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 NO. 94-82085- 12 
 
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Author: 
 
 Portland cement 
 association 
 
 Title: 
 
 Cost accounting 
 
 Place: 
 
 Chicago 
 
 Date: 
 
 1917 
 
MASTER NEGATIVE # 
 
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 PRESERVATION DIVISION 
 
 BIBLIOGRAPHIC MICROFORM TARGET 
 
 ORIGINAL MATERIAL AS FILMED - EXISTING BIBLIOGRAPHIC RECORD 
 
 flVSINSSS 
 
 430.37 
 IC33 
 
 Portland ceiaont association# Chioago« 
 
 Cost acooiirtbing; being a uniform accounting 
 system as applied to the cement industry, pub» by 
 the Portleuid cement association from data secured 
 and comp. by the Committee on uniform cost accoun- 
 tin^, Chica,-:©, Portland cement association, 1917 
 110 p« forme. 28 cm. 
 
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 LIBRARY 
 
 School of Business 
 
 Given by 
 
 LIBRARY 
 SCHOOL OF BUSINESS 
 
I 
 
 ; 
 
 Cost Accounting 
 
 Being a Uniform Accounting System 
 as Applied to the 
 
 Cement Industry 
 
 Pdblisbed Br the 
 
 PORTLAND CEMENT ASSOCIATION 
 
 FBOM DATA 
 
 SECURED AND COMPILED 
 
 BT TBB 
 
 COMMITTEE ON UNIFORM COST ACCOUNTING 
 
 PORTLAND CEMENT ASSOCIATION 
 
 CHICAGO. ILLINOIS 
 1917 
 
■ 1^^ 
 
 C33. 
 
 .'I 
 
 2\ J 
 
 3 
 
 ^ go 
 
 INTRODUCTION 
 
 To meet the varying conditions prevalent in different 
 plants, the Committee on Uniform Cost Accounting has 
 thought it best to make some changes in the uniform 
 system adopted some years ago. These changes, however, 
 effect only the detail, and not the principles as first ad- 
 vocated and adopted. Therefore, it has been thought 
 best to revise the original book on Cost Accounting, and 
 this revision (as formally approved and adopted at the 
 Fall meeting held in Chicago, September 10-13, 1917) is 
 represented in the pages following. 
 
 Much of the text in this revised edition may seem 
 primary, and it is intended that this book should be a 
 primer. It is written with the idea of answering the many 
 questions confronting the Cost Accountant on his visits to 
 the plants of member companies, explaining the system. 
 This detail is further necessary if the system as adopted is to 
 be installed in the various plants by the Chief Accountant 
 or Bookkeeper; if it is desired, however, to have the Cost 
 Accountant of the Association supervise the installation 
 of the system in any plant, his services are at the disposal 
 of member companies. From the set of pro-forma accounts 
 of the "A. B. C. Cement Co.," (which accompanies this 
 book), it is thought any accountant or bookkeeper will 
 be able to install the system without difficulty. 
 
 Much thought and time has been devoted by the Com- 
 mittee to the preparation and devisation of this uniform 
 system, and it is believed that its utilization by member 
 companies will result in uniform treatment of every item 
 of cost and true costs will be ascertained monthly. 
 
 The Committee on Uniform Cost Accounting. 
 Chicago, September, 1917. 
 
Contents 
 
 J 
 
 INTRODUCTION 
 
 I. Purpose and Value of Cost Accounts _ H 
 
 Need and value of proper system; Objections to Install- 
 ing a Cost System; Divisions of Accounting System; Man- 
 ufacturing Costs; Commercial Costs, etc. 
 
 II. Chart OP Accounts .-_ 14 
 
 (a) Index. 
 (6) Chart of Ledgers. 
 
 (c) Articulation of Accounts; relation of Accounts from 
 Raw Material to Finished product. 
 
 III. Books and Forms Required 
 
 General Office: 
 
 Books. 
 
 Binders. 
 
 Forms. 
 
 Mill Office: 
 
 Books. 
 
 Binders. 
 
 Forms. 
 
 17 
 
 IV. Books and Forms; Description — 19 
 
 General Office: 
 
 Cash Book. 
 
 General Ledger. 
 
 Customer's Ledger. 
 
 Creditor's Ledger. 
 
 Purchase Journal. 
 
 General Journal. 
 
 Sales Record and Debit Memos. 
 
 Sack Record and Credit Memos. 
 
 Voucher Check. 
 
 Binders. 
 
 Mill Office: 
 
 Cost Ledger. 
 Pay Roll. 
 Coal Record. 
 Gypsum Record. 
 Stores Ledger. 
 Distribution Sheets. 
 
V. General ^Ledger Accounts 
 Assets. 
 Liabilities. 
 
 27 
 
 Trading Accounts: 
 
 Trading Account (Summary). 
 Cement Sales. 
 Sack Sales. 
 Cement Inventory. 
 
 Profit and Loss Accounts: 
 
 Profit and Loss (Summary). 
 
 Sack Cost. 
 
 Packing and Loading. 
 
 Sack Handling. 
 
 Selling Expenses. 
 
 General Expenses. 
 
 Financial Expenses. 
 
 Extraneous Income Accounts: 
 
 Employes Dwellings. 
 
 Lighting. 
 
 Commissary. 
 
 Interest on Investments. 
 
 Sundry Sales. 
 
 Manufacturing Accounts: 
 
 Operating: 
 
 Raw Material No. 1. 
 Raw Material No. 2. 
 Raw Grinding. 
 Clinker Burning. 
 Clinker Grinding. 
 Mill Overhead. 
 Reserves. 
 Finished Cement. 
 
 Auxiliary: 
 
 Power, Light and Water. 
 
 Coal Preparing. 
 
 Machine, Blacksmith and Carpenter 
 
 Shops. 
 Floating Gang. 
 Railroad and Switching. 
 
 VII. Labor Accounts 
 
 Operating Labor. 
 
 33 
 
 Pay Roll: 
 
 Pay Periods. 
 Monthly Summary. 
 Distribution: 
 
 VI. Definition of Accounts. 
 
 Labor: 
 
 32 
 
 Operating. 
 Repairs. 
 
 Materials : 
 
 Operating. 
 
 Repairs. 
 Fuel. 
 
 Direct Labor. 
 Repair Labor. 
 Indirect Labor (Floating Gang). 
 
 Work Tickets. 
 
 Labor on Repair Parts for Stock: 
 
 Method of Recording. 
 Final Cost. 
 Distribution. 
 
 VIII. Material Accounts — 36 
 
 Sub-divisions: 
 
 Operating Supplies and Repair Parts. 
 
 Coal. 
 
 Gypsum. 
 
 Packages. 
 
 Materials Purchased: 
 
 Authority for purchase. 
 
 Checking Invoices for payment. 
 
 Discounts. 
 
 Stores Ledger. 
 
 Method of Recording purchases. 
 
 Materials Disbursed: 
 
 Proper requisition necessary. 
 Judgment to be used as to issuance of stores or 
 repair parts in the absence of proper requisition. 
 Materials returned to Stores. 
 Materials drawn for Work in Process for stock. 
 
 Stores Inventory: 
 
 Verification of Inventory periodically. 
 Method of valuing Inventory. 
 
 Coal: 
 
 Coal Record. 
 
 Method of recording. 
 
 Freight. 
 
 Deliveries, how treated. 
 
 Monthly distribution. 
 
 Inventory. 
 
 Gypsum. 
 
Illl 
 
 IX, Plant Overhead and Indirect Expense _ _. 41 
 
 Direct and Indirect Expense. 
 
 Insurance. 
 
 Taxes. 
 
 Depreciation. 
 
 Depletion. 
 
 Contingencies. 
 
 Shut-down Period Expenses. 
 
 X. Monthly Closing of Manufacturing and Operating Accounts 43 
 
 Procedure before closing; Posting; Reason for closing 
 AvxiUary Accounts first. 
 
 Auxiliary Accounts: 
 
 Power, Light and Water. 
 
 Coal Preparing. 
 
 Machine, Blacksmith and Carpenter Shop. 
 
 Floating Gang. 
 
 Railroad and Switching. 
 
 Operating Accounts: 
 
 Raw Material No. 1. 
 Raw Material No. 2. 
 Raw Grinding. 
 Clinker Burning. 
 Clinker Grinding. 
 Mill Overhead. 
 Reserves. 
 Finished Cement. 
 
 AnniMl Closing: 
 
 Profit and Loss Accounts. 
 
 Net Profit. 
 
 Surplus. 
 
 Dividends. 
 
 I 
 
 XI. Monthly Statements; their preparation ._ 
 
 Trading and Profit and Loss Statement. 
 
 Balance Sheet. 
 
 Supplementary Statements: 
 
 Summary Statement of Costs. 
 Summary Statement of Operation Costs. 
 Summary Statement of Cement Costs in Bulk, 
 Cloth and Paper. 
 
 Cost Sheets: 
 
 Raw Material No. 1. 
 Raw Material No. 2. 
 Mill Costs. 
 
 49 
 
 XII. Deferred Charges 54 
 
 Shut-down Period: 
 Repairs. 
 Expenses. 
 
 XIIL Forms 56 
 
 Illustrations of various Books and Forms used in con- 
 nection with the system as outlined. 
 
 XIV. Package Accounting; Two Methods _ 86 
 
 (a) Package cost, in excess of ten cents, to be included 
 in costs. 
 
 (6) Total package costs to be included in costs. 
 
 XV. Procedure in Opening Accounts and Installing System 92 
 
 General Ledger; Cost Ledger; Use of Various Forms, etc. 
 
 XVI. Depreciation, Depletion and Appraisals _ 96 
 
 Foreword: Extracts from various authorities on Deprecia- 
 tion, etc. 
 
 ''Depreciation and Reserves:^' 
 
 Geo. Wilkinson, C. P. A., New York. 
 
 "Principles of Depreciation:^' 
 
 Prof. E. A. Saliers, Yale, Lehigh. 
 
 "Depreciation:" 
 
 J. Lee Nicholson, C. P. A. (Federal Trade Com- 
 mission) . 
 
 "Manufacturing Cost and Accounts:" 
 
 A. Hamilton Church, Consulting and Efficiency 
 Engineer, Haskins & Sells, New York. 
 
 "Accounting, Theory and Practice:" 
 
 R. H. Montgomery, C. P. A., New York. 
 
 "Depreciation:" 
 
 Edward N. Hurley, Chairman (1916) Federal 
 Trade Commission. 
 
 Comments on the foregoing articles: 
 
 0. K. Goree, Cost Accountant, Portland Cement 
 Association. 
 
 Mortality Table, as approved by the Association. 
 
 The Appraisal of Manufacturing Plants:" 
 Chas. W. McKay. 
 
 Plant Appraisal Form. 
 
 Depreciation Schedule. 
 
 
 
Cost Accounting 
 I 
 
 Purpose and Value of Cost Accounts 
 
 Need and Value of Proper System: 
 
 In this age of keen competition it is imperative that the manufacturer know 
 true costs of production ; unless he does, the ultimate result is two-fold : he may 
 sell his product at less than cost of production, thus entailing a loss of capital, 
 or he may fix an arbitrary or " rule-of-thumb " sale price far above that of his 
 competitor (who may know his true costs) thereby entailing a subsequent loss 
 of sales. In either event, if such practices were continued, the industrial grave- 
 yard would be his end. Hundreds of idle, dismantled or wrecked plants through- 
 out the country bear mute evidence to this lack of proper accounting methods. 
 Dun and Bradstreet, in reviewing the causes which led up to the failures for the 
 year 1915, attribute 70% of such industrial disasters to improper accounting 
 metJiods. 
 
 Since there still may be an inclination in some quarters to consider cost 
 accounts as red tape, let us consider the reasons why complete and accurate cost 
 accounts are essential to the proper administration of a corporation and the 
 proper operation of its property. 
 
 A recent pamphlet issued by Mr. Hurley of the Federal Trade Commission, 
 entitled ' ' Fundamentals of a Cost System for Manufacturers, ' ' clearly sets 
 forth the need of proper accounting methods: 
 
 "Formerly the necessity for the determination of true manufacturing 
 costs was not as imperative as it is today. Margins between cost and selling 
 price in most lines were larger. Costs could be ignored except in a general 
 way, and a good return still made on the investment; but today margins 
 of profit in most lines of trade are very much narrower than formerly, and 
 the necessity for the most efficient management and closest analysis is felt 
 as never before. 
 
 "There are a number of objections in the minds of business men who 
 have not installed cost systems to taking the matter up. One of these is 
 the feeling that exists in the minds of so many that their business is unique 
 and different from any other that no system could be devised which would 
 give them true costs It is unquestionably true that some lines of manufac- 
 ture (the cement industry for instance) lend themselves more readily to 
 the installation of a cost system than others, but it is also true that no line 
 of manufacture is so complicated that a system cannot be devised which 
 will give reasonably accurate results. 
 
 ' ' The most common objection is that of the cost of installation and the 
 expense of operation. Many manufacturers are of the opinion that a cost 
 system means an interminable amount of detail and red tape and the 
 assistance of a number of extra clerks. It is true, in many cases, that some 
 extra labor may be required, but not to the extent that the manufacturer 
 fears. There is in nearly every office that is not systematized sufficient 
 unnecessary work done to cut the extra work down to a minimum, and, 
 in fact, in some cases, where an office has been systematized, it has not 
 been necessary to employ any extra help at all. If the manufacturer will 
 look upon a cost sj'stem as an investment which he expects to produce for 
 him a fair return in the same manner that an investment in improved ma- 
 
 11 
 
chinery would, the objection as to the expense is not a valid 
 Other business men are of the opinion that they do not need 
 because they know what their goods cost. They may, and 
 them do have ^n approximate idea of what their goods cost, 
 number of instances this supposed knowledge is based on 
 guesses in advance as to the time necessary to do the work, or 
 spent on the work after it is done. Guessing is unsafe and 
 practice." 
 
 one. • • • 
 a cost system 
 a number of 
 but in a large 
 the foremen's 
 as to the time 
 poor business 
 
 There is another phase of cost accounting that has produced a very serious 
 objection in the minds of manufacturers; namely, too much "system." 
 
 "Systems" have been installed in factories where it cost twenty cents to 
 secure a bolt worth one-eighth of one cent, and eighteen cents to get a proper 
 cutting tool for a job on which the labor cost was only twenty-two cents. The 
 net result of such a "system" is a mass of statistical data, non-provable and 
 not articulated with nor connected up with the financial books. 
 
 One of the great advantages of properly kept manufacturing costs is their 
 value as an index of operating efficiency. Estimated costs tell what the plant 
 should do, but actual cost figures tell what is realy being done, and are valuable 
 accordingly. With properly prepared cost figures the relative efficiency of the 
 various departments of the plants may be watched and compared. The current 
 results obtained in each department may be checked against those obtained 
 in the past, thereby showing increases in efficiency, or the reverse, and 
 the results of improvements in practice and equipment. A constant study of 
 properly prepared cost figures will help to bring to light dishonest and improper 
 management, and will enable standards to be set for the less efficient depart- 
 ments, based on what actually has been done in departments that are being 
 properly and efficiently administered. In other words, a complete and properly 
 kept cost accounting system will be found to exercise the important and produc- 
 tive function of helping to lower costs, and holding them at the lowest practicable 
 level. 
 
 There is one more point that must be urged in favor of a cost accounting 
 system. The officials of a corporation are trustees of the property that has 
 been turned over to them by the stockholders, and as such must render a proper 
 account of their stewardship. The raw materials, semi-finished product and 
 finished product of a manufacturing plant constitute a large and important 
 part of the assets of the company. Such assets must be correctly stated with 
 respect to price, as well as quantity, and the only way to insure this correct 
 statement is to show exactly what they have cost. In order to make a proper 
 accounting of the property of a company the officials must know what has been 
 done with that property. An estimate or a guess is not sufficient. Understated 
 manufacturing costs mean overstated profits, and when these overstated profits 
 are disbursed in the form of dividends, the capital of the corporation has been 
 depleted and the officials are, at least, morally liable. 
 
 Cost accounts fall logically into two main divisions. The first of these is 
 the manufacturing cost, which is the cost of producing a completed and mar- 
 ketable article or material, and delivering it, as required, to the carrier for 
 transportation to the customers. In other words, manufacturing cost comprises 
 a complete record of the work performed by the factor>'. The second item is 
 
 the overhead cost of administering and financing the company and marketing 
 its product. These two items together make up the commercial cost of the 
 product, and give a figure at which the product must be sold in order to come 
 out even. 
 
 The simplest and most generally effective way of keeping track of the manu- 
 facturing costs of a cement company is on the basis of each month's production. 
 This requires that each department shall be charged with all labor and material 
 used, and all expense incurred during the month. The total charges against 
 each department for the month, divided by the number of barrels, tons or unit 
 of output produced, will give the month's unit cost for the product of the 
 department. These monthly charges may be consolidated by departments at 
 the end of the year, and divided by the yearly output, in order to arrive at the 
 average yearly costs both for departments and finished product. This will have 
 the effect of equalizing fiuctuations due to variations in operation at different 
 seasons. 
 
 In our detailed consideration of this subject we will take up, first of all, the 
 question of manufacturing costs. For the sake of having some concrete basis 
 on which to work we will consider the case of a cement company operating on 
 the dry process, quarrying two raw materials, and using coal for fuel. We will 
 assume that the operation of the plant is directed by a superintendent, and that 
 an independent organization, reporting to the chief accounting officer in the 
 general office, is in charge of, and responsible for, the accounting end of the 
 work, including the handling of the Stores Department, and if possible, all 
 the timekeeping work. It should be understood that no attempt will be made 
 to lay down any hard and fast rules, and if any rules are formulated, it will 
 be done only with the object of expounding and illustrating the fundamental 
 principles on which they are based. 
 
 Since the object of any system of cost accounts is to afford information, we 
 must decide, first of all, what information we need. We must know the cost of 
 our finished cement. Our Clinker Inventory is liable to fluctuate widely from 
 time to time, owing to the fact that in some months more clinker is likely to 
 be produced than is ground into cement, while in other months the quantity 
 of clinker produced will be much less than the quantity consumed. Therefore, 
 in order to equalize matters, and to have our cement costs reflect the results of 
 current operations, we should arrange to carry our clinker in inventory, and in 
 order to do this we must know what our clinker costs. The same condition 
 obtains with respect to raw materials. It may be that the raw materials for 
 the entire year's consumption are quarried during the summer. It would not 
 be right to charge our clinker costs for the summer months with the cost of 
 producing the entire year's supply of raw material. Therefore our raw ma- 
 terials should also be put into inventory as produced and carried until consumed, 
 and we must know how much they cost. In other words, it is essential that 
 we should have separate costs on each of our raw materials, and on our clinker, 
 and on our cement, as each of these commodities is an individual item in our 
 inventory accounts, and each occupies a distinct place as an asset of the com- 
 pany. Furthermore, separate costs on these items are highly desirable for 
 comparative purposes and to aid in maintaining the efficiency of the departments 
 under review. 
 
 13 
 
II 
 
 Chart of Accounts 
 
 INDEX 
 
 GROUP 
 
 GENERAL LEDGER 
 
 COST LEDGER 
 
 Mandatofy 
 
 SugiMtMl 
 
 OptkNMl 
 
 Mudttory 
 
 Optland 
 
 1 Absetb: 
 
 11 Cash in Banks. 
 
 12 Petty Cash. 
 
 13 Bills Receivable. 
 
 14 Accounts Receivable. 
 
 15 Inventories. 
 
 16 Investments. 
 
 17 Plant Accounts. 
 
 18 Deferred Assets. 
 
 19 Sundry. 
 
 111-119 
 
 141-149 
 151-159 
 
 171-179 
 181-189 
 
 1511-1599 
 
 
 
 2 LlABIUTIES: 
 
 21 Accrued Items. 
 
 22 Bills Payable. 
 
 23 Accounts Payable. 
 
 24 Reserves. 
 
 25 Capital Accounts. 
 
 211-219 
 221-229 
 231-239 
 241-249 
 251-259 
 
 2411-2499 
 2511-2599 
 
 
 
 3 Traddvo: 
 
 31 Trading Account. 
 
 32 Sales. 
 
 33 Cement Inventory. 
 
 321-329 
 
 
 
 
 4 Pbofit & Loss: 
 
 41 Profit & Loss Acct. 
 
 42 Sack Cost. 
 
 43 Packing & Loading. 
 
 44 Sack Handling. 
 
 45 Selling Expenses. 
 
 46 General Expenses. 
 
 47 Financial Expenses. 
 
 48 Extraneous Accounts. 
 
 49 Sundry. 
 
 421-429 
 
 451-459 
 461-469 
 471-479 
 481^89 
 
 
 431-439 
 441-449 
 
 4311-4399 
 4411-4499 
 
 5 Raw Material : 
 
 51 Raw Material No. 1. 
 
 52 Raw Material No. 2. 
 
 
 
 511-519 
 521-529 
 
 5111-5199 
 5211-5299 
 
 6 Manufacturing : 
 
 61 Raw Grinding Dept. 
 
 62 Clinker Burning Dept. 
 
 63 Clinker Grinding Dept. 
 
 64 Mill Overhead. 
 
 65 Reserves. 
 
 66 Finished Cement. 
 
 « 
 
 
 611-619 
 621-629 
 631-639 
 641-649 
 651-659 
 
 6111-6199 
 6211-6299 
 6311-6399 
 6411-6499 
 6511-6599 
 
 7 Auxiliary: 
 
 71 Power, Light A Water. 
 
 72 Coal Preparing. 
 
 73 Machine Shop. 
 
 74 Blacksmith Shop. 
 
 75 Carpenter Shop. 
 
 76 Floating Gang. 
 
 77 R. R and Switching. 
 
 
 
 711-719 
 721-729 
 731-739 
 741-749 
 751-759 
 761-769 
 771-779 
 
 7111-7199 
 7211-7299 
 
 8 Farm: 
 
 81 Expenses. 
 
 82 Receipts. 
 
 
 
 811-819 
 821-829 
 
 8111-8199 
 8211-8299 
 
 Detail of the above Chart of Accounts is shown in a separate booklet, which see. 
 
 14 
 
 CHART OF LEDGERS 
 
 
 
 FINANCIAL RECORDS 
 
 
 
 
 
 
 
 
 
 
 
 General Ledger 
 Special, Property and Controlling Accounts, 
 Assets, Liability, Trading and Profit and Loss 
 Accounts, Manufacturing and Operating Accounts. 
 
 
 
 
 
 
 
 
 
 
 
 
 Customer's 
 
 Ledger 
 (Accounts 
 Receivable) 
 
 
 
 Creditor's 
 
 Ledger 
 
 (Accounts 
 
 Payable) 
 
 
 
 
 
 
 
 
 
 COST RECORDS 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Stores 
 Ledger 
 
 • 
 
 Cost Ledger 
 
 Raw 
 
 Material 
 
 No. 1 
 
 Raw 
 
 Materia 
 No. 2 
 
 Mill 
 
 and 
 
 Auxiliary 
 
 
 
 
 
 
 
 
 
 
 
 
 Trial Balance 
 From which is Prepared 
 
 
 
 
 
 
 
 
 
 
 
 
 Stores 
 Inventory 
 
 • 
 
 Cost Sheets 
 
 Raw 
 
 Material 
 
 No. 1 
 
 Raw 
 
 Materia 
 
 No. 2 
 
 Mill 
 
 16 
 

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 General Office: 
 Books: 
 
 General Cash Book (bound). 
 General Ledger (bound). 
 Customers' Ledger (loose leaf). 
 Creditors' Ledger (loose leaf). 
 Purchase Journal (bound). 
 General Journal (bound). 
 
 Binders for 
 
 Forms: 
 
 Distribution Sheets: 
 
 Pay Roll. 
 
 Repair Labor. 
 
 Materials and supplies (Operating and Repair). 
 
 Miscellaneous : 
 
 Power. 
 
 Coal. 
 
 Gypsum. 
 
 Coal Preparing. 
 
 Floating Gang. 
 Reserves. 
 
 Pay Rolls. 
 
 Monthly Statements: 
 
 Trading and Profit & Loss Account. 
 
 Balance Sheets. 
 
 Monthly Statement of Costs. 
 
 Monthly Statement of Operations. 
 
 Monthly Statement of Costs in Bulk, Cloth -and 
 Paper. 
 
 Cost Sheets. 
 
 Sales Record and Debit Memos. 
 
 Sack Returns and Credit Memos. 
 
 Trading and Profit and Loss Account. 
 
 Balance Sheet. 
 
 Monthly Statement of Costs. 
 
 Monthly Statement of Operations. 
 
 Monthly Statement of Costs in Bulk, Cloth or Paper. 
 
 Voucher Checks. 
 
 IT 
 
 1« 
 
Mill Office: 
 Books: 
 
 Forms: 
 
 Pay Roll. 
 
 Cost Ledger (if kept at Mill). 
 
 Stock Ledger (cards). 
 
 Coal Record. 
 
 Gypsum Record. 
 
 Cost Sheet — Quarry. 
 Cost Sheet— Mill. 
 Distribution Sheets. 
 Pay Roll. 
 Repair Labor. 
 
 Materials and Supplies (Operating and Repair). 
 Miscellaneous: 
 Power. 
 Coal. 
 Gypsum. 
 Coal Preparing. 
 Floating Gang. 
 Railroad and Switching. 
 Reserves. 
 
 Requisition Blanks. 
 
 Work Tickets (for Machine, Blacksmith and Carpenter Shops 
 and Floating Gang). 
 
 Analysis Sheets: 
 
 Repair Labor. 
 
 Floating Gang. 
 
 Supplies and Material (operating and repair). 
 
 Envelope for Job Costs. 
 
 Binders: 
 
 For above forms. 
 
 18 
 
 IV 
 Books and Forms — Description 
 
 GENERAL OFFICE 
 
 Cash Book: 
 
 This should preferably be a bound book of about 500 pages. See Form No. 
 1, which is self-explanatory. A separate book for receipts and payments may 
 be utilized if desired. 
 
 As modem systems do not contemplate the use of check books or check 
 registers, the Cash Book becomes at once the stub of the check and check regis- 
 ter. Voucher check, (see Form No. 11) instead of the obsolete voucher, is 
 recommended. These can be made up in pads of 100 each. All monies received, 
 however small, should be deposited and total deposits extended in proper bank 
 "Deposit" column. On credit side each check should be entered separately and 
 the net amount extended in the proper bank column of * * Checks. " It is impor- 
 tant that no check go out before entering in Cash Book, therefore, the safe way 
 is to use the Cash Book as a check book stub and enter check before drawing 
 same. The balance of this book should always represent bank balances after 
 reconciliation. In reconciling with bank, check off cancelled checks in "Checks" 
 or "Withdrawal" column and make reconciliation in the Cash Book instead of in 
 check book, as was the former practice. 
 
 General Ledger: 
 
 This book calls for no special comment except that it should be a full- 
 bound book. In opening the accounts an orderly procedure should be observed. 
 All assets and liabilities should be opened in the order shown on form of Balance 
 Sheet (Form No. 10). Manufacturing or Operating Accounts should come 
 next, then Trading Accounts, and finally all Profit and Loss Accounts. 
 
 Customers Ledger : 
 
 This may be the regulation loose-leaf stock form and calls for no special 
 comment. 
 
 Creditors Ledger: 
 
 Many concerns — on account of the posting involved — do not care to main- 
 tain a Creditors' Ledger, preferring the voucher method, checking off on 
 voucher record all items as paid and at the end of month listmg unchecked 
 items, to get reconciliation with Accounts Payable or Vouchers Payable con- 
 trolling account. However, a Payable or Creditors* Ledger in loose-leaf form 
 has much to commend its use and as the postings are fe"w, no real reason can be 
 set up for not keeping same. The credits should be posted from Purchase 
 Journal daily ; debits are posted daily from Cash Book. The posting of credits is 
 the only additional work entailed in the utilization of this book. If no Credit- 
 ors' Ledger is kept, the total of "Unpaid Invoices" file should equal "Accounts 
 Payable" Account in General Ledger. In like manner, the total of unchecked 
 items in Purchase Journal should equal controlling Account. 
 
 19 
 
 W_ 
 
Ptrchase Journal: 
 
 This book (see Form No. 3) takes the place of Voucher Register and should 
 be a bound book. As its title indicates, it is a record of purchases other tJian for 
 cash (which should go through Cash Book). As invoices are received from mill, 
 or other sources, as being 0. K. as to price, extension, quantity, etc., they are 
 entered in this book; if they are subject to discount they are next entered on 
 discount "tickler" — (a small box or tray of cards with divisions for days 1-31 
 and months January to December, having one or more cards for each day). 
 In entering invoices on cards enter only date, name of creditor, and amount, 
 and then file in "Unpaid Invoices" file. If a purchase is not for "Stores", 
 "Coal" or "Gypsum" enter in either "Cost Ledger" column or "Sundry" 
 column, indicating in "Account" column the account to be charged. If the 
 purchase is for the Mill, and the invoice indicates that the Mill Office has 
 charged the article out direct to a Department, (instead of going through the 
 stores) enter in "Cost Ledger" column and in the "Account" column, enter 
 the account to be charged. This column is posted in detail to proper Depart- 
 ment in "Operating" or "Manufacturing" section of General Ledger. Every 
 item charged to Manufacturing or Operating Account (in General Ledger) 
 must also be posted to proper account in the Cost Ledger, it follows that the 
 Mill Office must have some medium for such postings. At the end of each 
 month, therefore, the General Office should make an abstract of the "Cost 
 Ledger" column in the Purchase Journal, Cash Book, or General Journal on a 
 Miscellaneous Distribution Sheet, giving distribution of such items charged 
 direct to a department. On such distribution sheet, of course, no credit would 
 appear (credit having previously been made when invoice was entered and Cost 
 Ledger debited). The function of the abstract merely being a posting medium 
 for debits previously charged to Cost Ledger by General Office. 
 
 If the purchase is for Departments other than the Mill, same would go in 
 "Sundry" column, entering account to be charged in "Account" column. For 
 instance, a debit for printing or stationery would go in "Sundry" column, and 
 in "Account" column would be entered "Stationery and Printing". A bill 
 for telephone or telegraph service would also go in "Sundry" column, and 
 "Telephone and Telegraph" entered in "Account" column. Like the "Cost 
 Ledger" column the "Sundry" column is posted in detail. 
 
 General Journal: 
 
 This book (see Form No. 2) is intended to care for all entries that can not 
 go through any other medium or book of original entry, i. e., monthly closing 
 of Manufacturing, Operating and Trading Accounts, yearly closing of Profit 
 and Loss Accounts, etc. 
 
 Sales Record and Debit Memos: 
 
 The usual method of accounting sales has been through the medium of the 
 Sales Record. This record is written up daily from carbon copies of invoices 
 and then becomes the posting medium. In plants where shipments are heavy 
 the work entailed in writing up this book is quite an item, to say nothing of the 
 possibility of errors being made in transcribing same from copies of invoices. 
 In nearly all concerns the more modem method of utilizing the carbon copy of 
 
 20 
 
 the invoice as a posting medium has been adopted. There is no reason why 
 this method should not be employed in the cement industry. To employ this 
 method Form No. 4 has been devised. Such a form should take in three invoices 
 and the invoices should be printed in sets of three and perforated. To properly 
 utilize these forms the billing typewriter should have a carriage at least 20 
 inches wide to take in the form. To make the record, utilize the form as the 
 carbon copy, place the invoice in such a position as to bring the net amount of 
 the invoice or debit memo in the "Accounts Receivable" or "Customers' Ledger" 
 column. When an invoice has been completed and while the form is still in 
 the typewriter make proper distribution; i. e., to "Cement Sales", "Bags", or 
 "Sundries". We now have a complete record of the sale at one writing. Debits 
 to customers of amounts in the "Customers' Ledger" or "Accounts Receivable" 
 column are posted daily. 
 
 This is not intended to be a mere record of the sales of cement, but repre- 
 sents all charges to the Customers' Ledger. Suppose a mistake has been made 
 in a previous invoice and an additional charge to a customer is to be made. If 
 no debit memos are used by a company (although they can be printed up at a 
 trifling expense), the customer is advised of such a charge by letter, a carbon copy 
 being made on form the same as on invoice. If this is done, enter the amount in 
 "Accounts Receivable" or "Customers' Ledger" column and distribute to 
 "Cement Sales" or proper department. Suppose scrap iron is sold. Make out 
 invoice the same as for cement, entering total in "Accounts Receivable" or 
 "Customers' Ledger" column and on the credit side of the sheet in the "Sun- 
 dry" column extend same amount and in "Account" column credit "Scrap 
 Sales". This "Sundry" column is posted in detail to proper accounts. The 
 totals of the sheets should be carried forward day by day, and each sheet bal- 
 anced, i. e., the total credits should equal the "Accounts Receivable" or "Cus- 
 tomers' Ledger" column. At the end of the month, the top sheet will carry 
 total to be posted to General Ledger Accounts. It will be seen that all journal 
 entries for small differences, and vouchering at the end of the month, is elimi- 
 nated. 
 
 But one objection to this method can be offered, and that is its bulkiness. 
 As there should be three invoices to a sheet no great objection can be offered, 
 especially since there would be three times that number of carbon copies of 
 invoices, of no real value as an accounting medium. The time saved should 
 off-set any objection on the score of bulkiness, to say nothing of having one 
 source for all debits to customers. 
 
 Sack Returns and Credit Memos : 
 
 The accounting of sack returns by various companies is the same as that 
 employed in accounting the sales ; i. e., a Sack Record is kept. There is no rea- 
 son why all credits should not be handled the same as debits, and to do this the 
 Sack Return or Credit Memo Form (see Form 5) has been designed. Like the 
 invoices, the sack credits should be printed in sets of three and the same pro- 
 cedure as in the case of invoices employed in making them out. Credit Memos 
 for other than sack credits should be used for Sundry credits, (t. e., difference 
 in invoices, etc.) the record being made on carbon sheet as in the case of debits, 
 entering total of credit in "Accounts Receivable" or "Customers' Ledger" 
 
 81 
 
colunm and debit in "Cement Sales" or Sundry Accounts in the "Sundry" 
 column. "Accounts Receivable" or "Customers' Ledger" column should be 
 posted from day to day. Each sheet should be footed and totals carried for- 
 ward daily, proving each sheet as you go along, and at the end of the month 
 the top sheet becomes the General Ledger posting medium, eliminating all jour- 
 nalizing or vouchering. 
 
 Binders: 
 
 To properly file the various statements and forms emanating in the General 
 or Mill OflSce, binders have been provided by the Association to be sold to com- 
 panies at actual cost, the same as forms, etc. To properly file these records the 
 following binders are necessary: 
 
 Distribution Sheets — ^with five sub-divisions for the five Distribution 
 
 Sheets. 
 Pay Rolls. 
 
 Monthly Statements — with five divisions for the five Monthly State- 
 ments. 
 
 Cost Sheets — ^with three sub-divisions for Quarries 1-2 and Mill Cost 
 
 Sheets. 
 Sales and Debit Memos. 
 Sack Returns and Credit Memos. 
 
 MILL 
 Cost Ledger: 
 
 Preferably this ledger should be kept at the Mill Office, being a subsidiary 
 ledger controlled by the "Finished Cement" account in the (General Ledger. 
 In other words, a trial balance of Quarry Sections 1 and 2 and Mill Section, 
 should equal the total shown by the "Finished Cement" account for the month. 
 The accounts in this ledger are, however, not closed until the end of the fiscal 
 year, thus making it possible to draw off a trial balance for the month (using 
 only that month's figures) or a trial balance for period to date (using cumu- 
 lative totals). It is preferably in loose-leaf form. 
 
 Postings are made but once a month from carbon copy of Distribution 
 Sheets. Of course, only items appearing in "Cost Ledger" column are posted. 
 By reference to Chart of Accounts showing accounts appearing in this ledger, 
 it will be noted that it carries six sections, which should be divided off by 
 division sheets, indexed, as below: 
 
 Raw Material No. 1, 
 
 Raw Material No. 2, 
 
 Mill, 
 
 Auxiliary, 
 
 Memorandum, 
 
 Inventories. 
 
 The first three sections represent the acttial operating accounts, inasmuch 
 as the "Auxiliary" accounts are closed into the Operating Accounts at the end 
 
 89 
 
 of the month. The Memorandum Accounts are closed at end of year. The 
 Inventory Accounts are merely memoranda. There is no limit to the number 
 of accounts that may be maintained in the Cost Ledger, all depending upon the 
 details desired. See "Chart of Accounts" for accounts usual to a cement plant. 
 As it is necessary to know the total cost of "Power", "Coal Preparing", 
 "Machine", "Blacksmith", "Carpenter Shop" and "Floating Gang" before 
 distribution can be made, it is advisable to make the first account in the Auxil- 
 iary Account section the Summary Account — such accounts to be headed : 
 
 Power, Light and Water, 
 Coal Preparing, 
 Machine Shop, 
 Carpenter Shop, 
 Blacksmith Shop, 
 Floating Gang. 
 R. R. and Switching. 
 
 Charge only totals to these accounts, and for this purpose the totals shown 
 in the "Grcneral Ledger" column of Distribution Sheets may be utilized. In 
 other words, these accounts — ^when all postings are made — should be the same 
 as these accounts appearing in the General Ledger, which see. As previously 
 explained, they are closed monthly into the various Operating Accounts. As 
 they are merely used to bring together all items preliminary to distribution, it 
 is not necessary, or proper, to make any journal entry to close same into the 
 various Operating Accounts. Merely close by an entry "By Sundry Accounts", 
 then enter the various accounts to be debited and post such debits to proper 
 Operating Account, i. e., "Coal Preparing" would be credited and "Clinker 
 Department" debited. Such postings are made from the various "Miscellaneous 
 Distribution" sheets. Following each Summary Account are the detailed ac- 
 counts represented by such Summary, i. e., take Power, Light & Water account 
 Summary. The detailed accounts for Labor following this would be: 
 
 Labor — Engineers, 
 Labor — ^Foremen, 
 Labor — Coal Preparers, 
 Labor — Electrician, etc., etc. 
 
 These detailed accounts, like those of the "Quarry'' and "Mill" Sections, 
 are not closed until the end of the fiscal year. From such accounts it is possible 
 at all times to know the total amount to date of any account, thus facilitating the 
 entering of cost per unit "to date" on Cost Sheet. 
 
 The other Mill Records are : 
 
 Pay Roll Book — See chapter 
 Coal Record 
 Gypsum Record 
 Stores Ledger 
 
 'Labor Accounts". 
 
 'See chapter "Materials & Supplies". 
 
 Distribution Sheets. 
 
 The distribution of all items relating to the operation of the mill, and, 
 concretely, applicable to the Manufacturing or Operating accounts, are made 
 
 as 
 
through the medium of Distribution Sheets. These sheets become original post- 
 ing mediums, eliminating all vouchering or journalizing. They are prepared 
 by the Mill Office in duplicate, the originals going to the General Office (not 
 later than the second of the month) from which postings are made to General 
 Ledger of all debit items appearing in the "General Ledger" column and 
 credits in "Sundry" column. From the duplicate kept at the Mill Office all 
 postings of debits appearing in the "Cost" Ledger column are made. Let it 
 be understood that the Cost Ledger postings, (except the totals to the Auxiliary 
 Account Summary), can be made from duplicates at any time. Do not hold 
 up monthly reports by attempting to post Cost Ledger; get all reports into 
 General Office first, then post. 
 
 In some plants but few records are prepared at the mill, even the Cost 
 Ledger and Cost Sheets being kept and prepared at the General Office. Under 
 ordinary conditions all Distribution Sheets would be prepared by Mill Office, 
 but wherever the Cost Ledger is kept, governs, to a large extent, just what 
 records should be prepared and kept at the mill. Certainly the Payroll, Repair, 
 Labor, Materials and Supplies, Power, Coal and Gypsum Distribution Sheets 
 should be prepared by the Mill Office, even though the Cost Ledger is kept at 
 the General Office. 
 
 To the end that a thorough understanding as to the use, preparation, and 
 purport of the various Distribution Sheets may be had, a brief description 
 follows : 
 
 Payroll (See Form No. 20) : 
 
 This form is prepared from the "Summary of Payroll" for the two payroll 
 periods, and should be in the General Office not later than the second or third of 
 the month. If the workmen's time is posted daily, there will remain only the 
 extension of total time and earnings to be computed. This should be completed 
 on the first or second of the month. If the payroll book or sheets are kept as 
 suggested in chapter on "Operating Labor", that is, a separate sheet or page 
 for each department, but little trouble will be experienced in preparing this 
 sheet. 
 
 It will be noted from the form that only the usual segregation of labor by 
 departments is given. Some companies desire a more detailed distribution than 
 others. Take Raw Material No. 1, only seven operations are given. If desired 
 this could be increased to ten by simply opening up additional accounts in the 
 Cost Ledger. This rule applies to all departments. While some companies 
 might be satisfied with one account, "Operating Labor, — Raw Material No. 1" 
 with no divisions, others desire greater details; therefore, the divisions, or 
 accounts carried in Cost Ledger, must be opened to meet individual needs. 
 
 The total of Payroll Distribution sheet for month should equal total charge 
 to "Payroll" Account in General Ledger, thus automatically closing that ac- 
 count. As this and all other distribution sheets are dated as of end of month, 
 the posting to payroll account will, in effect, produce a credit, representing 
 the accrued payroll for the last two weeks. When check, or checks, for payroll 
 for last two weeks is drawn the charge in one amount wipes out the credit and 
 closes the account. 
 
 24 
 
 Repair Labor, — Machine, Blacksmith and Carpenter Shops {See Form 
 
 No. 21): 
 
 As explained under chapter relating to "Repair Labor", this sheet is 
 made up from totals of various columns appearing on Analysis Sheets of "Re- 
 pair Labor". If the various columns on the Analysis Sheet conform with De- 
 partments listed on the Distribution Sheet, the preparation of the Repair Labor 
 Distribution Sheet should present no difficulties. After entering all totals, it 
 will be found that the total so distributed will not equal the total amount shown 
 by the Summary Account in the Cost Ledger — in Auxiliary Accounts section. 
 Therefore, any balance necessary to equal the total of such summary account 
 represents the overhead for the shop. Whatever amount is necessary to balance 
 with summary figure should be entered under head of "Mill Overhead", Ma- 
 chine Shop, Blacksmith or Carpenter Shop ; when all charges have been entered, 
 credit — "Machine, Blacksmith or Carpenter Shop" in General Ledger and the 
 summary accounts in Cost Ledger. Let us assume that the Summary Account 
 for the Machine Shop shows total debits of $1,000 for the month, and the total 
 distribution — as revealed by the analysis sheet (from Work Tickets) foots up 
 but $800, the $200 would represent the shop overhead, i. e., Foremen's undis- 
 tributed time. Power, Coal, Supplies, etc. 
 
 Materials and Suppues, — Operating and Repair {See Forms Nos. 22 and 23): 
 As explained in chapter relating to "Materials and Supplies", requisi- 
 tions are distributed daily on Analysis Sheet headed ' ' Materials and Supplies^ 
 Operating" and "Materials and Supplies — Repairs". It is from this Analysis 
 Sheet we prepare these Distribution Sheets. To prevent any delay in the prep- 
 aration of the various monthly statements and to expedite the preparation of 
 the other distribution sheets, it is best to close off the distribution of materials 
 and supplies on the 29th of each month and prepare these sheets immediately 
 after closing, sending originals to General Office as soon as prepared. As previ- 
 ously noted, all distribution sheets should be in the General Office by the second 
 of the month, therefore any preliminary work that can be done prior to the end 
 of the month and thereby facilitate the preparation of various distribution 
 sheets and prevent delay should be carried out by all means. 
 
 Reserves {See Form No. 24) : 
 
 These distribution sheets should also be prepared prior to the end of the 
 month, not later than the 28th, and sent to the General Office. If not prepared 
 at Mill same should be made up by the General Office prior to receipt from Mill 
 of other distribution sheets. The sheets are prepared from schedules pre- 
 determined at the beginning of each fiscal year. 
 
 Insurance and Taxes. 
 These charges are based on amounts spent in previous year. Such amounts 
 are absorbed in each month's costs and credited to "Reserve for Taxes" and 
 "Reserve for Insurance" except as in the case of "shut-down" periods. (See 
 "Deferred Charges" in another chapter.) Against these reserves actual pay- 
 ments are charged. As it is impossible to know the actual amount to be paid 
 out in advance, adjustment will have to be made as soon as actual figures are 
 known. After payment is made, and charged to reserve accounts, such reserve 
 
 25 
 
'i 
 
 accounts will show a debit balance — representing a deferred asset — ^under the 
 title "Insurance Prepaid", "Taxes Prepaid", etc., subject to reduction each 
 month by succeeding credits, being finally closed at end of year. 
 
 Depreciation. 
 The monthly charge for depreciation is determined from "Table of Depre- 
 ciation" (See Form No. 28), which is prepared after appraisal and segregation 
 of all plant properties; once prepared it becomes the "constant" for all subse- 
 quent years. This table should form a permanent document in the files of the 
 General Office, — subject to inspection by the Federal authorities — to support 
 annual depreciation charge which is to be deducted in making up Income Tax 
 Betums. (See chapter relating to "Depreciation" for further information.) 
 
 Depletion. 
 
 The figures entered on this sheet are secured from pre-determined data pre- 
 pared to meet conditions existing in individual plants. (See "Depletion" in 
 another chapter.) 
 
 Contingencies. 
 
 The same remarks under head of "Depletion" apply to this item. 
 Miscellaneous {See Form No. 25) : 
 
 These sheets distribute sundry items of cost at mill, and as coal is an item 
 of cost in departments subject to redistribution later, we will consider this 
 item first. The "Coal Eecord" (see Form No. 13) supplemented by daily mill 
 reports, furnishes the medium for the distribution of coal. (See chapter headed 
 "Coal".) Coal is charged out at the average price at mill and in like manner 
 inventoried at an average price. Care should be observed that such average 
 price agrees with the average as shown by the "Coal" account kept in General 
 Ledger. To this end it might be well to have an agreement each month with 
 the General Office as to average price before distribution is made. 
 
 Gypsum. 
 This distribution is made from "Gypsum Record" and is charged out at 
 an average price; like coal, adjustment of such average price should be made 
 between General and Mill Office, before charge is made for month's consumption. 
 
 Floating Gang. 
 Distribution of this item is ascertained either from Payroll book or sheet, or 
 if distributed daily, on Analysis sheet, from that medium. (See "Floating 
 Gang" under chapter relating to "Labor".) 
 
 Power, Light <& Water. 
 The total power cost as ascertained from Power Summary Account in 
 Auxiliary Section of Cost Ledger, is distributed on basis ascertained from "Table 
 of Power Distribution" (see Form No. 19), which should be prepared at begin- 
 ning of year's operations by Mill Superintendent. 
 
 Coal Preparing (or Fuel OH). 
 As the Summary Account under this heading is used for the purpose of 
 bringing together all charges incident to preparing coal or oil for the kilns, the 
 total of such summary represents amount to be shown on this sheet as a debit to 
 Clinker Department. 
 
 Railroad and Switching. 
 Distribution of this account may be on basis of actual work performed, or 
 on a predetermined percentage basis. 
 
 26 
 
 Description of General Ledger Accounts 
 
 ASSETS AND LIABILITIES. 
 These accounts call for no special comment except as hereafter noted. 
 
 TRADING ACCOUNTS. 
 
 These accounts represent the ratio of "cost of sales" to "gross profit" and 
 is in accordance with the standard form approved by Accounting Societies and 
 the United States Government. They are represented by several accounts, the 
 first of which is : 
 
 Trading Account {Account No. 31): 
 
 This is a summary account. It is charged with "Cost of Sales" from 
 "Cement Inventory Account" No. 151 and credited with "Sales of Cement" 
 from "Cement Sales Account" No. 321. The balance represents "gross profit" 
 and is transferred to "Profit and Loss" Account No. 41. 
 
 Cement Inventory {Account No. 151): 
 
 This account always begins with the Inventory of Cement at the end of 
 the previous month. It is then debited with cement produced, showing both 
 the number of barrels produced and cost, from "Finished Cement" Account No. 
 66. This debit added to inventory figure at the beginning of each month gives 
 the average cost per barrel to be accounted for. When this is ascertained, credit 
 the account with "Cost Sales" and debit "Trading Account" No. 31. The 
 resultant balance represents the inventory at the end of period at the average 
 cost price. 
 
 Cement Sales {Account No. 321) : 
 
 Credit all sales of cement to this account from "Sales Record" or debit 
 memorandum (see Form No. 4) and debit with all allowances (other than sack 
 returns and discounts) from "Sack Returns" or credit memorandum. (See 
 Form No. 5.) The balance represents the net sales, and is closed into "Trad- 
 ing Account No. 3". 
 
 Sack Sales : 
 See chapter. 
 
 'Package Accounting' 
 
 PROFIT AND LOSS ACCOUNTS. 
 
 Any item representing a loss (expense) or profit (income) should be rep- 
 resented by an account properly headed in the Profit & Loss Section of the 
 General Ledger. * ' Profit and Loss ' ' in the past has been the * * dumping ground * ' 
 for any items that it might seem impossible to distribute. There is a proper 
 place for every charge, and familiarity with the various profit and loss accounts 
 should enable any bookkeeper or accountant to make the charge to some specific 
 
 87 
 
 11 
 
account in this group of accounts. The first account in this section to be con- 
 sidered is: 
 
 Profit and Loss (Account No. 41) : 
 
 This is a Summary Account into which all detailed profit and loss accounts 
 are closed at the end of the fiscal year. Each month it is credited with the 
 gross profit from "Trading Account" No. 31, and when appearing in Trial 
 Balance of General Ledger, it should represent the gross profit to date. 
 
 If a Trial Balance of the General Ledger was taken at the end of any 
 month it would only be necessary to deduct the total expense items from the 
 total amount shown by the Profit & Loss Account (plus extraneous income) to 
 know NET PROFITS to date. 
 
 As before stated, at the end of the year all profit and loss accounts are 
 closed into this account, the resultant balance, representing either a profit or 
 loss, is closed into "Surplus". 
 
 Aside from the General or Summary Profit & Loss Account we have: 
 
 Sack Cost {Account No. 42) : 
 
 See chapter "Package Accounting". 
 
 Packing & Loading (Account No. 43) : 
 
 This account carries the total expenses applicable to Packing & Loading, 
 the detail being carried in the Cost Ledger (Memo Section). 
 
 Sack Handling (Account No. 44) : 
 
 The same remarks relating to "Packing & Loading" apply to this account. 
 
 Selling Expenses (Account No. 45) : 
 
 All items relating to selling may be charged to this account although seg- 
 regation, as shown by "Chart of Accounts", is urged. Accounts No. 451 to 
 459 are recommended. 
 
 General Expenses (Account No. 46) : 
 
 The same remarks as to "Selling Expenses" apply to this account, 
 counts No. 461 to 469 are recommended. 
 
 Ac- 
 
 FiNANaAL Expenses (Account No. 47) : 
 
 Segregation of this account by opening Accounts 471-479 are recommended. 
 
 As all purchases are charged out at gross cost, any deduction for discount 
 should be credited to account No. 475. From a strict accounting standpoint such 
 discounts should be deducted from purchases, but for many reasons it is advis- 
 able in the cement industry to treat such discounts as being foreign to opera- 
 tion. From an economic standpoint, and good business policy, many concerns 
 deem it advisable and proper to borrow money at 6% per annum to discount 
 bills at, 2%, 10 days: under such practice any discounts received might properly 
 be credited to "Interest on Bank Loans". "Discount on Purchases" is, there- 
 fore, properly deductible from "Financial Expense" group of accounts in stat- 
 ing this account in Trading and Profit and Loss Statement. 
 
 M 
 
 EXTRANEOUS INCOME. 
 Employees' Dwellings: 
 
 Under this heading we have all accounts relating to any income not directly 
 related to Operations; Accounts 481 to 489 are recommended. As an example 
 take "Employees' Dwellings"; two accounts should be opened. To the first is 
 credited all receipts and to the second is charged all expenses, i. e., taxes, insur- 
 ance, repairs, etc. At the end of the year, close the Expense Account into the 
 Rental Account. The balance of Rental Account will then represent the net 
 income from dwellings. In making up monthly statements the same procedure 
 would be followed. 
 
 Village Lighting : 
 
 Some plants supply lights to villages and their employees in such villages. 
 Treatment of this account is identical with "Employees' Dwellings". As an 
 expense item against village lighting would be a proportion of power cost, for 
 current generated. 
 
 Commissary : 
 
 Some plants maintain a Commissary. Where this is the case a separate 
 account headed "Commissary" should be maintained. This is debited with all 
 purchases and expenses and credited with sales and inventory at the end of the 
 year, or the end of the month, and the resultant balance is transferred to * ' Com- 
 missary Profits Account". Where the Commissary is of some magnitude, it 
 might be well to open up an individual set of books. If it is deemed advisable 
 to open up such a set of books, accounts usual to a trading concern are all that 
 is necessary. 
 
 Interest on Investments: 
 
 All interest received from investments owned by the Company should be 
 credited to this account. 
 
 OPERATING OR MANUFACTURING ACCOUNTS. 
 
 The accounts under this heading embrace all accounts up to Bin Cost. 
 Only totals are posted, the detail being carried in the Cost Ledger. It, there- 
 fore, follows that any item posted to any of these accounts in the General Ledger 
 should also be posted in detail in the Cost Ledger. "Operating Labor" in 
 Quarry No. 1 may be one item in ' ' Raw Material Account No. 1 ' ', but would be 
 posted to probably twenty different accounts in the Cost Ledger, the number 
 of accounts depending upon the detail desired. 
 
 Raw Material Nos. 1 and 2 (Account Nos. 51 and 52) : 
 
 To these accounts are posted all items relating to costs of raw material 
 whether quarried, mined or purchased. At the end of the month, the total con- 
 sumption is closed into "Raw Grinding Account", the balance, representing 
 Inventory, being carried down to next month's operations. The unit of cost is 
 tons or square yards (as in marl). 
 
 Raw Grinding (Account No. 61): 
 
 This account is charged with raw material from "Raw Material" Accounts 
 No. 1 and 2 and all costs incident to grinding of raw material At the end 
 
 29 
 
of the month the total consumption is credited to this account and charged to 
 "Clinker Burning" Account, the balance (if any) representing Inventory at 
 average cost per barrel of clinker. 
 
 Clinker Burning {Account No. 62) : 
 
 The total cost of raw material prepared for burning is charged to this 
 account from "Raw Grinding" Account. To this is added all costs incurred 
 in clinker burning. At the end of the month the total clinker ground is cred- 
 ited to this account and charged to "Clinker Grinding" Account, the balance 
 representing Clinker Inventory carried to next month. (See chapter "Monthly 
 Closing".) 
 
 CuNKER Grinding (Account No. 63) : 
 
 This account is opened with cost of the clinker transferred from "Clinker 
 Account" to which is added all costs of grinding, g3T)sum and all other 
 costs incidental to finished grinding and storing. The total costs to this point 
 represent "Total Direct Cost of Production". This account is closed monthly 
 into "Finished Cement Account". 
 
 Mill Overhead {Account No. 64) : 
 
 Charge to this account salaries of General Superintendent and wages of 
 foremen, not directly chargeable to a specific department. Salaries and expenses 
 of Mill Office, Laboratory, Store Room, and Overhead of Machine, Blacksmith 
 and Carpenter Shops, Shut-down Period Expenses and any other items not 
 specifically provided for. At the end of the month this account is closed into 
 "Finished Cement" Account in one amount as a "Mill Overhead" charge. 
 
 Reserves {Account No. 65) : 
 
 To this account is charged Accrued Insurance, Taxes, Depreciation, Deple- 
 tion and Contingencies. It is closed into "Finished Cement" Account in one 
 amount as "Reserves" charge. 
 
 Finished Cement Account (Account No. 66) : 
 
 This account is charged with Finished Cement at Direct Cost of Production 
 from "Clinker Grinding" Account, and further charged with "Mill Over- 
 head" and "Reserves", the total representing "Bin Cost" of cement for the 
 month, which is transferred to "Cement Inventory" Account. 
 
 The following are certain Auxiliary accounts that are closed into Operating 
 Accounts monthly ; Summary Accounts are also carried in Cost Ledger, in front 
 of detail accounts, their purpose being the same as those accounts carried in the 
 General Ledger, now described. 
 
 Machine, Blacksmith and Carpenter Shop (Account Nos. 73, 74 and 75) : 
 
 This account is opened to record the expenses of the Repair Department 
 and is closed monthly into the various Operating Accounts, on basis of work 
 performed as ascertained from Work Tickets. Any balance (representing over- 
 head) is charged to "Mill Overhead" as "Machine Shop Overhead". This 
 account must be closed before operating accounts can be finally closed. 
 
 30 
 
 Power, Light and Water {Account No. 71) : 
 
 The purpose of this account is to bring together all costs relating to the 
 generation of power, light and supplying water. It is charged with the labor 
 of engineers, electricians, firemen, coal and ash handlers, all supplies, coal, etc., 
 and at the end of the month is closed into the various departments on basis of 
 power delivered or consumed by each department as ascertained from "Table 
 of Power Distribution". (See Form No. 19.) 
 
 Coal Preparing (Account No. 72) (or Fuel OM) : 
 
 Like Power, Light and Water, it is necessary to know the total costs of 
 ground coal or oil before same can be charged to "Clinker Burning" as Fuel 
 charge. Therefore, charge to this account the unground coal or crude oil and all 
 costs incidental to its preparation for the kilns, i. e., unloading, drying, grinding, 
 etc. Coal used in drying the unground coal would also be charged to this ac- 
 count. At the end of the month, it is closed into "Clinker" Account as a Fuel 
 charge. 
 
 Floating Gang (Account No. 76) : 
 
 This account should summarize all labor and expenses of the Floating Gang. 
 It is closed monthly into the various Departmental accounts on the basis of 
 work performed, as revealed by an analysis of Work Tickets. Any undistrib- 
 uted balance of this account is charged to "Mill Overhead" as "Floating Gang" 
 expense. 
 
 Railroad and Switching (Account No. 77) : 
 
 This account carries all charges incident to operation of industrial railroad. 
 It is distributed monthly to various departments on basis of work performed or 
 predetermined percentages. 
 
 p^ 
 
 #1 
 
 31 
 
it 
 
 VI 
 
 ;« 
 
 ■"fl*"'' 
 
 
 
 Definition of Accounts 
 
 Before considering Labor and Supplies as Accounts it might be well to de- 
 fine just what constitutes "Operating" and "Repair" Labor and "Operating" 
 and "Repair" Supplies. That all plants may observe the same rules the fol- 
 lowing definitions are given: 
 
 LABOK 
 Supervision : 
 
 Salary of Superintendent, General Foreman — Day and Night. 
 
 Operating : 
 
 All supervising and direct productive labor employed in the regu- 
 lar operation of a department. 
 
 Repair and Maintenance : 
 
 All labor employed in keeping in repair the machinery, buildings, 
 and other equipment. Such mechanics and other repair men, including 
 foremen, will be charged to "Machine, Blacksmith or Carpenter Shop", 
 and at the end of month the total of such charges will be distributed 
 over the various departments where work was performed (see "Re- 
 pair Labor Distribution Sheet") on basis of Work Tickets. (Form 
 No. 17.) 
 
 SUPPLIES. 
 Operating : 
 
 All materials used or drawn by any department where no repair 
 labor is employed in its utilization, i. e., oil, waste, grease, brooms, 
 shovels, belt-finish, wheelbarrows, and tools used regularly in a depart- 
 ment. 
 
 Repairs and Maintenance : 
 
 All materials or supplies drawn for the purpose of making any 
 repairs (such supplies being usually drawn by Repair Department) ; 
 a bolt or nut, if requiring labor to place, would be a "repair" part. 
 
 FUEL. 
 
 This item, in the cement industry, contemplates only fuel used for 
 drying raw material, drying coal, or burning clinker. Unground coal 
 is charged to "Coal Preparing" Account, including all costs of prepar- 
 ing, ». e., labor grinding and drying, unloading, supplies, proportion 
 of power, etc. After its preparation it is charged to "Clinker Depart- 
 ment " as a " Fuel ' ' cost. Coal used in Power Plant is a power cost and 
 should be charged to "Power, Light and Water" Account direct. 
 
 33 
 
I'll 
 
 ,1 
 
 i 
 
 'i' 
 
 Definition of Operating Supplies - Repair and Maintenance 
 Supplies - Replacements - New Construction. 
 
 e.t 
 
 •OPERATING SUPPLIKSt 
 
 All tools and supplies consumed in Operating, i 
 
 Oil, waste and grease 
 
 Shovels, picks, sledges 
 
 Brooms and buckets 
 
 Balls, pebbles and slugs 
 
 Boiler compound 
 
 Belt lacing and belt dressing 
 
 Electric lamp globes 
 
 Fire brick and clay 
 
 Packing material, gaskets, etc. 
 
 •REPAIR AND MAINTENANCE SUPPLIES: 
 
 All repair supplies necessary to maintain Machinery. 
 
 i T + or,S wwtures to rated efficiency except 
 Buildings. Equipment and Fixtures xo ra^«^ ^ 
 
 those enumerated under "Operating Supplies. 
 
 • • 
 
 REPLACEMENTS! 
 
 purpose 
 preciati 
 to Plant 
 Machiner 
 credited 
 and char 
 to the d 
 dlf feren 
 item in 
 
 All 
 of re 
 on ha 
 
 acco 
 y and 
 
 with 
 ged t 
 eprec 
 ce to 
 the P 
 
 purchase 
 placing e 
 3 been se 
 unt , i.e. 
 
 Equipmen 
 
 the valu 
 Reserve 
 iation re 
 
 be charg 
 rofit and 
 
 3 of new Machine 
 listing machines 
 t up, should be 
 , Mill Machinery 
 t. etc. Plant ac 
 e of the old mac 
 
 for Depreciatio 
 served up to dat 
 ed to "Obsolesce 
 
 Loss Account. 
 
 ry and Equipment for the 
 
 or units for which de- 
 capitalized by a charge 
 
 and Equipment. Quarry 
 count should then be 
 hines or units taken out 
 n. up to an amount equal 
 e of replacement, the 
 nee" as an extraneous 
 
 •♦•NEW CONSTRDCTIOHt 
 
 All new Machinery. EQUIPMENT and Fixtures. Buildings 
 and Land (incI^JITng labor incident to erection and placing) 
 should be charged to this account. 
 
 •An operating expense 
 •♦A charge to Reserve for Depreciation 
 •••A charge to Capital 
 
 In the above would of course be included the labor 
 incident to the utilization of the above supplies. 
 
 Adopted - September 24, 1919, 
 
 WASTE HEAT BOILER ACCOUNTING 
 
 Sinco the Asaociat^.on "book on Cost Accounting was con- 
 pilod, many nills havo installed oquipncnt to utilizo wasto hoat 
 from tho kilns for gonorating stoan for povror plant operation. 
 A demand, therefore, has arisen for a nothod of accounting which 
 will provide for this now dovolopnent . After consultation with 
 roprosontativos of nills using vcsto hoat boilers and oarcful 
 consideration of the subject, the Connittec on Standard Cost 
 Accounting sonotino ago roconnoidod that the following broad 
 principle bo observed: (See Minutes .of Annual Hooting, 1921, 
 page 241) - 
 
 ^0 total cost of oporation and repair of 
 wasto hoat boiler plant to be charged to an auxiliary 
 account torned "Waste Hoat Boilers". Each month this 
 Bcootint is closed into "Power Account" and power cost 
 is then distributed to the various departments on tho 
 basis of quantity used. The saving effected by use 
 of waste heat boilers thus being reflected in all de- 
 partments using power. 
 
 To provide for this method of accounting, the following 
 accounts are suggested, the numerals to correspond to existing 
 Chart of Accounts; 
 
 70 - WASTE HEAT BOILERS 
 
 701 - OPERATING LABOR 
 
 7011 V/ater Tenders 
 
 7012 Boiler Cleaners 
 
 7013 Flue Cleaners 
 
 702 - REPAIR LABOR 
 
 7021 Boilers 
 
 7022 Turbo Gonerators 
 
 7023 CondensorE 
 
 7024 Economiaerp 
 
 7025 Feed Water Hoators and Pumps 
 
 7026 Superheaters 
 
 7027 Fans 
 
 7026 Transmission 
 7029 Miscellaneous 
 
 703 - OPERATING SUPPLIES 
 
 7031 Oil and Grease 
 
 7032 Waste 
 
 7033 Brooms 
 
 7034 Shovels 
 
 7035 iliscellanecus 
 
 V 
 
« 2 - 
 
 and Funps 
 
 704 - REPAIR SUPPLIES 
 
 7041 BCllero 
 
 7042 Turl)o Generators 
 
 7043 Condensers 
 
 7044 Bcononizers 
 
 7045 Feed Water Heaters 
 
 7046 SutJerheaters 
 
 7047 Fans 
 
 7048 Transnission 
 
 7049 Miscellaneous 
 
 It the end of the nonth, accounts 701, 702, 703 and 704 
 are closed into account #70 - Waste Heat Boilers. Waste Heat 
 Boiler account is then closed into Power, Light and Water account. 
 
 To provide for Depreciation of waste heat boiler in- 
 stallation, it is suggested that the following estimated life of 
 the various properties "be used: 
 
 Waste Heat Boilers and Superheaters. .. .16 
 
 Turbo Generators and equipnent 16 
 
 Condensers. .......•...••#••••••••••••••1^ 
 
 Bcononizers...... • ..••••••• .16 
 
 Feed Water Heaters and Putips 16 
 
 Fan Turbines. •• ^0 
 
 Reduction Gears 10 
 
 Instruments • • ^^ 
 
 years 
 fi 
 
 ft 
 
 ti 
 
 n 
 It 
 
 M 
 H 
 
 October, 1927 
 

 VII 
 
 Labor Accounts 
 
 Operating Labor : 
 
 The subject of wage systems has been so thoroughly covered in so many 
 books, and the problems attendant upon the employment and holding of work- 
 men differ so widely in different localities, that no attempt will be made to give 
 them consideration here. An effort will be made simply to outline a system of 
 ^fP'^'Stra^k of the labor that is employed, and of making sure that the cost 
 of It will be distributed to the proper accounts. 
 
 As a preliminary to this, however, two or three points might be mentioned 
 If only by way of suggestion. The first of these is the desirability of standardiz' 
 ing the work throughout the plant, and of giving accurate designations and 
 complete definitions to every occupation in which men are engaged. This having 
 been done, it naturally follows that proper wage rates can be fixed for each 
 occupation, and the result will be simplicity and accuracy in the handling of 
 wage payments. In classifying these occupations, the account to which each is 
 chargeable should be shown, so as to facilitate and standardize the distribution 
 of labor charges. Wherever practicable, it is desirable that all operating labor 
 should be employed by the Operating Department. In the same, way ma- 
 terials are bought by the Purchasing Agent, leaving to the Accounting Depart- 
 ment the one task of seeing that the company gets what it pays for, and that 
 these payments are properly charged in the accounts. Changes in wage rates 
 should be made by the Accounting Department only on authority of written 
 instructions from the Operating Department, approved by the plant superin- 
 tendent or higher authorities. These written instructions sh6uld be retained by 
 the Accounting Department as its authority for making changes in the payroll, 
 and It should be definitely understood by everybody concerned that unauthorized 
 changes are absolutely prohibited. 
 
 Payroll : 
 
 The most important record in Labor Accounting is the payroU, as all other 
 forms and records in this branch of the accounts are subordinate to it. Form 
 No. 12 illustrates a form of payroll sheet that has been found to be generaUy 
 acceptable with concerns paying day rates, and figuring costs on a unit of a 
 month's production. This sheet covers the payroll for half a month. It shows 
 aU necessary information regarding occupation and hours worked, provides 
 spaces for the total hours, rate, total earnings, any deductions that may need to 
 be made from the total earnings, such as deductions for rent, supplies furnished 
 etc., and the net earnings of each man. The totals of the Net Earnings column 
 on each set of payroll sheets wiU be the amount of cash that will have to be pro- 
 vided for the semi-monthly payroll. It wUl be seen that the form here suggested 
 provides for several changes of occupation per man per month, with correspond- 
 mg changes in rates, if necessary. These extra faint lines are also of advantage 
 
 83 
 
I' I 
 
 1 
 
 in the case of an employee whose time it may be desirable to pro rate to two or 
 more aceomits. 
 
 At the end of the month the payroll should be summarized for the two pay 
 
 periods, using separate sheet headed " Payroll for month ending ,'* 
 
 listing the various departments under the "Name" column and extending the 
 total payroll to each department under the "Earnings" column. It is from 
 this summary that the "Payroll Distribution Sheet" is prepared. 
 
 Floating Gang: 
 
 If any group of men are engaged in various activities as their services may 
 be required, they should be given a separate sheet headed "Floating Gang" 
 department. At the end of each day the foreman of such a gang should turn 
 in individual time cards (see Form No. 17) specifying time employed in 
 various departments. These work tickets should be distributed on an anaylsis 
 sheet headed "Floating Gang" daily and at the end of the month the total 
 footings of such sheet should equal the total payroll for "Floating Gang" de- 
 partment as shown by "Payroll Summary" and "Payroll Distribution Sheet." 
 (See Form No. 21.) Distribution of such time should then be made through 
 the medium of "Miscellaneous Distribution Sheet" (see Form No. 25), charging 
 the proper departments and crediting "Floating Gang" Account No. 76. 
 
 Repair Labor : 
 
 All repair work should be done on a "Work Order" (see Form No. 16) where 
 possible. When something happens in a department requiring the services of 
 a mechanic, the foreman should issue a "Work Order" covering the job and 
 it should be understood throughout the miU that no such labor will be per- 
 formed unless ordered on this form. Of course, no job should be held up on 
 this account, but the foreman of the Machine Shop, Blacksmith Shop or Car- 
 penter Shop should secure order after the work is completed, at least. All 
 mechanical labor employed for repairs and maintenance throughout the plant 
 should be carried on payroll on sheets headed "Machine Shop," "Carpenter 
 Shop" or "Blacksmith Shop." As with the "Floating Gang," the foreman 
 of the department or Master Mechanic should turn in "Time Card" (see Form 
 No. 17) for each man, indicating the number of hours employed in each de- 
 partment, the work order number and the character of work engaged on. When 
 these work tickets are received at mill office the rate should be entered on card 
 and the proper extension made, the total representing the hours and amount 
 due for day's work. 
 
 The time cards can now be distributed on an analysis sheet headed ' * Repair 
 Labor" with columns representing the departments shown on "Repair Labor 
 Distribution" sheet. (See Form No. 21.) The total time accounted for by 
 the working hours for the month should represent the distributable amount. 
 Any balance between such distributed time and the total payroll of machine, 
 carpenter and blacksmith shops represents "Lost Time" or the foreman's 
 time; in other words, "Machine Shop Overhead." This amount (necessary 
 to balance Machine Shop payroll) is then entered on "Repair Labor Distribu- 
 tion" sheet as "Machine Shop Overhead." This method is not the acme of 
 refinement in cost accounting, but it has, at least, the merit of simplicity. The 
 
 84 
 
 cross reference to material requisition applying on the same job will be of 
 assistance in preparing detailed job costs when they are called for. Where 
 such detailed costs are wanted on all jobs a simple system that can be readily 
 utilized consists of an envelope for every order issued on the Machine, Black- 
 smith or Carpenter Shop. After the requisitions carrying the repair material 
 are posted on the analysis sheet they can be placed in an envelope (see Form 
 No. 18) bearing the same work order number. As the Work Tickets are posted 
 to the analysis sheet they are again posted on the envelope. When the job is 
 completed and the work order turned in, the total of the requisitions are also 
 entered on the face of the envelope ; the sum of these two items then represents 
 the total cost of the job — the detail being kept in the envelope, which may be 
 filed away. 
 
 Repair Parts for Stock: 
 
 It is often found advisable to make certain repair parts for stock. When 
 this is necessary a "Work Order" should be issued on the foreman of the Ma- 
 chine, Carpenter or Blacksmith shop the same as in the case of Repairs, specify- 
 ing the parts to be made up. As raw material, castings, etc., are drawn on 
 requisitions signed by the foreman of Machine, Blacksmith or Carpenter Shop, 
 such charge should be made to "Work in Process" (Account No. 1831) on requi- 
 sition. When the job is completed this work order should be turned in to mill 
 office. The mill clerk at the end of the month will then distribute such jobs 
 through the medium of the "Miscellaneous Distribution" sheet charging 
 ' ' Stores ' ' and crediting * * Work in Process. ' ' (Account No. 1831. ) Work orders 
 for '* Repair Jobs" may be retained by foreman of Machine, Blacksmith or Car- 
 penter Shop until job is completed, when same should be returned to Mill Office. 
 
 4i 
 
 
 88 
 
^\ 
 
 i 
 
 VIII 
 Material Accounts 
 
 The various classes of material kept at the Mill over which the Accounting 
 Department must exercise control and supervision are: 
 
 Operating Supplies and Repair Parts, 
 
 Coal, 
 
 Gypsum, 
 
 Packages, 
 
 Raw Material, 
 
 Clinker and Cement. 
 
 Each type of material demands individual handling in the accounts, but all 
 require the same, or possibly more careful watching than is demanded by cash. 
 It is true that cash, when misappropriated, is more negotiable and may be 
 disposed of more readily ; but other, and more important, considerations depend 
 on the faithful maintenance of careful and accurate inventories of materials 
 and supplies. If the inventories are not carefully kept and accurately rendered, 
 Cost Sheets, Profit and Loss Statements, and Balance Sheets will be incorrectly 
 stated ; and false figures are worse than useless — they are dangerous. 
 
 The accountant must do more than merely make correct entries of the fig- 
 ures that are furnished him. The cash entries that he makes are meaningless 
 unless the material is accounted for as well as the money. As an illustration 
 may be mentioned a case where the inventory accounts of a certain company 
 showed $800 worth of gj^psum on hand. The material records, kept by the Mill 
 Office, showed that the gypsum stock at that time amounted to only ten tons — 
 in other words, that company was carrying ten tons of gypsum on its books at 
 a price of $80 per ton. 
 
 Methods and systems of purchasing materials and supplies will not be con- 
 sidered in very much detail in this place. Conditions vary so widely that there 
 would be scant use in attempting to outline a standard system or organization 
 for handling the purchasing. There are, however, some essentials that must be 
 given constant attention, regardless of the personnel of the Purchasing Depart- 
 ment or the system used in making and checking purchases. These might be 
 outlined as follows: 
 
 1. No purchase amounting to more than a purely nominal sum shall be 
 made without the approval of some official of standing in the company, in 
 addition to that of the official who regularly does the buying. It should be 
 understood, however, that in case of breakdown, where no spare part is at hand, 
 the superintendent, chief accounting officer, or even the senior foreman, may 
 make such purchases as will enable the plant to resume operation, such pur- 
 chases being confirmed by the regular buying official or officials at the earliest 
 possible moment. In cases of this kind, however, stringent inquiry should be 
 made as to why the needed spare part was not in stock. 
 
 36 
 
 2. Receipt of material covered by each invoice must be proved by actual 
 count, weight, or other measurement. If the full quantity and quality called 
 for by the purchase order or invoice is not received in good condition, this fact 
 must be noted on the face of the invoice ; and where the loss or damage is ap- 
 parently chargeable to the railroad, immediate steps must be taken to secure 
 proper notations on freight bills and such other data as may be necessary to 
 back up a claim against the shipper or the railroad. 
 
 3. It is strictly the duty of the Accounting Department to see that in- 
 voices are paid within the discount period when possible, and that all precau- 
 tions outlined in the two preceding paragraphs are observed strictly and without 
 fail. The Accounting Department shall certify all invoices to the Treasury 
 Department for payment and, in so doing, throw all possible safeguards around 
 the payment of invoices to insure that the company gets full value for all the 
 moneys that it pays out, and to make fraud or the misappropriation of money 
 or materials so difficult that no employe shall be tempted to go wrong. 
 
 4. The Accounting Department, having furnished a basis for sundry credits 
 to Accounts Payable, must now debit the proper accounts with the exact quan- 
 tity and value (F. O. B. the point where they are stored or consumed) of the 
 materials for which payment has been authorized. 
 
 Operating Supplies and Repair Parts : 
 
 For the purpose of keeping an accurate record of all supplies, it is advisa- 
 ble that a Stores Ledger be maintained. The Card Ledger has been found to be 
 best adapted for such a record. A sample of the card generally adopted and 
 used in all industrial plants, and, with^a few exceptions, suitable for any cement 
 plant, is shown. (Form No. 14.) A separate card for each item or part should 
 be maintained. The columns on the left-hand side (representing debits) are 
 used for setting down all details relating to the purchase of any article. It 
 should be started with the physical inventory and debited with all subsequent 
 purchases. To properly carry out the idea of correct stock records it is best 
 to begin with the purchase order and follow the successive steps. As soon as the 
 stock card balance shows the stock is down to the ''minimum stock carried" 
 figure a purchase order should be forwarded to the Purchasing Department and 
 the date and number of the order entered on the stock card form from the 
 carbon copy of the purchase order. When the Purchasing Department makes 
 out order same should be made in duplicate, at least, to check invoice as to price 
 and terms. 
 
 When invoices are received they should be stamped with a rubber stamp 
 as shown in (Form No. 14^) and forwarded to the Storekeeper to be held pend- 
 ing the receipt of goods. As goods are received proper notation should be made 
 on invoice in space provided by rubber stamp. The amount of freight or express 
 should be added to the face of invoice in order to get total cost at mill. Such 
 total cost should then be divided by the total unit— i. e., lbs., dozen, cwt., ft., or 
 cost each. The invoices are now ready to be entered on the stock card. On the 
 left-hand side opposite the date ordered enter the date received and from whom 
 purchased, quantity and price per unit. When this is done, the invoice, together 
 with freight or express bill, should now be sent to the Accounting Department 
 
 37 
 
 I, 
 
 i^ 
 
for final recording. It will thus be seen that the Storekeeper by acknowledging 
 receipt of the goods is now charged with same by the Accounting Department 
 by a debit through the Purchase Journal to "Stores Ledger" account. This being 
 the case it is imperative, therefore, that the Storekeeper issue no supplies or parts 
 without requisition signed by the proper authority. A form of requisition is 
 given in (Form No. 15). 
 
 If the Stores Ledger is kept by the Storekeeper he will immediately, or at 
 the end of the day, enter such requisitions on the Credit side of the card, at the 
 same time entering on requisition the unit price and amount in dollars and 
 cents. As these credits are entered, it is advisable to watch the "balance" on 
 hand and as soon as the quantity reaches the "Minimum stock" figure verify 
 such balance by an actual inspection of tJie stock in tJie bin or where oarrled. 
 Such physical inspection of the quantity on hand at the "low ebb" permits of 
 verification of inventory from day to day and makes it possible to adjust any 
 differences as soon as known, rather than wait until an actual inventory is taken 
 which might reveal considerable shortage or difference. For instance, if a stock 
 card called for a balance of "three" and the physical inspection revealed but 
 two on hand, a memorandum requisition should be put through for the unit 
 short, charging Mill Overhead "Stores Shortage." As stores are but money in 
 a different form, it is needless to add that but few memorandum requisitions 
 will be permitted without good and sufficient cause. Such a shortage in cash 
 would have to be made good by the cashier out of his own pocket. 
 
 When it is stated that no supplies or parts should be issued without requi- 
 sition, it is not meant that any urgent repair job is to be held up until requisi- 
 tion can be procured from the foreman. The Storekeeper must use his own 
 judgment and in such a case it would bfe the Storekeeper's duty to make out 
 requisition for such parts given out and hold same on file until he has the 
 opportunity of having same approved by the proper authority. If no Store- 
 keeper is employed at night, the night Superintendent or Foreman should have 
 a key to the storeroom, to permit the night shift securing any needed supplies 
 or repair parts. Too great stress, however, cannot be laid upon the necessity of 
 having proper requisitions left in the storeroom for supplies taken out. 
 
 Requisitions should be turned in to mill office each morning for previous 
 24 hours deliveries. 
 
 As requisitions are received at Mill Office, they should first be divided as 
 to "Operating Supplies" and "Repair Supplies," then further separate these 
 two piles by Departments to be charged; when such segregation is completed, 
 the total of each Department may be written across the face of the top requi- 
 sition. Requisitions should now be distributed to the various Departments by 
 entering same on a sheet of anaylsis paper having columns corresponding to 
 "Materials and Supplies" Distribution sheet (see Form Nos. 22 and 23), using 
 a separate sheet of analysis paper for "Operating Supplies" and "Repair 
 Supplies." 
 
 Every month a trial balance of cards should be taken, listing the items, 
 quantity on hand and prices. Where purchases of any article have been made at 
 varying prices, always exhaust, or absorb, the earliest purchase first; for in- 
 stance, a purchase of 100 units of a certain article is made at 80c per unit, a 
 
 88 
 
 subsequent purchase of 100 units is made at $1.00 per unit. The card reveals 
 a balance of 120 units. In taking off trial balance the listing should be: 
 
 20 at $ .80 $ 16.00 
 
 100 at 1.00 100.00 
 
 $116.00 
 
 By taking inventory on this basis the total of Stores Ledger trial balance should 
 equal the balance shown by General Ledger Controlling account. 
 
 , Should any material be returned to stores it should be entered on left- 
 hand side of card, just the same as a purchase, except original requisition num- 
 ber will take the place of order number and in the column "from whom pur- 
 chased" enter the Department returning same. Always make out a requisi- 
 with regular requisitions. This return requisition should be printed in red or 
 made out in red ink, if no special requisition is provided. 
 
 It will be noted that the ledger card contains all information relating to 
 any article carried in stock and furnishes valuable information as to firms han- 
 dling a particular article, their prices and terms compared with other firms, etc. 
 
 Coal: 
 
 A record of Coal is best kept in a Car Book or Coal Record. (See Form 
 No. 13.) The left-hand side of this book represents the debits or total coal to 
 be accounted for, preferably based on the "mill scale weight," while the credit 
 or right-hand side represents the disposition, or if in inventory, just where 
 located. When unloaded directly into a hopper for immediate use, it then 
 becomes a charge to the department. If unloaded for storage, or remains in 
 cars, it becomes an Inventory item. The cars shown in the "Inventory" col- 
 umn are brought forward each month in red and final disposition treated as in 
 previous months. For instance: coal delivered to Power Department hopper 
 would go into "Power" column; if delivered to Power Storage it would go 
 into the corresponding Inventory column. If taken out of storage during the 
 month, credit must be given in Inventory column in red and new entry in black 
 made the same as when originally received. The total of the various columns 
 on the credit side headed "Disposition" represents the coal used by the various 
 departments during the month and is distributed through the "Miscellaneous 
 Distribution Sheet." 
 
 The handling of the invoices for coal and freight is the same as in the case 
 of Materials and Supplies. 
 
 Gypsum: 
 
 The account with Gypsum could, if desired, be carried on a regular stock 
 card, the charges being made when received as with other materials and at the 
 end of month credited with the total consumption. If preferred, however, a 
 book may be used and this book then becomes a basis for making distribution 
 through "Miscellaneous Distribution Sheet" at end of month. 
 
 The handling of Gypsum bills and freight bills for same is the same as for 
 CoaL 
 
 89 
 
-1 
 
 i 
 
 Packages: 
 
 This is a subject for further discussion in detail covered by another chapter, 
 which see. 
 
 Raw Materials: 
 
 We are now coming to materials that are generally produced and not pur- 
 chased; therefore, the principles of cost accounting begin to apply in order 
 to determine — first, the manufacturing cost of this part of the product; sec- 
 ond, the asset value of piles of raw materials that have been quarried, but 
 which have not yet been put in manufacture. Such asset values are controlled * 
 by "Raw Materials Account Nos. 1 and 2," in the General Ledger. These show 
 the number of tons of rock produced during the month and the cost of quarry- 
 ing or producing same. This tonnage of rock will be charged to the current 
 month's cost of raw grinding, providing rock produced was consumed. 
 
 If more rock was purchased than was consumed, the excess will go into 
 rock storage as Inventory ; excess consumption reverses the operation. Measure 
 up the pile of rock on hand at the end of the month and see whether the num- 
 ber of tons of rock actually on hand is equivalent to balance shown by "Raw 
 Materials" Account Nos. 1 and 2. This process of verification of production and 
 consumption should be observed every month in all Departments. 
 
 Clinker and Cement : 
 
 It is generally preferred and advisable to keep the manufacture of clinker 
 distinct and separate from the manufacture of cement, in that each process 
 takes the raw or semi-finished material from the previous state and delivers it 
 to the next process. Thus, for instance, the "Finishing Department" takes the 
 clinker from the kilns at the average clinker value, which has already been de- 
 termined through the medium of the "Clinker Burning" account. In addition 
 to this charge for clinker, the cement grinding cost would comprise the charge 
 for all labor employed in the department, gypsum and all other material, both 
 repair and operating, and its proper proportion of whatever expense was neces- 
 sary for the plant to undergo before it could transform clinker into cement and 
 deliver the cement into the stock house bins. 
 
 Before leaving this subject, are are one or two minor points that should 
 be considered. First is the relation which each department bears to the other 
 of buyer and seller. The Stores Department buys from outside people and sells 
 to everybody in the plant. The Quarry buys the rock as it lies in the ground 
 and adds to this cost the cost of labor and expense, which enables it to sell the 
 rock to the Raw Grinding Department ; the Raw Grinding Department takes the 
 stone that it buys and after preparing it for burning, sells it to the Clinker 
 Department, and so on. In order to record these various transactions, the Ac- 
 counting Department must have daily reports, showing how much each has 
 bought and how much they have sold or transferred. These reports will serve 
 as a basis for certain bookkeeping entries and these entries must be checked 
 up and verified by physical measurement of the material on hand at the end 
 of the month, before reports can be accepted as correct. 
 
 »i 
 
 40 
 
 IX 
 
 Plant Overhead and Indirect Expenses 
 
 In the preceding chapters, we have to a large extent dealt with direct 
 expenses only, leaving the items of indirect expenses still to be considered. Let 
 us try to understand the distinction between direct and indirect expense. For 
 the purpose of the present discussion, let us assume that direct expense be de- 
 fined as expense that the company has already incurred concurrently with the 
 production of their product, while indirect expense may be considered as ex- 
 pense that is not yet incurred, but which, nevertheless, we will have to pay some 
 day, as, for instance : 
 
 Taxes. 
 Insurance. 
 
 Depreciation : 
 
 Buildings. , 
 
 Machinery and equipment. 
 
 Depletion : 
 Quarries. 
 
 Contingencies : 
 
 Flooding of quarries. 
 Strikes. 
 Shut-downs. 
 Safety Devices. 
 Etc., Etc. 
 
 i 
 
 Let us first take up : 
 
 Taxes: 
 
 A cement company cannot make cement without paying taxes on its plant 
 and real estate. Nevertheless, it pays this tax only once a year. It would be 
 manifestly unfair to load the costs of the day or even the month in which the 
 whole year's taxes are paid with that tremendous burden of taxes. We know 
 with reasonable accuracy what the amount of this tax will be for the year. 
 Therefore, we must charge into our costs 1/12 of the taxes we will have to pay 
 for the year, crediting such monthly charge to "Reserve for Taxes." 
 
 Insurance : 
 
 Insurance is generally paid in advance, in which case the insurance pay- 
 ment may be carried among assets as a deferred charge (see "Deferred 
 Charges"), 1/12 to be absorbed monthly and credited to such deferred charge. 
 
 41 
 
fli 
 
 Depreciation : 
 
 Of all overhead charges probably the most important is depreciation, being, 
 as it usually is, the largest. Hardly any two writers — ^be they engineers or ac- 
 countants — agree as to the proper methods of handling this subject. However, 
 it is a problem for both the accountant and the engineer. The engineer is the 
 one best qualified to say just what percentage of cost or value shall be included 
 in monthly costs, to the end that when the machinery or equipment has reached 
 the scrap period, the "Reserves" Account shall show a stun, plus scrap value, 
 sufficient for replacement. 
 
 When the engineer or superintendent has made his calculations it is then 
 up to the accountant to properly distribute this charge over the various de- 
 partments or operations. However, as soon as we begin to "split hairs" and 
 distribute this monthly charge over various departments or operations, we 
 immediately open up an avenue of guesswork or arbitrary calculations that only 
 tend to cloud the real issue, and, in effect, compound estimates. The monthly 
 charge in one amount covering all departments added to the Total Direct Cost 
 of Production as ascertained, is believed to be all that is necessary. This sub- 
 ject is dealt with in detail in Chapter XVI, which see. 
 
 Depletion : 
 
 « 
 
 Quarries will not last always. There will come a time when other lands 
 will have to be purchased (possibly at a distance from the mill) to warrant a 
 continuous and certain supply of raw materials. It is true that from the very 
 nature and topography of some quarries, the land value after the quarrying 
 operations have exhausted the supply of rock or other materials is greater — 
 from the viewpoint of the builder — than when purchased for quarry purposes. 
 In a very hilly country where deposits are mined this is especially true. In such 
 a case a charge for depletion would hardly be in order, assuming there were 
 other lands containing desired deposits in the immediate vicinity. The manu- 
 facturer possessing practically an unlimited source of supply would have a very 
 low charge for depletion. Each plant must be governed by local or individual 
 quarrying conditions, as no fixed rule can be laid down for your guidance, except 
 that some charge should be made in monthly costs and credited to "Reserve 
 for Depletion" until such reserve equals the purchase price, or a sum sufficient 
 to purchase similar deposits. 
 
 Contingencies : 
 
 In every industry there are certain contingencies that cannot be foreseen 
 with any degree of accuracy, yet with which we are likely to be confronted at any 
 time : strikes, loss by fire not fully covered by insurance, accidents to employes 
 or outsiders not fully covered by liability insurance, flooding of quarries, etc., 
 are items that may properly come under the head of contingencies. It will be 
 seen, therefore, that some provision should be made to care for such contingencies 
 by a charge to Profit & Loss, (Financial Expenses) and a credit to "Reserve for 
 Contingencies. ' ' The amount to be so charged is a question that will have to be 
 dealt with by each individual member company, as no hard and fast rule covering 
 this item can be laid down or adhered to. 
 
 42 
 
 Monthly Closing of Manufacturing or Operating 
 
 Accounts 
 
 Before the various Departmental and Auxiliary Accounts can be closed, it 
 is imperative that all labor, material and indirect expenses be included. To in- 
 sure this an orderly and systematic procedure in posting from the various Dis- 
 tribution Sheets should be observed, assuming postings from Purchase Journal, 
 Cash Book and General Journal have been made. These accounts affecting all 
 departments are posted first and the following order is recommended : 
 
 (1) Materials and Supplies Distribution Sheet. 
 
 (2) Payroll Distribution Sheet. 
 
 (3) Repair Labor Distribution Sheet. 
 
 (4) Miscellaneous Distribution Sheet. 
 
 (a) Coal. 
 
 Gypsum. 
 
 Power. 
 
 Coal preparing. 
 
 Floating Gang. 
 
 Gypsum. 
 
 R. R. and Switching. 
 
 (5) 
 
 (&) 
 (c) 
 id) 
 (e) 
 if) 
 (9) 
 Reserves. 
 
 AUXILIARY ACCOUNTS 
 
 As the Auxiliary Accounts affect all Departmental accounts it is impera- 
 tive that they be closed before considering the Departmental Accounts proper, 
 therefore assuming that all items appearing in the "General Ledger" column 
 of Distribution Sheets 1 and 2 have been posted, the first account to be closed 
 would be: 
 
 Machine, Blacksmith and Carpenter Shop: 
 
 The basis for distribution of this account is from the "Repair Labor Dis- 
 tribution" sheet, charging the proper departments and crediting this account. 
 If separate shops are maintained and accounts kept in the General Ledger for 
 each shop it might be well to make out three distribution sheets, otherwise one 
 Distribution Sheet headed "Machine, Blacksmith and Carpenter Shops" is all 
 that would be necessary. From the various Miscellaneous Distribution Sheets 
 post and close the following accounts in the order given : 
 
 Coal. 
 
 Power, Light and Water. 
 
 Coal Preparing. 
 
 Floating Gang. 
 
 Gypsum. 
 
 43 
 
 II 
 
DEPARTMENTAL ACCOUNTS 
 
 -i 
 
 i 
 
 The system as outlined contemplates the subdivision of the one Operating 
 or Manufacturing Account into several accounts as below: 
 
 Raw Material No. 1 
 Raw Material No. 2 
 Raw Grinding 
 Clinker Burning 
 Finished Grinding 
 Mill Overhead 
 Reserves 
 Finished Cement 
 
 Manufacturing 
 or Operating 
 Account 
 
 }= 
 
 = Bin Cost. 
 
 It is necessary to close these several accounts monthly, and for this pur- 
 pose the General Journal is utilized. In closing the following procedure is 
 observed : 
 
 Raw Materials No. 1 and No. 2 (Accounts Nos. 51 and 52) : 
 
 From the daily reports received from the Raw Department the MiU Office 
 should report the total units consumed for the month. Such total consumption 
 IS then multiplied by the total unit cost of these two accounts (being total 
 debits divided by total production), or raw material cost for the month. When 
 such cost per unit is known General Journal Entry would be : 
 
 Dr. Raw Grinding xxx 
 
 To Raw Material No. 2 xxx 
 
 To Raw Material No. 1 xxx 
 
 Consumption for month tons. 
 
 The resultant balance of the above accounts represents the inventory value, 
 and, in closing, is brought do^vn as inventory at beginning of next month's 
 operations. When raw material is purchased, and not quarried, such purchases, 
 plus freight and unloading charges, should be charged to a "Raw Material In- 
 ventory" account; each month this account should be credited with the con- 
 sumption for the month at an average price, the same as coal or any other ma- 
 terial. If materials are purchased, it would be necessary to open in the Cost 
 Ledger (Raw Material Section) but few accounts. (See Chart of Accounts.) 
 
 If materials are quarried on a royalty basis, the royalty charge would, of 
 course, be charged to Raw Material operating account Nos. 51 and 52. Deple- 
 tion of quarries should also be charged to these accounts. 
 
 The unit of cost in this Department is based on tons quarried or pur- 
 chased. 
 
 Raw Grinding {Account No. 61) : 
 
 This account begins with the cost of Raw Materials No. 1 and No. 2 and 
 two lines should, therefore, be left at top in posting to this account to provide 
 for debits coining through General Journal at the end of month. The Raw 
 Grinding Department Account, as its title implies, carries all costs incident to 
 
 44 
 
 raw grinding. As but few, if any, plants carry an inventory in the raw end 
 (other than crushed rock), the total of this account (after transferring "Raw 
 Material" accounts to Nos. 1 and 2) is closed into "Clinker Burning" Account 
 by the following entry through the General Journal : 
 
 Dr. Clinker Burning xxx 
 
 To Raw Grinding xxx 
 
 Raw Grinding Cost for month transferred. 
 
 The unit of cost in this Department is based on the number of barrels of 
 clinker produced. 
 
 Clinker Burning (Account No. 62) : 
 
 This Account begins with the Clinker Inventory (in barrels and dollars and 
 cents) brought down from the previous month. In bringing down such inven- 
 tory balance, it is evident that this inventory carries various elements of costs. 
 Assume that in a month we produce 100,000 barrels of clinker at a total cost 
 of $40,000, or $.3846 per barrel, plus inventory of 4000 barrels at a value of 
 $2000; from mill reports we find that only 95,000 barrels were ground at an 
 average cost of $.3846 per barrel, or a cost for clinker ground or consumed of 
 $36,537 (which would be credited at the end of month to this account and 
 debited to "Clinker Grinding" Account), we should then have a balance, or in- 
 ventory, of 9000 barrels at an average cost of $.3846 or $3463.00, which would be 
 carried down to next month's operations as the first item, but instead of bring- 
 ing it down as one item the amount should be segregated to show the elements 
 of cost included in such inventory. In other words, there is labor, power, sup- 
 plies, etc. 
 
 This division is necessary for the following reasons : 
 
 Assume we produce 1,000,000 barerls of clinker and the labor cost, up to the 
 clinker period, was $50,000, and we only ground one-half of this clinker, or 500,- 
 000 barrels, the total labor cost, applicable to the month's operation, would be 
 but $25,000. The same rule applies to all other elements of cost. 
 
 The formula for segregating the inventory items is simple : 
 
 Add number of barrels produced in month to previous Inventory; divide 
 Inventory at end of month by this total ; the result will be the percentage of 
 each element in Inventory; next add element of cost in previous Inventory to 
 similar element of cost for month and divide by percentage previously ob- 
 tained. The result will be the element of cost in Inventory at end of month. 
 
 A hypothetical treatment of one element of cost in Clinker Inventory, t. e., 
 "Operating Labor," is given on the page following. 
 
 M 
 
Fob Example: 
 
 Clinker Inventory first of month shows, 4,000 bbls. 
 
 Operating Labor (up to and including Clinker Burning) in 
 Clinker Inventory is: 
 
 Operating Labor — Raw Grinding, $ 500.00 
 
 Operating Labor— Clinker Burning, 100.00 $600.00 
 
 The Operating Labor (up to and including Clinker Burning) 
 
 in a production of 100,000 " 
 
 Amounts to: 
 
 Operating Labor— Raw Grinding, 5,000.00 
 
 Operating Labor— Clinker Burning, 1,150.00 6,150.00 
 
 TOTAtS, 
 
 Clinker Ground, 
 
 Inventory of Clinker at end of month, 
 therefore 
 
 104,000 : 9,000=8654 
 
 8654X6,750. 00= net value of 
 
 Operating Labor in Clinker Inventory, 
 
 Net Labor Cost in Clinkzb Consttued, 
 
 104,000 " 6,750.00 
 95,000 " 
 
 9,000" 
 
 584.15 
 
 95,000 " $6,165.85 
 
 The Clinker Burning Account under the above conditions (using hypothetical figures) would be as 
 below: 
 
 ;!! 
 
 CLINKER BURNING. 
 
 Pl 
 
 
 
 
 
 
 
 
 
 1 
 
 Inventory, 
 
 Raw Material Prop'n, 
 
 4,000 bbls. 
 
 $ 400.00 
 
 31 Clinker Grinding, 
 Consumption for mo.. 
 
 
 
 
 Op'g Labor, Prop'n, 
 
 
 600.00 
 
 95,000 bbls. transf'd. 
 
 $36,537.00 
 
 
 
 Rep. Labor, Prop'n, 
 
 
 50.00 
 
 Balance, Inventory, 
 
 
 
 
 Op'g Sup., Prop'n, 
 
 
 70.00 
 
 End of month, 
 
 
 
 
 Rep. Sup., Prop'n, 
 
 
 30.00 
 
 9,000 bbls. @ 3846; 
 
 
 
 
 Power, Prop'n, 
 
 
 100.00 
 
 Raw Material Prop'n, 
 
 900.00 
 
 
 
 Fuel, Prop'n, 
 
 
 750.00 
 
 Op'g Labor, Prop'n, 
 
 584.15 
 
 
 31 
 
 Raw Grind'g Acc't., 
 
 
 
 Rep. Labor Prop'n, 
 
 225.55 
 
 
 
 Production for mo. 
 
 100,000 bbls. 
 
 24,000.00 
 
 Op'g Supplies, Prop'n, 
 
 157.40 
 
 
 
 Op'g Labor for mo.. 
 
 
 1,150.00 
 
 Rep. Supplies Prop'n, 
 
 119.42 
 
 
 
 Rep. Labor for mo., 
 
 
 550.00 
 
 Power, Prop'n, 
 
 372.12 
 
 
 
 Op'g Sup. for mo.. 
 
 
 750.00 
 
 Fuel, Prop'n, 
 
 1,104.36 
 
 
 
 Rep. Sup., for mo.. 
 
 
 350.00 
 
 
 
 
 
 Power, 
 
 
 1,200.00 
 
 
 
 
 
 
 Fuel, 
 
 104,000 bbls. 
 
 10,000.00 
 
 
 
 
 $40,000.00 
 
 104,000 bbls. 
 
 $40,000.00 
 
 Average cost . 3846 per barrel. 
 
 Inventory, bro't down, 9,000 bbls. $ 3,463.00 
 
 (S^regate as shown above) 
 
 46 
 
 Proof: 40,000X8.654 = 3,463.00 
 
 If Cost Sheet is prepared at Mill Office, segregation of Clinker Inventory 
 should be compared with General Office figures each month to prove MUl calcula- 
 tions. In preparing ''Monthly Statement of Costs" (Form No. 7) the net ele- 
 ment of cost only would be considered. For instance, let us take Fuel cost up 
 to and including Clinker Burning: 
 
 Value of Fuel in Inventory first of month . . $ 750.00 
 Fuel charge for current month: 
 
 From Raw Grinding $ 2,000.00 
 
 From Clinker Burning 10,000.00 
 
 12,000.00 
 
 12,750.00 
 Value of Fuel in Inventory, end of month . 1,104.36 
 Net Fuel cost for month $11,645.64 
 
 As Form No. 7 calls for a division of Net Fuel cost for the month as between 
 Coal Drying, Raw Material Drying and Clinker Burning, it wUl be necessary to 
 figure the proportion of each; this is arrived at by following method: 
 
 $12,000.00 : $ 2,000.00=16.66% $ 1,940.16 
 12,000.00 : 10,000.00=83.34% 9,705.48 
 
 $11,645.64 
 
 It will be noted that only the total of Raw Grinding Account is brought 
 forward to Clinker Burning Account, but this $24,000.00 is made up of several 
 elements of cost, therefore to arrive at total labor cost up to and including 
 Clinker Burning, it will be necessary to refer back to Raw Grinding Account in 
 computing the Clinker Inventory. In other words, the Raw Grinding charge 
 of $24,000.00, if brought over in detail (and there is no real necessity for so 
 doing), the items would appear (using hypothetical figures) as below: 
 
 Raw Material $10,000.00 
 
 Operating Labor 5,000.00 
 
 Operating Supplies 1,000.00 
 
 Repair Labor 2,000.00 
 
 Repair supplies 1,000.00 
 
 Power 3,000.00 
 
 Fuel 2,000.00 
 
 $24,000.00 
 
 As the above division appears in the Raw Grinding Account, these figures 
 can be easily added to the same items in Clinker Inventory at first of month, 
 and charges in Clinker Burning for the month, the three items constituting gross 
 Clinker Cost for month. 
 
 All inventories of Raw Material and Clinker should be verified by physical 
 inspection monthly. 
 
 Clinker Grinding (Account No. 63) : 
 
 This account begins with the transfer of "Clinker" consumed from 
 "Clinker" account, therefore, a line should be left at top of this account to 
 post this item at end of month. Beginning with the month's operations we 
 have all costs incident to Clinker Grinding from various Distribution Sheets. 
 This account will then give the Total Direct Cost of Production for the month. 
 
 47 
 
 It 
 
This is the figure for which the Mill Superintendent is directly responsible. The 
 cost to this point represents actual money spent and materials consumed — no 
 estimates or overhead items whatsoever. Any grave fluctuation from costs for 
 preceding months should demand immediate investigation. 
 
 This account is closed into "Finished Cement" Account by the following 
 Journal entry : 
 
 Dr. Finished Cement Account xxx 
 
 To Clinker Grinding Account xxx 
 
 Production of cement for the month, 
 bbls. @ 
 
 BfiLL Overhead (Account No. 64) : 
 
 As the title of this account implies, it carries all indirect charges relating 
 to production, i. e., General Superintendence, Mill Office salaries and expense, 
 Laboratory salaries and expenses, expenses during shutdown period (other 
 than repairs and maintenance), and any other items which cannot be charged 
 to any accounts preceding this. It is closed out monthly by a charge to "Fin- 
 ished Cement ' ' account through the General Journal : 
 
 Dr. Finished Cement Account xxx 
 
 To Mill Overhead xxx 
 
 Overhead expense for month. 
 
 Reserves (Account No. 65) : 
 
 This account carries all reserves or items of cost not actually disbursed or 
 consumed, but which do accrue from month to month, such as Taxes, Insurance, 
 Depreciation, etc. These charges are made through the medium of Reserves Dis- 
 tribution Sheet. (See Form 24.) It is closed monthly by following entry 
 through General Journal : 
 
 Dr. Finished Cement xxx 
 
 To Reserves xxx 
 
 Total Reserve Costs for Month 
 
 Finished Cement Account (Account No. 66) : 
 
 This account controls the Mill Ledger and Cost Sheet. It will be noted that 
 it has been charged with the cement produced during the month at direct cost 
 of production (from "Clinker Grinding" Account), also Mill Overhead and 
 Reserve Accounts ; the total representing Bin Cost. It is closed into the Cement 
 Inventory Account No. 31 at the end of the month by the following entry 
 through the General Journal : 
 
 Dr. Cement Inventory , xxx 
 
 To Finished Cement Account xxx 
 
 Total Cement Cost for month, 
 
 bbls. @ 
 
 It will be noted that the foregoing relate only to montlihj closing. Yearly 
 closing entries are no different, except that in addition to the closing of the 
 Operating or Manufacturing Accounts, all Profit and Loss Accounts are closed 
 into "Profit and Loss" Account No. 41. The balance of this Account represents 
 "Net Profit" or "Net Loss" and is closed into "Surplus" Account. Any 
 dividends declared would be charged to "Surplus" Account and credited to 
 
 "Dividend" Account. 
 
 48 
 
 XI 
 
 Preparation of Monthly Statements 
 
 Any system of cost finding that does not permit of knowing costs, cer- 
 tainly not later than the fifth of the month, must be considered defective. In 
 the majority of cement plants such costs are not known until the Cost Sheet 
 is prepared. As the Cost Sheet carries all costs in detail, its preparation nat- 
 urally takes considerable time. As many plants do not get this sheet until the 
 10th or 15th of the month, it follows that costs are not known until they become 
 "ancient history." No company would care to wait until a schedule, listing 
 amounts due by individual customers, had been drawn off from the Customers' 
 Ledger before it could know, in total, the amount due. He knows as soon as 
 he gets his General Ledger trial balance just what is owing or owed. Later 
 a trial balance of the Customers' Ledger or Creditors' Ledger gives the details. 
 In like manner he should know his costs by departments, in total, as soon as he 
 gets his General Ledger trial balance. Later, from the trial balance of his 
 Cost Ledger, the Cost Sheet may be prepared. Therefore, to expedite the prep- 
 aration of such statements as will reflect the monthly costs in total, there has 
 been devised certain controlling accounts termed "Factory Controls." The 
 accounting profession is indebted to Frank Broaker, C. P. A., No. 1, of New 
 York, for this most excellent feature. In this system of accounts we will call 
 such controlling accounts the "Manufacturing" or "Operating" account, and 
 that we may know such manufacturing costs by Departments, this account has 
 been subdivided by the opening up of the following accounts in the General 
 Ledger, i. e. : 
 
 Raw Material No. 
 Raw Material No. 
 
 Raw Grinding 
 Clinker Burning 
 Clinker Grinding 
 Mill Overhead 
 Reserves 
 Finished Cement 
 
 Raw material costs ; controls 
 quarry section of Cost Ledger. 
 
 Controls mill costs 
 ■ in mill section of 
 Cost Ledger. 
 
 In addition to the above the following Auxiliary accounts are maintained in 
 the General Ledger: 
 
 Power, Light and Water. 
 Coal Preparing. 
 Machine, Blacksmith and 
 
 Carpenter Shops. 
 Floating Gang. 
 R. R. and Switching. 
 
 Closed 
 
 monthly into 
 ■ Operating 
 accounts, above 
 referred to. 
 
 Assuming all Auxiliary accounts have been distributed and closed and the 
 Operating accounts finally closed into Finished Cement account, and that cer- 
 tain Trading accounts have finally been closed into "Profit and Loss" account 
 No. 1 (which carries as a credit the gross profit for the month, and to date), a 
 
 >» 
 
 I 
 
 49 
 
trial balance of the General Ledger should be taken, considering only the items 
 affected by the month under review. From this trial balance, supplemented by 
 certain statements of facts as to inventories, etc., there is prepared the follow- 
 ing accounts: 
 
 Trading and Profit and Loss Statement. 
 
 Balance Sheet. 
 
 Monthly Statement of Costs. 
 
 Monthly Statement of Operations. 
 
 Monthly Statement of Cost of Cement in Bulk, 
 Cloth and Paper. 
 
 Let us now consider the preparation of the above accounts. 
 
 Trading and Profit and Loss Account — Trading Section (See Form No. 6) : 
 
 This account is the form approved by Accounting Societies, the United States 
 Government, and has become a standard. The first item apearing on this state- 
 ment is Inventory of Cement at first of month, in barrels and dollars and cents. 
 This is obtained from the previous month's statement or the statement of facts. 
 Next the production for the month, in barrels, and the cost. This is represented 
 by the "Finished Cement" Account in the trial balance. Take this off and check 
 the item in the trial balance. These two items should be added, the total rep- 
 resenting cement to be accounted for, and also gives average cost per barrel. 
 Next enter the total sales for the month in barrels and amount of sales. This is 
 taken from the trial balance, being "Cement Sales" account; check this item on 
 trial balance. 
 
 From the figures now entered we work back ; deduct the number of barrels 
 06M frotm the total to be accounted for and the balance will represent the 
 number of barrels to be entered opposite the fourth item, "Inventory End of 
 Month." Now multiply the number of barrels that should he in inventory by 
 average cost per barrel as extended in third item and we have the inventory 
 value. Enter this amount and extent average cost per barrel, which will be the 
 same as in the third item. Deducting the inventory at the end of the month 
 from the third item, we have "Cost of Sales" or bin value of the cement sold, 
 at average price per barrel, previously extended. The difference between ' ' Cost 
 of Sales" and "Sales" represents "Gross Profit," which extend. Dividing 
 this amount by number of barrels sold gives gross profit per barrel. 
 
 The Trading Account is now complete and furnishes all necessary data to 
 be used in closing the trading accounts in General Ledger into Trading Account 
 No. 31, by following entry through General Journal: 
 
 Cement Inventory xxx 
 
 To Finished Cement Account xxx 
 
 Production for month transferred. 
 
 Trading Account xxx 
 
 To Cement Inventory Account xxx 
 
 Cost of Sales for month. 
 
 Cement Sales xxx 
 
 To Trading Account xxx 
 
 Sales for month transferred. 
 
 Trading Account xxx 
 
 To Profit and Loss Account xxx 
 
 Gross profit for month transferred. 
 
 60 
 
 Profit and Loss — (Section I) {See Form No. 6) : 
 
 The first item to be considered in this section is "What was the value, in 
 the bin, of the cement sold?" This has been arrived at through the Trading 
 Account and is represented by "Cost of Sales" item; therefore, bring this 
 amount down from the Trading Section as the first item. To this cost must 
 be added the cost of the packages, loading expense and handling of sacks. By 
 referring to the trial balance we have "Bag Cost" for the month; enter this 
 item and check off on trial balance. From the trial balance next take totals of 
 "Packing and Loading" and "Sack Handling expense"; check these two 
 items. If we foot the four items just listed we now have "Cost on Board Cars." 
 
 Profit and Loss — (Section II) {See Form No. 6) : 
 
 Now from trial balance fill in all items under the three groups of expenses, 
 i. e., "Selling Expense," "General Expense" and "Financial Expense," ex- 
 tending total of the three groups in column under "Cost on Board Cars" (un- 
 less the cost per barrel for each item is desired). Footing up this column we 
 now have the "Total Cost of Cement Shipped" during the month. Now bring 
 down the total sales from Trading Section and place on line with "Sales." 
 The difference between "Sales" and "Total Costs" represents "Net Operating 
 Profit" and closes the first two sections of the Profit and Loss Account. Now 
 divide the various totals making up "Total Cost" by the number of barrels 
 shipped and we have the total cost per barrel; dividing the "Net Operating 
 Profit" by barrels shipped we have net profit per barrel, which, added to total 
 cost per barrel, should equal the sale price per barrel. 
 
 Profit and Loss — (Section III) {See Form No. 6) : 
 
 We now have the Net Operating Profit for the month, but not necessarily 
 the Total Profit. Bring down the ' ' Net Operating Profit ' ' and to this add any 
 extraneous items appearing in trial balance, i. e., "Rents from Dwellings," "In 
 terest on Investments," etc. These items added to Net Operating Profit gives 
 "Total Estimated Profit for Month." "Estimated" is used because the sum 
 total of the twelve months' estimated profits will not exactly equal the "Net 
 Profit" shown by the final Trading and Profit and Loss account for a year's 
 operations to be prepared after all accounts are finally closed. This difference, 
 however, will not be very great, and as the Profit and Loss accounts are not 
 closed monthly, final figures, only, go to Surplus Account. 
 
 All Profit and Loss items appearing in trial balance should now have a 
 check mark against each amount. The unchecked items represent the "balance 
 of accounts" and are Balance Sheet items to be used in preparing the Balance 
 Sheet. When the last item ("Estimated profit for month") is entered on Bal- 
 ance Sheet and the Assets and Liabilities balance, the Balance Sheet thus proves 
 the Trading and Profit and Loss Statement, but correctness of Trading and 
 Profit and Loss Statement is not known until Balance Sheet is prepared. 
 
 COSTS PER barrel 
 ("This month" and "to date") 
 
 The costs for the current month are easily obtained, but the "to date" 
 figures are a little more complex. "To date" figures, wherever used, contemplate 
 
 61 
 
it 
 
 u 
 
 1 >l 
 
 costs since last closing period or the beginning of the fiscal year. The simplest 
 way to get these costs is to draw off a second trial balance carrying cumulative 
 TOTALS, as the first trial balance drawn off dwelt only with the month's opera- 
 tions. From this second trial balance a Trading and Profit and Loss Statement, 
 covering the operations to date, could be prepared, and by figuring the costs 
 "to date" on such cumulative Profit and Loss Statement the costs per barrel 
 thus ascertained could be utilized for the monthly Trading and Profit and Loss 
 Account. This is the ideal way. Another method is to gather these totals 
 from Previous Trading and Profit and Loss accounts by adding the three, four, 
 or even six, months together. Either method can be used. 
 
 Balance Sheet {See Form No. 10) : 
 
 It will be noted that this form carries three columns for the placement of 
 items. There is an orderly arrangement of balance sheet items that should be 
 observed; a proper place for every item and a meaning for such placement. 
 It is to give proper expression to monthly statements that standard forms have 
 been evolved and the form in which any statement is set up reveals the training 
 a bookkeeper or accountant has received. 
 
 ASSETS are stated in the order of their realization and LIABILITIES 
 in the order of their liquidation. The Balance Sheet is divided into three gen- 
 eral groups, both as to Assets and Liabilities, that is, Current or Quick Assets 
 contra to Current or Immediate Liabilities, Plant or Fixed Assets against 
 Capital, and finally Deferred Assets against Surplus in the business. 
 
 Monthly Statement of Costs {See Form No. 7) : 
 
 The figures used in this statement up to "Bin Cost" are obtained from the 
 various Operating or Manufacturing accounts. To get these costs head up an 
 analysis sheet or columnar sheet with headings : Labor, Supplies, Fuel (Drying 
 Raw Material and Burning Clinker). Go through the Operating accounts (ex- 
 cept Auxiliary accounts) and extract all items or elements of cost represented 
 by the headings on the analysis sheet. Foot these columns and then add the 
 elements of cost in the Clinker Inventory at the first of the month. Next deduct 
 elements of cost in Clinker Inventory at the end of the month. The final or 
 net figures represent the elements of cost actually consumed during the month. 
 
 Power, Light and Water is represented by the total of this account, less 
 the proportion charged to Auxiliary departments, Packing and Loading, and 
 the amount included in Clinker Inventory. All other items are easily obtained. 
 This statement must agree with total costs as shown by Trading and Profit and 
 Loss Statement. 
 
 Monthly Statement of Operations {See Form 8) : 
 
 This is easily prepared from the various Manufacturing or Operating ac- 
 counts. Clinker costs again offer some difficulties, however, and again net costs 
 or figures must be used. This account should also prove out with the Trading 
 and Profit and Loss Statement. 
 
 With some companies the two statements described in the foregoing may 
 serve the purpose of a Cost Sheet, representing, as they do, the totals which 
 
 sa 
 
 would appear at the bottom and right-hand side of the cost sheet as now de- 
 signed, detail only being omitted. Compare these statements with cost sheet 
 form illustrated in "Operations of A. B. C. Cement Company." 
 
 Monthly Statement of Costs of Cement {See Form No. 9) : 
 
 This form is almost self-explanatory, merely calling for the proper place- 
 ment of certain items appearing in the total column of the Trading and Profit 
 and Loss Statement, these being segregated as to bulk, cloth or paper by cer- 
 tain percentages shown in the first section of this statement. This statement 
 should serve as a base for quoting cement in bulk or in packages. The "to 
 date ' ' costs, plus the desired profit, should determine the sale price. 
 
 Cost Sheet {Sec Printed Form) : 
 
 These sheets carry the detail of costs for the month and to date and sup- 
 plement and segregate the totals shown by Monthly Statement of Operations 
 and Cost. Two sheets are contemplated, one for the Quarry Costs and another 
 for Mill Costs. Where raw material is purchased a quarry cost sheet is not 
 necessary. Neither would a cost sheet be required where the operations are 
 but few. Such costs can readily be showTi at top of Mill Cost sheet. In fact, 
 all elements of cost in any quarry can be so shown, but if cost of operations 
 (i. 6., stripping and clearing, drilling and blasting, steam shovel loading, hand 
 loading and hauling, locomotive hauling, etc.) are desired, a separate sheet or 
 schedule would be necessary. 
 
 If a Quarry Cost Sheet is desired it should be prepared from a trial balance 
 drawn off from Quarry section of Cost Ledger. This would give the month's 
 costs. To ascertain costs "to date" another or cumulative trial balance should 
 be drawn off. These cost sheets must agree with total costs shown by "Raw 
 Material" Accounts No. 1 and No. 2 in General Ledger. The Mill Cost Sheet, 
 like the Quarry Cost Sheet, is prepared from a trial balance of Mill section 
 of Cost Ledger. The proposed form permits of expansion or contraction, de- 
 pendent upon just how much detail is desired. The elements of cost (i. e.. Raw 
 Material, Labor, Supplies, Fuel, Power, Light and Water, Overhead and Re- 
 serves) at top of sheet are fixed and are the same for all plants. It is in the 
 operations (shown at left side of sheet) that expansion is permissible and more 
 detailed costs made possible. In the Clinker Department one company may 
 desire to segregate clinker burning into several operations, to permit of their 
 knowing Clinker Burning cost, Clinker Cooling Cost, Clinker Storing Cost, 
 etc. Another plant may be satisfied to have costs shown as one operation, i. e., 
 "Clinker Burning." Therefore, in the preparation of the sheet here submitted, 
 space has been left in each department to permit of additional operations be- 
 ing shown. In the printed form to be supplied members, only the more salient 
 and usual operations are shown. 
 
 * At the bottom of the sheet details of cost in certain Auxiliary Departments 
 should be shown, for purpose of comparison, i. e. : 
 
 Coal Preparing. (If Coal is used.) 
 
 Power, Light and Water. (If generated.) 
 
 Packing and Loading. 
 
 Sack Handling. 
 
 R. R. and Switching. (If operated.) 
 
 53 
 
Ii 
 
 I 
 
 XII 
 Deferred Charges 
 
 In nearly all plants there is usually a shutdown period varying from one 
 to three months, such shutdown period usually taking place in the winter months 
 or just pnor to beginning the fiscal year. These inactive periods may be for the 
 purpose of general overhauling and repairs, or on account of weather condi- 
 tions, or both. In any event it is necessary to provide for the distribution of 
 such expenses over the remaining operating months. It would manifestly be 
 improper to charge all such cumulative costs in the first month's operations, 
 thus creating a Jiigh level of costs out of all proportion to a mean level of costs. 
 Iherefore, m order to properly account for the expenses incidental to the shut- 
 down period, we must consider these expenses under two broad divisions, i. e. : 
 
 Repairs and Maintenance. 
 Expenses. 
 
 Therefore, we will first consider : 
 
 Bepairs — Shutdown Period: 
 
 As the repairs made during the shutdown period are for the purpose of 
 putting the miU on an efficient basis during the succeeding months of operation. 
 It is manifest that such expenses should be pro-rated over the subsequent 
 months of operation. To accomplish this two deferred accounts should be opened 
 m the General and Cost Ledger : 
 
 "Repairs— Shutdown Period— Labor" (Account No. 1811). 
 
 "Repairs— Shutdown Period— Material' ' (Account No. 1812). 
 As such repairs will be made in various Departments, a more detailed sub- 
 division of "Repairs-^Shut down Period— Labor" should be made in the Cost 
 Ledger ; the accounts below is an example : 
 
 "Repair Labor— Shutdown Period — Raw Grinding." 
 "Repair Material— Shutdown Period— Clinker Grinding." 
 To these accounts are charged all Repair Labor and Materials used during 
 the entire shutdown period. These accounts are carried as a deferred asset and 
 credited with the amount absorbed in the succeeding months' operations, it 
 being presumed that the last credit, at the end of the fiscal year, will wipe out 
 such accounts. 
 
 To pro-rate the amounts to be absorbed each month, the next step is to 
 estimate the operating period. If the shutdown period is three months, we could 
 safely estimate the succeeding period of operation as nine months, and we would, 
 therefore, absorb 1/9 in each month of operation through the medium of "Mis^ 
 cellaneous Distribution ' ' Sheet, the entry being : 
 
 Dr. Repair Labor — Raw Grinding xxx 
 
 Repair Material — Clinker Grinding xxx 
 
 To Repairs— Shutdown Period— Labor (Account No. 1811) . . . xxx 
 
 To Repairs— Shutdown Period— Material (Account No. 1812) . xxx 
 
 (Being 1/9 of repairs and maintenance, Shutdown Period.) 
 
 It will be noted from the above entries that the shutdown repair charges 
 
 54 
 
 absorbed are added to the current month's repair items, i. e., if the current 
 Repair Labor for the Raw Grinding Department was $100 and we had a 1/9 
 deferred charge of $50.00, the total Repair Labor Charge to the Raw Grinding 
 Department for the month would appear on Cost Sheet as $150. 
 
 Expenses — Shutdown Period : 
 
 To care for all other expenses at the mill during a shutdown period, an ac- 
 count should be opened in the Ledger headed "Deferred Expenses— Shutdown 
 Period." To this account is charged all other expenses at mill during the shut- 
 down period, i e.. Superintendence, Mill Office and Laboratory expenses, etc. A 
 specimen for absorbing a pro-rata proportion of such expense is given below : 
 
 Dr. 
 
 Mill Overhead-Expenses Shutdown Period (Account No. 647) 
 
 To Deferred Expenses, Shutdown Period (Account No. 1813) 
 (Being 1/9 expenses during shutdown period.) 
 
 In addition to the expenses actually incurred during a Shutdown Period 
 there are the items of Reserves constantly accruing, and which must be taken 
 care of currently. Such charges are Insurance, Taxes, Depreciation, Depletion, 
 etc. Therefore, on the Reserve Distribution Sheet there should be entered each 
 month during such Shutdown Period the following : 
 
 Dr. Deferred Insurance (Account No. 1814). 
 Deferred Taxes (Account No. 1815). 
 Deferred Depreciation (Account No. 1816). 
 Deferred Depletion (Account No. 1817). 
 
 To Reserve for Insurance (Account No. 241). 
 To Reserve for Taxes (Account No. 242). 
 To Reserve for Depreciation (Account No. 243). 
 Ro Reserve for Depletion (Account No. 244). 
 The above entry would care for the Reserves accruing during a shutdown 
 period. 
 
 As soon as the plant begins operations, these deferred items should be ab- 
 sorbed by the following entry on the Miscellaneous Distribution Sheet : 
 
 Dr. Reserves: Insurance (Account No. 241). 
 Taxes (Account No. 242) : 
 Depreciation (Account No. 243). 
 Depletion (Account No. 244). 
 To Deferred Taxes (Account No. 1815). 
 To Deferred Insurance (Account No. 1814), 
 To Deferred Depreciation (Account No. 1816). 
 To Deferred Depletion (Account No. 1817). 
 
 (Being 1/9 of Deferred Reserves for shutdown period.) 
 
 There may be additional Deferred Charges from time to time occasioned by 
 replacement of some extra part or parts, which may properly come under the 
 head of Extraordinary Repairs. For instance, a belt costing $1000 and hav- 
 ing an estimated life of two years ; it would be manifestly incorrect to charge 
 the entire cost of this belt to "Repair Materials" in the month replacement 
 took place. It should be charged to a Deferred Account in General Ledger 
 headed "Extraordinary Repairs— Deferred, " absorbing 1/24 each month as the 
 charge to "Repair Materials." Such deferred items should be dealt with as 
 determined by individual cases, the treatment here being purely advisory. 
 
 6S 
 
XIII 
 Forms 
 
 The forms illustrated on the following pages have been printed by the 
 Association, with the exception of the following: 
 
 Stores Ledger Cards (Complete outfit, including cards and 'cabinet 
 will be ordered when requested) 
 
 Stores Requisitions 
 Work Tickets or Time Cards 
 Job Order Envelopes 
 Voucher Checks. 
 
 These will be printed by Asso- 
 ciation where desired. 
 
 The following books should be prepared and supplied by Members: 
 General Ledger 
 Cash Book 
 General Journal 
 Purchase Journal 
 Coal Record 
 Gypsum Record 
 
 If desired, the Association will have any of the above books made up for 
 Member Companies. 
 
 The forms printed by the Association will be supplied members at actual 
 cost. 
 
 I 
 
 56 
 
 General Office 
 Records 
 
 57 
 
FORM No. 1 
 
 DR. 
 
 GENERAL 
 
 Dv 
 
 PARTICULARS 
 
 Folio 
 
 ACCOUNTS RECEIVABLE 
 
 Gross 
 
 Discount 
 
 Qonoral 
 
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 a 
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 a 
 
 3 
 
 I 
 
 DEPOSITS 
 
 IttNafl. 2nd Natl. 
 
 CASH BOOK 
 
 FORM No. 1— Continued 
 
 FOR THE MONTH OF 
 
 CR. 
 
 Day 
 
 PARTICULARS 
 
 Folio 
 
 ACCOUNTS PAYABLE 
 
 Gron 
 
 Diacount 
 
 Not 
 
 Gonoral 
 Ledgor 
 
 Cost 
 Ladgor 
 
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 68 
 
FORM No. 6 
 
 Trading and Profit and Loss Statement 
 
 For the Month of 
 
 
 
 TOTALS 
 
 Cost p«r Bt)l. 
 
 PARTICULARS 
 
 Unit 1 
 
 Amount 
 
 This Mo. 
 
 To Date 
 
 Invintoht: 
 Finished Cement: 
 Inventort: 
 Cost of Sales: 
 Gross Profit: 
 
 First of Month. 
 
 Production for Month. 
 
 Total 
 End of Month. 
 
 Carried Down. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Sales: 
 
 
 
 
 
 
 
 Cost of Sales: 
 Bag Cost: 
 Packing & Loading: 
 Sack Handling: 
 
 Selling Expenses: 
 General Expenses: 
 
 * 
 • 
 
 FinancialExpenses : 
 
 Net Operating 
 Proftt: 
 
 Sales for Month: 
 Extraneous Income: 
 
 Brought Down. 
 
 Cost on Board Cabs. 
 
 Sales Office Salaries. 
 Sales Office Expenses. 
 Salesmen's Salaries. 
 Salesmen's Expenses. 
 Advertising. 
 Cbmrnifwions. 
 Association Dues. 
 Sundry Expenses. 
 
 Executive Salaries. 
 Executive Expenses. 
 Office Salaries. 
 Office Expenses. 
 Stationery & Printing. 
 Telegraph 4 Telephone. 
 Postage. 
 Rent & Light. 
 Sundry Expenses. 
 
 Interest on Bonds. 
 Interest on Loans. 
 Bad Debts. 
 Discount on Sales. 
 
 Less Discount on Purchases. 
 
 Total Costs: 
 
 Carried Down. 
 
 Net Operating Profit. 
 Brought Down. 
 
 Rental Dwellings. 
 Interest on Investment. 
 Sales Scrap. 
 Commissary Profit. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ■ 
 
 
 
 
 
 
 
 
 
 
 Total Net Profit: 
 
 For Month. 
 
 
 
 
 
 
 
 FORM No. 7 
 
 Summary Statement of Costs 
 
 For the Month of 
 
 64 
 
 ELEMENT OF COST 
 
 TOTALS 
 
 Per bbl. Coment 
 
 Unit 
 
 Amount 
 
 This Mo. 
 
 To Date 
 
 Raw Material: 
 
 Labor: 
 
 Supplies: 
 
 Fuel: 
 
 Power, Light and 
 Water: 
 
 Mill Overhead: 
 
 Reserves: 
 Trading: 
 
 Profit and Loss: 
 
 Sales: 
 Extraneous Income 
 
 No. L 
 No. 2. 
 Gypsum. 
 
 Total 
 
 Operating. 
 Repair. 
 
 Total 
 
 Operating. 
 Repair. 
 
 Total 
 
 Drying Raw Material, 
 Drying Coal. 
 Clinker Burning. 
 
 Total 
 
 Total 
 
 Total Direct Cost of Production: 
 
 Superintendence. 
 
 Mill Office and Stores. 
 
 Laboratory. 
 
 Machine Shop Overhead. 
 
 Shut Down Expenses. 
 
 Miscellaneous. 
 
 Total 
 
 Insurance. 
 Taxes. 
 
 Depreciation. 
 Contingencies. 
 
 Total 
 
 Total Bin Cost: 
 Inventory 1st mo. 
 
 Total 
 Inventory end mo. 
 
 Cost of Sales: 
 Sack Cost. 
 
 Packing and Loading. 
 Sack Handling. 
 
 Cost on Board Cabs: 
 Selling Expenses. 
 General Expenses. 
 Financial Expenses. 
 
 Total Cost of Cement Sold: 
 Net Operating Profit, carried down. 
 
 For Month. 
 
 Net Profit bro't down 
 
 
 tons 
 tons 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 bbls 
 
 
 
 
 
 
 
 
 
 
 
 
 bbls 
 
 
 
 
 
 
 
 
 
 
 
 
 bbls 
 
 
 
 
 
 
 bbls 
 
 
 
 
 
 
 bbls 
 bbls 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 bbls 
 
 
 
 
 
 
 
 
 
 
 
 Total Net Profit 
 
 for month, estimated. 
 
 
 
 
 
 
 
 05 
 
FORM No. 8 
 
 Summary Statement of Operations 
 
 For the Month of 
 
 I 
 
 PARTICULARS. DEPARTMENTS or OPERATIONS 
 
 TOTALS 
 
 Cost per Unit 
 
 Unit 
 
 Amount 
 
 TMsMo. 
 
 To Date 
 
 Raw Material: 
 
 Raw Gbindino Deft. 
 
 cunkeb bubniho 
 Dept: 
 
 Clinkeb GaiNDiNa 
 Dept: 
 
 Mill Otsbheao: 
 
 RxsKBVXs: 
 TBAoma: 
 
 Pkofit and Loss: 
 
 Sales: 
 extranxottb income : 
 
 No. 1. 
 No. 2. 
 
 Total 
 
 Raw Material. 
 
 Crushing, Drying, Mixing and Grinding 
 
 Total 
 Burning, Cooling and Storing. 
 
 Gross Clinker Cost: 
 Add. Inventory 1st of mo. 
 
 Total 
 Inventory, end of month. 
 
 Net Cost or Clinkeb Ground. 
 
 Gypsum. 
 CUnker Grinding. 
 
 Total 
 
 Total Direct Cost of Pboouction. 
 
 Superintendence. 
 
 Mill Office and Stores. 
 
 Laboratory. 
 
 Machine Shop Overhead, 
 
 Shut-down Expenses. 
 
 Miscellaneous. 
 
 Total 
 
 Insurance. 
 
 Taxes. 
 
 Depreciation. 
 
 Contingencies. 
 Depletion. 
 
 Total 
 
 Total Bin Cost. 
 Inventory, Ist of mo. 
 
 Total 
 Inventory, end of mo. 
 
 Cost of Sales: 
 Sack Cost. 
 
 Packing and Loading. 
 Sack Handling. 
 
 Cost on Board Cabs: 
 Selling Expenses. 
 General Expenses. 
 Financial Expenses. 
 
 Total Cost of Cement Sold: 
 Net Operating Profit, carried down. 
 
 For Month. 
 
 Net Operating Profit, brot. down. 
 
 
 tons 
 tons 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 bbls 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 bbis 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 bbls 
 bbls 
 
 
 
 
 
 
 bbls 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 bbls 
 
 
 
 
 
 
 
 
 
 
 
 Total Net PaonT: 
 
 for month, estimated. 
 
 
 
 
 
 
 
 66 
 
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FORM No. 10 
 Balance Sheet 
 
 ASSETS 
 
 
 
 
 Cash: 
 
 First National Bank. 
 Second National Bank. 
 Petty Cash. 
 
 Bills Receivable: 
 Trade. 
 Sundry. 
 
 Accounts Receivable: 
 
 Less, Reserve for Doubtful Accounts. 
 Sundry. 
 
 Inventories: 
 
 Finished Cement. 
 Raw Materials: 
 
 Coal. 
 Gypsum. 
 Stores. 
 Investments: 
 
 Sundbt: 
 
 TOTAL CURRENT ASSKl'S: 
 
 Deferred Assets: 
 
 Work in Process: 
 
 R. M. No. 1. 
 R. M. No. 2. 
 Clinker. 
 Stores Parts. 
 
 Prepaid Items: 
 
 Taxes. 
 
 Insurance. 
 Capital Assets: 
 
 Packages: 
 
 Cloth. 
 
 Paper. 
 
 Deferred Cost 
 
 Mill Buildings. 
 Dwellings. 
 
 Less Reserve for Depreciation. 
 
 • 
 
 Mill Machinery. 
 
 Less Reserve for Depreciation. 
 Plant Real Estate. 
 Quarry Properties. 
 
 Less Reserve for Depletion. 
 
 Quarry Equipment. 
 
 Less Reserve for Depreciation. 
 
 XX 
 XX 
 
 
 XX 
 XX 
 
 
 XX 
 XX 
 
 XX 
 
 XX 
 XX 
 
 XX 
 
 
 XX 
 XX 
 
 
 XX 
 XX 
 
 
 XX 
 XX 
 
 
 XX 
 XX 
 XX 
 
 
 XX 
 XX 
 
 XX 
 XX 
 XX 
 XX 
 
 
 XX 
 XX 
 
 
 XX 
 XX 
 
 XX 
 
 
 XX 
 
 XX 
 
 
 XX 
 XX 
 XX 
 
 
 XX 
 
 XX 
 
 XX 
 XX 
 
 XX 
 XX 
 
 
 XX 
 XX 
 
 
 XX 
 XX 
 
 
 XX 
 XX 
 
 
 XX 
 XX 
 
 
 XX 
 XX 
 
 
 
 
 
 
 
 
 
 
 
 $xx 
 
 
 68 
 
 FORM No. 10— (Continued) 
 
 As at January 31. 1917 
 
 LIABILITIES 
 
 Accrued Items: 
 
 Wages (2nd week). 
 Taxes. 
 Insurance. 
 Bond Interest. 
 
 Bills Payable: 
 
 Accrued Interest. 
 
 Loans Payable: 
 
 Accounts Payable: 
 Trade. 
 Sundry. 
 
 TOTAL CURRENT LIABILITIES: 
 
 Reserves: 
 
 Contingencies. 
 
 Capital Liabilities: 
 
 Bonds. 
 Capital Stock: 
 
 Surplus: 
 
 Authorized. 
 Unissued. 
 
 Outstanding. 
 
 January 1st. 
 
 Less Dividend No. 1. 
 
 Profit for Jany. per P, 
 & L. Statement. 
 
 XX 
 XX 
 
 XX 
 XX 
 
 XX 
 
 XX 
 XX 
 
 XX 
 XX 
 
 XX 
 XX 
 XX 
 XX 
 
 XX 
 XX 
 
 XX 
 XX 
 
 XX 
 
 XX 
 
 XX 
 
 XX 
 
 XX 
 
 XX 
 
 XX 
 
 XX 
 
 XX 
 
 $xx 
 
 69 
 
FORM No. 11 
 
 A. B. C. PORTLAND CEMENT CO. 
 
 No- 
 
 .191 
 
 The attached check is in full settlement of items or invoices listed below. 
 
 No Receipt Necessary. 
 
 Date 
 
 PARTICULARS 
 
 Ainount 
 
 Date 
 
 PARTICULARS 
 
 Ainount 
 
 DETACH AND DKPOSIT PBOMPTLT 
 
 No.. 
 
 .191 
 
 A. B. C. PORTLAND CEMENT CO. 
 
 Pay to 
 
 the order of_ 
 
 - Dollars 
 
 To the 
 First National Bakk, 
 Chicago, 111. 
 
 Treasurer 
 
 Mill Records 
 
 ^ ( 
 
 REVKBSX or CHECK 
 70 
 
 71 
 
r 
 
 ^ "S 
 
 
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FORM No. 14 
 
 Article. 
 
 DEBITS 
 
 Ordw 
 Na. 
 
 Rscflivtd 
 
 Fram Whom 
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 Tarn* 
 
 Prtet 
 per 
 UnH 
 
 Qmik 
 
 Minimum Stock- 
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 CREDITS 
 
 Date 
 DeilverMi 
 
 Raq'n 
 No. 
 
 Qtnn- 
 
 BALANCE 
 
 QuM. 
 
 Prici 
 
 a> 
 
 Top of Division Card 
 
 Bolta 
 
 FORM No. 141^ 
 
 Date Rec'd. 
 
 Quantity 0. K. 
 
 Price O. K 
 
 Charge 
 
 Ent. Stores Ledger- 
 
 Ent. Purch. JoumaL 
 
 Discoimt Date 
 
 Paid 
 
 Check No, 
 
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 FORM No. 17 
 
 > 
 
 Emp. No._ 
 
 - 
 
 TIME CARD 
 
 191 
 
 
 (Shop or Dep't) 
 
 Name 
 
 
 
 T?i»tp 
 
 
 
 Order No. 
 
 Department 
 
 CHARACTER OF WORK 
 
 Time 
 
 Amount 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 TOTAL HOURS 
 
 
 
 
 Approved 
 
 . 
 
 • 
 
 Foreman. 
 
 lit 
 
 ^fi 
 
 I 
 
 76 
 
 77 
 
FORM No. 18 
 
 Ortkr No. 191 
 
 WORK ORDER COSTS 
 
 
 
 
 
 
 Date Co^^rAMt-mA t 
 
 91 
 
 
 •••*»"-•- — 
 
 
 SUMMARY 
 
 LABOR 
 
 DATE 
 
 EMP. NO. 
 
 DEPARTMENT 
 
 AMOUNT 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 MATERIAL 
 
 DATE 
 
 REQ'N NO. 
 
 MATERIAL 
 
 AMOUNT 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Total G 
 
 Mt. 
 
 
 
 
 Charge "Stores" Account. 
 
 $ @ each 
 
 Envelope for "Work Order" CosU. 
 78 
 
 
 
 FORM No. 19 
 
 
 
 
 
 1 
 
 able of Power Distribution Total Power 
 
 H.P. 
 
 
 
 
 DEPARTMENT OR OPERATIONS 
 
 H. P. 
 
 DeliverMi or 
 
 Contumed 
 
 % 
 
 Monthly 
 
 Proportion of 
 
 TobU Power Cost 
 
 
 Raw Material No. 1: 
 
 Drilling and Blasting (Air) 
 Steam Shovel (Air), 
 Pumping Station. 
 
 
 
 
 
 
 Raw Matebial No. 2: 
 
 Drilling and Blasting (Air) 
 Steam Shovel (Air). 
 Pumping Station. 
 
 
 
 
 
 
 Raw Ghinding: 
 
 Crushing. 
 Drying. 
 Mixing. 
 Grinding. 
 
 
 
 
 
 
 CuNKEB Bubning: 
 
 Kilns. 
 Fans. 
 Coolers. 
 Conveyors. 
 
 
 
 
 
 
 Clinker Grinding: 
 
 Grinding. 
 Cement Storing. 
 
 
 
 
 
 
 Coal Preparing: 
 
 Dryers. 
 Grinding. 
 
 
 
 
 
 
 Packing and Loading: 
 
 
 
 
 
 
 
 Sack Handling: 
 
 
 
 
 
 
 
 Machine Shop: 
 
 
 
 
 
 
 
 Miscellaneous: 
 
 Village Lighting. 
 
 • 
 
 
 
 
 
 
 
 
 
 
 
 79 
 
FORM No. 20 
 
 Pay Roll Distribution Sheet 
 
 For Month of 
 
 GENERAL 
 Ladgar Accounts 
 
 Raw Material: 
 
 Raw Material No. 2: 
 Raw Grindino: 
 
 CuNKER Burninq: 
 
 Clinker GRiNDma: 
 Mill Overhead: 
 
 Power Light and Water: 
 
 Coal Preparing: 
 
 Machine Shop: 
 
 B. S. AND Carpenter Shop: 
 Floating Gang: 
 
 Packing and Loading: 
 Sack Handlino: 
 
 Credit Pat Roll: 
 
 COST 
 Ledger Accounts 
 
 Stripping and Clearing. 
 Drilling and Blasting. 
 Hand Loading. 
 Steam Shovel Loading. 
 Locomotive Hauling. 
 Cleaning Up. 
 Tracks and Cars. 
 
 Same as above. 
 
 Crushing. 
 
 Drying. 
 
 Mixing. 
 
 Grinding. 
 
 Storing. 
 
 Burning. 
 Cooling. 
 Storing. 
 
 Grinding. 
 Cemeni Storing. 
 
 Superintendence. 
 Mill, Office and Stores. 
 Laboratory. 
 
 Engineers. 
 
 Firemen. 
 
 Coal and Ash Handlers. 
 
 Unloading and Storing. 
 
 Diying. 
 
 Grinding. 
 
 Conveying. 
 
 Foreman. 
 Machinists. 
 
 Same as Machine Shop 
 
 Foreman. 
 Laborers. 
 
 Packers. 
 
 Truckmen. 
 
 Foreman. 
 
 Sorters. 
 Cleaners. 
 Repairws. 
 Tiers. 
 
 DR. 
 Coot 
 
 XXX 
 XXX 
 XXX 
 XXX 
 XXX 
 XXX 
 XXX 
 
 XXX 
 XXX 
 XXX 
 XXX 
 XXX 
 
 XXX 
 XXX 
 XXX 
 
 XXX 
 XXX 
 
 XXX 
 XXX 
 XXX 
 
 XXX 
 XXX 
 XXX 
 
 XXX 
 XXX 
 XXX 
 XXX 
 
 XXX 
 XXX 
 
 XXX 
 XXX 
 
 XXX 
 XXX 
 XXX 
 
 XXX 
 XXX 
 XXX 
 XXX 
 
 OR. 
 Gonoral 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 CR. 
 General 
 
 Ledger 
 
 XXX 
 
 XXX 
 
 XXX 
 
 FORM No. 21 
 
 Repair Labor Distributing Sheet 
 
 For Month of 
 
 GENERAL 
 Lodger Accounts 
 
 COST 
 Ledger Accounts 
 
 DR. 
 
 Cost 
 
 Ledger 
 
 V 
 
 DR. 
 General 
 Ledger 
 
 V 
 
 CR. 
 General 
 Ledger 
 
 Raw Material No. 1: 
 
 Stripping and Clearing. 
 Drilling and Blasting. 
 Hand Loading. 
 Steam Shovel Loading. 
 Locomotive Hauling, 
 Etc. 
 
 XXX 
 XXX 
 
 XXX 
 XXX 
 XXX 
 XXX 
 
 
 XXX 
 
 
 
 
 Raw ALlterial No. 2: 
 
 Same as above. 
 
 
 
 
 
 
 
 
 
 Raw Grinding: 
 
 Crushing. 
 Drying. 
 Mixing. 
 Grinding. 
 
 XXX 
 XXX 
 XXX 
 XXX 
 
 
 
 XXX 
 
 
 
 
 
 Clinker Burning: 
 
 Burning. 
 Cooling. 
 Storing. 
 
 ; XXX 
 
 XXX 
 XXX 
 
 
 
 XXX 
 
 
 
 
 
 Clinker Grinding: 
 
 Grinding. 
 Cement Storing. 
 
 XXX 
 XXX 
 
 
 
 XXX 
 
 
 
 
 
 Power, Light and Water: 
 
 Engines. 
 
 Boilers. 
 
 Mechanical Stokers. 
 
 Ash and Coal Handling Machy. 
 
 xxx 
 
 XXX 
 XXX 
 XXX 
 
 
 
 XXX 
 
 
 
 
 
 Coal Preparino: 
 
 Crane. 
 
 Dryers. 
 
 Grinding Machinery. 
 
 XXX 
 XXX 
 XXX 
 
 
 
 XXX 
 
 
 
 
 
 Packing and Loading: 
 
 
 XXX 
 
 
 
 XXX 
 
 
 
 
 
 Sack Handling: 
 
 
 XXX 
 
 
 
 XXX 
 
 
 
 
 
 Employes' Dweij.tngs: 
 
 Exi>ense. 
 
 
 
 
 XXX 
 
 
 
 
 
 Mill Overhead: 
 
 Machine Shop Overhead, being 
 balance of undistributed 
 items. 
 
 XXX 
 
 
 
 XXX 
 
 
 
 
 
 Credit Machine Shop (or 
 B. S. orCarp.): 
 
 Being total Debit to this ac- 
 count as shown by Summary 
 Account in Auxiliary Section 
 of Cost Ledger. 
 
 
 
 
 
 
 
 XXX 
 
 
 
 
 XXX 
 
 
 
 XXX 
 
 
 
 XXX 
 
 
 SI 
 

 I 
 
 I 
 
 FORM No. 22 
 
 Operating Material and Supplies Distribution Sheet For MontK of 
 
 GENERAL 
 LadflM' Accounts 
 
 COST 
 Ladgtr Aeeounts 
 
 OR. 
 
 CmI 
 
 LMigw 
 
 V 
 
 DR. 
 GMMral 
 LMlgw 
 
 V 
 
 CR. 
 GMwral 
 
 Raw Matebial No. 1: 
 
 Stripping and Clearing. 
 Drilling and Blasting. 
 Steam Shovel Loading. 
 Locomotive Hauling, 
 Etc. 
 
 XXX 
 
 XXX 
 XXX 
 XXX 
 XXX 
 
 
 XXX 
 
 
 
 
 Raw Material Xo. 2: 
 
 Same as above. 
 
 
 
 
 
 
 
 
 
 Raw Gbindinq: 
 
 Crushing. 
 Grinding. 
 
 XXX 
 XXX 
 
 
 
 XXX 
 
 
 
 
 
 CUNKXB BURNINO: 
 
 Burning. 
 Cooling. 
 
 XXX 
 XXX 
 
 
 
 XXX 
 
 
 
 
 
 Clinkeb Gbindinq: 
 
 Grinding. 
 
 XXX 
 
 
 
 XXX 
 
 
 
 
 
 Mill Ovxrhxad: 
 
 Mill Office and Stores. 
 Laboratory. 
 
 XXX 
 XXX 
 
 
 
 XXX 
 
 
 
 
 
 Power, Lioht an© Water: 
 
 Oil and Grease. 
 
 Brooms. 
 
 Waste. 
 
 XXX 
 XXX 
 XXX 
 
 
 
 XXX 
 
 
 
 
 
 Coal Przpartno: 
 
 Oil and Grease. 
 Shovek. 
 
 XXX 
 XXX 
 
 
 
 XXX 
 
 
 
 
 
 Pacstnq and Loaoino: 
 
 
 XXX 
 
 
 
 XXX 
 
 
 
 
 
 Sack Handlinq: 
 
 
 xzx 
 
 
 
 XXX 
 
 
 
 
 
 Raw Material No. 1: 
 
 Drilling and Blasting. 
 
 zxx 
 
 
 
 XXX 
 
 
 
 
 
 Raw Material No. 2: 
 
 Stripping and Clearing (ex- 
 plosives). 
 
 XXX 
 
 
 
 XXX 
 
 
 
 
 
 CREDIT Stores: 
 
 
 
 
 
 
 
 
 XXX 
 
 
 CREDIT Explosives: 
 
 (If separate Inventory Account 
 is carried). 
 
 
 
 
 
 
 
 XXX 
 
 
 
 
 XXX 
 
 
 XXX 
 
 
 XXX 
 
 
 88 
 
 FORM No. 23 
 
 Repair Materials and Supplies Distribution Sheet For Month of 
 
 GENERAL 
 Ledger Accounts 
 
 Raw Material No. 1: 
 
 Raw Material No. 2: 
 
 Raw Grinding: 
 
 Clinker Burning: 
 
 Clinker Grinding: 
 
 Power, Light and Water: 
 
 COST 
 Ledger Accounts 
 
 Steam Shovel Loading: 
 Locomotive Hauling. 
 Drilling and Blasting. 
 
 Stripping and Clearing. 
 Tracks and Cars. 
 
 Coal Preparing: 
 
 Packing & Loading 
 
 Sack Handling: 
 
 EuFLOTEs' Dwellings: 
 
 CREDIT Stores: 
 
 Crushing. 
 
 Drying. 
 
 Grinding. 
 
 Burning. 
 Cooling. 
 
 Grinding. 
 
 Boilers. 
 
 Engines. 
 
 Mechanical Stokers. 
 
 Coal and Ash Handling Machy 
 
 Crane. 
 
 Dryers. 
 
 Grinding Machinery. 
 
 DR. 
 
 Cost 
 
 Ledger 
 
 XXX 
 XXX 
 XXX 
 
 XXX 
 XXX 
 
 XXX 
 XXX 
 XXX 
 
 XXX 
 XXX 
 
 XXX 
 
 XXX 
 XXX 
 XXX 
 XXX 
 
 XXX 
 XXX 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 DR. 
 General 
 Ledger 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 CR. 
 General 
 Ledger 
 
 XXX 
 
 xxxx 
 
 88 
 
FORM No. 24 
 
 Reserve Distribution Sheet 
 
 For Month of 
 
 GENERAL 
 Ledger Accounts 
 
 cost 
 
 Ledger Accounts 
 
 DR. 
 Cwt 
 
 V 
 
 DR. 
 G«iar«l 
 Ledger 
 
 V 
 
 CR. 
 General 
 Ledger 
 
 Raw Material No. 1: 
 
 Depletion. 
 Depreciation. 
 
 XXX 
 XXX 
 
 
 XXX 
 
 
 
 
 Reserve for Depletion: 
 
 . 
 
 
 
 
 
 
 
 XXX 
 
 
 Reserve for Depreciation: 
 
 Quarry Equipment. 
 
 
 
 
 
 
 
 XXX 
 
 
 Raw Materlu. No. 2: 
 
 Same as above. 
 l-12th Annual Charge. 
 
 
 
 
 
 
 
 
 
 Raw Material No. 1: 
 
 Insurance. 
 Taxes. 
 
 XXX 
 XXX 
 
 
 
 XXX 
 
 
 
 
 
 Reserve for Insurance: 
 
 
 
 
 
 
 
 
 XXX 
 
 
 Reserve for Taxes: 
 
 
 
 
 
 
 
 
 XXX 
 
 
 Raw Material No. 2: 
 
 Same as above. 
 
 l-12th Est. Annual Charge. 
 
 
 
 
 
 
 
 
 
 Reserves: 
 
 Depreciation, Biuldings. 
 Depreciation, Machinery. 
 Insurance. 
 Taxes. 
 
 XXX 
 XXX 
 XXX 
 XXX 
 
 
 
 XXX 
 
 
 
 
 
 Employes' Dwellings: 
 
 Depreciation. 
 
 Insurance. 
 
 Taxes. 
 
 
 
 
 XXX 
 XXX 
 XXX 
 
 
 
 
 
 Reserve for Depreciation: 
 
 Buildings. 
 
 
 
 
 
 
 
 XXX 
 
 
 Reserve for Depreciation: 
 
 Machinery. 
 
 
 
 
 
 
 
 XXX 
 
 
 Reserve for Depreciation: 
 
 Dwellings. 
 
 
 
 
 
 
 
 XXX 
 
 
 Reserve for Insurance: 
 
 Liability. 
 
 
 
 
 
 
 
 XXX 
 
 
 Reserve for Insurance: 
 
 Fire. 
 
 
 
 
 
 
 
 XXX 
 
 
 Reserve for Taxes: 
 
 l-12th Est. Annual Charge. 
 
 
 
 
 
 
 
 XXX 
 
 
 
 
 XXX 
 
 
 
 XXX 
 
 
 
 XXX 
 
 
 84 
 
 FORM No. 25 
 
 (Miscellaneous) Distribution Sheet 
 
 For Month of 
 
 GENERAL 
 Ledger Accounts 
 
 COST 
 Ledger Accounts 
 
 Raw Material No. 1: 
 
 Raw Material No. 2: 
 Raw Grindinq: 
 
 CuNKER Burning: 
 
 Clinker Grinding: 
 Coal Preparing: 
 
 Packing and Loading: 
 
 Sack Handling: 
 
 Power, Light and Water: 
 
 Raw Material No. 1. 
 
 Raw Material No. 2: 
 Raw Grinding: 
 Coal Preparing: 
 
 Power, Light and Water: 
 Coal: 
 
 CuNKER Burning: 
 Coal Preparing: 
 
 Raw Material No. 1: 
 
 Mill Overhead: 
 Floating Gang: 
 
 CuNKER Grinding: 
 Gtpsum: 
 
 Drilling and Blasting (Air). 
 Steam Shovel Loading (Air). 
 
 Stripping and Clearing. 
 
 Crushmg. 
 Drying. 
 Mixing. 
 Storing. 
 
 Burning. 
 Cooling. 
 Storing. 
 
 Grinding. 
 Cement Storing. 
 
 Drying. 
 
 Grinding. 
 
 Conveying. 
 
 DR. 
 
 Co*t 
 
 Ledger 
 
 Power Distribution for Month. 
 
 Drilling and Blasting. 
 Steam Shovel Loading. 
 Locomotive Hauling. 
 
 Same as above. 
 
 Drying. 
 
 Drying. 
 Unground Coal. 
 
 Steam Coal. 
 
 Coal Distribution for Month. 
 
 Transfer of Clinker. 
 
 Burning Fuel Cost for Month. 
 
 Hand Loading. 
 Cleaning up. 
 
 Maintenance Yards. 
 
 Distribution of Floating Gang 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 XXX 
 XXX 
 XXX 
 
 XXX 
 XXX 
 XXX 
 
 XXX 
 XXX 
 
 XXX 
 XXX 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 XXX 
 XXX 
 
 XXX 
 
 XXX 
 XXX 
 
 XXX 
 
 Labor for Month. 
 Gypsum. 
 
 XXX 
 
 XXX 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 
 85 
 
 t 
 
 ■''^^.i.ll 
 
 DR. 
 General 
 Ledger 
 
 XXX 
 XXX 
 
 XXX 
 
 XXX 
 XXX 
 
 XXX 
 XXX 
 XXX 
 
 CR. 
 General 
 Ledger 
 
 XXX 
 
 XXX 
 
 XXX 
 XXX 
 
 XXX 
 
 XXX 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 XXX 
 
 • I 
 
 _J 
 
 \#-v 
 
XIV 
 Package Accounting 
 
 Probably no one feature connected with the Cement Industry has received 
 the attention or has been the subject of more discussion than that of Sacks. 
 At any meeting or gathering of cement men, the sack problem will eventually 
 arise. The increased and constantly rising costs of sacks during the past year 
 has but added to the problem of properly treating sack cost in accounts. When it 
 was possible to purchase sacks at less than 10c and recover 10c from the cus- 
 tomer for sacks not returned, no loss ensued. Even under this condition, the 
 accounting of sacks presented many vexing problems. With the increased cost, 
 however, new conditions must be met and accounting procedure formulated that 
 will eliminate any loss arising where shipments are made in sacks costing more 
 than 10c. To meet this condition, two plans are submitted, both plans, however, 
 accomplish the same result, i. e., the prevention of any loss arising from increased 
 cost of sacks. 
 
 To Absorb Cost in Excess of 10c : 
 
 This plan is the result of a Resolution offered by a Member Company at a 
 meeting of the Committee on Uniform Cost Accounting held at Atlantic City, 
 June 29th, and contemplates the inclusion in costs any excess sack cost above 
 10c. Under this method, it will be necessary to carry the difference between 
 10c and the actual cost of sacks, as a -deferred item, to be absorbed as new sacks 
 are shipped out. It follows, therefore, that it will be necessary in utilizing this 
 method to separate sack shipments as between second-hand and new sacks. 
 
 In applying this method, let us assume the following statement of facts: 
 
 100,000 sacks are purchased —at 20c $20,000.00 
 
 50,000 sacks are used in shipments — at 20c 10,000.00 
 
 25,000 sacks are returned by customers — at 10c 2,500.00 
 
 Therefore, the entries to record the above transaction would be as follows : 
 
 Sacks Purchased: 100,000 at 20c $20,000 
 
 Dr. Sack Inventory $10,000.00 
 
 Dr. Deferred Sack Loss 10,000.00 {Account No. 182.) 
 
 To Accounts Payable $20,000.00 
 
 Sacks Shipped: 50,000 at 20c $10,000 
 
 Dr. Accounts Receivable 5,000.00 
 
 Dr. Accrued Sack Loss 5,000.00 {Account No. 421.) 
 
 To Sack Inventory 5,000.00 
 
 To Deferred Sack Loss 5,000.00 
 
 Sacks Returned: 25,000 at 10c $2,500.00 
 
 Dr. Sack Inventory 2,500.00 
 
 To Accounts Receivable. 
 
 Sack Inventory: 
 
 New —50,000 at 10c $5,000.00 
 
 2nd hand— 25,000 at 10c 2,500.00 
 
 75,000 $7,500:00 
 
 2,500.00 
 
 (as ascertained from 
 Deferred Sack Loss 
 Account.) 
 
 86 
 
 After the foregoing entries are made, the General Ledger accounts affected 
 would appear as below: 
 
 Sack Inventory. 
 
 To Accounts Pay- 
 able 100,000 $10,000.00 
 
 To Accounts Re- 
 ceivable 25,000 2,500.00 
 
 By Accounts Re- 
 ceivable .... 50,000 $ 5,000.00 
 
 Accounts Payable. 
 
 By Sack Inven- 
 tory 
 
 20,000.00 
 
 Deferred Sack Loss. 
 
 To Accounts Pay- |l By Sack Loss Ac- 
 able 100,000 $10,000.00 1 1 count 50,000 
 
 5,000.00 
 
 Accrued Sack Loss. 
 
 To Deferred Sack 
 Loss 
 
 $ 5,000.00 
 
 Accounts Receivable. 
 
 To Sack Inventory $ 5,000.00 || By Sack Inventory 
 
 2,500.00 
 
 Trial Balance. 
 
 Sack Inventory— 75,000 Sacks $ 7,500.00 
 
 Accounts Payable 
 
 Deferred Sack Loss 5,000.00 
 
 Accrued Sack Loss (to be included in costs) 5,000.00 
 
 Accounts Receivable 2,500.00 
 
 $20,000.00 
 
 $20,000.00 
 
 $20,000.00 
 
 In utilizing this method, it will be necessary to adjust the Sack Inventory 
 to a 10c basis, i. e., assuming at the time of the adoption of this method that Sack 
 Inventory or Sack Account showed an asset balance of 100,000 sacks, with a book 
 value of $8,000.00, or 8c each ; the entry to write up the value of sacks to a 10c 
 basis would be: 
 
 Dr. Sack Inventory . 
 To Surplus 
 
 .$2,000.00 
 
 $2,000.00 
 
 If the present Inventory shows an excess over 10c it would be necessary to 
 charge Deferred Sack Loss with the difference and credit Inventory. 
 
 Under the foregoing method, only the excess above 10c would be included 
 in the costs. The accrued sack loss — on basis of sacks shipped for month — 
 would be charged to Account No. 421, "Sack Cost". 
 
 87 
 
tl 
 
 This is a simple method of handling this item, but there still remains the 
 fact that total sack cost is not shown in the Profit and Loss Statement, and 
 before the total "Cost of Cement Shipped for Month" can be shown, 10c must 
 be mentally added to such total cost before final cost can be known. This is 
 especially true in the preparation of the Summary Account showing total costs 
 of Cement in Bulk, Cloth or Paper. 
 
 Let us now take up the second method: 
 
 Total Package Cost to be Incx.uded in Costs : 
 
 From a strict accounting standpoint, this method would seem the purer and 
 is the one advocated by the Cost Accountant. 
 
 In the Manufacture of Cement (or any other commodity) we have but 
 three elements to consider, i. e.: 
 
 (1) Raw Material, 
 
 (2) Productive Labor, 
 
 (3) Overhead or burden (non-productive labor, materials and 
 
 expenses). 
 
 In the Marketing of Cement (or any other commodity) there enters, as 
 additional costs, the following : 
 
 (1) Selling Expenses, 
 
 (a) Salaries, 
 
 (6) Expenses, 
 
 (c) Packages (Sacks). 
 
 (2) General Expenses, 
 
 (3) Financial Expenses. 
 
 Of the above, we are concerned with but one item of cost in this discussion, 
 i. e., Packages or Sacks. There is absolutely no difference in the treatment of 
 this item in the cement industry from that employed in other lines of industry, 
 except, that in the purchase of sacks we do not confine ourselves to purchases of 
 sacks from the manufacturer exclusively, but, by long established practice, and 
 trade conditions, we have agreed to purchase from customers such second-hand 
 sacks as are returned to us in good serviceable condition. 
 
 If the Companies did not agree to re-purchase such second-hand sacks from 
 their customers, the customer would then have to sell his sacks in the open mar- 
 ket for what they would fetch ; this would, in effect, create a dealer in second- 
 hand sacks. It is to assure customers a fixed price for his sacks that the long 
 existing arrangement between customer and the manufacturer of cement for 
 the re-purchase of sacks has been continued, and, from an economic standpoint, 
 there is no reason for the abrogation of such an agreement. 
 
 The foregoing is, of course, purely a hypothetical condition, and is merely 
 given as an illustration of conditions from an accounting viewpoint. Let us 
 now take up the accounting of sacks upon the foregoing hypothesis : 
 
 Sacks are purchased — 
 
 (a) New, from the manufacturer. 
 (&) Second-hand, from customers. 
 
 88 
 
 I 
 
 We also purchase coal (another large item of cost) but in the treatment of 
 this item we follow proper accounting methods or principles. What is the pro- 
 cedure? We open an Inventory Account, debiting it with all purchases (at 
 varying prices) and credit this account with the consumption (at an average 
 price). Why treat the sack account differently? 
 
 As sacks are purchased either new or second-hand, debit Sack Account, and 
 when shipped out (whether new or second-hand), why not credit Sack Inven- 
 tory Account (at an average price) and charge Sack Cost Account? The result- 
 ant balance of this account would, at all times, represent the Inventory value 
 (at an average price), just as your Stores, Coal, Gypsum or other materials and 
 supplies are taken. Sacks are just as much an item of cost as Labor, Coal or 
 Supplies (in fact greater). If the customer desires his shipment packed 
 in cloth, or paper, he should pay for the service, and such charge should be 
 represented in the total cost figure, the same as any other element of cost. By 
 including such sack cost in monthly costs, we get a total cost figure on which we 
 can meet or fix a sale price. 
 
 If the price of labor, coal or other materials advance, such increased cost 
 is reflected in the montUy cost figures, as ascertained from the monthly Cost 
 Sheet and Profit & Loss Account, but in none of these statements is the sack cost 
 now shown or known. To quote a price for cement in bulk, paper or cloth, a 
 mass of mental arithmetical stunts is necessary to arrive at an estimated (and 
 often erroneous) sale price for cement so packed or in bulk. 
 
 Should this method be adopted, it would be necessary to show in Trading 
 Account as "Sales" the proportion of Cement and Sacks, the total of the two 
 representing total charge to "Accounts Receivable". Under the first method, 
 the total sales would represent the net cement sales only, plus any amount cov- 
 ering excess cost of sacks. As all Sales in the past have carried no proportion 
 of sack costs, but net cement sales, it will be seen that segregation of sales under 
 the second method would be necessary to prevent inflation of sales by the inclu- 
 sion of the total sack cost, and thus have the effect of destroying comparative 
 figures with previous years' where sack cost was not included in Cement Sales 
 Account. An illustration of the operation of the second method is given below : 
 
 100,000 sacks are purchased at 16c $16,000.00 
 
 100,000 sacks are purchased at 20c 20,000.00 
 
 50,000 sacks are returned by customers at 10c .... 5,000.00 
 50,000 sacks are shipped out at an average price 
 
 of .1640 12,300.00 
 
 The entries to record the above transactions would be as follows: 
 
 Sacks PurcJiased: 
 
 100,000 at 16c $16,000.00 
 
 100,000 at 20c 20,000.00 
 
 50,000 at 10c 5,000.00 (returned by customer) 
 
 Average cost .1640. 
 
 Dr. Sack Inventory $41,000.00 
 
 To Accounts Payable 36,000.00 
 
 To Accounts Receivable 5,000.00 
 
 250,000 sacks purchased at varying prices. 
 
 89 
 
Sacks Shipped: 
 
 75,000 at .1640 (average cost) 
 
 Dr. Accounts Receivable $12,300.00 
 
 To Sack Inventory 12,300.00 
 
 Cost of 75,000 sacks used in shipments for month. 
 
 The Ledger Accounts after the above transactions have been completed 
 would appear as below: 
 
 Sack Inventoet. 
 
 To Accounts Pay- 
 able 100,000 $16,000.00 
 
 To Accounts Pay- 
 able 100,000 20,000.00 
 
 To Accounts Re- 
 ceivable 50,000 5,000.00 
 
 By Sack Cost, 75,000 at 
 
 .1640 $12,300.00 
 
 (This entry through 
 General Journal at 
 end of month.) 
 
 Accounts Payable. 
 
 By Sack Inventory 16,000.00 
 
 By Sack Inventory 20,000.00 
 
 Sack Cost. 
 
 To Sack Inventory, 75,000. $12,300.00 
 (This entrj' through General 
 Journal at end of month.) 
 
 Accounts Receivable. 
 
 To Sack Sales $12,300.00 
 
 By Sack Inventory 5,000.00 
 
 (Sacks returned.) 
 
 Sack Sales. 
 
 By Accounts Re- 
 ceivable, 75,000 12,300.00 
 
 90 
 
 Trial Balance. 
 
 Sack Inventory— 75,000 $28,700.00 
 
 Accounts Payable $36,000.00 
 
 Sack Cost (to be entered in first section of Profit & Loss 
 
 Accounts) 12,300.00 
 
 Accounts Receivable 7,300.00 
 
 Sack Sales (to be included in total sales in Trading Ac- 
 count) 12,300.00 
 
 $48,300.00 $48,300.00 
 
 There is still a third method that was suggested at the Atlantic City meet- 
 ing, i. e., to carry the excess cost above 10c to a deferred account as in the first 
 method, but to absorb it by equal monthly charges during the year, charging 
 Sack Cost and crediting the Deferred Account. The latter method, however, is 
 not recommended. As the first two methods are very similar as to final results, 
 either may be adopted, and if used, certainly the Sack Cost will be cared for with 
 but little trouble, much useless bookkeeping eliminated and true costs ascer- 
 tained. 
 
 Ql 
 
XV 
 
 Procedure in Opening Accounts and Installing System 
 
 The following procedure is recommended in opening accounts and in instal- 
 ling system. It is assumed that the necessary books, i. e., 
 
 Cash Book, 
 
 General Ledger, 
 
 Cost Ledger, 
 
 Purchase Journal, 
 
 General Journal, 
 
 Sales and Sack Return Records, 
 
 have been prepared and that all forms have been received from the Association. 
 The first step would be the opening of the General Ledger : 
 
 Assets and Liabilities : 
 
 From the last Balance Sheet bring forward all Asset and Liability Accounts, 
 opening such accounts in the order shown by the Balance Sheet, except the fol- 
 lowing Inventory Accounts : 
 
 Raw Material No 
 Raw Material No. 2 
 
 ;}« 
 
 quarried, mined or produced 
 at Mill, these accounts would 
 be represented by these head- 
 ings in the Operating Sec- 
 tion. 
 
 If materials are purchased, enter with other Inventory Accounts of materials 
 and supplies purchased. 
 
 Clinker This is the balance of Clinker 
 
 Burning Account and ap- 
 pears in Operating or Manu- 
 facturing Section. 
 
 Operating and Manufacturing Accounts: 
 
 Next head of Manufacturing Controlling Accounts as below : 
 
 Raw Material No. 1. 
 Raw Material No. 2. 
 Raw Grinding. 
 Clinker Burning. 
 Finished Grinding. 
 Mill Overhead. 
 Reserves. 
 Finished Cement. 
 
 98 
 
 The Auxiliary Accounts will come next, so therefore head up the following 
 accounts : 
 
 Coal Preparing. 
 
 Power, Light and Water. 
 
 Machine, Blacksmith and Carpenter Shop. 
 
 (Three separate accounts may be opened if desired.) 
 
 Floating Gang. 
 
 Then head up the accounts relating to Trading and Profit and Loss Sections, 
 as below: 
 
 Trading Account. (A Summary Account— See de- 
 scription.) 
 Cement Inventory. 
 Cement Sales. 
 Sack Sales. (See Chapter, "Package Accounting.") 
 
 Allowances. 
 
 Sack Cost. (See Chapter, "Package Accounting.") 
 
 Packing and Loading. 
 
 Sack Handling. 
 
 Selling Expense Accounts. 
 
 (See Chart of Accounts) Nos. 451-459 are suggested. 
 General & Administrative Expense Accounts. 
 
 (See Chart of Accounts) Nos. 461-469 are suggested. 
 General Expenses. 
 
 (See Chart of Accounts) Nos. 471-479 are suggested. 
 Extraneous Income. 
 
 (See Chart of Accounts) Nos. 481-489 are suggested. 
 
 It might be weU to divide the General Ledger by index tabs, such division 
 
 being as follows: 
 
 Assets. 
 Liabilities. 
 Manufacturing. 
 Trading. 
 Profit and Loss. 
 
 The next step would be to decide just what records are to be kept at the 
 MiU. Naturally the Coal record, Gypsum record and Stores Ledger should be 
 handled by the Mill Office. If so, the mill clerk should read carefully the chapter 
 relating to the books and forms kept at the Mill and other instructions. The 
 Cost Ledger should next be opened (if detailed costs and Cost Sheets are de- 
 sired, otherwise, the monthly Summary Accounts may be utilized instead of 
 Cost Sheets.) The first section (with two divisions) represents Quarrying or 
 Mining Costs; therefore open all accounts relating to: 
 
 Raw Material No. 1 : 
 
 From the Chart of Accounts head accounts Nos. 511-519 and, if desired 
 optional accounts Nos. 5111 to 5119. 
 
 08 
 
Raw Material No. 2 : 
 
 The same remarks apply to this account, using Chart of Accounts Nos. 
 521-529, and Optional Accounts Nos. 5211-5219. 
 
 Mill Accounts: 
 
 The same procedure in heading up these accounts is observed. Chart of 
 Accounts Nos. 611-659, and Optional Accounts 6111-6519 are recommended. 
 
 Auxiliary Accounts: 
 
 Head up these accounts as shown by Chart of Accounts, using Nos. 711-779 
 and Optional Accounts Nos. 7111-7219. No Optional Accounts for the last five 
 Auxiliary Accounts are suggested or recommended. 
 
 Memorandum Account Section: 
 
 Open up detailed accounts covering Packing and Loading, using Accounts 
 Nos. 431-439 and Optional Accounts Nos. 4311-4319. 
 
 Open up detailed accounts covering Sack Handling, using Accounts Nos. 
 441-449 and Optional Accounts Nos. 4411-4419. 
 
 Inventory Section: 
 
 Head up Inventory Accounts for: 
 
 Raw Material No. 1. 
 Raw Material No. 2. 
 Clinker. 
 Cement. 
 
 It is advisable to sub-divide this ledger by index tabs, as below. Use the 
 following general divisions: 
 
 Raw Material No. 1. 
 
 Raw Material No. 2. 
 
 Mill. 
 
 Auxiliary. 
 
 Memorandum. 
 
 Inventory. 
 
 If desired, further sub-divisions by tabs are recommended: 
 
 Mill: 
 
 Raw Grinding. 
 Clinker. 
 Finishing. 
 Overhead. 
 Reserves. 
 Auxiliary : 
 
 Coal Preparing. 
 Power, Light, Water. 
 Machine Shop. 
 Blacksmith Shop. 
 Carpenter Shop. 
 Floating Gang. 
 R. R. and Switching. 
 
 84 
 
 Memorandum : 
 
 Packing and Loading. 
 Sack Handling. 
 
 Inventory : 
 
 Raw Material No. 1. 
 Raw Material No. 2. 
 Clinker. 
 Cement. 
 
 A new transparent tab known as "Mak-ur-own" is recommended and will 
 be furnished if desired. 
 
 All is now ready for the utilization of the different books, and forms ; the 
 descriptive text in previous Chapters gives full information relative to their 
 use and utilization. Too much care and time cannot be given to the first month's 
 operation of the system for if properly carried through, no subsequent trouble 
 should be experienced. It must be realized, however, that every point or subject 
 cannot be fully covered in any book, therefore the Accountant or Bookkeeper 
 is urged to take up with the Cost Accountant of the Association any matters 
 or details not thoroughly understood. This will save time and prevent the com- 
 pounding of errors of principle in subsequent months. 
 
 For purpose of comparison, it is recommended that monthly Cost Sheets be 
 prepared for each month of 1917. This will also expedite the getting of costs 
 "to date" when preparing Cost Sheets for 1918. 
 
 95 
 
XVI 
 
 Depreciation, Depletion and Appraisals 
 
 .>» 
 
 f 
 
 The following artides are reprinted from "Industrial Management'' ex- 
 cept article on Depreciation, which is freely quoted from "Income Tax Proce- 
 dure" and "Accounting, Theory and Practice" by Mr. R. H. Montgomery, C. P. 
 A., N. Y., and published by the Ronalds Press, New York. 
 
 The Committee feels that the subjects are of sufficient importance to war- 
 rant the space allotted in this Chapter. In addition to the special articles on 
 Depreciation, and Depletion, extracts from writings of various authorities, may 
 prove of interest. 
 
 DEPRECIATION AND RESERVES. 
 George Wilkinson, C. P. A. 
 
 A lecture delivered to the Evening School of Accounts and Finances 
 
 University of Pennsylvania. 
 
 Depreciation may be defined as the loss in value of some destructible 
 property over and above current repairs and renewals. In all tangible 
 destructive property in use there is a constant depreciation, whether it is 
 taken care of in the proper manner or not • • *. 
 
 If any part of a machine breaks or becomes worn out, there is a loss. 
 The lost machinery may be readily replaced by a new part and the machine 
 is said to be "as good as new." This results in an expense to the owner 
 of such a machine which is commonly called "repairs," or more techni- 
 cally "maintenance." The loss that arises through depreciation is of a 
 different nature. 
 
 It is not accidental, but slow, gradual, inevitable. If the owner of a 
 machine repairs it ever so well, there inevitably comes a day when it can 
 no longer be kept in a serviceable condition. Its usefulness is gone. It is 
 thrown on the scrap heap or thrown to the junk man. This results in a 
 loss of capital or loss of revenue, according to the manner in which it is 
 dealt with. If the necessity to make proper provision for depreciation out 
 of earnings is neglected (as it often is) it will ultimately assert itself to the 
 most serious embarrassment of the owner as a loss of capital. 
 
 PRINCIPLES OF DEPRECIATION. 
 
 E. A. Sailers. 
 
 Professor of Economics and Accounting Lehigh, Yale. 
 
 The Treasury Department has ruled that the deductions for deprecia- 
 tion should be based on four considerations: 
 
 1. The life of the property. 
 
 2. Its cost. 
 
 3. Its value. 
 
 4. Its use. 
 
 96 
 
 With reference to depletion, the Income Tax Law of 1913 specifically 
 states that Material deposits are to be charged not in excess of 5 per cent, 
 of the gross value, at the mine, of the output for the year for which the 
 computation is made. 
 
 The "straight line" method is the simplest of the several plans that 
 have been suggested to determine theoretical depreciation and to make 
 proper allowance for it in the records. It is based on the assumption that 
 if the investment in dollars and cents is divided by the number of years, or 
 periods, of the lifetime of the property the resultant quotient expresses the 
 amount in dollars and cents which should be allowed each month or year 
 to cover accrued depreciation and prevent lessening of invested capital. 
 Whether the best method or not, it is at once the least complicated and most 
 easily understood. No interest computations of any kind are involved either 
 on the investment itself, (as in annuity and equal payment methods) or on 
 the annual allowance as in the "sinking fund" method. The simplicity of 
 the "straight line" method of determining depreciation stamps it with an 
 appearance of practicability. It is free from interest complications and its 
 employment does not require a knowledge of logarithmic or any other 
 method of finding roots and powers of numbers. 
 
 Speaking generally there appears to be no reason why the "straight 
 line" method does not approximate annual depreciation as nearly as any 
 of the complicated curves at times advocated. Its use is one of expediency 
 rather than accuracy ; of expediency based on the principle that the interest 
 of the stockholders, bondholders and the public must be diligently protected. 
 To do this the procedure adopted should guarantee the return to the busi- 
 ness through the rates charged of an amount approximately equal to the 
 plant value incident to the production of the commodity • • *. It is 
 axiomatic that depreciation is one of the costs of production and hence a 
 corresponding amount should be charged to costs and thus be retained to 
 offset the exhaustion of capital. 
 
 J. Lee Nicholson, 
 
 C. P. A. New York, of the Federal Trade Commission. 
 
 Depreciation, as a term, may be defined as loss in value. The loss may 
 be due to age, use or a* combination of these two with several contributary 
 causes. The manufacturer who calculates his profit without taking into 
 consideration this important feature is obtaining figures that misrepresent 
 the conditions. The plant has lost in value during the production and even 
 lo* of value is just as much a part of the cost of production as wages or 
 any other similar element. 
 
 The first thing to be done in calculating depreciation is to estimate the 
 life of the equipment or machinery, based on operating full time. The cost 
 of the equipment should then be divided by the number of hours in this 
 period, in order to obtain the rate of depreciation per actual operating hours. 
 This is the most accurate way to figure depreciation • • •. 
 
 MANUFACTURING COST AND ACCOUNTS 
 A. Hamilton Church, 
 
 Consulting and Efficiency Engineer of the firm of Haskins and Sells, 
 Certified Public Accountants, N. Y, 
 
 • • • It follows from this that depreciation is not a fancy or arti- 
 ficial idea, but that it is the nearest approximation we can make to a very 
 
 97 
 
ordinary fact, the fact of consumption of an article by using it. And, 
 therefore, if we are to obtain the true cost of the manufacture of our prod- 
 uct, the value of our equipment that we use up daily, monthly and yearly 
 must be included in that cost just as the cost of using up a file or a pound 
 of grease must find its place in costs and for exactly the same reason. 
 
 ACCOUNTING, THEORY AND PRACTICE 
 R. H. Montgomery, C. P. A., New York. 
 Depreciation Methods: 
 
 1. The fixed percentage basis is the most popular and is the one in 
 general use. It is applied : 
 
 (a) On a flat basis, e. g., if the life of a machine is ten years, 1/10 or 
 10 per cent is charged off annually. 
 
 (b) On a reducing scale basis, i. e., a rate is ascertained which, when 
 applied to the original cost and on the diminished value as periodically 
 determined, will reduce the book to scrap value at the end of its estimated 
 life. 
 
 Method (a) is more generally followed than (b), although there is in 
 use a method which is a cross between the two and which is not scientific. 
 It consists in charging the rate as determined under (a) but applying it 
 to the reducing value intsead of to the original cost. For instance : If the 
 life of a boiler is estimated at ten years, 10 per cent per annum is set aside 
 as a reserve, but on the diminishing value. Referring to table of different 
 methods, it will be seen the book value under this method would be 348.68 
 at the end of ten years, instead of 100, as under the other methods. 
 
 2. Sinking fund method. This method is seldom followed. 
 
 The following table shows the result of different methods of calcu- 
 lating over a period of ten years, upon an article costing $1000 with a 
 break-up value of $100 at the close of the decade : 
 
 Table op Methods. 
 
 
 FixMl Pwc«ntage Method 
 
 Flxod Percontago Metiiod 
 
 sinking Fund Method 
 at 5% Conwound 
 
 Y<w 
 
 10% on Original Cost 
 or Value 
 
 20.57^c on Diminishing 
 
 
 Value 
 
 Interest , 
 
 1 
 
 S90 
 
 $205.70 
 
 $71.55 
 
 2 
 
 90 
 
 163.38 
 
 71.55 
 
 3 
 
 90 
 
 129.78 
 
 71.55 
 
 4 
 
 90 
 
 103.08 
 
 71.55 
 
 5 
 
 90 
 
 81.88 
 
 71.55 
 
 6 
 
 90 
 
 65.03 
 
 71.55 
 
 7 
 
 90 
 
 51.66 
 
 71.55 
 
 8 
 
 90 
 
 41.03 
 
 71.55 
 
 9 
 
 90 
 
 32.59 
 
 71.55 
 
 10 
 
 90 
 
 25.87 
 
 71.55 
 
 Compound Interest 
 
 715.50 
 
 at 5%. 
 
 
 
 184.50 
 
 Total 
 
 $900 
 
 $900.00 
 
 $900.00 
 
 We often see a statement in published reports that a corporation has 
 realized net profits amounting to a certain sum, and that out of these 
 profits an allowance for depreciation has been made. It would be just as 
 logical to state that a candy manufacture had earned a net profit of $100,- 
 
 98 
 
 000 and that out of said $100,000 there had been set aside $20,000 for the 
 sugar consumed in the manufacture of the product ! ! 
 
 The use of that which is consumed is a loss or expense. You cannot 
 say that one is an operating expense and that the other is an item which 
 need not be ascertained nor taken into account until the net profit is shown. 
 Net profit means only one thing in the vocabulary of the professional ac- 
 countant or auditor, and that is the excess of income over operating costs, 
 expenses and loss. It cannot be determined by taking into account all of 
 the income but only part of the charges against income. 
 
 If the provision for depreciation is not such an item as can be included 
 among cost of operation, then it is a misnomer. This view of deprecation 
 is well expressed by Professor Henry C. Adams, writing with respect to 
 railroad accounts, but the principle enunciated applies with equal force 
 to industrial accounts. When carried to its final analysis the question of 
 formal depreciation charges to operating expenses is simply a question of 
 what constitutes cost of operation, and the time when such cost shall be 
 acknowledged in accounts. The position which the Interstate Commerce 
 Commission system of accounts assumes on this point is, that the depletion 
 of an asset which represents an investment through the use of that asset 
 in operations creates an item cost of operation which should he reflected in 
 the accounts when the fact of such depUtion takes place, and that a state- 
 ment of net revenue made without including this element of cost m operat- 
 ing expenses is an erroneous statement." 
 
 DEPRECIATION 
 
 An extract from "Fundamentals of a Cost System for Manufacturers" 
 issued hy the Federal Trade Commission, Edward N. Hurley, 
 
 Chairman (1916). 
 
 THE necessity OF INCLUDING IN COST 
 
 "Depreciation is one of the most important of all the overhead ex- 
 penses, because it is generally the largest. There has probably been more 
 written on this subject than any other item of overhead, but there are so 
 many different ways of handling depreciation, some of which are best 
 adapted for one line and some for another, that there is really no recog- 
 nized standard method. It is universally admitted, however, that deprecia- 
 tion does exist, that it is an element of cost just as much as labor or ma- 
 terial, and that any system which does not provide for including it is faulty 
 and one that will not give true costs. 
 
 METHODS OP DETERMINING DEPRECIATION 
 
 One method of handling depreciation, which is unqualifiedly con- 
 demned although extensively used, is to wait until the end of the year and 
 then if the profit and loss statement shows that a good profit has been 
 earned to charge a part of this profit to depreciation. If, on the other hand, 
 the profit and loss statement shows little or no profit, nothing is charged to 
 depreciation. It is difiicult to understand how any practical man can take 
 the view that his plant and equipment have not worn out because he has 
 not made a profit, and at the same time have worn out when he has made 
 a profit. 
 
 The first step necessary to provide for proper depreciation is to depart- 
 mentalize the plant values. The next step is to take each kind of equip- 
 ment or machine and figure its proper depreciation. 
 
 99 
 
 I 
 
There are several methods of determining the amount of depreciation. 
 One is to estimate the scrap value and deduct this figure from the original 
 cost. The difference is then divided by the estimated life of the machine 
 in years, and the result is the annual depreciation on that machine. A 
 modification of this method which is not quite as simple, but really affords 
 no difficulty, is after ascertaining the amount to be charged off during the 
 life of the machine to determine a percentage which, when applied to the 
 net book value of the machine, will leave only the scrap value of the ma- 
 chine on the books at the expiration of its estimated life. 
 
 To illustrate : If the initial cost of a machine and equipment is $1000 
 and the estimated scrap value is $200, with an estimated life of ten years, 
 then $800 is the amount that must be charged into cost during that period, 
 or $80 per year. To attain this result, by using the net value of the ma- 
 chine as a basis, a rate of 15 per cent would be necessary, which would 
 make the depreciation 15 per cent on $1000, or $150, the first year ; 15 per 
 per cent on $850, or $127.50, the second year, etc. The advantage of this 
 method in the interest of normal costs is that the decrease in depreciation 
 charges is ordinarily offset by an increase in repairs." 
 
 COMMENTS ON THE FOREGOING. 
 
 By 0. K. GoREE, 
 
 Cost Accountant Portland Cement Association. 
 
 From the foregoing it would seem that the "straight line" or "fixed per- 
 centage" method is the one best adapted to the cement industry. So much for 
 the method of handling depreciation by the accountant, that can be easily taken 
 care of; it is the technical end that calls for standardized classification and 
 treatment. This refers to : 
 
 (1) The cost or value of Buildings, Machinery and Equipment. 
 
 (2) The Estimated Life. 
 
 As previously stated, but few plants have segregated their plant values, 
 often one account headed "Plant Account" being deemed sufficient. Often to 
 this account has been credited the periodical Reserve for Depreciation, result- 
 ing in a constant writing down of asset values until it is a rather difficult mat- 
 ter to arrive at original cost. To properly apply the Mortality Table, approved 
 by the Association, it is necessary to segregate plant values ; therefore, to restore 
 and separate such values, an appraisal (either by an outside Appraisal Com- 
 pany, or by members of the Mill Staff) is necessary. To expedite such an ap- 
 praisal a form has been prepared (see Form No. 27) which, it is believed, will 
 meet all requirements. This is the form used by all appraisal companies, and 
 referred to in an article on "Appraisals" following this, and calls for no special 
 comment. 
 
 If, after the appraisal has been made and the various sheets tabulated, it is 
 found that the total of the "Present Value" column is less in the aggregate than 
 the ledger values, the difference (representing in a large mea ure the accrued 
 depreciation not cared for in the past) should be credited to "Reserve for 
 Depreciation, Mill Machinery," etc., and charged to Surplus, or charged to a 
 
 100 
 
 Deferred Account to be absorbed yearly by a deduction from net profits at the 
 end of the year. If, however, the total of "Present Value" column is in excess 
 of the book value — less reserves — ^then this difference may be debited to plant 
 values and passed to Surplus Aceoiint, it being evident that an excess depreciation 
 figure has been charged off in the past. If it is found that such increase is brought 
 about by an appreciation in values it might be unwise to pass this difference 
 to Surplus, as dividends paid out of appreciated values is subject to criticism 
 and might lead to serious economic results, in such cases same should preferably 
 be credited to an Account headed "Capital Surplus." 
 
 After all Values have been segregated and reconciled with ledger balances, 
 next prepare Schedule of Depreciaton (see Form No. 28), placing such ascer- 
 tained present value in the first column. We now come to the Estimated Life : 
 The Mortality Table on page following, was prepared by the Committee on Uni- 
 form Cost Accounting from replies received from 53 Member Companies, repre- 
 senting 63 per cent of the Association membership, and 72.29 per cent of produc- 
 tion by member companies during 1916. This table was unanimously approved 
 by the Association at the Fall meeting held at Chicago September 10-13, and 
 should be used in supplying the expected life figure in the second column of the 
 Depreciation Schedule. Representing as it does the opinion of 95 per cent of the 
 cement manufacturers in the United States, it certainly deserves unqualified con- 
 sideration. Therefore, place in the "Life" column the figures taken from the 
 Mortality Table. If we now divide each item by its expected life, we have the 
 Annual Depreciation charge, which enter in third column ; the total of the third 
 column now represents the total depreciation charge for the year. Next divide 
 this amount by 12 and extend the monthly charge in last column. If desired, 
 this monthly charge may be subdivided as between Raw Material and Cement. 
 The depreciation on quarry equipment being charged to Raw Material, and the 
 balance, or figure representing Mill depreciation, to Mill Cost after total Direct 
 Cost of Production is determined, such charge being included in group headed 
 "Reserves." 
 
 In making out Income Tax Returns, therefore, use the figure shown by 
 "Annual Depreciation" column. Then should the Government question such 
 a deduction, there is some tangible basis to support the amount so deducted. 
 
 101 
 
MORTALITY TABLE 
 
 Being Average Estimated Life op Various Properties 
 
 IN THE Cement Industry 
 
 Average 
 
 Machinebt: ufe, 
 
 Quarry: yeara 
 
 Locomotives 13 
 
 Tracks and Cars 9 
 
 Steam Shovels li 
 
 Dredges 11 
 
 Drills— Well 9 
 
 Drills — Tripod 7 
 
 Live Stock g 
 
 Carts and Wagons 7 
 
 Cable-way 9 
 
 ■ Raw Department: 
 
 Crushing Machinery 14 
 
 Dryers — Upright 11 
 
 Dryers — Rotary 11 
 
 Slurry Tanks 16 
 
 Grinding Machinery 13 
 
 Clinker Burning Department: 
 
 Kilns IS 
 
 Coolers — Upright 12 
 
 Coolers — Rotary 13 
 
 « 
 
 Clinker Orinding Machinery 12 
 
 Coal Mill: 
 
 Dryers 11 
 
 Grinding Machinery 14 
 
 Power House: 
 
 Boilers 15 
 
 Engines 17 
 
 Generators '. IG 
 
 Motors 14 
 
 Stock House Machinery 10 
 
 Machinery and B. (8. Shop Machinery 15 
 
 Btjildings: 
 
 Mill: 
 
 Concrete 50 
 
 Steel and Corr. Iron 20 
 
 Steel and Stucco 21 
 
 Steel and Brick 30 
 
 Timber 20 
 
 General (Mill Off. Laboratory, Store House, etc.): 
 
 Concrete 50 
 
 Steel and Corr. Iron 20 
 
 Steel and Stucco 22 
 
 Steel and Brick 30 
 
 Frame 18 
 
 Frame and Stucco 22 
 
 Dwellings : 
 
 Concrete 50 
 
 Brick 30 
 
 Frame 20 
 
 Frame and Stucco 23 
 
 108 
 
 THE APPRAISAL OF MANUFACTURING PLANTS 
 By Charles "W. McKay. 
 
 A Common^Sense Method of Determining Factory Values at a Miniinum 
 
 Cost of Appraisal. 
 
 Two of the methods developed in the appraisement of public utilities 
 have suggested to the author a standard method of industrial plant evalua- 
 tion which should stand the acid test of appraisal engineers. The method 
 is herein presented in outline and should offer interesting possibilities. — 
 The Editors. 
 
 Possibly no one subject has so universally shared the attention of engi- 
 neers, accountants and the public at large as that of public utility ap- 
 praisals during the past five years. The activities of the Interstate Com- 
 merce Commission, the various state commissions, and the local municipal 
 regulatory bodies have revolutionized methods of determining the value of 
 public utility properties and developed this branch of appraisement work 
 into a more or less exact science. 
 
 It is but natural that progress along this line in the public utility field 
 should be reflected, at least to some extent, in the realm of what may be 
 termed the "private utilities" — the manufacturing and industrial enter- 
 prises which do not fall directly under the federal, state or municipal 
 jurisdiction. That this is true is evidenced by the existence of a large num- 
 ber of so-called manufacturers' appraisal companies and by the activities 
 of the various fire insurance companies in establishing appraisal depart- 
 ments for the determination of more reliable plant values than are usually 
 obtainable from the books of manufacturing concerns. The fact that the 
 manufacturing companies are not subservient to the dictates of regulatory 
 bodies — except in a very broad sense — has been responsible for a lack of 
 uniformity in the development of the manufacturing plant branch of ap- 
 praisal work. 
 
 Broadly speaking, the prevalent factory appraisal methods may be 
 divided into two general classes — one adopted by the Associated Factory 
 Mutual Fire Insurance Companies and named by their appraiser, Mr. John 
 G. Morse, "Valuation by Approximation"; the other the method usually 
 followed by the various appraisal companies. 
 
 valuation by approximation 
 
 Mr. Morse's plan, as outlined in his recent paper before the Utilities 
 Bureau in Philadelphia, is briefly as follows : The manufacturing plant is 
 first divided into two general classifications — "Buildings" and "Machin- 
 ery." The buildings are first considered without their equipment. All 
 elevators, piping, wiring, and any of the other equipment that can be re- 
 moved without materially altering the building, are considered as machin- 
 ery. Machinery is subdivided into the classifications, machinery proper, 
 shafting, belting, piping, etc. Each subdivision is inventoried and ap- 
 praised separately. 
 
 With the possible exception of equipment falling under the caption 
 ** machinery proper," very broad and comprehensive methods of appraise- 
 ment are employed. Valuations of buildings are based upon the number 
 of square feet of floor area ; shafting and pulleys are appraised by estimat- 
 ing the number of lineal feet of shaft ; the value of steam and gas piping, 
 sprinkler systems, etc., is estimated at so much per square foot of floor area. 
 Similar short-cut methods are employed according to Mr. Morse, in ascer- 
 
 103 
 
taining the value of small tools, patterns, etc. In some eases the value of 
 furniture and fixtures is estimated approximately by the appraiser with- 
 out listing the equipment in detail. 
 
 METHOD EMPLOYED BY THE APPRAISEMENT COMPANIES 
 
 There are a large number of firms in the field at present who devote 
 themselves exclusively to the appraisement of manufacturing plants. Ap- 
 praisals made by these companies are, as a rule, overburdened with detail. 
 Their reports often consist of several cumbersome volumes in which every 
 item of plant down to the smallest tool is laboriously inventoried. How- 
 ever, any benefits which may be derived from careful and accurate inven- 
 tories are frequently more than offset by inaccuracies in determining unit 
 costs, and by the employment of methods of determining depreciation, too 
 largely dependent upon the individual judgment of the field inspector. 
 
 Then, again, there is a serious question as to whether the cost of de- 
 tailed inventories of small and comparatively inexpensive items of plant 
 is justified. The manufacturer's own inventory is usually sufficiently accu- 
 rate to warrant its use in ascertaining the value of the less important ele- 
 ments of plants, provided it has been made with reasonable care. 
 
 In summing up these two methods of appraisement, several thoughts 
 suggest themselves which may bear further analysis. An appraisal made 
 under the plan ' ' Valuation by Approximation ' ' may perhaps serve admira- 
 bly for insurance purposes, but the fact that it is largely dependent upon 
 rough estimates of value renders it inadequate for capitalization or account- 
 ing purposes. 
 
 The plan followed by the appraisal companies, on the other hand, in- 
 volves a considerable expenditure without insuring the determination of 
 plant values based upon recognized engineering principles based upon 
 practice. 
 
 The thought has been suggested that the precedent established in the 
 field of public utility appraisals, especially with respect to the application 
 of depreciation in determining present values, may advantageously be 
 reviewed in an effort to determine a method of manufacturing plant ap- 
 praisal which will be inexpensive and at the same time sufficiently accurate 
 for all purposes. 
 
 The two prevalent methods of public utility appraisement — the repro- 
 duction cost method and the original cost method — are readily adaptable to 
 the requirements of manufacturing plant appraisal work. 
 
 Having once established the cost of a property — whether on the repro- 
 duction or original cost basis — it is a comparatively simple matter to deter- 
 mine the depreciated, or present, value by the methods universally accepted 
 by courts and commissions in public utility work. Values so determined 
 are practically unassailable, because of the precedent already established 
 by the courts. 
 
 REPRODUCTION AND ORIGINAL COST METHODS OF APPRAISAL 
 
 A brief discussion of the reproduction cost and original cost theories 
 may facilitate a clearer understanding of the tentative plan of appraisement 
 outlined hereinafter. 
 
 The original cost method, as the name suggests, involves the determina- 
 tion of the actual original cost of the property. There are several reasons 
 why it is often impracticable to determine original cost — both in the public 
 utility and manufacturing fields. Complete records of cost are rarely 
 
 104 
 
 available. Fires, floods and other unavoidable accidents are frequently re- 
 sponsible for the destruction of early records. Then, again, especially in 
 the case of the older organizations, methods of accounting are often con- 
 fusing, rendering the segregation of many of the more involved construc- 
 tion and operating expenditures exceedingly difficult. 
 
 There is still another objection to the original cost method. Material 
 and labor prices have evidenced a general upward trend for the past ten 
 years. If the original cost method is employed today in evaluating a plant 
 constructed eight or ten years ago and present value is determined by de- 
 ducting the accrued depreciation on an age basis, there is a strong prob- 
 ability that many of the high-priced, long-lived elements of plant will be 
 considerably under-valued — that the prevalent market prices for second- 
 hand or used material will be higher than the value determined on the orig- 
 inal cost basis. In other words, plants containing long-lived equipment 
 should be allowed the advantage of any appreciation in value due to the 
 rise in worth of the base metals of which they are constructed. Especially 
 is this true in the competitive manufacturing field. 
 
 The reproduction cost method involves the determination of the cost 
 of replacing the plant substantially as it exists at the date of the appraisal — 
 using cost prevalent at that time unless the material or labor markets hap- 
 pen to be abnormal due to some temporary condition, such for instance as 
 the present European War. In any event, it is usually safer to review 
 prices for the two or three years preceding the appraisal and use costs that 
 represent average conditions. 
 
 VALUATION OP MANUFACTURING PLANTS ON THE REPRODUCTION COST BASIS 
 
 Assuming, then, that all things considered the reproduction cost method 
 offers the most satisfactory vehicle for obtaining manufacturing plant val- 
 ues, it only remains to derive a simple and efficient method of appraisement. 
 The following plan conforms closely with the methods usually adopted in 
 public utility work, and at the same time is designed to meet the special 
 requirements of manufacturing plant appraisements. 
 
 The appraisal should be divided into two general divisions ; the appraise- 
 ment of : 
 
 Physical Assets. 
 
 Collateral Construction Costs. 
 
 Physical assets, as the name suggests, comprise the portion of the prop- 
 erty that can be actually inventoried or inspected — the land, buildings, ma- 
 chinery, tools and miscellaneous equipment. 
 
 Collateral construction costs consist of those closely allied expenditures 
 that are inevitably incurred in the construction of a manufacturing plant 
 and which are in reality a part of the cost of the actual physical property, 
 but which for obvious reasons cannot be included in the unit costs. This 
 division includes the items : Engineering and General Supervision during 
 Construction ; General and Legal Expense during Construction ; Taxes and 
 Insurance during Construction and Interest on Investment during Con- 
 struction. 
 
 PHYSICAL ASSETS 
 
 It is with the appraisal of the physical assets that we are principally 
 concerned at present, as the determination of their value involves the in- 
 
 105 
 
ventory, the preparation of the unit costs, and the determination of the 
 accrued depreciation. The physical assets may be subdivided into: 
 
 Land and Buildings. 
 
 Production Machinery and Equipment. 
 
 Power Machinery and Equipment. 
 
 Belting and Shafting. 
 
 Shop Furniture and Fixtures. 
 
 General Office Furniture and Fixtures. 
 
 Stores and Supplies. 
 
 Tools and Tool Equipment. 
 
 Appraisement of both land and buildings should be made by compe- 
 tent specialists who are thoroughly familiar with local conditions; and 
 should be subsequently verified by the engineer in charge of the appraise- 
 ment. This verification may be effected by comparison with other similarly 
 located and similarly constructed properties in the neighborhood of the 
 plant under consideration. 
 
 Reproduction cost and the present value of the land will, of course, be 
 identical. The present value of the buildings should be estimated by the 
 specialist who determines the reproduction cost — verified by the appraisal 
 engineer. 
 
 Production machinery is the machinery actually used in turning out 
 the product or products manufactured by the plant under consideration. 
 For the convenience of the manufacturer in future analysis of production 
 costs, the production machinery should be segregated from the machinery 
 used to generate the plant's motive power. 
 
 Production machinery and equipment may be subdivided into : 
 
 Machinery Proper (such as lathes, drill presses, etc.). 
 Electrical Equipment (motors, rheostats, etc., used in driving indi- 
 vidual machines) . 
 
 Accessory Parts (lathe-chucks, jigs and fixtures). 
 
 The inventory of the production machinery can be effected in a reason- 
 ably short time by the following method : Notify the foreman in charge of 
 each department of the purpose of the inspection, advising the probable 
 time of arrival of the field inspectors, and requesting that each machine 
 operator arrange the accessory parts so that they will be readily accessible 
 to the inspector. The inspector should note the location (building and de- 
 partment), identification number, description and present condition of each 
 machine, its electrical equipment and accessory parts. 
 
 INVENTORY OF PRODUCTION MACHINERY AND EQUIPMENT 
 
 Forms of this nature, of course, will have to be varied to meet the indi- 
 vidual requirements of every plant, and can best be designed by the ap- 
 praisal engineer after a preliminary survey of the requirements of the case 
 in hand. 
 
 Power Machinery and Equipment. 
 
 This includes : 
 Boilers. 
 
 Engines, or Turbines, and Accessories. 
 
 Generators and other Electrical Equipment (exclusive of individ- 
 ual motor drives). 
 
 The field inspector should note the make, type, description and condi- 
 tion of each unit, together with a general list of the accessory equipment. 
 
 106 
 
 Belting and Shafting. Main shafts and counter shafts, together with 
 their equipment of pulleys and belts, can usually be inventoried from the 
 floor using cloth tape to obtain shaft lengths. An experienced inspector 
 can often obtain pulley and shaft diameters and belt dimensions with an 
 astonishing degree of accuracy without making actual measurements. The 
 general condition of belting and shafting should be noted, but no attempt 
 made to condition each item individually. 
 
 Furniture and Fixtures, Tools and Tool Equipment, and Stores and 
 Supplies are usually the bugbear of manufacturing plant appraisers. The 
 large quantities of small items involved render a detailed inventory ex- 
 ceedingly tedious and lengthy, and the relative value of the individual items 
 is comparatively smaU. Most manufacturing concerns have reasonably ac- 
 curate inventories of these items, carefully checked at least once a year. 
 These inventories should be reviewed by the appraisal engineer, who should 
 check them in detail in spots to ascertain their general accuracy, and, if 
 found reliable, incorporate them into the inventoiy. 
 
 Determination of Present Value. The determination of the present, or 
 depreciated, value is primarily an engineering problem. The actual com- 
 putation of the present value of a given machine by the application ot a 
 predetermined condition percentage to the reproduction cost is simple 
 enough, but the derivation of the condition percentage involves a careful 
 study of depreciation and the functional factors of average life, scrap 
 value, etc. 
 
 Perhaps the simplest way to gain an understanding of the real signifi- 
 cance of present value is to assume a reproduction cost on a given machine 
 and briefly outline the various steps in the determination of value as of the 
 date of appraisal. 
 
 Assume the reproduction cost of a machine to be $1000 and that it con- 
 tains 1000 pounds of copper and 5000 pounds of iron. Assume further that 
 machines of the type under consideration have been found by experience to 
 have an average life of 20 years, and that this particular machine has been 
 in service for 10 years at the date of the appraisal. The value of the base 
 metals, at 16 cents copper and 4 cents iron, is (1000x16 cents) plus (500Ux 
 4 cents) , or $360. If the base metal prices are about the same 10 years 
 hence— after the machine has passed its 20 years of useful life— and if the 
 cost of dismantling the machine and preparing it for disposal is assumed 
 to be $40, the machine would still have a value of $360 less $40, or $d2U. 
 The depreciable or wearing value of the machine is then $1000 less $320, 
 or $680. If depreciation due to natural causes— wear and tear and agc^- 
 is assumed to take place at a uniform annual rate, one-twentieth of $680, 
 or $34, should be deducted from the value of the machine each year and 
 added to the depreciation reserve for replacing this item of plant when it 
 is retired from service. The accumulated depreciation to date on this basis 
 is 10x$34 or $340, and the present value, $1000 less $340, or $660, is 66 per 
 cent of the reproduction cost. 
 
 Present value computed in this manner should be modified according 
 to the actual present condition of the machine as found by the field in- 
 spector If the machine is found in unusually good condition and evi- 
 dences a useful life of more than 20 years, the present value as determined 
 by the above method should be correspondingly increased. 
 
 DETERMINATION OF COLLATERAL CONSTRUCTION COSTS 
 
 Collateral construction costs, as stated before, constitute the group of 
 costs inevitablv incurred prior to and during the construction of a man- 
 ufacturing property, and are so closely allied to the cost of the actual 
 
 107 
 
physical property as to warrant their inclusion as a part of the total phys- 
 ical value. There are obvious reasons why manufacturers are not always 
 eager to have the value of the collateral costs included in an appraisement 
 of their physical properties. In the determination of value for purposes 
 of sale or reorganization, however, both collateral costs and intangible values 
 usually play a very important part. 
 
 The four elements of collateral cost — engineering and general super- 
 vision during construction, legal and general expense, taxes and insurance 
 during construction, and interest on investment during construction — may 
 either be estimated on a percentage basis or computed (perhaps a little 
 more accurately) by assuming the conditions actually existing at the time 
 of the original plant construction. As an illustration: In computing the 
 item, engineering and general supervision, a theoretical organization of 
 sufficient size to plan and construct the plant may be assumed and a 
 reasonably accurate estimate made of the cost of such an organization. 
 However, in actual practice it is generally found that the items of collateral 
 cost can be pretty accurately estimated by experienced engineers on a per- 
 centage basis, that is, by applying predetermined percentages derived from 
 experience in constructing similar manufacturing properties. 
 
 Present value of the collateral construction costs may be determined 
 by assuming depreciation at the same rate as the total of the physical as- 
 sets. This assumption is unquestionably warranted, because of the close 
 relation between the collateral costs and the physical assets. 
 
 108 
 
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 109 
 
FORM No. 28 
 
 Depreciation Schedule 
 
 For the year 
 
 PROPERTY 
 
 BuiLDDfOS: 
 
 Mill Machinebt and 
 Equipment: 
 
 I 
 
 Quarry Eouipment, 
 No. 1: 
 
 QxiARRT Equipment, 
 No. 2: 
 
 Total'Chabge: 
 
 MiU. 
 
 Dwellings. 
 
 General. 
 
 Cost or 
 ValiM 
 
 Total 
 
 Raw Department: 
 
 Crushing Machinery 
 Diying Machinery. 
 Grinding Machinery, 
 
 Clinker Burning Dept; 
 Kilns. 
 
 Clinker Grinding Dept.: 
 Crushing Machinery. 
 Grinding Machinery 
 
 Power: 
 
 Boilers. 
 Engines. 
 Generators. 
 Motors. 
 
 Coal Preparing: 
 
 Dryers. 
 
 Grinding Machinery. 
 Stock Ho. Machinery. 
 Machine and B. S. Shop. 
 Packing House Mach'y. 
 
 Total 
 
 Locomotives. 
 Steam Shovel. 
 Tracks and Cars. 
 Drills. 
 Live Stock. 
 
 Total 
 
 Locomotives. 
 Steam Shovel. 
 Track and Cars. 
 DriUs. 
 Live Stock. 
 
 Total 
 
 E«t 
 Ufa 
 
 Annual 
 Charge 
 
 Monthly 
 Cbarga 
 
 110 
 
Date Due 
 
 
 COLUMBIA UNIVERSITY LIBRARIES 
 
 II 
 
 0044259280 
 
 NEH 
 
 /^5// 0/0/7 
 
 MAR 2 81994 
 
 DEC 4 
 
 1928 
 
END OF 
 TITLE