, the 
 shop and general establishment charges forming the indirect 
 expenses of production are added, to arrive at the total 
 cost. In fixing the ratio of the indirect expenses of pro- 
 duction which must be added to the prime cost, it is neces- 
 sary to go carefully into the various ratios of indirect 
 expenditure in the various shops or departments, and use 
 these ratios which belong to the shops or departments con- 
 cerned in the production. To take the general ratio of the 
 indirect expenses would not in most cases be sufficiently 
 accurate. 
 
 Provision is sometimes made for the shop establishment 
 charges by finding the ratio which the expenditure in- 
 curred in each of the different shops bears to the wages of 
 each shop, and provision may be made for the general 
 establishment charges by finding the ratio which the general 
 establishment charges bear to the whole wages paid. 
 
 Contracts not completed at date of Balance. 
 
 Care must be taken in ascertaining the profit to the 
 date of balance on contracts not completed that future 
 profit is not anticipated. Thus suppose a contract is for 
 £5000, and it is estimated that the total cost of completing 
 the work will be £4000, thus leaving a profit of £1000, 
 or 25 per cent on the cost; then if at the date of balance 
 £3600 has been expended on the work, the correct profit 
 to assume up to the date of balance is £900, being 25 per 
 cent on the outlay to date, as follows : — 
 
 Contract No. 
 
 Dec. 31. To Material, labour, | Dec. 1. By Cash to account £2500 
 
 etc. . . . £3600 
 
 ,, Profit and Loss 
 
 900 
 
 £4500 
 
 Jan. 1. To Balance . . £2000 
 June 3. ,, Material, labour, 
 
 etc. . 400 
 
 Dec. 31. ,, Profit and Loss . 100 
 
 £2500 
 
 31. ,, Balance 
 
 June 20. By Cash 
 
 2000 
 
 £4500 
 
 . £2500 
 
 £2500 
 
 By this means each year has its fair share of profit 
 allocated to it. 
 
 To ascertain the Profit on the Goods Account without 
 
 actimlly taking Stock. 
 
 It is sometimes advisable that the books of a concern 
 should be framed so that the profit from the purchase and 
 sale of goods may be ascertained weekly or monthly, and 
 in businesses where a large stock is held it is desirable that 
 the method adopted should be one which does not involve 
 the taking of stock at each of the periods. The most 
 satisfactory method by means of which the gross profit 
 from the sale of goods may be ascertained is to have an 
 
II 
 
 268 ACCOUNTING IN THEORY AND PRACTICE 
 
 extra column in the Sales Day Book, headed " Cost." As 
 the sales take place, and are entered in the Sales Day Book, 
 the cost is ascertained, and is also entered. Some busi- 
 nesses are more suitable for the application of this method 
 than others. A retaH jeweller's business, where each article 
 as received into stock is inventoried, numbered, and has the 
 cost price and selling price noted upon it, is very well 
 adapted for this method, and gives very satisfactory results. 
 It will be observed that the balance of stock is arrived at 
 from the Goods Sold Cost Account by debiting the purchases, 
 and crediting the goods sold at cost price each month, and 
 it is advisable that, at all events once a year, the stock on 
 hand should be carefully checked to see that it corresponds 
 with the balance shown by the Goods Sold Cost Account 
 To illustrate the method the following particulars may be 
 taken : — 
 
 Goods on hand at 1st January . 
 
 Purdiases Day Book. 
 
 January. To Goods purchased during month 
 February. ., do. do. 
 
 March. ,, do. do. 
 
 Sales Day Book 
 
 Cost of Gk)od8, 
 January. By Goods sold during month . £1760 
 February. „ do. do. . 1680 
 
 March. , do. do. . 1360 
 
 £3600 
 
 £4800 
 
 £2000 
 1600 
 1400 
 
 £5000 
 
 Sales. 
 
 £2200 
 2100 
 1700 
 
 £6000 
 
 The goods on hand at 31st March are valued at 
 £3800. 
 
 From the above particulars the Goods Account, if pre- 
 pared in the ordinary way, for the quarter ending Slst 
 March would be as follows, showing a profit of £1200 : 
 
 COST ACCOUNTS 
 
 269 
 
 Goods. 
 
 Jan. 
 
 1. To balance, stock 
 
 on hand . £3600 
 
 Mar. 31. ,, Purchases 6000 
 
 ,, Profit and Loss 1200 C 
 
 £9800 
 
 Mar. 31. By Sales . . £6000 
 ,, Balance, stock 
 
 on hand . 3800 
 
 £9800 
 
 From the above Goods Account the cost of goods sold 
 during the quarter can be ascertained by adding to the 
 stock on hand at the beginning of the quarter (£3600) the 
 purchases for the quarter (£5000), and deducting the stock 
 on hand at the end of the quarter (£3800). This gives 
 £4800 as the cost of the goods sold during the quarter. 
 This result is very clearly shown when, instead of keeping 
 one Goods Account, two Goods Accounts are kept, namely, 
 a Goods Sold Cost Account and a Goods Sold Eealisation 
 Account These accounts for the quarter would appear in 
 the following form : — 
 
 Goods Sold Cost Account. 
 
 Jan. 1. To Balance 
 Mar. 31. „ Purchases . 
 
 £3600 
 5000 
 
 £8600 
 
 Mar. 31. By Balance, stock on 
 
 hand . £3800 
 
 , , Goods Sold Reali- 
 sation Account, 
 being cost of 
 goods sold . 4800 
 
 £8600 
 
 Goods Sold Realisation Account. 
 
 Mar. 31. To Goods Sold Cost 
 Account, for cost 
 of goods sold . £4800 
 ,, Profit and Loss . 1200 
 
 Mar. 31. By Sales . 
 
 . £6000 
 
 £6000 
 
 £6000 
 
 The accounts if kept monthly, would be as follows 
 
270 ACCOUNTING IN THEORY AND PRACTICE 
 
 Goods Sold Cost Account, 
 
 Jan. 1. To Balance 
 
 31. ,. Purchases , 
 
 .£3600 
 . 2000 
 
 £5600 
 
 Feb. 1. To Balance 
 28. „ Purchasei 
 
 . £3840 
 . 1600 
 
 Jan. 31. By Goods Sold Reali- 
 sation Account, 
 being cost of 
 goods sold this 
 month . . £1760 
 „ Balance . . 3840 
 
 Mar. 1. To Balance 
 81. ,, Purchases 
 
 £5440 
 
 . £3760 
 . 1400 
 
 III 
 
 £5160 
 
 Goods Sold Eealisation Account 
 
 Jan 31. To Goods Sold Cost 
 Account, for 
 cost of goods 
 sold this month £1760 
 „ Profit and Loss, 
 for gross profit 
 for month 440 
 
 £2200 
 
 Feb. 28. To Goods Sold Cost 
 Account, for 
 cost of goods 
 sold this month £1680 
 ., Profit and Loss, 
 for gross profit 
 for mouth . 420 
 
 
 
 
 
 £2100 
 
 Mar. 31. To Goods Sold Cost 
 Account, for 
 cost of goods 
 sold this month £1360 
 ,, Profit and Loss, 
 for gross profit 
 for month . 340 
 
 
 
 
 
 £1700 
 
 
 
 
 £5600 
 
 Feb. 28. By Goods Sold Reali- 
 sation Account, 
 being cost of 
 goods sold this 
 month . £1680 
 
 „ Balance . 3760 
 
 £5440 
 
 Mar. 31. By Goods Sold Reali- 
 sation Account, 
 being cost of 
 goods sold this 
 month . . £1360 
 „ Balance . . 3800 
 
 £5160 
 
 Jan 31. By Sales for month . £2200 
 
 £2200 
 
 Feb. 28. By Sales for month . £2100 
 
 £2100 
 
 Mar. 31. By Sales for month . £1700 
 
 £1700 
 
 COST ACCOUNTS 
 
 271 
 
 In the foregoing example the cost of the goods sold is 
 got from the Sales Day Book, where, as each article is sold, 
 its cost price is entered along with the selling price. This 
 is the most satisfactory method of achieving the result 
 desired, but where this course is not practicable the result 
 may be attained by knowing the percentage of the sales 
 which has been cost in the previous year, and assuming 
 that the same percentage will obtain in the future. Thus, 
 referring to the example above given, the total sales for the 
 period under consideration amount to £6000, and the profit 
 to £1200. The ratio of the sales which is profit is therefore 
 20 per cent Assummg therefore that this ratio of profit 
 is constant, the profit for a month or a week can be at 
 once ascertained by taking 20 per cent of the sales. If 
 the profit for the previous year had been at the rate of 20 
 per cent on the sales, it would be assumed that the same 
 ratio would continue in the future, and the Goods Account 
 for each month or week would be prepared on that assump- 
 tion. When stock was again actually taken it would 
 likely be found that the ratio was not actually 20 per 
 cent of the sales, but was either more or less, and accord- 
 ingly the stock shown in the books would be less or more 
 than the stock as actually taken, and a correcting entry, 
 crediting or debiting Profit and Loss with the difference, 
 would require to be made. 
 
 To find the Cost Valice of Goods destroyed hy Fire, 
 
 Where a merchant's goods are wholly or partially 
 destroyed by fire it is often necessary to ascertain the 
 value of the goods destroyed from the Goods Account in 
 the Ledger, where the books have been preserved. Thus 
 suppose the Goods Account shows that the cost of the 
 goods on hand at the beginning of the year and the pur- 
 chases for the period up to the date of the fire was £8600, 
 and that the cost of the goods saved, after allowing for any 
 damage to them, was £^00, and that the sales or the credit 
 side of the Goods Account amounted to £6000. If the 
 average percentage of the sales which was profit for the 
 
 M 
 
I 
 
 272 ACCOUNTING IN THEORY AND PRACTICE 
 
 past three years was 20 per cent, then the cost of the 
 goods sold was 80 per cent of the sales, and the claim 
 against the fire insurance company would be as follows : — 
 
 Cost of goods shown by debit side of Goods 
 
 COST ACCOUNTS 
 
 273 
 
 Account 
 
 Dedud — 
 Cost of goods sold, being 80 per 
 
 cent of £6000 of sales . . £4800 
 Goods salved .... 800 
 
 . £8600 
 
 5600 
 
 Claim against fire insurance company . £3000 
 
 Where the gross profit earned in previous yeai*s is not 
 available as a basis, the general experience of the business, 
 or the cost and selling price of a sufficient number of the 
 articles, might be taken as the basis to arrive at the per- 
 centage of the sales which represents costs. 
 
 ExerciM. 
 
 In a business where stock-taking is a laborious operation 
 it is necessary to prepare a Goods Account at the end of 
 January without actually taking stock. On 1st January 
 the stock was £3000. During the month the purchases 
 amounted to £4000, and the sales to £6000. Prepare a 
 Goods Account on the basis that the gross profit on goods 
 is at the rate of 25*25 per cent on the sales. What is the 
 estimated value of stock at the close of the month ? 
 
 The AccoutUs of Professional and other non-manufacturing 
 
 and non-trading Concerns. 
 
 The Profit and Loss Account for a professional and 
 other non-manufacturing and non-trading concern does not 
 as a rule require to be subdivided in the manner which we 
 have found so advantageous in manufacturing and trading 
 concerns, and one account is usually sufficient Upon the 
 credit side appears the gross income, and upon the debit all 
 the expenditure, charges, or loss incurred. The net profit 
 shown should be dealt with in the portion of the account 
 dealing with profit and loss appropriation. 
 
 Eocercises. 
 1. The following is the Trial Balance of an accountant's 
 
 business : — 
 
 Trial Balance as at 31st December. 
 
 Due by clients 
 
 Due to clients 
 
 Fees and commissions outstanding at 
 
 beginning of the year .... 
 Fees and commissions received during year 
 Fees and commissions outstanding not 
 
 included above, £700. 
 
 Salaries 
 
 Rent, rates, and taxes 
 Office expenses .... 
 Stationery .... 
 Office furniture and fittings 
 Capital Account , , 
 
 Bank 
 
 £3000 
 
 
 
 
 
 £1500 
 
 500 
 
 
 
 
 
 2000 
 
 600 
 
 
 
 
 
 
 90 
 
 
 
 
 
 
 250 
 
 
 
 
 
 
 60 
 
 
 
 
 
 
 200 
 
 
 
 
 
 
 1500 
 
 
 
 
 
 3400 
 
 700 
 
 
 
 
 
 
 £6900 
 
 
 
 
 
 £6900 
 
 Prepare Profit and Loss Account and Balance Sheet 
 2. John Eoberts commenced business on 1st January 
 
 with the following assets and liabilities : — 
 
 Cash in hand ...... 
 
 Cash at bankers ..... 
 
 £10,000 consols at market price of 112^ . 
 £1000 Great Western ordinary stock at £172 
 Sundry debtors ..... 
 
 Sundry habilities to creditors . 
 
 Loan from bankers 
 
 Bills payable 
 
 . £50 
 
 500 
 
 . 11,250 
 
 . 1,720 
 
 600 
 
 . 3,000 
 
 . 1,000 
 
 . 1,500 
 
 During the year John Eoberts purchased a warehouse 
 which cost £3000, and fitted the same with plant and 
 machinery costing £2500, both of which items were paid 
 for in cash; he purchased raw materials costing £12,000, 
 and paid for the same, less discount at 5 per cent ; he paid 
 wages, £15,000; clerks' salaries, £2000; sundry business 
 expenses, £900; taxes and insurance, £175; repairs to 
 building, £100; repairs to plant and machinery, £200. 
 He sold goods to the amount of £32,500, and received in 
 cash on account of same £30,000. 
 
274 
 
 ACCOUNTING IN TiMORY AND PRACTICE 
 
 One of his debtors failed, owing him £2000, on account 
 of which he received a composition of 6 s. 8d. in the £ 
 (which is included in the £30,000 cash received, as above 
 stated). He drew out of the bank £1000 for his personal 
 expenses. He sold out his consols at £114, and his Great 
 Western stock at £175. He discharged liabilities owing 
 on 1st January, £3000, and paid off the loan from his 
 bankers on 30th June, with interest at 5 per cent per 
 annum, and he met at maturity and paid his acceptances 
 for £1500, which were current on 1st January. On 31st 
 December he had on hand unsold goods which cost £2000, 
 but which for his Balance Sheet he valued as worth 90 
 per cent of cost. 
 
 Prepare a Profit and Loss Account for the year, and 
 Balance Sheet, showing the position of affairs on 31st 
 December. 
 
 3. From the following Trial Balance of the accounts 
 of Messrs. Hardie & Allan prepare a Profit and Loss 
 Account for the year, and Balance Sheet, after making 
 the following provisions: bad debts, £150; discounts, on 
 debtors* balances only, 5 per cent ; and trade expenses 
 outstanding, £50. The net profit is to be divided between 
 the partners in proportion to the capital of each. 
 
 Trial Balance as at 30th June. 
 
 Creditors. 
 
 Bankers, overdraft . 
 
 Debt on heritable property 
 
 \V. Hardie, capital . 
 
 T. Allan do. 
 
 Credit sales 
 
 Cash sales 
 
 Debtors .... 
 
 Cash in hand . 
 
 Heritable property . 
 
 Machinery and jilant 
 
 Loose tools, horses, etc. . 
 
 Stock, 1st July 
 
 Purchases . • 
 
 Carriage and freight 
 
 Wages — labour 
 
 Salaries and wages— office, etc 
 
 £11,500 
 
 50 
 
 10,000 
 
 2,500 
 
 1,550 
 
 15,000 
 
 18,500 
 
 1,500 
 
 3,100 
 
 800 
 
 £7,500 
 3,000 
 5,000 
 
 13,000 
 7,000 
 
 30,500 
 4,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 M 
 
 COST ACCOUNTS 
 
 275 
 
 Brought foruartl 
 Rates and insurance 
 Repairs .... 
 Trade expenses 
 Discounts and allowances 
 ]tad debts 
 
 liank interest and charges 
 I Qterest on bond on property 
 Partners' salaries 
 
 £64,500 
 
 1,550 
 
 300 
 
 1,200 
 
 900 
 
 200 
 
 250 
 
 200 
 
 900 
 
 £70,000 
 
 £70,000 £70,000 
 
 The stock at 30th June amounted to £13,000. 
 
 4. Prepare a Profit and Loss Account and Balance 
 Sheet from the following Trial Balance of Smart & Currie's 
 books, extracted at 31st December, covering six months' 
 operations : — 
 
 year) 
 
 Cash at bankers 
 Petty cash in hand . 
 Sales 
 
 Goods on hand, Ist July 
 Returns (customers' returns for half- 
 Discount allowed customers 
 Bills receivable on hand . 
 Sundry debtors . 
 Purchases .... 
 Discount allowed on purchases 
 
 Wages 
 
 Reserre for bad and doubtful debts 
 
 Reserve for discounts on book debts 
 
 Sundry creditors 
 
 Buildings . 
 
 Patent rights . 
 
 Loan on mortgage 
 
 Rent, rates, and taxes 
 
 Advertising 
 
 Traveller's salary 
 
 Carriage . 
 
 Bad debts written oflf 
 
 Plant and machinery 
 
 Repairs 
 
 Smart — Capital Account 
 
 Do. Drawing Account 
 Currie — Capital Account 
 
 Do. Drawing Account 
 Interest on loans 
 
 Patent royalties received in advance 
 Royalties on patents attributable to half-year 
 Trade and general expenses 
 
 £600 
 3 
 
 2,741 
 
 330 
 
 938 
 
 200 
 
 7,365 
 
 8,400 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £16,000 
 
 1,404 
 
 4,000 
 50 
 
 100 
 460 
 430 
 390 
 100 
 3,000 
 84 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 390 
 
 540 
 
 197 
 
 1,970 
 
 4,500 
 
 1,200 
 
 720 
 120 
 
 
 
 
 502 
 
 6,000 
 3,000 
 
 500 
 40 
 
 £33,137 £33,137 
 
 Carry forward . 
 
 £64,500 £70,000 
 
 The goods on hand at 31st December are valued at 
 £3500. 
 
276 ACCOUNTING IN THEORY AND PRACTICE 
 
 \\ 
 
 Write off 5 per cent from plant and machinery for 
 depreciation for the half-year. No interest on capital or 
 withdrawals is to be provided for. The profits are to be 
 apportioned as follows : — 
 
 Smart .... two-thirds. 
 Currie .... one-third. 
 
 5. From the following Trial Balance and particulars, 
 prepare Profit and Loss Account and Balance Sheet of 
 Messrs. Young, Scott, & Allan, Engineers, for the year ended 
 31st December. 
 
 Trial Balance 
 
 Goodwill . 
 Patents 
 
 Patterns and drawings 
 Plant and machinery 
 Stock and work in progress at 1st January 
 Cash at bank . 
 Cash in hand . 
 Sundry debtors 
 Capital — Young 
 Scott . 
 Allan 
 Sundry creditors 
 Withdrawals Account— Young 
 
 Scott 
 Allan 
 Discount .... 
 Salaries and commissions 
 
 Postages and stationery 
 
 Carriage and cartage 
 
 Rent, rates, and taxes 
 
 Insurances 
 
 Advertising 
 
 Repairs and renewals 
 
 Gas for lighting and power 
 
 Trade expenses 
 
 Purchases, materials 
 Do. goods 
 
 "Wages 
 
 Sales . 
 
 £200 
 
 100 
 
 110 
 
 1,500 
 
 1,400 
 
 600 
 
 40 
 
 800 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 100 
 
 70 
 
 60 
 
 400 
 
 60 
 
 70 
 
 150 
 
 17 
 
 25 
 
 70 
 
 85 
 
 30 
 
 2,500 
 
 4,000 
 
 3,800 
 
 £1,600 
 
 900 
 
 900 
 
 230 
 
 16 
 
 12,541 
 
 £16,187 £16,187 
 
 The plant and machinery (re-valued) amounted to 
 £1400, and the stock to £1300, on 31st December. 
 
 Make provision for discounts, £70, and write off £25 
 from goodwill. Credit interest on capital at 5 per cent, 
 and debit interest on withdrawals — Young, £3 ; Scott, £2 ; 
 and Allan, £1. 
 
 I 
 
 I 
 
 I 
 
 BRITISH CURRENCY 
 
 277 
 
 Young is entitled to half the profit, and Scott and Allan 
 to one-fourth each. 
 
 BKITISH CUEEENCY 
 
 Gold. 
 
 The unit of the coinage of the United Kingdom is the 
 gold sovereign. By the Act 56, Geo. III., cap. 68 (22nd 
 June 1816), one pound weight troy of gold is fixed in value 
 at £46 : 14s. 6d., and must be in fineness 22 carats of fine 
 gold and 2 carats of alloy. Until 1816 a guinea was the 
 standard gold coin, £46 : 14s. 6d. being equal to 44j 
 guineas. Twenty pounds troy of standard gold are coined 
 into 934|- sovereigns. An ounce troy of standard gold is 
 therefore coined into £3f|g, or £3:1 7s. lOjd., which is 
 called the price of an ounce of standard gold. One ounce of 
 pure gold on the same basis is therefore worth £4 : 4s. 1 1 Jd. 
 
 The metric weight of all the British coins is given in 
 the Coinage Act, 1870. The weight of the sovereign is 
 7*98805 grammes (123*27447 grains). The sovereign 
 thus contains 7*3224 grammes (113001 grains) of fine gold. 
 
 SUver. 
 
 The silver coins of this country are really token money, 
 and are not intrinsically worth their face value. Thus the 
 silver in one shilling is not worth one-twentieth of a 
 sovereign. The Mint regulations prescribe that sixty-six 
 shillings shall be coined out of a pound troy of standard 
 silver, of the fineness of eleven ounces two penny- weights of 
 fine silver and eighteen penny- weights of aUoy in every pound 
 weight troy; that is, sixty-six shillings are to contain 5760 
 grains of silver, thirty-seven fortieths fine, or 5328 grains 
 fine. An ounce of silver coined is thus worth 5s. 6d., and 
 a shilling weighs 87*2727 grains (5*6552 grammes). A 
 shilling thus contains 80*727 grains, or 5*231 grammes, of 
 fine silver. An ounce of silver uncoined is worth about 
 2s. 3 Jd. The Government thus make a large profit out of 
 
278 ACCOUNTING IN THEORY AND PRACTICE 
 
 the silver coinage. Leaving the Mint expenses out of 
 account, they practically buy silver at 2s. 3^. per ounce, 
 and sell it for 5s. 6d. ; in fact, this difference, which is 
 termed " seigniorage," is reckoned as a fruitful source of 
 revenue to the nation. 
 
 Bronze, 
 
 It is useful to remember that three pennies, five half- 
 pennies, and ten farthings each weigh an ounce avoirdupois 
 approximately. The halfpenny is one inch in diameter. 
 Bronze coins consist of a mixture of copper, tin, and zinc. 
 The penny weighs 145 '8 3 grains, or 9*45 grammes. These 
 bronze coins are also token coins, and their value as metal 
 bears a very small ratio to their value as coins. 
 
 i 
 
 Legal Tender. 
 
 A tender of payment is legal if made in coins issued by 
 the Mint, and not called in by proclamation, nor under the 
 minimum statutory weight. Gold coins are legal tender to 
 any amount ; silver coins to forty shillings, and bronze coins 
 to one shilling. The tender of Bank of England notes is 
 legal in England and Wales, except by the Bank of 
 England itself. The Bank must pay in gold if required. 
 
 INDIAN CUKKENCY 
 
 According to the Indian Mint Law, the rupee must 
 contain 165 grains of fine silver and 15 grains of alloy. 
 Since sixty-six shillings contain 5328 grains of fine silver, 
 a rupee, expressed in English shillings, is equivalent to 
 
 165 
 
 = 28. OJd. (nearly). 
 
 This would be the value of a rupee were silver selling at 
 5s. 6d. per ounce. With silver at 2s. 3d. or 2s. 4d. per 
 ounce, as at present, and the rupee at Is. 4d., it is evident 
 that rupees are valued at more than 50 per cent over the 
 value of the silver which they contain. 
 
 INDIAN CURRENCY 
 
 279 
 
 .The report on the trade of British India with foreign 
 countries is prepared by the Indian Statistical Bureau. The 
 official year closes on 31st March in each year, and the 
 statistics compiled are published as a Blue-book about the 
 end of January in the year following. The value of the 
 imports of India for the year 1897-98, stated in tens of 
 rupees (Rx.) was 89,896,406, and the value of the exports 
 Rx. 104,671,442. During the three years ending 31st 
 March 1898, the imports and exports have been as follows : — 
 
 Imports and Exports of British India 
 
 In Teas of Rupees. 
 
 IjfPORTS. 
 
 Merchandise . 
 
 Gold . 
 
 Silver 
 
 Total imports 
 
 Exports. 
 
 Foreign merchandise 
 
 re-exported . 
 Indian Merchandise . 
 Gold .... 
 Silver 
 
 Total exports 
 
 1895-96. 
 
 1896-97. 
 
 1897-98. 
 
 Rx. 69,316,395 
 6,029,269 
 8,329,716 
 
 Rx. 71,914,697 
 4,491,179 
 8,584,174 
 
 Rx. 69,420,120 
 
 7,281,222 
 
 13,195,064 
 
 Rx. 82,675,380 
 
 Rx. 84,990,050 
 
 Rx. 89,896,406 
 
 
 
 
 Rx. 4,717,516 
 
 109,545,624 
 
 2,503,317 
 
 1,728,984 
 
 Rx. 4,033,637 
 
 99,880,660 
 
 2,200,141 
 
 2,725,750 
 
 Rx. 3,751,172 
 
 93,786,101 
 
 2,372,733 
 
 4,761,436 
 
 Rx. 118,495,441 
 
 Rx. 108,840,188 
 
 Rx. 104,671,442 
 
 The net import of gold during the year ending 31st 
 March 1898, got by deducting the export from the import, 
 amounted to 732,035 ounces, and the value to Ex. 
 4,908,489; and of silver to 44,284,617 ounces, and the 
 value to Rx. 8,473,480. The receipts of both were 
 abnormally large, more especially looking to the fact of 
 the contraction of the export trade and the impoverishment 
 of the country by the famine. The purchases of gold and 
 silver were largely speculative, the rise in the rate of 
 exchange and in the value of the price of silver, which is 
 
28o ACCOUNTING IN THEORY AND PRACTICE 
 
 FRENCH CURRENCY^GERMAN CURRENCY 281 
 
 h 
 
 \ 
 
 shown in the table which follows, making the trade profit- 
 able. The following table gives the fluctuations in the 
 exchange value of the rupee during the four years ending 
 3l8t March 1898, as shown by the rate in Calcutta for 
 bank bills on demand. 
 
 Exchange Value of Rupee in Pence 
 
 Year. 
 
 Highest. 
 
 Lowest. 
 
 Difi'erence 
 per cent. 
 
 1894-95 .... 
 
 1895-96. 
 
 1896-97 .... 
 
 1897-98. 
 
 13, 13-16d. 
 
 14, 13-16d. 
 16, 21-32d. 
 16, l-16d. 
 
 12, 13.32d. 
 
 13, 3-32d. 
 
 13, 25-32d. 
 
 14, 9-32d. 
 
 10-18 
 11-60 
 11-97 
 11-09 
 
 The last column shows that the fluctuations have been 
 very large, but comparatively regular in extent, the average 
 difference between the highest and lowest values in each 
 year being slightly over 11 per cent 
 
 Simultaneously with the rise in the gold value of the 
 rupee there was a great fall in the gold price of silver, as 
 shown below : — 
 
 Bombay 
 London 
 
 1896-97. 
 
 1897-98. 
 
 Highest. 
 
 Lowest. 
 
 Highest. 
 
 Lowest. 
 
 R. 96| 
 Slid. 
 
 R.82 
 
 28, 5-16d. 
 
 R.82i 
 
 28id. 
 
 R.66i 
 23id. 
 
 UNITED STATES CURRENCY 
 
 The United States standard coin is an eagle, or ten- 
 dollar piece, consisting of 258 grains, or 16-71818 grammes 
 of gold, nine-tenths fine. A golden eagle thus contains 
 232-2 grains, or 15-0464 grammes, of fine gold. Since 
 £1 = 123*27447 grains of standard gold, twenty-two twenty- 
 fourths fine, the pure gold in £1 is equal to, expressed in 
 dollars, 4*86656, as follows: — 
 
 123*27447 x 
 
 £1 = 
 
 22 
 24 
 
 2^ 1. 
 10 "" 10 
 
 = $4-86656. 
 
 Equal to 49-32 pence for one dollar. 
 
 The silver dollar weighs 412*5 grains, or 26*729 
 grammes, of nine-tenths fine, and therefore contains 371*25 
 grains, or 24*0561 grammes, of fine silver. 
 
 FRENCH CURRENCY 
 
 By the French Mint Law 155 twenty-franc pieces are 
 coined from one kilogramme of gold, nine-tenths fine. 
 Since £1 contains 7*988 grammes of gold twenty -two 
 
 (22\ 
 7*988 x^J 
 
 grammes = 7*322 grammes. A franc contains in pure gold 
 L-v^ — Q^ X r^j 1000 grammes = *29032 grammes. Divid- 
 ing the pure gold in a sovereign by the pure gold in a 
 franc, we find that 
 
 £1 = 25*225 francs. 
 Equal to 9}d. for one franc. 
 
 The Monetary Union between France, Belgium, Switzer- 
 land, and Italy was formed in 1865, and was joined by 
 Greece in 1868. These countries have their gold and 
 silver coins of the same weight and fineness. The same 
 system is followed in Finland, Roumania, Servia, and Spain, 
 and partially in several of the South American Republics. 
 
 GERMAN CURRENCY 
 
 The mark is the unit of the German monetary standard 
 established by the law of 4th December 1871. There are 
 gold pieces of twenty, ten, and five marks each, called 
 respectively doppel- krone, krone, and halbe- krone. In a 
 ten -mark piece the fine gold weighs 3*5842 grammes. 
 
it 
 
 i 
 
 : 
 
 282 ACCOUNTING IN THEORY AND PRACTICE 
 
 The Mint par between this country and Germany is there- 
 fore — 
 
 £1 = M. 20-42945, 
 or 
 M. 20 = 19s. 6-95d. 
 M. 1 = lljd. 
 
 The thaler is equal to three marks. 
 
 The Arithmetic of the Exchanges. 
 
 The questions relating to exchange are best solved by 
 the elementary rules of arithmetic. The following are 
 given as examples : — 
 
 Find the sterling equivalent for Fr. 1674-25 at 25-22J. 
 
 We require to divide 1674*25 by 25'225. The simplest 
 way is to multiply the divisor and dividend by 4 to simplify 
 the division, and divide out by contracted division, as follows : — 
 
 FOREIGN MONE YS 
 
 283 
 
 25-225 
 
 4 
 
 100-900 
 
 1674-25 
 
 4 
 
 6697-00 
 
 100,900)6697000-(66-3726 
 605400 
 
 643000 
 605400 
 
 37600 
 30270 
 
 7330 
 7063 
 
 267 
 202 
 
 65 
 60 
 
 Answer, £66 : 7s. 5jd. 
 
 If the gold premium in Buenos Ayres is at 119*50, what 
 discount does the paper dollar stand at ? 
 
 If gold is at par, 100 $ paper = 100 $ gold. If at 119-50 
 premium, then 219*5 % paper = 100 $ gold. 
 
 1 » paper = 2^ = 1 $ gold, 
 
 119*5 
 and the discount = , = '544, 
 
 Jl 9'd 
 
 which is equal to 54*4 per cent. 
 
 FOREIGN MONEYS 
 
 I. Gold Coins. 
 
 Country. 
 
 Belgium 
 
 France 
 
 Greece 
 
 Italy 
 
 Switzerland 
 
 Finland 
 
 Roumania 
 
 Servia 
 
 Bulgaria 
 
 Spain 
 
 Gold Coins. 
 
 The Latin 
 Union 
 
 II 
 
 Russia 
 
 Argentine Republic 
 
 Austria-Hungary 
 
 tt 
 
 Brazil 
 
 Chili, Columbia, Uruguay 
 
 China 
 
 Denmark . 
 
 Egypt 
 
 German Empire 
 
 Great Britain 
 
 Holland and Java 
 
 II 
 
 India . 
 
 Japan 
 
 Mexico 
 
 Netherlands — see Holland. 
 
 Norway and Sweden — iee 
 
 Denmark. 
 Persia .... 
 Peru and Venezuela . 
 Portugal .... 
 Tunis .... 
 Turkey (Ottoman Empire) . 
 
 United States . 
 Uruguay — see Chili. 
 
 10 Francs 
 
 10 Francs 
 
 10 Drachmai 
 
 10 Lire 
 
 10 Francs 
 
 lO-Marka piece 
 
 10 Leys 
 
 10 Dinars 
 
 10 Leva 
 
 Doubloon of 10 escudos . 
 
 25-Peseta piece 
 
 Imperial of 15 roubles . 
 
 Argentine, or S-peso piece 
 
 Ducat ... 
 
 8 Florins, or gulden 
 
 10-Krone piece 
 
 10 Milreis 
 
 Doubloon, or 6-peso piece 
 
 10-Krone piece 
 100-Piastre piece (E£) . 
 Krone of 10 reichsmarks 
 Sovereign of 20 shillings 
 Ducat . 
 10-Florin piece 
 Mohur of 15 rupees 
 20-Yen piece 
 10-Peso piece 
 
 Toman of 200 sh&hts . 
 10-Sol piece . 
 Corda of 10 milreis 
 10-Piastre piece 
 Turkish pound of 100 
 
 piastres 
 Eagle of 10 dollars 
 
 Weight in 
 Grains. 
 
 Value in 
 Sterling. 
 
 49-78 £0 7 Hi 
 
 129*43 
 
 124*46 
 
 199*10 
 
 124-44 
 
 53*85 
 
 99*57 
 
 52-28 
 
 138*35 
 
 117-70 
 
 69*14 
 131*18 
 
 61*40 
 123-27 
 
 53-92 
 103-71 
 180-00 
 257*21 
 261*12 
 
 57*90 
 248-91 
 273-70 
 
 30 09 
 111-36 
 
 1 
 
 1 
 
 
 
 
 
 1 
 
 
 
 7i 
 19 10 
 11 9 
 19 10 
 
 9 4 
 15 lOi 
 
 8 
 
 2 
 
 18 
 
 4 
 
 5i 
 
 9 
 
 11 Oi 
 
 1 3i 
 
 9 H 
 
 10 
 
 9 4i 
 
 16 6i 
 
 1 9 2i 
 
 2 111 
 2 5i 
 
 9 5 
 
 1 19 7i 
 
 2 4 
 4 
 
 4| 
 
 18 0| 
 258*00 2 1 IJ 
 
j 
 
 284 ACCOUNTING IN THEORY AND PRACTICE 
 
 FOREIGN CURRENCIES 
 
 28: 
 
 Conntiy. 
 
 Belgium . 
 France . 
 Greece . 
 Italy . 
 Switzerland 
 Roumania 
 Servia 
 Bulgaria . 
 
 Spain 
 
 Russia 
 
 Argentine Republic 
 
 Austria-Hungary 
 
 Brazil 
 
 Chili, Columbia, Uruguay 
 
 China 
 
 Denmark 
 Egypt . 
 Finland . 
 German Empire 
 
 Great Britain . 
 
 Holland and Java . 
 India 
 
 Japan 
 
 Mexico ... 
 Netherlands— «c«Holland. 
 Norway and Sweden — see 
 
 Denmark. 
 Persia 
 Peru and Venezuela 
 
 Portugal . 
 
 Tunis ... 
 
 Turkey (Ottoman Empire) 
 
 United States . 
 
 Uruguay — tee Chili. 
 
 II. Silver Coins, 
 
 silver Coins. 
 
 1 Franc of 100 centimes "^ 
 1 Franc of 100 centimes 
 1 Drachma of 100 lepta 
 1 Lira of 100 centesimi 
 1 Franc of 100 centimes 
 1 Ley of 100 banis 
 1 Dinar of 100 paras 
 1 Leva of 100 stotinkis ; 
 
 i 5- Peseta piece 
 
 \ Peseta of 100 centimes . 
 
 /Rouble of 100 kopecks . 
 
 (Tchetvertak, or^-rouble 
 Peso of 100 centesimos . 
 Florin, or gulden of 100 
 
 kreutzer 
 Krone of 100 hellers 
 1 Milreis of 1000 reis . 
 1 Peso of 100 centavos . 
 Tael of 10 mace, or 100 
 candarin, or 1000 cash 
 1 Krone of 100 ore 
 1 Piastre 
 
 1 Marka of 100 penni . 
 1 Reichsmark, or mark of 
 100 pfennige 
 
 r Crown of 5 shillings 
 
 i Shilling of 12 pence 
 
 i Rixdaler of 2i florins . 
 
 \ Florin of 100 cents 
 Rupee of 16 annas, 64 
 
 pice, or 192 pies 
 1 Yen of 100 sen . 
 1 Peso of 100 centavos . 
 
 Khran of 20 sh^his 
 
 Sol of 10 dineros of 100 
 
 cents 
 Teston of 100 reis . 
 Piastre . 
 
 1 Piastre of 40 paras 
 Trade dollar . 
 Dollar of 100 cents 
 ^-Dollar of 50 cents 
 
 Weight In 
 QrainB. 
 
 Equivalent 
 
 Weight of 
 
 Standard 
 
 Silver in 
 
 Troy Ooncea. 
 
 77 2 
 
 385-8 
 77-2 
 
 308*6 
 77-1 
 
 385-8 
 
 190-5 
 
 77*2 
 196-8 
 385-8 
 583-3 
 
 115-7 
 21-6 
 80-0 
 85-7 
 
 436-4 
 87-3 
 385-8 
 154-3 
 180-0 
 
 416-0 
 417-8 
 
 71-0 
 385-8 
 
 0*145 
 
 0-782 
 0145 
 0-626 
 0-156 
 0-782 
 0*386 
 
 0*144 
 0*406 
 0-782 
 1*288 
 
 0*209 
 0-041 
 0-156 
 0*174 
 
 0*909 
 0*182 
 0*821 
 0*328 
 0*372 
 
 0*843 
 0-849 
 
 0*142 
 0*782 
 
 81-6 
 
 0*080 
 
 46-7 
 
 0*098 
 
 18-6 
 
 035 
 
 420 
 
 0*851 
 
 412-5 
 
 0-836 
 
 192*9 
 
 0-391 
 
 FOREIGN CURRENCIES 
 
 AND THEIR TREATMENT IN HOME ACCOUNTS 
 
 It is of very great importance that concerns having 
 their head ofi&ce in this country, but which practically do 
 all their business in foreign countries, or which have branches 
 in foreign countries, should convert the transactions which 
 take place in the various local currencies into pounds 
 sterling on a correct basis, with the view of these transac- 
 tions being recorded in the Home Book and being submitted 
 in the annual Abstract of Accounts to the proprietors of the 
 business. The low rate of interest obtainable in this 
 country has induced many large corporations, such as insur- 
 ance companies, to invest their money abroad, and it is of 
 the utmost importance tkat sound principles should be 
 adopted in incorporating these transactions in the Home 
 Books. Many companies are suffering to-day from the effect 
 of erroneous principles having been adopted as the basis of 
 converting their transactions in foreign currencies into 
 pounds sterling, and some concerns are still pursuing these 
 erroneous principles and putting off the evil day, which is 
 sure to come, when they will have to write down investments 
 in foreign countries to such a large amount as will shake 
 public confidence in them. Had sound principles of account- 
 ing been adopted, these investments would have appeared 
 each year in the Balance Sheet at their true market value, 
 and no drastic readjustment of values would have been 
 required. 
 
 A method often adopted is to embody periodically in the 
 Home Accounts in pounds sterling the abstract statements 
 received from foreign countries at the par rate of exchange, 
 but this par rate is not a fixed factor. Different nations 
 have different bases upon which their currency is founded. 
 Some, like our own country, have gold, others silver, some 
 both of these metals, and others unfortunately have a paper 
 currency. A gold basis has given the best results in the 
 
286 ACCOUNTING IN THEORY AND PRACTICE 
 
 FOREIGN CURRENCIES 
 
 287 
 
 I 
 
 il 
 
 I 
 
 I 
 
 past A gold currency does not fluctuate so much as one 
 based upon silver. Between two countries both using a 
 gold standard th^ variations in the rate of exchange are 
 comparatively slight, and are caused by the demand for 
 money varying. Between such countries the par basis of 
 conversion is usually sufficiently correct to be adopted in the 
 connection we are considering. Thus the par rate between 
 this country and the United States is that £1 is equivalent 
 to $4-86656 — or, expressed simply, the gold in 100,000 
 sovereigns could be made into 486,656 doUars. That this 
 theoretical value is sufficiently correct to use for most prac- 
 tical purposes is shown by the fact that a bill for £1000 
 payable on demand in New York realises about $4867, 
 more or less, according to the demand for money in 
 America. Even if the coinage of the whole worid was on a 
 gold basis, there would be a difference in the rate of ex- 
 change due to the laws of demand and supply. If America 
 had the same currency as we have, and in consequence of 
 the balance of trade and other transactions requiring America 
 to remit money here, then £1000 payable in this country 
 would be worth more to an American than £1000 payable 
 in America would be worth to us, simply on account of the 
 demand for money payable here being keener. 
 
 As an example of transactions between this country and 
 a country having a silver currency, suppose an insurance 
 company has investments in India. The interest on these 
 investments will be paid in rupees, and instead of being 
 remitted home may be re-invested in India. If these Indian 
 investments are valued at the nominal par rate of exchange, 
 namely 2s. for each rupee, the Balance Sheet of the com- 
 pany is altogether misleading, and the Profit and Loss 
 Account shows a profit which has not been earned. Thus, 
 if the Balance Sheet was prepared at a time when the rupee 
 was at Is. 3d., and the Indian investments amounted to 
 3,200,000 rupees, then the value of these investments at 
 2s. for each rupee would be £320,000, whereas according to 
 the market value these investments are worth, taking *the 
 rupee at Is. 3d., £200,000, so that the Balance Sheet 
 would show the assets too much by £120,000, and the 
 
 balance of profit shown by the Profit and Loss Account 
 would be overstated to the same extent. A convenient way 
 to accomplish the same end, instead of writing down the 
 Indian investments, is to have an "Exchange Fund to 
 reduce Indian investments to their actual value as measured 
 by the ruling market rate of exchange on date of balance." 
 This exchange fund would appear as a liability, and would 
 be formed by debiting the Profit and Loss Account with the 
 loss due to currency depreciation. 
 
 A company in this country, therefore, having either 
 their assets or liabilities in a silver country must reduce 
 these assets or liabilities to pounds sterling at the rate of 
 exchange ruling in the market at the date of the balance. 
 So far as this country is concerned, the currency of a silver 
 country is simply merchandise, and must be valued on the 
 same principles as those upon which we would take stock. 
 
 Consider next the case of a paper currency. In this 
 country £1000 in notes is supposed to be of the same value 
 as £1000 in gold, but most of us would set more value 
 upon the paper, and if we got our choice would prefer the 
 £1000 to be in notes, as it would be so much more easily 
 counted, handled, or transmitted. But in a country with a 
 paper currency — that is, where the Government have de- 
 clared that the paper notes issued by them shall be taken as 
 legal tender — gold always commands a premium, or, as it 
 might be better expressed, the paper currency is almost 
 always at a discount, and fluctuations are always occurring 
 according as the credit of the Government goes up and down. 
 These fluctuations in such countries as the Argentine Re- 
 public are very great, and practically reduce trade and 
 business to a speculation on the rise and fall of the paper 
 currency. Any one in such a country who incurs monetary 
 obligations may find that within a month he has to pay 
 double or three times what he had intended, in consequence 
 of an alteration in the currency. 
 
 Suppose a company having investments in the Argentine 
 Republic were to convert these investments at the par basis 
 of exchange, which is $5*04, equal to £1. Such a Balance 
 Sheet would be altogether misleading. The correct method 
 
il 
 
 288 ACCOUNTING IN THEORY AND PRACTICE 
 
 is to take the actual rate of exchange ruling at the date of 
 the Balance Sheet. Suppose, for example, that at the date 
 of the Balance Sheet the ruling rate of exchange was 250 
 — that is, gold was at a premium of 150 — then £1, far 
 from being equal to $5*04, would be worth very much more 
 expressed in dollars, namely, $5-04 x 2-50 = $12-6. $5*04, 
 instead of being equivalent to £1, would be equal to 8s. 
 
 Foreign Branches. 
 
 Where there are branches of a business in foreign coun- 
 tries, and the books of these branches are kept in the currency 
 of the country where the branch is, the Trial Balance sent 
 home will be in the currency of that country, and the first 
 thing which must be done with each item is to convert it 
 into sterling. The rate of exchange between this country 
 and other countries is continually changing, and it is often 
 difficult to determine the rate of exchange at which the con- 
 version should be made. The best plan seems to be to adopt 
 various rates of exchange, according to the nature of the 
 entry in the Trial Balance. 
 
 Rules for the Conversion of Foreign Currencies. 
 
 1. The items which make up the Head Office Account in the 
 
 Branch Ledger should be taken at the actual figures 
 which were current at the time the transactions took 
 place — that is, the conversion will be made by substi- 
 tuting the balance shown in the Head Office Ledger, 
 which is in sterling, for the balance shown in lihe 
 Branch Trial Balance in the foreign currency. 
 
 2. Profit and loss items representing transactions which have 
 
 taken place during the period covered by the accounts 
 should be taken at the average rate of exchange ruHng 
 during the period covered by the transactions. 
 
 3. Floating currency assets and liabilities at the rate of ex- 
 
 change current at the date of balancing the books, as 
 that is their actual value. 
 
 4. Fixed assets and liabilities should be taken in the first 
 
 instance at the rate of exchange ruling when they were 
 incurred, but care should be taken that full allowance 
 is made for any depreciation in value. 
 
 FOREIGN CURRENCIES 
 
 289 
 
 It is quite evident that if different rates of exchange are 
 used in converting the items in a foreign Branch Trial 
 Balance into sterling the totals of the two sides when so 
 converted will not agree. The difference should be entered 
 as either loss on exchange or profit on exchange, as the case 
 may be. The following may be taken as the Trial Balance 
 of a branch sent home from India : — 
 
 Trial Balance of Indian Branch as at 31st March. 
 
 stock on hand at 1st January 
 
 Purchases for period . 
 
 Sales for period . 
 
 Customers' Accounts . 
 
 Creditors* Accounts . 
 
 Bills receivable . 
 
 Bills payable 
 
 Wages and salaries . 
 
 General charges . 
 
 Rent, rates, and insurance 
 
 London office 
 
 Cash in bank 
 
 Cash on hand 
 
 Rs. 
 
 Rs. 
 
 8,000 
 20,000 
 
 60,000 
 
 5,000 
 
 1,000 
 
 800 
 
 2,000 
 
 1,000 
 500 
 
 98,300 
 
 40,000 
 35,000 
 11,800 
 
 11,500 
 
 98,300 
 
 The stock on hand at 31st March is valued at Es. 4000. 
 
 The above Trial Balance is forwarded to the head office 
 in London, and in order to include it in the firm's State of 
 Accounts at 31st March it must be converted into English 
 money. 
 
 The rate of exchange at 31st March is 14, which means 
 that the rupee is worth Is. 2d. The average rate of exchange 
 for the three months is 15, and the rate of exchange at 1st 
 January was 16. The ratio of the rupee to the sovereign 
 has been fixed at 15 to 1, thus giving it a value of Is. 4d. 
 It must be noted, however, that the Indian exchange is 
 always quoted in sterling per rupee as on p. 301, and for 
 book-keeping purposes it will be found most convenient 
 to express this sterling value in pence. Using these rates, 
 therefore, and following out the rules given for converting 
 the various items into English money, the Trial Balance will 
 be as follows : — 
 
290 ACCOUNTING IN THEORY AND PRACTICE 
 
 Trial Balance of Indlan Branch as at 31st March 
 (converted into English money). 
 
 Rate of 
 Bxchana^e 
 taken. 
 
 16 
 
 Stock on hand at 1st January . 
 
 £533 6 8 
 
 
 15 
 
 Purchases for period . 
 
 1250 
 
 
 15 
 
 Sales for period . 
 
 • • 
 
 
 £2500 
 
 14 
 
 Customers* Accounts 
 
 > • 
 
 3500 
 
 
 14 
 
 Creditors' Accounts 
 
 • 
 
 
 2041 13 4 
 
 14 
 
 Bills receivable . 
 
 • • 
 
 291 13 4 
 
 
 14 
 
 Bills payable 
 
 1 • ■ 
 
 
 688 6 8 
 
 15 
 
 Wages and salaries 
 
 , ^ 
 
 62 10 
 
 
 15 
 
 General charges 
 
 • • 
 
 50 
 
 
 15 
 
 Kent, rates, and insurance 
 
 125 
 
 
 — 
 
 London office (balance as appear- 
 
 
 
 
 ing in London books) 
 
 
 718 4 tf 
 
 14 
 
 Cash in bank .... 
 
 58 6 8 
 
 
 14 
 
 Cash on hand .... 
 
 29 3 4 
 
 
 £5900 
 
 £5948 4 6 
 
 
 Loss on exchange 
 
 48 4 6 
 
 
 £5948 4 6 
 
 £5948 4 6 
 
 From the above it will be seen that after converting the 
 rupees into English money the credit side is greater to the 
 extent of £48 : 4s. 6d. This balance is carried to the debit 
 of the Profit and Loss Account as " Loss on exchange." 
 
 The balance of Ks. 11,500 due to the London office as 
 appearing in the Trial Balance of the Indian branch is 
 taken as £718 :4s. 6d. when converting the rupees into 
 English money, as that is the figure appearing in the books 
 at London, where each cash transaction with the Indian 
 branch is recorded as it takes place. 
 
 The various Methods of treating Transactions in Rupees in 
 the Home Accounts illustraied. 
 
 To illustrate the treatment of rupees the following 
 transactions of Thomas Boss, an Indian merchant having a 
 warehouse in London, may be taken : — 
 
 I 
 
 FOREIGN CURRENCIES 
 
 291 
 
 Transactions of Indian Merchant 
 
 Date. 
 
 Jan. 1. 
 2. 
 
 14. 
 28. 
 Mar. 1. 
 14. 
 28. 
 
 Ruling Rate 
 
 of 
 Exchange. 
 
 31 
 
 18A 
 16 
 
 15^ 
 
 16 
 14i 
 
 HA 
 
 14 
 
 Cash belonging to Thomas Ross, 
 
 Merchant, of London and Calcutta 
 Remitted to representative in 
 
 Calcutta 
 
 Purchased for cash and sent to India, 
 
 goods for 
 
 Do. do. 
 
 Do. do. 
 
 Sold goods for cash in India . 
 
 Do. do. 
 
 Sold goods to Blake k Co. in India 
 
 on credit 
 
 Remitted to London 
 
 Goods on hand in India at cost 
 
 Expenses of Indian oflSce paid during 
 
 quarter 
 
 Paid expenses of London office for 
 
 quarter .... 
 
 Rs. 
 
 £5,000 
 
 -1,000 
 
 1,000 
 
 1,000 
 
 1,000 
 
 20,000 
 
 Rs. 20,000 
 
 Rs. 20,000 
 
 Rs. 40,000 
 
 £900 
 
 Rs. 10,000 
 
 £200 
 
 The average rate of exchange may be taken as 15. It 
 is required to show the profit on the consignment, the Profit 
 and Loss and other Accounts, and the Balance Sheet at 
 31st March, as they should appear in the London books. 
 
 First Method 
 Cash Transactions only recorded in London Books. 
 
 If the rise and fall in the price of the rupee be ignored 
 altogether, except in connection with actual ca^h transac- 
 tions and the balance at 31st March, the transactions might 
 be recorded in the London books as follows : 
 
 Notes. 
 Rs. 20,000 at 14 = 
 Rs. 40,000 at 14^ = 
 Rs. 10,000 at 15 
 Rs. 5,000 at 14 = 
 
 £1166 13 4 
 
 2343 15 
 
 625 
 
 291 13 4 
 
 To find the rupees due by the Calcutta representative 
 It 18 necessary to have an account for him in rupees as' 
 follows : — 
 
292 ACCOUNTING IN THEORY AND PRACTICE 
 
 FOREIGN CURRENCIES 
 
 293 
 
 Calcutta Representative. 
 
 Jan. 2. To London office 
 Mar. 1. ,, Sales 
 14. „ do. 
 
 . Rs. 15,000 
 20,000 
 20,000 
 
 Rs. 55,000 
 
 Mar. 28. By London office 
 31. ,, Expenses . 
 „ Balance . 
 
 . Rs. 40,000 
 
 10,000 
 
 5,000 
 
 Ba. 55,000 
 
 The Ledger Accounts in the books in London would be as follows : — 
 
 Ledger 
 
 Cash Account. 
 
 Jan. 1. To Capital Account 
 Mar. 28. „ Calcutta house 
 
 £5000 
 2343 15 
 
 « 
 
 
 
 
 £7343 15 
 
 JO 
 
 Jan. 2. By Calcutta house 
 
 do. 
 
 14. „ do. 
 
 28. ,, do. 
 
 Mar. 31. ,, Profit and 
 
 expenses 
 
 „ Balance . 
 
 Loss 
 
 £1000 
 
 1000 
 
 1000 
 
 1000 
 
 200 
 
 8143 15 
 
 £7343 15 
 
 Calcutta House. 
 
 Jan. 2. I Mar. 28. 
 
 To Cash £1000 | By Cash 
 
 „ do 1000 
 
 Jan. 14. 
 „ Cash 1000 
 
 Jan. 28. 
 M Cash 1000 
 
 Mar. 31 
 Ptofit and Loss .... 1827 
 
 •I 
 
 1 8 
 
 £5327 1 8 
 
 
 Mar. 81. 
 Profit and Loss, for expenses . 
 Balances : — 
 Cash due by agent in India 
 
 (Rs. 5000 at 
 
 14) . . £291 13 4 
 
 Due by Blake k 
 
 Co. (Rs. 20,000 
 
 at 14) . . 1166 18 4 
 Goods unsold at 
 
 cost . . 900 
 
 £2343 15 
 026 
 
 2358 6 8 
 £5327 1 8 
 
 Profit and Ia)ss Account. 
 
 Mar. 31. To Calcutta house, ex- 
 penses in India . 
 «, Cash, expenses in 
 London 
 
 .. Capital (net profit) 
 
 £625 
 
 200 
 
 £825 
 
 502 1 8 
 
 £1327 1 8 
 
 Mar. 31. By Calcutta house 
 
 £1327 1 8 
 
 £1327 1 8 
 
 Capital Account. 
 
 Mar. 81. To Balance . 
 
 Capital 
 
 £5502 1 8 
 
 £5i02 1 8 
 
 Jan. 1. By Cash 
 
 Mar. 31. „ Profit and Loss 
 
 £5000 
 502 1 8 
 
 £5502 1 8 
 
 LiabUUies, 
 
 Balance Sheet as at 31st March. 
 
 Assets, 
 
 £5502 1 8 
 
 £5502 1 8 
 
 Cash in London . 
 
 Cash due by representative in 
 
 India .... 
 Blake k Co., India . ] 
 
 GkKxis in India . 
 
 £3143 15 
 
 291 13 4 
 
 1166 13 4 
 
 900 
 
 £5502 1 8 
 
 By the above method of treatment it will be observed 
 that only the actual cash transactions are entered in the 
 London books and at the period of balancing, the assets so 
 far as in India have been converted into sterling at the rate 
 of exchange ruling on the day of balance, with the exception 
 of the goods, which have been taken at their cost price in 
 sterling. 
 
 Second Method 
 
 All Transactions recorded and converted at rate of Exchange 
 ruling when Transactions took place. 
 
 If each transaction is recorded as it takes place, and 
 the conversion is made at the rate of exchange ruling on the 
 day when the transaction took place, the effect of changes 
 in the rate of exchange is seen. The assumption is thus 
 made that when a merchant purchases goods for export to 
 India he expects that the rate of exchange will remain the 
 same, and by this method the merchant tells at once what 
 portion of his loss or profit is due merely to the rate of 
 exchange rising or falling. 
 
4 
 
 294 ACCOUNTING IN THEORY AND PRACTICE 
 
 Ledge K 
 Cash. 
 
 FOREIGN CURRENCIES 
 
 Jan. 1. To Capital Account 
 Mar. 28. ,, Calcutta house 
 
 £5000 
 2343 15 
 
 £7343 15 
 
 Jan. 2. By Calcutta house 
 ,, Consignment . 
 14. ,, do. 
 
 28. ,, do. . 
 
 Mar. 31. ,, Expenses (London) 
 ,, Balance • • « 
 
 £1000 
 
 1000 
 
 1000 
 
 1000 
 
 200 
 
 
 
 
 
 
 
 8143 15 
 
 
 
 
 
 
 
 
 £7343 15 
 
 Calcutta House. 
 
 
 Rs. 
 
 Exchange. 
 
 
 Mar. 28. 
 
 Rs. 
 
 Bxchan;:^ 
 
 
 Jan. 2. 
 
 
 
 £ 5. d. 
 
 
 
 £ 9. d. 
 
 To Cash 
 
 15,000 
 
 16 
 
 1000 
 
 By Cash 
 
 40,000 
 
 14^ 
 
 2343 15 
 
 Mar. 1. 
 
 
 
 
 ,, Expenses for 
 
 
 
 
 ,, Consignment . 
 
 20,000 
 
 15 
 
 1250 
 
 quarter 
 
 10,000 
 
 15 
 
 625 
 
 Mar. 14. 
 
 
 
 
 Mar. 31. 
 
 
 
 
 „ Consignment . 
 
 20,000 
 
 14i 
 
 1208 6 8 
 
 ,, Balance 
 
 ,, Exchange, loss 
 
 5,000 
 
 14 
 
 291 13 4 
 197 18 4 
 
 
 65,000 1 
 
 3458 6 8 
 
 55,000 
 
 
 3458 6 8 
 
 
 
 
 Consignment Account. 
 
 
 
 
 
 
 Mar 1. By Calcutta house 
 14. ,, do. 
 28. „ Blake k Co., 
 
 Calcutta 
 81. ,, Balance (cost 
 price of goods 
 unsold) . 
 
 R«. 
 
 Exchange. 
 
 
 Jan. 2. To Cash 
 
 14 „ do. 
 
 28 „ do. 
 Mar. 31. „ Profit and Loss 
 
 £ 
 
 1000 
 1000 
 1000 
 1530 
 
 5. 
 
 
 
 
 4 
 
 d. 
 
 
 
 
 2 
 
 20,000 
 20,000 
 
 20,000 
 
 15 
 14i 
 
 14A 
 
 £ «. d. 
 1250 
 1208 6 8 
 
 1171 17 6 
 900 
 
 
 4530 
 
 4 
 
 2 
 
 
 
 
 4530 4 2 
 
 Blake & Co., Cakutta, 
 
 Mar. 28. 
 To Consignment 
 
 Rs. 
 
 20,000 
 
 Exchange. 
 
 HA 
 
 
 
 
 £ 
 
 1171 
 
 8. 
 
 17 
 
 d. 
 6 
 
 1171 
 
 17 
 
 6 
 
 Mar. 31. 
 By Balance . 
 ,, Exchange, 
 loss 
 
 £ s. d. 
 
 1166 13 4 
 
 5 4 2 
 
 1171 17 6 
 
 295 
 
 Exchange Account. 
 
 Mar. 31. To Calcutta 
 
 house . £197 18 4 
 , Blake k 
 
 Co. . 5 4 2 
 
 Mar. 31. By Profit and 
 
 Loss . £203 2 6 
 
 £203 2 t> 
 
 £203 2 6 
 
 Thomas Boss, Capital Account. 
 
 Mar. 31. To Balance . £5502 1 8 
 
 £5502 1 8 
 
 Jan. 1. By Cash . £5000 
 Mar. 31. „ Profit and 
 
 Loss . 502 1 8 
 
 £5502 1 8 
 
 Expenses. 
 
 Mar. 31. 
 To Calcutta house 
 „ Cash (London) 
 
 Ra. 
 
 10,000 
 
 Exchange. 
 
 15 
 
 
 
 
 £ 
 
 8. 
 
 d. 
 
 625 
 
 
 
 
 
 200 
 
 
 
 
 
 825 
 
 
 
 
 
 Mar. 31. 
 By Profit and Loss . £825 
 
 £825 
 
 Profit and Loss Account. 
 
 Mar. 31. To Expenses . £825 
 „ Exchange, 
 
 loss . 203 2 6 
 
 Mar. 31. By Consign- 
 ment . . £1580 4 2 
 
 £1028 2 6 
 „ Capital (net 
 
 profit) . 502 1 8 
 
 
 £1530 4 2 
 
 £1530 4 2 
 
 The Balance Sheet is the same as hy the first method. 
 
 From the Profit and Loss Account the merchant learns 
 that the adverse fluctuations in the value of the rupee have 
 cost him £203 :2s. 6d. 
 
 Third Method 
 
 Conversion at Average rate of Exchange. 
 
 If all the transactions, except cash transactions, between 
 the two countries are converted into sterling at the average 
 
296 ACCOUNTING IN THEORY AND PRACTICE 
 
 rate of exchange during the period such transactions took 
 place, and the balances at the close of the period are con- 
 verted at the rate of exchange ruling on that date, the loss 
 on exchange is greater although the net profit is brought 
 out the same. 
 
 Cash Account. 
 
 Jan. 1. To Capital . . £5000 
 Mar. 2S. ,, Calcutta hou.>e . 2343 15 
 
 £7343 15 
 
 Jan. 2. By Calcutta house . £1000 
 
 14. 
 
 28. 
 
 Mar. 31. 
 
 , , Consignment 
 
 ,, do. 
 
 , , do. 
 
 ,, Profit and Loss 
 expenses 
 (London) 
 
 „ Balance 
 
 1000 
 1000 
 1000 
 
 
 
 
 
 
 200 
 3143 15 
 
 
 
 
 
 
 
 
 
 £7343 15 
 
 THE FOREIGN EXCHANGES 
 
 297 
 
 Blake & Co.j Calcutta. 
 
 Mar. 28. 
 
 To Consignment 
 
 Bs. 
 
 20,000 
 
 Bxchange. 
 
 Mar. 31. To Calcutta house 
 „ Blake* Co. 
 
 15 
 
 £ s. 
 
 d. 
 
 1250 
 
 
 
 1250 
 
 
 
 Mar. 31. 
 By Balance . 
 ,, Exchange, loss 
 
 Rs. 
 
 20,000 
 
 Exchange. 
 
 14 
 
 ExcJiange Account. 
 
 £239 11 8 
 83 6 8 
 
 £322 18 4 
 
 Mar. 31. By Profit and Loss 
 
 £ 8. d. 
 
 1166 13 4 
 
 83 6 8 
 
 I 
 
 1250 
 
 . £322 18 4 
 
 £322 18 4 
 
 I 
 
 Jan. 2. 
 To Cash 
 
 Mar. 1. 
 „ Consignment 
 
 Mar. 14. 
 „ Consignment 
 
 Jan. 2. To Cash . 
 
 14. ,, do. . 
 
 18. „ 
 Mar. 31. „ 
 
 Calcutta House, 
 
 Rs. 
 
 16,000 
 20,000 
 20,000 
 
 Bxchange. 
 
 16 
 15 
 15 
 
 £ 5. d. 
 
 1000 
 
 1250 
 
 1250 
 
 55,000 
 
 3500 
 
 
 Rk. 
 
 Exchange. 
 
 Mar. 28. 
 By Cash . 
 
 40,000 
 
 14A 
 
 £ ». d. 
 2343 15 
 
 ,, Profit and Loss 
 
 
 
 
 expenses 
 
 (India) 
 Mar. 31. 
 ,, Balance 
 ,, Exchangf, 
 
 loss . 
 
 
 
 
 10,000 
 6,000 
 
 15 
 14 
 
 625 
 291 13 4 
 239 11 8 
 
 
 55,000 
 
 
 3500 
 
 Consignment Account. 
 
 £ 8. d. 
 
 . 1000 
 
 . 1000 
 
 do. . . . 1000 
 
 Profit and Loss . 1650 
 
 4650 
 
 
 Rs. 
 
 Exchange. 
 
 
 Mar. 1. By Calcutta house 
 
 M do. 
 
 28. „ Blake & Co. . 
 
 31. ,, Balance (cost 
 
 price of goods 
 
 unsold) 
 
 20,000 
 20,000 
 20,000 
 
 15 
 15 
 15 
 
 £ 8. d. 
 1250 
 1250 
 1250 
 
 900 
 
 
 4650 
 
 Profit and Loss Account. 
 
 Mar. 31. 
 To Calcutta house, 
 
 expenses 
 „ Cash, expenses 
 in London . 
 
 „ Exchange, loss 
 
 Rs. 
 
 10,000 
 
 Exchange. 
 
 16 
 
 £ 8. d. 
 
 »i 
 
 Capital (net 
 profit) . 
 
 625 
 
 
 
 
 
 200 
 
 
 
 
 
 825 
 322 
 
 
 
 18 
 
 
 
 4 
 
 1147 
 
 18 
 
 4 
 
 502 
 
 1 
 
 8 
 
 1650 
 
 _L 
 
 
 
 Mar. 31. 
 By Consignment 
 
 .£1650 
 
 £1650 
 
 THE FOREIGN EXCHANGES 
 
 The foreign exchanges are the means by which the 
 indebtedness of commercial nations is discharged. The 
 theory of the foreign exchanges deals with the principles 
 upon which foreign bills are drawn, dealt in, and settled. 
 The forei^Ti exchanges are founded on the trade of 
 
298 ACCOUNTING IN THEORY AND PRACTICE 
 
 this country with other countries. The imports of this 
 country amount to about £450,000,000, and the exports to 
 £300,000,000. Besides the trade of the country there 
 are other causes of indebtedness which require to be 
 settled. Thus loans may be granted to the governments or 
 individuals of foreign countries, and the settlement of these 
 loans with interest upon them will be effected by means of 
 the exchange between the two countries. 
 
 The theory of the foreign exchanges may be very 
 simply illustrated, and is not difficult to understand. 
 
 Tlius, suppose that X is an importer and Y an exporter 
 in New York, and that A is an importer and B an exporter 
 in London, and that Y sends goods to A, and B sends goods 
 to X, to the value of £1000. The result of these transac- 
 tions, which is shown on the diagram, is that X is due B 
 £1000, and A is due Y £1000, and to settle their in- 
 debtedness X would require to ship £1000 in gold from 
 New York to London, and A would require to ship £1000 
 in gold from London to New York. To save the expense 
 of this shipment of gold, all that is necessary is for X to 
 hand his neighbour Y in New York £1000 in gold, and for 
 A to hand his neighbour B in London the £1000 in 
 gold. This may be effected in various ways. The usual 
 way is for Y to draw a bill on A and transfer it to X by 
 endorsement, receiving the £1000 or its exchange equivalent 
 from him for it. X sends the bill to B in payment of his 
 debt, and B collects the cash from A, thereby satisfying all 
 parties. This illustrates the essence of the transaction, but 
 in practice the course adopted would differ in respect that 
 the parties would have no direct dealings, they would deal 
 through the bankers with the same ultimate result. The 
 debt of A in London is "drawn for" by his New York 
 creditor, and the debt due to B in London is " remitted for " 
 by his New York debtor. The majority of transactions 
 with this country are so settled. The following diagram, in 
 which the principle of Ledger Accounts is utilised, shows 
 the whole transaction very clearly : — 
 
 THE FOREIGN EXCHANGES 
 
 299 
 
 Foreign Exchanges Diagram 
 
 NEW YORK. 
 
 X, 
 
 Importer. 
 
 Ih. 
 
 Or, 
 
 Receives goods from B. 
 
 ToB. 
 
 T. 
 
 exporter. 
 
 Ih. 
 
 Cr. 
 
 Pays cash to Y for bill, 
 and sends bill to B. 
 
 Sends goods to A. 
 
 By A. 
 
 Draws upon A, and 
 endorses the bill to X 
 in exchange for ita 
 value. 
 
 LONDON. 
 
 A, 
 
 Importer. 
 
 Dr. 
 
 Cr. 
 
 Receives goods from Y 
 
 ToY. 
 
 B. 
 exporter. 
 
 Dr. 
 
 Cr. 
 
 Sends goods to X. 
 
 ByX. 
 
 By Y. 
 
 ToX. 
 
 
 I 
 
 Pays B cash for bill. 
 ByB. 
 
 Receives bill from X, 
 and gets the cash 
 from A. 
 
 To A. 
 
 The result would have been the same if, instead of Y 
 drawing upon A, B had drawn upon X. In this case the 
 settlement would have been effected as follows : — 
 
 B draws upon X. 
 
 B receives cash from A, to whom be gives the bill. 
 
 A sends the bill to Y. 
 
 Y receives the bill, and gets cash from X in extinction of it. 
 
 It has been supposed in this illustration that the in- 
 debtedness is of the same amount. If it is different, gold 
 must be exported by the country having most to pay. 
 
 In consequence of the stability of our currency, and the 
 fact that London is the centre of exchange, and from other 
 causes, it is more usual for foreign bills to be drawn on 
 London than for the exporter here to draw bills on his 
 
300 ACCOUNTING IN THEORY AND PRACTICE 
 
 foreign customers. The exchange therefore is practically 
 done by means of bills drawn abroad and accepted and 
 paid in London, and bills received from abroad and collected 
 in London. 
 
 Mint Par, 
 
 The Mint par of exchange, sometimes called the par of 
 exchange, is the intrinsic value of the currency unit of one 
 country expressed in terms of the currency unit of another 
 country using the same metal as the standard of exchange. 
 There is thus no fixed Mint par of exchange between two 
 countries having different metals as their standards where 
 these metals vary in value. 
 
 The most important pars are the following : — 
 
 France, francs 25 '22 J. 
 Germany, Marks 20-43. 
 United States, dollars 4-86f. 
 
 
 The Course of the Exchanges, 
 
 The rate of exchange between this country and other 
 countries would normally be the ratio which their standard 
 coins bear to ours intrinsically, but on account of the 
 variations in the indebtedness of the countries to one another 
 with the consequent variations in the demand for and supply 
 of bills to settle that indebtedness, together with other 
 less potent influences, the course of the exchanges between 
 the countries is continually fluctuating. Cheques and 
 sight bills are known as the Short Exchange, and their 
 price fluctuates with the balance of indebtedness ; the Long 
 Kate is the short rate plus interest to the date of maturity 
 of the bill. Each day the Times, the Scotsman, and other 
 papers publish a statement of the rates of exchange which 
 were current the day preceding. The following is such a 
 statement, the words in italics having been added to explain 
 the figures. 
 
 THE FOREIGN EXCHANGES 
 
 301 
 
 THE EXCHANGES 
 London, Tuesday Evening, 29th August 1899. 
 
 The following are the rates of exchange on London, cabled from the 
 
 chief commercial centres : — 
 
 Paris, cheqnes . 
 Bnusels, cheques 
 Geneva, sight 
 Berlin, cheques . 
 Vienna, sight 
 Amsterdam, sight 
 Italy, sight 
 Athens, sight . 
 Madrid, sight . 
 Lisbon, sight 
 St. Petersburg, 3 months 
 Rio, ninety days 
 Valparaiso, ninety days 
 Argentine gold premium 
 
 To-day. 
 
 25-24 
 
 26 -29^ 
 
 25-36^ 
 
 20-47i 
 
 12-06i 
 
 12-10} 
 
 27-13 
 
 38-40 
 
 Nom. 
 
 36|d. 
 
 93-80 
 
 8d. 
 
 15id. 
 
 126-00 
 
 Previoua 
 
 25-24 
 
 25-30 
 
 25-36i 
 
 20-47} 
 
 12-06 
 
 12-lOi 
 
 27-14 
 
 38-40 
 
 Nom. 
 
 36Jd. 
 
 93-90 
 
 8d. 
 
 15 19 32d. 
 
 126-80 
 
 francs and centimes per £. 
 
 do. 
 
 do. 
 reichsmarks and pfennigs per £. 
 florins and Tcreuzers per £. 
 guilders and slivers per £. 
 lire and centesimi per £. 
 drachmai and lepta per £. 
 {usually quoted in pence per peseta), 
 pence per milreis 
 roubles per £10. 
 pence per milreis, 
 pence per peso, 
 see page 282. 
 
 The rates telegraphed from the East were :- 
 
 Bombay teleg. trans. . 
 Calcutta do. 
 H.-Kong, 4 mos.* bills 
 
 Do., teleg. transfers 
 Shanghai, 4 mos.* bills 
 
 Do., teleg. transfers 
 Yokohama, 4 mos.' bills 
 
 Do., teleg. transfers 
 Singapore, 4 mos.' bills 
 Manila, 4 mos.' bank bills 
 
 To-day. 
 
 Is. 3 31-32d. 
 Is. 3 31-32d. 
 Is. 11 ll-16d. 
 Is. Hid. 
 2s. 8id. 
 2s. 8}d. 
 2s. ll-16d. 
 2s. Oid. 
 Is. 11 15-16d. 
 2s. Oid. 
 
 Previous, 
 
 Is. 3 31-32d. 
 Is. 4d. 
 
 Is. 11 ll-16d. 
 Is. Hid. 
 2s. £.\d. 
 2s. Sjd. 
 2s. ll-16d. 
 2s. Oid. 
 28. Od. 
 2s. Oi 
 
 per rupee. 
 
 do. 
 per dollar. 
 
 do. 
 per tael. 
 
 do. 
 per dollar, 
 
 do. 
 
 do. 
 
 do. 
 
 The rates for merchants' bills on the East were 
 
 India, 80 days . 
 Hong-Kong, 60 days 
 Shanghai, 60 days 
 Straits, 60 days . 
 Japan, do. 
 
 To-day. 
 
 Is. 3 13-16d. 
 Is. lid. 
 28. 7id. 
 Is. ll|d. 
 23. OJd. 
 
 Previous. 
 
 Is. 3 13-16d. 
 Is. lid. 
 2s. 7M. 
 is. llid- 
 2s. 0|d. 
 
 per rupee 
 per dollar, 
 per tael. 
 per dollar, 
 do. 
 
302 ACCOUNTING IN THEORY AND PRACTICE 
 
 INCOME TAX 
 
 303 
 
 INCOME TAX 
 
 Under the Income Tax Acts persons with incomes 
 beyond £160 per annum have to pay tax on their net 
 income. The tax is to a certain extent graduated, and the 
 following table shows the abatements allowed : 
 
 Income Tax Table of Exemption and 
 
 Abatement 
 
 Income 
 
 Abatement. 
 
 Exceeding. 
 
 Not Exceeding. 
 
 £160 
 400 
 500 
 600 
 
 £160 
 400 
 500 
 600 
 700 
 
 Exempt 
 
 £160 
 
 150 
 
 120 
 
 70 
 
 The Government year closes on 5th April, and the 
 income tax is charged for the year ending on that date. 
 
 For the purposes of the Income Tax Acts incomes are 
 classified under five Schedules, according to the various 
 sources from which they are derived, as follows : 
 
 Schedule A. Ownership of land and buildings. 
 B. Occupation of land. 
 ., C. Interest out of public funds, etc. 
 ., D, Profits of trade. 
 
 E. Salaries, etc., payable out of 
 revenue or by public companies. 
 
 the public 
 
 Schedule A. 
 
 Under Schedule A is taxed all income from the owner- 
 ship of land and other heritable property in the United 
 Kingdom. It is the owner's tax, and is ultimately paid by 
 the landlord. 
 
 One of the leading principles in the levying of income 
 tax is to tax all income at its source. By this means 
 
 many small collections of the tax are avoided, and there is 
 less likelihood of any person evading payment of his fair share. 
 As an illustration of the effect of taxing income at its 
 source, and how matters adjust themselves so that no one 
 need pay more than his proper share of the tax, take the 
 case of a house proprietor, A, the owner of houses having 
 a rental of £1380 a year. Suppose that a feu-duty of 
 £100 a year is payable by A to B in respect of part of the 
 property, and that there is a bond over the property in 
 favour of C, to whom £300 a year is payable in respect of 
 
 interest. 
 
 The income-tax assessors charge A on the net annual 
 value of his property, which is reckoned at the gross rental 
 minus one-sixth to cover the annual repairs, and also minus 
 an allowance for owners* rates. 
 
 A therefore pays tax, say on £1380 - (£230 + £150) . 
 He. however, deducts the tax in paying the feu- 
 duty of . . . . ^100 
 and the mortgage interest of . 300 
 
 He is, therefore, really only taxed on his net income . 
 B pays tax, through the deduction being made from the 
 
 feu-duty payable to him, on • • 
 
 C pays tax, through the deduction having been made 
 
 from the interest payable to him, on . . . 
 
 So that, in place of there being three collections, 
 there is in this case only one collection of 
 tax on ...... 
 
 £1000 
 
 400 
 
 £600 
 
 100 
 
 300 
 
 flOOO 
 
 If the only income of B is the feu-duty of £100, he would 
 be entitled to claim repayment of the tax from the Inland 
 Eevenue, his income being under £160. If the only income 
 of C is the £300 of interest, ne would be entitled to 
 claim repayment of the tax upon £160. 
 
 Schedule B. 
 
 Under Schedule B is included the income from the 
 occupation of lands. The farmer has the right to say 
 whether he will be assessed under this Schedule or under 
 
304 ACCOUNTING IN THEORY AND PRACTICE 
 
 Schedule D. If lie elects to be assessed under this Schedule 
 his income is estimated at one-third of the rent of his fann. 
 The farmer may, however, elect to be assessed under 
 Schedule D upon his actual profits. If a farmer's actual 
 income does not amount to the sum at which he is assessed, 
 he may claim repayment of the tax over-paid. The 
 occupiers of gardens and pleasure-grounds are assessed under 
 this schedule. 
 
 Schedule C. 
 
 Under Schedule C is assessed all income in respect of 
 interest and annuities payable out of any Grovernment funds. 
 All interests and annuities payable by local authorities and 
 secured on rates are subject to deduction of tax at the rate 
 ruling at the date of payment. 
 
 Schedule D. 
 
 Under Schedule D are included the profits of trades, 
 professions, employments, or vocations carried on by persons 
 residing in the United Kingdom, or carried on in the United 
 Kingdom by persons resident elsewhere. Ordinary business 
 profits are determined on the basis of the average annual 
 profit for the three years ending on the date of the balancing 
 of the books of the business, which is immediately previous 
 to the 5th April commencing the year of assessment. If the 
 business has been commenced within three years, the assess- 
 ment is upon the average from the period of commencing the 
 same. If the business has been commenced within the year 
 of assessment, the profits have to be estimated according to 
 the best knowledge and belief of the taxpayer. 
 
 In submitting the Profit and Loss Account of a con- 
 cern to the assessors, sometimes special Profit and Loss 
 Accounts are prepared containing only the items which 
 should be included according to the principles laid down 
 by the assessors. The better method is to submit copies 
 of the Profit and Loss Accounts of the concern as they 
 appear in the business books, and in an appended state- 
 ment show any deductions or additions which require to 
 
 INCOME TAX 
 
 305 
 
 be made to give effect to the requirements of the assessors. 
 There is submitted such a statement showing various deduc- 
 tions and additions required to adjust the profit shown in 
 the Profit and Loss Accounts for the three years to the 
 assessable profit under the Income Tax Acts. 
 
 Schedule E. 
 
 Schedule E is in respect of income derived from public 
 offices and employments of profit. The deductions allowed 
 from the gross income are the actual expenses incurred in 
 the performance of the duties of the office. 
 
 EEID & CO., ENGINEERS 
 Abstract of Profit and Loss Accounts 
 
 By Contracts and sales . 
 „ Rents received . 
 
 Gross income 
 
 Income. 
 
 1899. 
 
 1900. 
 
 190L 
 
 £31,000 
 200 
 
 £38,000 
 200 
 
 £50,000 
 200 
 
 £31,200 
 
 £38,200 
 
 £50,200 
 
 Expenditure. 
 
 To Material . 
 
 „ Wages and salaries 
 
 ,, Charges . 
 
 ,, Rent, rates, taxes, etc 
 
 ,, Discount . 
 
 ,, Depreciation 
 
 ,, Interest on mortgage 
 
 , , Interest on capital 
 
 ,, Salaries to partners 
 
 ,, Profit allocated to 
 partners 
 
 1899. 
 
 1900. 
 
 1901. 
 
 £13,000 
 
 
 
 
 
 £18,000 
 
 
 
 £25,000 
 
 12,000 
 
 
 
 
 
 13,000 
 
 
 
 17,600 
 
 700 
 
 
 
 
 
 800 
 
 
 
 900 
 
 600 
 
 
 
 
 
 500 
 
 
 
 500 
 
 500 
 
 
 
 
 
 600 
 
 
 
 700 
 
 400 
 
 
 
 
 
 500 
 
 
 
 600 
 
 300 
 
 
 
 
 
 200 
 
 
 
 100 
 
 500 
 
 
 
 
 
 600 
 
 
 
 700 
 
 1,000 
 
 
 
 
 
 1,000 
 
 
 
 1,000 
 
 £29,000 
 
 
 
 
 
 £35,200 
 
 
 
 £47,100 
 
 2,200 
 
 
 
 
 
 3,000 
 
 
 
 3,100 
 
 £31,200 
 
 
 
 
 
 £38,200 
 
 
 
 £50,200 
 
3o6 ACCOUNTING IN THEORY AND PRACTICE 
 
 Statement showing Assessable Income 
 
 Profit allocated to partners 
 as above 
 
 Add— 
 
 Salaries to partners . 
 Interest on capital . 
 Interest on mortgage 
 Depreciation . 
 
 Deduct — 
 
 Rents received, upon which 
 tax already deaucted . 
 
 Depreciation allowed by 
 assessors 
 
 Assessable income 
 
 1899. 
 
 £2200 
 
 1000 
 
 600 
 
 300 
 
 400 
 
 1900. 
 
 1901. 
 
 £3000 £3100 
 
 £4400 
 
 1000 
 
 600 
 
 200 
 
 500 
 
 1000 
 
 700 
 
 100 
 
 600 
 
 £.')300 
 
 £200 
 300 
 
 £200 
 400 
 
 £5500 
 
 £500 
 
 £3900 
 
 £600 
 
 £200 
 400 
 
 £4700 
 
 £600 
 
 £4900 
 
 Equal to an average of £4500 per annum. 
 
 In preparing the Return the rules and regulations pre- 
 scribed by Income Tax law and practice must be observed, 
 of which the following are the most frequently met with, and 
 which are illustrated in the foregoing example:— 
 
 1. The average is for the three years completed before 
 the commencement of the assessment year; the foregoing 
 statement was for the Return for 1902-3. 
 
 2. Salaries to partners and interest on capital are not 
 proper charges against business profits ; they are allocations 
 or appropriations of profits. 
 
 3. Interest on mortgage, and also feu-duties and other 
 annual payments from which tax is deductable at the time 
 of payment, must be included in the Return, so that they 
 may be assessed, and the tax thereon is recovered by deduction 
 from the termly payments of these burdens. 
 
 4. The rates of depreciation charged against Profit and 
 Loss Account for each year by different firms differ widely, 
 and accordingly the surveyors require to be satisfied regarding 
 the amounts written off from year to year. The practice is 
 
 INCOME TAX 
 
 307 
 
 to disallow the provisions made by the firm and to fix an 
 amount estimated at varying rates according to the nature 
 of the assets. 
 
 5. All bad debts actually written off and discounts 
 actually allowed are admissible charges against Profit and 
 Loss Account, but provisions and reserves against these items 
 for the future are not proper deductions. 
 
 6. If property tax under Schedule A or income tax under 
 Schedule D be included under the rent and taxes heading 
 in the firm's books, the items must also be disallowed. 
 
 7. If the firm own their business premises they may 
 charge their Profit and Loss Account with the gross rent as 
 if they were tenants, in which case they must not also charge 
 repairs and owners* taxes ; or they may charge repairs and 
 owners' taxes and also deduct the net annual value on which 
 they are assessed under Schedule A This last item is one 
 which is frequently overlooked, thus resulting in the firm 
 being twice assessed for it — under Schedule A and again 
 Schedule D. 
 
 8. Rents of property owned by the trader, and dividends 
 and interests from investments held by him, should be 
 eliminated from his business Profit and Loss Account, as 
 they are already taxed, and should not therefore be included 
 to augment his assessable profit under Schedule D. 
 
 Items which have been charged to Profit and Loss Account, 
 but which are not admissible as deductions, should be written 
 back by being added to the profit brought out in the accounts, 
 and items which are allowable as deductions, but which have 
 not been charged in the accounts, should be deducted, as 
 shown in the example. 
 
 Since the introduction of the relief granted to earned 
 incomes by the Finance Act of 1907 a firm must be assessed 
 in its corporate capacity. It must be remembered, neverthe- 
 less, that the tax is one falling upon the incomes of the 
 individual partners, and it must accordingly be apportioned 
 between the partners and not be charged in the firm's Profit 
 and Loss Account. If it be so charged the effect is to 
 allocate the burden between the partners in the proportions 
 in which they share the net profits, notwithstanding that 
 
3o8 ACCOUNTING IN THEORY AND PRACTICE 
 
 INCOME TAX 
 
 309 
 
 li 
 
 there might be salaries to partners and varying interests 
 on capital, besides other disturbing factors at work. The 
 apportionment in each case is one for careful consideration, 
 and the principles to be kept in view are— (1) The tax paid 
 must be first subjected to deduction in respect of the tax 
 recovered from other parties on payment of feu-duties, 
 interests, etc. ; (2) tax on salaries to partners and on interest 
 on capital must also be deducted from the tax paid and 
 debited directly to the accounts of the partners credited 
 with such salaries and interest ; (3) the balance of the tax 
 then falls to be allocated and debited to the partners' accounts 
 in the proportions in which they share the profit of the 
 assessment year, especiaUy keeping in view any general 
 abatements and life insurance abatements to which the 
 individual partners are entitled. 
 
 An abatement is allowed from all incomes, to an extent 
 not exceeding one-sixth of the total income, in respect of 
 premiums paid to British Life offices to secure an assur- 
 ance or annuity on the life of the taxpayer himself or on 
 that of his wife. This special abatement does not affect 
 the general abatement to which the taxpayer is entitled; 
 thus — 
 
 The total income is £410 
 
 On which the general abatement is . £150 
 And the life insurance abatement in 
 respect of premiums amounts to . 50 
 
 Net assessable income 
 
 £210 
 
 The general abatement is on the MIO, not on the £410 
 less the premiums of £50. 
 
 Exercise. 
 
 The net profits of a business for the past three years 
 amounted to £1000, £1050, and £1100. For the purpose 
 of ascertaining the amount liable to income tax, it was 
 necessary to reconsider certain of the items which had been 
 
 '% 
 
 charged against the profit, and the following list of items 
 was prepared: — 
 
 Income tax paid 
 
 Feu-duty paid, less tax 
 
 Interest on mortgage, less tax 
 
 Interest on loan, less tax . 
 
 Interest on capital 
 
 Partners' salaries 
 
 Bank interest on current account 51 
 
 1st Year. 
 
 £24 
 25 
 
 100 
 40 
 
 250 
 
 500 
 
 2nd Year. 3rd Year. 
 
 £27 
 25 
 
 100 
 
 60 
 
 280 
 
 500 
 
 48 
 
 £30 
 25 
 
 100 
 60 
 
 300 
 
 500 
 36 
 
 Prepare statement showing the assessable profit for the 
 
 year. 
 
 The, Pre;paration of Income Tax Tables, 
 
 When the rate of income tax changes as at 5th April in 
 any year, the tax deductable from the half-yearly payments 
 falling due at the following Whitsunday term must be 
 regarded as composed of the proportions of the old and new 
 rates of tax equivalent to the periods for which these respec- 
 tive rates ruled within the half-year while the interest or 
 other income was accruing. For example, the rate ruling 
 at 5th April 1908 was Is., and suppose that from that date 
 it was lOd., then the rate of tax to be deducted from half- 
 yearly payments falling due at Whitsunday 1908 would be 
 ascertained thus : The rate would be lOd. from 5th April to 
 15th May =40 days ; it is a half-yearly payment which is to 
 be charged, and is therefore in respect of 182 J days ; of this 
 already 40 days are taken at lOd., and the balance of the 
 period, 142J days, is therefore at Is., giving— 
 
 (U2^xl2) + (40xI0) ,,,.,^,^,,,, 
 1«2J 
 
 from this fraction a table of values may be prepared to 
 the nearest farthing, in the same way as is explained on 
 p. 311. 
 
 « 
 
3IO ACCOUNTING IN THEORY AND PRACTICE 
 
 ^ 
 
 RATES OF LOCAL AUTHORITIES 
 
 3" 
 
 
 EATES OF LOCAL AUTHORITIES 
 
 In connection with the levying of the rates of local 
 authorities there are some interesting questions. A con- 
 siderable amount of economy may be effected in the manner 
 in which the various rates are calculated and collected. 
 The tendency at the present time is to consolidate the 
 various rates so as to have one local rate for all purposes. 
 The economy which would thereby be effected is consider- 
 able. One of the strongest objections which can be raised 
 against such consolidation is that it removes the spending 
 authority farther from the ratepayers, and so may lead to 
 the local authority spending more than they would other- 
 wise do. The Poor and School Rates, as a rule, are collected 
 together, and the following are given as examples of the 
 preparation of Assessment Tables to be used in preparing 
 the Assessment Roll : — 
 
 Edinburgh Parish Council 
 
 Preparation of Assessment Tahles for Year ending 
 
 15th May 1900. 
 
 The rates as fixed by the Edinburgh Parish Council in 
 July 1899 were as follows: — 
 
 Owners. Occupiers. TotaL 
 
 Poor Rate, Sy^d. per £. 3^^^. per £. 6|d. per £. 
 School Rate, 4^. per £. 4iid. per £. 9id. per £. 
 
 In terms of the 37 th Section of the Poor Law Act, 
 1845, the Council, in fixing the annual value of the herit- 
 able subjects in the parish, granted in respect of expenses 
 and repairs a deduction of 10 per cent from the rental of 
 all lands and heritages within the parish, with the exception 
 of water- works, tramways, and railways, in connection with 
 which a greater deduction was allowed. 
 
 Formerly, in giving effect to this deduction of 10 per cent, 
 the rentals as given in the Assessment Roll were reduced 
 by 10 per cent, and thereafter the rate was calculated on the 
 nine-tenths rental To obviate this preliminary step it is 
 only necessary to prepare a table in which the one-tenth 
 has been deducted from the tax, and this is done in the 
 following method. 
 
 I. To prepare the Ovmers' Assessment Table, 
 
 The Owners' Rates as fixed were : Poor Rate, S^^. per 
 £ ; and School Rate, 4^d. per £ ; a total rate of Vf^., or 
 7-8375d., per £ on the nine-tenths, or valued rental, as it is 
 termed. Now, as stated before, instead of deducting one- 
 tenth from the rentals the deduction is made from the tax, 
 which becomes 7*05375d. per £ on the gross rental 
 
 In preparing the tables it is necessary to have every 
 figure to the nearest halfpenny, and in order to get this '5 
 of a halfpenny is added to the initial value, which makes 
 all the other values come automatically to the nearest half- 
 penny. Otherwise it would be necessary to go over the 
 whole table after it had been calculated, and treat every -5 
 or greater fraction of a halfpenny as a halfpenny. 7-05375 
 reduced to the decimal of a halfpenny is 7 pence '1075 
 halfpence. Therefore, in order to get each succeeding figure 
 to the nearest halfpenny '5 is added to this initial value, 
 which becomes 7 pence -6075 halfpence. It is now only 
 necessary to add to this continuously 7 pence '1075 half- 
 pence as far as the increments of £1 in the rental are 
 desired. 
 
 The table is calculated by increments of £1 up to the 
 rental of £280. From £280 to £300 by increments of 
 £5, which is got by adding on continuously 5 times 7-05376 
 pence, which is equal to 2s. iid.o-5875 (halfpence). ^rom 
 £300 to £1000 the table goes up by increments of £100, 
 and from £1000 to £10,000 by increments of £1000. 
 The working for the first ten places is as follows : — 
 
i\ 
 
 i| 
 
 I 
 
 
 31a ACCOUNTING IN THEORY AND PRACTICE 
 
 intal. 
 
 £ 
 
 1 
 
 £ 
 
 
 
 Tax. 
 
 9. 
 
 
 
 Half- 
 d. pence 
 0-«}075 
 
 7 
 
 2 
 
 
 
 1 
 
 0-7150 
 2 
 
 S 
 
 
 
 I 
 
 0-8225 
 9 
 
 4 
 
 
 
 2 
 
 0-9300 
 
 4 
 
 § 
 
 
 
 2 
 
 1-0376 
 11 
 
 e 
 
 
 
 3 
 
 1-1450 
 
 6 
 
 7 
 
 
 
 4 
 
 1-2526 
 1 
 
 8 
 
 
 
 4 
 
 1-8600 
 8 
 
 9 
 
 
 
 5 
 
 1-4676 
 
 3 
 
 10 
 
 
 
 5 
 
 1-5750 
 10 
 
 From the above it "will be seen that the tax has been 
 calculated to the nearest halfpenny at once by adding on 
 the '5 of a halfpenny to the initial value before starting to 
 prepare the table. After the table has been calculated it is 
 best to have it printed from the original manuscript, in 
 which case the printer disregards the decimal places and 
 prints the rest as it stands, the small figure at the right of 
 the pence representing halfpence. For example, the tax on 
 £10 is 5s. lOjd. 
 
 The table may be proved, when calculating, at intervals 
 of 5 or 10. For instance, the figure which is added on 
 continually is 7*05375 pence, and this multiplied by 10 
 should give the tax on £10. Now 7*05375 multiplied by 10 
 is 70-5375 pence, or 5s. 1 Od.^*^^^ »^^'p*°^ If we add on -5, 
 which was added to the starting figure, in order to have every 
 value to the nearest halfpenny, we get 58. lOd.^'^^^^^P*""'' 
 which is the figure already shown by the table. The table 
 may thus be proved at every interval of 10 either by using 
 the original figure, 7*05375 pence, and multiplying by the 
 
 RATES OF LOCAL AUTHORITIES 
 
 313 
 
 rental, or by using intermediate figures, the accuracy of 
 which has already been proved. 
 
 II. To p-epare the Occupiers* Assessment Table, 
 
 The Occupiers' Rates as fixed were : Poor Rate, 3^j^. 
 per £ ; and School Rate, 4^d. per £ ; a total rate of 8^., 
 or 8*1625d., per £. Deducting 10 per cent from 8*1625d., 
 we obtain 7*34625d., and this figure expressed in the 
 decimal of a halfpenny is 7 pence '6925 halfpence. We 
 therefore add *5 to this, which gives 7^*^^** Starting with 
 this figure, and adding 7°'®*^ continually, we construct the 
 table. The working out for the first ten places is as 
 follows : — 
 
 RentaL 
 £ 
 
 1 
 
 1 
 
 £ 
 
 
 rax. 
 
 5. 
 
 
 
 Half. 
 d. pence. 
 1-1925 
 
 7 
 
 2 
 
 
 
 1 
 
 1-8850 
 
 2 
 
 3 
 
 
 
 1 
 
 0-5775 
 10 
 
 i 
 
 
 
 2 
 
 1-270C 
 
 5 
 
 5 
 
 
 
 3 
 
 1-9625 
 
 
 
 6 
 
 
 
 3 
 
 0*6550 
 8 
 
 7 
 
 
 
 4 
 
 1-3475 
 
 3 
 
 8 
 
 
 
 4 
 
 0-0400 
 11 
 
 9 
 
 
 
 5 
 
 0-7326 
 
 6 
 
 10 
 
 
 
 6 
 
 1*4250 
 
 1 
 
 This table should also be proved at intervals of 10 in a 
 similar way to that of the Owners' table, which has been 
 already explained. 
 
II 
 
 314 ACCOUNTING IN THEORY AND PRACTICE 
 
 LOANS REP A YABLE B Y INSTALMENTS 315 
 
 III 
 
 ill 
 
 LOANS KEPAYABLE BY INSTALMENTS 
 
 A favourite method of repaying loans is by equal annual 
 instalments, which include a payment of principal and the 
 interest due on the principal outstanding. For municipal 
 bodies who are allowed to borrow on the condition that the 
 loan is paid off during a certain period this method is of 
 great advantage, as otherwise the local authority would have 
 to accumulate a sinking fund, and by setting aside and in- 
 vesting so much out of the rates each year have the neces- 
 sary funds out of which to repay the amount borrowed. 
 The local authority thus saves the expense of investing the 
 sinking fund, the risk of the sinking fund investment 
 proving bad, and the risk of the rate of interest realisable 
 falling. In respect of these risks local authorities are 
 usually willing to give a slightly higher rate of interest for 
 money repayable by equal annual instalments than they 
 would give for a permanent loan. When a loan is repay- 
 able by equal annual instalments of principal and interest it 
 practically amounts to the corporation investing the sinking 
 fund in the security of the loan itself The rate now 
 charged by the Local Government Loan Commissioners is 
 only 3J per cent for loans repayable within thirty years, 
 and these terms are as low as can be obtained anywhere. 
 Such loans are also granted on the footing that the same 
 instalment of principal is repaid each year. In this case 
 the amount of interest gradually decreases as the loan is 
 paid off. The charge for interest and repayment of capital 
 is thus heavier during the beginning of the loan than by the 
 method of having an equal annual instalment of principal 
 and interest 
 
 Loaii^ repayable by Equal Annual Instalments, including 
 
 Principal and Interest, 
 
 When the rate of interest charged by the lender and the 
 rate of interest at which the sinking fund can be accumu- 
 lated are the same, or when the sinking fund is paid to the 
 
 lender in redemption of the loan, the following is the 
 method of arriving at the annual instalment : — 
 
 Bule. 
 
 Kefer to a table showing the annuity which £1 will 
 purchase for any number of years at the given rate of 
 interest, and opposite the given number of years will be 
 found the annuity bought by paying down £1. This multi- 
 plied by the amount of the loan wiU give the annual 
 instalment to pay off the loan, principal and interest, in the 
 
 given time. . . , 
 
 Example.— To find the annual instalment of principal 
 
 and interest to pay off a loan of £1000 in five years at 3 
 
 per cent. 
 
 Referring to a table showing the annuity which £1 will 
 purchase, and opposite five years and under 3 per cent we 
 find -218355. This multiplied by 1000 gives 218*355, 
 which is the annual instalment to pay off the loan, with 
 interest The annual instalment is £2 1 8 : 7s. Id., and of this 
 sum there is given to the lender for interest each year the 
 sum of £30, and the balance of £188 : Ts. Id. is the instal- 
 ment of principal to be accumulated at 3 per cent or paid 
 to the lender. This balance of £188 : Is. Id. invested each 
 year at 3 per cent amounts at the end of five years to the 
 £1000. 
 
 Schedule of Repayment. 
 
 When the loan is made repayable by annual instalments, 
 including principal and interest, it is usual to have a schedule 
 showing the interest and capital in each instalment annexed 
 to the bond. The receipts for the payments of the instal- 
 ments should also separate the interest and capital, because 
 income tax should be deducted from the interest and not 
 from the whole instalment The method of preparing these 
 schedules will be seen from the following examples. 
 
 Suppose a borrower obtains a loan of £1000 from a.n 
 investment company at 5 per cent interest, repayable in six 
 years by equal annual instalments. To find the instalment 
 
# 
 
 3i6 ACCOUNTING IN THEORY AND PRACTICE 
 
 LOANS REP A YABLE B Y INSTALMENTS 
 
 317 
 
 we refer to a table, and find that the instalment to repay a 
 loan of £1 under the given conditions is -19701747. 
 Multiplying by 1000 we get as the instalment £197-01747, 
 or £197 : Os. 4d. It is evident that for the first year the 
 interest is £50; hence the first instalment of capital is 
 £147 : Os. 4d. For the next year the instalment of capital 
 will be this sum, together with 5 per cent upon it, as interest 
 will no longer be chargeable upon the capital repaid, but 
 the amount of such interest wUl go to liquidate the debt. 
 Hence the capital repaid each year is got by adding interest 
 at 5 per cent to the capital repaid in the previous year. 
 The schedule when completed is as follows • 
 
 SCHEDULE No. 1. 
 
 Showing the Interest and Capital contained in each 
 Instalment of a Loan of £1000, repayable in Six Years 
 BY Equal Annual Instalments of £197 :0s. 4d. 
 
 Interest^ 5 per cent. 
 
 Nnmber of 
 Instalment 
 
 Date when due. 
 
 lutereot in 
 Instalment. 
 
 Capital in 
 Instalment. 
 
 Capital outstanding 
 
 after 
 
 Instalment paid. 
 
 1 
 2 
 3 
 
 4 
 6 
 6 
 
 15th May 1899 
 Do. 1900 
 Do. 1901 
 Do. 1902 
 Do. 1903 
 Do. 1904 
 
 £ 
 
 50 
 
 42 
 
 34 
 
 26 
 
 18 
 
 9 
 
 i. 
 
 
 
 13 
 
 18 
 
 16 
 
 6 
 
 7 
 
 d. 
 
 
 7 
 6 
 4 
 7 
 
 £ 
 
 147 
 154 
 162 
 170 
 178 
 187 
 
 «. 
 
 
 7 
 1 
 3 
 14 
 12 
 
 d. 
 4 
 4 
 9 
 
 10 
 
 9 
 
 
 
 & 
 
 852 
 698 
 536 
 366 
 187 
 
 
 fl. 
 19 
 12 
 10 
 
 6 
 12 
 
 
 
 d. 
 8 
 4 
 7 
 9 
 9 
 
 
 
 
 
 
 
 1000 
 
 
 
 
 
 
 As another example, suppose a borrower obtains a loan 
 of £1000 at 5 per cent, repayable in three years by equal 
 annual instalments of £367 :4a 2d. The schedule of re- 
 payments would be as follows : — 
 
 SCHEDULE No. IL 
 
 Showing the Interest and Capital contained in each Instal- 
 ment of a Loan of £1000, repayable in Three Years 
 BY Equal Annual Instalments of £367 : 4s. 2d. 
 
 Interest^ 5 per cent. 
 
 Number of 
 Instalment. 
 
 Date when due. 
 
 Interest in 
 Instalment. 
 
 Capital in 
 Instalment. 
 
 Capital outstanding 
 
 after 
 
 Instalment paid. 
 
 1 
 2 
 3 
 
 15th May 1899 
 Do. 1900 
 Do. 1901 
 
 £ 
 50 
 34 
 17 
 
 8. 
 
 
 2 
 9 
 
 d. 
 
 
 10 
 
 8 
 
 £ 
 
 317 
 333 
 349 
 
 s. 
 
 4 
 
 1 
 
 14 
 
 
 
 d. 
 2 
 4 
 6 
 
 
 
 £ 
 
 682 
 
 349 
 
 
 
 8. 
 
 15 
 
 14 
 
 
 
 d. 
 
 10 
 6 
 
 
 
 
 
 
 
 1000 
 
 
 
 
 Taking the loan given in Schedule No. II. as an illustra- 
 tion, the transactions in the borrower's ledgers would appear 
 as follows : — 
 
 Investment Company, 
 
 1899. 
 May 15. 
 
 To Cash 
 
 . £367 
 
 4 
 
 2 
 
 1898. 
 May 15. 
 
 By Cash 
 
 . £1000 
 
 1900. 
 May 15. 
 
 ., do. 
 
 . 367 
 
 4 
 
 2 
 
 1899. 
 May 15. 
 
 ,, Interest 
 
 50 
 
 1901. 
 May 15. 
 
 ., do. 
 
 . 367 
 
 4 
 
 2 
 
 1900. 
 May 15. 
 
 1901. 
 May 15. 
 
 do. 
 
 ., do. 
 
 34 2 10 
 
 17 9 8 
 
 
 £1101 
 
 12 
 
 6 
 
 £1101 12 6 
 
 The Ledger Account of the lender as given above would 
 at the end of the three years be square, as the loan would 
 
 be paid off. 
 
 If the borrower balanced his books on the 15 th May 
 in each year after the transactions of the day were over, the 
 Ledf^er Account at that date annually would show the 
 balance of capital due to the investment company as given 
 in the schedule, as follows : — 
 
3i8 ACCOUNTING IN THEORY AND PRACTICE 
 
 LOANS REP A YABLE BY INSTALMENTS 319 
 
 
 ! 
 
 
 Investment Company. 
 
 1899. 
 May 15. To Cash 
 
 ,, Balance 
 
 1900. 
 May 15. To Cash 
 
 ,. Balance 
 
 1901. 
 May 15. To Cash 
 
 £367 4 2 
 682 15 10 
 
 £1050 
 
 £-367 4 2 
 349 14 6 
 
 £716 18 8 
 
 £367 4 2 
 
 £367 4 2 
 
 1898. 
 May 15. By Cash 
 
 1899. 
 May 15. „ Interest 
 
 1899. 
 May 16. By Balance 
 
 1900. 
 May 16. „ Interest 
 
 1900. 
 May 16. By Balance . 
 
 1901. 
 May 15. „ Interest . 
 
 £1000 
 50 
 
 £1050 
 
 ^ — 
 
 £682 15 10 
 34 2 10 
 
 £716 18 8 
 
 £349 14 6 
 17 9 8 
 
 £ 367 4 2 
 
 If the borrower closed his books as at 31st December in 
 each year the proportion of interest due to that date would 
 require to be calculated, and the Ledger Account would be 
 as follows. It wiU be observed that the interest is credited 
 also at 15 th May, because it is compounded at that date. 
 
 Investment Company. 
 
 1898. 
 Dec. 31. To Balance. . £1031 10 2 
 
 1899. 
 May 15. To Cash 
 Dec. 31. ,, Balance 
 
 1900. 
 May 15. To Cash 
 Dec. 31. ,, Balance 
 
 1901. 
 May 15. To Cash 
 
 £1031 
 
 10 
 
 2 
 
 . £367 
 
 4 
 
 2 
 
 704 
 
 6 
 
 
 
 £1071 
 
 10 
 
 2 
 
 £367 
 
 4 
 
 2 
 
 360 
 
 14 
 
 10 
 
 
 £727 
 
 19 
 
 £367 
 
 4 
 
 2 
 
 £367 
 
 4 
 
 2 
 
 1898. 
 May 15. By Cash 
 Dec. 31. ,, Interest 
 
 £1000 
 31 10 2 
 
 £1031 10 2 
 1899. 
 Jan. 1. By Balance . £1031 10 2 
 May 15. ,, Interest . 
 
 Dec. 31. 
 
 do. 
 
 18 9 10 
 21 10 2 
 
 1900. 
 Jan. 1. By Balance 
 May 15. ,, Interest 
 Dec. 31. „ do. 
 
 1901. 
 Jan. 1. By Balance 
 May 15. „ Interest 
 
 £1071 10 2 
 
 £704 6 
 
 12 12 8 
 
 11 4 
 
 £727 19 
 
 £360 14 10 
 6 9 4 
 
 £367 4 2 
 
 When the rate of interest charged by the lender and 
 the rate of interest that can be obtained on the investment 
 of the annual instalment of principal are not the same, the 
 following is the method of arriving at the annual instal- 
 ment : — 
 
 Ride. 
 
 Refer to a table showing the amount of £1 per annum 
 in any number of years, and opposite the term of years of 
 the loan under the rate per cent at which the sinking fund 
 can be invested will be found the amount produced by 
 setting aside £1 yearly. The amount of the loan divided 
 by this sum will give the annual instalment of sinking fund 
 required to pay off the loan so far as the principal is con- 
 cerned. Add to this a year's interest on the loan at the 
 rate agreed on, and the total will be the total annual 
 charge. 
 
 JSxample. — The sum of £10,060 is borrowed at 3^ per 
 cent per annum, and the principal is payable at the end of 
 thirty years. The instalment of principal can only be 
 invested at 3 per cent. Find what annual sum must be 
 
 set aside. 
 
 The sum of £1 per annum accumulated at 3 per cent 
 per annum will amount to £47-57542 in thirty yeara 
 £10,000 divided by 47-57542 gives £210 : 3s. lOd., which 
 is the sum which must be set aside each year and invested 
 at 3 per cent to amount to £10,000 in thirty years. 
 
 The total annual charge is therefore : — 
 
 Interest on loan of £10,000 at 3^ per cent £350 
 Annual sum to be put to the sinking 
 
 fund, and invested at 3 per cent 210 3 10 
 
 £560 3 10 
 
 Loans repayable by Equal Annual Instalments of Principal. 
 
 When a loan is repayable by equal annual instalments 
 of principal, to find the principal sum payable each year we 
 
41 
 
 
 
 ; 
 
 
 320 ACCOUNTING IN THEORY AND PRACTICE 
 
 have merely to divide the total loan by the number of 
 years. The interest each year is merely the interest on the 
 capital outstanding at the beginning of the year. For the 
 sake of comparison with the figures already given, the 
 foUowing schedules are shown, together with specimen 
 Ledger entries in the books of the boiTower. 
 
 SCHEDULE No. III. 
 
 Showing the Payment of Interest and Capital or a Loan 
 OF £1000, repayable in Six Years by Equal Annual 
 Instalments of Principal of £166:138. 4d. 
 
 Interest, 5 fer cent. 
 
 Number of 
 Instalment. 
 
 Date when due. 
 
 1 
 2 
 8 
 
 4 
 S 
 
 • 
 
 15th May 1899 
 Do. 1900 
 
 Do. 
 Do. 
 Do. 
 Do. 
 
 1901 
 1902 
 1903 
 1904 
 
 Sum 
 
 payable 
 
 Interest 
 
 ' 
 
 Capital 
 
 
 Capital out- 
 Htauding after 
 
 each year. 
 
 payable. 
 
 payable. 
 
 Instalment 
 paid. 
 
 & 
 
 t. 
 
 d. 
 
 £ 
 
 t. 
 
 d. 
 
 £ 
 
 «. 
 
 d 
 
 £ 
 
 «. 
 
 d. 
 
 216 
 
 13 
 
 4 
 
 50 
 
 
 
 
 
 166 
 
 13 
 
 4 
 
 833 
 
 (t 
 
 8 
 
 208 
 
 6 
 
 8 
 
 41 
 
 13 
 
 4 
 
 166 
 
 13 
 
 4 
 
 666 
 
 13 
 
 4 
 
 200 
 
 
 
 
 
 33 
 
 6 
 
 8 
 
 166 
 
 13 
 
 4 
 
 500 
 
 
 
 
 
 191 
 
 13 
 
 4 
 
 25 
 
 
 
 
 
 166 
 
 13 
 
 4 
 
 333 
 
 6 
 
 8 
 
 183 
 
 6 
 
 8 
 
 16 
 
 13 
 
 4 
 
 166 
 
 13 
 
 4 
 
 166 
 
 18 
 
 4 
 
 175 
 
 
 
 
 
 8 
 
 6 
 
 
 8 
 
 
 166 
 
 13 
 
 4 
 
 
 
 
 
 
 
 
 
 
 175 
 
 1000 
 
 
 
 
 
 
 
 
 SCHEDULE No. IV. 
 Showing the Payment of Interest and Capital of a Loan 
 
 OF £1000, REPAYABLE IN ThREE YeARS BY EquAL ANNUAL 
 
 Instalments of Principal of £333 : 68. 8d. 
 
 Interest, 5 'per cent. 
 
 Number of 
 Instalment. 
 
 Date when due. 
 
 1 
 2 
 S 
 
 Sum payable 
 each year. 
 
 15th May 1899 
 Do. 1900 
 Do. 1901 
 
 £ 
 383 
 366 
 350 
 
 «. 
 
 6 
 
 13 
 
 
 
 Interest 
 payable. 
 
 £ 
 50 
 33 
 16 
 
 100 
 
 s. 
 
 
 
 6 
 
 13 
 
 Capital 
 payable. 
 
 £ 
 
 333 
 333 
 333 
 
 1000 
 
 s. 
 
 6 
 6 
 6 
 
 
 
 Capital out- 
 standing after 
 Instalment 
 paid. 
 
 £ 
 
 666 
 
 333 
 
 
 
 s. 
 
 13 
 6 
 
 
 LOANS REP A YABLE B Y INSTALMENTS 
 
 321 
 
 Borrower's Ledger 
 
 Investment Company. 
 
 899. 
 May 15. 
 
 1900. 
 May 16. 
 
 1901. 
 May 15. 
 
 To Cash (capitel) £333 
 ,, do. (interest) 50 
 
 ,, do. (capital) 333 
 ,, do. (interest) 33 
 
 ,, do. (capital) 333 
 ,, do. (interest) 16 
 
 6 
 
 
 6 
 6 
 
 6 
 13 
 
 8 
 
 
 8 
 8 
 
 8 
 4 
 
 1898. 
 May 15. 
 
 1899. 
 May 15. 
 
 1900. 
 May 16. 
 
 1901. 
 May 16. 
 
 By Cash . 
 ,, Interest 
 ti do* 
 
 . £1000 
 60 
 33 
 16 
 
 
 
 
 
 6 
 
 13 
 
 
 
 
 8 
 4 
 
 
 £1100 
 
 
 
 
 
 £1100 
 
 
 
 
 
 Squaring off the books at 15 th May in each year, the 
 above Ledger Account would show the amount of principal 
 due at that date annually, as follows : — 
 
 Investment Company. 
 
 1899. 
 
 May 15. To Cash (capital) £333 6 8 
 
 ,, do. (interest) ; 
 
 ,, Balance . . 666 13 4 
 
 £1050 
 
 1900. 
 
 May 15. To Cash (capital) £333 6 8 
 ,, do. (interest) 33 6 8 
 „ Balance . . 333 6 8 
 
 £700 
 
 1901. 
 May 16. To Cash (capital) £333 6 8 
 „ do. (interest) 16 13 4 
 
 > 
 
 1898. 
 May 15. By Cash . 
 
 1899. 
 May 16. ,, Interest 
 
 1899. 
 May 16. By Balance 
 
 1900. 
 May 15. ,, Interest 
 
 1900. 
 May 16. By Balance 
 
 1901. 
 May 15. ,, Interest 
 
 £350 
 
 £1000 
 
 50 
 
 £1050 
 
 £666 13 4 
 
 33 6 8 
 
 £700 
 
 £333 6 8 
 
 16 13 4 
 
 £350 
 
 If the borrower closes his books on the 31st December 
 in each year, the following would be the Ledger Account : — 
 
 Y 
 
 
il 
 
 322 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 REDEMPTION OF LEASES 
 
 323 
 
 M 
 
 Investment Company. 
 
 1898. 
 Dec. 31. 
 
 To Balance 
 
 . £1031 10 2 
 
 £1031 10 2 
 
 1899. 
 
 May 15. To Cash (capital) £333 6 8 
 
 ,, do. (iuterest) 50 
 
 Dec. 31. ,, Balance . . 687 13 5 
 
 £1071 1 
 
 1900. 
 
 May 15. To Cash (capital) £333 6 8 
 
 ., do. (interest) 33 6 8 
 
 Dec. 31. ,, Balance . . 343 16 9 
 
 £710 10 1 
 
 1901. 
 May 15. 
 
 To Cash (capital) £333 6 8 
 do. (interest) 16 13 4 
 
 >• 
 
 £350 
 
 1898. 
 May 15. By Cash . 
 Dec. 31. ,, Interest 
 
 1899. 
 
 Jan. 1. By Balance 
 
 May 15. ., Interest 
 
 Dec. 31. ., do. 
 
 1900. 
 
 Jan. 1. By Balance 
 
 May 15. ,, Interest 
 
 Dec. 31. ,, do. 
 
 1901. 
 Jan. 1. By Balance 
 May 15. ,, Interest 
 
 . £1000 
 31 10 2 
 
 £1031 
 
 10 
 
 2 
 
 . £1031 
 18 
 21 
 
 10 
 9 
 
 
 2 
 
 10 
 
 1 
 
 £1071 
 
 
 
 1 
 
 . £687 
 12 
 10 
 
 13 
 
 6 
 
 10 
 
 5 
 
 7 
 
 1 
 
 £710 
 
 10 
 
 1 
 
 . £343 
 6 
 
 16 
 3 
 
 9 
 3 
 
 £350 
 
 
 
 _0 
 
 REDEMPTION OF LEASES 
 
 There are three methods used for the purpose of 
 making provision for those cases in which a slump sum has 
 been paid down in respect of property held on leasehold, 
 which will have to be abandoned at the end of the lease. 
 The slump sum is paid in respect of the right to the use of 
 an asset for a limited period. It is evident that the sum so 
 paid must be written ofif during the period so that at 
 the close no asset may appear in the books of the 
 concern. 
 
 The three methods are : — 
 
 1. To write off each year an equal proportion of the cost. 
 
 2. To set aside each year such a sum as accumulated at 
 
 compound interest at a certain rate will amount at the 
 end of the lease to the cost. 
 
 3. To consider the cost of the lease as the purchase price of 
 
 an annuity-certain for the term of the duration of the 
 lease. 
 
 The first method has the advantage of simplicity, and is 
 the same each year, but no account is taken of the fact 
 that the money has been paid down, and that interest could 
 have been earned upon it. 
 
 Tlie second method is the Sinking Fund method, and 
 the third method the Annuity Fund method. In actuarial 
 symbols these methods are represented as follows : — 
 
 First method = 
 
 1 
 
 n 
 I 
 
 Second method = 
 
 Third method = — or — + i. 
 
 The last method is the most scientific, and is theoreti- 
 cally the most correct. 
 
 To illustrate the three methods, take the case of 
 £1000 paid down for a lease which has three years to 
 run. By the first method £1000 divided by 3, which is 
 £333 : 68. 8d., is set aside each year ; by tlie second method, 
 on the assumption of 5 per cent., during the first year 
 £317 : 4s. 2d. is set aside. In the second year this sum, 
 together with interest upon it at 5 per cent, will be set 
 aside, and during the third year interest will again be added. 
 By the third method £367 : 4s. 2d. is set aside each year. 
 
 The amount written ofif by the three methods each year 
 is accordingly as follows: — 
 
 First year 
 Second year 
 Third year 
 
 First Method. 
 
 Second Method. 
 
 1 
 Third Method. ', 
 
 £333 6 8 
 333 6 8 
 333 6 8 
 
 £317 4 2 
 333 1 4 
 349 14 6 
 
 £367 4 2 
 367 4 2 
 367 4 2 
 
 £1000 
 
 £1000 
 
 £1101 12 6 
 
 The Ledger Account of the lease under the third 
 method would be as follows : — 
 
 
<■ 
 
 324 ACCOUNTING IN THEORY AND PRACTICE 
 
 ;!ll 
 
 I' 
 
 m\ 
 
 Lease Account. 
 
 1900. 
 
 
 Jan 1. To Cash . 
 
 . £1000 
 
 Dec 31. „ Interesi 
 
 60 
 
 1901. 
 
 
 Dec. 31. „ do. . 
 
 34 2 10 
 
 1902. 
 
 
 Dec. 31. „ da . 
 
 17 9 8 
 
 
 £1101 12 6 
 
 1900. 
 Dec. 31. By Profit and Loss £367 4 2 
 
 1901. 
 Dec. 31. ,, do. 367 4 2 
 
 1902. 
 Dec. 31. „ do. 867 4 2 
 
 £1101 12 6 
 
 By the second and third methods the net profit is the 
 same. Under the third method the amount debited to the 
 Profit and Loss Account in respect of the lease is greater 
 than by the second method, but a sum is taken credit for 
 in respect of interest on the outlay in connection with the 
 lease. 
 
 HIEE-PURCHASE SYSTEM OF ACQUIRING 
 RAILWAY WAGGONS 
 
 Colliery companies, as a rule, purchase railway waggons 
 under a hire and purchase agreement by which the price 
 of the waggons is paid by yearly instalments spread over 
 from three to seven years, and the waggons only actually 
 become the property of the colUery company on the pay- 
 ment of the last instalment. There are two methods of 
 treating such a transaction in the books of a colliery 
 company. The transaction may be looked upon really 
 as a purchase, but subject to the payment of the instal- 
 ments as they fall due, or the exact letter of the contract 
 may be given effect to in the books of the colliery company. 
 
 Suppose that on the 1st January sixty waggons are 
 purchased from the North British Waggon Co., Ltd., 
 on the footing that they are to be paid for by five 
 annual instalments of £600, being a total payment of 
 £3000. It is quite evident that these instalments as they 
 fall due and are paid by the colliery company cannot be 
 charged altogether against Revenue or altogether to Capital. 
 It is evident that each instalment consists of interest on 
 the amount of the purchase price of the waggons outstand- 
 
 THE HIRE-PURCHASE SYSTEM 
 
 325 
 
 in<» from time to time, together with a payment of capital 
 to extinguish the purchase price. 
 
 To find out what rate of interest should be taken as the 
 basis of calculation it is necessary to ascertain as exactly as 
 possible the price of the waggons on the assumption that 
 cash was paid for them. If it is assumed that this cash 
 price is £2597:138. 9d., from a table of annuities it is 
 found that the rate of interest involved is 5 per cent, and 
 the following schedule can then be prepared : — 
 
 Schedule showing the division of Instalments for the 
 purchase of waggons into principal and interest, 
 the Annual Instalment for Five Years being £600, 
 
 PAYABLE ON 31 ST DECEMBER, AND THE CaSH VALUE OF 
 
 THE Waggons at date of agreement £2597 : 13s. 9d. 
 
 Interesty 5 per cent 
 
 Date when Instalment due. 
 
 Interest. 
 
 Principal. 
 
 Principal out- 
 standing after 
 Instalment paid. 
 
 
 £ 
 
 t. 
 
 d. 
 
 £ 
 
 s. 
 
 d. 
 
 £ 
 
 8. 
 
 d. 
 
 3l8t December 1900 
 
 129 
 
 18 
 
 
 
 470 
 
 2 
 
 
 
 2127 
 
 11 
 
 9 
 
 Do. 1901 
 
 106 
 
 8 
 
 
 
 493 
 
 12 
 
 
 
 1633 
 
 19 
 
 9 
 
 Do. 1902 
 
 81 
 
 14 
 
 
 
 518 
 
 6 
 
 
 
 1115 
 
 13 
 
 9 
 
 Do. 1903 
 
 55 
 
 15 
 
 9 
 
 544 
 
 4 
 
 3 
 
 571 
 
 9 
 
 6 
 
 Do. 1904 
 
 28 
 
 10 
 
 6 
 
 571 
 
 9 
 
 6 
 
 
 
 
 
 
 
 
 
 
 
 2597 13 
 
 9 
 
 
 
 
 If the colliery company assume that the waggons are 
 purchased outright, then immediately the agreement is 
 signed and the waggons delivered the colliery company 
 would credit the North British Waggon Co., Ltd., and 
 debit the Railway Waggon Account, with £2597 : 13s. 9d. 
 When the first instalment of £600 fell due the total 
 amount would be posted from the Cash Book to the debit 
 of the North British Waggon Co., Ltd., but at the same 
 time a Journal entry would be made crediting the North 
 British Waggon Co., Ltd., with £129 : 18s., the interest on 
 the first instalment, and the Interest Account would be 
 debited with this amount. The working of these two 
 
324 ACCOUNTING IN THEORY AND PRACTICE 
 
 THE HIRE-PURCHASE SYSTEM 
 
 325 
 
 
 Lease Account. 
 
 1900. 
 Jan 1. To Cash 
 Dec. 31. ,, Interest 
 
 1901. 
 Dec. 31. 
 
 1902. 
 Dec. 31. 
 
 it 
 
 do. 
 da 
 
 . £1000 
 50 
 
 
 
 
 
 
 
 84 
 
 2 
 
 10 
 
 . 17 
 
 9 
 
 8 
 
 £1101 
 
 12 
 
 _6 
 
 1900. 
 Dec. 31. By Profit and Loss £367 4 2 
 
 1901. 
 Dec. 31. „ do. 367 4 2 
 
 1902. 
 Dec. 31. „ do. 867 4 2 
 
 £1101 12 6 
 
 By the second and third methods the net profit is the 
 same. Under the third method the amount debited to the 
 Profit and Loss Account in respect of the lease is greater 
 than by the second method, but a sum is taken credit for 
 in respect of interest on the outlay in connection with the 
 lease. 
 
 HIKE-PURCHASE SYSTEM OF ACQUIRING 
 RAILWAY WAGGONS 
 
 Colliery companies, as a rule, purchase railway waggons 
 under a hire and purchase agreement by which the piice 
 of the waggons is paid by yearly instalments spread over 
 from three to seven years, and the waggons only actually 
 become the property of the colliery company on the pay- 
 ment of the last instalment. There are two methods of 
 treating such a transaction in the books of a colliery 
 company. The transaction may be looked upon really 
 as a purchase, but subject to the payment of the instal- 
 ments as they fall due, or the exact letter of the contract 
 may be given effect to in the books of the colliery company. 
 
 Suppose that on the 1st January sixty waggons are 
 purchased from the North British Waggon Co., Ltd., 
 on the footing that they are to be paid for by five 
 annual instalments of £600, being a total payment of 
 £3000. It is quite evident that these instalments as they 
 fall due and are paid by the colliery company cannot be 
 charged altogether against Revenue or altogether to Capital. 
 It is evident that each instalment consists of interest on 
 the amount of the purchase price of the waggons outstand- 
 
 ing from time to time, together with a payment of capital 
 to extinguish the purchase price. 
 
 To find out what rate of interest should be taken as the 
 basis of calculation it is necessary to ascertain as exactly as 
 possible the price of the waggons on the assumption that 
 cash was paid for them. If it is assumed that this cash 
 price is £2597 :13s. 9d., from a table of annuities it is 
 found that the rate of interest involved is 5 per cent, and 
 the following schedule can then be prepared : — 
 
 Schedule showing the division of Instalments fok the 
 
 PURCHASE OF WAGGONS INTO PRINCIPAL AND INTEREST, 
 
 THE Annual Instalment for Five Years being £600, 
 
 PAYABLE ON 31 ST DECEMBER, AND THE CASH VaLUE OF 
 
 THE Waggons at date of agreement £2597 : 13s. 9d. 
 
 iTtterest, 5 per cent. 
 
 Date when Instalment due. 
 
 Interest. 
 
 Principal. 
 
 
 Principal out- 
 standing after 
 Instalment paid. 
 
 1 
 
 31st December 1900 
 Do. 1901 
 Do. 1902 
 Do. 1903 
 Do. 1904 
 
 £ 
 
 129 
 
 106 
 
 81 
 
 55 
 
 28 
 
 ». 
 18 
 8 
 14 
 15 
 10 
 
 d. 
 
 
 
 9 
 6 
 
 £ 
 
 470 
 
 493 
 
 518 
 
 544 
 
 571 
 
 s. 
 2 
 
 12 
 6 
 4 
 9 
 
 13 
 
 d. 
 
 
 
 3 
 6 
 
 9 
 
 £ 
 2127 
 1633 
 1115 
 
 571 
 
 
 8. 
 11 
 
 19 
 
 13 
 
 9 
 
 
 
 d. 
 9 
 9 
 9 
 6 
 
 
 
 
 
 
 2597 
 
 
 
 
 If the colliery company assume that the waggons are 
 purchased outright, then immediately the agreement is 
 signed and the waggons delivered the colliery company 
 would credit the North British Waggon Co., Ltd., and 
 debit the Railway Waggon Account, with £2597 : 13s. 9d. 
 When the first instalment of £600 fell due the total 
 amount would be posted from the Cash Book to the debit 
 of the North British Waggon Co., Ltd., but at the same 
 time a Journal entry would be made crediting the North 
 British Waggon Co., Ltd., with £129 : 18s., the interest on 
 the first instalment, and the Interest Account would be 
 debited with this amount The working of these two 
 
^El - ■- 
 
 316 ACCOUNTING IN THEORY AND PRACTICE 
 
 accounts for the five years is shown in the foUowing 
 exlple and it is further assumed that from the Waggon 
 Account 6 per cent is written off each year for depreciation. 
 
 t^arih British Waggon Co., Ltd. 
 
 1900. 
 
 Dr^Jl. To Cash, first instalment. £600 
 „ Balance . . • 212/ 11 » 
 
 1900. 
 Jan. 1 
 
 £2727 n 9 
 
 1901. 
 
 Dec. 31. ToCash. second instalment £600 
 
 ,, Balance 
 
 1901. 
 
 -,w-- ^-AXi. 1- 
 
 1633 19 9 Dec. 31. 
 
 By Railway Waggon Ac- 
 count, for sixty wag- 
 gons purchased per 
 agreement . • ^^597 13 » 
 Dec. 31. ..Interest . . ' ^^9 18 
 
 £2727 11 9 
 
 £2233 19 9 
 
 1902. 
 
 ^h. To Cash, third instataent £600 : .Jan 1. 
 
 „ Balance . • '_____ 
 
 £1715 13__9 
 =— ' I 1903. 
 
 dT^I. ToCasLfourthinstalmont £600 ; J.^ 1. 
 ,, Balance . • • "^^ ^ 
 
 P,y Balance 
 ,, Interest 
 
 liy Balance 
 ,, Interest 
 
 By Balance 
 ,, Interest 
 
 . £2127 11 9 
 
 . 106 8 C 
 
 £2233 19 9 
 
 . £1633 19 9 
 81 14 
 
 £1715 13 9 
 
 . £1116 13 9 
 55 15 9 
 
 £1171 9 6 
 
 1904. 
 
 DeTsi. To Cash, fifth instalnient £600 
 
 £600 
 
 
 1904. 
 Jan. 1. 
 Deo. 31. 
 
 By Balance 
 ,, Interest 
 
 £117 1^_J 
 
 £571 9 6 
 28 10 6 
 
 £600 
 
 railway Waggon Account 
 
 ; 
 
 jir ^ To North British Waggon 
 •* Co., Ltd., for sixty 
 
 waggons purchased 
 
 per agreement . • .*,a>»^iow 
 
 £2597 13 9 
 
 DeTai. By Depreciation Account £155 17 7 
 ,. Balance . . • 2441 16 
 
 1901. 
 Jan. 1 To Balance 
 
 . £2441 16 2 
 £2441 16 2 
 
 Del?^31. By Depreciation Account £146 10 5 
 ,, Balance . • • ^^^^ 
 
 THE HIRE-PURCHASE SYSTEM 
 
 327 
 
 Railway Waggm Accouid^Continued. 
 
 1902. 
 Jan. 1. To Balance 
 
 1903. 
 Jan. 1. To Balance 
 
 1904. 
 Jan. 1. To Balance 
 
 1905. 
 Jan. 1. To Balance 
 
 £2295 5 9 
 
 £2295 5 9 
 
 1902 
 Dec. 31. By Depreciation Account ^137 14 
 
 „ Balance . . • -^lo* ^1 » 
 
 . £2157 11 9 
 
 £2157 11 9 
 
 . £2028 2 9 
 
 £2028 2 9 
 . £1906 9 2 
 
 £2295 5 9 
 
 Dec°'^31. By Depreciation Account £129 9 
 
 ,, Balance . • . IM£6 ^ « 
 
 £2157 11 9 
 
 1904. 
 
 Dec 31 Bv Depreciation Account £121 13 7 
 
 Dec. 31. dy ^^g^^^^ . ^"^« Q '>■ 
 
 £2028 2 9 
 
 1906 9 2 
 
 Suppose now that the transaction is looked upon by the 
 colliery company more as a hire than a purchase, then the 
 colliery company must still give effect to the fact that 
 part of the price is in payment of the waggons, and that 
 when the full price is paid the waggons ^ill have depre- 
 ciated to the same extent as under the first method. The 
 colliery company would have to treat part of the pnce as 
 hire and part as payment of the waggons, and as the waggons 
 would depreciate to the same amount as formerly, deprecia- 
 tion would require to be written off each year of the same 
 amount as by the first method, so that at the end of the 
 five years the Kailway Waggon Account would have the 
 same amount at its debit as by the first method. The 
 portions of the instalments which by the first method were 
 treated as interest are by the second treated as hire, and 
 would be posted from the Cash Book to a Hire Account. 
 
 The first method is undoubtedly preferable to the 
 second, as it shows more clearly what is the practical effect 
 of the agreement, although it may not so exactly follow out 
 the letter of the contract. 
 
 Under the second method the Kailway Waggon Account 
 
 would appear as under. 
 
f 
 
 328 ACCOUNTING IN THEORY AND PRACTICE 
 
 Railway Waggon Account. 
 
 ^»oo. ... . . 
 
 Dec. 31. To Cash, capital in first 
 instalment paid to 
 the North British 
 Waggon Co., Ltd. . £470 2 
 
 £470 2 
 
 1900. 
 
 Dec. 31. By Depreciation Account £155 17 7 
 
 ' T« r MIA A ft 
 
 By Uep 
 ,. Bafa 
 
 Ance 
 
 ! 
 
 jln. '1. To Balance . . . £314 4 5 
 Dec 31. „ Cash, capitel in second 
 
 instalment paid to 
 
 the North British 
 
 Waggon Co.. Ltd. . 493 12 
 
 £807 16 5 
 £661 6 
 
 . 314 4 5 
 
 £470 2 
 
 1901. 
 
 Dec. 31. By Depreciation Account £146 10 5 
 
 By Dep; 
 „ Bala 
 
 iance 
 
 • • 
 
 . 661 6 
 
 1902. 
 Jan. 1. To Balance . • .• 
 Dec. 31. „ Cash, capital in third 
 
 instalment paid to 
 
 the North British 
 
 Waggon Co., Ltd. . 618 6 
 
 £1179 12 
 
 £807 16 5 
 
 1902. 
 
 Dec. 31. By Depreciation Account £137 14 
 
 „ Balance . . • 1041 18 
 
 £1179 12 
 
 j]r^*l. To Balance . . • £1041 18 
 Dec 31. ., Cash, capital in fourth 
 
 instalment paid to 
 
 the North British 
 
 Waggon Co., Ltd. . 544 4 3 
 
 £1586 2 3 
 
 Dec. 31. By Depreciation Account £129 9 
 ,, Balance , . . 1456 13 3 
 
 J^^^'l. To Balance . ... £1456 13 3 
 Dec. 31. „ Cash, capital in fifth 
 
 instalment paid to 
 
 the North British 
 
 Waggon Co., Ltd. . 671 9 6 
 
 £2028 2 9 
 
 £1586 2 3 
 
 1905. 
 Jan. 1. To Balance 
 
 . £1906 9 2 
 
 1904. 
 
 Dec. 31. By Depreciation Account £121 13 7 
 „ Balance . • . 1S06 9 2 
 
 £2028 2 9 
 
 A simpler method than that given above is as foUows. 
 Suppose that a colliery company has a lease of ten waggons 
 for twenty years at aA annual charge of £30. If the 
 present worth of the waggons is £^0 each, or £600 in all, 
 and it is considered that at the end of twenty years, when 
 the wacTgons will become the property of the colliery com- 
 pany they will be worth £20 each, or £200 in all, and 
 
 INVESTIGA TIONS 
 
 329 
 
 considering that during these twenty years there will be 
 paid to the waggon company £600 in all, and that the 
 value of the waggons at the end of twenty years wiU only 
 be £200, it is evident that £400 must be charged to the 
 Profit and Loss Account, or £20 per annum. The balance 
 of the annual payment, namely, £10, goes to the Waggon 
 Purchase Account, and at the end of the twenty years there 
 will be £200 at the debit of this account, which will 
 represent the value of the waggons. 
 
 INVESTIGATIONS 
 
 There is no branch of accounting in which the ability of 
 an accountant to grasp business details, and also to appre- 
 ciate the total effect of these details, has better play than in 
 making investigations into business concerns, and in no 
 branch of the profession is there wider scope for the exercise 
 of special ability or genius as an accountant. For such 
 work it is absolutely essential that the accountant should 
 not only have received a good general education, but that he 
 should have specially studied the subjects of mathematics 
 and economics. In fact, if the accountant has made a special 
 study of the higher mathematics, and has gone deeply into 
 the problems of economics, he will find his work as an in- 
 vestigator all the easier, and the results at which he will 
 arrive, and the advice he will be able to give, will be aU the 
 more exact and valuable. 
 
 The purposes in connection with which an accountant 
 may be called upon to make an investigation into the 
 accounts of a concern are various, but may be shortly 
 grouped under the following heads : — 
 
 1. Where a client is considering the advisability of pur- 
 
 chasing or becoming a partner in a business. 
 
 2. Where it is proposed to convert a business into a limited 
 
 liability company. . 
 
 3. Where the bankers, creditors, or shareholders of a busmess 
 
 concern wish to have an independent investigation 
 into the business. 
 
Ill 
 
 r 
 
 _ 
 
 i 
 
 
 L 
 
 
 H 
 
 
 H 
 
 
 n 
 
 
 [ 
 
 
 i 
 
 
 t 
 
 
 r 
 
 1 1 
 
 
 i 1 
 
 s 
 
 n 
 
 330 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 4. On the death or retirement of a partner. 
 
 5. Where fraud is suspected. 
 
 6. Where it is necessary to ascertain the compensation to be 
 
 awarded in respect of the compulsory acquisition by a 
 corporation of business promises. 
 
 7. Where accounts have become confused from any cause. 
 
 Investigations have frequently to be undertaken on 
 behalf of a client who is considering the advisability of 
 becoming a partner in a business concern. Without such 
 an investigation the client might find, after he had become a 
 partner, and when it was too late to retrieve his position, 
 that the business he had joined on the faith of those per- 
 sonally interested was hopelessly bad. The accountant steps 
 in as an independent party, and after careful investigation 
 is enabled to advise his client either to join the business on 
 the terms proposed, to have these terms altered, or to have 
 nothing whatever to do with the concern. In such in- 
 vestigations it is the duty of the accountant not only to 
 ascertain the solvency of the business, but its capabilities as 
 a profit-earning concern, and one likely to meet the expec- 
 tations of his client. 
 
 Investigations have also to be made into businesses 
 which it is proposed to convert into limited liability com- 
 panies, and perhaps the work involved in no other branch 
 of accounting has increased so rapidly within recent years as 
 the work in connection with such investigations. The object 
 of the investigation is to determine the profits earned for a 
 period of years, and the accountant may also be asked to 
 advise as to the capital which should be invested in the 
 business, and upon other matters which enable the price to 
 be given for the business to be fixed. The accountant some- 
 times is simply employed to give a certificate of the profits 
 for a period of years, but if this certificate is required for 
 the purpose of floating the business as a company he should 
 be careful not to grant a certificate of the average annual 
 profits merely, if he finds that these profits have been 
 steadily decreasing. In such a case he should reveal the 
 true state of matters to his employers and to the public. 
 In fact, all such certificates should state the profits earned 
 
 INVESTIGA TIONS 
 
 331 
 
 during each year covered by the period of investigation. 
 The accountant should be careful not to indulge in prophetic 
 speculations as to the profit to be earned in the future, but 
 should merely state the facts which he has ascertained as 
 having prevailed in the past. In beginning such an in- 
 vestigation the accountant should carefully compare the 
 revenue accounts for the years available, with the view of 
 seeing if the turnover and expenditure are constant each 
 year, and where they are not he should ascertain the extent 
 and cause of their varying. He should see how the ratio of 
 the gross profit and net profit to turnover varies, and should 
 be specially suspicious of any large increase in the ratio of 
 net profit in the last year embraced by his investigation. 
 
 Investigations have also to be made on behalf of creditors 
 and shareholders of concerns which have not been successful, 
 and it is then the duty of an accountant to ascertain the 
 reasons of the want of success. In such investigations the 
 accountant may have the disagreeable duty to perform of 
 reporting upon the inefficiency or misconduct of some of the 
 officials of the concern. Sometimes it is found that the 
 directors are personally liable — as, for example, if they have 
 paid dividends out of capital, have issued false Balance 
 Sheets, or made representations to creditors knowing them 
 to be false. Investigations have to be made into the estates 
 of insolvent debtors, not only for the purpose of ascertaining 
 how the business has become insolvent, but also very often 
 for the purpose of finding out and recovering any assets 
 which may have been parted with by the debtor to the 
 detriment of the general body of the creditors. A debtor, 
 for example, sometimes gives a preference to certain of his 
 creditors, such as relations, and thereby defrauds his other 
 creditors. There have been also many cases of insolvent 
 debtors concealing their assets. Sometimes also it is found 
 that fictitious liabilities are alleged by insolvent debtors, 
 with the view of getting a lower rate of composition 
 accepted. 
 
 On the death or retirement of a partner it is usually 
 advisable to have the books of the concern gone over by an 
 accountant, in order that the representatives of the deceased 
 
illl 
 
 II 
 
 
 332 ACCOUNTING IN THEORY AND PRACTICE 
 
 partner or the retiring partner may be satisfied that the 
 firm's affairs are being settled impartially, and in terms of 
 the deed of co-partnery. 
 
 When business premises are acquired by a corporation 
 under the powers of an Act of Parliament, the amount of 
 compensation to be paid to the owner of the business 
 depends to a large extent upon the profit he has been 
 earning, as it is this profit which has become endangered 
 by the compulsory removal, and it is usually upon so many 
 years' purchase of the average profit that the amount of 
 compensation is based. 
 
 Investigations also require to be made when accounts 
 become confused either through incompetency, fraud, or, it 
 may be, the death of those in charge of executries and 
 trusts. 
 
 Accounts which require to be investigated are, as a rule, 
 in all states of incompleteness, and it is the duty of the 
 accountant to place them upon a proper footing, so far as 
 the particulars available will allow. Thus the books sub- 
 mitted to an accountant may be kept by " single entry," as 
 it is called, and the accountant will have to prepare such 
 accounts as will enable him to frame a true Profit and Loss 
 Account. Sometimes in trusts and executries the only in- 
 formation available is of the most meagre description, and 
 recourse has to be had to banks and others for statements 
 of their accounts, and the Trust or Executry Accounts have 
 to be framed from such material as can be thus obtained. 
 Such matters involve much labour, and the resulting states 
 are, of course, never so satisfactory and reliable as properly 
 framed accounts. 
 
 The accountant should satisfy himself that all the 
 liabilities appear in the books. The Order Books, Invoices, 
 and Purchases Day Book should certainly be examined for 
 the last month or two, if it is impossible to examine them 
 thoroughly. It should be seen that rents, rates, taxes, light, 
 water, interests, and other fixed or periodical payments are 
 fully charged up to date. In bankruptcy investigations the 
 
 INVESTIGA TIONS 
 
 333 
 
 accountant should get, if at all possible, statements of their 
 accounts direct from the creditors, together with particulars 
 of any securities they may hold. It is usual to put a request 
 for this in the notice calling the meeting of creditors at 
 which the state of affairs is to be submitted. 
 
 Assds. 
 
 The accountant should be careful that the book debts 
 in the Balance Sheet are correct in amount, and that all 
 trade discounts are provided for. Sometimes the cash dis- 
 counts are also provided for. The accounts due by customers 
 should be divided into good, doubtful, and bad. The length 
 of time a debt has been standing often indicates in which 
 category it should be entered. A certain percentage may 
 be written off for debts which may prove bad, but which are 
 not definitely known to be either bad or doubtful. The 
 past experience of the business in this respect will be the 
 best guide. 
 
 The stock sheets should be carefully checked, and if at 
 all possible it is advisable to have independent valuations 
 by outsiders. The arithmetical accuracy of all extensions 
 and additions of the stock sheets should be carefully 
 checked. 
 
 The value of the plant and machinery should be certified 
 by valuations made for the special purpose of the investiga- 
 tion, unless there are valuations of recent date in existence 
 which are of sufficient weight to be accepted. 
 
 Fro fit afid Loss Account. 
 
 The item of net profit is not by any means the most 
 important item in a Profit and Loss Account. Accountants 
 are often required to investigate the books and accounts of 
 a concern with the view of ascertaining not only what the 
 profit has been, but mainly with the view of advising how 
 the profit may be increased in future. To facilitate such 
 investigations the Profit and Loss Account must be modified 
 from our usual notions of how it should be formed, and for 
 
334 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 PERCENTAGE STATEMENTS 
 
 335 
 
 
 ill 11! I 
 
 each diflerent business the most suitable form must be 
 adopted. The margin of profit is now so very small, and 
 competition in every branch of trade necessitates prices 
 being cut so fine, that a merchant or manufacturer requires 
 to know with exactness the cost of production and the 
 expenses of managing his business, so that he may always 
 be sure of earning a fair profit. The Profit and Loss 
 Account of a business, properly arranged and classified, for 
 a series of years enables any one comparing one year with 
 another to ascertain the cause of any variation in the 
 
 profits. 
 
 The figures of a Profit and Loss Account standing alone 
 
 are not easily grasped; and as in an investigation it is 
 
 absolutely essential that the full significance of the figures 
 
 of the revenue accounts should be appreciated, it is necessary 
 
 to take advantage of every means by which these figures 
 
 may be more easily compreliended. More especially is this 
 
 the case with Profit and Loss Accounts for a series of years 
 
 where the gross profit, charges, and net profit seem to go up 
 
 and down without any apparent law, and it is only when 
 
 the figures are reduced to some common ratio that the extent 
 
 of such fluctuations can be ascertained, and the reason of such 
 
 changes found out. The common ratio to which all the 
 
 entries in a Profit and Loss Account are usually reduced is 
 
 the percentage of the various items to either the sales or the 
 
 cost of the goods used. It is a convenient method to show 
 
 the percentage which each item in a Profit and Loss Account 
 
 bears to the total sales or turnover in a column adjoining 
 
 the items of income and expenditure. It is then possible 
 
 to grasp the full significance of the figures and their relation 
 
 to one another. One year's trading may be compared with 
 
 that of another year or of several years, and any fluctuation 
 
 becomes at once apparent, and its cause may be investigated. 
 
 Sometimes it is desirable to show the percentages in a 
 
 separate statement, more especially if two or more Profit 
 
 and Loss Accounts are to be compared. 
 
 PERCENTAGE STATEMENTS 
 
 PREPARED FROM PROFIT AND LOSS ACCOUNTS 
 
 It is not sufficient for a merchant or manufacturer to 
 know merely the amount of the profit he has made during 
 any period. He must know exactly how it has arisen, and 
 ne ascertains this from the Profit and Loss Account and its 
 various branches. In any business, when a series of such 
 accounts for a number of years have been regularly prepared 
 on the same basis, the reason of any variation in the profit 
 can by comparison be ascertained, and any deficiency or 
 weakness in the business located, and steps can then be 
 taken to prevent further leakage. A merchant is thus 
 enabled to lay his finger on the weak point in his business, 
 and by taking action at once may avert ruin and disaster. 
 A fall in net profit may be due (1) to a decrease in the 
 turnover, (2) to a fall in the prices realised, or (3) to an 
 increase in the cost, (4) a rise in the expenses of manage- 
 ment, or (5) to a combination of these causes. To compare 
 Profit and Loss Accounts for a series of years it is necessary 
 to reduce the items of which they are made up to a common 
 denominator, and this is accomplished by finding the ratio 
 which each item in the series bears either to the sales or 
 to the cost of the goods. A convenient way to do this is 
 to calculate the percentage of sales or cost of goods which 
 is gross profit, expenses, and net profit In most businesses 
 it is better to take the sales or the turnover as the standard 
 of comparison, while in others it is preferable to take the 
 cost of goods. Sometimes the basis of comparison is the cost 
 of each article produced. In the case of colliery companies 
 the basis is usually the cost per ton of coal sold. 
 
 When the percentages which the expenses, *^^he gross 
 profit, and the net profit of a business amount to are 
 considered, it is usually with reference to the selling price 
 of the goods. Percentage statements are frequently also 
 drawn up in relation to the cost price. Thus, suppose that 
 the expenses of a business amount to 30 per cent of the 
 

 } 
 
 
 
 336 ACCOUNTING IN THEORY AND PRACTICE 
 
 turnover, aud a net profit is desired at the rate of 10 per 
 cent of the turnover. These percentages together make 40 
 per cent, but it would not do to add 40 per cent to the 
 first cost of an article in order to arrive at the price. If 
 the selling price of the article be taken as £100, then the 
 cost of the article is evidently £60, and the amount 
 reserved for profit and expenses being £40, it is evident 
 that the expenses and profit borne by each £1 of original 
 cost is J§. £100 of cost must therefore bear ^§ X 100, 
 = 66|^, so that, if a merchant wishes to make a net profit 
 of 1 per cent on the selling price of an article, of which 
 the original cost is 60 per cent and the expenses 30 per 
 cent, he must add to the cost price 66§ to arrive at the 
 selling price. Thus if the cost of an article is 58., if we 
 add 40 per cent to this sum we have 7s., but as of this 
 selling price of 7s. 30 per cent, or 2s. Id., is required for 
 incidental expenses, we would really be selling the article at 
 a loss of Id., or more exactly, IJd., and the more articles 
 we sold the more we would lose. The proper selling price 
 of the article is 8s. 4d., and of this 5s. is the original cost, 
 2s. 6d., or 30 per cent, is the amount required for incidental 
 expenses, and lOd. is the amount of net profit. 
 
 The treatment of such Items as Repairs in preparing 
 
 Perceniage Statements. 
 
 In adjusting Profit and Loss Accounts with the view of 
 calculating percentages, such items as repairs, which fluctuate 
 very much from year to year, should be averaged, and the 
 same amount charged against profit each year. As the 
 repairs actually incurred vary from year to year, if the 
 same amount is debited each year to the Profit and Loss 
 Account a balance will require to be carried forward in the 
 Eepairs Account each year, which may either be on the 
 debit or credit fide. This balance, if a debit one, will 
 appear in the Balance Sheet as an asset under the head of 
 " Eepairs paid in advance," or " Eepairs taken as an asset," 
 and if a credit balance, among the liabilities under the 
 heading of " Eeserve for Eepairs." 
 
 PERCENTAGE STATEMENTS 
 
 337 
 
 To calcvlate a Series of Percerda/jes. 
 
 When it is required to find the percentages which a 
 number of figures, such as the expenditure items in a Profit 
 and Loss Account, bear to one figure, such as the turnover, 
 there are various ways in which a considerable amount of 
 the labour involved may be saved. The resulting per- 
 centages are not, as a rule, required to extend beyond two 
 places of decimals, and the method of using four-place 
 logarithms works out very satisfactorily. A very accurate 
 method, and one involving Httle labour, is to prepare a 
 table of the products of the divisor. Another method is to 
 reduce the divisor to a decimal and multiply the different 
 items by this figure, thus substituting one division and 
 several multiplications for several divisions, division being a 
 much more tedious operation than multiplication. 
 
 The working of the three different methods is shown in 
 the following example : — 
 
 It is required to find the percentages which the different 
 items on the expenditure side of the following Profit and 
 Loss Account bear to the sales : — 
 
 Profit and Loss Account of a Military Tailor and 
 Clothier's Business for One Year. 
 
 Expenditure, 
 
 Income. 
 
 To Cost of goods : — 
 
 Stock at beginning of 
 
 year . . £3165 
 
 Purchases during year 3073 
 
 By Sales 
 
 i:i)199 
 
 £6238 
 Deduct — 
 Stock at end of year . 3179 
 
 M Wages. 
 
 £3059 
 2053 
 
 £5112 
 „ Gross profit carried 
 
 down . . . 4087 
 
 £9199 
 
 £9199 
 
338 ACCOUNTING IN THEORY AND PRACTICE 
 
 PERCENTAGE STATEMENTS 
 
 339 
 
 Profit and Loss Account — Continued. 
 ExpendUure. Income. 
 
 i 
 
 To Rent and taxes 
 Trade charges 
 
 
 Salaries 
 Bad debts 
 
 „ Net profit . 
 
 £633 
 
 
 
 
 
 Jf40 
 
 
 
 
 
 263 
 
 
 
 
 
 120 
 
 
 
 
 
 £1356 
 
 
 
 
 
 2731 
 
 
 
 
 
 £4087 
 
 
 
 _0 
 
 By Gross profit brought 
 
 down . . . £4087 
 
 £4087 
 
 The items on the expenditure side of the above Profit 
 and Loss Account are as follows : — 
 
 Cost of goods . 
 Wages . 
 Gross profit . 
 Kent and taxes 
 Trade charges 
 Salaries . 
 Bad debts 
 Net profit 
 
 £3059 
 
 2053 
 
 4087 
 
 633 
 
 340 
 
 263 
 
 120 
 
 2731 
 
 It is required to find the percentages which the above 
 figures bear to the item of Sales, £9199. 
 
 First Method. — Using four-place Logarithms. 
 
 The working-out of the percentages of the different 
 items, using four-place logarithms, will be seen from the 
 following statement : — 
 
 Name of Item 
 
 Amount 
 
 Logarithm 
 of Amount. 
 
 Adding "2-0863 to 
 
 each figure in 
 
 the previous colunm. 
 
 Percentages 
 to Sales. 
 
 Cost of goods . 
 "Wages 
 Gross profit 
 Rent and taxes 
 Trade charges . 
 Salaries . 
 Bad debts 
 Net profit 
 
 £3059 
 
 2053 
 
 4087 
 
 633 
 
 340 
 
 263 
 
 120 
 
 2731 
 
 3-4856 
 3-3124 
 3-6115 
 2-8014 
 2-5315 
 2-4200 
 2-0792 
 3-4364 
 
 1-5219 
 
 1-3487 
 
 1-6478 
 
 •8377 
 
 •5678 
 
 -4563 
 
 •1155 
 
 1-4727 
 
 33-26 
 
 22-32 
 
 44-44 
 
 6-88 
 
 3-70 
 
 2-86 
 
 1-31 
 
 29-70 
 
 The first and second columns give the description of 
 the item and the amount. The third column gives the 
 logarithm of each amount. The fourth column is arrived 
 at by adding 2 '03 63 to the figures in the third column. In 
 order to find the percentage of any one of the items to Sales, 
 
 we must multiply that item by , the 9199 being the 
 
 9199 
 amount of the sales, and the logarithm of 
 
 100 
 9199 
 
 is 20363, 
 
 as follows : — 
 
 100 
 
 Logarithm ^^00 = logarithm 100 - logarithm 9199 ; 
 
 = 2-3-9637, 
 = 20363. 
 
 2*0363 is therefore added to each logarithm given in 
 the third column, and the result, as given in the fourth 
 column, is the logarithm of the percentage required. By 
 finding the natural numbers of the logarithms in the fourth 
 column the percentage to Sales is found. These percent- 
 ages are not absolutely correct in the last figure of the 
 decimal, but are usually sufficiently accurate for practical 
 purposes. 
 
 Second Method. — Using Tables of Products. 
 
 The divisor is 9199, and to form a table of products it 
 is only necessary to write the numbers from 1 to 10 under- 
 neath each other. Opposite 1 put 9199; also place 9199 
 at the foot of a slip of paper; place it over the 9199 
 opposite the 1, and add it to the 9199, placing the sum 
 opposite the 2 ; again add 9199 to the figure opposite the 
 2, which will give the figure to go opposite the 3, and so on. 
 When 10 is reached, the accuracy of the intervening figures 
 is at once proved by the figure opposite 10 being the same 
 figure as that opposite 1 multiplied by 10. The table so 
 produced is simply an extended multiplication table, and, 
 instead of multiplying, reference is merely made to the 
 table and the figures copied down. The working may be 
 
340 ACCOUNTING IN THEORY AND PRACTICE 
 
 Still further simplified by adopting the rules of contracted 
 division, as shown in the second half of the figures given. 
 The table of products in this case would be as follows : — 
 
 1 
 
 9199 
 
 3 
 
 18398 
 
 8 
 
 27597 
 
 4 
 
 36796 
 
 6 
 
 45995 
 
 6 
 
 55194 
 
 7 
 
 64393 
 
 8 
 
 73592 
 
 9 
 
 82791 
 
 10 
 
 91990 
 
 Using the above table of products, the working of the 
 first half of the items, using the ordinary method of division, 
 is as follows : — 
 
 I Cost of goods. 
 
 9199)305900(33-253 
 27597 
 
 29930 
 27597 
 
 23330 
 18398 
 
 49320 
 45995 
 
 33250 
 27597 
 
 2. Wages. 
 
 9199)205300(22-317 
 18398 
 
 21320 
 18398 
 
 29220 
 27597 
 
 16230 
 9199 
 
 70310 
 64393 
 
 PERCENTAGE STATEMENTS 
 
 341 
 
 3. Gross profit. 
 
 4. Kent and taxes. 
 
 9199)408700(44-428 
 36796 
 
 9199)63300(6-881 
 55194 
 
 40740 
 36796 
 
 39440 
 36796 
 
 26440 
 18398 
 
 80420 
 73592 
 
 81060 
 73592 
 
 74680 
 73592 
 
 10880 
 9199 
 
 The working of the other half of the items, using con« 
 tracted division and the table of products, is as follows : — 
 
 5. Trade charges. 
 
 6. Salaries. 
 
 9199)34000(3-696 
 27597 
 
 9199)26300(2-859 
 18398 
 
 6403 
 5519 
 
 7902 
 7359 
 
 884 
 828 
 
 543 
 
 460 
 
 56 
 55 
 
 83 
 S3 
 
 H 
 
342 A ceo UNTING IN THEOR Y AND PRA CTICE 
 
 7. Bad debts. 
 
 8. Net profit. 
 
 9199)12000(1-304 
 9199 
 
 9199)273100(29-688 
 18398 
 
 2801 
 2760 
 
 41 
 S7 
 
 89120 
 82791 
 
 6329 
 5519 
 
 810 
 736 
 
 74 
 74 
 
 Thibd Method. — Reducing the Divisor to a Decimal and 
 
 Multiplying. 
 
 The divisor is 9199, and this reduced to a decimal is 
 •0001087. Any of the items multiplied by this figure 
 would give the amount per unit, and in order to get the 
 amount per cent it is necessary to multiply this figure by 
 100. The different items are, therefore, multiplied by 
 •01087, and the results are the percentages of these items 
 
 to Sales. 
 
 This method may be still further simplified by using 
 the contracted method of multiplication, as shown in the 
 working-out of the second half of the items. 
 
 1. Cost of goods. 
 
 2. Wages. 
 
 3059 
 •01087 
 
 •21413 
 2-4472 
 30-590 
 
 33-25133 
 
 • 2053 
 •01087 
 
 •14371 
 1-6424 
 20-530 
 
 22-31611 
 
 PERCENTAGE STATEMENTS 
 
 343 
 
 3. Gross profit 
 
 4087 
 -01087 
 
 -28609 
 3-2696 
 40-870 
 
 44-42569 
 
 4. Rent and taxes. 
 
 633 
 
 •01087 
 
 -04431 
 •5064 
 6-330 
 
 6-88071 
 
 Using the contracted method of multiplication, the 
 working of the second half of the items is as follows : — 
 
 6. Trade charges. 
 
 340 
 •01087 
 
 6. 
 8. 
 
 Salaries. 
 Net pro 
 
 263 
 •01087 
 
 3400 
 
 272 
 
 24 
 
 2630 
 
 210 
 
 18 
 
 3-696 
 
 2-858 
 
 7. Bad debts. 
 
 120 
 -01087 
 
 fit. 
 
 2731 
 
 •01087 
 
 1200 
 
 96 
 
 8 
 
 27310 
 
 2185 
 
 191 
 
 1-304 
 
 29-686 
 
Mp 
 
 li i 
 
 344 ACCOUNTING IN THEORY AND PRACTICE 
 
 Profit and Loss Account 
 
 OF Military Tailor and Clothier 
 
 Shotoing Percentages, 
 Expenditure, 
 
 Income, 
 
 To Cost of goods . 
 „ Wages 
 
 Per Cent 
 
 of Sales. 
 
 33-25 
 
 22-32 
 
 £3059 
 2053 
 
 By Sale* 
 
 By Gross profit brought 
 down . 
 
 Per Cent 
 of Sales. 
 100-00 
 
 £9199 
 
 „ Gross profit earned 
 down . 
 
 55-57 
 44*43 
 
 £5112 
 4087 
 
 
 
 100-00 
 
 £9199 
 
 100-00 
 44*43 
 
 £9199 
 
 To Rent and taxes 
 ,, Trade charges . 
 ,, Salaries . 
 „ Bad debts 
 
 6-88 
 3-70 
 2-86 
 1-30 
 
 £633 
 340 
 263 
 120 
 
 £4087 
 
 „ Ket profit 
 
 14-74 
 29-69 
 
 £1356 
 2731 
 
 
 
 44*43 
 
 £4087 
 
 44-43 
 
 £4087 
 
 In filling up the above statement the results by the 
 second method have been adopted, as these are more correct 
 than by the first method, although for practical purposes 
 either of the other methods is usually quite satisfactory. 
 
 Curves and Diagrams. 
 
 For showing the rise and fall of purchases, sales, 
 charges, gross profit, and net profit, the graphic method 
 of demonstration is of considerable value. The study of 
 such graphs enables those who have little knowledge of the 
 relative values of numbers to grasp at once the trend of a 
 series of figures. The graphic method of displaying com- 
 parative results of all kinds in connection with commerce 
 is of immense value. It is impossible to grasp the correct 
 meaning of column after column of figures, and even when 
 these are reduced to percentages the difficulty is still great. 
 When, however, the figures are displayed in the form of 
 
 RECONCILIATION STATEMENTS 
 
 345 
 
 diagrams or curves, their effect is at once apparent, and valu- 
 able hints may be derived from the study of the resulting 
 curves. The subjects to which this method may be applied 
 are numerous, and of course the results vary considerably. 
 
 Thus, in an engineering establishment the tons of coal 
 consumed each month may be shown by taking a sheet of 
 paper ruled into small squares, sometimes called logarithmic 
 paper, through being used to a large extent for calculations 
 in which logarithms are used. The vertical divisions may 
 be taken to represent hundreds of tons, and the horizontal 
 divisions to represent time in months. By this means the 
 coal consumed may be compared one year with another, 
 and the effect of the introduction of a new system of 
 heating or a new kind of coal may be at once seen. In 
 the event of the engine being stopped for any number of 
 days this would require of course to be carefully noted, and 
 duly allowed for. 
 
 Where it is desired to arrive at an average in com- 
 plicated cases, in which the paucity of the data makes other 
 methods unreliable, the graphical method is of great assist- 
 ance. The facts are recorded by small dots in pencil, and 
 when these have been completed a curve is run through 
 among these dots in ink, which forms the average. 
 
 RECONCILIATION STATEMENTS 
 
 When an accountant is employed to prepare Profit and 
 Loss Accounts of a concern where such accounts have 
 already been regularly prepared, either by the managers of 
 the concern or by some other accountant, the resulting 
 Profit and Loss Accounts often differ from those already in 
 existence. In such cases it is of great advantage to have 
 the new accounts reconciled with the old. In arbitration 
 cases, for example, the accountants on the two sides may 
 submit Profit and Loss Accounts which differ considerably, 
 and it is of great advantage to have a concise statement 
 showing exactly where the differences occur. The details of 
 
 
346 ACCOUNTING IN THEORY AND PRACTICE 
 
 RECONCIUATION STATEMENTS 
 
 347 
 
 the accounts may be very conveniently compared by placing 
 the items of each account in parallel money columns with 
 other two money columns showing the increase and the 
 decrease opposite each item. By this means the items in 
 which the two accounts differ are at once seen, and the 
 differences are narrowed down so as to be readily discussed. 
 The statement prepared should be such an one as counsel — 
 who, as a rule, have little liking for figures — can readily 
 comprehend, and if it is advisable that it should be lodged 
 in process it should be such a statement as will appeal to 
 the arbiter. Items which appear in one account for which 
 there are no corresponding items in the other would be at 
 once apparent, as well as items which were the same in 
 both accoimts. From this statement a further statement 
 could be prepared showing the differences, and explaining 
 them in detail The accountant would then have state- 
 ments to submit to his own counsel or to the arbiter show- 
 ing exactly the differences and how they were accounted 
 for. Thus, supposing the capital of a trust estate had been 
 given as £8000, and that after you had examined the 
 accounts you found that the capitjd amounted to £7897, 
 you would have some such paragraph in your report as 
 follows : " The amount of the capital of the estate as given 
 by the defenders is £8000, the amount of the capital as 
 shown in the abstract appended to this report is £7897, a 
 decrease of £103, which is accounted for thus: — 
 
 "The following payments which have been charged 
 against Kevenue should be charged against Capital : — 
 
 "June 30. Duplicand in connection with the 
 London Eoad property 
 
 ** July 3. Law expenses in connection with the 
 allocation of Oswald Street feu- 
 duty 
 
 " 1 4. Cost of new pavement at London 
 Koad property required by local 
 authority ..... 
 
 " Decrease as above . 
 
 £40 
 
 3 
 
 60 
 
 £103 0" 
 
 A Reconciliation Statement in connection with a firm's 
 profits, prepared for the information of counsel, is also sub- 
 mitted. 
 
 Statement prepared by John Scott, C.A., for the infor- 
 mation of Counsel, reconciling the Net Profit of the 
 firm of Messrs. Craig & Young for the year, as 
 shown in the Statement prepared by the Claimant's 
 Accountants, with the true Net Profit. 
 
 Profit for year, as per statement submitted by 
 
 firm's accoimtants .... £2047 8 9 
 
 Deductions : — 
 
 Bent of premises, as per Valua- 
 tion Boll, which should be 
 charged .... £120 
 
 Depreciation on furniture, 
 fittings, machinery, etc. 
 
 Sum included under dona- 
 tions, but really chargeable 
 as expenses 
 
 50 
 
 1 12 7 
 
 £171 12 
 Provision for bad debts : — 5 
 per cent on £16,0 2 2 6s.5d.of 
 sales .... 801 
 
 2 3 
 
 
 
 
 
 £972 14 10 
 
 Additions :— 
 
 
 
 
 
 Donations and 
 
 
 
 
 
 charities, sum 
 
 
 
 
 
 charged before 
 
 
 
 
 
 arriving at net 
 
 
 
 
 
 profit given 
 
 
 
 
 
 above 
 
 £61 
 
 19 
 
 1 
 
 
 Bad debts actually 
 
 
 
 
 
 incurred . 
 
 185 
 
 9 
 
 
 
 
 Carry forward £247 8 1 £972 14 10 £2047 8 9 
 
348 ACCOUNTING IN THEORY AND PRACTICE 
 
 Brought forward £247 8 1 £972 U 10 £2047 8 9 
 
 New packing 
 machine, pur- 
 chased 5th 
 January, and 
 debited errone- 
 ously to Charges 120 16 
 
 Interest on bonds 
 for £1900 over 
 buildings, de- 
 bited errone- 
 ouslytoCharges 78 
 
 AUDITORS' DUTIES AND RESPONSIBILITIES 349 
 
 446 4 1 
 
 526 10 9 
 
 True net profit as certified by ac- 
 countant £1520 18 
 
 THE DUTIES AND KESPONSIBILITIES OF AN 
 
 AUDITOR 
 
 The duties and responsibilities of an auditor are to a 
 large extent undefined, but the tendency of recent decisions 
 is to make an auditor's responsibilities much greater than 
 formerly. It is the auditor's duty to conscientiously employ 
 every faculty, and exercise every precaution, to the utmost 
 of his ability, in conserving the rights of his clients and 
 arriving at the true results disclosed by his examination and 
 audit of the accounts submitted to him. His report on his 
 examination should be prepared with the utmost impartiality, 
 and he should see that his clients are thoroughly informed 
 upon all important matters which may have arisen in the 
 course of his work. 
 
 The examination of accounts by an auditor is undertaken 
 for the following purposes : — 
 
 1. To detect any error, whether of omission or commission. 
 
 2. To see that the accounts are so stated as to give all 
 
 information required for economical management and 
 organisation, and to expose any extravagance to those 
 interested. 
 
 3. To ascertain that all regulations of a financial kind, 
 
 whether contained in Acts of Parliament, deeds of 
 co-partnery, agreements, resolutions, or other regula- 
 tions which apply to the accounts under examination, 
 have been properly complied with. 
 
 4. To certify the accuracy of the accounts. 
 
 The auditor should inspect all vouchers, contracts, 
 securities, and other evidence which instruct the receipts 
 and payments. All vouchers should be initialled in red ink 
 or stamped to prevent their being used again. No voucher 
 for a payment should be accepted of which the details are 
 not known or given, but which merely states " to balance 
 due." It is sometimes necessary to examine the paid 
 cheques, both as to date and endorsation, to see that a pay- 
 ment was really made to the proper party at the time 
 stated. The auditor should also have produced to him satis- 
 factory vouchers in support of the various assets in the 
 Balance Sheet, both as regards their existence and the value 
 put upon them. He should personally inspect and initial 
 all bonds, stock certificates, and other evidence of the exist- 
 ence of the assets. The values put upon all stocks and 
 shares can be readily verified by reference to the published 
 lists which the auditor should keep filed in his ofi&ce. 
 
 It is one of the auditor's most important and most 
 difficult duties to see that suitable provision is made for all 
 probable losses, that proper reserves are made, and that all 
 sinking funds have the proper sum placed to their account. 
 
 An auditor should be specially careful that nothing 
 which should be charged to Revenue has been capitalised, 
 and that an adequate sum has been charged against Revenue 
 for depreciation. Such assets as preliminary expenses, 
 expiring patent rights, and goodwill should be carefully 
 scrutinised in order to determine that they have been in the 
 past sufficiently written down, and that the value put upon 
 them is reasonable. The auditor should also see that full 
 provision has been made for bad debts, discounts, etc. He 
 should also satisfy himself that all accrued liabilities in 
 respect of rent, taxes, wages, etc., have been provided for. 
 He should see that stock has been taken at cost, and that 
 
 iiii 
 
 % \ 
 
350 ACCOUNTING IN THEORY AND PRACTICE 
 
 all assets are fairly stated and every liability included in the 
 Balance Sheet 
 
 
 'if 
 
 -I 
 
 First Audits, 
 
 In auditing the accounts of a business for the first 
 time the auditor should have submitted to him a complete 
 list of the books kept, and he should prepare a list giving 
 the titles of the books, particulars of the period covered by 
 the entries in the books, and the name of the clerk or 
 clerks in charge of each book. In making investigations 
 it is a very good plan for an accountant to initial or stamp 
 each book in some corner where his initials will not be 
 readily seen, but by means of which he will be able to 
 tell at any future time that he has examined the book. It 
 is well also for an auditor or his clerks to initial or stamp 
 all vouchers, securities, contracts, or other important papers 
 produced to him, as he is thus enabled to identify at any 
 future time any books or documents which have passed 
 through his hands. 
 
 Cash on Hand, 
 
 Where the cash on hand is not regularly paid into 
 bank, so that only a nominal sum appears on hand, the 
 auditor should actually count the cash on hand on the day 
 of the balanca If he does not do so he should check it 
 on the day of his audit by getting the Cash Book written 
 up to date, auditing the entries that have been made since 
 the close of the accounts, and counting the cash on hand 
 on the day of his audit 
 
 The first thing an auditor should do in entering upon 
 his duty of audit of a business is to reconcile the Bank 
 Account with the Bank Pass Book and the certificate of 
 the bank balance signed by the bankers. 
 
 Partnership Accounts, 
 
 In auditing the accounts of a partnership the auditor 
 should, to begin with, obtain possession of the deed of 
 co-partnery, and make an exact copy of it for his use in 
 
 AUDITORS* DUTIES AND RESPONSIBILITIES 351 
 
 future. He should then prepare short notes on the 
 contract showing the financial regulations which will re- 
 quire to be given effect to. These notes should show the 
 capital subscribed by the partners, the allocation of the 
 profits, the allowance of interest on the partners* Capital 
 Accounts, any limitation of partners' drawings, the date 
 upon which the books are to be balanced, and any stipula- 
 tion as to the period within which the accounts are to be 
 docquetted as correct and accepted by the partners. The 
 auditor should also take note of the duration of the co- 
 partnery, together with the method of its dissolution. 
 These notes are meant to be referred to at each period of 
 balance, and obviate the necessity of reading over the 
 whole contract at each audit. It is the auditor's duty to 
 see that the accounts are prepared exactly on the lines 
 laid down in the contract, and where any deviation is 
 necessitated it is his duty to get the sanction of the 
 members of the co-partnery. When slight alterations are 
 made on a contract it is convenient to get the partners to 
 sign a short minute endorsed on the deed of co-partnery. 
 
 Companies. 
 
 In a company audit it is the duty of the auditor to 
 peruse the Prospectus, Memorandum and Articles of 
 Association of the company, together with the minutes 
 both of the directors and of the shareholders' meetings, to 
 see that they contain authority for any of the transactions 
 of the company requiring such authority. The accounts 
 must be prepared in conformity with the regulations of the 
 company, whether these are contained in a special Act or the 
 general Companies Acts. In the case of a first audit, the 
 books relating to the issue of the share capital should be 
 carefully checked with the applications for shares and the 
 letters of allotment which will have been returned to the 
 company in return for the share certificates. The counter- 
 foils of the share certificates should also be checked. 
 
 All transactions in connection with the share capital, 
 whether in the allotment book or in the register of 
 
 i 
 
352 ACCOUNTING IN THEORY AND PRACTICE 
 
 I i\ 
 
 transfers, should be recorded in the minutes of the directors. 
 The item of preliminary expenses, as a rule, requires to be 
 carefully scrutinised. Preliminary expenses consist of the law 
 expenses in connection with the preparation of the Memo- 
 randum and Articles of Association, printing these and the 
 Prospectus, issuing the Prospectus, expenses of registration, 
 brokerage or under-writing, stamp duties, etc., which are 
 directly incurred in floating the company. Preliminary 
 expenses should be written ofiF as soon as possible. 
 
 Where the title-deeds and other securities instructing 
 the assets of a company are, as is usual, in the custody of 
 the law agents of the company, the auditor, in addition to 
 satisfying himself that the deeds are in existence, should 
 get a list of all such deeds from the law agents, with a 
 certificate appended stating that they are in order, and are 
 held by them for the company. 
 
 On the completion of the audit the auditor makes his 
 report to the shareholders in terms of the Companies Consoli- 
 dation Act, 1908, sec. 113, or any special Act applicable. 
 The shareholders are entitled to rely on their auditor to 
 protect their interests, and his acceptance of office involves 
 his acceptance also of the responsibility of acquainting them 
 with such facts as they ought to be put in possession of. 
 
 Partial Audits, 
 
 Sometimes an auditor is instructed only to make a 
 partial audit of accounts, and it may be left to him to 
 determine on his own judgment what he should do. In 
 such a case the additions of all the books of original entry 
 should be verified. Journal entries should be carefully 
 scrutinised, and the posting of all goods, revenue, and 
 property accounts should be checked. The Cash Book 
 should, if at all possible, be fully vouched. Where the 
 posting of personal ledgers is not checked, the auditor 
 should endeavour to get the books put upon such a system 
 as will enable him to make the personal ledgers self- 
 balancing by abstracts of them being kept in the General 
 Ledger. In many large concerns it is obviously impossible 
 and inexpedient to check thoroughly at each audit the 
 
 m 
 
 A UDITS 
 
 353 
 
 whole transactions, and the auditor should therefore vary 
 his work from time to time. This will have the same 
 moral effect upon the stafif as a complete audit, as they will 
 be uncertain as to which portion of the work will next 
 come under the close examination of the auditor. 
 
 AUDITS 
 
 Commercial Accounts. 
 
 The steps in the audit of the usual run of commercial 
 accounts may be shortly set forth as under : — 
 
 Reconciliation of Bank Pass Book with Bank Account 
 and amount shown in Ledger. 
 
 Examination of the vouchers of the Cash Book as to 
 date, amount, sufficiency of voucher and dis- 
 charge, correctness of entry, specially distinguish- 
 ing between Revenue and Capital. 
 
 Examination of Travellers' Cash Books, Petty Cash 
 Books, Postage Books, and wages sheets. 
 
 Summation of Cash Book. 
 
 Invoice Book. 
 
 Day Book or Sales Book. 
 
 Bill Book, bills receivable, accommodation bills. 
 
 Journal for opening and closing entries. 
 
 Depreciation. 
 
 The posting should be checked from the Ledger 
 Accounts outwards, if not of all, certainly of the 
 Profit and Loss and Property Accounts. 
 
 Examination of stock sheets, securities, title-deeds, etc. 
 
 Comparison of Profit and Loss Account and Balance 
 Sheet with those of previous years. 
 
 Preparation of report on audit, giving, where necessary 
 or advisable, percentages. 
 
 Office Regulaticms to prevent Fraud, 
 
 The following office regulations have been framed with 
 the view of preventing loss through fraud, and have been 
 found in practice to work satisfactorily : — 
 
 2 A 
 
354 ACCOUNTING IN THEORY AND PRACTICE 
 
 Cash received to be paid into bank daily. 
 All payments to be made by cheque wherever practic- 
 able. 
 The cashier not to keep the personal ledgers. 
 Counterfoil receipt books to be used, and receipts 
 
 given for all cash received. 
 Vouchers to be produced for all payments. 
 Cash to be balanced daily, and details of cash shown 
 
 in book kept for the purpose. 
 Invoices for goods purchased to be initialled as correct 
 
 by the receiver of the goods, and by the person 
 
 who ordered them. 
 Accounts, wages sheets, and statements of pajrments 
 
 to be initialled by a partner before being paid. 
 The extensions of all invoices for goods sold to be 
 
 checked before the invoices are sent out. 
 Clerks in charge of personal ledgers to be changed. 
 Cashier and clerks to take their regular holidays, and 
 
 in their absence their work to be done as usual 
 
 by other clerks. 
 
 AVERAGE DUE DATE 
 
 When sums are due at various dates it is often desir- 
 able, instead of paying the sums at the dates when they 
 fall due, to find the date upon which the total sum may be 
 paid so as to equitably give effect to the various dates 
 upon which the various portions of the total sums are 
 payable. This date is called the average due date, or the 
 equated time. To calculate the average due date upon 
 
 WHICH the total OF SEVERAL SUMS FALLING DUE AT VARIOUS 
 DATES SHOULD BE PAID, FIX UPON ANY ONE OF THE VARIOUS 
 DATES, AND MULTIPLY THE VARIOUS AMOUNTS BY THE NUMBER 
 OF DAYS BETWEEN THIS DATE AND THE DATES UPON WHICH 
 THE SUMS FALL DUE : DIVIDE THE SUM OF THESE PRODUCTS BY 
 THE SUM OF THE AMOUNTS, AND THE RESULT IS THE NUMBER 
 OF DAYS BETWEEN THE DATE FIXED UPON AND THE AVERAGE 
 
 DUB DATE. The reason why one of the various dates is 
 
 AVERAGE DUE DATE 
 
 355 
 
 taken as the date to start from is that by doing so one 
 multiplication is saved. In practice it is usual to count either 
 from the first date forwards or from the last date backwards. 
 Thus, suppose a sum of £1000 is payable as follows : — 
 £250 on 1st February, £50 on 21st March, £500 on 20th 
 May, and £200 on 30th May; the average due date, or 
 the equated time, upon which the £1000 should be paid 
 is 22nd April. The dates, amounts due, days, and products 
 may be arranged very conveniently in a tabular statement, 
 as follows : — 
 
 I 
 
 Date. 
 
 February 1 
 
 March 21 
 
 May 20 
 
 30 
 
 Amount due. 
 
 Days from 
 1st February. 
 
 £250 
 
 50 
 
 500 
 
 200 
 
 £1000 
 
 Product. 
 
 
 
 48 
 
 108 
 118 
 
 
 
 2,400 
 
 54,000 
 
 23,600 
 
 80,000 
 
 Dividing 80,000 by 1000 gives 80 days from 1st 
 February as the equated time. This may be proved as 
 follows : — 
 
 The last sum of £200 is not due until 118 days from 
 the 1st of February, therefore interest on £200 for 118 
 days must be taken into account; but interest on £200 
 for 118 days is the same as interest on their product 
 namely £23,600, for one day. SimHarly, the total 
 mterest on the £1000 payable on the dates above from 
 the 1st of February to these dates is the same as interest 
 on the total of the products, namely £80,000, for one 
 day; but interest on £80,000 for one day is the same 
 
 as interest on £1000 for ?^ days, which is equal to 
 
 80 days. Eighty days added to 1st February gives as the 
 equated time upon which the £1000 should be paid 
 22nd April That this is the correct time may be shown 
 either by actuaUy working out the interest on the various 
 sums payable on the various dates, and showing that it is 
 
 M 
 
 '*! 
 
3S4 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 Cash received to be paid intx) bank daily. 
 All payments to be made by cheque wherever practic- 
 able. 
 The cashier not to keep the personal ledgers. 
 Counterfoil receipt books to be used, and receipts 
 
 given for all cash received. 
 Vouchers to be produced for all payments. 
 Cash to be balanced daily, and details of cash shown 
 
 in book kept for the purpose. 
 Invoices for goods purchased to be initialled as correct 
 
 by the receiver of the goods, and by the person 
 
 who ordered them. 
 Accounts, wages sheets, and statements of payments 
 
 to be initialled by a partner before being paid. 
 The extensions of all invoices for goods sold to be 
 
 checked before the invoices are sent out. 
 Clerks in charge of personal ledgers to be changed. 
 Cashier and clerks to take their regular holidays, and 
 
 in their absence their work to be done as usual 
 
 by other clerks. 
 
 ¥ 
 
 fl; . 
 
 AVERAGE DUE DATE 
 
 When sums are due at various dates it is often desir- 
 able, instead of paying the sums at the dates when they 
 fall due, to find the date upon which the total sum may be 
 paid so as to equitably give effect to the various dates 
 upon which the various portions of the total sums are 
 payable. This date is called the average due date, or the 
 equated time. To calculatb the average due date upon 
 
 WHICH THE TOTAL OF SEVERAL SUMS FALLING DUE AT VARIOUS 
 DATES SHOULD BE PAID, FIX UPON ANY ONE OF THE VARIOUS 
 DATES, AND MULTIPLY THE VARIOUS AMOUNTS BY THE NUMBER 
 OF DAYS BETWEEN THIS DATE AND THE DATES UPON WHICH 
 THE SUMS FALL DUE : DIVIDE THE SUM OF THESE PRODUCTS BY 
 THE SUM OF THE AMOUNTS, AND THE RESULT IS THE NUMBER 
 OF DAYS BETWEEN THE DATE FIXED UPON AND THE AVERAGE 
 
 DUE DATE. The reason why one of the various dates is 
 
 AVERAGE DUE DATE 
 
 355 
 
 taken as the date to start from is that by doing so one 
 multiplication is saved. In practice it is usual to count either 
 from the first date forwards or from the last date backwards. 
 Thus, suppose a sum of £1000 is payable as follows : — 
 £260 on 1st February, £50 on 21st March, £500 on 20th 
 May, and £200 on 30th May; the average due date, or 
 the equated time, upon which the £1000 should be paid 
 is 22nd April. The dates, amounts due, days, and products 
 may be arranged very conveniently in a tabular statement, 
 as follows ; — 
 
 I 
 
 Date. 
 
 February 1 
 
 March 21 
 
 May 20 
 
 30 
 
 Amount due. 
 
 Days from 
 Ist February. 
 
 £250 
 
 50 
 
 500 
 
 200 
 
 £1000 
 
 
 
 48 
 108 
 118 
 
 Product. 
 
 
 
 2,400 
 54,000 
 23,600 
 
 80,000 
 
 Dividing 80,000 by 1000 gives 80 days from 1st 
 February as the equated time. This may be proved as 
 follows : — 
 
 The last sum of £200 is not due until 118 days from 
 the 1st of February, therefore interest on £200 for 118 
 days must be taken into account; but interest on £200 
 for 118 days is the same as interest on their product 
 namely £23,600, for one day. SimHarly, the total 
 interest on the £1000 payable on the dates above from 
 the Ist of February to these dates is the same as interest 
 on the total of the products, namely £80,000, for one 
 day; but interest on £80,000 for one day is the same 
 
 as interest on £1000 for ^-^^ days, which is equal to 
 
 80 days. Eighty days added to 1st February gives as the 
 equated time upon which the £1000 should be paid 
 22nd April. That this is the correct time may be shown 
 either by actually working out the interest on the various 
 sums payable on the various dates, and showing that it is 
 
356 ACCOUNTING IN THEORY AND PRACTICE 
 
 
 \ 
 
 equal to the interest on the £1000 payable on 22nd April, 
 or it may be proved by showing that the products of the 
 sums payable before the equated time equal those payable 
 after the equated time, as follows : — 
 
 Sums deferred. 
 
 Days to 22nd ApriL 
 
 Product. 
 
 February 1. £250 
 March 21. 50 
 
 80 
 82 
 
 20,000 
 1,600 
 
 
 
 21,600 
 
 
 
 Sam paid in advance. 
 
 Days from 22nd April. 
 
 Product. 
 
 May 20. £500 
 30. 200 
 
 S8 
 88 
 
 14,000 
 7,600 
 
 
 
 21,600 
 
 Exercises. 
 1. What is the average due date of the following, viz. 
 
 July 12 
 24 
 
 Aug. 16 
 23 
 
 £300 
 
 100 
 
 90 
 
 250 
 
 £740 
 
 2. The following sums are due by and to a merchant 
 on the dates given. When should he send his cheque in 
 settlement of the balance ? 
 
 Due by Merchant. 
 Jan. 4 . . £600 
 Feb. 2 . .200 
 28 . . 500 
 
 Due to Merchant. 
 Jan. 15 . . £100 
 Feb. 1 . .300 
 
 XNTEKEST ON CUKEENT ACCOUNTS 
 
 Interest is very often charged on the debit balances 
 and allowed on the credit balances of current accounts. 
 
 INTEREST ON CURRENT ACCOUNTS 
 
 357 
 
 Thus, in the case of a trust estate the factor might charge 
 the trust interest, say at 5 per cent or at bank overdraft 
 rates, on all monies advanced by him, and might aUow the 
 trust interest at, say 2 per cent or at bank deposit receipt 
 rates, on sums belonging to the trust in his hands. 
 
 There are various ways in which current accounts with 
 interest are stated, but the working-out of the various 
 methods are either performed by means of interest tables 
 or by products, as now shown. 
 
 Let the following be taken as an example of a current 
 
 accoimt : — 
 
 John Smith, Current Account, 
 
 June 1. To Balance 
 
 July 1. ., Goods . 
 
 Aug. 4. do. 
 
 Oct. 3. ., do. . 
 
 Dec. 4. ,, do. 
 
 . £100 
 
 . 300 
 
 . 200 
 
 . 400 
 
 . 150 
 
 July 5. By Cash 
 Aug. 12. ., do. 
 Nov. 9. .. do. 
 Dec. 12. ,, do. 
 
 £250 
 
 300 
 
 350 
 
 100 
 
 The methods in which the account may have interest 
 charged on it are as follows: — 
 
 I. — ^UsiNG Interest Tables 
 
 June 1 
 July 1 
 Aug. 4 
 Oct. 3 
 Dec. 4 
 81 
 
 Jan. 1 
 
 To Balance 
 ,, Goods . 
 , , do. 
 ,, do. . 
 , , do. 
 ,, Interest 
 
 100 
 300 
 200 
 400 
 150 
 5 
 
 To Balance 
 
 
 
 
 
 
 5 
 
 Days. 
 
 £ <. d. 
 
 i 
 
 213 
 
 183 
 
 149 
 
 89 
 
 27 
 
 1155 5 5| 
 
 Form I. 
 
 Interest 
 
 per 
 Tables. 
 
 
 155 5 5| 
 
 6 >. d. 
 
 2 18 4^ 
 
 7 10 5 
 4 1 7| 
 4 17 6i 
 11 U 
 
 July 
 Aug. 12 
 Nov. 9 
 Dec. 12 
 31 
 
 >) 
 
 19 19 Of 
 
 By Cash . 
 , , do. 
 ,, do. . 
 ,, do. . 
 Balance 
 
 of 
 interest 
 ,, Balance, 
 includ- 
 ing in- 
 terest . 
 
 £ 
 250 
 300 
 350 
 100 
 
 «. 
 
 
 
 
 
 
 d. 
 
 
 
 
 
 Daya. 
 
 179 
 
 141 
 
 52 
 
 19 
 
 155 5 5| 
 
 1155 5 5| 
 
 Intereat 
 
 per 
 Tables. 
 
 £ $. d. 
 
 6 2 7i 
 5 15 10| 
 2 9 lOi 
 5 2i 
 
 5 5 51 
 
 19 19 Of 
 
358 ACCOUNTING IN THEORY AND PRACTICE 
 
 INTEREST ON CURRENT ACCOUNTS 359 
 
 In the above example interest is charged at the rate of 
 5 per cent on the debit items and allowed at the same rate 
 on the credit items up to 31st December. The difference 
 between the two interest columns gives the interest due on 
 the whole account for the year. 
 
 Another way of arriving at the same result is by cal- 
 culating interest on the balances from day to day. The 
 account would, in this case, appear as follows : — 
 
 Form II. 
 
 Foi-m II L 
 
 
 
 
 Days. 
 
 Interest 
 
 l)er 
 Tables. 
 
 June 1. 
 July 1. 
 
 To Balance 
 ,, Goods 
 
 By Cash . 
 
 To Goods 
 
 By Cash . 
 
 To Goods 
 
 By Cash . 
 
 To Goods 
 
 By Cash . 
 
 To Interest 
 
 Dr. 
 Dr. 
 Dr. 
 Dr. 
 Dr. 
 Dr. 
 Dr. 
 Dr. 
 
 • 
 
 £100 
 300 
 
 
 
 
 
 
 
 30 
 
 4 
 
 30 
 
 8 
 
 52 
 
 37 
 
 25 
 
 8 
 
 19 
 
 £0 8 2| 
 
 5. 
 
 £400 
 250 
 
 
 
 
 
 
 
 4 4i 
 
 Aug. 4. 
 
 £150 
 200 
 
 
 
 
 
 
 
 12 4 
 
 12. 
 
 £350 
 300 
 
 
 
 
 
 
 
 7 8i 
 
 Oct. 3. 
 
 £50 
 400 
 
 
 
 
 
 
 
 7 li 
 
 Nov. 9. 
 
 £450 
 350 
 
 
 
 
 
 
 
 2 6 7i 
 
 Dec. 4. 
 
 £100 
 150 
 
 
 
 
 
 
 
 6 10 
 
 12. 
 
 £250 
 100 
 
 
 
 
 
 
 
 5 5i 
 
 31. 
 
 £150 
 5 
 
 
 5 
 
 
 5i 
 
 7 9} 
 
 Balance due 
 
 £155 
 
 5 
 
 5| 
 
 
 £5 5 52 
 
 II. — By means of Products 
 
 The other method of calculating interest is by means 
 of products, and the foregoing example, with interest calcu- 
 lated in this way, would appear as follows : 
 
 June 1 
 July 1 
 Aug. 4 
 Oct. 3 
 Dec. 4 
 81 
 
 To Balance 
 Goods . 
 do. . 
 do. . 
 do. . 
 Interest 
 
 Jan. 1 
 
 £ 
 
 100 
 300 
 200 
 400 
 150 
 5 
 
 
 
 
 
 
 5 
 
 d. 
 
 
 
 
 
 
 5i 
 
 Days. 
 
 1156 6 5| 
 
 213 
 
 183 
 
 149 
 
 89 
 
 27 
 
 Products. 
 
 21,300 
 54,900 
 29,800 
 35,600 
 4,050 
 
 July 
 Aug. 12 
 Nov. 9 
 Dec. 12 
 31 
 
 145,650 
 
 To Balance 
 
 155 5 5i 
 
 By Cash . 
 ,, do. . 
 ,, do. . 
 , . do. 
 ,, Balance 
 of 
 interest 
 numbers 
 ,, Balance, 
 includ- 
 ing in- 
 terest . 
 
 £ 
 250 
 
 aoo 
 
 350 
 100 
 
 s. 
 
 
 
 
 
 
 d. 
 
 
 
 
 
 Days. 
 
 Prodttcta. 
 
 179 
 
 141 
 
 52 
 
 19 
 
 155 6 5| 
 
 1155 5 5i 
 
 The rule for arriving at the interest by means of pro- 
 ducts is as follows : — 
 
 Multiply each item in the account by the number of 
 days from its date to the date of settlement, or to any given 
 date to which it is desired to find the interest. Take the 
 balance of the products, multiply by twice the rate per cent, 
 and divide by 73,000. This gives the interest on the 
 
 account. 
 
 If the interest on the debit and credit sides is at 
 different rates, the multiplication by twice the rate should 
 be performed on the totals of the two sides, and thereafter 
 the balance should be divided by 73,000. 
 
 In the example given the balance of interest numbers 
 is 38,500. Twice the rate per cent, which is 5 per cent, 
 is 10. Then 38,500 multiplied by 10 gives 385,000. 
 Dividing 385,000 by 73,000 we get £5 : 5s. 5fd., as foUows, 
 using contracted division : — 
 
 44,750 
 
 42,300 
 
 18,200 
 
 1,900 
 
 38,500 
 
 145,650 
 
36o ACCOUNTING IN THEORY AND PRACTICE 
 
 INTEREST ON CURRENT ACCOUNTS 
 
 361 
 
 73000)385000(5-2739 = £6 : Ss. 6jd. 
 365000 
 
 20000 
 14600 
 
 5400 
 5110 
 
 290 
 219 
 
 71 
 
 66 
 
 Working out this example by products, but taking the 
 balances from day to day, the account would appear as 
 follows: — 
 
 FcmnlV. 
 
 
 
 
 Days. 
 
 Product*. 
 
 June 1. 
 July 1. 
 
 To Balance 
 „ Goods 
 
 By Cash . 
 
 To Goods 
 
 By Cash . 
 
 To Goods 
 
 By Cash . 
 
 To Goods 
 
 By Cash . 
 
 To Interest 
 
 Dr. 
 Dr. 
 Dr. 
 Dr. 
 Dr. 
 Dr. 
 Dr. 
 Dr. 
 iue. 
 
 £100 
 300 
 
 
 
 
 
 
 
 30 
 
 4 
 
 30 
 
 8 
 
 52 
 
 37 
 
 25 
 
 8 
 
 19 
 
 3,000 
 
 5. 
 
 £400 
 250 
 
 
 
 
 
 
 
 1,600 
 
 Aug. 4. 
 
 £150 
 200 
 
 
 
 
 
 
 
 4,500 
 
 12. 
 
 £350 
 300 
 
 
 
 
 
 
 
 2,800 
 
 Oct. 3. 
 
 £50 
 400 
 
 
 
 
 
 
 
 2,600 
 
 Nov. 9. 
 
 £450 
 350 
 
 
 
 
 
 
 
 16,650 
 
 Deo. 4. 
 
 £100 
 150 
 
 
 
 
 
 
 
 2,60u 
 
 12. 
 
 £250 
 100 
 
 
 
 
 
 
 
 2,000 
 
 81. 
 
 £150 
 5 
 
 
 5 
 
 
 5f 
 
 2,850 
 
 
 Balance c 
 
 £155 
 
 5 
 
 5| 
 
 
 38,500 
 
 USING INTEREST TABLES 
 
 John Smith — Current Accauni. 
 
 Interest at 5 per cent on Debit Items, and 3 per cent on Credit Items. 
 
 
 
 
 Days. 
 
 Interest at 
 6 per cent 
 per Tables. 
 
 
 
 
 Days. 
 
 Interest at 
 8 per cent 
 per Tables. 
 
 
 
 £ 
 
 i. 
 
 d. 
 
 
 A $. d. 
 
 
 
 £ 
 
 $. d. 
 
 £ s. d. 
 
 June 1 
 
 To Balance 
 
 100 
 
 
 
 
 
 213 
 
 2 18 4^ 
 
 July 5 
 
 By Cash . 
 
 250 
 
 
 
 179 
 
 3 13 64 
 3 9 6i 
 1 9 lOS 
 
 3 U 
 
 July 1 
 Aug. 4 
 Oct. 3 
 
 ,, Goods . 
 
 300 
 
 
 
 
 
 183 
 
 7 10 5 
 
 Aug. 12 
 
 „ do. . 
 
 300 
 
 
 
 141 
 
 ,, do. . 
 
 200 
 
 
 
 
 
 149 
 
 4 1 7J 
 
 Nov. 9 
 
 „ do. . 
 
 350 
 
 
 
 52 
 
 ,, do. . 
 
 400 
 
 
 
 
 
 89 
 
 4 17 6i 
 
 Dec. 12 
 
 „ do. . 
 
 100 
 
 
 
 19 
 
 Dec. 4 
 
 ,, do. . 
 
 150 
 
 
 
 
 
 27 
 
 11 U 
 
 31 
 
 ,, Balance 
 
 
 
 
 
 31 
 
 ,, Interest 
 To Balance 
 
 11 
 
 2 
 
 m 
 
 
 
 
 of 
 interest 
 ,, Balance 
 
 161 
 
 2 Hi 
 
 
 11 2 Hi 
 
 
 1161 
 
 2 
 
 lU 
 
 
 19 19 0| 
 
 1161 
 
 2 Hi 
 
 19 19 0| 
 
 Jan. 1 
 
 161 
 
 2 
 
 Hi 
 
 
 
 
 
 
 
 
 BY MEANS OF PRODUCTS 
 
 John Smith — Current Account. 
 
 Interest at 5 per cent on Debit Items, and 3 per cent on Credit Items. 
 
 
 
 
 Days. 
 
 Products. 
 
 
 
 
 Days. 
 
 Products. 
 
 June 1 
 July 1 
 Aug. 4 
 Oct. 3 
 Dec. 4 
 31 
 
 To Balance 
 ,, Goods . 
 ,, do. . 
 ,, do. . 
 ,, do. . 
 „ Interest 
 
 To Balance 
 
 £ 8. d. 
 
 100 
 300 
 200 
 400 
 150 
 11 2 11 
 
 213 
 
 183 
 
 149 
 
 89 
 
 27 
 
 21,300 
 54,900 
 29,800 
 35,600 
 4,050 
 
 July 5 
 Aug. 12 
 Nov. 9 
 Dec. 12 
 
 81 
 
 By Cash . 
 ,, do. . 
 ,, do. . 
 >. do . 
 
 ,, Balance 
 of 
 interest 
 numbers 
 
 ,, Balance 
 
 £ $. d. 
 250 
 300 
 350 
 100 
 
 161 2 11 
 
 179 
 
 141 
 
 52 
 
 19 
 
 44,750 
 
 42,300 
 
 18,200 
 
 1,900 
 
 145,650 
 10 
 
 107,150 
 6 
 
 
 1,456,500 
 
 642,900 
 813,600 
 
 
 1161 2 11 
 
 
 1,456,500 
 
 1161 2 11 
 
 
 1,456,500 
 
 Jan. 1 
 
 161 2 11 
 
 
 
 
 
 
 
362 ACCOUNTING IN THEORY AND PRACTICE 
 
 In Forms I. to IV. given, interest has been charged and 
 allowed on the debit and credit items at the same rate. 
 Very often, however, interest at one rate is charged on the 
 debit items, and interest at another rate on the credit items. 
 
 Suppose that 5 per cent is to be charged on the debit 
 items and 3 per cent on the credit items, then the account 
 would appear as given on the previous page. 
 
 The calculation by interest tables is very simple, as 
 3 per cent is merely substituted instead of 5 per cent. 
 
 The working by products is slightly different. After 
 obtaining the total of the products on the debit and credit 
 sides, namely 145,650 and 107,150, the total of the debit 
 side is multiplied by 10, being twice the rate per cent, 
 which is 5 per cent for debit items, and the total of the 
 credit side is multiplied by 6, being twice the rate per cent 
 which is 3 per cent for credit items. The balance of pro- 
 ducts, namely 813,600, is divided by 73,000, which gives 
 £11 :2s. lid., as follows: — 
 
 73000)813600(1M45 = £11:23. Ud. 
 73000 
 
 83600 
 73000 
 
 10600 
 7300 
 
 3300 
 2920 
 
 380 
 365 
 
 In this case, where the rates of interest charged and 
 allowed are different, there occurs a difierence of Jd. between 
 the interest per the tables and that calculated by products. 
 The interest as calculated by products is the more correct 
 method, because fractional parts are not taken into account 
 in the interest tables. 
 
 DECIMALS OF £i 
 
 363 
 
 RULE FOR EXPRESSING SHILLINGS, PENCE, AND 
 FARTHINGS AS DECIMALS OF £1. 
 
 In the first decimal place put the number of florins 
 contained in the given number of shillings. If there be 
 an odd shilling put 5 in the second place. Reduce the 
 pence and farthings to farthings, and put the number in 
 the third place, or the second and third places if it be ten 
 or more, adding 1 if the amount be 6d. or more. The 
 first three decimal places are now complete. To complete 
 the fraction it only remains to divide the pence and 
 farthings, expressed as the decimal of a penny, by 6, and 
 insert the quotient in the fourth and following places. 
 If the pence and farthings are 6d. or more, deduct 6d 
 before dividing, for otherwise the first figure of the quotient 
 would be 1, belonging to the third place, which has been 
 allowed for already. 
 
 li 
 
 Eocamples. 
 
 L— £3 :16s. Sjd. 
 
 Integer, £3 = £3 
 
 1st decimal place, 16s. =8 florins = 
 
 2nd and 3rd decimal places, 5jd. =21 farthings = 
 4th and following places, 5*25 -i- 6 = 
 
 which is the decimal required. 
 
 •8 
 
 •021 
 
 •000875 
 
 £3-821875 
 
 II.— £8: 19s. 8fd. 
 
 Integer, £8 
 
 1st and 2nd decimal places, 19s. = 9 florins 
 
 and Is. 
 2nd and 3rd decimal places, 8|d. = 35 
 
 farthings, and add 1 
 4tb and following places, 8*75, less 6, and 
 
 divide by 6 
 
 the decimal required. 
 
 = £8 
 = -95 
 
 = -036 
 
 = -000458333 . 
 £8-9864583 
 
364 ACCOUNTING IN THEORY AND PRACTICE 
 
 m.— £3:198. 7-738(1. 
 Here multiply the fraction of a penny by 4 to bring it 
 to farthings, -738(1 = 2-952 farthings. Now proceed as 
 before : — 
 
 Pounds and shilKngs =£3*95 
 
 Pence and farthings, 28 + 2-952, and add 1 = -031 952 
 Addendum, 7738, less 6d., and divide by 6 = -0002896666 . . 
 
 £3-9822416 
 
 To express Dectmals of a Pound in Shillings and Pence, 
 
 To transform a sum in decimals into pounds, shillings, 
 and pence the simplest course is first to extract the pounds 
 and shillings, and then multiply the remainder of the fraction 
 by 240, to bring it to pence. Take the same three 
 examples: — 
 
 I.— £3-821875 
 
 3-8 = £3 16 
 
 * This is evidently be- * 021875 
 tween 5d. and 6d., for by the 1 2 
 
 rule 5d. is 020 ... and 6d. 
 
 •025 -2625 
 
 20 
 
 5-26 
 
 5J 
 
 XL— £8-9864585 
 8-95 
 
 £316 5 J 
 
 = £8 19 
 
 ♦ This is evidently be- ♦ 0364583 
 tween 8d. and 9d., for 8d. is 12 
 •033 .. . and 9d. is 037 . . . 
 
 -4375000 
 20 
 
 8-750 
 
 -008} 
 
 £8 19 8} 
 
 LOGARITHMS 
 
 365 
 
 TIL— £3-9822416 
 3-95 
 
 • This is evidently be- 
 tween 7d. and 8d., for 7d. 
 is -029 and 8d. is '033 
 
 ♦•0322416 
 12 
 
 •3869000 
 20 
 
 7-738 
 
 = £3 19 
 
 7-738 
 £3 19 7-738 
 
 FOUK-PLACE LOGARITHMS 
 
 The theory of logarithms can only be understood by 
 those who have a knowledge of the algebraic laws of indices, 
 but logarithms may be used by all having a knowledge of 
 the elementary rules of arithmetic. 
 
 If N and x be numbers, and 
 
 N = 10' 
 
 then X is the logarithm of N to base 10, and is the index 
 of the power to which the base must be raised in order to 
 produce the number. Thus, if N = 100, we have 
 
 100 = 102, 
 
 and 2 is the logarithm of 100 to the base 10. 
 
 The base of the common table of logarithms is 10. The 
 logarithms of multiples of 10 are shown in the following 
 table : — 
 
 1 
 
 Number. 
 
 Equivalent. 
 
 Logarithm of 
 Number. 
 
 10,000 
 
 10* 
 
 4 
 
 1,000 
 
 10» 
 
 3 
 
 100 
 
 10* 
 
 2 
 
 10 
 
 101 
 
 1 
 
 1 
 
 100 
 
 
 
 •1 
 
 10-1 
 
 -1 
 
 •01 
 
 10"^ 
 
 -2 
 
 •001 
 
 io-» 
 
 -3 
 
 •0001 
 
 10-* 
 
 -4 
 
366 ACCOUNTING IN THEORY AND PRACTICE 
 
 LOGARITHMS 
 
 367 
 
 J ! 
 
 Since the logarithm of 10,000 = 4, and the logarithm 
 of 1000 = 3, it is evident that the logarithm of all the 
 numbers between 10,000 and 1000, such as 8432, must 
 be 3 plus a fraction. This fraction is expressed as a decimal 
 fraction, and is called the mantma of the logarithm, the 
 integral part being called the characteristic, 
 
 SimHarly, the logarithm of -0001 being -4, and the 
 logarithm of '001 being -3, all numbers between must 
 have as their logarithm - 3 and a fraction, or - 4 plus a 
 fraction. For the sake of readiness in computation it is 
 as a rule only the characteristic that is used negatively, 
 and the mantissa is expressed positively. Hence the 
 characteristic of the logarithm of any number having an 
 integral part is positive, and is one less than the number 
 of digits in the integral part 
 
 The characteristic of the logarithm of any number 
 having no integral part is negative, and is one more than 
 the number of zeros that follow the decimal part. The 
 minus sign is written above the characteristia 
 
 The characteristic to base 10 of the logarithm of any 
 number can thus be determined by inspection, and this is 
 why logarithms to base 10 are used in practical calculations 
 to the exclusion of all others. 
 
 To find the Mantissa or Decimal Part of a Logarithm, 
 using the Four-place Table of Logarithms, 
 
 Suppose it is required to find the logarithm of 62-37. 
 
 It is evident that the integral portion of the logarithm 
 is 1. To find the decimal portion, referring to the Table 
 of Logarithms, we find 62 in the first column on the second 
 page. Then, opposite 62 and under 3 will be found 7945 
 This is the logarithm of 623. For the 7, referring on the 
 same line to the columns of differences, and under 7 there 
 is 5, which must be added to the figures already found 
 making 7950. Hence 
 
 log 62-37 = 1-7950. 
 
 To find the Number corresponding to a Logarithm, 
 
 Suppose the logarithm is 1-7950. Then the character- 
 istic being 1, it is evident that the number contains two 
 figures in the integral part. To find the digits, referring to 
 the Table of Anti-logarithms, on the second page in the first 
 column going to the line '79 and under 5 will be found 
 6237. Hence the number required is 62-37. Had there 
 been another figure in the logarithm, by referring to the 
 table of differences on the same line as the -79 the figure to 
 add would have been found. 
 
 The following are the leading properties of logarithms : — 
 
 (1) The logarithm of the product of numbers is the sum of 
 
 the logarithms of the numbers. 
 
 (2) The logarithm of the quotient of two positive numbers is 
 
 the excess of the logarithm of the dividend over the 
 logarithm of the divisor. 
 
 (3) The logarithm of any power of a number is equal to the 
 
 logarithm of the number multiplied by the index of 
 the power. 
 
 If m, 71, and x are any numbers, these properties may be 
 shown thus : — 
 
 (1) Multiplication — 
 
 log mn = log m + log n. 
 
 (2) Division — 
 
 log - = log m - log n. 
 
 (3) Involution — 
 
 log fnS^^x log m. 
 
 To multiply 68-43 by 3*6912 : — 
 
 log 68-43 = 1-8353 
 log 3-6912 = 0-5671 
 
 Adding, we have 24024 = log 2526. 
 
 The exact answer is 252*588816. Four-place logarithms 
 should only be used where we do not require accuracy in the 
 fourth significant figure. 
 
368 ACCOUNTING IN THEORY AND PRACTICE 
 
 TABLE OF DA YS 
 
 i 
 
 To divide 7-107 by -2369 :— 
 
 log 7-107 = 0-8517 
 log -2369 = 1-3746 
 
 Subtracting, we have 1-4771 =log 30. 
 To find the value of -7107 cubed :— 
 
 log -7107 = 1-8517 
 multiplying 3 
 
 1-5551 -log -3590 
 The exact figure is -358970654043. 
 
 To find the cube root of 
 
 •358970654043 
 we have 
 
 log -3590 = 1-5551, 
 
 dividing by 3, we have 
 
 -3 + 2-5551 
 
 3 
 = 1-8517 
 =log -7108. 
 
 This is 1 too much in the fourth plaoe. 
 
 369 
 
 TABLE 
 
 For finding the Days between two given Dates 
 
 WITHIN Two Years 
 
 The following table is to facilitate the finding of the 
 number of days between any two dates within two years of 
 each other. The method of using the table is very simple. 
 If the tabular number opposite the earlier date is subtracted 
 from the tabular number opposite the later date, the differ- 
 ence is the number of days between the two dat^s. Thus, 
 to find the number of days between 17th August and 15th 
 May in the following year we have — 
 
 15th May 
 17th August . 
 
 Number of days in period 
 
 500 
 229 
 
 271 
 
 2 B 
 
370 A ceo UNTING IN THEOR Y AND PRA CTICE 
 
 TABLE OF DA YS 
 
 371 
 
 Table for finding the Days between 
 
 TWO GIVEN Dates within Two Years 
 
 Jan. 
 
 1 
 2 
 3 
 
 4 
 
 5 
 6 
 7 
 8 
 9 
 
 Feb. 
 
 15 
 16 
 17 
 18 
 19 
 
 20 
 21 
 22 
 23 
 24 
 
 1 
 2 
 3 
 4 
 
 6 
 « 
 
 7 
 8 
 9 
 
 10 10 
 
 11 11 
 
 12 12 
 
 13 13 
 
 14 14 
 
 1 
 2 
 3 
 4 
 
 5 
 6 
 7 
 8 
 9 
 
 10 
 11 
 12 
 13 
 14 
 
 16 16 
 16 16 
 
 17 
 18 
 19 
 
 20 
 21 
 22 
 23 
 24 
 
 25 25 
 
 26 26 
 
 27 27 
 
 28 28 
 
 29 29 
 
 30 30 
 
 31 31 
 
 Mar. 
 
 17 
 18 
 19 
 
 20 
 21 
 22 
 23 
 24 
 
 25 
 26 
 27 
 
 28 
 
 32 
 33 
 34 
 35 
 
 36 
 37 
 38 
 39 
 40 
 
 41 
 42 
 43 
 44 
 45 
 
 46 
 47 
 48 
 49 
 50 
 
 51 
 52 
 53 
 54 
 55 
 
 56 
 57 
 58 
 59 
 
 April. 
 
 1 60 
 
 2 61 
 
 3 62 
 
 4 63 
 
 5 64 
 
 6 65 
 
 7 66 
 
 8 67 
 
 9 68 
 
 10 
 
 69 
 
 11 
 
 70 
 
 12 
 
 71 
 
 13 
 
 72 
 
 14 
 
 73 
 
 15 
 16 
 17 
 18 
 19 
 
 20 
 21 
 22 
 23 
 24 
 
 25 
 26 
 27 
 28 
 29 
 30 
 31 
 
 74 
 75 
 76 
 77 
 78 
 
 79 
 
 80 
 81 
 82 
 83 
 
 84 
 86 
 86 
 87 
 88 
 89 
 90 
 
 1 91 
 
 2 92 
 
 3 93 
 
 4 94 
 
 May. 
 
 6 
 6 
 
 7 
 8 
 9 
 
 95 
 
 96 
 97 
 98 
 99 
 
 10 100 
 
 11 101 
 
 12 102 
 
 13 103 
 
 14 104 
 
 15 105 
 
 16 106 
 
 17 107 
 
 18 108 
 
 19 109 
 
 20 110 
 
 21 111 
 
 22 112 
 
 23 113 
 
 24 114 
 
 25 115 
 
 26 116 
 
 27 117 
 
 28 118 
 
 29 119 
 
 30 120 
 
 June. 
 
 1 121 
 
 2 122 
 
 3 123 
 
 4 124 
 
 5 125 
 
 6 126 
 
 7 127 
 
 8 128 
 
 9 129 
 
 10 130 
 
 11 131 
 
 12 132 
 
 13 133 
 
 14 134 
 
 15 135 
 
 16 136 
 
 17 137 
 
 18 138 
 
 19 139 
 
 20 140 
 
 21 141 
 
 22 142 
 
 23 143 
 
 24 144 
 
 25 145 
 
 26 146 
 
 27 147 
 
 28 148 
 
 29 149 
 
 30 150 
 
 31 151 
 
 July. 
 
 1 152 
 
 2 153 
 
 3 154 
 
 4 155 
 
 5 156 
 
 6 157 
 
 7 158 
 
 8 159 
 
 9 160 
 
 10 161 
 
 11 162 
 
 12 163 
 
 13 164 
 
 14 165 
 
 15 166 
 
 16 167 
 
 17 168 
 
 18 169 
 
 19 170 
 
 20 171 
 
 21 172 
 
 22 173 
 
 23 174 
 
 24 175 
 
 25 176 
 
 26 177 
 
 27 178 
 
 28 179 
 
 29 180 
 
 30 181 
 
 Aug. 
 
 1 182 
 
 2 183 
 
 3 184 
 
 4 185 
 
 5 186 
 
 6 187 
 
 7 188 
 
 8 189 
 
 9 190 
 
 10 191 
 
 11 192 
 
 12 193 
 
 13 194 
 
 14 195 
 
 15 196 
 
 16 197 
 
 17 198 
 
 18 199 
 
 19 200 
 
 20 201 
 
 21 202 
 
 22 203 
 
 23 204 
 
 24 205 
 
 25 206 
 
 26 207 
 
 27 208 
 
 28 209 
 
 29 210 
 
 30 211 
 
 31 212 
 
 Sept. 
 
 1 213 
 
 2 214 
 
 3 215 
 
 4 216 
 
 5 217 
 
 6 218 
 
 7 219 
 
 8 220 
 
 9 221 
 
 10 222 
 
 11 223 
 
 12 224 
 
 13 225 
 
 14 226 
 
 15 227 
 
 16 228 
 
 17 229 
 
 18 230 
 
 19 231 
 
 20 232 
 
 21 233 
 
 22 234 
 
 23 235 
 
 24 236 
 
 25 237 
 
 26 238 
 
 27 239 
 
 28 240 
 
 29 241 
 
 30 242 
 
 31 243 
 
 Oct. 
 
 Nov. 
 
 Dee. 
 
 1 244 
 
 2 245 
 
 3 246 
 
 4 247 
 
 5 248 
 
 6 249 
 
 7 250 
 
 8 251 
 
 9 252 
 
 10 253 
 
 11 254 
 
 12 255 
 
 13 256 
 
 14 257 
 
 16 258 
 
 16 259 
 
 17 260 
 
 18 261 
 
 19 262 
 
 20 263 
 
 21 264 
 
 22 265 
 
 23 266 
 
 24 267 
 
 25 268 
 
 26 269 
 
 27 270 
 
 28 271 
 
 29 272 
 
 30 273 
 
 1 274 
 
 2 275 
 
 3 276 
 
 4 277 
 
 6 278 
 
 6 279 
 
 7 280 
 
 8 281 
 
 9 282 
 
 10 283 
 
 11 284 
 
 12 285 
 
 13 286 
 
 14 287 
 
 16 288 
 
 16 289 
 
 17 290 
 
 18 291 
 
 19 292 
 
 20 293 
 
 21 294 
 
 22 295 
 
 23 296 
 
 24 297 
 
 25 298 
 
 26 299 
 
 27 300 
 
 28 301 
 
 29 302 
 
 30 303 
 
 31 304 
 
 305 
 306 
 307 
 308 
 
 5 309 
 
 6 310 
 
 7 311 
 
 8 312 
 
 9 313 
 
 10 314 
 
 11 315 
 
 12 316 
 
 13 317 
 
 14 318 
 
 16 319 
 
 16 320 
 
 17 321 
 
 18 322 
 
 19 323 
 
 20 324 
 
 21 325 
 
 22 326 
 
 23 327 
 
 24 328 
 
 25 329 
 
 26 330 
 
 27 331 
 
 28 332 
 
 29 333 
 
 30 334 
 
 1 
 2 
 
 335 
 336 
 
 3 337 
 
 4 338 
 
 6 339 
 
 6 340 
 
 7 341 
 
 8 342 
 
 9 343 
 
 10 344 
 
 11 345 
 
 12 346 
 
 13 347 
 
 14 348 
 
 15 349 
 
 16 350 
 
 17 351 
 
 18 352 
 
 19 353 
 
 20 354 
 
 21 355 
 
 22 356 
 
 23 357 
 
 24 358 
 
 25 359 
 
 26 360 
 
 27 361 
 
 28 362 
 
 29 363 
 
 30 364 
 
 31 365 
 
 Jan. 
 
 Feb. 
 
 1 366 
 
 2 367 
 
 3 368 
 
 4 369 
 
 6 870 
 
 6 371 
 
 7 372 
 
 8 373 
 
 9 374 
 
 10 375 
 
 11 376 
 
 12 377 
 
 13 378 
 
 14 379 
 
 15 380 
 
 16 381 
 
 17 382 
 
 18 383 
 
 19 384 
 
 20 385 
 
 21 386 
 
 22 387 
 
 23 388 
 
 24 389 
 
 25 390 
 
 26 391 
 
 27 392 
 
 28 393 
 
 29 394 
 
 30 395 
 
 31 396 
 
 Mar. 
 
 1 397 
 
 2 398 
 
 3 399 
 
 4 400 
 
 6 401 
 
 6 402 
 
 7 403 
 
 8 404 
 
 9 406 
 
 10 406 
 
 11 407 
 
 12 408 
 
 13 409 
 
 14 410 
 
 15 411 
 
 16 412 
 
 17 413 
 
 18 414 
 
 19 416 
 
 20 416 
 
 21 417 
 
 22 418 
 
 23 419 
 
 24 420 
 
 25 421 
 
 26 422 
 
 27 423 
 
 28 424 
 
 ApriL 
 
 1 425 
 
 2 426 
 
 3 427 
 
 4 428 
 
 5 429 
 
 6 430 
 
 7 431 
 
 8 432 
 
 9 433 
 
 10 434 
 
 11 436 
 
 12 436 
 
 13 437 
 
 14 438 
 
 16 439 
 
 16 440 
 
 17 441 
 
 18 442 
 
 19 443 
 
 20 444 
 
 21 445 
 
 22 446 
 
 23 447 
 
 24 448 
 
 25 449 
 
 26 450 
 
 27 
 
 2o 
 
 451 
 452 
 
 29 453 
 
 30 464 
 
 31 455 
 
 May. 
 
 1 456 
 
 2 457 
 
 3 458 
 
 4 459 
 
 6 460 
 
 6 461 
 
 7 462 
 
 8 463 
 
 9 464 
 
 10 466 
 
 11 466 
 
 12 467 
 
 13 468 
 
 14 469 
 
 15 470 
 
 16 471 
 
 17 472 
 
 18 478 
 
 19 474 
 
 20 476 
 
 21 476 
 
 22 477 
 
 23 478 
 
 24 479 
 
 25 480 
 
 26 481 
 
 27 482 
 
 28 483 
 
 29 484 
 
 30 485 
 
 June. 
 
 1 486 
 
 2 487 
 
 3 488 
 
 4 489 
 
 6 490 
 
 6 491 
 
 7 492 
 
 8 493 
 
 9 494 
 
 10 496 
 
 11 496 
 
 12 497 
 
 13 498 
 
 14 499 
 
 16 500 
 
 16 501 
 
 17 502 
 
 18 503 
 
 19 504 
 
 20 505 
 
 21 506 
 
 22 507 
 
 23 608 
 
 24 509 
 
 25 610 
 
 26 511 
 
 27 512 
 
 28 513 
 
 29 514 
 
 30 515 
 
 31 516 
 
 July. 
 
 1 617 
 
 2 618 
 
 3 519 
 
 4 520 
 
 5 621 
 
 6 522 
 
 7 623 
 
 8 524 
 
 9 525 
 
 10 526 
 
 11 527 
 
 12 528 
 
 13 529 
 
 14 530 
 
 15 531 
 
 16 532 
 
 17 633 
 
 18 534 
 
 19 536 
 
 20 536 
 
 21 537 
 
 22 538 
 
 23 539 
 
 24 540 
 
 25 641 
 
 26 642 
 
 27 543 
 
 28 644 
 
 29 645 
 
 30 646 
 
 Aug. 
 
 1 647 
 
 2 648 
 
 3 549 
 
 4 550 
 
 5 551 
 
 6 552 
 
 7 553 
 
 8 554 
 
 9 555 
 
 10 656 
 
 11 557 
 
 12 558 
 
 13 559 
 
 14 560 
 
 15 561 
 
 16 562 
 
 17 563 
 
 18 564 
 
 19 565 
 
 20 566 
 
 21 667 
 
 22 568 
 
 23 569 
 
 24 570 
 
 25 671 
 
 26 572 
 
 27 573 
 
 28 574 
 
 29 575 
 
 30 576 
 
 31 577 
 
 Sept. 
 
 1 678 
 
 2 579 
 
 3 580 
 
 4 581 
 
 5 582 
 
 6 583 
 
 7 584 
 
 8 585 
 
 9 586 
 
 10 587 
 
 11 688 
 
 12 689 
 
 13 590 
 
 14 591 
 
 16 692 
 
 16 593 
 
 17 594 
 
 18 595 
 
 19 596 
 
 20 597 
 
 21 598 
 
 22 599 
 
 23 600 
 
 24 601 
 
 25 602 
 
 26 603 
 
 27 604 
 
 28 605 
 
 29 606 
 
 30 607 
 
 31 608 
 
 1 609 
 
 2 610 
 
 3 611 
 
 4 612 
 
 6 613 
 
 6 614 
 
 7 615 
 
 8 616 
 
 9 617 
 
 10 618 
 
 11 619 
 
 12 620 
 
 13 621 
 
 14 622 
 
 16 623 
 
 16 624 
 
 17 625 
 
 18 626 
 
 19 627 
 
 20 628 
 
 21 629 
 
 22 630 
 
 23 631 
 
 24 632 
 
 25 633 
 
 26 634 
 
 27 635 
 
 28 636 
 
 29 637 
 
 30 638 
 
 Oct 
 
 Nov. 
 
 1 639 
 
 2 640 
 
 3 641 
 
 4 642 
 
 5 643 
 
 6 644 
 
 7 645 
 
 8 646 
 
 9 647 
 
 10 648 
 
 11 649 
 
 12 650 
 
 13 651 
 
 14 652 
 
 16 653 
 
 16 654 
 
 17 655 
 
 18 656 
 
 19 667 
 
 20 658 
 
 21 659 
 
 22 660 
 
 23 661 
 
 24 662 
 
 25 663 
 
 26 664 
 
 27 665 
 
 28 666 
 
 29 667 
 
 30 668 
 
 31 669 
 
 Dec 
 
 1 670 
 
 2 671 
 
 3 672 
 
 4 673 
 
 6 674 
 
 6 675 
 
 7 676 
 
 8 677 
 
 9 678 
 
 10 679 
 
 11 680 
 
 12 681 
 
 13 682 
 
 14 683 
 
 15 684 
 
 16 685 
 
 17 686 
 
 18 687 
 
 19 688 
 
 20 689 
 
 21 690 
 
 22 691 
 
 23 692 
 
 24 693 
 
 25 694 
 
 26 695 
 
 27 696 
 
 28 697 
 
 29 698 
 
 30 699 
 
 1 700 
 
 2 701 
 
 3 702 
 
 4 703 
 
 6 704 
 
 6 705 
 
 7 706 
 
 8 707 
 
 9 708 
 
 10 709 
 
 11 710 
 
 12 711 
 
 13 712 
 
 14 713 
 
 15 714 
 
 16 715 
 
 17 716 
 
 18 717 
 
 19 718 
 
 20 719 
 
 21 720 
 
 22 721 
 
 23 722 
 
 24 723 
 
 25 724 
 
 26 725 
 
 27 726 
 
 28 727 
 
 29 728 
 
 30 729 
 
 31 730 
 
 K.B. --In leap years, when the period includes 29th February. I one day must be added to the result deduced from the toble. 
 
DA YS AS DECIMALS OF A YEAR 
 
 373 
 
 TABLE 
 
 Showing Days as Decimal Feactions of a Year of 
 
 365 Days 
 
 The table, showing what decimal of a year of 365 days 
 any number of days less than a year is, which is given on 
 the next two pages, is of considerable service in solving 
 questions of interest and apportionment, more especially 
 where the rates involved are those for which ordinary in- 
 terest tables do not exist 
 
 Thus, to find the interest on £50 for 108 days at 3 J 
 per cent, we have — 
 
 108 days = -2959 of a year, 
 
 3 J =-03125 per £1, and 
 
 £50 X -2959 X -03125 = -46234375 = 9s. 3d. 
 
 Also, to apportion £100 per annum for 108 days, we 
 have — 
 
 £100 X -2959 = £29-59 =£29 ills. lOd. 
 
 ^ 
 
374 ACCOUNTING IN THEORY AND PRACTICE 
 
 Days as Decimal Fractions 
 
 
 Decimal 
 
 
 Decimal 
 
 
 Decimal 
 
 
 Decimal 
 
 D«7B. 
 
 of a 
 
 Days. 
 
 of a 
 
 Days. 
 
 of a 
 
 Days. 
 
 of a 
 
 
 Year. 
 
 
 Year. 
 
 
 Year. 
 
 
 Year. 
 
 1 
 
 •0027 
 
 47 
 
 •1288 
 
 92 
 
 •2521 
 
 138 
 
 •3781 
 
 2 
 
 •0055 
 
 48 
 
 •1315 
 
 93 
 
 •2548 
 
 139 
 
 •3808 
 
 3 
 
 •0082 
 
 49 
 
 •1342 
 
 94 
 
 •2575 
 
 140 
 
 •3836 
 
 4 
 
 •0110 
 
 50 
 
 •1370 
 
 95 
 
 •2603 
 
 141 
 
 •3863 
 
 5 
 
 •0137 
 
 51 
 
 •1397 
 
 96 
 
 •2630 
 
 142 
 
 •3890 
 
 6 
 
 •0164 
 
 52 
 
 •1425 
 
 97 
 
 •2658 
 
 143 
 
 •3918 
 
 7 
 
 •0192 
 
 53 
 
 •1452 
 
 98 
 
 •2685 
 
 144 
 
 •3945 
 
 8 
 
 •0219 
 
 54 
 
 •1479 
 
 99 
 
 •2712 
 
 145 
 
 •3973 
 
 9 
 
 •0247 
 
 55 
 
 •1507 
 
 100 
 
 •2740 
 
 146 
 
 •4000 
 
 10 
 
 •0274 
 
 56 
 
 •1534 
 
 101 
 
 •2767 
 
 147 
 
 •4027 
 
 11 
 
 •0301 
 
 57 
 
 •1562 
 
 102 
 
 •2795 
 
 148 
 
 •4055 
 
 12 
 
 •0329 
 
 58 
 
 •1589 
 
 103 
 
 •2822 
 
 149 
 
 •4082 
 
 13 
 
 •0356 
 
 59 
 
 •1616 
 
 104 
 
 •2849 
 
 150 
 
 •4110 
 
 14 
 
 •0384 
 
 60 
 
 •1644 
 
 105 
 
 •2877 
 
 151 
 
 •4137 
 
 15 
 
 •0411 
 
 61 
 
 •1671 
 
 106 
 
 •2904 
 
 152 
 
 •4164 
 
 16 
 
 •0438 
 
 62 
 
 •1699 
 
 107 
 
 •2932 
 
 153 
 
 •4192 
 
 17 
 
 •0466 
 
 63 
 
 •1726 
 
 108 
 
 •2959 
 
 154 
 
 •4219 
 
 18 
 
 •0493 
 
 64 
 
 •1753 
 
 109 
 
 •2986 
 
 155 
 
 •4247 
 
 19 
 
 •0521 
 
 65 
 
 •1781 
 
 110 
 
 •3014 
 
 156 
 
 •4274 
 
 20 
 
 •0548 
 
 66 
 
 •1808 
 
 111 
 
 •3041 
 
 157 
 
 •4301 
 
 21 
 
 •0575 
 
 67 
 
 •1836 
 
 112 
 
 •3068 
 
 158 
 
 •4329 
 
 22 
 
 •0603 
 
 68 
 
 •1863 
 
 113 
 
 •3096 
 
 159 
 
 •4356 
 
 23 
 
 •0630 
 
 69 
 
 •1890 
 
 114 
 
 •8123 
 
 160 
 
 •4384 
 
 24 
 
 •0658 
 
 70 
 
 •1918 
 
 115 
 
 •3151 
 
 161 
 
 •4411 
 
 25 
 
 •0685 
 
 71 
 
 •1945 
 
 116 
 
 •3178 
 
 162 
 
 •4438 
 
 26 
 
 •0712 
 
 72 
 
 •1973 
 
 117 
 
 •3205 
 
 163 
 
 •4466 
 
 27 
 
 •0740 
 
 73 
 
 •2000 
 
 118 
 
 •3233 
 
 164 
 
 •4493 
 
 28 
 
 •0767 
 
 74 
 
 •2027 
 
 119 
 
 •3260 
 
 165 
 
 •4521 
 
 29 
 
 •0795 
 
 75 
 
 •2055 
 
 120 
 
 •3288 
 
 166 
 
 •4548 
 
 30 
 
 •0822 
 
 76 
 
 •2082 
 
 121 
 
 •3315 
 
 167 
 
 •4575 
 
 31 
 
 •0849 
 
 77 
 
 •2110 
 
 122 
 
 •3342 
 
 168 
 
 •4603 
 
 32 
 
 •0877 
 
 78 
 
 •2137 
 
 123 
 
 •3370 
 
 169 
 
 •4630 
 
 33 
 
 •0904 
 
 79 
 
 •2164 
 
 124 
 
 •3397 
 
 170 
 
 •4658 
 
 34 
 
 •0932 
 
 80 
 
 •2192 
 
 125 
 
 •3425 
 
 171 
 
 •4685 
 
 35 
 
 •0959 
 
 81 
 
 •2219 
 
 126 
 
 •3452 
 
 172 
 
 •4712 
 
 36 
 
 •0986 
 
 82 
 
 •2247 
 
 127 
 
 •3479 
 
 173 
 
 •4740 
 
 87 
 
 •1014 
 
 83 
 
 •2274 
 
 128 
 
 •3507 
 
 174 
 
 •4767 
 
 38 
 
 •1041 
 
 84 
 
 •2301 
 
 129 
 
 •3534 
 
 175 
 
 •4795 
 
 39 
 
 •1068 
 
 85 
 
 •2329 
 
 130 
 
 •3562 
 
 176 
 
 •4822 
 
 40 
 
 •1096 
 
 86 
 
 •2356 
 
 131 
 
 •3589 
 
 177 
 
 •4849 
 
 41 
 
 •1123 
 
 87 
 
 •2384 
 
 132 
 
 •3616 
 
 178 
 
 •4877 
 
 42 
 
 •1151 
 
 88 
 
 •2411 
 
 133 
 
 •3644 
 
 179 
 
 •4904 
 
 48 
 
 •1178 
 
 89 
 
 •2438 
 
 134 
 
 •3671 
 
 180 
 
 •4932 
 
 44 
 
 •1205 
 
 90 
 
 •2466 
 
 135 
 
 •3699 
 
 181 
 
 •4959 
 
 45 
 
 •1233 
 
 91 
 
 •2493 
 
 136 
 
 •3726 
 
 182 
 
 •4986 
 
 46 
 
 •1260 
 
 9U 
 
 •25 
 
 137 
 
 •8763 
 
 182i 
 
 •5 
 
 DA YS AS DECIMALS OF A YEAR 
 
 375 
 
 OF A Year of 365 Days 
 
 Days. 
 
 Decimal 
 
 of a 
 
 Year. 
 
 Days. 
 
 183 
 
 184 
 
 185 
 186 
 187 
 188 
 189 
 
 190 
 191 
 192 
 193 
 194 
 
 195 
 196 
 197 
 198 
 199 
 
 200 
 201 
 202 
 203 
 204 
 
 205 
 206 
 207 
 208 
 209 
 
 210 
 211 
 212 
 213 
 214 
 
 215 
 216 
 217 
 218 
 219 
 
 220 
 221 
 222 
 223 
 224 
 
 225 
 226 
 227 
 228 
 
 •5014 
 •5041 
 
 •5068 
 •5096 
 •5123 
 •5151 
 •5178 
 
 •5205 
 •5233 
 •5260 
 •5288 
 •5315 
 
 •5342 
 •5370 
 •5397 
 •5425 
 •5452 
 
 •5479 
 •5507 
 •5534 
 •5562 
 •5589 
 
 •5616 
 •5644 
 •5671 
 •5699 
 •5726 
 
 •5753 
 
 •5781 
 •5808 
 •5836 
 •5863 
 
 •5890 
 •5918 
 •5945 
 •5973 
 •6000 
 
 •6027 
 •6055 
 •6082 
 •6110 
 •6137 
 
 •6164 
 •6192 
 •6219 
 •6247 
 
 Decimal 
 of a 
 Year. 
 
 Days. 
 
 Decimal 
 
 of a 
 
 Year. 
 
 229 
 
 230 
 231 
 232 
 233 
 234 
 
 235 
 236 
 237 
 238 
 239 
 
 240 
 241 
 242 
 243 
 244 
 
 245 
 246 
 247 
 248 
 249 
 
 250 
 251 
 252 
 253 
 254 
 
 255 
 256 
 257 
 258 
 259 
 
 260 
 261 
 262 
 263 
 264 
 
 265 
 266 
 267 
 268 
 269 
 
 270 
 271 
 272 
 273 
 273i 
 
 •6274 
 
 •6301 
 •6329 
 •6356 
 •6384 
 •6411 
 
 •6438 
 •6466 
 •6493 
 •6521 
 •6548 
 
 •6575 
 •6603 
 •6630 
 •6658 
 •6685 
 
 •6712 
 •6740 
 •6767 
 •6795 
 •6822 
 
 •6849 
 •6877 
 •6904 
 •6932 
 •6959 
 
 •6986 
 •7014 
 •7041 
 •7068 
 •7096 
 
 •7123 
 •7151 
 •7178 
 •7205 
 •7233 
 
 •7260 
 •7288 
 •7315 
 •7342 
 •7370 
 
 •7397 
 •7425 
 •7452 
 •7479 
 •75 
 
 274 
 
 275 
 276 
 
 277 
 278 
 279 
 
 280 
 281 
 282 
 283 
 284 
 
 285 
 286 
 
 287 
 288 
 289 
 
 290 
 291 
 292 
 293 
 294 
 
 295 
 296 
 297 
 298 
 299 
 
 300 
 301 
 302 
 303 
 304 
 
 305 
 306 
 307 
 308 
 309 
 
 310 
 311 
 312 
 313 
 314 
 
 315 
 316 
 317 
 318 
 319 
 
 •7507 
 
 •7534 
 •7562 
 •7589 
 •7616 
 •7644 
 
 •7671 
 •7699 
 •7726 
 •7753 
 •7781 
 
 •7808 
 •7836 
 •7863 
 •7890 
 •7918 
 
 •7945 
 •7973 
 •8000 
 •8027 
 •8055 
 
 •8082 
 •8110 
 •8137 
 •8164 
 •8192 
 
 •8219 
 •8247 
 •8274 
 •8301 
 •8329 
 
 •8356 
 •8384 
 •8411 
 •8438 
 •8466 
 
 •8493 
 •8521 
 •8548 
 •8575 
 •8603 
 
 •8630 
 •8658 
 •8685 
 •8712 
 •8740 
 
 Days. 
 
 Decimal 
 
 of a 
 
 Year. 
 
 320 
 321 
 322 
 323 
 324 
 
 325 
 326 
 327 
 328 
 329 
 
 330 
 331 
 332 
 333 
 334 
 
 345 
 346 
 347 
 348 
 349 
 
 350 
 351 
 352 
 353 
 354 
 
 355 
 356 
 357 
 358 
 359 
 
 360 
 361 
 362 
 363 
 364 
 
 365 
 
 •8767 
 •8795 
 •8822 
 •8849 
 •8877 
 
 •8904 
 •8932 
 •8959 
 •8986 
 •9014 
 
 •9041 
 •9068 
 •9096 
 •9123 
 •9151 
 
 335 
 
 •9178 
 
 336 
 
 •9205 
 
 337 
 
 •9233 
 
 338 
 
 •9260 
 
 339 
 
 •9288 
 
 340 
 
 •9315 
 
 341 
 
 •9342 
 
 342 
 
 •9370 
 
 343 
 
 •9397 
 
 344 
 
 •9425 
 
 •9452 
 •9479 
 •9507 
 •9534 
 •9562 
 
 •9589 
 •9616 
 •9644 
 •9671 
 •9699 
 
 •9726 
 •9753 
 •9781 
 •9808 
 •9836 
 
 •9863 
 •9890 
 •9918 
 •9945 
 •9973 
 
 l^OOOO 
 
376 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 LOGARITHMS 
 
 377 
 
 Logarithms 
 
 LOGARITUMS 
 
 ■ 
 
 100 0000 
 
 101 0043 
 
 102 0086 
 
 103 0128 
 
 104 0170 
 
 12 3 
 
 0004 0009 0013 
 0048 0052 0056 
 0090 0095 0099 
 0133 0137 0141 
 0175 0179 0183 
 
 4 5 
 
 0017 0022 
 0060 0065 
 0103 0107 
 0145 0149 
 0187 0191 
 
 6 7 
 
 0026 00;jO 
 0069 0073 
 0111 0116 
 0154 0158 
 0195 0199 
 
 8 9 
 
 0035 0039 
 0077 0082 
 0120 0124 
 0162 0166 
 0204 0208 
 
 105 0212 0216 0220 0224 0228 0233 0237 0241 0245 0249 
 
 106 0253 0257 0261 0265 0269 0273 0278 0282 0286 0290 
 
 107 0294 0298 0302 0306 0310 0314 0318 0322 0326 0330 
 
 108 0334 0338 0342 0346 0350 0354 0358 0362 0366 0370 
 
 109 0374 0378 0382 0386 0390 0394 0398 0402 0406 0410 123456789 
 
 Pkoportionatb Pabts. 
 
 10 0000 0043 0086 0128 0170 0212 0253 0294 0334 0374 4 8 
 
 11 0414 0453 0492 0531 0569 0607 0645 0682 0719 0755 4 8 
 
 12 0792 0828 0864 0899 0934 0969 1004 1038 1072 1106 3 7 
 
 13 1139 1173 1206 1239 1271 1303 1335 1367 1399 1430 3 6 
 
 14 1461 1492 1523 1553 1584 1614 1644 1673 1703 1732 3 6 
 
 15 1761 1790 1818 1847 1875 1903 1931 1959 1987 2014 3 6 
 
 16 2041 2068 2095 2122 2148 2175 2201 2227 2253 2279 3 5 
 
 17 2304 2330 2355 2380 2405 2430 2455 2480 2504 2529 2 5 
 
 18 2553 2577 2601 2625 2648 2672 2695 2718 2742 2765 2 5 
 
 19 2788 2810 2833 2856 2878 2900 2923 2945 2967 2989 2 4 
 
 20 3010 3032 3054 3075 3096 3118 3139 3160 3181 3201 1 4 
 
 21 3222 3243 3263 3284 3304 3324 3345 3365 3385 3404 2 4 
 
 22 3424 3444 3464 3483 8502 3522 3541 3560 3579 3598 2 4 
 
 23 3617 3636 3655 3674 3692 3711 3729 3747 3766 3784 2 4 
 
 24 3802 3820 3838 3856 3874 3892 3909 3927 3945 3962 2 4 
 
 25 3979 3997 4014 4031 4048 4065 4082 4099 4116 4133 2 3 
 
 26 4150 4166 4183 4200 4216 4232 4249 4265 4281 4298 2 3 
 
 27 4314 4330 4346 4362 4378 4393 4409 4425 4440 4456 2 3 
 
 28 4472 4487 4502 4518 4533 4548 4564 4579 4594 4609 2 3 
 
 29 4624 4639 4654 4669 4683 4698 4713 4728 4742 4757 1 3 
 
 12 17 21 25 29 33 37 
 11 15 19 23 26 30 34 
 10 14 17 21 24 28 31 
 10 13 16 19 23 26 29 
 9 12 15 18 21 24 27 
 
 30 4771 4786 4800 
 
 31 4914 4928 4942 
 
 32 5051 5065 5079 
 
 33 51 «5 5198 5211 
 
 34 682 :> :.?28 5340 
 
 35 5441 ^;^.3 5465 
 
 36 5563 5575 5587 
 
 37 5682 5694 5705 
 
 38 5798 5809 5821 
 
 39 5911 5922 5933 
 
 4814 
 4955 
 5092 
 5224 
 5353 
 
 5478 
 5599 
 5717 
 5832 
 5944 
 
 4829 4843 4857 4871 4886 4900 1 
 4969 4983 4997 5011 5024 5038 1 
 5105 5119 5132 5145 6159 5172 I 
 5237 5250 6263 5276 5289 5302 1 
 6366 5378 5391 6403 5416 5428 1 
 
 5490 5502 6514 6527 6539 5551 1 
 6611 5623 5635 5647 5658 5670 1 
 6729 5740 5752 5763 5775 5786 1 
 5843 5855 5866 5877 5888 5899 1 
 6955 5966 6977 6988 6999 6010 1 
 
 40 6021 6031 6042 6053 6064 6075 6086 6096 6107 6117 1 
 
 41 6128 6138 6149 6160 6170 6180 6191 6201 6212 6222 1 
 
 42 6232 6243 6253 6263 6274 6284 6294 6:i04 6314 6:J25 1 
 
 43 6335 6346 6365 6365 6375 6385 6395 6405 6415 6425 1 
 
 44 6436 6444 6454 6464 6474 6484 6493 6503 6513 6522 1 
 
 3 
 3 
 3 
 3 
 3 
 
 2 
 2 
 2 
 2 
 2 
 
 2 
 2 
 2 
 2 
 2 
 
 45 6632 6642 6561 6561 6571 6580 6590 6599 6609 6618 1 2 
 
 46 6628 6637 6646 6656 6665 6675 6684 6693 6702 6712 1 2 
 
 47 6721 6730 6739 6749 6758 6767 6776 6785 6794 6803 1 2 
 
 48 6812 6821 6830 6839 6848 6857 6866 6875 6884 6893 1 2 
 
 49 6902 6911 6920 6928 6937 6946 695^ 6964 6972 6981 1 2 
 
 8 11 14 17 20 22 26 
 
 8 11 13 16 18 21 24 
 
 10 12 16 17 20 22 
 
 12 14 16 19 21 
 
 7 
 7 
 7 
 
 6 
 6 
 
 6 
 6 
 6 
 5 
 4 
 
 4 
 4 
 3 
 3 
 3 
 
 3 
 3 
 3 
 3 
 3 
 
 3 
 3 
 3 
 3 
 3 
 
 9 
 
 9 11 13 16 18 20 
 
 6 8 
 6 8 
 6 8 
 
 7 
 7 
 
 7 
 7 
 6 
 6 
 6 
 
 11 13 16 17 19 
 
 10 12 14 16 18 
 
 10 12 14 15 17 
 
 9 11 13 16 17 
 
 9 11 12 14 16 
 
 9 10 12 14 16 
 8 10 11 13 15 
 9 11 13 14 
 9 11 12 14 
 9 10 12 13 
 
 4 6 
 
 4 6 
 
 4 6 
 
 4 6 
 
 4 6 
 
 6 
 6 
 6 
 6 
 
 4 
 
 4 
 
 4 
 4 
 4 
 4 
 
 4 
 4 
 4 
 4 
 4 
 
 8 
 8 
 7 
 
 7 
 
 7 
 7 
 6 
 6 
 
 6 
 6 
 6 
 6 
 5 
 
 5 
 5 
 6 
 6 
 6 
 
 5 
 6 
 5 
 
 4 
 4 
 
 9 10 11 
 8 10 11 
 8 9 11 
 8 9 10 12 
 8 9 10 11 
 
 13 
 12 
 12 
 
 7 
 7 
 
 7 
 7 
 7 
 
 9 10 11 
 8 10 11 
 9 10 
 9 10 
 9 10 
 
 6 8 9 10 
 
 6 7 8 9 
 
 6 7 8 9 
 
 6 7 8 9 
 
 6 7 8 9 
 
 6 
 6 
 6 
 6 
 5 
 
 7 
 
 7 
 6 
 6 
 6 
 
 8 
 7 
 7 
 7 
 7 
 
 9 
 
 8 
 8 
 8 
 8 
 
 ■ 012 
 
 60 6990 6998 7007 
 
 61 7076 7084 7093 
 
 52 7160 7168 7177 
 
 53 7243 7251 7259 
 
 54 7324 7332 7340 
 
 55 7404 
 66 7482 
 7559 
 7634 
 7709 
 
 67 
 68 
 69 
 
 7412 
 7490 
 7566 
 7642 
 7716 
 
 7419 
 7497 
 7574 
 7649 
 7723 
 
 60 
 
 7782 7789 7796 
 
 61 
 
 7863 
 
 7860 
 
 78C8 
 
 62 
 
 7924 
 
 7931 
 
 7938 
 
 63 7993 
 
 8000 8007 
 
 64 8062 8069 8075 
 
 66 8129 8136 
 
 8142 
 
 66 8195 
 
 8202 8209 
 
 67 
 
 8261 
 
 8267 
 
 8274 
 
 68 8325 8331 
 
 8338 
 
 69 
 
 8388 
 
 8395 
 
 8401 
 
 3 
 
 7016 
 7101 
 7185 
 7267 
 7348 
 
 7427 
 7505 
 7582 
 7657 
 7731 
 
 7803 
 7875 
 7945 
 8014 
 8082 
 
 8149 
 8215 
 8280 
 8344 
 8407 
 
 4 
 7024 
 7110 
 7193 
 7275 
 7356 
 
 7436 
 7513 
 7589 
 7664 
 7738 
 
 7810 
 7882 
 7952 
 8021 
 8089 
 
 8156 
 8222 
 8287 
 8351 
 8414 
 
 5 6 
 
 7033 7042 
 7118 7126 
 7202 7210 
 7284 7292 
 7364 7372 
 
 7 
 7050 
 7135 
 7218 
 7300 
 7380 
 
 7059 
 7143 
 7226 
 7308 
 7388 
 
 6 
 
 5 
 5 
 5 
 5 
 
 7 8 9 
 
 6 7 8 
 
 6 7 
 
 6 7 
 
 6 6 
 
 6 6 
 
 8 
 7 
 7 
 
 7 
 
 7443 7461 7459 7466 
 7520 7528 7536 7543 
 7597 7604 7612 7619 
 7672 7679 7686 7694 
 7745 7752 7760 7767 
 
 7818 7825 7832 7839 
 7889 7896 7903 7910 
 7959 7966 7973 7980 
 8028 8035 8041 8048 
 8096 8102 8109 8116 
 
 8162 8169 
 8228 8235 
 8293 8299 
 8357 8363 
 8420 8426 
 
 8 9 12 3 4 6 
 
 7067 12 3 3 4 
 7152 12 3 3 4 
 7235 12 2 3 4 
 7316 12 2 3 4 
 7396 12 2 3 4 
 
 7474 122345667 
 7651 122346667 
 7627 122346667 
 7701 112344567 
 7774 112344667 
 
 7846 112344666 
 7917 112344566 
 7987 112334566 
 8055 112334566 
 8122 112334666 
 
 8176 8182 8189 112334656 
 8241 8248 8254 112334566 
 8306 8312 8319 112334666 
 8370 8376 8382 112334466 
 8432 8439 8445 112234466 
 
 70 8451 8457 8463 8470 8476 8482 8488 8494 8500 8506 112234466 
 
 71 8513 8519 8525 8531 8537 8543 8549 8555 8561 8567 112234466 
 
 72 8573 8579 8585 8591 8597 8603 8609 8615 8621 8627 112234466 
 
 73 8633 8639 8645 8651 8657 8663 8669 8675 8681 8686 112234466 
 
 74 8692 8698 8704 8710 8716 8722 8727 8733 8739 8746 112234466 
 
 75 8751 8756 8762 8768 8774 8779 8785 8791 8797 8802 112233466 
 
 76 8808 8814 8820 8825 8831 8837 8842 8848 8854 8859 112233465 
 
 77 8865 8871 8876 8882 8887 8893 8899 8904 8910 8915 112233446 
 
 78 8921 8927 8932 8938 8943 8949 8954 8960 8965 8971 112233446 
 
 79 8976 8982 8987 8993 8998 9004 9009 9016 9020 9025 112233446 
 
 80 9031 9036 9042 9047 9063 9068 9063 9069 9074 9079 112233445 
 
 81 9085 9090 9096 9101 9106 9112 9117 9122 9128 9133 112233446 
 
 82 9138 9143 9149 9154 9159 9165 9170 9175 9180 9186 112233445 
 
 83 9191 9196 9201 9206 9212 9217 9222 9227 9232 9238 112238446 
 
 84 9243 9248 9253 9258 9263 9269 9274 9279 9284 9289 112233446 
 
 85 9294 9299 9304 9309 9316 9320 9325 9330 9336 9340 112233446 
 
 86 9345 9350 9356 9360 9365 9370 9375 9380 9386 9390 112233446 
 
 87 9395 9400 9405 9410 9415 9420 9426 9430 9436 9440 011223344 
 
 88 9446 9450 9455 9460 9466 9469 9474 9479 9484 9489 011223344 
 
 89 9494 9499 9504 9509 9513 9618 9523 9528 9533 9538 011223344 
 
 90 9542 9547 9552 9557 9562 9666 9571 9576 9681 9586 1 
 
 91 9590 9595 9600 9605 9609 9614 9619 9624 9628 9633 1 
 
 92 9638 9643 9647 9652 9657 9661 9666 9671 9676 9680 1 
 
 93 9685 9689 9694 9699 9703 9708 9713 9717 9722 9727 1 
 
 94 9731 9736 9741 9746 9760 9764 9759 9763 9768 9773 1 
 
 95 9777 9782 9786 9791 9796 9800 9806 9809 9814 9818 1 
 
 96 9823 9827 9832 9836 9841 9845 9850 9854 9859 9863 1 
 
 97 9868 9872 9877 9881 9886 9890 9894 9899 9903 9908 1 
 
 98 9912 9917 9921 9926 9930 9934 9939 9943 9948 9952 1 
 
 99 9956 9961 9965 9969 9974 9978 9983 9987 9991 9996 1 
 
 2 2 3 
 
 2 2 3 
 
 2 2 3 
 
 2 2 8 
 
 2 2 3 
 
 4 4 
 4 4 
 4 4 
 4 4 
 4 4 
 
 12 2 3 3 4 4 
 
 12 2 3 3 4 4 
 
 12 2 3 3 4 4 
 
 12 2 3 3 4 4 
 
 1 2 2 3 3 S 4 
 
 i 
 
378 ACCOrXTING IN THEORY AND PHACTICE 
 
 ANTI-LOGARITHMS 
 
 379 
 
 Anti-Log A ritiims 
 
 Anti-Logarithms 
 
 ■ 01234 
 
 •00 1000 1002 1005 1007 1009 
 •01 1023 1026 1028 1030 1033 
 •02 1047 1050 1052 1054 1057 
 •03 1072 1074 1076 1079 1081 
 •04 1096 1099 1102 1104 1107 
 
 8 9 1234B6789 
 
 1012 1014 1016 1019 1021 1 
 1035 1038 1040 1042 1045 1 
 1059 1062 1064 1067 1069 1 
 1084 1086 1089 1091 1094 1 
 1109 1112 1114 1117 1119 Oil 
 
 1135 1138 1140 1143 1146 Oil 
 1161 1164 1167 1169 1172 Oil 
 1189 1191 1194 1197 1199 1 1 
 1216 1219 1222 1225 1227 Oil 
 1245 1247 1250 1253 1256 Oil 
 
 •05 1122 1125 1127 1130 1132 
 •06 1148 1151 1153 1156 1159 
 •07 1175 1178 1180 1183 1186 
 •08 1202 1205 1208 1211 1213 
 •09 1230 1233 1236 1239 1242 
 
 •10 1259 1262 1265 1268 1271 1274 1276 1270 1282 1285 1 
 
 •11 1288 1291 1294 1297 1300 1303 1306 1309 1312 1315 1 
 
 •12 1318 1321 1324 1327 1330 1334 1337 1340 1343 1346 1 
 
 •13 1349 1352 1355 1358 1361 1365 1368 1371 1374 1377 1 
 
 •14 1380 1384 1387 1390 1393 1396 1400 1403 1406 1409 1 
 
 •15 1413 1416 1419 1422 1426 1429 1432 1435 1439 1442 1 
 
 •16 1445 1449 1452 1455 1459 1462 1466 1469 1472 1476 1 
 
 •17 1479 1483 1486 1489 1493 1496 1500 1503 1507 1510 1 
 
 •18 1514 1517 1521 1524 1528 1531 1535 1538 1542 1545 1 
 
 •19 1549 1552 1556 1560 1563 1567 1570 1574 1578 1581 1 
 
 12 2 2 
 
 12 2 2 
 
 12 2 2 
 
 12 2 2 
 
 2 2 2 2 
 
 12 2 2 2 
 
 12 2 2 2 
 
 12 2 2 2 
 
 12 2 2 3 
 
 12 2 2 3 
 
 •20 
 •21 
 •22 
 •23 
 •24 
 
 •25 
 •26 
 •27 
 •28 
 •29 
 
 •30 
 •31 
 •32 
 •33 
 •34 
 
 •35 
 •36 
 •37 
 •38 
 •39 
 
 •40 
 •41 
 •42 
 •43 
 •44 
 
 •45 
 
 •46 
 •47 
 •48 
 •49 
 
 1585 1589 
 1622 1626 
 1660 1663 
 1698 1702 
 1738 1742 
 
 1778 1782 
 1820 1824 
 1862 1866 
 1905 1910 
 1950 1954 
 
 1995 2000 
 2042 2046 
 2089 2094 
 2138 2143 
 2188 2193 
 
 2239 2244 
 2291 2296 
 2344 2350 
 2399 2404 
 2455 2460 
 
 2512 2518 
 2570 2576 
 2630 2636 
 2692 2698 
 2754 2761 
 
 2818 2825 
 2884 2891 
 2951 2958 
 3020 3027 
 3090 3097 
 
 1592 1596 1600 1603 1607 1611 1614 1618 1 
 
 1629 1633 1637 1641 1644 1648 1652 1656 1 
 
 1667 1671 1676 1679 1683 1687 1690 1694 1 
 
 1706 1710 1714 1718 1722 1726 1730 1734 1 
 
 1746 1750 1754 1758 1762 1766 1770 1774 1 
 
 1786 1791 1795 1799 1803 1807 1811 1816 1 
 
 1828 1832 1837 1841 1845 1849 1854 1858 1 
 
 1871 1875 1879 1884 1888 1892 1897 1901 1 
 
 1914 1919 1923 1928 1932 1936 1941 1945 1 
 
 1959 1963 1968 1972 1977 1982 1986 1991 1 
 
 2004 2009 2014 2018 2023 2028 2032 2037 1 
 2051 2056 2061 2065 2070 2075 2080 2084 1 
 2099 2104 2109 2113 2118 2123 2128 2133 1 
 2148 2153 2158 2163 2168 2173 2178 2183 1 
 2198 2203 2208 2213 2218 2223 2228 2234 1 1 
 
 1 
 1 
 1 
 1 
 1 
 
 1 
 1 
 1 
 1 
 1 
 
 1 
 1 
 1 
 1 
 1 
 
 1 
 1 
 1 
 1 
 1 
 
 1 
 1 
 1 
 1 
 2 
 
 112 2 2 3 
 
 12 2 2 2 3 
 
 12 2 2 2 3 
 
 12 2 2 3 3 
 
 12 2 2 8 3 
 
 2 2 2 3 8 
 
 2 2 2 3 3 
 
 2 2 2 3 3 
 
 2 2 2 3 3 
 
 2 2 3 3 3 
 
 12 2 3 3 3 
 
 2 2 2 3 3 3 
 
 2 2 2 3 3 3 
 
 2 2 2 3 3 4 
 
 2 2 2 3 8 4 
 
 2 2 2 3 
 
 2 2 3 3 
 
 2 2 3 3 
 
 2 2 3 3 
 
 2 2 3 3 
 
 2 2 3 3 4 4 
 
 2 2 3 3 4 4 
 
 2 2 3 3 4 4 
 
 2 2 3 3 4 4 
 
 2 3 3 4 4 5 
 
 2249 2254 2259 2265 2270 2275 2280 2286 1 1 
 
 2301 2307 2312 2317 2323 2328 2333 2339 1 1 
 
 2355 2360 2366 2371 2377 2382 2388 2393 1 1 
 
 2410 2415 2421 2427 2432 2438 2443 2449 1 1 
 
 2466 2472 2477 2483 2489 2495 2500 2506 1 1 
 
 2523 2529 2535 2541 2547 2553 2559 2564 1 1 
 2582 2588 2594 2600 2606 2612 2618 2624 1 1 
 2642 2649 2655 2661 2667 2673 2679 2685 1 1 
 2704 2710 2716 2723 2729 2735 2742 2748 1 1 
 2767 2773 2780 2786 2793 2799 2805 2812 1 1 
 
 2831 2838 2844 2851 2858 2864 2871 2877 1 1 
 2897 2904 2911 2917 2924 2931 2938 2944 1 1 
 2965 2972 2979 2985 2992 2999 3006 3013 1 1 
 3034 3041 3048 3055 3062 3069 3076 3083 1 1 
 3105 3112 3119 3126 3133 3141 3148 3165 1 1 
 
 2 2 3 3 4 4 6 
 
 2 2 3 3 4 4 6 
 
 2 2 3 3 4 4 6 
 
 2 2 3 3 4 4 6 
 
 2 2 3 3 4 6 6 
 
 2 2 3 4 4 6 6 
 
 2 2 3 4 4 6 6 
 
 2 2 3 4 4 6 6 
 
 2 3 3 4 4 6 6 
 
 2 3 3 4 4 6 6 
 
 2 3 3 4 6 6 6 
 
 2 3 8 4 6 6 6 
 
 2 3 3 4 6 6 6 
 
 2 3 4 4 6 6 6 
 
 2 8 4 4 5 6 6 
 
 •50 
 •51 
 •62 
 •53 
 •54 
 
 •55 
 •56 
 •57 
 •68 
 '69 
 
 •60 
 •61 
 •62 
 •63 
 •64 
 
 •65 
 •66 
 •67 
 •68 
 •69 
 
 •70 
 •71 
 •72 
 •73 
 
 •74 
 
 •75 
 •76 
 •77 
 •78 
 •79 
 
 12 
 
 3162 3170 3177 
 3236 3243 3251 
 3311 3319 3327 
 3388 3396 3404 
 3467 3475 3483 
 
 3548 3556 3565 
 3631 3639 3648 
 3715 3724 3733 
 3802 3311 3819 
 3890 3899 3908 
 
 3981 3990 3999 
 4074 4083 4093 
 4169 4178 4188 
 4266 4276 4285 
 4365 4375 4385 
 
 4467 
 4571 
 4677 
 4786 
 4898 
 
 5012 
 5129 
 6248 
 6370 
 5495 
 
 5623 
 5764 
 
 5888 
 6026 
 6166 
 
 4477 4487 
 4581 4592 
 4688 4699 
 4797 4808 
 4909 4920 
 
 6023 6035 
 5140 5152 
 5260 5272 
 5383 5395 
 5508 5521 
 
 3 4 5 6 7 
 3184 3192 3199 3206 3214 
 3258 3266 3273 3281 3289 
 3334 3342 3350 3357 3365 
 3412 3420 3428 3436 3443 
 3491 3499 3508 3516 3524 
 
 3573 3581 3589 3597 3606 
 3656 3664 3673 3681 3690 
 3741 3750 3758 3767 3776 
 3828 3837 3846 3855 3864 
 3917 3926 3936 3945 3954 
 
 4009 4018 4027 
 4102 4111 4121 
 4198 4207 4217 
 4295 4305 4315 
 4395 4406 4416 
 
 4498 4508 4519 4529 4539 
 4603 4613 4624 4634 4645 
 4710 4721 4732 4742 4753 
 4819 4831 4842 4853 4864 
 4932 4943 4955 4966 4977 
 
 8 9 
 
 3221 3228 
 3296 3304 
 3373 3381 
 3451 3459 
 3532 3540 
 
 3614 3622 
 3698 3707 
 3784 3793 
 3873 3882 
 3963 3972 
 
 4036 4046 4055 4064 1 
 4130 4140 4150 4159 1 
 4227 4236 4246 4256 1 
 4325 4335 4345 4355 1 
 4426 4436 4446 4457 1 
 
 2 
 
 1 
 2 
 2 
 2 
 2 
 
 2 
 2 
 2 
 2 
 2 
 
 2 
 2 
 2 
 2 
 2 
 
 3 
 
 2 
 2 
 2 
 2 
 2 
 
 2 
 3 
 3 
 3 
 3 
 
 3 
 3 
 3 
 3 
 3 
 
 4 
 3 
 3 
 3 
 3 
 3 
 
 3 
 3 
 3 
 
 4 
 4 
 
 4 
 4 
 4 
 4 
 4 
 
 5047 6058 5070 
 5164 6176 5188 
 5284 5297 5309 
 5408 5420 5433 
 5534 5546 5559 
 
 5082 5093 
 5200 5212 
 5321 5333 
 5445 5458 
 5572 5585 
 
 4550 4560 12 3 4 
 4656 4667 12 3 4 
 4764 4775 12 3 4 
 4875 4887 12 3 4 
 4989 5000 12 3 5 
 
 5105 5117 12 4 5 
 5224 5236 12 4 5 
 5346 5358 12 4 5 
 5470 5483 13 4 5 
 5598 5610 13 4 5 
 
 5636 5649 5662 5675 5689 5702 5715 5728 5741 13 4 5 
 6768 5781 6794 5808 5821 5834 5848 5861-5875 13 4 5 
 6902 5916 5929 5943 5957 5970 5984 5998 6012 13 4 5 
 6039 6053 6067 6081 6095 6109 6124 6138 6152 13 4 6 
 6180 6194 6209 6223 6237 6252 6266 6281 6295 13 4 6 
 
 7 8 9 
 
 5 6 7 
 
 5 6 7 
 
 5 6 7 
 
 6 6 7 
 6 6 7 
 
 7 
 7 
 7 
 7 
 7 
 
 7 
 8 
 8 
 8 
 8 
 
 7 8 
 
 8 9 
 8 9 
 8 9 
 8 9 
 
 •80 6310 6324 6339 6353 6368 6383 6397 6412 6427 6442 13 4 6 
 •81 6457 6471 6486 6501 6516 6531 6546 6561 6577 6592 2 3 5 6 
 •82 6607 6622 6637 6653 6668 6683 6699 6714 6730 6745 2 3 5 6 
 •83 6761 6776 6792 6808 6823 6839 6855 6871 6887 6902 2 3 6 6 
 •84 6918 6934 6950 6966 6982 6998 7015 7031 7047 7063 2 3 5 6 
 
 5 6 
 
 4 4 
 
 4 5 
 
 4 5 
 
 4 5 
 
 4 5 
 
 4 5 
 
 4 5 
 
 4 5 
 
 4 5 
 
 5 5 
 
 5 6 
 
 5 6 
 
 5 6 
 
 5 6 
 
 6 6 
 
 6 6 
 
 5 6 
 
 6 7 
 6 7 
 6 7 
 
 6 7 
 
 6 7 
 
 6 7 
 
 6 8 
 
 6 8 
 
 7 8 9 10 12 
 7 8 9 11 12 
 7 8 10 11 12 
 7 8 10 11 13 
 7 9 10 11 13 
 
 7 9 10 12 13 
 
 8 9 11 12 14 
 8 9 11 12 14 
 8 9 11 13 14 
 
 6 
 6 
 6 
 6 
 6 
 
 6 
 
 7 
 
 7 
 7 
 7 
 
 7 8 9 
 
 7 9 10 
 
 8 9 10 
 8 9 10 
 8 9 10 
 
 8 9 11 
 
 8 10 11 
 
 9 10 11 
 9 10 11 
 9 10 12 
 
 8 10 11 13 16 
 
 •85 7079 7096 7112 7129 7146 7161 7178 7194 
 •86 7244 7261 7278 7295 7311 7328 7345 7362 
 •87 7413 7430 7447 7464 7482 7499 7516 7534 
 •88 7586 7603 7621 7638 7656 7674 7691 7709 
 •89 7762 7780 7798 7816 7834 7852 7870 7889 
 
 7211 7228 2 3 6 7 
 7379 7396 2 3 6 7 
 7551 7568 2 3 5 7 
 7727 7745 2 4 5 7 
 7907 7925 2 4 5 7 
 
 •90 7943 7962 7980 7998 8017 8035 8054 8072 
 •91 8128 8147 8166 8185 8204 8222 8241 8260 
 •92 8318 8337 8356 8375 8395 8414 8433 8453 
 •93 8511 8531 8551 8570 8590 8610 8630 8650 
 •94 8710 8730 8750 8770 8790 8810 8831 8851 
 •95 8913 8933 8964 8974 8995 9016 9036 9057 
 •96 9120 9141 9162 9183 9204 9226 9247 9268 
 •97 9333 9354 9376 9397 9419 9441 9462 9484 
 •98 9550 9572 9594 9616 9638 9661 9683 9705 
 •99 9772 9795 9817 9840 9863 9886 9908 9931 
 
 8091 8110 2 4 6 7 
 8279 8299 2 4 6 8 
 8472 8492 2 4 6 8 
 8670 8690 2 4 6 8 
 8872 8892 2 4 6 8 
 
 9078 9099 2 4 6 8 
 9*290 9311 2 4 6 8 
 9506 9528 2 4 7 9 
 9727 9750 2 4 7 9 
 9954 9977 2 5 7 9 
 
 8 10 12 
 
 8 10 12 
 
 9 10 12 
 9 11 12 
 9 11 13 
 
 9 11 13 
 
 9 11 13 
 
 10 12 14 
 
 10 12 14 
 
 10 12 14 
 
 13 15 
 
 13 15 
 
 14 16 
 14 16 
 
 14 16 
 
 15 17 
 15 17 
 
 15 17 
 
 16 18 
 16 18 
 
 10 12 16 17 19 
 
 11 13 16 17 19 
 11 13 16 17 20 
 11 13 16 18 20 
 11 14 16 18 20 
 
Hi 
 
 r t 
 
 ANSWEES TO EXEKCISES 
 
 j^OTE. — In most cases the whole of the solution is not 
 given, hut only sufficient of the answer to enable the student to 
 locate any err(yr he inay have made in working out an 
 exercise. 
 
 Page 39, Exercise 1: — 
 
 Profit and Loss. 
 
 Dec. 31. To Wages 
 ,, Rent. 
 ., Capital 
 
 . £350 
 
 . 200 
 
 . 1587 
 
 £2137 
 
 Dec. 31. By Gk)ods . £2075 
 „ Discount. 62 
 
 £2137 
 
 Balance Sheet as at 31st December. 
 
 Liabilities. 
 
 Rusk k Co. . 
 George Tait k Son 
 Bills payable 
 Capital . 
 
 Assets. 
 
 .£700 
 
 
 
 
 
 . 900 
 
 
 
 
 
 . 1000 
 
 
 
 
 
 . 2747 
 
 
 
 
 
 £5347 
 
 
 
 
 
 John Harvey 
 Bills receivable 
 Goods . 
 Bank . 
 Cash 
 
 £300 
 2000 
 
 3000 
 37 
 10 
 
 
 
 
 
 £5347 
 
 Page 40, Exercise 2 : — 
 
 Profit and Loss. 
 
 Dec. 31. To Wages 
 ,, Rent . 
 
 . £600 
 
 . 200 
 
 „ Discount . 40 
 
 „ Capital . 520 
 
 £1360 
 
 Dec. 31. By Goods . £1360 
 
 £1360 
 
382 ACCOUNTING IN THEORY AND PRACTICE 
 
 ANSWERS TO EXERCISES 
 
 383 
 
 Balance Sheet as at 31 st DocHmber. 
 
 Pa^e 93, Exercise 1 : — 
 
 i^ 
 
 LiabUities. 
 
 Assets, 
 
 A. Ross and Cn. 
 Capital . 
 
 . £200 
 . 1770 
 
 £1970 
 
 John Adamflon 
 
 . £900 
 
 
 
 
 
 Goods . 
 
 . 1000 
 
 
 
 
 
 Bank . 
 
 45 
 
 
 
 
 
 Cash . 
 
 . 25 
 
 
 
 
 
 £1970 
 
 Page 41, Exercise 3 : — 
 
 Profit and Loss. 
 
 Deo. 31. To Wages 
 ,. Rent . 
 ,, Discount 
 „ Capital 
 
 . £400 
 
 . 150 
 
 35 
 
 . 975 
 
 £1560 
 
 Dec. 31. By Goods . £1560 
 
 £1560 
 
 Balance Sheet as at 3 1st December. 
 
 Liabilities. 
 
 Assets. 
 
 James Watt and Co. . £2100 
 Capital . . , 2975 
 
 £5075 
 
 John Reid . . . £900 
 OflSce fittings and furni- 
 ture . . . . 200 
 Goods .... 2000 
 Bank .... 1515 
 C*al» . • . . 460 
 
 £5075 
 
 THE HERITABLE LAND SOCIETY 
 
 Statement op Affairs 
 
 Liabilities. 
 
 Assets. 
 
 I. Ordinary creditors . 
 
 II. Creditors secured on 
 PROPERTY . £6000 
 
 Deducted firom Assets, 
 Branch VI. 
 
 III. Preferable 
 
 CLAIMS . 
 
 Expected to 
 rank. 
 
 £200,000 
 
 £300 
 
 Deducted from Assets. 
 
 I. Cash on hand . 
 II. Cash at bankers 
 
 III. Book debts :— 
 
 Good 
 
 D o u b t f u 1, 
 £25,000, pro- 
 duce 
 
 Bad, £1000 . 
 
 £1000 
 
 2000 
 
 
 IV. Bill of exchange . 
 
 V. Loans on mortgage, 
 £170,000, produce , 
 
 VI. Property: — 
 1. Held by 
 
 secured 
 
 creditors, 
 
 value . £12,000 
 Deduct — 
 Secured debt, 
 per Liabilities, 
 Branch II. . 6,000 
 
 £200,000 
 
 £6,000 
 2. Other pro- 
 perty . 56,000 
 
 VII. Office furniture 
 
 Deduct — Preferable 
 Claims . 
 
 Assets available for 
 division among ordi- 
 nary creditors, showing 
 a dividend of 12s. 7d. 
 per £, exclusive of ex- 
 penses 
 
 Deficiency . 
 
 Estimated to 
 realise. 
 
 £100 
 
 900 
 
 3,000 
 22 
 
 60,000 
 
 62,000 
 
 100 
 
 £126,122 
 
 300 
 
 £125,822 
 74,178 
 
 £200,000 
 
384 ACCOUNTING IN THEORY AND PRACTICE 
 
 ANSWERS TO EXERCISES 
 
 385 
 
 Page 93, Exercise 2 
 
 WALLACE & GIBB 
 
 
 I 
 
 WALLACE & GIBB 
 Statement op Affairs 
 
 Liabilities, 
 
 I. OuDlNAliy CUEDITORS 
 
 II. Creditors fully 
 
 8ICURED . . £4000 
 
 £6,000 
 
 Deducted from 
 
 Assets, Branch V. 
 
 III. Creditors partly 
 
 SECURED . . £6300 
 Deduct — Value 
 of securities 
 assigned per 
 Assets, Branch V. 800 
 
 IV. Prbferential 
 
 CLAIMS . . £160 
 
 Deducted from 
 Assets. 
 
 5,500 
 
 £11,500 
 
 Assets, 
 
 I. Cash on hand . . £50 
 II. Customers' accounts : — 
 Good . . £1000 
 Doubtful, £100, 
 estimated to 
 produce . , 80 
 Bad, £200 . 
 
 III. Bills receitablb . 
 
 I\'. Property, cost 
 £3000, estimated 
 to produce , 
 
 V. Securities :— 
 
 1. Held by credi- 
 
 tors partly 
 securea. . £800 
 
 Deducted from 
 Liabilities, 
 Branch III. 
 
 2. Value of se- 
 
 u r i t i e 8 
 pledged to 
 fully secured 
 creditors . £6200 
 Dedicct — 
 Claims by 
 fully securea 
 crea itors, per 
 Liabilities, 
 Branch II. . 4000 
 
 2)«/f Mrf— Preferen • 
 tial claims 
 
 Assets available for divi- 
 sion among ordinary 
 creditors, showing adivi- 
 dend of 10s. 4d. per £, 
 exclusive of expenses 
 
 Deficiency 
 
 1,060 
 800 
 
 
 
 
 
 
 
 2,000 
 
 2,200 
 
 £6,110 
 
 150 
 
 £5,960 
 6,540 
 
 £11,500 
 
 Deficiency Account 
 
 To Loss from shrinkage of Assets, as shown in 
 Statement of Aflairs : — 
 Book debts . 
 Property 
 
 £240 
 1,000 
 
 £1,240 
 
 I • 
 11 
 
 Stock Exchange losses . 
 
 Trade expenses 
 
 Business losses 
 
 Partners* drawings : — 
 Wallace . £2000 
 
 Gibb . 1500 
 
 3,000 
 2,300 
 1,900 
 
 
 
 
 
 
 By Capital put into business : — 
 
 Wallace . , . . £2,500 
 Gibb .... 3,900 
 
 £6,400 
 
 3,500 
 
 £11,940 
 
 ,, Balance, being deficiency 
 shown in Statement of 
 Affairs .... 
 
 5,540 
 
 £11,940 
 
 Page 94, Exercise 3 :— 
 
 William Arnot. 
 
 Statement of Affairs as at 1st July. 
 Liabilities. ^^sets. 
 
 I. Ordinary creditors : — 
 
 On open account £9,000 
 
 On bills payable . . 20,000 
 
 II. Fully secured oredi 
 TORS . . £2300 
 
 £29,000 
 
 Deducted from Assets, 
 Branch VIII. 
 
 III. Partly secured credi- 
 tors . . £35,000 
 D«dMc<— Shares 
 assigned in 
 security, per 
 Assets, Branch 
 Vn. . . 20,000 
 
 I. Cash in hand and in 
 
 BANK .... 
 
 II. Office furniture, cost 
 £300, estimated to 
 realise .... 
 
 III. Four stations, build- 
 ings, plant, steamers 
 
 A.ND carrying CRAFT, 
 
 cost £40,000, estimated 
 
 £84 
 
 200 C 
 
 IV. Preferable CLAIMS £800 
 
 Deducted from 
 Assets. 
 
 15,000 
 
 Carry forward £44,000 
 
 to realise 
 
 IV. Book debts : — 
 Good 
 
 Doubtful, £200, 
 estimated to 
 realise . 
 Bad, £300 
 
 . 20,000 
 £1000 
 
 75 
 
 
 1,075 
 
 V. Stock in Liverpool, cost 
 £1500, estimated to 
 realise . . . .1,200 
 
 2 C 
 
 Carry forward . £22,559 
 
 
 
 
 
 
 
386 ACCOUNTING IN THEORY AND PRACTICE 
 
 Statement of Affairs — cmtinued. 
 
 Liabilities. 
 
 Assets, 
 
 Brought forward 
 
 4^44,000 
 
 VI. 
 
 Brought forward 
 
 Stock and book 
 debts, less 
 sundry lia- 
 bilities at the 
 four stations 
 
 ON COAST 
 
 Deduct — Estimated 
 loss on realisa- 
 tion : — 
 Stock . £6000 
 Book 
 debts 9000 
 
 £22,559 
 
 £36,000 
 
 15,000 
 
 21,000 
 
 VII. 
 
 £44,000 
 
 VIII. 
 
 Shares held . £20,000 
 
 These shares are 
 assigned in 
 security of 
 debts amount- 
 ing to £35, 000, 
 and their 
 value is de- 
 ducted from 
 Liabilities, 
 Branch III. 
 
 Heritable property: — 
 Value . £3000 
 
 Deduct — Creditors' 
 claims per Lia- 
 bilities, Branch 
 II. . . . 2300 
 
 700 
 £44,259 
 
 Deduct — Preferable claims 
 er Liabilities, Branch 
 
 Vy 
 
 800 
 
 Assets available for divi- 
 sion among ordinary 
 
 creditors, showing a 
 dividend of 19s. 9d. per 
 £, exclusive of expenses £43,459 
 Deficiency . 541 
 
 
 
 
 £44,000 
 
 ANSWERS TO EXERCISES 
 
 387 
 
 William Arnot. 
 Deficiency Account. 
 
 To Loss from shrinkage of Assets, 
 as shown in State of 
 Aifairs : — 
 Office furniture . . £100 
 Buildings, plant, etc. 
 
 at stations . . 20,000 
 
 Book debts . . 425 
 
 Stock in Liverpool 300 
 
 Stock and book debts 
 
 at stations . . 15,000 
 
 £35,825 
 
 „ Drawings at the rate of 
 
 £4000 a year for six years 24,000 
 
 £59,825 
 
 By Capital in business six years 
 
 ago £42,000 
 
 ,, Interest on capital for six 
 
 years at £2000 a year . 12,000 
 
 ,, Profit shown in accounts : — 
 1st year . . £3,000 
 2nd year . . 4,000 
 3rd year . . 5,284 
 
 Dedv^ Losses : — 
 4th year . £1500 
 5th year . 2500 
 6th year . 3000 
 
 £12.284 
 
 7,000 
 
 ,, Balance, being deficiency 
 shown in Statement of 
 Affairs .... 
 
 5,284 
 541 
 
 Page 99, Exercise 1 : — 
 
 Profit and Loss Account. 
 
 To Wages . 
 , , Rent and taxes 
 ,, Depreciation . 
 ,, Capital . 
 
 £20 
 
 150 
 
 10 
 
 1373 
 
 
 
 
 
 
 
 
 
 
 
 By Silk 
 ,, Cloth 
 ,, Velvet 
 
 £1553 
 
 
 
 
 
 
 Balance Sheet as at Slat December. 
 Liabilities. Assets, 
 
 Webster and Co. . 
 Bills payable 
 Capital 
 
 £2200 
 2000 
 2178 
 
 £6378 
 
 T. Henry £600 
 
 Bills receivable .... 4000 
 Furniture and fittings . . 90 
 
 Stock:— 
 Silk . . £400 
 
 Cloth . . 300 
 
 Velvet . . 708 
 
 Bank . 
 Cash . 
 
 1408 
 
 50 
 
 230 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £59,825 
 
 £545 
 400 
 608 
 
 £1553 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £6378 
 
 
 ( 
 
388 ACCOUNTING IN THEORY AND PRACTICE 
 
 Page 101, Exercise 2 :- 
 
 Profit and Loss Account. 
 
 To Department No. 1 . . £2700 
 
 „ Net profit, allocated thus : — 
 Tod, two-thirds . £3300 
 Dick, one-third . . 1650 
 
 4950 
 
 By Department No. 2 
 do. No. 3 
 
 £7650 
 
 £3650 
 4000 
 
 £7650 
 
 Balance Sheet as at 31st December. 
 
 Liabilities. 
 
 Assets. 
 
 Creditors : — 
 On open account 
 On bills payable 
 Cash creditors . 
 
 Capital : — 
 Tod 
 Dick 
 
 £18,000 
 
 10,000 
 
 28,000 
 
 £56,000 
 
 £17,300 
 . 7,250 
 
 24,550 
 
 £80,550 
 
 Customers : — 
 On open account 
 On bills receivable 
 
 £29,000 
 . 3,000 
 
 £32,000 
 38,000 
 1,000 
 
 Stock 
 
 Sundry debtors on loans . 
 Fixtures, fittings, and trade 
 
 utensils 950 
 
 Business premises . . . 6,500 
 
 Bank 2,000 
 
 Cash on hand .... 100 
 
 Page 103, Exercise 3 
 
 Profit and Loss Account. 
 
 To Mace . 
 ,, OflBce expenses 
 ,. Capital. 
 
 £20 
 
 
 
 
 
 100 
 
 
 
 
 
 333 
 
 
 
 
 
 H53 
 
 
 
 
 
 By Cinnamon 
 ,, Nutmegs 
 ,, Discount 
 
 £180 
 
 270 
 
 3 
 
 £453 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £80,550 
 
 ANSWERS TO EXERCISES 
 
 Balance Sheet as at 31st December. 
 
 Liabilities. 
 
 Assets. 
 
 W. Perkins 
 Bills payable 
 Capital 
 
 £150 
 
 500 
 
 4108 
 
 £4758 
 
 Bills receivable . 
 
 Stock : — 
 annamon £480 
 Nutmegs 470 
 
 Cash 
 
 950 
 2683 
 
 Page 104, Exercise 4: — 
 
 R HAY & SONS, WINE MERCHANTS 
 Profit and Loss Account. 
 
 To Carriage . . . £50 
 
 ,, Wages and salaries 300 
 ,, Stationery and 
 
 stamps . . 10 
 
 ,, Rent 50 
 
 ,, Rates and taxes 18 
 
 .. Net profit . . 1642 
 
 £2070 
 
 By Gross profit : — 
 Whisky 
 Brandy 
 Gin and Wines 
 
 , , Discount 
 
 389 
 
 . £1125 
 
 
 
 
 
 
 
 £4758 
 
 £520 
 
 800 
 
 700 
 
 £2020 
 
 50 
 
 £2070 
 
 Page 132, Exercise 1 :- 
 
 Joint Account. 
 
 To Brown (goods) 
 ,. Smith (n-eight and 
 
 insurance) . 
 ,, Brown (share of 
 
 profit) 
 ,, Smith (share of 
 
 profit) 
 
 £1000 
 65 
 52 10 
 52 10 
 
 
 
 
 
 
 By Smith . 
 
 . £1170 
 
 
 £1170 
 
 J 
 
 £1170 
 
 To Balance . 
 
 BrouMf Capital Account. 
 
 . £1052 10 
 
 £1052 10 
 
 By Joint Account . £1000 
 do. (share of 
 profit) . 62 10 
 
 ti 
 
 £1052 10 
 
390 ACCOUNTING IN THEORY AND PRACTICE 
 
 Smithy Capital Account 
 
 To Joint Account 
 
 £1170 
 
 £1170 
 
 By Joint Account £66 
 ,, do. (share of 
 
 profit) . . 52 10 
 
 .. Balance . . . 1052 10 
 
 Smith would pay to Brown £1052 : lOs. 
 
 £1170 
 
 Page 132, Exercise 2 : — 
 
 R. AllaUy Capital Account, 
 
 To Bank 
 ,, Adventure 
 
 To Bank 
 ,, Balance 
 
 . £700 
 . 200 
 
 £900 
 
 By Bank . . £700 
 
 „ Adventure (profit) . 145 16 8 
 
 Balance 
 
 54 3 4 
 £900 
 
 r. Dick, Capital Account. 
 
 £500 
 104 3 4 
 
 £604 3 4 
 
 By Bank . . £500 
 
 ,, Adventure (profit) . 104 3 4 
 
 Bank Account. 
 
 £604 3 4 
 
 To R. Allan . 
 
 . £700 
 
 
 
 
 
 By Adventure 
 
 . £900 
 
 
 
 
 
 „ T. Dick . 
 
 . 500 
 
 
 
 
 
 ,, do. 
 
 . 50 
 
 
 
 
 
 ,, Adventure 
 
 . 1200 
 
 
 
 
 
 ,, do. . 
 
 . 200 
 
 
 
 
 
 
 
 
 
 „ R. Allan . 
 
 . 700 
 
 
 
 
 
 
 
 
 
 „ T. Dick . 
 
 . 600 
 
 
 
 
 
 
 
 
 
 ,, Balance . 
 
 . 50 
 
 
 
 
 
 
 £2400 
 
 
 
 J 
 
 £2400 
 
 
 
 
 
 Adventure Account, 
 
 To Bank (timber) . . £900 
 ,, do. (charges) 50 
 
 „ do. (freight, etc.) . 200 
 „ Profit:— 
 
 K Allan. £145 16 8 
 
 T. Dick . 104 3 4 
 
 250 
 
 To Bank 
 ,, R. Allan 
 
 £1400 
 
 £1200 
 200 
 
 £1400 
 
 T. Dick would get the balance in bank of £50, and 
 R Allan would pay him £54 : 3s. 4d. 
 
 ANSWERS TO EXERCISES 
 
 391 
 
 Page 190, Exercise 1 : — 
 
 Balance Sheet as at 30th June. 
 Liabilities. Assets. 
 
 Capital liferented by 
 
 widow . . £5000 
 
 Residue . . 1700 
 
 £6700 
 
 Sum invested for 
 
 widow's liferent use 
 
 onbondat4 per cent £5000 
 Balance in hands of 
 
 executor . 1700 
 
 £6700 
 
 Page 192, Exercise 2 : — 
 
 Balance Sheet as at 31st December, 1900. 
 Liabilities. Assets. 
 
 Due to beneficiaries 
 John Roberts, Jr. 
 George Roberts . 
 William Roberts 
 Mary Roberts 
 Frank Smith 
 
 £627 8 
 
 327 8 
 
 607 8 
 
 1141 2 
 
 
 
 
 
 
 453 14 
 
 £3157 
 
 Stock and shares 
 Mortgages . 
 Cash . 
 
 £1000 
 
 1280 
 
 877 
 
 £3157 
 
 Page 223, Exercise 1 : — 
 
 Balance Sheet as at 1st January. 
 Liabilities. Assets. 
 
 Partners' capital :- 
 X . 
 Y . 
 
 . £8000 
 . 7800 
 
 
 
 
 
 
 
 £15,800 
 
 
 
 
 
 Book debts . 
 Goods 
 
 Heritable property 
 Cash . 
 
 . £2,800 
 
 . 2,000 
 
 . 5,000 
 
 . 6,000 
 
 £16,800 
 
 Paore 223, Exercise 2 : — 
 
 Xf Capital Account. 
 
 Mar. 31. To Cash . 
 June 30. ,, do. . 
 Sept. 30. ,, do. . 
 Dec. 31. ., do. . 
 ,, Balance 
 
 £200 
 
 
 
 
 
 200 
 
 
 
 
 
 200 
 
 
 
 
 
 200 
 
 
 
 
 
 1971 
 
 6 
 
 
 
 Jan. 1. By Balance . £2000 
 
 Dec. 31. ., Interest . 85 
 ,, Share of 
 
 profit . 686 5 
 
 £2 771 5 i 
 
 £2771 5 
 
392 ACCOUNTING IN THEORY AND PRACTICE 
 
 ANSWERS TO EXERCISES 
 
 393 
 
 V \ 
 
 F, Capital Account. 
 
 June 30. To Cash . 
 Dec. 31. ,, do. . 
 ,, Balance 
 
 . £300 
 . 300 
 . 1128 16 
 
 
 
 
 
 Jan. 1. By Balance . £1000 
 
 Dec. 31. , Interest . 42 10 
 
 ,, Share of 
 
 profit . 686 6 
 
 £1728 15 
 
 
 
 
 
 
 
 £1728 15 
 
 
 
 
 
 Page 223, Exercise 3 : — 
 
 Assets 
 
 . £8000 
 
 Deduct— 
 
 
 Cash in bank 
 
 . £600 
 
 Liabilities 
 
 . 4000 
 
 
 4600 
 
 Amount business sold for 
 
 £3400 
 6500 
 
 Profit on realisation . . £2100 
 of wbich each partner is entitled to one-half, namely £1050. 
 A therefore receives . . £4050 
 
 B receives 
 
 2050 
 £6100 
 
 To pay this sum there is the cash the busi- 
 ness was sold for ... . £5500 
 And the cash in bank . .600 
 
 
 
 
 
 
 
 £6100 
 
 BrovyrCs Capital Account 
 
 Dec. 31. To Balance 
 
 . £2349 5 
 
 1 
 
 1 
 
 Jan. 1. By Cash 
 
 Mar. 15. ,, do. 
 
 July 1. ,, do. 
 
 Dec. 31. ,, Interest 
 „ Profit 
 „ Salary 
 
 . £500 
 . 300 
 
 600 
 51 18 
 
 697 1 
 . 200 
 
 
 
 
 
 8 
 9 
 
 
 
 £2349 5 
 
 
 £2349 
 
 _6 
 
 Page 224, Exercise 5 : — 
 
 Dec. 31. To Balance 
 
 Dec. 31. To Balance 
 
 John Thin, Capital Account. 
 
 . £2610 
 
 £2610 
 
 Dec. 31. By Balance . £2000 
 
 ,, Profit and Loss 
 Account (share 
 of profit) . 610 
 
 £2610 
 
 Richard BkLck, Capital Account. 
 
 . £2410 
 
 £2410 
 
 Dec. 31. By Balance . . £1800 
 ,, Profit and Loss 
 Account (share 
 of profit). 610 
 
 £2410 
 
 Page 223, Exercise 4:- 
 
 Smith's Capital Account. 
 
 Dec. 31. To Balance 
 
 £2550 19 7 
 
 Jan. 1. 
 
 By Cash 
 
 . £500 
 
 
 Mar. 31. 
 
 ,, do. 
 
 400 
 
 
 July 15. 
 
 ,, do. 
 
 600 
 
 
 Dec 31. 
 
 . , Interest 
 
 53 17 10 
 
 
 
 „ Profit 
 
 697 1 9 
 
 
 
 ,, Salary 
 
 300 
 
 £2550 19 7 
 
 £2550 19 7 
 
 Profit and Loss Account. 
 
 To Trade expenses . . . £100 
 ,, Interest .... 30 
 „ Wages .... 350 
 „ CapiUl :— 
 
 John Thin £610 
 Richard Black 610 
 
 
 
 
 
 
 
 
 
 1220 
 £1700 
 
 By Goods 
 
 £1700 
 
 £1700 
 
394 ACCOUNTING IN THEORY AND PRACTICE 
 
 Balance Sheet as at 31 st December. 
 
 Liabilities. 
 
 Assets. 
 
 Bills payable .... £2100 
 Accounts due .... 2380 
 Capital : — 
 
 John Thin £2610 
 Richard Black 2410 
 
 
 
 
 
 5020 
 £9500 
 
 Bank 
 
 Goods on hand 
 
 Bills receivable 
 
 Book accounts receivabit) 
 
 . £3000 
 
 . 2500 
 
 . 8200 
 
 , 800 
 
 £9500 
 
 ANSWERS TO EXERCISES 
 
 Balance Sheet as at 31st December. 
 
 Liabilities. 
 
 As given . 
 
 Capital : — 
 A . £4,600 
 B . 11,200 
 C . 10,200 
 
 £8,000 
 
 As given 
 
 26,000 
 £34,000 
 
 Assets. 
 
 395 
 
 . £34,000 
 
 £34,000 
 
 Page 224, Exercise 6 : — 
 
 A^ Capital Account. 
 
 Dec. 31. To Cash 
 
 „ Balance 
 
 £1600 
 4600 
 
 £6100 
 
 Jan. 1. By Balance . £5000 
 
 Dec. 31. ., Interest . 250 
 „ Profit and 
 
 Loss 850 
 
 £6100 
 
 Page 225, Exercise 7 :- 
 
 To Bad debts 
 ,, Depreciation 
 ,. Smith 
 .. Black . 
 
 Profit and Loss Account. 
 
 £700 
 
 150 
 
 325 
 
 325 
 
 £1500 
 
 By Balance 
 
 £1500 
 
 £1500 
 
 B, Capital Account. 
 
 Dec. 31. To Cash . £1,000 
 „ Balance . 11,200 
 
 Jan. 1. By Balance £10,000 
 
 Dec. 31. ,, Interest 500 
 
 ,, Profit and 
 
 Loss . 1,700 
 
 £12,200 \ 
 
 £12,200 
 
 To Balance 
 
 Smitht Capital Account. 
 
 £2325 I By Balance 
 
 : .. Profit and Loss 
 
 £2325 
 
 . £2000 
 . 325 
 
 £2325 
 
 li 
 
 C, Capital Account. 
 
 Dec 31. To Cash . £2,000 
 „ Balance . 10,200 
 
 £12 200 
 
 Jan. 1. By Balance £10,000 
 
 Dec. 31. ,. Interest 500 
 
 ,, Profit and 
 
 Loss . 1,700 
 
 £12,200 
 
 To Balance 
 
 Blacky Capital Account. 
 
 
 
 
 . £1825 
 
 By Balance 
 , , Profit and Loss 
 
 . £1500 
 325 
 
 
 
 
 
 
 
 £1825 
 
 £1825 
 
 
 
 
 
-"=r- - .Tiini 
 
 396 ACCOUNTING IN THEORY AND PRACTICE 
 
 Balance Sheet as at 30th June. 
 
 Liabilities, 
 
 Assets. 
 
 I 
 
 Creditors' Accounts 
 
 Bank ..... 
 
 Partners : — 
 Smith . . £2325 
 Black . . 1825 
 
 £8,000 
 1,000 
 
 4,150 
 
 £13,150 
 
 Customers' Accounts . 
 Less 10 per cent 
 
 Machinery and 
 
 plant . . £3000 
 X««i 5 percent 150 
 
 Stock-in-trade .... 
 
 £7,000 
 700 
 
 £6,300 
 
 2,850 
 . 4,000 
 
 £13,150 
 
 Black will require to pay Smith £2325. 
 
 Page 225, Exercise 8 : — 
 
 A J Capital Account 
 
 To Share of discount 
 
 and bad debts . £250 
 
 „ Share of deprecia- 
 tion ... 200 
 , Balance . . 10,850 
 
 
 
 
 
 
 
 
 
 
 
 
 
 By Balance 
 ,♦ C . 
 
 . £9,800 
 . 1,500 
 
 
 
 
 
 
 
 £11,300 
 
 £11,300 
 
 
 
 _0 
 
 By Capital Account. 
 
 To Share of discount 
 
 and bad debts . £250 
 
 ,, Share of deprecia- 
 tion ... 200 
 
 ,. Balance . . 11,050 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 By Balance 
 ,, . . 
 
 . £10,000 
 . 1,500 
 
 
 
 
 
 
 
 £11,500 
 
 £11,500 
 
 
 
 
 
 ANSWERS TO EXERCISES 
 
 397 
 
 Balance Sheet as at 1st January. 
 lAamties, Assets. 
 
 Creditors . 
 Partners :— 
 
 mL m 
 
 B. 
 0. 
 
 . £10,850 
 . 11,050 
 . 10,000 
 
 £2,000 
 
 31,900 
 
 £33,900 
 
 Customers' Accounts 
 Less 5 per oent . 
 
 £10,000 
 500 
 
 £9,500 
 
 Goods 7,000 
 
 Plant and ma- 
 chinery . . £4000 
 Less 10 per 
 
 cent . . 400 
 
 . 3,600 
 
 Bank 13,800 
 
 £33,900 
 
 Page 226, Exercise 9 : — 
 
 Profit and Loss Account. 
 
 To Cost of goods : — 
 Purchases 
 Dedtiet — 
 Stock at close of year 
 
 . £28,750 
 . 12,600 
 
 II 
 •I 
 
 • I 
 
 • • 
 1 1 
 
 II 
 1 1 
 
 Freight and carriage 
 Salaries and wages 
 Rents, rates, taxes, 
 
 insurance 
 Travelling expenses . 
 Discount and commission 
 Gas and fuel 
 
 Office and petty expenses 
 John Kay, 
 
 three-fifths . £1752 
 W. Mackay, 
 
 two-fifths . 1168 
 
 and 
 
 £16,150 
 
 120 
 
 570 
 
 220 
 
 190 
 
 70 
 
 40 
 
 120 
 
 By Sales £20,400 
 
 
 
 2,920 
 £20,400 
 
 Balance Sheet 
 
 Liabilities. 
 
 Assets. 
 
 Trade creditors 
 
 Partners — 
 J. Kay . . £12,552 
 W. Mackay . 8,368 
 
 £2,750 
 
 20,920 
 £23,670 
 
 Trade debtors . 
 
 Stock 
 
 Bank 
 
 £20,400 
 
 ^ 
 
 
 
 1 
 
 i 
 
 ) 
 
 • 
 
 £4,320 
 
 12,600 
 
 6,750 
 
 
 
 
 
 
 £23,670 
 
 
 
 
IF 
 
 r i 
 
 398 ACCOUNTING IN THEORY AND PRACTICE 
 
 Page 227, Exercise 10 :- 
 
 Brovm, Capital Account. 
 
 To Balance 
 
 £3800 
 
 £3800 
 
 By Balance . 
 „ Share of profit 
 
 £1500 
 2300 
 
 £3800 
 
 Smithy Capital Account. 
 
 To Bank 
 
 £9400 
 
 £9400 
 
 By Balance . 
 ,, Share of profit 
 ,, Share of goodwill 
 
 . £1550 
 
 . 2300 
 
 . 5550 
 
 £9400 
 
 Balance Sheet as at 1st January. 
 Liabilities. Assets. 
 
 Creditors' openaccount8£4,000 
 
 Bills payable . . 3,000 
 
 Bank overdraft . . 8,400 
 
 Capital. Brown . . 3,800 
 
 Customers' 
 
 counts 
 Bills receivable 
 
 open ac- 
 
 £5,000 
 . 2,000 
 
 Deduct 5 per cent 
 
 Stock . 
 GroodwiU 
 
 £19,200 
 
 
 
 
 £7,000 
 
 350 
 
 £6,650 
 
 . 7,000 
 
 . 5,550 
 
 £19,200 
 
 ANSWERS TO EXERCISES 
 
 399 
 
 Page 227, Exercise 11 : — 
 
 Profit and Loss Accownt. 
 
 To 
 
 Cost of goods : — 
 Purchases . . 
 Deduct — 
 Stock at end of year 
 
 . £6000 
 . 1000 
 
 fi 
 >> 
 »f 
 If 
 
 ♦ I 
 
 • > 
 If 
 
 »» 
 
 Rent, rates, taxes, and insur- 
 ance 
 
 Office and general expenses 
 
 Freight and carriage 
 
 Horse keep .... 
 
 Discounts and allowances 
 
 Interest, commission, and bank 
 charges .... 
 
 Printing, stationery, and ad- 
 vertising .... 
 
 Travelling expenses 
 
 Salaries and wages 
 
 £5000 ; 
 
 By Sales £8500 
 
 ,, Interest on partners' draw- 
 ings : — 
 W. Johnston £17 10 
 E. Brown . 12 10 
 
 
 
 m 
 
 150 
 
 130 
 
 120 
 
 80 
 
 40 
 
 
 
 
 
 
 
 
 
 
 
 
 
 30 
 
 20 
 
 130 
 
 1000 
 
 
 
 
 
 
 
 
 
 Partners' accounts, for profit : — 
 W. Johnston . £1098 
 E. Brown . 732 
 
 £6700 
 
 1830 
 
 £8530 
 
 Balance Sheet as at 31st December. 
 Liabilities. Assets. 
 
 £8530 
 
 Trade creditors . 
 Partners' capital :- 
 
 W. Johnston . 
 
 El. Brown . 
 
 £500 
 
 £3380 10 
 2219 10 
 
 5600 
 £6100 
 
 Trade debtors 
 
 Stock 
 
 Plant and machinery . 
 Office furniture and fittings 
 Horses, carts, and harness . 
 
 £3000 
 
 1000 
 
 1800 
 
 100 
 
 200 
 
 
 
 
 
 
 
 Page 228, Exercise 12 : — 
 
 Trading Accoimt. 
 
 To Cost of goods : — 
 Stock at 1st Jan. 
 Purchases 
 
 Deduct— 
 Stock at Slst Dec 
 
 „ Wages . , 
 „ Profit and Loss 
 
 £2,100 
 
 10,300 
 
 £12,400 
 
 2,300 C C 
 
 £10,100 
 
 400 
 
 2,310 
 
 II r . - ■ 
 
 £12,810 
 
 By Sales 
 ,, Consignments 
 ,, Commissions 
 
 £5,500 
 
 6,700 
 
 610 
 
 £12,810 
 
 
 
 
 
 
 
 £6100 
 
 «)| 
 
400 ACCOUNTING IN THEORY AND PRACTICE 
 
 ANS WERS TO EXERCISES 
 
 401 
 
 Frojii and Loss Account. 
 
 To Rent, rates, and insur- 
 
 
 
 
 By Trading Accoun' 
 
 . £2310 
 
 
 
 ance .... 
 
 £185 
 
 
 
 
 
 ,, Interest 
 
 50 
 
 
 
 ,, Interest and discount . 
 
 250 
 
 
 
 
 
 
 
 
 ,, Salaries 
 
 650 
 
 
 
 
 
 
 
 
 ,, Loss on exchange 
 
 400 
 
 
 
 
 
 
 
 
 ,, Reserve for losses on bad 
 
 
 
 
 
 
 
 debts 
 
 123 
 
 
 
 
 
 
 
 
 £1608 
 
 
 
 
 
 
 , , Partners' salaries : — 
 
 
 
 
 
 
 
 A . £100 
 
 
 
 
 
 
 
 B . 100 
 
 
 
 
 
 
 
 C . 60 
 
 250 
 
 
 
 
 
 
 
 
 „ Interest on partners' 
 
 
 
 
 capital : — 
 
 
 
 
 
 
 
 A . £90 
 
 
 
 
 
 
 
 B . 60 
 
 
 
 
 
 
 
 C . 30 
 
 180 
 
 
 
 
 
 
 
 
 „ Partners, for share of 
 
 
 
 
 profits : — 
 
 
 
 
 
 
 
 A . £161 
 
 
 
 
 
 
 
 B . 107 6 8 
 
 
 
 
 
 
 
 C . 53 13 4 
 
 322 
 
 
 
 
 
 
 
 
 
 
 < 
 
 £2360 
 
 
 
 _0 
 
 £2360 
 
 
 
 Balance Sheet 
 
 Liabilities. 
 
 Assets. 
 
 Trade creditors . 
 Loan 
 
 Partners' capital : — 
 A . . £1601 
 
 £2890 
 1200 
 
 
 
 
 
 
 
 B 
 
 
 1017 6 8 
 383 13 4 
 
 3002 
 
 £7092 
 
 Book debts 
 Less 3 per cent 
 
 . £4100 
 123 
 
 Stock ... 
 Plant and fixtures 
 Unexpired insurance pre 
 
 mium ... 
 Rent paid in advance 
 Gash on hand and in bank 
 
 £3977 
 
 2300 
 
 400 
 
 5 
 
 10 
 400 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £7092 
 
 Page 229, Exercise 13 : — 
 
 Manufaduring Account. 
 
 To Cost of goods : — 
 
 Stock at beginning of year £3000 
 Purchases. . . . 6000 
 
 I By Profit and Loss Account . £9340 
 
 £9000 
 Deduct— Sitock at end of year 4000 
 
 ,, Wages . 
 
 ., Power, etc. . 
 
 £5000 
 
 4040 
 
 300 
 
 £9340 
 
 £9340 
 
 Profit and Loss Account. 
 
 To Manufacturing Account 
 
 Kent . 
 
 Travelling expenses 
 
 Commission 
 
 Discount 
 
 Freight outwards . 
 
 Fire insurance 
 
 Interest and bank charges 
 
 Horse keep . 
 
 Advertising . 
 
 Bad debts written off 
 Do. reserved 
 
 Sundry expenses . 
 
 Depreciation : — 
 
 Machinery £245 
 Office furniture 19 12 
 
 Interest on partners' capital : 
 John Smith . £200 
 William Brown 150 
 
 ,, Salaries of partners : — 
 
 John Smith . £700 
 William Brown 400 
 
 11 
 
 Partners, for share of profits : 
 John Smith £1740 4 
 William Brown 1740 4 
 
 Jty,340 
 
 
 
 
 
 300 
 
 
 
 
 
 150 
 
 
 
 
 
 200 
 
 
 
 
 
 160 
 
 
 
 
 
 110 
 
 
 
 
 
 60 
 
 
 
 
 
 60 
 
 
 
 
 
 70 
 
 
 
 
 
 85 
 
 
 
 
 
 100 
 
 
 
 
 
 100 
 
 
 
 
 
 170 
 
 
 
 
 
 264 
 
 i 
 
 1 
 
 350 
 1,100 
 
 12 
 
 
 
 
 
 
 
 1 
 
 ■ 3,480 
 
 8 
 
 
 
 £16,100 
 
 
 
 _0 
 
 By Sales . 
 Discount 
 
 f ) 
 
 . £16,000 
 100 
 
 £16,100 
 
 2 D 
 
402 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 Balance Sheet 
 
 Liabilities. 
 
 Assets. 
 
 Creditors' Accounts . 
 
 Bills payable 
 
 Wages due 
 
 Partners' capital :— 
 John Smith . £5740 
 William Brown 4690 
 
 4 
 4 
 
 . £600 
 
 500 
 
 40 
 
 
 
 — 10,430 
 
 
 
 
 
 "T 
 
 i Customers' Accounts . 
 Deduct 6 per cent . 
 
 . £2,000 
 100 
 
 8 
 
 Bills receivable . 
 
 Stock 
 
 Unexpired insurance . 
 
 £1,900 
 
 885 
 
 4,000 
 
 20 
 
 Machinery 
 
 Less 7 per cent 
 
 £3500 
 245 
 
 
 
 
 
 
 
 
 I Buildings . 
 I Office furniture . 
 Lest 7 per cent 
 
 Cash on hand and in bank 
 
 £280 
 19 12 
 
 
 
 
 3,255 
 1,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £11,570 8 
 
 260 8 
 250 
 
 £11,570 8 
 
 Page 230, Exercise 14: — 
 
 Profit and Loss Arrount. 
 
 To Cost of goods :— 
 Stock at 1st Jan. 
 Purchases . 
 
 £4,500 
 7,000 
 
 By Sales 
 
 £11,500 
 Dutittcf-Stock at 31st Dec. 5,000 
 
 £10,000 
 
 „ Wages . . • • 
 „ Rent, rates, taxes, etc. 
 
 Patent rights— written off 
 ", Coal and lighting. 
 ,, Carriage 
 ,, Trade expenses . 
 „ Depreciation 
 
 £6,500 
 
 1,500 
 
 100 
 
 200 
 
 150 
 
 100 
 
 150 
 
 112 10 
 
 Partners, for share of profit :— 
 " John Richards £730 15 6 
 Robert Low . 456 14 7 
 
 £8,812 10 
 
 1,187 10 
 
 £10,000 
 
 £10,000 00 
 
 ANSWERS TO EXERCISES 
 
 403 
 
 Balance Sheet 
 
 Liabilities, 
 
 Assets. 
 
 Creditors . 
 
 Partners : — 
 John Richards 
 Robert Low . 
 
 . £1,750 
 
 £8130 15 5 
 6056 14 7 
 
 13,187 10 
 
 £14,937 10 
 
 Book debts .... £3,200 
 
 Stock 5,000 
 
 Plant and machin- 
 ery . . £2250 
 Less 5 per cent 112 10 
 
 
 
 
 Land and buildings 
 Patent rights 
 Bank 
 
 2,137 10 
 
 3,000 
 
 200 
 
 1,400 
 
 Page 231, Exercise 15 : — 
 
 Profit and Loss Account, 
 
 To Cost of goods : — 
 
 
 
 
 By Sales , 
 
 Stock at beginning of year 
 
 £3000 
 
 
 
 
 
 
 Purchases .... 
 
 5000 
 
 
 
 
 
 
 
 £8000 
 
 
 
 
 
 
 Deduct — Stock at end of year 
 
 2100 
 
 
 
 
 
 
 
 £5900 
 
 
 
 
 
 
 „ Rent, rates, taxes, and in- 
 
 
 
 
 
 surance .... 
 
 400 
 
 
 
 
 
 
 „ Freight and carriage 
 
 70 
 
 
 
 
 
 
 ,, Salaries and wages 
 
 430 
 
 
 
 
 
 
 „ Coals, gas, and lighting 
 
 40 
 
 
 
 
 
 
 „ Printing, stationery, and 
 
 
 
 
 
 advertising 
 
 60 
 
 
 
 
 
 
 ,, General office expenses . 
 
 50 
 
 
 
 
 
 
 „ Discount and commission 
 
 150 
 
 
 
 
 
 
 
 £7100 
 
 
 
 
 
 
 ,, Partners, for share of profit : — 
 
 
 
 
 
 Gow . . £600 
 
 
 
 
 
 Erskine . . 200 
 
 
 
 
 
 Scott . . 100 
 
 
 
 
 
 
 900 
 
 
 
 
 
 
 
 
 
 £8000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £14,937 10 
 
 . £8000 
 
 £8000 
 
404 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 Balance Sheet 
 
 Liabilities. 
 
 Assets. 
 
 Creditors . 
 Partners : — 
 
 Grow 
 
 Erskine . 
 
 Scott . 
 
 £1100 
 
 £5400 
 1800 
 900 
 . 8100 
 
 Debtors 
 
 Stock 
 
 Fixtures and fittings . 
 
 Land and buildings . 
 
 Bank 
 
 £9200 
 
 £3600 
 
 2100 
 
 400 
 
 2300 
 
 800 
 
 £9200 
 
 Page 232, Exercise 16 : — 
 
 JOUBNAL. 
 
 FE18E. . . . . • • ■»-• *3211 12 8 
 To Ruby Diamond Co. Livest. Ac- 
 count, to close this account 
 
 „ Ross's account for 5 per cent, 
 compound interest thereon for 
 two years— frds proportion 
 
 „ Do. for frds expenses of purchase 
 of said invest, in December 1«9G 
 
 „ Do. for 5 per cent, compound 
 interest thereon 
 
 £3000 
 
 205 
 
 6 
 
 I 12 8 
 
 Page 244, Exercise 1 : — 
 
 The average annual profit from manufacturing is £6000. 
 
 Page 244, Exercise 2 : — 
 
 SCOTTISH UNION BANK 
 Profit and Loss Account 
 
 Expenditure. ^^^^- 
 
 To Bad debts . • • • ^3.000 
 .. Expenses . • • . • ^^'^"" 
 , Balance carried down, being 
 
 profit for year . . . 17.9W u v 
 
 £32,490 
 
 To Interim dividend paid . . £5,720 
 ,, Balance . • • • ^tf, 
 
 By Gross profit . 
 
 £32,490 
 
 £19.550 
 
 £32,490 
 
 By Balance of profit from last 
 
 year £l,5oO U u 
 
 „ Profit for year as above . 17,990 
 
 £19,550 
 
 ANSWERS TO EXERCISES 
 
 405 
 
 Balance Sheet as at 31st December. 
 
 Liabilities, 
 
 Assets, 
 
 Dae to public : — 
 Notes issued 
 Customers' credit balances 
 
 Due to shareholders : — 
 Capitel . £114,430 
 Reserves . 145,210 
 Unpaid 
 
 dividends 240 
 
 Undivided 
 
 profit . 13,830 
 
 £39,700 
 897,530 
 
 £937,230 
 
 273,710 
 £1,210,940 
 
 Cash in hand 
 
 £38,135 
 
 
 
 
 
 Cash at call . . . . 
 
 44,230 
 
 
 
 
 
 Investments 
 
 328,465 
 
 
 
 
 
 Stamps in hand . 
 
 505 
 
 
 
 
 
 Premises . . . . 
 
 37,250 
 
 
 
 
 
 Customers' debit balances 
 
 762,355 
 
 
 
 
 
 £1,210,940 
 
 Page 244, Exercise 3 : — 
 
 Revised Balance Sheet 
 
 LiabUilies. 
 
 Assets. 
 
 Capital : — 
 
 15,000 shares of 
 
 £5 each . . £75,000 
 Less — Calls in 
 arrear . 7,500 
 
 Creditors . 
 
 £67,500 
 17,800 
 
 £85,300 
 
 Expenditui'e on Capi- 
 tal Account . £74,800 
 Xe55— Written off . 47,200 
 
 Book debts 
 
 Stock 
 
 Cash 
 
 £27,600 
 
 32,100 
 
 19,900 
 
 5,700 
 
 £85,300 
 
 W 
 
[ ; 
 
 \l 
 
 / 
 
 / 
 
 406 ACCOUNTING IN THEORY AND PRACTICE 
 
 Page 245, Exercise 4 : — 
 
 Assets. 
 
 Land and buildings 
 Plant and machinery 
 Horses and waggons 
 Goods on hand 
 Accounts receivabh' 
 Cash in bank 
 Agency investments 
 
 Net increase of Assets 
 
 Liabilities. 
 
 Creditors on open accounts 
 Bills payable 
 Mortgage 
 
 Net decrease of Liabilities 
 
 Increase. 
 
 Decrease, 
 
 £400 
 3200 
 3000 
 
 £6600 
 
 £1700 
 
 450 
 
 400 
 
 170 
 
 £2720 
 3880 
 
 £6600 
 
 Decrease. Increase. 
 
 £6000 
 
 £200 
 6000 
 
 
 
 
 
 
 
 £6000 
 
 £5200 
 
 
 
 
 
 
 • • • 
 
 800 
 
 
 
 
 £6000 
 
 
 
 
 
 The profits earned, amounting to £4680, are accounted 
 for as follows : — 
 
 Increase of Assets 
 Decrease of Liabilities 
 
 . £3880 
 800 
 
 £4680 
 
 ANSWERS TO EXERCISES 
 
 407 
 
 Page 246, Exercise 5 : — 
 
 Profit and Loss Account for Half-year. 
 
 To Cost of goods : — 
 Stock on hand, 
 
 1st July . . £11,600 
 Purchases. . 33,000 
 
 £44,600 
 
 If 
 
 Deduct — Stock 
 on hand, 31st 
 December 
 
 „ Wages 
 
 ,, Coal . 
 
 ,, Salaries, general 
 
 do. manage 
 
 ment . 
 ,, Insurance . 
 ,, Repairs 
 ,, Discount and al 
 
 lowauces . 
 „ Freight 
 ,, Discount and in 
 
 terest 
 ,, Miscellaneous ex 
 
 penses 
 ,, Allowance for bad 
 
 debts 
 ,, Depreciation 
 
 13y Sale* , 
 
 . £87.670 
 
 10,600 
 
 £34,000 I 
 
 35,200 
 
 2,400 
 
 4,400 
 
 2,000 
 
 350 
 
 400 
 
 2,500 
 
 600 
 
 300 
 
 1,720 
 
 940 
 
 480 
 
 £85,290 
 ,, Profit for lialf-year 2,380 OJ 
 
 £87,670 
 
 To Dividend for hali- 
 year on prefer- 
 ence shares 
 
 do. on ordi- 
 nary shares 
 ,, Balance • 
 
 It 
 
 £800 
 
 600 
 
 2,580 
 
 £3,980 
 
 By Balance 
 „ Profit for hall- 
 year as above . 
 
 £87,670 
 
 £1,600 
 
 2,380 
 
 £3,980 
 
408 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 Liabilitie.<(. 
 
 Accoimts payable . 
 Bills payable . 
 Due to shareholders 
 
 Preference stock . 
 
 Ordinary stock . 
 
 Dividend for half- 
 year on preferred 
 stock 
 Dividend for half- 
 year on ordinary 
 stock 
 Undivided profit . 
 
 £40,000 
 40,000 
 
 £80,000 
 
 bOO 
 
 600 
 2,580 
 
 Balance Siiest. 
 
 AM^dii. 
 
 £4,000 
 10,400 
 
 
 
 
 
 
 
 83,980 
 £98,380 
 
 Book debts . . £18,800 
 
 Leas — Allowance for bad 
 debts .... 940 
 
 
 £17,8(50 
 
 
 
 (1 
 
 Stock on hand 
 
 10,60(J 
 
 
 
 
 
 Investments .... 
 
 0,200 
 
 
 
 
 
 Plant and machinery £ 16,000 
 
 
 
 
 LenB 6 per cent. 
 
 
 
 
 per annum 480 
 
 
 
 
 
 15,520 
 13,000 
 
 
 
 (\ 
 
 Property and buildings . 
 
 
 
 
 
 Patents and goodwill 
 
 32,000 
 
 
 
 
 
 Cash in bank .... 
 
 3,200 
 
 
 
 
 
 £08,380 
 
 ANSWERS TO EXERCISES 
 
 409 
 
 Profit and Loss Account. 
 
 To Interest . 
 ,, Bad debts 
 „ Preliminary 
 penses . 
 
 ex- 
 
 ,, Balance, profit for 
 year 
 
 £500 
 
 200 
 
 500 
 
 £1200 
 
 7300 
 
 £8:»00 
 
 By Trading Account . £6500 
 „ Discount . . 2000 
 
 £8500 
 
 To Interim dividend . £1500 i 
 „ Balance . . . 6800 
 
 £8300 
 
 By Balance from last 
 
 year . . . £1000 
 ,, Profit for year as 
 
 above . . . 7300 
 
 £8300 
 
 Page 247, Exercise 6 : — 
 
 Trading Accnnni. 
 
 To Cost of goods : — 
 Stock at begin- 
 ning of year . £10,000 
 Purchases . 60,000 
 
 
 
 
 £70,000 
 Deduct — Stock 
 at end of year 9,000 
 
 „ Wages 
 
 „ Fire Insurance 
 
 >i 
 
 ** 
 
 »» 
 
 I* 
 
 »> 
 
 Went . 
 
 Kates and taxes 
 
 Gas, electric light 
 and water 
 
 Advertising 
 
 Price lists . 
 
 Carriage, etc. 
 
 General trade ex- 
 penses 
 
 Discount 
 
 Annual painting 
 of premises 
 
 Salaries 
 
 £G1,000 
 
 4,500 
 
 150 
 
 3,000 
 
 500 
 
 600 
 
 900 
 
 1,600 
 
 1,500 
 
 400 
 80 
 
 70 
 700 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 „ Balance carried 
 to Profit and 
 Loss Account . 
 
 £75,000 
 
 6,500 
 £81,500 
 
 By Sales . 
 
 Commissions 
 
 » 
 
 £80,000 
 1,500 
 
 £81,500 
 
 Balance Sheet as at 31st December. 
 
 Liabilities. 
 
 Assets. 
 
 Due to creditors : — 
 Sundry creditors . 
 Bills payable 
 
 Due to shareholders : — 
 Capital . . £10,000 
 Undivided profit. 6,800 
 
 £15,000 
 2,000 
 
 £17,000 
 
 16,800 
 
 £33,800 
 
 Sundry debtors . 
 
 oi/0«./iC • • • 
 
 Land and buildings 
 Fixtures and furniture 
 Fire insurance paid in ad 
 
 vance 
 Goodwill 
 
 Preliminary expeuaes 
 Cash on deposit . 
 Cash in bank 
 Cash in hand . 
 
 Page 250, Exercise 1 : — 
 
 Journal 
 
 Goods Dr. 
 
 Book debts ,, 
 
 Fixtures, fittings, and utensils . ,, 
 Plant . . . • • • ti 
 Goodwill ,, 
 
 To Tod k Co. 
 Tod & Co Dr. 
 
 To Cash 
 
 „ Capital 
 
 £30,000 
 8,000 
 1,000 
 1,500 
 9,500 
 
 
 
 
 
 
 
 
 
 
 
 
 
 50,000 
 
 £3,250 
 
 9,000 
 
 12,000 
 
 700 
 
 
 
 
 
 
 
 
 
 
 
 50 
 
 
 
 
 
 3,000 
 500 
 
 
 
 
 
 
 
 
 5,000 
 
 
 
 
 
 200 
 
 
 
 
 
 100 
 
 
 
 
 
 £33,800 
 
 £50,000 
 
 10,000 
 40,000 
 
4IO ACCOUNTING IN THEORY AND PRACTICE 
 
 Page 251, Exercise 2 : — 
 
 1. Closing Entries 
 
 JoumaL 
 
 Company 
 
 To Land and buildings 
 
 ,, Plant and machinery 
 
 ,, Book debts 
 
 ,, Goods . 
 
 ,, Goodwill 
 Bills payable . 
 Debentures 
 Preference shares 
 Ordinary shares 
 To Company 
 
 Dr 
 
 Dr 
 
 •» 
 
 £48,000 
 
 3,000 
 
 15,000 
 
 15,000 
 
 15,000 
 
 £10,000 
 
 15,000 
 
 7,000 
 
 8,000 
 
 8,000 
 
 48,000 
 
 2. Opening Entries 
 
 I! 
 
 I 
 
 Journal. 
 
 Land and buildings 
 
 Plant and machinery 
 
 Book debts 
 
 Goods 
 
 Goodwill 
 
 To Bills payable 
 Debentures . 
 Preference shares 
 Ordinary shares 
 
 
 fi 
 
 Dr. 
 
 It 
 ii 
 1 1 
 
 £10,000 
 
 15,000 
 
 7,000 
 
 8,000 
 
 8,000 
 
 Page 251, Exercise 3 : — 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £3,000 
 
 15,000 
 
 15,000 
 
 15,000 
 
 Net Assets 
 
 Goodwill, say three years' 
 purchase of net profits . 
 
 Stock to be allotted . 
 
 ToUl, £77,000. 
 
 ABC 
 
 £14,000 £20,000 £25,000 
 
 6,000 9,000 8,000 
 
 £20,000 £29,000 £28,000 
 
 ANSWERS TO EXERCISES 
 
 Page 251, Exercise 4 :- 
 
 Journal 
 
 Cash . . . . • 
 
 To Capital. 
 Land and buildings 
 Coal-gas plant, machinery, and fit 
 
 tings 
 
 Water-gas plant, machinery, and fit 
 
 tings 
 
 Mains 
 
 Meters ..... 
 
 Supplies 
 
 Office furniture and fittings 
 
 To Private firm 
 
 ,, Reserve Fund 
 Private firm . . • • 
 
 To Cash .... 
 
 ,, Heritable bond . 
 
 Dr. 
 Dr. 
 
 Dr. 
 
 £21,000 
 
 5,000 
 
 2,200 
 
 1,800 
 
 6,000 
 
 300 
 
 700 
 
 150 
 
 i 
 
 I 16,000 
 
 411 
 
 £21,000 
 
 16,000 
 
 150 
 
 13,000 
 
 3,000 
 
 
 
 
 
 
 
 Page 257, Exercise 1 : — 
 
 Profjt and Loss Account. 
 
 To Stock at 1st January . 
 ,, Purchases . 
 „ Wages (making) 
 ,, Balance carried down 
 
 . £7,00U 
 
 . 8,000 
 
 . 2,400 
 
 . 3,600 
 
 £21,000 
 
 By Sales 
 
 Stock at 30th June 
 
 a 
 
 To 
 
 f > 
 »» 
 
 • * 
 
 It 
 >« 
 
 Wages (foreman and ware- 
 house) . . . . £300 
 Salesmanand office expenses . 500 
 Rent, rates, and insurance . 100 
 Travelling and commission . 310 
 Advertising and other trade 
 
 expenses . . • 200 
 
 Discounts and bad debts . 350 
 Bardc interest and charges . 50 
 Interest on loan ... 50 
 Net profit . . .1,740 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 . £13,000 
 . 8,000 
 
 £21,000 
 
 By Balance brought down . £3,600 
 
 £3,600 
 
 £3,600 
 
 Page 257, Exercise 2 : — 
 
 Trading Accovmi. 
 
 To Stock at beginning 
 
 of year . . £3,000 
 
 „ Purchases . . 25,000 
 , Gross profit on 
 
 goods . . 4,500 
 
 £32,500 
 
 By Sales . . £30,000 
 
 „ Stock at end of year 2,500 
 
 £32,500 
 
412 A ceo UNTING IN THEOR Y AND PR A CTJCE 
 
 Profit and Loss Account 
 
 To 
 
 > ' 
 
 > 
 l> 
 
 Rent, rates, taxes, 
 
 etc. . 
 General expenses . 
 Petty cash . 
 Wages and salaries 
 Carriage . 
 Bad debts . 
 Net profit 
 
 
 
 
 By Gross profit 
 
 on 
 
 
 
 £500 
 
 
 
 
 
 goods 
 
 . £4500 
 
 
 
 
 
 300 
 
 
 
 
 
 ,, Discount 
 
 900 
 
 
 
 
 
 98 
 
 
 
 
 
 
 
 
 
 1300 
 
 
 
 
 
 
 
 
 
 300 
 
 
 
 
 
 
 
 
 
 150 
 
 
 
 
 
 
 
 
 
 2752 
 
 
 
 
 
 
 
 
 
 £5400 
 
 
 
 
 
 £5400 
 
 
 
 _0 
 
 I 
 
 Balance Sheet as at 31 st December. 
 Liabilities. Assets, 
 
 Trade creditors . . £3,000 
 Bills payable . . 1,000 
 W.S. Black, Capital. 8,752 
 
 £12,752 
 
 Customers . 
 
 Bills receivable . 
 
 Stock 
 
 Bank . 
 
 Petty cash on hand 
 
 £7,047 
 
 2,000 
 
 2,500 
 
 1,200 
 
 5 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £12,752 
 
 Page 258, Exercise 3 : — 
 
 Trading Account. 
 
 To Stock atlst Jan. . £12,500 
 
 
 
 
 
 By Sales . . . £53,100 
 
 
 
 
 
 ,, Purchases . . 41,750 
 
 
 
 
 
 „ Stock at 3l8t Dec. 16,400 
 
 
 
 C 
 
 „ Wages . 7,910 
 
 
 
 
 
 
 
 
 ,, Depreciation on 
 
 
 
 
 
 
 machinery and 
 
 
 
 
 
 
 plant . . 165 
 „ Balance, carried to 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Profit and Loss . 7,185 
 
 
 
 
 
 _0 
 
 
 
 
 £69,500 
 
 £69,500 
 
 
 
 _0 
 
 Profit and Loss Account. 
 
 To Fire insurance 
 ,, Discount 
 ,, Rent, rates, and 
 
 taxes . 
 ,, Bad debts 
 ,, Trade expenses 
 », Net profit 
 
 £60 
 310 
 
 730 
 660 
 345 
 
 5080 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £7185 
 
 
 
 _0 
 
 By Trading Account . £7185 
 
 £7185 
 
 ANSWERS TO EXERCISES 
 
 413 
 
 Balance Sheet as at 31st December. 
 
 Liabilities, 
 
 Assets, 
 
 Creditors : — 
 On open account 
 On bills payable 
 
 Charges outstanding 
 Advances on consignments 
 Reserve and contingency fund 
 John Dick, capital . • 
 
 £6,225 
 7,900 
 
 £14,125 
 
 50 
 
 2,400 
 
 850 
 
 21,280 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £38,705 
 
 Customers : — 
 On open accounts 
 On bills receivable 
 
 Consignments . 
 
 Stock 
 
 Machinery and plant 
 
 Bank 
 
 . £11,100 
 1,450 
 
 
 
 
 
 
 
 £12,550 
 . 3,100 
 . 16,400 
 . 2,945 
 . 3,710 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £38,705 
 
 Page 259, Exercise 4: — 
 
 Profit and Loss Account. 
 
 To Stock at 1st January . 
 ,, Purchases .... 
 ,, Wages .... 
 
 ,, Fuel 
 
 ., Depreciation of machinery 
 and plant 
 Balance carried down . 
 
 t* 
 
 £3,000 
 
 7,600 
 
 4,800 
 
 600 
 
 700 
 7,600 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 To Salaries 
 
 , . Travelling expenses . 
 ,, Interest 
 
 ,, Stationery and printing 
 ,, Rent and taxes . 
 
 Discounts and allowances 
 
 Insurance . 
 
 Freight 
 
 General expenses 
 
 Balance carried down . 
 
 I) 
 
 
 £24,300 
 
 £1,200 
 
 500 
 
 120 
 
 240 
 
 To Interest on capital : — 
 
 A . . . « 
 
 B . . • 
 
 »t 
 
 Net profit, allocated thus : — 
 
 A, two-thirds £2,153 6 8 
 
 B, one-third 1,076 13 4 
 
 3,230 
 £3,830 
 
 By Sales .... 
 Rent of steam power . 
 Stock at 31st December 
 
 II 
 
 700 
 
 
 
 
 
 400 
 
 
 
 
 
 190 
 
 
 
 
 
 300 
 
 
 
 
 
 120 
 
 
 
 
 
 3,830 
 
 
 
 
 
 £7,600 
 
 
 
 
 
 £400 
 
 
 
 
 
 200 
 
 
 
 
 
 £600 
 
 
 
 
 
 . £19,000 
 
 300 
 
 5,000 
 
 £24,300 
 
 By Balance brought down . £7,600 
 
 £7,600 
 
 By Balance brought down , £3,830 
 
 £3,830 
 
414 ACCOUNTING IN THEORY AND PRACTICE 
 
 Balance SiiEEr as at 31st Deceml)er. 
 
 Liabiliiies. 
 
 Asscf<. 
 
 Creditors 
 
 Bank overdraft 
 
 Capital : — 
 A . . £10,553 6 8 
 B . . 5,276 13 4 
 
 £800 
 1,000 
 
 15,830 
 
 £17,630 
 
 Customers 
 
 Less Discount at 3 jier cent 
 
 Plant and machinery . £7000 
 Less Depreciation at 
 10 per cent . . 700 
 
 Stock . . . • . 
 Unexpired insurance 
 Loan Account .... 
 Cash on hand .... 
 
 Page 259, Exercise 5 : — 
 
 £5,000 
 150 
 
 £4,850 
 
 6,300 
 
 5,000 
 
 40 
 
 1,400 
 
 40 
 
 £17,630 
 
 ANSWERS TO EXERCISES 
 
 i^S 
 
 Balanck Sheet as at 31st December. 
 
 Liabilities. 
 
 Creditors : — 
 On open account . 
 On bills payable . 
 
 Expenses accrued to date . 
 
 Provision for discount 
 
 Provision for bad debts 
 
 Capital : — 
 J. Jamieson . £4483 6 
 JL Robb . 3586 13 
 
 £2,000 
 3,000 
 
 
 
 
 
 
 
 £5,000 
 
 50 
 
 210 
 
 40 
 
 
 
 
 
 
 
 
 
 
 
 8 
 4 
 
 8,070 
 
 Assets. 
 
 Customers : — 
 On open account 
 On bills receivable 
 
 £4,200 
 . 1,000 
 
 £5,200 
 
 Stock 3,000 
 
 Buildings, fixed machinery, and 
 
 plant 3,800 
 
 Horses, carts, harness, etc. . . 400 
 
 Loose tools, utensils, and furniture 150 
 
 Cash at bank . . • . 800 
 
 Cash in hand .... 20 
 
 £13,370 j 
 
 
 
 
 
 
 
 
 
 
 
 £13,370 
 
 
 Trading 
 
 Account. 
 
 
 
 
 To Stock at beginning of year . 
 
 £2,500 
 
 
 
 
 
 By Sales .... 
 
 . £10,000 
 
 
 
 
 
 ,, Purchases . . . . 
 
 8,000 
 
 
 
 
 
 „ Stock at end of year . 
 
 . 3,000 
 
 
 
 
 
 „ Coal 
 
 70 
 
 
 
 
 
 
 
 
 
 ,, Gas and water . 
 
 20 
 
 
 
 
 
 
 
 
 
 , , Oil, grease, and waste 
 
 40 
 
 
 
 
 
 
 
 
 
 ,, Wages . . . . 
 
 1,000 
 
 
 
 
 
 
 
 
 
 ,, Repairs . . . . 
 
 100 
 
 
 
 
 
 
 
 
 
 ,, Depreciation of machinery, 
 
 
 
 
 
 
 
 
 etc. . . . . 
 
 200 
 
 
 
 
 
 
 
 
 
 „ Gross profit on trading 
 
 1,070 
 
 
 
 
 
 
 
 
 
 
 £13,000 
 
 
 
 
 
 £13,000 
 
 
 
 
 
 Profit and Loss Account, 
 
 To Carriage, cartage, and horse 
 expenses . 
 Feu-duty 
 
 Rates, taxes, and insurance 
 Bank interest 
 Discounts and allowances 
 Bad debts 
 
 Salaries . . . 
 Incidental expenses 
 Partners' salaries . 
 
 . £500 
 
 
 
 
 
 50 
 
 
 
 
 
 70 
 
 
 
 
 
 20 
 
 
 
 
 
 410 
 
 
 
 
 
 100 
 
 
 
 
 
 400 
 
 
 
 
 
 150 
 
 
 
 
 
 300 
 
 
 
 
 
 £2000 
 
 
 
 
 
 By Trading Account . 
 
 ,, Net loss, allocated thus : — 
 Jamieson . £516 13 4 
 Robb . . 413 6 8 
 
 £1070 
 
 930 
 
 £2000 
 
 Page 260, Exercise 6 : — 
 
 Profii and Loss Account. 
 
 To Stock at beginning of year £2,000 
 
 Purchases . 
 
 Wages 
 
 Books, labels, etc. 
 
 Rates and taxes 
 
 Insurance . 
 
 Carriage . 
 
 Petty cash and postages 
 
 Interest on loan 
 
 Discount and bad debts 
 
 Depreciation 
 
 „ Net profit . 
 
 2,000 
 5,000 
 
 500 
 40 
 10 
 
 150 
 95 
 50 
 60 
 
 135 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 By Sales . 
 ,, Stock at end of year 
 
 £10,040 
 . 2,000 
 £12,040 
 
 £10,000 
 2,040 
 
 
 
 
 £12,040 
 
4i6 ACCOUNTING IN THEORY AND PRACTICE 
 
 Balance Shekt as at 3l8t December. 
 
 Liabilities. 
 
 Assets. 
 
 Creditors .... £1500 
 Loans (including interest due, 
 
 £50) 1050 
 
 Capital ... . 5700 
 
 Due by customers 
 Less 6 per cent 
 
 Bills receivable 
 
 Stock . 
 
 Machinery and plant 
 
 Land and buildings 
 
 Stamps on hand 
 
 Cash at bank and in hand 
 
 £8250 I 
 
 Page 272, Exercise :- 
 
 Goods Accmini. 
 
 Jan. 1. To Stock . 
 
 81. ,« Purchases . 
 ,, Gross profit. 
 
 £3000 
 
 4000 
 
 1515 
 
 £8515 
 
 Jan. 31. By Sales 
 ,, Stock 
 
 Page 273, Exercise 1 : — 
 
 Profit and Loss Account 
 
 £1000 
 60 
 
 £940 
 
 roc 
 
 2040 
 1425 
 1940 
 5 
 1400 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £8250 
 
 . £6000 
 . 2515 
 
 £8515 
 
 To Salaries 
 
 „ Rent, rates, and taxes 
 ,, OflBce expenses . 
 ,, Stationery 
 
 „ Capital 
 
 . £600 By Fees and commissions : — 
 
 90 Received during year . £2000 
 
 250 Outstanding at close of 
 
 60 year . . . . 700 
 
 £1000 
 
 1200 
 
 £2200 
 
 £2700 
 Deduct — Outstanding at 
 
 beginning of year . 600. 
 
 £2200 
 
 ANSWERS TO EXERCISES 
 
 417 
 
 Balance Sheet as at 31st December. 
 
 Liabilities. 
 
 Assets. 
 
 Due to clients 
 Capital . 
 
 . £1500 
 . 3100 
 
 Due by clients 
 
 Fees and commissions out 
 
 standing 
 OflBce furniture and fittings 
 Bank .... 
 
 £4600 
 
 £3000 
 
 700 
 
 200 
 
 700 
 
 £4600 
 
 Page 273, Exercise 2 :— - 
 
 Profii and Loss AccounL 
 
 Tt) Wages and salaries . 
 
 £17,000 
 
 
 
 
 
 „ Sundry expenses . 
 
 ,, Taxes and insurance 
 
 ,, Repairs . 
 
 „ Bad debts 
 
 ,, Interest . 
 
 ,, Capitol, for net profit 
 
 900 
 
 175 
 
 300 
 
 1,333 
 
 25 
 
 . 3,346 
 
 
 
 
 6 
 
 13 
 
 
 
 
 8 
 
 4 
 
 
 £23,080 
 
 
 
 
 
 
 
 
 
 
 
 
 
 By Gross profit on goods .£22,300 
 „ Discount ... 600 
 
 Profit on sale of consols . 150 
 „ Profit on sale of £1000 
 Great Western ordinary 
 stock .... 30 
 
 £23,080 
 
 Balance Sheet as at 31st December. 
 
 Liabilities. 
 
 AsseU 
 
 Due to bank 
 Capital 
 
 . £500 
 . 10,966 13 4 
 
 Sundry debtors 
 
 Stock 
 
 Plant and machinery 
 
 Warehouse . 
 
 Cash 
 
 £11,466 13 4 I 
 2 B 
 
 £1,766 13 4 
 
 1,800 
 
 2,500 
 
 , 3,000 
 
 . 2,400 
 
 £11,466 13 4 
 
41 8 ACCOUNTING IN THEORY AND PRACTICE 
 
 ANSWERS TO EXERCISES 
 
 419 
 
 Page 274, Exercise 3 :- 
 
 Profit and Loss Account. 
 
 To Stock at Ist July . 
 ,, Purchases 
 ,, Wages . 
 ,, Repairs 
 ,, Balance carried down 
 
 £15,000 
 
 . 18,500 
 
 . 3,100 
 
 300 
 
 . 10,600 
 
 To 
 
 » > 
 »> 
 >i 
 »> 
 >» 
 »> 
 
 !• 
 
 Salaries and wages — office 
 
 Carriage and freight . 
 
 Rates and insurance 
 
 Trade expenses 
 
 Discounts and allowances 
 
 Bad debts . 
 
 Bank interest and charges 
 
 Interest on bond on property 
 
 Partners' salaries . 
 
 Net profit, allocated thus : — 
 W. Hardie . £1511 5 
 T. Allan . 813 15 
 
 £800 
 
 1,500 
 
 1,550 
 
 1,250 
 
 1,475 
 
 350 
 
 250 
 
 200 
 
 900 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 £47,500 
 
 
 
 
 
 
 
 
 
 
 
 - 2,325 
 £10,600 
 
 By Sales 
 ,, Stock at 30th June 
 
 . £34,500 
 13,000 
 
 £47,500 
 By Balance brought down . £10,600 
 
 £10,600 
 
 Page 275, Exercise 4: — 
 
 Profit and Loss Account. 
 
 To Goods on hand at Ist July . £2,741 
 
 „ Purchases .... 8,400 
 
 ;; Wages 1.404 
 
 „ Repairs • • • : 84 
 „ Depreciation on plant and 
 
 machinery 
 ,, Balance carried down 
 
 To Discount 
 
 ,, Rent, rates, and taxes 
 „ Advertising . 
 „ Traveller's salary 
 ,, Carriage 
 ,, Bad debts 
 ,, Interest 
 ,, Trade and general expenses 
 
 150 
 
 . 6,391 
 
 £19,170 
 
 £648 
 
 100 
 
 460 
 
 430 
 
 390 
 
 100 
 
 120 
 
 502 
 
 „ Net profit, allocated thus :- 
 Smart, two- 
 thirds . £2520 13 4 
 Currie, one- 
 third . 1260 6 8 
 
 £2,650 
 
 By Sales (less returns, £330) 
 . Stock on hand at Slst Dec. 
 
 3,781 
 
 £6,431 
 
 .£15,670 
 . 3,500 
 
 £19,170 
 
 By Balance brought down 
 , , Royalties _ . • 
 
 £6,391 
 40 
 
 
 
 
 £6,431 
 
 Balance Sheet as at 30th June, 
 
 Balance Sheet as at 31st December 
 
 Liabilities, 
 
 Creditors . 
 
 Bankers 
 
 Bond over property . 
 
 Allowance lor bad debts 
 
 Allowance for discounts 
 
 Trade expenses outstanding 
 
 Capital 
 
 W. Hardie 
 T Allan 
 
 £14,511 
 7,813 
 
 5 
 15 
 
 
 
 
 £7,500 
 
 3,000 
 
 5,000 
 
 150 
 
 575 
 
 50 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 - 22,325 
 £38,600 
 
 Assets, 
 
 Customer? . 
 
 Stock 
 
 Heritable property . 
 
 Machinery and plant . 
 
 Loose tools, horses, etc. 
 
 Cash in hand 
 
 .£11,500 
 
 . 13,000 
 
 • 10,000 
 
 . 2,500 
 
 1,550 
 
 60 
 
 £38,600 
 
 Liabilities. 
 
 AsseUy, 
 
 Creditors 
 
 Loan on mortgage . 
 
 Royalty received in advance . 
 
 Reserve for bad and doubtful 
 
 debts . • ', 1" 
 
 Reserve for discounts on book 
 
 debts 
 
 Capital : — 
 
 Smart . £7320 13 4 
 Currie . 3540 6 8 
 
 £1,970 
 
 4,500 
 
 500 
 
 
 
 
 
 
 
 
 
 540 
 197 
 
 10,861 
 £18,568 
 
 Debtors . 
 
 Bills receivable 
 
 Stock 
 
 Buildings 
 
 Plant and machinery 
 
 Patent rights 
 
 Cash at bankers 
 
 Petty cash on hand 
 
 £7,365 
 
 200 
 
 3,500 
 
 4,000 
 
 2,850 
 
 50 
 
 600 
 
 3 
 
 £18.568 
 
420 ACCOUNTING IN THEORY AND PRACTICE 
 
 ANSWERS TO EXERCISES 
 
 421 
 
 Balance Sheet as at 31st December. 
 
 I 
 I 
 
 Page 276, Exercise 5 :— 
 
 YOUNG, SCOTT, & ALLAN 
 
 Profit and Loss Account. 
 
 To Stock, etc., at Ist January . £1,400 
 Purchases : — 
 
 Materials . £2500 
 
 Croods . 4000 
 
 
 
 it 
 
 II 
 
 Wages 
 
 Repairs and renewals . 
 Depreciation on machinery 
 and plant .... 
 Gas for lighting and power . 
 Balance carried down . 
 
 6,500 
 
 3,800 
 
 70 
 
 100 
 85 
 
 1,886 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 To Salaries and commissions 
 Postages and stationery 
 Carriage and cartage 
 Rent, rates, and taxes 
 Insurances . 
 Advertising . 
 Trade expenses 
 Discount 
 Goodwill 
 Balance carried down 
 
 £13,841 
 
 £400 
 60 
 
 70 
 160 
 17 
 25 
 30 
 54 
 25 
 1,055 
 
 
 
 
 
 
 
 
 
 
 £1,886 
 
 To Interest on partners' capital : — 
 
 Young . . . £80 
 
 Scott .... 45 
 
 Allan .... 45 
 
 £170 
 
 ,, Net profit allocated thus : — 
 Young, one-half £445 10 
 Scott, one-fourth 222 15 
 Allan, one-fourth 222 15 
 
 891 
 £1,061 
 
 By Sales. 
 
 ,, Stock at aiat December 
 
 . £12,541 
 1,300 
 
 By Balance brought down 
 
 £13,841 
 £1.886 
 
 By Balance brought down 
 ,, Interest on partners' draw- 
 ing : — 
 
 Young . £J 
 Scott . .200 
 Allan . .10 
 
 £1,886 
 £1,055 
 
 8 
 
 £1,061 
 
 LiabilitU'S. 
 
 Assets. 
 
 £230 
 70 
 
 Sundry creditors 
 Allowance for discounts 
 
 CapiUl :— 
 
 Young . .£2022 10 
 Scott . . 1095 15 
 
 AlUn . . 110« 1^ , ^ ^ 
 4225 
 
 £4525 
 
 Sundry debtors . 
 
 Stock . . • • 
 
 Goodwill 
 
 Patents 
 
 Patterns and drawings 
 
 Plant and machinery . 
 
 Cash at bank 
 
 Cash in hand 
 
 £800 
 
 
 
 
 
 1300 
 
 
 
 
 
 175 
 
 
 
 
 
 100 
 
 
 
 
 
 no 
 
 
 
 
 
 1400 
 
 
 
 
 
 600 
 
 
 
 
 
 40 
 
 
 
 
 
 £4525 
 
 Page 309, Exercise :— 
 
 Net profit ijer accouuts 
 Add tho following itemb 
 charged before arriving 
 at net profit, but upon 
 which income tax is 
 payable : — 
 Income tax 
 Feu-duty . 
 
 Interest on mortgage 
 Interest on loan 
 Interest on capital . 
 Partners' salaries . 
 
 £1000 £1050 £1100 
 
 24 
 
 25 
 100 
 
 40 
 
 250 
 
 500 
 
 
 
 
 
 27 
 
 25 
 
 100 
 
 60 
 
 280 
 
 500 
 
 30 
 
 25 
 
 100 
 
 60 
 
 300 
 
 500 
 
 ^'^Jnl'^^P" £1939 £2042 £2115 
 
 An assessable average of . 
 
 £2032 
 
 Page 356 :- 
 
 Exercise 1. 
 Exercise 2. 
 
 1st August. 
 31st January. 
 
Ill 
 
 I 
 
 |H 
 
 INDEX 
 
 Abstract of Cuetomere* Ledger and 
 Turchases Ledger, method of 
 preparing, 33 
 Accident insurance, 148 
 Accountant, classification of bufiinees 
 
 of an, 3 
 Accounting, definition of, 1 
 
 main branches of, 1 
 Allotment letter, form of, 241 
 Analysis of I>edger Accounts, 109 
 Application and Allotment Book of 
 
 joint-stock company, 234 
 Apportionment, Act of 1870, 154 
 annuities, 165 
 
 bonui^es returned as capital, 167 
 casualties, 164 
 commercial, 157 
 
 dividends and interest upon shares 
 and debentures in public com- 
 panies, 166 
 exceptions to, 170 
 fore-hand rents, 103 
 heritors' assessment, 164 
 in connection with testamentary 
 
 deeds, 156 
 interest on money lent, 165 
 interim dividends and bonuses, 166 
 minister's stipend, 164 
 profit from private partnerships, 
 
 1C9 
 property not producing revenue, 
 
 171 
 rent charges, 164 
 rents, 160 
 rente imder the Land Clauses Act, 
 
 1845, 169 
 stocks and shares bought and sold, 
 
 167 
 table of particulars of companies, 
 
 174 ... 
 
 use of interest tables in apportionmg 
 
 sums for different periods, 153 
 wages and salaries of servants and 
 workmen, 165 
 
 Appropriation Account, Profit and 
 
 Loss, 56 
 Arrangement of Profit and Loss 
 
 Accounts, 55 
 Assessment tables, to prepare, 310 
 Assets, definition, 67 
 fixed, 67 
 floating, 67 
 in connection with investigations, 
 
 333 
 
 permanent, 67 
 
 valuation of, in bankrupt estates, 83 
 Assurance, life, 147 
 Audit, commercial accounts, 353 
 
 companies, 351 
 
 objects of, 348 
 
 office regiilations to prevent fraud, 
 
 353 
 partial, 352 
 
 Partnership Accounts, 350 
 pointe to be attended to in a first 
 
 audit, 350 
 Report under Companies Acte, 352 
 Auditor, the duties and responsibili- 
 ties of an, 348 
 Average due date, to calculate, 354 
 
 Balance Account, 72 
 
 Balance, contracts not completed at 
 
 date of, 267 
 Balance Sheet, 18 
 arrangement of, 76 
 connection between the Trial 
 Balance, Profit and Loss Account, 
 and Balance Sheet, 65 
 definitions of, 69, 70 
 distinction between Profit and Loss 
 
 Account and Balance Sheet, 70 
 double account form of, 79 
 on which side the assets should be 
 
 placed, 70 
 regulations under Companies Acts, 
 74 
 Bankrupt, Statement of Affairs of a, 83 
 
T' 
 
 n '■> 
 
 H 
 
 424 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 Bill Book and Journal, 20 
 Bills of exchange, 8, U, 149 
 Book-keeping, basis of accounting, 2 
 by double entry, compared with 
 
 single entry, 42 
 definition of, 4 
 
 features of best system of, 23 
 points to be kept in raind in devis- 
 ing a set of books for a business, 
 22 
 practical, 22 
 
 practical, further developed, 32 
 single entiy, 42 
 
 the whole theory of, contained in 
 Ledger, 22 
 Branches, accounts of, 95 
 
 foreign, 288 
 British currency, 277 
 
 Call letter, form of, 243 
 Capital Account, in double account 
 form of Balance Sheet, 79 
 the account of the owner of a 
 business, 69 
 Capital, as excess of assets over 
 liabilities, 69 
 definition of, 68 
 
 insurance of the risk of losinfir, 
 47 ^ 
 
 return from, how divided by econo- 
 mists, 47 
 Card or loose-leaf system of keeping 
 liedger Accounts, 114 
 applied to Shareholders' Ledger, 
 
 Cash Book, example of columnar, 34 
 in practical book-keeping, 23 
 with Discount, Bank, and Cash 
 columns, 27 
 Cash on hand, in auditing, 350 
 Charge and Discharge Account, 175, 
 
 180 
 Charges, shop establishment, 265 
 Check Ledgers, 113 
 Closing entries, 15 
 
 use of Journal for, 25 
 Colliery sinking or redemption funds, 
 
 128 
 Columnar Cash Book, description of, 
 32 
 posting of, 33 
 specimen, 34 
 Companies, joint-stock, exercises, 244, 
 250 
 points to be attended to in auditing, 
 
 351 
 table of particulars for apportion- 
 ment, 174 
 
 Companies, the conversion of a private 
 firm into a joint-stock company, 
 
 Comparative Statements, 335 
 Consignment Account, 131 
 Contingent fund, 121 
 Contingent liability, 68 
 Contracts not completed at date of 
 
 l)alancc, 267 
 Conversion of foreign currencies, 288 
 Cost Accounts, delinition of, 261 
 Cost, items of, 263 
 Cost of goods entered in Trading 
 
 Account, 59 
 Cost, prime, 263, 265 
 Course of the exchanges, 300 
 Creditors' Ledger, 2(5 
 Currencies, foreign, 285 
 Currency, Britisli, 277 
 
 French, 281 
 
 (Jerman, 281 
 
 Indian, 278 
 
 United States, 280 
 Current Accounts, interest on, 356 
 Curves and Diagrams, 344 
 Customers' ledger, 26 
 
 abstract, method of preparing, 33 
 
 Day Book, 25 
 
 Days, table for finding the dajrs be- 
 tween two given dates, 369 
 table of days ns decimal fractions 
 of a year, 373 
 
 Debenture bond sinking fund, 122 
 
 Debenture reserve fund, 120 
 
 Debenture Ledger, 240 
 
 Debtors' ledger, 26 
 
 Decimals, rule for expressing shill- 
 ings and pence as, 30.*^. 
 
 Deficiency Account of a banknipt, 89 
 
 Departments and Departmental Ac- 
 counts, 98 
 Trading Account of business hav- 
 ing two, 60 
 
 Depreciation, 137 
 to find the rate to be written off, 
 138 
 
 Direct and indirect exiienses, 263, 264 
 
 Discount, 17 
 
 Double account form of Balance 
 Sheet, 79 
 
 Engineers' Accounts, 265 
 Equated time of payment, r.54 
 Errors, localisation of, 22 
 Estimated Cost Account, 261 
 Exchanges, foreign, 297 
 the course of the, 300 
 
 INDEX 
 
 425 
 
 Exchanges, the, as published in the 
 
 newspapers, 301 
 Expenses, general establishment, 266 
 direct and indirect, 263 
 
 Fire insurance, 143 
 Fixed assets, 67 
 Fixed liabilities, 67 
 Floating assets, 67 
 Floating liabilities, 67 
 Foreign branches, 288 
 
 currencies and their treatment in 
 Home Accounts, 285 
 
 currencies, rules for conversion of, 
 288 
 
 exchanges, 297 
 
 moneys, 283 
 French currency, 281 
 
 General establishment expenses, 266 
 General Ledger, 26 
 German currency, 281 
 Goods Accoimt, 15 
 a revenue as well as a real account, 
 
 105 
 definition, 51 
 
 to ascertain the profit on goods 
 without taking stock, 267 
 Goods destroyed by fire, to find the 
 cost value of, 271 
 partially manufactured and com- 
 pleted, how valued at stock- 
 taking, 53 
 sold on commission, 53 
 treatment of goods on hand at close 
 of year, 16 
 Goodwill, definition, 134 
 
 how valued, 135 
 Gross profit, in percentage state- 
 ments, 335 
 shown by Trading Account, 59 
 Guarantee insurance, 149 
 
 Hire-purchase system of acquiring 
 railway waggons, 324 
 
 Impersonal Accounts, 105 
 
 Income and Expenditure Account, 
 
 133 
 Income Tax, 302 
 Income Tax Tables, preparation of, 
 
 309 
 Indian currency, 278 
 Indirect expenses, 263 
 Instalments, loans repayable by, 314 
 Insurance, 143 
 
 accident, 148 
 
 fire, 143 
 
 Insurance, guarantee, 149 
 
 life, 147 
 
 marine, 145 
 Interest, on capital, 47 
 
 on Current Accounts, 356 
 
 on partners' Capital Accounts, 197 
 Investigations, 329 
 Investment fund, 119 
 Invoice Book, 24 
 
 Jomt Account, 131 
 Joint-stock compames books, s66 
 Journal, Bill, 26 . 
 
 Journal, definition and use of, m 
 practice, 25 
 
 Labour, in Cost Accounts, 264 
 Leases, redemption of, 322 
 Ledger Accounts, division of, 105 
 
 definition of, 4, 104 
 Ledger balances, statement of, 70 
 Ledger, Card, 114 
 Check, 113 
 Customers', 26 
 definition of, 4, 104 
 division of, 26 
 general, 26 
 private, 26 
 Purchases, 26 
 Self-balancmg, 33, 107 i 
 the essential book in book-keepmg, 
 
 22 
 to analyse the accounts in a, 109 ^ 
 to balance Ledgers separately, 107 
 Legal tender, 278 
 Letter of regret, form of, 242 
 Liabilities, classification of, 68 
 definition, 67 
 
 fixed, 67 . . 
 
 in connection with investigations, 
 
 332 
 floating, 67 
 Life assurance, 147 
 Life Insurance Abatement, 308 
 Liquidation Account, 130 
 Loans repayable by instalments, 314 
 Local authorities, rates of, 310 
 Logarithms, explanation of use of, 
 365 
 table of, 376 
 
 use of, in preparing percentage 
 statements, 338 
 Loss, definition of, 48 
 
 Manufacturers' Accounts, 252 
 Manufacturing Accounts, 61 
 Margin, 119 
 Marine insurance, 145 
 
 I 
 
 2f 
 
mwm 
 
 426 
 
 ACCOUNTING IN THEORY AND PRACTICE 
 
 INDEX 
 
 '427 
 
 II 
 
 m 
 
 1)1 
 
 Material, in Cost Accounts, 264 
 
 Mint par, 300 
 
 Minute Book of joint-stock company, 
 
 233 
 Moneys, foreign, 283 
 
 Nominal Accounts, 105, 106 
 
 Ofl&ce regulations to prevent Eraud, 
 
 353 
 Opening entries, use of Journal for, 
 
 25 
 Original entries, should be utilised in 
 
 book-keeping, 22 
 Original record, books of, 25 
 
 Par, Mint, 300 
 Partnership, 194 
 Accounts, points to be attended to 
 
 in auditing, 350 
 assumption of a partner, 211 
 dissolution of, 213 
 division of profits, 205 
 goodwill in, 195 
 Income Tax assessment on, 308 
 interest on Partners' Accounts, 197 
 limited, 197 
 
 transactions worked out, 219 
 Percentage statements, 335 
 Percentages, to calculate a series of, 
 
 337 
 Permanent assets, 67 
 Personal Accounts, 105, 106 
 Preferable claims, treatment of, in 
 
 bankruptcy statements, 84 
 Preferable liabditv, definition of, 68 
 Prime cost, 263, 2*65 
 Private Ledger, method of using, 26 
 Products, method of calculating 
 interest on Current Accounts by 
 means of, 358 
 use of table of, in preparing per- 
 centage statements, 339 
 Professional and other non-manu- 
 facturing and non-trading con- 
 cerns, the accounts of, 272 
 Profit, 47 
 
 division of, in partnership, 205 
 statutory or legal, 48 
 to ascertain the profit on the Goods 
 Account without actually taking 
 stock, 267 
 Profit and Loss Account, 18 
 arrangement of, 55 
 connection between the Trial 
 Balance, Profit and Loss Account, 
 and Balance Sheet, 65 
 definition of, 49 
 
 Profit and Lcms Account, distinction 
 between Profit and Loss Account 
 and Balance Sheet, 70 
 facts to be shown, 50 
 in investigations, 333 
 percentage statements, 334, 335 
 should contain all the profits and 
 all the charges, 51 
 Profit and Loss Appropriation Ac- 
 count, 56 
 Promissory notes, 149 
 Purchases Ledger, 26 
 Purchases Ledger Abstract, method 
 of preparing, 33 
 
 Railway waggons, hire - purchase 
 system of acquiring, 324 
 
 Rates of local authorities, 310 
 
 Raw material, how valued at stock- 
 taking, 53 
 
 Real Accounts, 105, 106 
 
 Realisation Account, 130 
 
 Receipts and payments, statement of, 
 133 
 
 Reconciliation statements, 345 
 
 Redemption fund, 120 
 colliery, 128 
 
 Redemption of leases, 322 
 
 Register of members of joint-stock 
 company, 235 
 
 Register of transfers for joint-stock 
 company, 235 
 
 Rent, treatment of, when outstanding 
 at close of year, 17 
 
 Repairs, treatment of, in preparing 
 percentage statements, 336 
 
 Reserves and reserve funds, defini- 
 tion, 118 
 
 Reserves, secret, 119 
 
 Rest, 119 
 
 Return, Income Tax, preparation of, 
 306 
 
 Revenue Account, 132 
 
 Scroll-books, use of, not recom- 
 mended, 22 
 Secret reserves, 119 
 Secured liability, 68 
 Self-balancing Ledgers, 33, 109 
 Shareholders' Ledger, 235 
 
 card system applied to, 115 
 Shop establishment charges, 265 
 Single entry, definition of, 42 
 method of ascertaining net profit, 
 
 43 
 to pass from single to double 
 entry, 45 
 Sinking funds, 121 
 
 Sinking funds, colliery, 128 
 
 debenture bond, 122 
 Statement of Affairs, definition, 82 
 
 of a bankrupt, 83 
 Statement of Receipts and Payments, 
 
 133 
 Stock-taking, 52 
 Stock used for capital, 69 
 Surplus applied to a reserve, 119 
 Suspense Accounts, 134 
 
 Tables for finding the days between 
 two given dates, 369 
 days as decimals of a year, 373 
 logarithms, 376 
 Tax, income, 302 
 
 Trading Account, as first section of 
 Profit and Loss Account, 55 
 
 Trading Account, definition, 59 
 Trial Balance, connection between 
 the Trial Balance, Profit and 
 Loss Account, and Balance 
 
 Sheet, 65 . , , .^ 
 
 of books kept by smgle entry, 45 
 definition, 63 
 
 two methods of preparing, 64 
 Trust and Executry Accounts, 175 
 Trust transactions, model set of, 
 176 
 
 United States currency, 280 
 
 Wages, 17 
 
 Wages of management, 47 
 
 Wasting assets, 67 
 
 PRINTED BY WILLIAM GREEN AlID BOKS, EDINBURGH. 
 
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 li 
 
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 1:^ 
 
 
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 COLUMBIA UNIVERSITY LIBRARIES 
 
 0041419723 
 
 AUG 2 „ 1934 
 
 JUN 30 ]9n 
 
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END OF 
 TITLE