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Author: 
 
 MacFarland, George 
 
 Arthur 
 
 Title: 
 
 A first year in 
 bookkeeping and... 
 
 Place: 
 
 New York 
 
 Date: 
 
 [1913] 
 
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 MacFarland, George Arthur, 1887- 
 
 A first year in bookkeeping and accounting, by George 
 A. MacFarland and Irving D. Rossheim ... New York, 
 Chicago, D. Appleton and company [1913] 
 
 viii, 227 p. incl. forms. 23^. ($1.50 n 
 
 4. Bookkeeping. 2^ Accounting, 
 joint author. *^^ 
 
 Library of Congress 
 Copyright A 347367 
 
 I. Rossheim, Irving David, 1887- 
 
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 A FIRST TEAR 
 IN BOOKKEEPING AND ACCOUNTING 
 
 • ) 
 
 :3BE3KSbi 
 
A FIRST YEAR 
 
 m BOOKKEEPING AND 
 
 ACCOUNTING 
 
 BT 
 GEORGE A. MACFARLAND, B.S. in EcoN. 
 
 AND 
 
 IRVING D. ROSSHEIM, B.S. in Econ., LL.B. 
 
 WHARTON SCHOOL OF FINANCE AND COMMERCE 
 UNIVERSITY OF PENNSYLVANIA 
 
 [ 
 
 D. APPLETON AND COMPANY 
 
 NEW YORK CHICAGO 
 
Copyright, 1913, 
 By D. APPLETON AND COMPANY 
 
 )l- IWIO 
 
 
 60 
 
 ^ 
 £ 
 
 FOREWORD 
 
 A TEXT-BOOK on bookkeeping and accounting is by no means an 
 original undertaking, and the many treatises already written on the 
 subject make it difficult for the authors to give their effort any dis- 
 tinguishing features. Their endeavor, however, has been to lay par- 
 ticular emphasis on the methods of exposition; appeal being made to 
 the understanding rather than to the memory of the student. As to 
 the merits of any departure from accepted theories of teaching, the 
 book must speak for itself, and it is hoped that it will be of sufficient 
 benefit to instructor and student alike to warrant its holding some 
 place in the literature on the subject. 
 
 The plan of work adopted has been to follow as far as possible 
 the historical evolution of the subject, explaining the difficulties 
 as they arise, and assuming no previous knowledge on the part of 
 the reader. Each chapter contains an exposition of the subject, fol- 
 lowed by illustrative problems and solutions to enable the student 
 better to understand the principles explained and to apply them in 
 the problems. 
 
 The text, as the title indicates, is designed to provide a full first 
 year's work in bookkeeping and accounting, for use in higher insti- 
 tutions of commercial training. 
 
 Three Principal Problems are found at the end of the book. Prin- 
 cipal Problem I embodies all the subjects discussed in Chapters IV to 
 XXIII ; and Principal Problems II and III, either of which may 
 be used, cover the subject of Columnar Books, treated in Chap- 
 ter XXIV. In addition to these main problems, the instructor may 
 assign as many of the supplementary problems, to be found at the 
 end of the chapters, as he deems necessary to impress thoroughly the 
 particular subject being considered. 
 
 The authors desire to take this opportunity to express their sin- 
 cere appreciation of the valuable suggestions and hearty cooperation 
 of Mr. Albert Hill, General Auditor of the Atlantic Refining Co., 
 
VI 
 
 FOREWORD 
 
 Philadelphia, Pa., Dr. Edward P. Moxey, C.P.A., Head of the 
 Department of Accounting in the Wharton School of Finance and 
 Commerce, University of Pennsylvania, and finally, Mr. Charles Hart, 
 Head of the Department of Business Practice in the Washington 
 (D.C.) High Schools, whose valuable criticism of the manuscript 
 permitted its publication in the present form. 
 
 January 1, 1913. 
 
 ^ 
 
 4/ 
 
 TABLE OF CONTENTS 
 
 CiiAPTBR Page 
 
 L Introduction 1 
 
 II. Single Entry Bookkeeping 5 
 
 III. Profit and Loss in Single Entry Bookkeeping ... 14 
 
 IV. Double Entry Bookkeeping 22 
 
 V. The Trial Balance ......... 34 
 
 VL The Theory of Debit and Credit 37 
 
 Vn. The Change from Single Entry to Double Entry Book- 
 keeping 41 
 
 VIII. Promissory Notes 48 
 
 IX. Interest and Discount 53 
 
 X. The Six-Column Statement • 61 
 
 XI. Closing a Set of Books 67 
 
 XII. The Cash Book 78 
 
 XIII. The Sales Book 83 
 
 XIV. The Purchase Book 87 
 
 XV. The Bill Book 90 
 
 XVI. Drafts .95 
 
 XVII. Bills of Lading 104 
 
 XVIII. Partnerships 113 
 
 XIX. A Bank Account 118 
 
 XX. Shipments and Consignments 126 
 
 XXI. Depreciation, Reserves, and Accruals 136 
 
 XXII. The Balance Sheet and Profit and Loss Statement . 149 
 
 XXIII. Capital and Revenue 158 
 
 XXIV. Columnar Books 161 
 
 XXV. Revenue Accounts 176 
 
 Principal Problem I . . 187 
 
 Principal Problem II . 212 
 
 Principal Problem III 218 
 
 Index 225 
 
 vU 
 
LIST OF PROBLEMS 
 
 h 
 n 
 
 Single Entry 
 
 Journal and Ledger 
 
 Profit and Loss 
 
 Double Entry 
 Principal Problem 
 Journal and Ledger 
 
 Trial Balances 
 
 Change from Single to 
 Double Entry 
 
 Pbobucm 
 
 Paob 
 
 1 
 
 10 
 
 2 
 
 11 
 
 3 
 
 12 
 
 4 
 
 18 
 
 5 
 
 18 
 
 6 
 
 19 
 
 7 
 
 20 
 
 8 
 
 20 
 
 9 
 
 20 
 
 10 
 
 21 
 
 11 
 
 21 
 
 I 
 
 187 
 
 12 
 
 30 
 
 13 
 
 30 
 
 14 
 
 31 
 
 15 
 
 32 
 
 16 
 
 36 
 
 17 
 
 36 
 
 18 
 
 36 
 
 19 
 
 36 
 
 20 
 
 45 
 
 21 
 
 45 
 
 Aft 
 
 Interest and Discount 
 
 23 
 24 
 25 
 
 26 
 
 46 
 46 
 46 
 
 59 
 
 Pkoblkm Paob 
 
 Six-Column Statements 27 65 
 
 28 66 
 
 29 66 
 
 Closing a Set of Books 
 
 Drafts 
 
 Bank Reconcilement 
 
 30 
 
 74 
 
 31 
 
 76 
 
 82 
 
 76 
 
 33 
 
 76 
 
 36 
 
 146 
 
 37 
 
 147 
 
 38 
 
 148 
 
 84 103 
 
 85 125 
 
 Revenue Accounts 
 
 39 
 40 
 41 
 42 
 
 181 
 183 
 183 
 185 
 
 Columnar Books 
 
 
 
 Principal Problem 
 Principal Problem 
 
 II 
 III 
 
 212 
 218 
 
 fi 
 
 Till 
 
 A FIRST YEAR m BOOKKEEPIIS^G 
 
 AND ACCOUI^Tma 
 
 CHAPTER I 
 
 INTRODUCTION 
 
 Definition. — Bookkeeping is the art, method, or practice of re- 
 cording business transactions in a systematic manner. 
 
 Objects. — Its objects are : (1) To enab\| the proprietor to as- 
 certain the money value in, or due, the business, represented by the 
 assets ; and the money value owed by the business, represented by 
 the liabilities. (2) To enable the proprietor to ascertain whether 
 the business is being run at a profit or loss, and the sources of such 
 profit or loss. 
 
 Distinction between Bookkeeping and Accounting. — Bookkeeping 
 is the art of recording business transactions. An art is defined as 
 a branch of human knowledge which leads to the doing or making 
 of something. The "something" in this instance is a running 
 history of the business in terms of figures. 
 
 Accounting, on the other hand, may be called the science of busi- 
 ness transactions as distinguished from the art ; and as by a science 
 we mean " classified facts," so accounting comprises the assembling 
 or classifying of the facts which bookkeeping has arranged. By 
 analyzing them {i.e. breaking them up) and constructing them in 
 different shapes and pictures, accounting produces the results as 
 losses and gains, leakages, economies, etc., which tell the story of 
 the business, its progress or retrogression, and its limitations and 
 possibilities. 
 
 A bookkeeper gives a history of the business which the account- 
 ant interprets or analyzes. 
 
 Necessity for Bookkeeping and Accounting. — While it is true that 
 but a small number of the students having reference to this volume 
 will eventually reach the summits of accounting, having no desire 
 
T 
 
 I 
 
 2 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 to follow it as a profession, yet it will be found that a certain amount 
 of accounting knowledge is an essential to the satisfactory conduct 
 of everyday business, whether that business assume the dignity of 
 commercial activity or be merely the reckonings of a housewife. It 
 is not an isolated science, irrelevant to the practical workaday life, 
 but is to be found in every avenue of trade; and developed, it 
 becomes a highly interesting study. Without bookkeeping we 
 must rely on memory ; and the difference between records and in- 
 terpretation of accounts on the one hand, and guess work or rule- 
 of-thumb on the other hand, is the difference between success and 
 failure. 
 
 The Change of Attitude towards the Bookkeeper. — Many of us re- 
 member the old-time disparagement of the services of the book- 
 keeper and accountant. The practical man of the last generation 
 wanted the assistant who could buy, sell, or make something. To 
 him the office force was a luxury, and too often the first department 
 to be discarded or curtailed in an endeavor to reduce expenses. The 
 energies of the business man were devoted to the manufacture or 
 purchase of goods at the lowest figure, and their sale at a price yield- 
 ing the greatest margin of profit, with no eye to such expenses as 
 rent, taxes, light, heat, power, and depreciation of his assets, which 
 so largely effected a reduction of his profits. It was only when 
 business became so highly competitive as to force down his selling 
 price, reducing his profits, that he was driven to a consideration of 
 those elements entering into his profits and losses. To facilitate his 
 investigation it was necessary that an intelligent exposition of his 
 business facts be placed before him; and there gradually evolved 
 this daily record, the making of which devolved on the bookkeeper. 
 
 Necessity of Records. — In this competitive age when success is 
 dependent upon successful contracts, and successful contracts on 
 low and yet profitable bids or estimates, we see the necessity for 
 records which enable us to make low and yet safe estimates. In 
 order to gauge the future properly, reference must perforce be made 
 to the records of the past. 
 
 Facts they Show. — So, then, it is to the accounting force that 
 the manager must look for his knowledge of those statements which 
 show the past, present, and comparative volumes and values of his 
 purchases ; the volume of his production and its cost, the gross 
 amount of his sales, the cost of marketing his goods, the gross and 
 net returns, and the comparative profits of his business. 
 
 INTRODUCTION 
 
 Development. — The development of bookkeeping really follows 
 the development of trade and commercial exchange. 
 
 Barter by primitive man was the preliminary to a future demand 
 for a medium of exchange, and the latter was but the forerunner of 
 a greater expansion, viz. the extension of credit ; and with the use 
 of credit we meet our first absolute need for bookkeeping records. 
 
 Credit, which is the confidence of one man in the ability and 
 intent of another to pay, is the institution which is responsible for 
 the tremendous growth and development of business enterprises. 
 Credit, however, is deferred payment, being nothing more than a 
 promise to pay, either written or inferred ; and unless noted by 
 some appropriate record, resort must be had to the memory, which 
 is always untrustworthy. 
 
 The early traders gradually found themselves involved in such a 
 maze of transactions entailing promises of delivery and payment, 
 that it became a physical impossibility to recall what they owed and 
 what was due them without some aid to the memory. Though these 
 " reminders " were at first of the crudest nature, they gradually grew 
 up from the "small beginning" to the systematic records now repre- 
 sented in the different modern accounting systems. 
 
 Early Records. — One of the first records found among the Latin- 
 speaking people was the notched stick. A stick was grooved to 
 represent the number of cattle, sacks of grain, or other items of 
 va,lue that were owed. The stick was then split lengthwise and one 
 half was given to the man who owed ("the debtor") and the other 
 half was retained by the "creditor." At the time of the settlement 
 of the debt the two halves were compared to prevent fraud. 
 
 As the art of writing became less the monoply of the church and 
 the scrivener, and more a matter of general knowledge, the whittling 
 of the notched stick gradually gave away to the innovation of slips 
 of paper or tickets on which were written the names of the debtor 
 or creditor and the amount due. These records came to be known 
 as debit or credit tickets, according to whether the name was that of 
 the obligor or the obligee. 
 
 Debit and Credit. — This introduces to us the words "debit" and 
 "credit," which are so important in bookkeeping phraseology. 
 Debit comes from the Latin word debere, meaning " to owe " ; credit 
 comes from the Latin word credere^ meaning "to trust." Hence, 
 debit, "he owes"; credit, "he trusts"; and from the same derivation 
 we have the very common words "debtor" and "creditor." 
 
4 
 
 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Variations of these methods of memoranda record are referred to 
 in contemporaneous writings, where the village tapster chalked the 
 charges against his customer on the door of his inn, and when the 
 account was settled, the record was rubbed off the door. 
 
 Day Book. — The first fairly definite commercial records in books 
 were made in 1211 in a Florentine Bank. They were merely dic- 
 tated memoranda for each client, with no attempt at connection, 
 no chance of detecting errors or omissions; merely statements of 
 amounts owed by or owed to the bank, in narrative form. 
 
 Ledgers. — During the fourteenth century we find that in France, 
 Germany, Italy, and other countries a number of Ledgers were used, 
 which were merely aids to the memory and in which were kept 
 records onl}^ of personal accounts. 
 
 Like all certain sciences, accounting has been a natural growth, 
 satisfying each contingency as it arose, developing and expanding 
 to meet the demands made upon it; and therefore in a treatise on 
 the subject it is logical to discuss only in a narrative way the primi- 
 tive forms, so crude, so inadequate. But when we reach the point 
 where it is possible for the first time to declare that there exists a 
 " system " of accounting, which by the observance of certain well- 
 defined rules will result in uniform records, then and then only must 
 we be more specific. With these few words of introduction we enter 
 upon the study of Single Entry Bookkeeping. 
 
 t 
 
 CHAPTER II 
 
 SINGLE ENTRY BOOKKEEPING 
 
 Definition. — Single Entry Bookkeeping is in its essence the re- 
 cording of personal debts only. Whether the record be of the 
 primitive order we have just mentioned, or the single entry records 
 of a present-day firm of size, the result of a pure system of this kind 
 would give us only records of personal obligations. When an estab- 
 lishment using the so-called single entry produces more results than 
 mere records of amounts owed to and by the business, just so far is 
 it encroaching on double entry bookkeeping. It is this mixture of 
 single and double entry by firms supposedly keeping their records 
 by single entry that makes an exposition of this subject so difficult. 
 To discuss fully the single entry as found in professional offices and 
 mercantile establishments, we would be compelled to consider each 
 set separately, since being mongrel types they contain not only the 
 fundamentals of pure single entry, but such common features of 
 double entry as the proprietor of the establishment may happen to 
 know. Our discussion must therefore be limited to pure theoretical 
 single entry. 
 
 The only books necessary are a Journal and a Ledger. 
 
 A Journal is a book of original entry or first record, containing 
 • the names of the persons to be debited or credited, with such ex- 
 planations as each transaction may warrant, and so arranged that 
 the debit or credit may be quickly ascertained for the purpose of 
 transfer to a book of final record. 
 
 A Ledger is a book of final record, containing a series of head- 
 ings, each of which is the name of a person, under which are sum- 
 marized the debits and credits to that person as found in the 
 Journal. 
 
 Single Entry an Aid to Memory. — We must constantly bear in 
 mind that single entry is purely an aid to the memory, and hence in 
 our Journal we will record only those personal transactions involving 
 payments in the future,' and of which we have no other record. We 
 may suggest the following two rules : 
 
 6 
 
I 
 
 
 6 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 RULES 
 
 1. (a) Debit a person when he becomes indebted to the business. 
 (h) Credit a person when he liquidates the debt. 
 
 2. (a) Credit a person when he trusts the business. 
 
 (5) Debit a person when the business liquidates the debt. 
 
 Exceptions. — To state the application of the above rules from a 
 negative standpoint, we may say that they do not apply to those 
 transactions which are pure barter and are settled immediately ; for 
 instance, the sale or purchase of merchandise for cash, or to any 
 other transaction from which there is evidence of debt, as the pur- 
 chase or sale of merchandise for a note (a written promise to pay). . 
 
 To illustrate the above rules of journalizing, take the following 
 transactions with their proper record in the Journal : 
 
 Oct. 1, 1913. — 1. Alton B. Kirk commences the general merchandise business 
 
 this day, investing as follows : 
 Store and Lot 
 Horse and Wagon 
 Cash ^ 
 
 Note of S. Dietrich & Co. 
 Claims against Henry R. Edlund 
 and James Garvin, each for 
 The business assumes an obligation to D. F. Payne for 
 $ 600.00. 
 Oct. 3, 1913. — 2. Purchase from D. W. Holton, for cash, merchandise to 
 
 ' value of $ 2000.00. 
 
 3. Sell to Henry R. Edlund, $1100.00 worth of merchandise, 
 
 on account. 
 
 4. Purchase from D. W. Holton, $1500.00 worth of mer- 
 chandise, for which Mr. Holton receives a 30-<lay note. 
 
 5. Pay the Carmine Paint Co. for painting the store, $ 100.00. 
 
 6. Sell to D. F. Payne, $400.00 worth of mdse., on account. 
 
 7. Sell to Harrison F. Reeder, $600.00 worth of merchandise, 
 
 for cash. 
 
 8. Sell to Philip DeKuil & Co., $1000.00 worth of merchan- 
 
 dise, receiving in settlement a 30-day note. 
 Oct. 6, 1913.— 9. Alton B. Kirk withdraws $100100 from the business, of 
 
 which $ 25.00 is salary. 
 10. Pay the clerk his weekly salary, $14.00. 
 Oct. 8, 1913. — 11. Pay D. F. Payne, $ 100.00 on account. 
 
 12. Receive check for $1000.00 from Henry R. Edlund, to 
 apply to his account. 
 
 $ 4600.00 
 
 250.00 
 
 4000.00 
 
 750.00 
 
 500.00 
 
 Oct. 4, 1913. 
 
 > 
 
 SINGLE ENTRY BOOKKEEPING 
 
 SOLUTION 
 Single Entry Journal 
 
 October 1, 1913 
 
 Ex. 1 
 
 ) 
 
 L.F. 
 1 
 
 £x. 3 
 
 Ex.6 
 
 Ex.9 
 
 Ex.11 
 Ex.12 
 
 1 
 1 
 1 
 
 1 
 1 
 
 Alton B. Kirk 
 
 commenced business, investing as 
 follows : 
 
 Store and Lot $4600.00 
 Horse and Wagon 250.00 
 Cash 4000.00 
 
 Notes Receivable 750.00 
 H. R. Edlund 500.00 
 
 James Garvin 500.00 
 
 $10600.00 
 
 600.00 
 $10000.00 
 
 Less Claim of 
 D. F. Paynte 
 
 • 
 
 H. R. Edlund . 
 
 owes as above 
 James Garvin 
 
 owes as above 
 D. F. Payne 
 
 due him as above 
 
 Henry R. Edlund 
 
 sell him' mdse. on account 
 
 4 
 
 D. F. Payne 
 
 sell him mdse on account 
 
 6 
 
 Alton B. Kirk 
 
 withdraws $100.00, of which 
 $25.00 is salary 
 
 8 
 
 D. F. Payne 
 
 send him check to apply on acc*t 
 H. R. Edlund . 
 
 receive his check to apply to 
 his accounts 
 
 Cr. 
 
 Dr. 
 Dr. 
 Cr. 
 
 Dr. 
 Dr. 
 Dr. 
 
 Dr. 
 Cr. 
 
 10000 
 
 500 
 500 
 600 
 
 1100 
 
 400 
 
 75 
 
 00 
 
 100 
 
 1000 
 
 00 
 00 
 00 
 
 00 
 00 
 00 
 
 00 
 00 
 
 I 
 
 Ezplaiiation. — The Journal, as mentioned before, is a book of 
 original entry, in which we make the first record of a debit or credit 
 to any account. From the illustration it will be seen that the rul- 
 
 W 
 
■•I. 
 
 8 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 ings as given are not absolutely fundamental. For the sake of uni- 
 formity in our work we have adopted this (a double entry Journal) 
 for our work in single entry, although a page with only one column 
 would have been sufficient. To explain the Journal as given, we 
 find that the first column on the extreme left is not used. The 
 second column, known as the " folio " column, is to record the num- 
 ber of the page of the Ledger to which the particular debit or credit 
 is posted. The middle or large space is to record the name of the 
 person debited or credited, with such explanation as may be deemed 
 necessary. Of the last two columns the inner one is unimportant 
 and may be disregarded entirely, or used to tabulate the various items 
 making up the debit or credit ; while the last column is for the pur- 
 pose of recording the particular amount to be debited or credited 
 opposite the person's name. One of the most important points to be 
 noted in a single entry Journal is to place conspicuously the sign 
 "Dr." or "Or." ("debit" or "credit"), as this is the only means 
 of knowing later how to classify the particular item. Preferably it 
 should be done as in the illustration. 
 
 Ex. 1. — Alton B. Kirk is credited because he has trusted the 
 business with the net amount of value invested. 
 
 The listing of the items is purely explanatory and in no instance 
 is extended to the money column. 
 
 H. R. Edlund and James Garvin are separately debited because 
 Mr. Kirk has transferred his claims against these men to the business, 
 which they now owe ; hence, the debit. Similarly, Mr. Kirk has 
 transferred his indebtedness to D. ¥, Payne to the business, which is 
 now trusted by D. F. Payne ; hence, the credit. 
 
 Ex. 2. — Note that no entry is made for this purchase from 
 D. W. Holton for cash, as nothing need be remembered from this 
 transaction. You will recall that only debts due to or by the 
 business are recorded, so in a transaction where there is merely an 
 exchange of commodities (in this case cash and merchandise), no 
 record is necessary. 
 
 Ex. 3. — H. R. Edlund is debited because it is necessary to re- 
 member that he owes the business $1100.00 from the transaction; 
 hence, the record. 
 
 Ex. 4. — This transaction is similar to Ex. 2, an exchange of 
 tangible values (merchandise for a note, a piece of paper). It may 
 be asked: "But how are we to remember that we owe $1500.00 on 
 a note, when the note itself is in D. W. Hoi ton's possession ? " We 
 
 i< ' 
 
 / 
 
 
 fir 
 
 SINGLE ENTRY BOOKKEEPING 
 
 9 
 
 must suppose that some memorandum of this note is kept, as the stub 
 of a Notes Payable Book. In single entry books we never find the 
 Notes Payable recorded, and, in many cases, not even the memoran- 
 dum is made. 
 
 Ex. 6. — No Journal entry is made for this transaction for the 
 reason given in Ex. 2, as again no obligation has been incurred, 
 payment being made immediately. 
 
 Ex. 6. — See Ex. 3. 
 
 Ex. 7. — See Ex. 2. 
 
 Ex. 8. — See Exs. 2 and 4. In this instance the business parts 
 with merchandise and receives a note which remains in its possession 
 until paid. 
 
 Ex. 9. — It will be noted in this entry that Mr. Kirk is debited 
 with only $75.00, although he actually withdraws $100.00. The 
 $25.00 is not strictly a withdrawal, but a payment for services to 
 the business, similar to the purchase of any commodity for cash, viz. 
 the painting (service) in Ex. 5. On the other hand, the $75.00 
 taken by Mr. Kirk must be looked upon as an amount due to the 
 business, for which he is debited. 
 
 Ex. 10. — See Exs. 5 and 9. 
 
 Ex. 11. — D. F. Payne is debited, because the business liquidates 
 in part the debt. This payment to D. F. Payne is to cancel part of 
 a debt due by the business, an already existing credit ; hence, the 
 cancellation must come through a debit on the books. 
 
 Ex, 12. — H. R. Edlund is credited because he has liquidated a 
 part of his debt due to the business. The payment is to cancel part 
 of a debt due to the business, an already existing debit ; hence, the 
 cancellation must come through a credit on the books. 
 
 Ledger of Single Entiy 
 
 
 
 
 Alton B. Kirk, Capital 
 
 
 
 
 Datb 
 
 6 
 
 Explanation 
 
 F. 
 
 Amoumt 
 
 Datk 
 
 6 
 
 Explanation 
 
 F. 
 
 Amount 
 
 1918 
 
 Oct. 
 
 • 
 
 1 
 
 75 
 
 00 
 
 1918 
 
 Oct. 
 
 
 1 
 
 10000 
 
 00 
 
 
 
 
 • 
 
 
 
 
 
 « 
 
 
 
 
i 
 
 10 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 
 
 
 
 H. 
 
 R. Edlund 
 
 
 1913 
 
 
 4 
 
 • 
 
 
 
 1918 
 
 
 
 Oct. 
 
 1 
 
 3 
 
 
 1 
 1 
 
 500 
 1100 
 
 00 
 00 
 
 Oct. 
 
 8 
 
 
 1000 
 
 00 
 
 James Garvin 
 
 1913 
 
 Oct. 
 
 500 
 
 00 
 
 D. F. Payne 
 
 1918 
 
 Oct 
 
 4 
 
 8 
 
 400 
 100 
 
 00 
 00 
 
 1918 
 
 lOct. 
 
 600 
 
 00 
 
 Explanation of Posting the Journal. — By posting is meant the 
 transcribing of every debit or credit as it appears in the Journal to 
 its respective account in the Ledger. 
 
 It is very evident that the purpose of our Ledger is to collect 
 under each heading all the debits and credits pertaining to that ac- 
 count, so that we may at any time ascertain the exact balance due to 
 or by a person. Referring to the illustration, it will be seen that a 
 ledger page is made up of two sides, namely, the left-hand side for 
 "debits," and the right-hand side for "credits"; and in turn each 
 side is subdivided into a series of parallel columns as follows : the 
 first, for the month ; the second, for the day of the month ; the 
 third, for explanation (but of no use in single entry bookkeeping); 
 the fourth, called the " folio " to designate the number of the page of 
 the Journal from which the particular debit or credit is taken ; 
 and the fifth and sixth columns, for dollars and cents, respectively. ' 
 
 PROBLEM 1 
 
 Journalize and post by Single Entry Bookkeeping the following : 
 
 Oct. 1, 1913. — Adam Smyth began business with cash, $1600. W- merchandise, 
 
 $ 3000.00 ; an open account against C. C. Cole for $ 500.00 ; 
 and several notes owing to him amounting to $900.00i 
 Smyth owed on a note, $700.00. 
 
 it 
 
 / / 
 
 SINGLE ENTRY BOOKKEEPING 
 
 11 
 
 Oct. 2, 1913. 
 Oct. 3, 1913. 
 Oct. 4, 1913. 
 
 Oct. 5, 1913. 
 Oct. 6, 1913. 
 Oct. 8, 1913. 
 
 Oct. 9, 1913. 
 Oct. 10, 1913. 
 Oct. 13, 1913. 
 
 — Bought merchandise of N. N. Clegg on account, $300.00. 
 
 — Sold W. S. Weber, merchandise on account, $520.00. 
 
 — Bought lot of ground and small store for $ 1200.00 and gave a 
 
 note in payment. 
 
 — Sold D. C. Binns, merchandise for cash, $240.60. 
 
 — Paid freight and cartage, from cash drawer, $22.25. 
 
 — Sold J. C. Knight, merchandise for $250.00. Knight paid 
 
 $150.00 in cash, balance ou account. 
 
 — Sold W. L. Dwight, merchandise on account, $296.00. 
 
 — Paid N. N. Clegg, cash on account, $100.00. 
 
 — Paid Bookkeeper salary, from the cash drawer, $37.50. 
 
 W. S. Weber paid his biU of Oct. 3; by cash, $120.00, and 
 his note for the b^ance. 
 
 PROBLEM 2 
 
 1. Write the following entries in a Single Entry Journal which 
 you are to prepare. Distinguish between debit and credit entries. 
 
 2. Rule up a Ledger and open the different accounts with 
 persons, four on a page. 
 
 3. Post from the Journal to the Ledger. 
 
 Oct. 1, 1913. — E. D. Fields began business with cash, $4100.00; real estate, 
 
 $ 5000.00; notes in the safe, $ 750.00 ; and a debt against 
 J. Jones for, $325.00. Notes outstanding to creditors, 
 $525.00; ^merchandise on hand, $2825.00. 
 Sold merchandise for cash, $ 625.00. 
 Oct. 2, 1913. — Bought of E. P. Prii, merchandise on account, $550.00. 
 
 Paid freight in cash, $12.00. 
 Oct. 3, 1913. — Bought of John James, consignment of goods, $410.00. Paid 
 
 $ 200.00 in cash, balance on account. '• 
 
 Sold M. Frank, merchandise on account, $ 175.00. 
 Oct. 4, 1913.— Bought of S. Wilson for cash, merchandise, $725.00. Sold 
 
 W. Ayres bill of merchandise, $ 480.00. Received cash, 
 $ 200.00, and charged balance to his account. 
 Sold A. W. Macey an invoice 'of goods for $ 80.00, on ac- 
 count. 
 Oct. 5, 1913. -^ J. Jones paid his debt of $ 325.00. ' 
 
 Paid E. P. Price, $ 250.00 on account, and gave note for balance. 
 Sold Perry & Co., merchandise, $300.00. Received note for 
 same. 
 
 M. Frank paid bill of Oct. 3d in cash. 
 
i! I 
 
 Oct. 12, 1913. 
 Oct. 13, 1913. 
 
 12 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Oct. 6, 1913. — Bought stationery for cash, $ 25.00 
 
 Paid freight bill in cash, $6.75. 
 Purchased merchandise of E. F. Star, $ 580.00. Paid $ 200.00 
 
 cash, and balance by note. 
 Sold J. Jones, merchandise on account, $ 800.00. 
 Oct. 8, 1913. — Paid rent for month in cash, amounting to $ 150.00. 
 
 Sold G. Baird, merchandise for cash, $ 275.00. 
 Sold M. McKean, merchandise on account, $ 380.00 
 Oct. 11, 1913, — A. W. Macey settled bill of Oct. 4th by cash. 
 
 Sold to F. Wood, merchandise for cash, | 90.00. 
 ■ W. Ayres paid balance due on his purchase of Oct. 4th. 
 ■J. Jones paid $ 400.00 on account of bill of 6th instant. 
 Paid note of $ 300.00 due Price, which matured tonlay. , * 
 Purchased lot for $1500.00, paying $500.00 down in cash, 
 
 balance by note. 
 Bought horse and wagon of Philadelphia Horse Exchange, 
 $ 300.00, on account. 
 Oct. 15, 1913. — Perry & Co. purchased merchandise on account, $80.00. 
 
 Note. — The student should save his solution to these problems as they will be 
 continued in later chapters. 
 
 PROBLEM 8 
 
 Journalize and post by Single Entry: 
 
 Oct. 2, 1913. — H. F. Rice commenced business with : 
 Cash 
 
 Real Estate 
 Notes in the safe 
 Amount owed by J. Kelly 
 Amount owed by A. Smart 
 • Notes outstanding to creditors 
 Merchandise on hand 
 
 SINGLE ENTRY BOOKKEEPING 
 
 13 
 
 Oct 5, 1913. 
 
 Oct 6,1913.— 
 
 Oct. 7,1913.— 
 Oct. 8, 1913. 
 Oct. 10, 1913. 
 
 Oct. 11, 1913.— 
 
 Oct. 12, 1913. 
 
 $7400.00 
 
 6100.00 
 
 450.00 
 
 275.00 
 
 75.00 
 
 725.00 
 
 1735.00 
 
 Oct. 13, 1913.— 
 
 Oct. 14, 1913.— 
 
 Sold merchandise for cash, $540.00. 
 Oct. 3, 1913. — Bought of S. Johnson, merchandise for cash, $265.00. 
 
 Paid freight on above, $ 8.00. 
 
 Bought of A. Wilde, merchandise on account, $ 340.00. 
 Oct. 4, 1913. — Sold James Fish, merchandise on account, $185.00. 
 
 Sold F. Munsey, bill of goods amounting to $ 340.00, receiving 
 
 $140.00 in cash and his 30-day note for balance. 
 Had front of building painted by White, Ledd & Co. Bill 
 rendered, $75.00. 
 
 — Bought of S. Whittle Sons, consignment of goods, $460.00. 
 Gave in payment our 30-day note for $300.00, balance on 
 account. 
 Sold to James Rooney, for cash, bill of goods, $ 210.00. 
 J. Kelly paid his debt of $275.00. 
 Sold George Ehich on account, invoice of goods, $190.00. 
 Paid A. Wilde cash on account, $140.00, and gave him note for 
 
 balance. 
 Paid cash for advertising, $80.00. 
 Paid cash for office salaries, $78.00. 
 James Fish paid in full his bill of the 4th. 
 Paid for postage and office supplies, cash, $12.00. 
 Sold Samuel Woolworth bill of merchandise, $ 520.00. Received 
 
 cash, $ 300.00, balance on account. 
 Paid White, Ledd & Co.'s bill of the 4th. 
 A. Smart settled his account by sending check for $ 75.00. 
 Bought merchandise of Thomas Phillips, $ 1500.00. Paid cash 
 
 receiving a discount of 5 %. 
 Bought stationery, paying cash, $25.00. 
 Sold merchandise to James Gerson, $320.00. Received cash, 
 
 $200.00, balance on account. 
 Paid taxes by check, $ 90.00. 
 
 Sold Peter Martin, merchandise on account, $ 235.00. 
 Sold real estate holdings to Star Realty Co. for $7200.00. 
 
 Received cash, $5000.00, balance on account. 
 Bought of the Eureka Motor Car Co., two motorcycles, for two 
 salesmen, $500.00. Paid $100.00 down, $200.00 in 30 
 days, balance in 60 days. 
 Sold to Frank Yacks for cash, merchandise, $425.00. 
 Purchased lot from S. Jackson for $4000.00, paying $1000.00 
 
 down, balance by 90-day note. 
 Sold to McCreary & Co., merchandise on account, $160.00. 
 Paid office salaries, $78.00. 
 
I 
 
 CHAPTER III 
 
 PROFIT AND LOSS IN SINGLE ENTRY BOOKKEEPING 
 
 We have kept Mr. Kirk's records in the Journal in the order of 
 their occurrence and later collected them under their respective 
 headings in the Ledger ; now, assuming that Mr. Kirk has com- 
 pleted a given period in his business, he is desirous of ascertaining 
 his present worth and his profit or loss. Is it possible to accom- 
 phsh this from the books ? Certainly not, as elements other than 
 personal accounts must necessarily be considered. These elements, 
 together with the Ledger Accounts, may be classified into two 
 mam groups, viz. Assets and Liabilities. 
 
 Assets.— An asset is any item of value owned by the business, 
 
 (a) either existing in tangible form, or 
 
 (J) owing to the business. 
 
 For example : 
 
 (a) Cash, merchandise, land, buildings, machinery, or notes re- 
 ceivable, or 
 (5) Personal accounts with debit balances. 
 
 LiabiHties. — A liability is any debt or obligation of the busi- 
 ness, as : 
 
 (a) Notes payable. ^ 
 
 (5) Personal accounts with credit balances.^ 
 
 Cash. — Cash is money, or that which can be turned into money 
 without delay, bargain, or litigation. It consists of such items as • 
 money in bank, or on hand, checks, sight or demand drafts, and 
 money orders. 
 
 Merchandise. — Merchandise is goods manufactured or purchased 
 for the purpose of being sold at a profit. 
 
 Inventory. — An inventory is the investigation of an asset for the 
 purpose of ascertaining its quantity, quality, and value, presented in 
 the form of a detailed list or schedule. Thus, a Merchandise Inven- 
 tory is the tabulation of the goods on hand, indicating the number, 
 quality, and value, usually taken at cost. 
 
 14 
 
 PROFIT AND LOSS IN SINGLE ENTRY BOOKKEEPING 15 
 
 Notes Receivable and Notes Payable. — "A promissory note is an 
 unconditional promise in writing made by one person to another and 
 signed by the maker, engaging to pay on demand or at a fixed or de- 
 terminable future time, a certain sum in money, to, or to the order 
 of, a specified person or bearer." 
 
 When a note is received by the business, it is a notes receivable ; 
 when issued by the business, it is a notes payable. For more de- 
 tailed discussion of notes receivable and payable, see Chapter VIII. 
 
 Present Worth. — Thus, to find Mr. Kirk's present worth and 
 his profit or loss, it is first necessary to present a statement of his 
 assets and liabilities. The form usually adopted is to list all of the 
 assets on the left-hand side, and all of the liabilities on the right- 
 hand side. Thus it is seen that in a solvent business the asset side 
 must necessarily be the larger, and a balance must result. This bal- 
 ance comes to be known as the "Present Worth"; or, expressing 
 the above form in an equation : 
 
 Assets — Liabilities = Present Worth 
 
 Present Worth is the value of a business at any time, or, in 
 other words, is the difference between what it owns (assets) and 
 what it owes (liabilities). 
 
 Collection of Assets. — The preliminary steps to the presentation 
 of the assets are as follows : 
 
 1. Count cash in till, safe, and bank. 
 
 2. Take an inventory of the merchandise on hand. 
 8. Total the notes receivable. 
 
 4. Total all the accounts in the Ledger having debit balances, 
 
 hereafter to be termed " Accounts Receivable." 
 
 5. Appraise, estimate, or ascertain the respective values of all 
 
 other assets. 
 
 Collection of Liabilities. — The liabilities are ascertained as 
 follows : 
 
 1. Total all the accounts in the Ledger having credit balances, 
 
 hereafter to be termed " Accounts Payable." 
 
 2. Total the notes payable as found on the stubs of the Notes 
 
 Payable Book, or from any other memoranda. 
 8. Ascertain the value of any other liabilities, such as loans, or 
 
 mortgages payable. 
 We are now ready for an illustrative Statement of Assets and 
 Liabilities for the business of Alton B. Kirk. Working along the 
 lines given above, we find the following : 
 
 "^ji2|_jtafc!||^^ 
 
1 
 
 1 
 
 16 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Store and Lot 
 
 Horse and Wagon 
 
 Cash 
 
 Notes Receivable 
 
 Inventory of Merchandise 
 
 Notes Payable 
 
 $4600.00 
 
 250.00 
 
 3286.00 
 
 1750.00 
 
 700.00 
 
 1500.00 
 
 From the Ledger we find that H. R. Edlund has a debit balance 
 of $600.00, and James Garvin a debit balance of 1500.00, which we 
 shall classify as : 
 
 Accounts Receivable, $1100.00 
 
 On the Ledger we also find D. F. Payne's Account has a credit 
 balance of $100.00, which we shall classify as : 
 
 Accounts Payable, $100.00 
 
 Statement 
 
 Assets 
 
 Liabilities 
 
 Store and Lot 
 
 Horse and Wagon 
 
 Notes Receivable 
 
 Inventory of Mdse. 
 
 Cash 
 
 Accounts Receivable 
 
 4600 
 250 
 
 1750 
 700 
 
 3286 
 
 1100 
 
 11686 
 
 00 
 00 
 00 
 00 
 00 
 00 
 
 00 
 
 Notes Payable 
 Accounts Payable 
 
 Present Worth 
 
 Explanation of Statement. — The foregoing Statement shows that 
 Alton B. Kirk is worth at tliis time $10086.00. Thus, knowing his 
 Present Worth, we proceed to find his profit or loss by comparing 
 this amount with his net investment in the business. We find this 
 in Mr. Kirk's account in the Ledger, which shows a credit balance 
 of $ 9925.00. Since Mr. Kirk is worth more to-day than the actual 
 amount he put into the business and kept there, the difiFerence must 
 be his profit, in this case $161.00. Expressing the above as an 
 equation, we have : 
 
 Present Worth — Net Investment = Gain 
 
 or 
 Net Investment — Present Worth = Loss 
 
 ( 
 
 PROFIT AND LOSS IN SINGLE ENTRY BOOKKEEPING 17 
 
 It is well to note carefully that the net investment mentioned 
 above is the $10000.00 originally invested by Alton B. Kirk, minus 
 the $76.00 he subsequently withdrew, because withdrawals must 
 always be considered in order to ascertain the gain or loss. In the 
 case of a business of more than a year's standing, the following 
 equations may be of assistance: 
 
 Present Worth — 
 
 Past Worth — Withdrawal 
 or -f additional Investments 
 ' or 
 
 = Profit 
 
 Past Worth — Withdrawals or 
 + Additional Investments 
 
 — Present Worth = Loss 
 
 We have now completed all of Single Entry Bookkeeping in so 
 far as it is possible to construct logically an indefinite subject. Do 
 not imagine that what we have discussed covers every Single Entry 
 set we may happen upon, as we have worked, out a system only upon 
 the theory of the single entry. In practice, we find sets of this kind 
 containing Cash Books, Sales Books, Invoice Books, and many other 
 encroachments on double entry. But in any Single Entry set, it 
 must be remembered that in ascertaining the present worth or profit 
 or loss, the books give only a part of the information necessary; 
 and in attempting to produce the result, the rest of the information 
 must be gathered by observation and interviews with the bookkeeper 
 or proprietor, preferably following the outline given earlier in the 
 Chapter on the collection of assets and liabilities. 
 
 Comparison with Double Entry Bookkeeping 
 
 Advantages. — We cannot say that Single Entry Bookkeeping, in 
 comparison with Double Entry Bookkeeping, has any advantages to 
 the commercial establishment. To certain professional men, trustees, 
 and charitable institutions, single entry is sufficient, as in many cases 
 they are not interested in profits and losses, but only in personal 
 accounts and cash, and use only a Cash Book for original records. 
 To them Single Entry Bookkeeping may appeal for its simplicity in 
 recording. 
 
 Disadvantages. — In this comparison Single Entry Bookkeeping 
 has many disadvantages, of which we will mention some of the more 
 evident. 
 
,:.t 
 
 18 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 1. The possibility of omitting a debit or a credit. 
 
 2. The possibility of making a debit instead of a credit, and 
 
 vice versa, 
 
 3. The possibility of a mistake in figures. 
 
 4. The incompleteness of a record of personal accounts only. 
 
 5. The impossibility of procuring from the records a statement 
 
 of profit and loss. 
 
 6. The lack of means of proving the correctness of its records, 
 
 or statements. 
 
 PROBLEM 4 
 
 Resuming the business as per transactions in Problem 2, the 
 assets and liabilities not shown by the Ledger are: 
 
 Cash $4181.25 
 
 Merchandise Inventory 1900.00 
 
 Real Estate 6500.00 
 
 Horses and Wagons 300.00 
 
 Notes Receivable 1050.00 
 
 Notes Payable 1825.00 
 
 Find the loss or gain in the above business. 
 
 Journalize 
 Oct. 19, 1913.- 
 
 Oct. 20, 1913.— 
 
 Oct. 21, 1913.— 
 
 Oct. 22, 1913.— 
 
 Oct. 23, 1913.— 
 Oct. 24, 1913.— 
 
 Oct. 25, 1913.— 
 
 PROBLEM 6 
 
 and post by Single Entry Bookkeeping the following: 
 
 -Oliver Harris began business, investing cash, $2000.00; mer- 
 chandise, $1600.00; real estate, $5000.00; an open ac- 
 count against B. Smith for $400.00; and notes owing to 
 him amounting to $800.00. Harris owed on a note, 
 $400.00. 
 -Bought stationery for cash, $25.00. 
 
 Bought merchandise for cash from N. N. Clegg, $400.00. 
 - Oliver Harris withdrew his weekly salary of $ 25.00. 
 
 Sold merchandise to W. H. Dunn on account, $750.00. 
 -Sold merchandise to J. Haines, $250.00. Received cash, 
 
 $ 100.00, and Haines's note for the balance. 
 -B. Smith paid cash on account, $200.00. 
 -Paid outstanding note for $400.00. 
 Sold merchandise to L. Schwartz on account, $700.00. 
 Sold merchandise to H. Denny on account, $300.00. 
 Purchased merchandise from C. Gilbert on account, $340.00. 
 Purchased merchandise from S. Johnson, $600.00. Paid him 
 $200.00 in cash, balance on account. 
 
 PROFIT AND LOSS IN SINGLE ENTRY BOOKKEEPING 19 
 
 A week having passed, Oliver Harris wishes to know his present 
 worth and the amount his business has made or lost during the 
 week. The facts not shown by the books are : 
 
 Cash 
 
 Merchandise 
 Real Estate 
 Notes Receivable 
 
 $1250.00 
 
 1040.00 
 
 5000.00 
 
 950.00 
 
 Oct. 26, 1913. 
 Oct. 27, 1913. 
 
 Harris has also withdrawn during the week f 20.00 worth of mer- 
 chandise. Using these facts in conjunction with the books, find 
 the present worth and the real profit or loss of this business. 
 
 PROBLEM 6 
 
 Journalize and post by Single Entry Bookkeeping the following : 
 
 Oct. 24, 1913. — N. Hart began business, investing cash, $ 2500.00 ; merchandise, 
 
 $1200.00; an account receivable against L. Schwartz for 
 $500.00 ; real estate, $4000.00 ; notes receivable, $800.00. 
 N. Hart brought into the business several notes payable, 
 amounting to $ 500.00. 
 Bought merchandise from N. H. Lewis for cash, $ 200.00. 
 Bought merchandise from L. McLean on account, $ 250.00. 
 Paid freight on above by check, $ 15.00 
 Oct. 28, 1913. — Sold merchandise on account to B. Knight, $400.00. 
 Oct. 29, 1913. — Purchased merchandise from P. Davis, $ 600.00. Paid $ 100.00 
 
 in cash, note for balance. 
 Purchased $ 10.00 worth of stationery for cash.. 
 Oct. 30, 1913. — L. Schwartz gave his note for $250.00 on account of the 
 
 amount due by him. 
 Oct. 31, 1913. — Sold merchandise to A. Pemrose on account, $750.00. Re- 
 ceived cash in payment of a Notes Receivable, $ 300.00. 
 Having completed one week's business, N. Hart wishes to know 
 the value of his business and the amount of profit or loss for the 
 week. In addition to what his books show, he has the following : 
 
 Cash $ 2475.00 
 
 Merchandise 1225.00 
 
 Real Estate 4000.00 
 
 Notes Receivable 750.00 
 
 Notes Payable 1000.00 
 
 N. Hart states that there is due him in weekly salary for running 
 the business $ 25.00, which he has not yet taken. 
 Find the profit or loss of the business. 
 
 V 
 
I 
 
 20 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 PROBLEM 7 
 
 Find the profit and loss from the following statement of a 
 Single Entry set of books of a business owned by Jno. Smith and 
 Henry James, who have invested equal amounts of capital, and are 
 to share profits and losses equally. 
 
 Joint Capital 
 
 $ 48000.00 
 
 Jno. H. Black, Dr. 
 
 2650.00 
 
 B. S. Adams, Dr. 
 
 3200.00 
 
 B. H. Brown, Dr. 
 
 2975.00 
 
 P. H. Noyer, Cr. 
 
 1775.00 
 
 M. L. Green, Cr. 
 
 4700.00 
 
 Cash 
 
 12500.00 
 
 Real Estate 
 
 36000.00 
 
 Merchandise Inventory 
 
 4870.00 
 
 Notes Receivable 
 
 2200.00 
 
 Notes Payable 
 
 1730.00 
 
 PROBLEM 8 
 
 
 Boyer & King, who have been keeping their books by Single 
 Entry Bookkeeping, present you with the following facts and ask 
 you to ascertain their profit or loss and the present worth of each 
 partner as of this date. Partners share profits and losses as follows : 
 Boyer, 60 % ; King, 40 %. 
 
 Boyer Investment 
 Boyer Withdrawals 
 King Investment 
 King Withdrawals 
 Accounts Receivable 
 Accounts Payable 
 Notes Receivable 
 Notes Payable 
 Cash 
 
 Merchandise Inventory 
 Real Estate 
 Fixtures 
 
 PROBLEM 9 
 
 18500.00 
 
 250.00 
 
 7000.00 
 
 200.00 
 
 6400.23 
 
 4900.20 
 
 8460.90 
 
 5290.23 
 
 5983.42 
 
 8590.00 
 
 1800.00 
 
 400.00 
 
 W. L. French, a retailing stationer, whose books have been kept 
 by Single Entry Bookkeeping, calls in an accountant to prepare a 
 Statement of Profit and Loss up to this time. The books and records 
 show the following: 
 
 PROFIT AND LOSS IN SINGLE ENTRY BOOKKEEPING 21 
 
 W. L. French 
 Cash 
 
 Merchandise 
 Accounts Receivable 
 Fixtures 
 
 Accounts Payable 
 Notes Payable 
 
 $25000.00 
 5000.00 
 13000.00 
 14200.00 
 1710.00 
 5270.00 
 3200.00 
 
 Mdse. taken by French for personal use 1250.00 
 The capital stated above is the balance after $1200.00 salary has 
 been charged to it. Mr. French withdrew 11600.00 not salary, but 
 did not charge it to capital. 
 
 PROBLEM 10 
 
 A. Kyle and B. Jackson, partners in a retail business, have been 
 keeping their books by Single Entry Bookkeeping, and they give us 
 the following facts from their Ledger and records, and ask us to show 
 their profit or loss under Single Entry, and the present worth of each 
 partner. Partners share profits and losses as follows : Kyle, 60 % ; 
 Jackson, 40 %. 
 
 A. Kyle, Original Investment 
 
 A. Kyle, Withdrawals 
 . B. Jackson, Original Investment 
 
 B. Jackson, Withdrawals 
 Cash 
 
 Merchandise 
 Real Estate 
 Notes Receivable 
 Notes Payable 
 Accounts Receivable 
 Accounts Payable 
 Fixtures 
 
 PROBLEM 11 
 
 Continuing the business as per transactions in Problem 3, the 
 assets and liabilities not shown by the Ledger are as follows: 
 
 Cash $12543.13 
 
 Merchandise Inventory 300.00 
 
 Real Estate 4000.00 
 
 Motorcycles 500.00 
 
 Notes Receivable 450.00 
 
 Notes Payable 4500.00 
 Find the loss or gain in the above business. 
 
 1/ 
 
 $22000.00 
 
 450.00 
 
 19000.00 
 
 350.00 
 
 7600.00 
 
 17000.00 
 
 10000.00 
 
 6200.00 
 
 4750.00 
 
 5513.00 
 
 8620.00 
 
 2500.00 
 
CHAPTER IV 
 
 DOUBLE ENTRY BOOKKEEPING 
 
 The striking characteristic of Single Entry Bookkeeping, as 
 brought out in our discussion of the previous chapter, was the record- 
 ing of either a single debit or single credit for certain transactions, 
 and we saw the manifold objections to such a system. 
 
 Definition. — But now we come to that more exact art "Double 
 Entry Bookkeeping," which, as the name implies, provides for a 
 double entry, namely, a debit and credit for every transaction. It 
 is this equalization of debit and credit in each transaction, which, 
 maintained throughout all double entry, guarantees the mathe- 
 matical accuracy, which is its salient feature. 
 
 Since Double Entry Bookkeeping requires a debit and a credit 
 for every entry, it must necessarily embody more than personal 
 accounts. Thus, we find that Double Entry Bookkeeping treats 
 of two classes of accounts, viz. financial and nominal. 
 
 Financial Accounts are Asset and Liability Accounts, including 
 thereunder all Personal and Property Accounts. 
 Personal Accounts are those with persons. 
 
 Property Accounts represent tangible things of value in the 
 business, such as cash, real estate, machinery, etc. 
 
 Nominal Accounts are "explanation" accounts which explain 
 the sources of our gains and losses, reflected in the increases and 
 decreases of our assets and liabilities. Such accounts are : Interest, 
 Discount, Commission, Wages, etc. 
 
 The fundamental books of Double Entry Bookkeeping are the 
 Journal and the Ledger. It will, however, be found necessary 
 to use additional books as the subject progresses. 
 
 The Journal is a book of original entry or first record, containing 
 the names of the accounts to be debited and credited, with such 
 explanation under each as may be warranted. The ruling o^ the 
 Double Entry Journal is identical with the form given for the 
 Single Entry, but it differs in that the two columns on the extreme 
 right are used for debit and credit, respectively. 
 
 22 
 
 DOUBLE ENTRY BOOKKEEPING 
 
 23 
 
 I 
 
 The Ledger is a book of final record containing a series of head- 
 ings, each of which is the name of some account under which we 
 summarize the debits and credits to that account as found in our 
 Journal, or other book of original entry. 
 
 Of the two books mentioned above, the Journal, or other book 
 of original entry based upon its principles, is the more important 
 legally, because it is the book recognized as evidence in a court 
 of law. 
 
 We cannot therefore lay too much stress upon the principle 
 involved in the Journal, for it is here that we create the accounts 
 which afterwards are to reveal to us the history of our business ; 
 and so it is necessary at this, our initial step, to differentiate properly 
 between the accounts to be debited and credited, and to be assured 
 that each entry preserves the balance essential to our system. This 
 process is commonly known as journalizing. 
 
 Journalizing is the classifying of the debits and credits of each 
 transaction. 
 
 For the proper classification of our accounts, it is necessary to 
 have recourse to certain well-defined axioms of bookkeeping, as 
 follows : 
 
 Every debit must have its equal and corresponding credit. 
 Every credit must have its equal and corresponding debit. 
 
 RULES FOR JOURNALIZING 
 
 Debit Rule. — Debit whatever comes into the business or costs the 
 business value. 
 
 Credit Rule. — Credit whatever goes out of the business or pro- 
 duces value to the business. 
 
 A much broader and more generally applicable rule is 
 
 Cole's Responsibility Rule 
 
 Debit the account which assumes a responsibility. 
 
 Credit the account which shifts, gives up, or grants a responsi- 
 bility. 
 
 The basis of this rule is the personification of the accounts. It 
 assumes that such accounts, as Property and Explanation Accounts, as 
 well as Personal Accounts, can be held responsible for the increases or 
 decreases of the assets or liabilities, and that every transaction simply 
 involves the assuming or shifting of this responsibility between the 
 accounts. 
 
I 
 
 I 
 
 ri 
 
 24 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Of the two rules given, Cole's is the more comprehensive and 
 will be used throughout the illustrations. 
 
 Illustration. — To illustrate the application of the responsibility 
 rule to other than Personal Accounts : The cashier of the business 
 has |! 1000.00 in the safe for which he is responsible to the business. 
 This is indicated on the books by a debit to Mr. Cashier ; and as 
 money is received into the business his responsibility is increased 
 proportionately, and as money is paid out, his responsibility is de- 
 creased in like ratio, or he may be said to shift the responsibility 
 elsewhere for the amount paid out. We have taken this example of 
 the cashier as personifying the Cash Account. Similarly, when cash 
 is received, the Cash Account, assuming the responsibility, is 
 debited ; and when cash is paid out, the Cash Account, having given 
 up its responsibility, is credited. In like manner we can hold re- 
 sponsible such accounts as Land, Merchandise, Machinery, Notes 
 Receivable, Notes Payable, Expense Accounts, etc. 
 
 To make an entry, one should always picture the transaction in 
 his mind's eye, so as to determine : 
 
 1. The captions or headings for the accounts which will in the 
 
 future convey the character of the transaction. 
 
 2. Which of the accounts has assumed or shifttg^ tl^e responsi- 
 
 bility. *" 
 
 To illustrate the rules for journalizing, take the following 
 transactions : 
 
 Oct. 1, 1913. — 1. Alton B. Kirk commences the general merchandise business 
 
 this day, investing as follows : 
 
 Store and Lot 
 Horse and Wagon 
 Cash 
 
 Note of S. Dietrich & Co. 
 Claims against Henry R. Edlund 
 and James Garvin, each for 
 
 14600.00 
 
 250.00 
 
 4000.00 
 
 750.00 
 
 500.00 
 
 The business assumes an obligation to D. F. Payne for 
 $600.00. 
 Oct. 3, 1913.— 2. Purchase merchandise from D. W. Holton, cash, $2000.00. 
 
 3. Sell merchandise to Henry R. Edlund, on account, $ 1 100.00. 
 
 4. Purchase from D. W. Holton, merchandise, $1500.00. 
 
 Give Holton a 30-day note in payment. 
 
 DOUBLE ENTRY BOOKKEEPING 
 
 25 
 
 5 
 
 Oct. 4, 1913. — 5. Pay the Carmine Paint Co. for painting storey $100.00. 
 
 6. Sell merchandise to D. F. Payne, on account, $400.00. 
 
 7. Sell merchandise to Harrison F. Reeder, for cash, $600.00. 
 
 8. Sell merchandise to Philip DeKuil & Co., $1000.00. 
 Receive 30-day note in settlement. 
 
 Oct. 6, 1913. — 9. A. B. Kirk, proprietor, receives $100.00 from the business, 
 
 of which $ 25.00 is salary. 
 
 10. Pay the clerk his weekly salary, $14.00. 
 
 11. Pay D. F. Payne, on account, $100.00. 
 
 12. Receive from Henry R. Edlund, to apply on his account, 
 
 check for $1000.00. 
 
 • « 
 
 « 
 
 Double Entry Journal 
 
 October 1, 191.3 
 
 Dr. 
 
 Or. 
 
 Ex.1 
 
 
 Store and Lot 
 
 Horse and Wagon 
 
 Cash 
 
 Notes Receivable 
 
 H. R. Edlund 
 
 James Garvin 
 
 Alton B. Kirk, Capital 
 Commence the General Merchandise Busi- 
 ness, investing the above 
 Alton B. Kirk 
 
 D. F. Payne 
 Being debt assumed by business 
 
 4600 
 
 250 
 
 4000 
 
 .750 
 
 500 
 
 500 
 
 600 
 
 00 
 00 
 00 
 00 
 00 
 00 
 
 00 
 
 10600 
 600 
 
 00 
 00 
 
 Ex.2 
 
 
 t 
 Merchandise 
 
 Cash 
 
 Purchase from D. W. Holton 
 
 2000 
 
 00 
 
 2000 
 
 00 
 
 Ex.3 
 
 
 H. R. Edlund 
 
 Merchandise 
 Sale of Merchandise on account 
 
 1100 
 
 00 
 
 1100 
 
 00 
 
 Ex.4 
 
 
 Merchandise 
 
 Notes Payable 
 Purchase of Mdse. from D. W. Holton 
 30 -day note given in payment 
 
 1500 
 
 00 
 
 1500 
 
 00 
 
 Ex.5 
 
 
 i 
 Expense 
 
 100 
 
 00 
 
 
 
 • 
 
 
 Cash 
 Payment of Carmine Paint Co. for painting 
 store 
 
 
 
 100 
 
 00 
 
 Ex.6 
 
 
 D. F. Payne 
 
 Merchandise 
 Sale of Merchandise on account 
 
 400 
 
 00 
 
 400 
 
 00 
 
26 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 DOUBLE ENTRY BOOKKEEPING 
 
 27 
 
 Ex.7 
 
 
 Cash 
 
 Merchandise 
 Sale of Mdse. to Harrison F. Reeder 
 
 600 
 
 00 
 
 600 
 
 00 
 
 Ex.8 
 
 
 Notes Receivable 
 
 Merchandise 
 Sale of Mdse. to Philip DeKuil & Co. 
 Their 30-day note received in payment 
 
 1000 
 
 00 
 
 1000 
 
 00 
 
 Ex.9 
 
 
 6 
 
 Expense 
 
 Alton B. Kirk 
 
 Cash 
 A. B. Kirk*8 withdrawal of salary, f 25.00 
 and also 175.00 for private use 
 
 25 
 75 
 
 00 
 00 
 
 100 
 
 00 
 
 E^.10 
 
 
 Expense 
 
 Cash 
 Payment of clerk's weekly salary 
 
 0^ 
 
 14 
 
 00 
 
 14 
 
 00 
 
 Ex.11 
 
 
 8 
 
 D. F. Payne 
 
 Cash 
 Payment to apply on account 
 
 100 
 
 00 
 
 100 
 
 00 
 
 Ex.12 
 
 
 Cash 
 
 H. R. Edlund 
 Check received to apply on account 
 
 1000 
 
 00 
 
 1000 
 
 00 
 
 I 
 
 Explanation of Illustrative Journal 
 
 Ex. 1. — This, it will be noted, is a compound Journal entry, illus- 
 trating that the two sides of our entry may be composed of several 
 items, provided always that their sums be equal. Store and Lot, 
 Horse and Wagon, Cash, Notes Receivable, H. R. Edlund, and 
 James Garvin are separately debited with their respective amounts, 
 these amounts appearing in the debit column because each account 
 is now responsible to the business for the given amount. Alton 
 B. Kirk is credited, having given up, or granted, $10600.00 of value, 
 assumed by the separate debit accounts. Alton B. Kirk is debited 
 with f 600.00 because he is responsible for the business having a 
 liability of $600.00 to D. F. Payne, whose account is credited be- 
 cause it has granted Alton B. Kirk's account responsibility. 
 
 Ex. 2. — This is simply an exchange of assets by which merchan- 
 dise assumes the responsibility shifted to it by cash; hence, the 
 debit and credit. 
 
 Ex. 3. — H. R. Edlund is debited because he is now responsible 
 for the value of the merchandise gone out of the business, the reponsi- 
 bility of which has been given up by the merchandise (credit). 
 
 Ex. 4. — This is an exchange of an asset for a liability, by which 
 the asset Merchandise assumes a responsibility (debit), granted to it 
 by the liability. Notes Payable (credit). 
 
 Ex. 5. — Expense is responsible for (debit) and explains the ex- 
 penditure of cash, the value of which has been shifted (credit). 
 
 Ex. 6. — See Ex. 3. 
 
 Ex. 7. — Similar to Ex. 2, except that cash has here assumed 
 the responsibility granted by merchandise. 
 
 Ex. 8. — Again an exchange of assets by which a written promise to 
 pay is made to assume a responsibility formerly held by Merchandise. 
 
 Ex. 9. — Another illustration of a compound entry by which the 
 accounts Expense and Alton B. Kirk are responsible (debit) for the 
 f 100.00 granted them by the account Cash (credit). 
 
 Ex. 10. — See Ex. 5. 
 
 Ex. 11. — D. F. Payne is debited because he is responsible for 
 the granting to him of $100.00 in cash (credit). 
 
 Ex. 12. — Cash has assumed a new responsibility for $1000.00 ; 
 hence, the debit. H. R. Edlund having granted cash, has shifted his 
 responsibility, and his account is credited. 
 
 Posting. — The next step after journalizing is to post the debits 
 and credits to their respective accounts in the Ledger, the procedure 
 being identical with that of Single Entry Bookkeeping, though, of 
 course, the ledger now includes both financial and nominal accounts. 
 The proper time to post naturally depends upon the particular busi- 
 ness, but it is always preferable to have the day's entries posted the 
 same day, or, at the latest, the next, so that the bookkeeper, at a 
 moment's notice, can give a statement of any account. 
 
 We are now ready to post the Journal. 
 
 Double Entry Ledger 
 Alton B. Kirk, Capital 
 
 1918 
 
 
 
 
 
 
 1918 
 
 
 
 
 
 
 Oct. 
 
 1 
 6 
 
 J 
 
 1 
 1 
 
 600 
 75 
 
 675 
 
 00 
 
 00 
 
 00 
 
 Oct. 
 
 1 
 
 J 
 
 1 
 
 10600 
 
 00 
 
 Store and Lot 
 
 1913 
 
 Oct. 
 
 4600 
 
 00 
 
28 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Horse and Wagon 
 
 1918. 
 
 Oct. 
 
 t 
 
 I 
 
 
 250 
 
 00 
 
 Cash 
 
 1918 
 
 
 
 
 
 
 1913 
 
 
 
 
 
 
 Oct. 
 
 1 
 
 J 
 
 1 
 
 4000 
 
 00 
 
 Oct. 
 
 3 
 
 J 
 
 
 2000 
 
 00 
 
 
 4 
 
 
 1 
 
 600 
 
 00 
 
 
 4 
 
 
 
 100 
 
 00 
 
 
 8 
 
 
 1 
 
 1000 
 5600 
 
 00 
 
 00 
 
 
 6 
 6 
 
 8 
 
 
 
 100 
 
 14 
 
 100 
 
 S814 
 
 00 
 00 
 00 
 
 00 
 
 
 
 
 
 Notes RECEiVi^ 
 
 iBLE 
 
 
 
 
 
 1913 
 
 
 
 
 
 
 
 
 
 
 
 
 Oct. 
 
 1 
 4 
 
 J 
 
 1 
 1 
 
 750 
 1000 
 
 1750 
 
 00 
 00 
 
 00 
 
 
 
 
 
 
 
 
 
 
 
 H. 
 
 R. Edlund 
 
 
 
 
 
 1913 
 
 
 
 
 
 
 1918 
 
 
 
 
 
 
 Oct. 
 
 1 
 
 3 
 
 J 
 
 1 
 1 
 
 500 
 1100 
 
 1600 
 
 00 
 00 
 
 00 
 
 Oct. 
 
 8 
 
 J 
 
 1 
 
 1000 
 
 00 
 
 
 
 
 
 Jambs Garvin 
 
 
 
 
 
 1913 
 
 
 
 
 
 
 
 
 
 
 
 
 Oct. 
 
 1 
 
 J 
 
 1 
 
 500 
 
 00 
 
 
 
 
 
 
 
 
 
 
 
 D. 
 
 F. 
 
 Payne 
 
 
 
 
 
 1918 
 
 
 
 
 
 
 1918 
 
 
 
 
 
 
 Oct. 
 
 4 
 
 8 
 
 J 
 
 1 
 1 
 
 400 
 100 
 
 500 
 
 00 
 00 
 
 00 
 
 Oct. 
 
 1 
 
 J 
 
 1 
 
 600 
 
 00 
 
 DOUBLE ENTRY BOOKKEEPING 
 
 29 
 
 
 
 
 
 Merchandise 
 
 
 
 
 
 1918 
 
 
 
 
 
 
 1918 
 
 
 
 
 
 
 Oct 
 
 3 
 
 J 
 
 1 
 
 2000 
 
 00 
 
 Oct. 
 
 3 
 
 J 
 
 1 
 
 1100 
 
 00 
 
 
 
 
 1 
 
 1500 
 
 00 
 
 
 4 
 
 
 1 
 
 400 
 
 00 
 
 
 
 
 
 8600 
 
 00 
 
 
 4 
 4 
 
 
 1 
 1 
 
 600 
 1000 
 
 3100 
 
 00 
 00 
 
 00 
 
 1 
 
 
 Notes Payable 
 
 
 
 
 
 
 
 
 
 
 1918 
 
 
 
 
 
 
 
 
 
 
 
 
 Oct. 
 
 3 
 
 J 
 
 1 
 
 1500 
 
 00 
 
 
 
 
 
 
 Expense 
 
 
 
 
 
 
 1918 
 
 
 
 
 
 
 
 
 
 
 
 
 Oct. 
 
 4 
 6 
 6 
 
 J 
 
 1 
 
 1 
 1 
 
 100 
 25 
 14 
 
 189 
 
 00 
 00 
 00 
 
 00 
 
 
 
 
 
 
 
 Explanation of Illustrative Ledger 
 
 In constructing the Ledger we take the entries as they occur, 
 posting first the debit side and then the credit side of each individual 
 transaction. In each instance we note first in the Journal folio 
 column the number of the page of the Ledger on which the account 
 appears; and at the same time note in the Ledger folio column the 
 number of the page of the Journal from which the debit or credit is 
 taken. These folio columns act as a double check, facilitating the 
 location of errors as they occur. The " J," the initial letter of the 
 word " Journal," is placed in each account to indicate that the entry 
 has come from that book. 
 
 "Alton B. Kirk, Capital," the proprietor's account, is pl^ed 
 first in the Ledger as a matter of custom. The arrangement of 
 the other accounts is discretionary, although as they increase in 
 number it is preferable to segregate the Financial and Nominal Ac- 
 counts. 
 
 It is common usage to allow at least one page to an account. 
 
 f 
 
 1 
 
 - — lUi^-t^ 
 
30 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 DOUBLE ENTRY BOOKKEEPING 
 
 31 
 
 Journalize 
 Oct. 1,1913.- 
 
 M 
 
 
 Oct. 2, 1913. 
 Oct. 3, 1913. 
 Oct. 4, 1913. 
 
 Oct. 5, 1913. 
 Oct. 6, 1913. 
 Oct. 8, 1913. 
 
 Oct. 9, 1913. 
 Oct. 10, 1913. 
 Oct. 13, 1913. 
 Oct. 13, 1913. 
 
 PROBLEM 12 
 
 and post by Double Entry Bookkeeping the following : 
 
 -James Willing began business with cash, $1600.00; merchan- 
 dise, $2000.00: an open account against C. C. Cole for 
 $500.00; and several notes owing to him amounting to 
 $900.00. Willing owed on a note, $700.00. 
 
 - Bought merchandise of N. N. Clegg on account, $300.00. 
 -Sold W. S. Dunn, merchandise on account, $520.00. 
 -Bought lot of ground and small store for $1200.00 and gave a 
 
 note in payment. 
 -Sold H. C. Binns, merchandise for cash, $240.60. 
 -Paid freight and cartage from cash (h-awer, $22.65. 
 -Sold J. C. Knight, merchandise for $250.00. Knight paid 
 
 $150.00 in cash, balance on account. 
 -Sold W. L. Dwight, merchandise on account, $296.00. 
 -Paid N. N. Clegg on account, $100.00. 
 -Paid bookkeeper salary from the cash drawer, $37.50. 
 
 - W. S. Dunn paid his bill of Oct. 3d by cash, $120.00, and note 
 
 for the balance. 
 
 PROBLEM IS 
 
 Journalize and post the following : 
 
 Oct. 24, 1913. — James Sullivan engaged in the coal business, investing cash, 
 
 $8000.00. 
 Paid rent of store and yard for one month in advance, $80.00. 
 Oct. 25, 1913. — Bought of F. Davis, 300 tons of coal at $5.00 per ton, on 
 
 account. 
 Sold J. Sanders for cash 25 tons of coal at $6.25 per ton. 
 Oct. 26, 1913. — Bought of R. Andrews for cash, $5.00 per ton, 200 tons of coaL 
 
 Paid cash to Philadelphia Horse Exchange for 2 horses and a 
 
 wagon, $300.00. 
 Paid insurance on stock for one year, cash $ 25.00. 
 Oct. 27, 1913.— Gave F. Davis a 30-day note for $1500.00 to balance the 
 
 account. 
 Oct. 28, 1913. — Sold L. Jefferson 200 tons of coal at $6.25, and received in 
 
 payment cash, $250.00, and his note for balance. 
 Oct. 29, 1913. — Purchased from Stationery Supply Co., a safe; gave in pay- 
 ment check for $ 175.00. 
 Sold to Mrs. D. Simpson, 2 tons of coal at $6.50 per ton. 
 
 Received in payment money order for $13.00. 
 Paid drivers' wages in cash $ 24.00. 
 
 PROBLEM 14 
 
 1. Make the following entries in a Double Entry Journal. 
 
 2. Rule up a Ledger and open the different accounts, four on 
 a page. 
 
 8. Post from the Journal to the Ledger. 
 
 Oct. 1, 1913. — E. D. Fields began business with cash, $4100.00; real estate, 
 
 $5000.00; notes in the safe, $750.00. J. Jones owes 
 the business $325.00. Notes outstanding to creditors, 
 $525.00. Merchandise on hand, $2820.00. 
 Sold merchandise for cash, $625.00. 
 Oct. 2, 1913. — Bought of E. P. Price, merchandise on account, $550.00. 
 
 Paid freight in cash, $12.00. 
 Oct. 3, 1913. — Bought of John James for cash, merchandise, $210.00. 
 
 Bought of John Jameson account, merchandise, $200.00. 
 Sold M. Frank, merchandise on account, $175.00. 
 Oct 4, 1913. — Bought of S. Wilson for cash, merchandise, $725.00. 
 
 Sold W. Ayres bill of merchandise, $480.00. Received cash 
 
 $200.00, and charged balance to his account. 
 Sold A. W. Macey invoice of goods on account, $80.00. 
 Oct. 5, 1913. —J. Jones paid his debt of $325.00. 
 
 Paid E. P. Price $250.00 on account and gave him note for 
 
 the balance. 
 Sold Perry & Co., merchandise, $300.00. Paid by note. 
 M. Frank paid bill of Oct. 3d in cash. 
 Oct. 6, 1913. — Bought stationery for cash, $25.00. 
 Oct. 7, 1913. — Paid freight bill in cash, $6.75. 
 
 Bought merchandise of E. F. Starr, $600.00. Paid $200.00 
 
 in cash and balance by note. 
 Sold J. Jones merchandise on account, $800.00. 
 Oct. 8, 1913. — Paid rent for month in cash, $ 150.00. 
 
 Sold G. Baird, merchandise for cash, $90.00. 
 Sold M. McKean, merchandise on account, $380.00. 
 Oct. 11, 1913. — A. W. Macey paid bill of Oct. 4th by cash. 
 
 Sold F. Wood, merchandise for Cash, $275.00. 
 Oct. 12, 1913. — W. Ayres paid balance due on his purchase of Oct. 4th. 
 Oct. 13, 1913. —J. Jones paid $400.00 on account of bill of the 7th. 
 
 Paid note of $300.00 due Price, which matured to-day. 
 Oct 14, 1913. —Purchased lot for $ 1500.00, paying $500.00 down, and balance 
 
 by note. 
 Bought horse and wagon of Philadelphia Horse Exchange, 
 $300.00 on account. 
 Oct 15, 1913. — Perry & Co. bought merchandise on account, $80.00. 
 
^ 
 
 32 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 DOUBLE ENTRY BOOKKEEPING 
 
 33 
 
 I 
 
 1 
 
 Journalize 
 Oct. 1, 1913. 
 
 PROBLEM 16 
 
 and post the following : 
 — H. F. Rice commenced business with : 
 
 Oct. 2, 1913. 
 Oct 3, 1913. 
 
 Oct. 4, 1913. 
 
 % 7400.00 
 
 6100.00 
 
 450.00 
 
 275.00 
 
 75.00 
 
 725.00 
 
 1735.00 
 
 Oct 5,1913 
 
 Oct 6, 1913 
 Oct 7, 1913, 
 Oct 9,1913. 
 Oct 10, 1913. 
 
 Oct. 11, 1913. 
 
 Oct 12, 1913. 
 
 Cash 
 
 Real Estate 
 Notes in the safe 
 Debt owed by J. Kelly 
 Debt owed by A. Smart 
 Notes outstanding to creditors 
 Merchandise on hand 
 
 — Sold merchandise for cash, $540.00. 
 
 — Bought of S. Johnson, merchandise for cash, $265.00. Paid • 
 
 freight on above, $8.00. 
 Bought of A. Wilde, merchandise on account, $340.00. 
 
 — Sold James Fish, merchandise on account, $185.00. 
 
 Sold F. Munsey bill of goods amounting to $340.00, receiving 
 $140.00 in cash, and his SOnlay note for the balance. 
 
 Had front of building painted by White, Ledd & Co. Bill 
 rendered, $75.00. 
 
 — Bought of S. Whittle Sons, consignment of goods, $460.00. 
 
 Paid by 30-day note for $300.00, balance on account 
 Sold to James Rooney, merchandise for cash, $210.00. 
 J. KeUy paid his debt of $275.00. 
 
 — Sold George Elrich invoice of goods on account, $190.00. 
 Paid A. Wilde cash on account, $ 140.00, and note for balance. 
 
 — Paid for advertising in cash, $80.00. 
 Paid office salaries in cash, $ 78.00. 
 
 — James Fish paid in full his bill of the 4th. 
 Paid for postage and office supplies, $12.00. 
 
 — Sold Samuel Woolworth bill of merchandise, $520.00, on which 
 
 he paid cash, $300.00 ; balance on accx)unt 
 Paid bill of White, Ledd & Co. of the 4th. 
 A. Smart paid his bill of $ 75.00. 
 
 — Bought $1500.00 worth of merchandise of Thomas PhilUps, 
 
 receiving 5 % discount for cash. 
 Bought stationery for cash, $ 25.00. 
 Sold merchandise to James Gordon, $320.00. Received cash, 
 
 $200.00, balance on account. 
 
 — Paid taxes by check, $90.00. 
 
 Sold Peter Martin, merchandise on account, $235.00. 
 Sold real estate holdings to Star Realty Co., $7200.00. 
 Received cash, $5000.00, balance on account 
 
 Oct. 13, 1913. — Bought of the Eureka Motor Car Co. two motorcycles for sales- 
 men, $500.00 Paid $100.00 down, $200.00 in 30 days, 
 balance 60 days. 
 Sold merchandise to Frank Yacks for cash, $425.00. 
 Oct 14, 1913. — Purchased a lot for $4000.00, paying $1000.00 down and 
 
 balance by note. 
 McCreary & Co. bought merchandise on account, $160.00. 
 Oct 15, 1913. — Paid office salaries, $78.00. 
 
THE TRIAL BALANCE 
 
 35 
 
 I 
 
 ll' 
 
 CHAPTER V 
 
 THE TRIAL BALANCE 
 
 In posting the transactions in the previous chapter the possibility 
 of omitting a debit or credit, or of substituting a debit for a credit 
 or vice versa, was very great. It is but natural, therefore, that we 
 should at this time question the accuracy of the work. Fortunately, 
 our double entry system provides its own test. Reverting for 
 the moment to our first principle, that "for every debit there 
 must be an equal and corresponding credit," it is a mathematical cer- 
 tainty, if our work is correct, that the debit and credit sides of the 
 Ledger must balance. In the Journal every transaction has equal 
 debit and credit sides; hence, since we have posted each Journal 
 debit and credit to its respective side in the Ledger, the sum of the 
 debits of all the accounts must equal the sum of the credits of all the 
 accounts. In other words, the sum of the debit totals of each of 
 the accounts is equal to the sum of the credit totals of each of the 
 accounts. For instance, the Trial Balance of the Ledger of Alton 
 B. Kirk is as follows: 
 
 Trial Balance 
 
 Alton B. Kirk 
 
 October 8, 1913 
 
 L.F. 
 
 1 
 1 
 1 
 1 
 2 
 2 
 2 
 2 
 3 
 3 
 3 
 
 Alton B. Kirk, Capital 
 
 Store and Lot 
 
 Horse and Wagon 
 
 Cash 
 
 Notes Receivable 
 
 H. R. Edlund 
 
 James Garvin 
 
 D. F. Payne 
 
 Merchandise 
 
 Notes Payable 
 
 Expense 
 
 
 Dh. 
 
 
 Cb. 
 
 
 ital 
 
 675 
 
 00 
 
 10600 
 
 00 
 
 
 4600 
 
 00 
 
 
 
 , 
 
 250 
 
 00 
 
 
 
 
 5600 
 
 00 
 
 2314 
 
 00 
 
 
 1750 
 
 00 
 
 
 
 
 1600 
 
 00 
 
 1000 
 
 00 
 
 
 500 
 
 00 
 
 
 
 
 500 
 
 00 
 
 600 
 
 00 
 
 
 3500 
 
 00 
 
 3100 
 1500 
 
 00 
 00 
 
 
 139 
 
 00 
 
 
 
 
 19114 
 
 00 
 
 19114 
 
 00 
 
 
 
 
 
 
 It is a well-recognized principle of algebra that an equation will 
 remain unaffected if an equal amount is deducted from both sides. 
 Applying this principle to the above schedule, by deducting, in each 
 instance where there is a debit and credit total, the lesser of the two 
 sides from each side, it must follow that a debit or credit balance 
 will result, the sum of the debit balances equaling the sum of the 
 credit balances. To illustrate from the above schedule, the Trial 
 Balance will appear as follows : 
 
 Trial Balance 
 
 Alton B. Kirk 
 
 October 8, 1913 
 
 L.F. 
 
 1 
 1 
 1 
 1 
 2 
 2 
 2 
 2 
 3 
 3 
 3 
 
 Alton B. Kirk, Capital 
 
 Store and Lot 
 
 Horse and Wagon 
 
 Cash 
 
 Notes Receivable 
 
 H. R. Edlund 
 
 James Garvin 
 
 D. F. Payne 
 
 Merchandise 
 
 Notes Payable 
 
 Expense 
 
 Db. 
 
 
 Cb. 
 
 9925 
 
 4600 
 
 00 
 
 
 250 
 
 00 
 
 
 3286 
 
 00 
 
 
 1750 
 
 00 
 
 
 600 
 
 00 
 
 
 500 
 
 00 
 
 100 
 
 400 
 
 00 
 
 1500 
 
 139 
 
 00 
 
 
 11525 
 
 00 
 
 11525 
 
 
 
 00 
 
 00 
 00 
 
 oo" 
 
 Trial Balance. — A Trial Balance is a list or schedule of the debit 
 and credit footings or balances of all the accounts remaining open in 
 a Ledger at any specified time, together with the folio and name of 
 the account. 
 
 Of the two Trial Balances given above, the better and by far the 
 more common is the Trial Balance of Balances. It exhibits at a 
 glance the exact balance of any account without further computation, 
 and is equally serviceable in proving the correctness of our books. 
 
 Preparation of Trial Balance. — The steps necessary in the prepa- 
 ration of a Trial Balance with reference to the Ledger are as 
 follows : 
 
 1. Total in small pencil footings the debit and credit sides of 
 
 each account. 
 
 2. Strike the difference and list as above. 
 
 Correctness of Trial Balance. — A Trial Balance in perfect bal- 
 ance does not indicate absolutely the correctness of our books, as an 
 
 lii 
 
36 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 error of principle may have been made, or again we might have 
 debited or credited a wrong account. In the event of the Trial 
 Balance not balancing, it proves conclusively that some error has 
 been made, to find which the following tests will be of assistance. 
 Location of Errors: 
 
 1. Ascertain the difference. 
 
 2. If the difference be $.10, 11.00, f 10.00, $100.00, or 11000.00, 
 
 etc., look for an error in addition in the Trial Balance; 
 and if not found, test the additions and subtractions of the 
 accounts in the Ledger. 
 
 3. If the difference be divisible by two, look for such a figure 
 
 and see if it were posted to the wrong side. 
 
 4. If the difference be divisible by 9, the error may have been 
 
 one of transposition of figures, as $97.00 for $79.00. In 
 the event of these common tests failing, it is advisable to 
 retrace all the work, checking every entry. 
 Value of Trial Balance. — The value of the Trial Balance is four- 
 fold: 
 
 1. It tests the equilibrium of the Ledger. 
 
 2. It assists in detecting errors. 
 
 3. It presents a schedule and a balance of all accounts. 
 
 4. It is the basis for the various business statements and is a 
 
 necessary preliminary to the closing of the books. 
 
 PROBLEM 16 
 Present Trial Balance of Problem 12, on page 30. 
 
 PROBLEM 17 
 
 Present Trial Balance of Problem 13, on page 30. 
 
 PROBLEM 18 
 Present Trial Balance of Problem 14, on page 31. 
 
 PROBLEM 19 
 Present Trial Balance of Problem 15, on page 32. 
 
 \ 
 
 CHAPTER VI 
 
 THE THEORY OF DEBIT AND CREDIT 
 
 The treatment of the subject of debit and credit in Double 
 Entry Bookkeeping up to this time has been entirely from a practical 
 point of view, as is only right and proper, the art of Bookkeeping 
 being one of the most practical. However, the theory of debit and 
 credit has a much broader application, and if thoroughly understood, 
 obviates the necessity of rules. 
 
 It is easy to say that we make a debit and a credit entry for each 
 transaction which must balance, but let us observe the reason for 
 this statement. 
 
 Goods = Proprietorship 
 
 Goods Accounts. — By " Goods Accounts " are meant values of 
 any nature either owned by or owed by the proprietor of the 
 business. The Goods Accounts are both positive and negative. 
 
 Proprietorship Accounts. — By " Proprietorship Accounts " are 
 meant those accounts which collectively represent the proprietor's 
 interest in the business, or, in other words, the difference between 
 his " positive " and " negative " goods. Thus, if a proprietor com- 
 mences business, investing f 12,000.00 positive value (assets), and 
 f 2000.00 negative value (liabilities), we then have the following 
 equation : 
 
 Positive Goods — Negative Goods = Proprietorship 
 or, in figures : 
 
 $12000.00 - 12000.00 = 110000.00 
 or, transposing, we have : 
 
 Positive Goods = Negative Goods + Proprietorship 
 or, in figures : 
 
 112000.00 = 12000.00 + 110000.00 
 
 The latter form of equation, which groups the positive values on the 
 left and the negative values on the right, with the resulting proprie- 
 torship, is the equation of Double Entry Bookkeeping. 
 
 37 
 
'M 
 
 ill 
 
 I 
 
 \ 
 
 38 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 It has become customary to term the left side of the equation 
 debit, and the right side credit. Let us consider how the various 
 transactions that might occur affect the above equation. 
 
 First, group the classes of transactions as follows: 
 
 1. Pure exchange transactions, involving the exchange of one 
 
 asset for another, or one liability for another, or the ex- 
 change of an asset for a liability, or vice versa, 
 
 2. Transactions involving a change in assets or liabilities without 
 
 an exchange (a profit or loss). 
 
 3. Transactions involving both of the above classes. 
 
 If the proprietor mentioned in the previous equations buys a 
 horse and wagon for $1000.00 without paying for them, the balance 
 remains unchanged. To repeat the original equation : 
 
 Positive Goods = Negative Goods + Proprietorship 
 
 f 12000.00 = $2000.00 + $10000.00 
 
 As affected by the above purchase, it is : 
 
 Positive Goods = Negative Goods -f Proprietorship 
 
 $13000.00 = $3000.00 + $10000.00 
 
 By this purchase the proprietor has not increased his proprietor- 
 ship, as he has increased his positive and negative goods in like 
 amount. On the same line of reasoning, if our proprietor sells the 
 horse and wagon for $1000.00 in cash, he simply exchanges equal 
 amounts of positive goods ; or if he exchanges all of his negative 
 goods (debts), from Accounts Payable to Notes Payable, he simply 
 exchanges equal amounts of negative goods. In neither instance 
 does he change the equation. 
 
 The purchase, and both the exchanges of value mentioned, are 
 classified as exchange transactions. 
 
 If, on the other hand, the proprietor receives $200.00 in cash 
 (positive goods) for having placed orders for another firm (in other 
 words, a commission) for which he has not parted with any other 
 positive goods, the equation is changed to : 
 
 Positive Goods = Negative Goods 4- Proprietorship 
 
 $13200.00 = $3000.00 + $10200.00 
 
 It is plain that the $200.00, coming into the business as it does, 
 is a clear gain ; hence, the increased proprietorship. 
 
 To illustrate again with another transaction of the same class : 
 
 THE THEORY OF DEBIT AND CREDIT 
 
 39 
 
 The proprietor pays $100.00 for clerk hire. The resulting 
 equation is : 
 
 Positive Goods = Negative Goods + Proprietorship 
 $13100.00 = $3000.00 + $10100.00 
 
 In this instance it is very evident that the business has lost 
 $100.00; hence, the decreased proprietorship. 
 
 We see clearly by this time that the positive goods are the assets 
 of a business, the negative goods, the liabilities, and the proprietor- 
 ship the representation of what the proprietor invests in the business 
 plus his gains and minus his losses. 
 
 It is evident that the theory of handling the gains and losses in 
 its most elemental practice simply increases or decreases the pro- 
 prietor's account. This, however, is impracticable, as it defeats the 
 purpose of bookkeeping in so far as it is not possible at the end of 
 a period to trace how and where we have lost or gained. But the 
 first equations expand to encompass these losses and gains, so that 
 at the end of a period the sources thereof may be ascertained. 
 
 Take the original illustrations of the $200.00 gain in commis- 
 sion, and the $100.00 loss in wages. Before considering these the 
 equation is : 
 
 Assets = Liabilities + Proprietorship 
 $13000.00= $3000.00+ $10000.00 
 
 After receiving the $200.00 for commission it is : 
 
 Assets = Liabilities -|- Proprietorship 
 $13200.00= $3000.00 + $10200.00 
 
 which is the same as : 
 
 Assets = Liabilities -f Gain + Proprietorship 
 $13200.00= $3000.00 +$200.00+ $10000.00 
 
 After considering the $100.00 paid to clerks it is : 
 
 Assets + Losses = Liabilities + Gain + Proprietorship 
 $13100.00 + $100.00 = $3000.00 + $200.00 + $10000.00 
 
 This clearly illustrates how the equation maintains the losses on 
 the left side and the gains on the right, until such time as it is 
 desirous of collecting them and combining the result with the Pro. 
 prietor's Account. 
 
 The full equation is now as follows : 
 
 Assets + Losses = Liabilities + Gains + Proprietorship 
 
40 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 As mentioned before, from custom we have come to term the 
 left side of the equation debit, and the right side credit, thereby 
 evolving the complete formula of bookkeeping without recourse to 
 the terms " debit " and " credit." From the above we can now reduce 
 debit and credit principles to the statements that : 
 
 1. An Asset, or 
 
 Every debit balance is 
 Every credit balance is 
 
 2. A Loss 
 
 1. A Liability, or 
 
 2. A Gain 
 
 CHAPTER VII 
 
 THE CHANGE FROM SINGLE ENTRY TO DOUBLE ENTRY 
 
 BOOKKEEPING 
 
 After completing Single Entry the logical step apparently 
 would have been to explain the method of changing a set of books 
 from Single to Double Entry Bookkeeping, but rather than take a 
 step in the dark, we delayed sufficiently to make ourselves acquainted 
 with the principles of Double Entry. 
 
 As in Single Entry, a Journal and Ledger are sufficient for 
 Double Entry Bookkeeping. In making the change we must bear in 
 mind that Double Entry Bookkeeping includes Personal, Property, 
 and Nominal Accounts, and not merely the Personal Accounts of 
 Single Entry. Therefore it is necessary to introduce upon our 
 books these other accounts, but in order to incorporate the actual 
 value of the Single Entry business upon the books, it is first necessary 
 to prepare a statement of the assets and liabilities. 
 
 We shall take as our illustration the Statement of the Assets and 
 Liabilities of the Alton B. Kirk problem from Chapter III, on Single 
 Entry Bookkeeping, in which chapter the collection of the various 
 assets and liabilities was fully discussed. 
 
 Statement 
 
 Assets 
 
 Liabilities 
 
 Store and Lot 
 
 Horse and Wagon 
 
 Notes Receivable 
 
 Inventory of Mdse. 
 
 Cash 
 
 Acc'ts Receivable 
 
 4600 
 250 
 
 1750 
 700 
 
 3286 
 
 1100 
 
 11686 
 
 00 
 00 
 00 
 00 
 00 
 00 
 
 00 
 
 Notes Payable 
 Acc'ts Payable 
 
 Alton B. Kirk, 
 
 Present Worth 
 
 1500 
 
 00 
 
 100 
 
 00 
 
 10086 
 
 00 
 
 11686 
 
 00 
 
 
 
 From the standpoint of bookkeeping, it is necessary to regard 
 this change in our system as the commencement of a new business, 
 
 41 
 
I 
 
 I 
 
 \l 
 
 tt 
 
 42 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 in so far as we must debit all of the assets which are now responsible 
 to the business for the value tliey represent, and credit the proprie- 
 tor, Alton B. Kirk, for the responsibility he has granted. Likewise 
 we debit Alton B. Kirk for the responsibility of having the business 
 acquire the liabilities granted by the credit accounts. Notes Payable 
 and Accounts Payable. 
 The Journal entry is : 
 
 November 1, 1913 
 
 Store and Lot 
 
 Horse and Wagon 
 
 Notes Receivable 
 
 Inventory of Merchandise 
 
 Cash 
 
 Accounts Receivable 
 
 Alton B. Kirk, Capital 
 Alton B. Kirk, Capital 
 
 Notes Payable 
 Accounts Payable 
 Being the entries necessary to incorporate 
 all of the above accounts in Alton B. 
 Kirk's double entry books. 
 
 46()0 
 
 00 
 
 
 250 
 
 00 
 
 
 1750 
 
 00 
 
 
 700 
 
 00 
 
 
 3286 
 
 00 
 
 
 1100 
 
 00 
 
 11686 
 
 1600 
 
 00 
 
 
 
 
 1500 
 100 
 
 00 
 
 00 
 00 
 
 By means of this Journal entry we have introduced all of the 
 values of the Single Entry set upon our books; as in posting, each of 
 these accounts will be placed upon our Ledger. 
 
 It is very evident that the Journal and Ledger of a Single Entry set 
 may readily be converted into Double Entry books, but this has an 
 objection in the handling of the Proprietor's Account. If the old set 
 is retained, the Journal entry is identical, but it is then necessary to 
 make some exceptions in the posting thereof. It is not necessary to 
 post the Accounts Receivable or Accounts Payable, they being al- 
 ready on the books ; neither can we post the debit or credit of the 
 proprietor to his account, for his account already contains the present 
 worth of the last period, to which we can now add or subtract only 
 the loss or gain for the period just ended. The balance is then the 
 same as though the debit and credit amounts in the Journal had been 
 posted to a new Proprietor's Account. 
 
 It is preferable in considering the illustration to imagine that an 
 entirely new set of books is opened, in which case the whole entry is 
 
 CHANGE FROM SINGLE ENTRY TO DOUBLE ENTRY 43 
 
 posted, including the debit and credit to the proprietor, Alton B. Kirk. 
 A new account then exhibits his present worth. 
 
 As to the Accounts Receivable and Accounts Payable, it is a 
 matter of discretion whether they shall be separately listed in the 
 original entry in the Journal, or as a matter of convenience grouped 
 in the entry under the headings " Accounts Receivable " and " Ac- 
 counts Payable." In either event each and every debtor and creditor 
 must have his separate account in the Ledger, whether posted direct 
 from the Journal or copied from the Single Entry Ledger. 
 
 It is very often necessary to change a set of books for a partner- 
 ship, in which case the principles involved are similar, but the pro- 
 cedure slightly different. 
 
 For illustration, let us again resort to the Alton B. Kirk State- 
 ment, but in this instance imagine he has two partners, Adam Burns 
 and Samuel Crompton, who share profits and losses in proportion to 
 their investments, which are as follows : 
 
 Alton B. Kirk 
 Adam Burns 
 Samuel Crompton 
 
 Statement 
 
 Assets 
 
 $5000.00 
 3000.00 
 2000.00 
 
 Liabilities 
 
 Store and Lot 
 
 Horse and Wagon 
 
 Notes Receivable 
 
 Invent, of Mdse. 
 
 Cash 
 
 Acc*ts Receivable 
 
 4600 
 250 
 
 1750 
 700 
 
 3286 
 
 1100 
 
 11686 
 
 00 
 00 
 00 
 00 
 00 
 00 
 
 00 
 
 Notes Payable 
 Accounts Payable 
 Present Worth : 
 
 A. B. Kirk 
 
 A. Burns 
 
 Sam. Crompton 
 
 The difficulty that immediately arises in attempting to apportion 
 the assets and liabilities among the several partners in ratio to their 
 ownership is readily seen. To facilitate this apportionment, recourse 
 is had to the " Capital " Account, whose only purpose is the adjust- 
 ment of the partners' accounts, and which, after having served its 
 purpose, automatically closes out. 
 
I 
 
 44 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 November 1, 1913 
 
 Store and Lot 
 Horse and Wagon 
 Notes Receivable 
 Inventory of Merchandise 
 Cash 
 
 Accounts Receivable 
 Capital 
 
 Capital 
 
 Capital 
 
 Notes Payable 
 Accounts Payable 
 
 Alton B. Kirk 
 Adam Burns 
 Samuel Crompton 
 
 4600 
 
 00 
 
 
 250 
 
 00 
 
 
 1750 
 
 00 
 
 
 700 
 
 00 
 
 
 3286 
 
 00 
 
 
 1100 
 
 00 
 
 11686 
 
 1600 
 
 00 
 
 1500 
 100 
 
 10086 
 
 00 
 
 5043 
 3025 
 2017 
 
 
 i 1 
 
 00 
 
 00 
 00 
 
 00 
 80 
 20 
 
 Posting the above to the Capital Account : 
 
 Capital 
 
 1913 
 
 Oct. 
 
 1 
 1 
 
 1600 
 10086 
 
 00 
 00 
 
 00 
 
 1918 
 
 Oct. 
 
 1 
 
 11686 
 
 
 00 
 
 00 
 
 To summarize the discussion, we reduce the entries to formulas. 
 1. To change the books of an individual from Single to Double 
 Entry Bookkeeping, the following entries are made : 
 
 
 • 
 
 t 
 
 CHANGE FROM SINGLE ENTRY TO DOUBLE ENTRY 45 
 
 Assets (Debit) 
 
 Proprietor (Credit) 
 Proprietor (Debit) 
 
 Liabilities (Credit) 
 
 2. To change the books of a partnership from Single to Double 
 Entry Bookkeeping, the following entries are made: 
 
 Assets (Debit) 
 
 Capital (Credit) 
 Capital (Debit) 
 
 Liabilities (Credit) 
 Capital (Debit) 
 
 Partner A 
 
 Partner B 
 
 Partner C 
 
 (Credit) 
 
 We have been working along on the assumption that Double Entry 
 contemplates only the Journal and the Ledger, but it goes without 
 saying that such books as Cash Book, Sales Book, etc., may also be 
 opened. 
 
 It is very often the case that after having changed a set of books 
 to Double Entry, certain assets and liabilities are discovered, which, 
 due to the incompleteness of Single Entry, were not disclosed at the 
 time of preparing the Statement of Assets and Liabilities. In such 
 an event, they must be immediately recorded on the books. Take, 
 for example. Notes Payable for #900.00, not considered in the state- 
 ment. 
 
 Capital (Debit) $900.00 
 
 Notes Payable (Credit) $900.00 
 
 Alton B. Kirk (Debit) $450.00 
 
 Adam Burns (Debit) 270.00 
 
 Samuel Crompton (Debit) 180.00 
 
 Capital (Credit) 900.00 
 
 PROBLEM 20 
 
 Change Problem 7, on page 20, from Single to Double Entry. 
 
 PROBLEM 21 
 
 Change Problem 8, on page 20, from Single to Double Entry. 
 

 ik 
 
 46 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 PROBLEM 22 
 
 Change Problem 10, on page 21, from Single to Double Entry. 
 
 PROBLEM 23 
 
 The following is a Statement of the Assets and Liabilities of 
 R. N. Roberts, who has been keeping his books by Single Entry and 
 desires to make the opening entries necessary to change his books 
 to a Double Entry set. 
 
 Statement 
 
 Assets Liabilities 
 
 Cash 
 
 6700 
 
 00 
 
 Notes Payable 
 
 1303 
 
 00 
 
 Notes Receivable 
 
 4200 
 
 00 
 
 L. Hawton 
 
 400 
 
 00 
 
 Merchandise 
 
 1650 
 
 00 
 
 S. Reiner 
 
 600 
 
 00 
 
 Real Estate 
 
 2700 
 
 00 
 
 B. Gilbert 
 
 500 
 
 00 
 
 Tools 
 
 350 
 
 00 
 
 
 
 
 J. P. Henri 
 
 75 
 
 00 
 
 1 
 
 
 H. B. Dawson 
 
 125 
 
 00 
 
 
 
 
 R. S. Samuels 
 
 230 
 
 00 
 00 
 
 Present Worth 
 
 13227 
 
 00 
 
 
 16030 
 
 16030 
 
 00 
 
 
 
 
 
 PROBLEM 24 
 
 The following is a statement of R. M. Baker, a retail tobacco 
 dealer, whose books have been kept by Single Entry. The books 
 and records show the following facts : 
 
 R. M. Baker invested 
 
 $ 24000.00 
 
 Cash 
 
 3750.00 
 
 Merchandise on hand 
 
 15375.00 
 
 Accounts Receivable 
 
 14950.00 
 
 Fixtures 
 
 2040.00 
 
 Accounts Payable 
 
 3175.00 
 
 Notes Payable 
 
 2970.00 
 
 Merchandise used by R. M. Baker 
 
 1125.00 
 
 Prepare Statement of Profit and Loss, and make journal entries 
 to change books to a Double Entry set. 
 
 PROBLEM 26 
 
 E. C. Reeves and R. Pooley, constituting the firm of Reeves & 
 Pooley, have been keeping the books of their firm by a system of 
 Single Entry Bookkeeping, and desire to change them to the Double 
 
 CHANGE FROM SINGLE ENTRY TO DOUBLE ENTRY 47 
 
 Entry system. The partners share profits and losses as follows: 
 E. C. Reeves, 70% ; R. Pooley, 30%. 
 
 The following is an abstract of their affairs to date : 
 
 Assets and LiabiHties as per Ledger and from Other Sources 
 
 E. C Reeves, Investment 
 
 R. Pooley, Investment 
 
 E. C. Reeves, Withdrawals 
 
 R. Pooley, Withdrawals 
 
 Cash 
 
 Accounts Payable 
 
 Accounts Receivable 
 
 Notes Receivable 
 
 Real Estate 
 
 Notes Payable 
 
 Plant 
 
 Merchandise 
 
 $ 32690.00 
 
 14010.00 
 
 3500.00 
 
 500.00 
 
 7200.00 
 
 9734.00 
 
 12455.00 
 
 2150.00 
 
 8400.00 
 
 3366.00 
 
 11200.00 
 
 22200.00 
 
 Determine the amount of gain or loss of each partner at this date 
 and formulate the Journal entries that are necessary to convert the 
 Single Entry Ledger into a Double Entry Ledger. 
 
 ' 
 
il 
 
 CHAPTER VIII 
 
 PROMISSORY NOTES 
 
 From time to time we have digressed from our general discussion 
 of principle to explain more explicitly the character of the accounts 
 appearing in our Statement of Assets and Liabilities, having already 
 commented on Cash, Merchandise, Accounts Receivable, Accounts 
 Payable, etc. The next items of importance we meet are " Prom- 
 issory Notes " now familiar to us as " Notes Receivable " and " Notes 
 Payable." There is a third class of written obligation which might 
 appear under our general heading "Promissory Notes," namely, 
 " Accepted Drafts," but as we treat of drafts in a separate chapter 
 we shall eliminate them entirely from our present discussion. Prom- 
 issory notes, of whatever nature, are recorded either in the Notes 
 Receivable or Notes Payable Accounts. 
 
 Promissory Note. — A promissory note is an unconditional promise 
 in writing made by one person to another, signed by the maker, 
 engaging to pay on demand or at a fixed or determinable future 
 time, a certain sum in money to, or to the order of, a specified 
 person or to bearer. 
 
 A Promissoiy Note 
 
 ^/^OC^ 
 
 <^^€J!i6^^^ ^^cArA4>^^ ^f)^J^ 
 
 ^ .^^^..^.^^y — 
 
 V- f</y y^^^^oe^ 
 
 ^- 
 
 ^-.^^ 
 
 @^yg>»r-g ^f/3, 
 
 ^^fify/S V<iL// 
 
 J^COmtCmi 
 
 Parties to a Promissory Note. — There are always two original 
 parties to a note ; the one who makes the promise, called the Maker 
 
 48 
 
 PROMISSORY NOTES 
 
 49 
 
 (in this instance, Alton B. Kirk), and the one to whom the promise 
 is made, called the Payee (here, D. W. Holton). There may be 
 subsequent parties to the note — third persons to whom the promise 
 is transferred — called the Indorsees. Something in addition to the 
 delivery or handing over of the note is essential to a transfer in 
 order to give to the indorsee the absolute right and title to enforce 
 the promise against the maker, viz. an indorsement, or in other 
 words, the signature on the back of the note by the owner, there- 
 after known as the "Indorser." Thus, in the illustration given, 
 D. W. Holton desires to transfer the note to James Garvin. He 
 may do so by writing on the back of the note : 
 
 Pay to the order of 
 
 James Garvin 
 
 (Signed) D. W. Holton 
 
 or simply write his name : 
 
 D. W. Holton 
 
 Special Indorsement. — The first, which is called a " Special In- 
 dorsement," specifies the person to whom or to whose order the 
 instrument is to be payable, and the indorsement of such indorsee 
 is necessary to the further transfer of the instrument. 
 
 Indorsement in Blank. — The second form of indorsement is 
 known as an " Indorsement in Blank." It specifies no indorsee, as 
 in the first instance, and an instrument so indorsed is payable 
 to the holder merely upon delivery. It is common practice, how- 
 ever, for subsequent holders of the note to require the signature 
 of their immediate transferor (Indorser). 
 
 Negotiation. — A promissory note is said to be "negotiated" when 
 it is transferred from one person to another in such a manner as to 
 constitute the transferee the holder, with rights similar to those held 
 by the transferor. If payable to bearer, it is negotiated by delivery; 
 if payable to order, it is negotiated by the indorsement of the holder, 
 and completed by delivery. 
 
< 
 
 I 
 
 \ 
 
 50 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Requirements of Negotiability. -~ A promissory note, to be nego- 
 tiable, must conform to the following requirements: 
 
 1. It must be in writing and signed by the maker. 
 
 2. It must contain an unconditional promise to pay a certain sum 
 
 of money. The amount is usually written both in figures 
 and in words, and in case of a difference, the words are 
 taken as correct. 
 
 3. It must be made payable on demand or at a fixed or deter- 
 
 minable future time, and not on a contingency. 
 
 4. It must contain words of negotiability, t.e. **to order" or 
 
 "bearer" or words of similar import. 
 
 6. The words " Without Defalcation," meaning that the maker 
 will not contest the note by introducing a counter claim, 
 are not necessary, but are usually inserted. 
 
 6. Though a note must be for a legal consideration, the words 
 " Value Received," though customary, are likewise unes- 
 sential. 
 
 Maturi^. — By the " maturity " of a note is meant the day when 
 it becomes due. 
 
 Purposes of Promissoiy Notes. — Promissory notes are: 
 
 1. Received or given in lieu of cash for the purchase or sale of 
 
 merchandise. 
 
 2. Received or given to balance an open account. 
 
 3. A means of acquiring additional capital. 
 Illustrations of Promissory Notes: 
 
 (#) Alton B. Kirk purchases from D. W. Holton 11500.00 
 worth of Merchandise for which he gives Holton a 30-day note. 
 
 Merchandise f 1500. 00 
 
 Notes Payable $;1500.00 
 
 Merchandise is debited because it is responsible for the liability 
 created, and Notes Payable is credited for having granted or shifted 
 its responsibility to Merchandise. 
 
 (b) Some time in the past H. R. Edlund purchased from Alton 
 B. Kirk $1000.00 worth of Merchandise on account, at which time 
 the entry was: 
 
 H. R. Edlund flOOO.OO 
 
 Merchandise 11000.00 
 
 Edlund's account was then debited, having assumed the responsi- 
 
 PROMISSORY NOTES 
 
 51 
 
 bility for that amount to the business. Merchandise was credited 
 for having shifted the responsibility. 
 
 Edlund then gave Kirk a note in settlement of his open account. 
 The entry then made was: 
 
 Notes Receivable 
 
 $1000.00 
 
 H. R. Edlund 
 
 $1000.00 
 
 Notes Receivable now assumed the responsibility held before by 
 H. R. Edlund; hence the above debit and credit. 
 
 The third purpose of promissory notes involves the discussion 
 of Discount, to be treated separately later. For the present it is 
 sufficient to say that in " discounting paper " an individual goes to a 
 bank and offers a promissory note as a means of negotiating a loan. 
 If the bank has confidence in him, it discounts his note, which means 
 that it pays over to him at once the amount called for in the note, 
 less the interest, which is deducted at the time of discount instead of 
 being collected in addition to the principal at the time of payment. 
 
 Payment of Promissory Notes. — As was noted in the illustration 
 given above, the Notes Receivable and Notes Payable Accounts, in 
 the manner of their assuming and shifting responsibility, are similar 
 in their treatment to personal accounts, and on the maturity of a 
 note — if it is a notes receivable — the entry is : 
 
 Cash 
 
 Notes Receivable 
 
 The cash having now assumed the responsibility granted to it by 
 the notes receivable is debited, and the notes receivable is credited. 
 When a notes payable is paid, the entry is : 
 
 Notes Payable 
 
 Cash 
 
 The Notes Payable, being returned to the maker, assumes the re- 
 sponsibility of the departing cash, and the debit and credit are made 
 accordingly. 
 
 In every instance in the payment of a note, the instrument is 
 returned to the owner. 
 
 Renewals. — When the makers of promissory notes are allowed, 
 at the maturity of the notes, to renew their promises for an addi- 
 tional determinate time, instead of paying their notes, these exten- 
 sions are known as " Renewals." This involves the making of a new 
 note and the making of the following entries : 
 
ll 
 
 I ' 
 
 i 
 
 I 
 
 52 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 1. Debit the person renewing the note and credit Notes Re- 
 ceivable (the old note). 
 
 2. Debit Notes Receivable (the new note) and credit the person 
 renewing the note. 
 
 In handling promissory notes on the books, an important point 
 to be remembered is that the character of the note never changes ; 
 that is to say, once a notes receivable, always a notes receivable — 
 and the same is true in the case of a notes payable. Thus, when a 
 note is received by the business, it is debited as a notes receivable. 
 From this it is seen that the normal condition of the Notes Receiv- 
 able Account is to show a debit balance, for more notes receivable 
 cannot be returned by the business than were received. Similarly 
 the Notes Payable Account usually shows a credit balance, for more 
 notes payable cannot be returned to the business (debited) when 
 paid than were issued. 
 
 It is needless to say that if all notes receivable are paid, the 
 account balances. This is also true of notes payable. 
 
 Part Payment. — There are occasions when part payment is made 
 on promissory notes, in which case such payment is noted on the 
 back of the note itself, and Journal entries made as follows : 
 
 1. In the case of a notes receivable : 
 
 Cash 
 
 Notes Receivable 
 
 for the amount received, 
 responsibility having been assumed and shifted to that degree. 
 
 2. In the case of a Notes Payable : 
 
 Notes Payable 
 
 Cash 
 
 for the reason given above. 
 
 \ 
 
 / 
 
 CHAPTER IX 
 
 INTEREST AND DISCOUNT 
 
 It may safely be said that every business must at some time con- 
 sider the recording of interest or discount upon its books. If the 
 business receives or issues notes, borrows or lends money, owns 
 mortgages or has mortgages on its property, it necessarily must con- 
 sider this subject. 
 
 Interest is the compensation allowed for the use of money. 
 Discount is an allowance made in consideration of a debt bein? 
 paid before it is due. 
 
 Thus, we see there is very little difference between the two, both 
 being in fact allowances for the use of money. The definition of 
 interest gives the correct impression that when the principal sum 
 of money which has been used is returned, the compensation for its 
 use, interest, is added thereto. From the definition of discount we 
 see that discount is an allowance or compensation made or deducted 
 from the principal sum of a debt, provided it is paid before it is 
 due. Thus It is but the compensation allowed for the use of money 
 represented in the debt, for the length of time between the date the 
 money is received and the date such sum is due ; but in discount, 
 this sum 18 deducted at once from the amount of the sum received. 
 
 The distinction is that : 
 
 A. Interest is paid after the use of money. 
 
 B. Discount is paid before the use of the money. 
 
 Kinds of Discount — Discount b commonly divided into three 
 classes : 
 
 1. Commercial discount. 
 
 2. Bank discount. 
 
 3. Merchandise or trade discount. 
 
 The definition of discount applies to all three. 
 Commercial discount or simple discount is the allowance made for 
 notes paid in advance. 
 
 Bank discount is the consideration allowed to a bank for the use 
 pf money. 
 
 58 
 
KSSSL 
 
 t 
 
52 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 1. Debit the person renewing the note and credit Notes Re- 
 ceivable (the old note). 
 
 2. Debit Notes Receivable (the new note) and credit the person 
 renewing the note. 
 
 In handling promissory notes on the books, an important point 
 to be remembered is that the character of the note never changes ; 
 that is to say, once a notes receivable, always a notes receivable — 
 and the same is true in the case of a notes payable. Thus, when a 
 note is received by the business, it is debited as a notes receivable. 
 From this it is seen that the normal condition of the Notes Receiv- 
 able Account is to show a debit balance, for more notes receivable 
 cannot be returned by the business than were received. Similarly 
 the Notes Payable Account usually shows a credit balance, for more 
 notes payable cannot be returned to the business (debited) when 
 paid than were issued. 
 
 It is needless to say that if all notes receivable are paid, the 
 account balances. This is also true of notes payable. 
 
 Part Payment — There are occasions when part payment is made 
 on promissory notes, in which case such payment is noted on the 
 back of the note itself, and Journal entries made as follows : 
 
 1. In the case of a notes receivable : 
 
 Cash 
 
 Notes Receivable 
 
 for the amount received, 
 responsibility having been assumed and shifted to that degree. 
 
 2. In the case of a Notes Payable : 
 
 Notes Payable 
 
 Cash 
 
 for the reason given above. 
 
 CHAPTER IX 
 
 INTEREST AND DISCOUNT 
 
 It may safely be said that every business must at some time con- 
 sider the recording of interest or discount upon its books. If the 
 business receives or issues notes, borrows or lends money, owns 
 mortgages or has mortgages on its property, it necessarily must con- 
 sider this subject. 
 
 . Interest is the compensation allowed for the use of money. 
 
 Discount is an allowance made in consideration of a debt bein? 
 paid before it is due. 
 
 Thus, we see there is very little difference between the two, both 
 being in fact allowances for the use of money. The definition of 
 interest gives the correct impression that when the principal sum 
 of money which has been used is returned, the compensation for its 
 use, interest, is added thereto. From the definition of discount we 
 see that discount is an allowance or compensation made or deducted 
 from the principal sum of a debt, provided it is paid before it is 
 due. Thus It IS but the compensation allowed for the use of money 
 represented in the debt, for the length of time between the date the 
 money IS received and the date such sum is due; but in discount, 
 this sum IS deducted at once from the amount of the sum received. 
 
 The distinction is that : 
 
 A. Interest is paid after the use of money. 
 
 B. Discount is paid before the use of the money. 
 
 Kinds of Discount -Discount is commonly divided into three 
 classes : 
 
 1. Commercial discount. 
 
 2. Bank discount. 
 
 3. Merchandise or trade discount. 
 
 The definition of discount applies to all three. 
 Commercial discount or simple discount is the allowance made for 
 notes paid in advance. 
 
 Bank discount is the consideration allowed to a bank for the use 
 of money. 
 

 I-'K' 
 
 54 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Merchandise discount or trade discount is a consideration given 
 or received for the payment of bills before they are due. It is a 
 common practice with some firms to urge their customers to make 
 prompt payments by offering the inducement of a discount on bills 
 paid within a given time. 
 
 Accounts Necessary. — Interest, commercial discount, and bank 
 discount may be handled on the books in the one account " Interest 
 and Discount," but it is better to separate them and have two dis- 
 tinct accounts, " Interest" and " Discount." 
 
 Merchandise or trade discount may be carried in the account 
 " Merchandise Discount," but it is better to separate it and use the 
 two accounts, "Discounts on Purchases" and "Discounts on Sales." 
 
 The reason for using two accounts rather than one, as in the 
 instances above, is a desire to prevent certain losses and gains aris- 
 ing in the same class of accounts cancelling each other, thereby 
 cancelling the amount lost and the amount gained. It is important 
 that such facts be not concealed, but that they be brought to the 
 attention of the management through the accounts themselves. 
 
 Illustrations. — Let us take illustrations for interest, discount, 
 and merchandise discount. 
 
 Interest : 
 
 On July 1st, Alton B. Kirk gives Harry W. Smith his 30-day 
 note for $1000.00, with interest at 6%. This note is in settlement 
 of an account. The Journal entry on that date is : 
 
 Harry W. Smith $1000.00 
 
 Notes Payable $1000.00 
 
 On July 31st, when Kirk makes payment, he pays $1005.00, the 
 amount of the note plus the interest. The entry on that date is: 
 
 Notes Payable $1000.00 
 
 Interest ^-^^ 
 
 Cash $1005.00 
 
 Interest Account is debited for $5.00, as it is responsible for cash 
 having had to give up that amount of its responsibility. Hence, 
 Interest is a nominal account in this case, explaining the decrease of 
 an asset, and is therefore a loss. 
 
 Discount : 
 
 On July 1st Alton B. Kirk received the 60-day note of James 
 Garvin for $2000.00, in settlement of his account. The entry is : 
 
 INTEREST AND DISCOUNT 
 
 55 
 
 Notes Receivable 
 
 James Garvin 
 
 $2000.00 
 
 $2000.00 
 
 As Kirk is in need of cash lie immediately takes the note to the bank 
 for discount, and the bank gives him its face value, less $20.00, 6% 
 discount for 60 days. The following entry records this transaction: 
 
 Cash $1980.00 
 
 Discount 20.00 
 
 Notes Receivable $ 2000. 00 
 
 Discount, being responsible for the $ 20.00 loss, is debited. 
 
 Merchandise Discount: 
 
 Alton B. Kirk purchases from Samuel Dunn, merchandise to 
 the value of $1000.00, on account. Kirk receives a bill which states 
 that it is due in 30 days, but subject to 2% discount if paid within 
 10 days. 
 
 As a purchaser is not always sure that he can take advantage of 
 discounts, it is the practice to record purchases at their purchase 
 price. Hence, Kirk records the purchase as follows: 
 
 Merchandise $1000.00 
 
 Samuel Dunn $1000.00 
 
 On July 10 Kirk decides to take advantage of the discount and 
 sends Samuel Dunn his check for $980.00 in payment of the bill of 
 July 1, making, at the same time, the following entry: 
 
 Samuel Dunn $1000.00 
 
 Cash $980.00 
 
 Mdse. Discount or 
 
 Discount on Purchases 20.00 
 
 Merchandise Discount, or Discount on Purchases, is credited, having 
 granted responsibility to cash by saving $20.00 for the business. 
 Merchandise Discount or Discount on Purchases and Discount on 
 Sales are also nominal accounts, explaining the sources of certain 
 losses and gains to the business. 
 
 Discounts. — Discounted commercial paper is known as "Dis- 
 counts " and is of two classes, single-named paper and double-named 
 paper. 
 
 Single-named Paper. — Single-named paper is a note on which one 
 party only is responsible, as in the case of a bank discounting the 
 note of a borrower (the maker). 
 
% 
 
 .ol 
 
 56 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Double-named Paper. — Double-named paper is a note or an 
 accepted draft on which more than one party is responsible. 
 
 This distinction is important, because while it is possible for an 
 individual to borrow from the banks on his own note, banks prefer 
 paper with more than one name, as the security is then naturally 
 greater. 
 
 Double-named paper consists of: 
 
 1. Notes and drafts coming into one's possession from regular 
 
 customers. 
 
 2. Accommodation paper, on which either the maker or drawee 
 
 or the indorser has placed his name as an accommodation 
 (not for value received). 
 
 Thus " A " may give a note for $1000.00 to " B " as an accommoda- 
 tion, so that "B" can take the note to the bank and discount it; or 
 again, " A " for the same purpose may indorse " B's " note made out 
 to the bank. In either case " A " acts for accommodation, having 
 received no value, though to innocent holders of the note for value 
 he is responsible. In like manner we may have " A " accept as an 
 accommodation a draft drawn on him. 
 
 The paper usually preferred by banks is the double-named paper 
 which comes into the possession of the borrower through regular 
 trade. 
 
 To ascertain the Interest or Discount. —To ascertain the amount 
 of interest or discount, it is necessary to determine the number of 
 years, months, and days for which the interest is to be calculated. 
 
 In the case of interest, the interest term is the actual time the 
 principal has been used. 
 
 In the case of discounts, the discount term is the time between 
 the date of discount and the date of maturity, or date when the 
 instrument is due. In computing interest the basis in practice 
 varies between a 30-day month and the actual number of days, but 
 in the case of "discounts" the actual number of days is always 
 considered. 
 
 Methods of computing Interest and Discount. —Interest and Dis- 
 count are computed alike on the mathematical principle : 
 
 Principal x Per cent x Time = Interest. 
 
 P X R X T = Interest. 
 
 In computing interest over a long time this formula should be 
 followed ; but in computing interest and discount for a shorter time, 
 
 INTEREST AND DISCOUNT 
 
 57 
 
 some of the shorter methods may be used. Two of the most common 
 methods in use follow. 
 
 The Sixty Day Method. — Since 60 days are J^ of a year of 360 
 days, tlie interest for 60 days is J of the interest for one year. If the 
 interest for one year is 6 %, the interest for 60 days, or J of one year, 
 is one per cent. One per cent of any principal, therefore, is the in- 
 terest on that principal for 60 days, or ^ of one year, at the rate of 
 6 % per annum. Hence the rule : 
 
 To ascertain the interest on any principal sum for 60 days at 6 %, 
 point off, two places from the right, of the whole number of dol- 
 lars. 
 
 If the time be more or less than 60 days, and if the rate is not 6 %, 
 this rule may still be applied by proper qualification. To illustrate : 
 
 Ascertain the interest on ilOOO.OO at 5 % for 40 days. By the 
 above rule, $10,00 is the interest at 6 % for 60 days. For 40 days at 
 6 % it must be J^ or § of $10.00, or $6.67. This figure, then, is the 
 interest on $1000 for 40 days at 6%, hence the interest at 5% must 
 be I of this amount, or $5.56. 
 
 That is to say, we always make the basis of our time 60 days, and 
 reckon the interest on that basis. The interest for 80 days, for 
 instance, would be the fraction of |J, or |, of the interest at 6 % for 
 60 days. Similarly, whatever the given rate, we compute the interest 
 required with 6% as a basis. The interest at 7 %, for example, 
 would be J of the interest at 6 % for the given number of days. 
 
 The Ordinary Day Method. — Since the interest on any principal 
 for one year at 6% is .06 of that principal, and since the interest for 
 one day is ^J^ of the interest for one year, it will be seen that the 
 interest for one day is the same as ^^ x the principal. The fraction 
 ■^\\ may be reduced to -^^, hence the interest for one day on any 
 principal is the principal sum multiplied by .001 and divided by 6, 
 and the interest for any number of days will be the interest for one 
 day multiplied by the number of days desired. To illustrate : 
 
 Suppose it is required to find the interest on $1200.00 at 6% for 
 40 days. The figuring will be as follows : 
 
 $1200. ^ 
 
 .001 
 
 , 
 
 V 
 
 6 )1.200 
 
 .200= Interest on $1200.00 at 6% for 1 day. 
 
 40 
 
 $8,000 = Interest on $1200.00 at 6% for 40 days. 
 
 / 
 
 /. 
 
58 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 INTEREST AND DISCOUNT 
 
 59 
 
 I 
 
 'I 
 
 The interest at any other rate than 6 % may be found by taking 
 fractional parts of 6 %. Thus, the interest at 7 % in the problem just 
 explained would be J of the interest at 6 */{ . The following rules 
 may be applied : — 
 
 1. Find the interest on the principal sum for one day at 6 %. 
 
 2. Multiply the interest thus found by the number of days desired. 
 
 3. For any interest other than 6 %, multiply the result at 6 % by 
 
 the fraction of the desired rate over 6. 
 
 Other methods of computing interest and discount are used, but 
 since the two short methods given are among the most common, they 
 are all that we need to consider. 
 
 Accounts used to designate Various Kinds of Borrowed Money. — 
 Since the subject of interest and discount has to do with the use and 
 acquisition of money, it may be well to mention several methods by 
 which men raise money, and the accounts used to designate such 
 facts on the books. 
 
 If a man raises cash by discounting the notes of others in his 
 possession, the entry is a debit to cash and discount and a credit to 
 Notes Receivable, the latter offsetting already existing debits. The 
 person making the discount has no direct liability in tliis case to 
 record on his books, although he is contingently liable on this note 
 till it is paid; for in the event of the failure of the maker to pay the 
 bank at maturity, he, as indorser, is liable to the bank. The record 
 of such contingent liability is usually neglected, but should be made 
 by an entry such as: 
 
 The Maker 
 
 Notes Receivable Discounted, 
 
 and when such contingent liability is cancelled by the maker paying 
 the bank, a counter entry should be made, as: 
 
 Notes Receivable Discounted 
 
 The Maker 
 
 When an individual borrows on his own note or has it discounted, 
 the entry is, in case of discounts: 
 
 Cash 
 Discount 
 
 Notes Payable 
 
 Thus Notes Payable Account remains on the books to show the 
 liability. 
 
 If the proprietor has given a demand note to the bank for a loan, 
 termed " Call Loan," this fact is better recorded : 
 
 Cash 
 
 Loan 
 
 Loan A ccount differs from Notes Payable in that Notes Payable 
 Account has a definite date of maturity, while Loan Account desig- 
 nates a liability due on the demand of the bank. 
 
 On the other hand, if a proprietor raises money by giving a 
 mortgage on his property, the entry is : 
 
 Cash 
 
 Mortgage Payable 
 
 Mortgage Payable shows a liability secured by a particular 
 property and due at a definite future date. Mortgage Payable is 
 used to distinguish it from Mortgage Receivable, the account used 
 to denote mortgages owned by the business. 
 
 Again, if the business raises money by giving a mortgage to a 
 trustee to secure the issuance of bonds, the entry is: 
 
 Cash 
 
 Bonds 
 
 Thus, Bond Account denotes a liability to the holders of such 
 bonds, the terms of which are usually for a longer period than the 
 ordinary mortgage. 
 
 PROBLEM 26 
 
 Questions on Notes and Interest and Discount 
 
 A. 1. What is a promissory note? 
 2. Name the parties to a note. 
 
 8. What is negotiability, and what words express it? 
 4. How is a note transferred ? Explain. 
 
 B. Journalize the following transactions : 
 
 Sold Harris P. Lloyd, merchandise on account, $1000.00. 
 ■Received from Harris P. Lloyd his 30-day note for $1000.00 in 
 settlement of his purchase of the 1st. 
 
 ■ Indorsed Harris P. Lloyd's note and gave it to L. S. Baines to apply 
 on account. 
 
 ■ S. Davis indorsed and gave me to apply on his account, John Magee's 
 30-day note, dated the Ist, in his favor, for $ 1500.00. 
 
 Dec. 
 
 1. 
 
 Dec. 
 
 2. 
 
 Dec. 
 
 3. 
 
 Dec. 
 
 4. 
 
60 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Dec 5. — L. Harvey gave me his check for an amount sufficient to pay the 
 interest to date on the 6% -$5000.00 note, issued six months 
 ago. 
 
 Dec. 6. — Mailed check to A. P. Williams for an amount sufficient to pay the 
 six months interest at 6 % on the $10,000.00 note given him 
 June 6, and to retluce the principal $8000.00. 
 
 Dec. 8. — Received from James Garvin, his 60-day note, dated Dec. 6, for 
 $ 2000.00, to apply on his account. 
 
 Dec. 9. — Took James Garvin's note, received on the 8th, to the bank and had 
 it discounted. Discount rate 6 %. 
 
 Dec. 10. — The bank returned the 30-day note of Thomas Cook for $1000.00 
 which I had discounted on Nov. 28. The maturity date had 
 arrived and Cook failed to pay the note. Make Journal entry to 
 show that I have satisfied the bank for its claim on me as indorser 
 of the note. 
 
 (7. Distinguish between the accounts "Merchandise Discount" 
 
 and "Discount" and explain for what reason each is 
 
 debited or credited. 
 2>. How would you proceed to find the terra of discount on a 
 
 note? 
 E, Describe the procedure in finding the interest on a note for 
 
 $2000.00 by the ordinary day method in the following 
 
 cases : 
 
 a. At 6 % for 30 days. 
 
 h. At 7 % for 70 days. 
 
 c. At 4 J % for 80 days. 
 
 1 
 
 4 
 
 CHAPTER X 
 
 THE SIX-COLUMN STATEMENT 
 
 Returning to the definition and objects of bookkeeping, we find 
 it is the art, method, or practice of recording business transactions 
 for the purpose of : 
 
 1. Ascertaining the values in, or owing to the business, and the 
 
 values owed by the business, as represented by the assets 
 and liabilities. 
 
 2. Ascertaining the profits and losses and the sources thereof. 
 
 Up to this time in Double Entry Bookkeeping we have been deal- 
 ing only with the recording of the transactions, which we have 
 summarized in the Trial Balance, — a condensed view of the accounts 
 of our business. In the discussion of the Trial Balance we learned 
 that one of its chief services is to act as a basis for the preparation 
 of the various business statements, the purposes of which are to 
 present the assets and liabilities, together with the profits and 
 losses. 
 
 These statements assume several forms of presentation, but at 
 this time we shall consider only the Six-Column Statement, which 
 is shown on the following page. 
 
 Explanation of Six-Column Statement — It will be noted, as the 
 name implies, that the Statement is provided with six columns for 
 figures. The first two columns are a reproduction of the Trial 
 Balance, with the exception of the separate personal accounts which 
 have been grouped under the headings " Accounts Receivable " and 
 " Accounts Payable." It is the figures of the first two columns that 
 we extend into the remaining four columns, the first two of which 
 represent the losses and profits, and the last two the assets and 
 liabilities. 
 
 In addition to the facts given in the Trial Balance, it is necessary 
 to consider certain supplementary figures to be obtained outside of 
 the books, and indicated in the Statement to be marked in red ink 
 figures. 
 
 61 
 

 62 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Six-Column Statement 
 
 Alton B. Kirk 
 
 October 8, 1913 
 
 Alton B. Kirk, 
 
 Capital 
 Store and Lot 
 Horse and Wagon 
 Cash 
 
 Notes Receivable 
 Acc'ts Receivable 
 Merchandise 
 Expense 
 Notes Payable 
 Accounts Payable 
 
 Net Gain* 
 
 Alton B. Kirk, 
 Net Credit 
 
 Alton B. Kirk, 
 Net Gain 
 
 Alton B. Kirk, 
 Present Worth 
 
 Dk. 
 
 4600 
 
 250 
 
 3286 
 
 1750 
 
 1100 
 
 400 
 
 139 
 
 11525 
 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 
 00 
 
 *In red ink. 
 
 Cr. 
 
 9925 
 
 00 
 
 1500 
 100 
 
 11525 
 
 9925 
 161 
 
 00 
 00 
 00 
 
 00 
 00 
 
 L068 
 
 139 
 
 139 
 161 
 
 00 
 
 00 
 
 00* 
 
 300 00 
 
 Profit 
 
 300 
 
 300 
 
 00 
 
 00 
 
 300 00 
 
 ASSKTS 
 
 4600 
 250 
 3286 
 1750 
 1100 
 700 
 
 11686 
 
 00 
 00 
 00 
 00 
 00 
 00* 
 
 00 
 
 11686 
 
 00 
 
 LlABIL- 
 ITIR8 
 
 1500 00 
 100 00 
 
 1600 00 
 
 10086 00 
 
 11686 00 
 
 I * 
 
 ♦ 
 i 
 
 t 
 
 'I 
 
 THE SIX-COLUMN STATEMENT 
 
 63 
 
 Let us consider each extension in the illustration separately. 
 To do this intelligently, the distinction between Nominal Accounts 
 (profit and loss) and Financial Accounts (assets and liabilities) must 
 be kept in mind. 
 
 1. Alton B. Kirk's account is not extended, since it is neither 
 a loss, profit, asset, or liability. This account may be considered a 
 liability, as it represents an obligation of the business to its pro- 
 prietor; but in a statement of this sort we regard only liabilities 
 to third parties. 
 
 2.. Store and Lot, representing value in the business, is an asset, 
 and is extended to the asset column. 
 
 3. Horse and Wagon (Illustration 2). 
 
 4. Cash ] 
 
 5. Notes Receivable ^'"^'^^"^ ^^ Illustrations 2 and 3. 
 
 6. Accounts Receivable, representing the sum of the debts owed 
 to the business, is an asset ; hence it is extended to the asset column. 
 
 7. The Merchandise Account is peculiar in that it combines the 
 characteristics of both a Financial and Nominal Account. The 
 f 400.00 in the debit column represents a debit balance or excess of 
 debits over credits in this account in the Ledger. By debits to Mer- 
 chandise we record purchases ; and by credits, sales. This 1400.00 
 debit balance represents the excess value paid for the goods over 
 the value received from the sales. Without considering any other 
 element it appears that we have suffered a loss of this amount, but 
 this is true only on the presumption that we have sold our entire 
 stock of goods. It is therefore necessary to ascertain the value of 
 the goods on hand (take an inventory at cost price), which amount 
 is found to be $700.00; and since it is value in the business, it is 
 treated as an asset. By the presumption above, there is a loss of 
 1400.00 due to our considering that there is no stock on hand ; but 
 since the inventory reveals H 700.00 worth of stock on hand, it fol- 
 lows that there is in reality a gain of 1300.00. Recording the above 
 facts on the Statement, the $700.00 inventory is extended in the 
 asset column in red ink, as it is a supplementary fact, obtained aside 
 from the books; and the $300.00 gain is extended in the profit 
 column. 
 
 Another explanation of the above is : Mr. A. purchases during 
 a period 12000.00 worth of merchandise, and his sales register 
 9 1600.00. The Ledger entries are as follows : 
 
Ijl 
 
 H 
 
 64 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Merchandise 
 
 2000 
 
 00 
 
 1600 
 
 00 
 
 If Mr. A. has sold all his stock, there is a loss of $400.00. On 
 the other hand, if he has an inventory of $700.00 taken at cost price, 
 then he has sold $1300.00 worth of his goods, or the #2000.00 worth 
 purchased, less the $700.00 worth on hand. The $1300.00 worth of 
 Merchandise has been sold for $1600.00; hence there is a gain of 
 $300.00. 
 
 8. Expense is a Nominal Account, and is therefore either a loss 
 or a gain ; but as it appears as a debit in our Trial Balance it neces- 
 sarily follows from our theory of debit and credit that it is a loss, 
 and is extended to the loss column. 
 
 9. Notes Payable, which represents value owed by the business, 
 is extended to the liability column. 
 
 10. Accounts Payable, which represents the sum of the creditors' 
 accounts, is placed in the liability column. 
 
 Having made the extensions, we now complete the Statement. 
 First, we total all the columns. The first two, "dr." and "CR.," 
 balance, being a repetition of our Trial Balance. The difference 
 between the totals of the loss and gain column is necessarily the net 
 loss or gain, and is indicated in red ink to make it more conspicuous. 
 The treatment of these two columns in the illustration explains the 
 principle of bookkeeping, that we never subtract the lesser from 
 the greater side to find the difference, but add to the lesser side the 
 difference to make it equal the greater. This same principle is 
 adhered to in balancing the accounts in the Ledger. 
 
 The results in the Statement may be tested by means of a valu- 
 able check, provided within the Statement itself. After finding the 
 net gain, the proprietor's net credit, which represents the proprie- 
 tor's present worth at the end of the last period, plus or minus any 
 withdrawals or additional investments of capital, is inserted in the 
 lower left side of the Statement. In this case Alton B. Kirk's past 
 present worth was his original investment of $10,000.00, which, 
 minus a withdrawal of $75.00, leaves a net credit of $9925.00. To 
 this net credit amount there has been added the gain of $161.00, 
 and the result is the proprietor's present worth. Reduced to a 
 formula it is : 
 
 k 
 
 THE SIX-COLUMN STATEMENT 65 
 
 Net Credit -h Net Gain (or - Net Loss) = Present Worth 
 In several earlier instances, we proved that : 
 
 Assets — Liabilities = Present Worth 
 
 or 
 Assets = Liabilities -h Present Worth 
 
 So the amount resulting from the addition of the net credit, 
 $9925.00, and the net gain, $161.00, must be the amount which 
 when added to the liabilities makes that column equal the asset 
 column. Referring then to our Statement, we see that the sum of 
 the net credit and net gain is extended directly under the liability 
 column, where it causes the last two columns, assets and liabilities, 
 to balance. We have now checked our present worth and proved 
 the Statement correct, in so far as it is possible. Even though the 
 Statement checks, we cannot be absolutely sure that some error of 
 principle has not been made, or that the amounts of the supplemen- 
 tary facts are correct, for accuracy depends upon careful work. 
 
 Value of Six-Column Statement. — The chief value of the Six- 
 Column Statement is not as an instrument of service in business 
 practice, but rather as a teaching force in distinguishing between 
 Financial and Nominal Accounts. It is upon the principles exhib- 
 ited in the Six-Column Statement that the practical Statements sub- 
 sequently to be considered are based. 
 
 PROBLEM 27 
 
 From the following Trial Balance of W. N. Smith, prepare a Six- 
 Column Statement. 
 
 Trial Balance 
 
 W. N. Smith, Capital 
 
 
 
 50000 
 
 00 
 
 Cash 
 
 10050 
 
 00 
 
 
 
 Land 
 
 15000 
 
 00 
 
 
 
 Buildings 
 
 10000 
 
 00 
 
 
 
 Accounts Receivable 
 
 7650 
 
 00 
 
 
 
 Accounts Payable 
 
 
 
 9750 
 
 00 
 
 Notes Receivable 
 
 8700 
 
 00 
 
 
 
 Notes Payable 
 
 
 
 1750 
 
 00 
 
 Machiq^ry 
 
 7500 
 
 00 
 
 
 
 Rent^^j) 
 
 
 
 1400 
 
 00 
 
 Merchsndise 
 
 4000 
 
 00 
 
 
 
 
 62900 
 
 00 
 
 62900 
 
 00 
 
 
 
 
 
 
 The inventory of merchandise on hand is $1750.00. 
 
66 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 PROBLEM 28 
 
 From the following Trial Balance of B. N. Fullar, prepare a Six- 
 Column Statement. 
 
 Trial Balance 
 
 
 1 
 
 B. N. Fullar, Capital 
 
 
 2 
 
 Cash 
 
 
 3 
 
 Land 
 
 
 4 
 
 Buildings 
 
 
 5 
 
 Notes Receivahle 
 
 
 6 
 
 Notes Payable 
 
 
 7 
 
 Accounts Receivable 
 
 
 8 
 
 Accounts Payable 
 
 
 9 
 
 Merchandise 
 
 
 10 
 
 Commission 
 
 
 11 
 
 Rent 
 
 
 12 
 
 Machinery 
 
 
 
 40000 
 
 6050 
 
 00 
 
 
 5000 
 
 00 
 
 
 16000 
 
 00 
 
 
 7600 
 
 00 
 
 650 
 
 6500 
 
 00 
 
 8600 
 
 8000 
 
 00 
 
 
 100 
 
 00 
 
 2000 
 
 2000 
 
 00 
 
 
 51250 
 
 00 
 
 51250 
 
 
 
 
 00 
 
 00 
 00 
 
 00 
 
 00 
 
 The inventory of merchandise is $3504.22. 
 
 PROBLEM 29 
 
 From the following Trial Balance of W. W. Lake, prepare a Six- 
 Column Statement. 
 
 Trial Balance 
 
 W. W. Lake December 31, 1913 
 
 'I 
 
 W. W. Lake, Capital 
 
 
 
 49500 
 
 00 
 
 Cash 
 
 9225 
 
 37 
 
 
 
 Land : 
 
 12000 
 
 00 
 
 
 
 Expense 
 
 4287 
 
 50 
 
 
 
 Interest 
 
 60 
 
 75 
 
 
 
 Rent 
 
 3000 
 
 00 
 
 
 
 Buildings ? 
 
 10000 
 
 00 
 
 
 
 Commission 
 
 
 
 3500 
 
 00 
 
 Merchandise ' 
 
 6000 
 
 00 
 
 
 
 Accounts Receivable 
 
 14200 
 
 00 
 
 
 
 Notes Receivable 
 
 7450 
 
 75 
 
 
 
 Accounts Payable 
 
 
 
 8761 
 
 47 
 
 Notes Payable 
 
 
 
 7462 
 
 90 
 
 Machinery 
 
 3000 
 
 00 
 
 
 
 
 69224 
 
 37 
 
 69224 
 
 37 
 
 
 
 
 
 
 The inventory of merchandise, Dec. 31, 1913, is $12,565.23. 
 
 CHAPTER XI 
 
 CLOSING A SET OF BOOKS 
 
 The Statement which was discussed in the last chapter is one 
 that can be taken at any time at the request of the proprietor, with- 
 out involving the necessity of making any entries in the books them- 
 selves. However, it is the policy of the modern mercantile estab- 
 lishment to record and summarize upon its books at least once a 
 year, and usually not more than twice a year, the facts as expressed 
 in a comprehensive Statement for the entire period. This procedure 
 is termed "Closing the Books." 
 
 The reason for so doing is to reduce the Nominal (Profit and 
 Loss) Accounts to a net result in the " Profit and Loss " Account, 
 80 that the net balance therein revealed may be taken to and in- 
 cluded in the Proprietor's Account, thus revealing at the end of any 
 fiscal period the present worth of the proprietor in his own account. 
 This results in the Nominal Accounts on the books being closed, thus 
 permitting them to start afresh in the new period ; and this process 
 being repeated from period to period furnishes a basis for valuable 
 comparison. 
 
 Procedure in Closing a Set of Books. — There are several distinct 
 steps which are necessary in the closing of the books, and these are 
 as follows : 
 
 1. Take a Trial Balance. 
 
 2. Collect supplementary facts, such as merchandise inventory, 
 
 etc. 
 
 3. Introduce the supplementary facts upon the books by means 
 
 of Journal entries. 
 
 4. Close the Nominal Accounts by Journal entry into the Profit 
 
 and Loss Account. 
 
 5. Close the balance of Profit and Loss by Journal entry into 
 
 the Proprietor's Account. 
 
 6. Rule and bring down the balance of the Financial Accounts. 
 
 7. Take a new Trial Balance. 
 
 AT 
 
I 
 
 I 
 
 i 
 
 t 
 
 I 
 1 
 
 I 
 
 68 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 The following is a Trial Balance of the books we are to close : 
 
 Trial Balance 
 
 
 
 Proprietor 
 
 
 
 50000 
 
 00 
 
 
 
 Cash 
 
 15000 
 
 00 
 
 
 
 
 
 Notes Receivable 
 
 20000 
 
 00 
 
 
 
 
 
 Notes Payable 
 
 
 
 10000 
 
 00 
 
 
 
 Expense 
 
 1000 
 
 00 
 
 
 
 
 
 Commission 
 
 
 
 400 
 
 00 
 
 
 
 T. Smith 
 
 5000 
 
 00 
 
 
 
 
 
 J. King 
 
 6000 
 
 00 
 
 
 
 
 
 L. Schwartz 
 
 4080 
 
 00 
 
 
 
 
 
 H. B. Denny 
 
 
 
 450 
 
 00 
 
 
 
 S. P. Clothier 
 
 
 550 
 
 00 
 
 
 
 Merchandise 
 
 1380 
 
 00 
 
 
 
 
 
 Real Estate 
 
 9000 
 
 00 
 
 
 
 
 
 Interest 
 
 
 
 160 
 
 00 
 
 
 
 Taxes 
 
 100 
 
 00 
 00 
 
 
 
 
 61560 
 
 61560 
 
 (M) 
 
 
 
 
 
 
 The only supplementary fact in this problem is the inventory of 
 merchandise of f 2000, for which the entry is as follows : 
 
 Inventory 12000.00 
 
 Merchandise $ 2000. 00 
 
 Inventory has been debited because it is responsible for Ji 2000. 00 
 granted to it by the Merchandise Account. 
 
 Profit and Loss Account. — The next step is to select the nominal 
 accounts whose balances are to be transferred by means of Journal 
 entries to the Profit and Loss Account. This is a temporary, col- 
 lective account gathering within itself the balances of all nominal 
 accounts that it may produce the resultant net loss or gain, which 
 can be tranferred in one amount to the Proprietor's Account. 
 
 Profit and Loss $1000.00 
 
 Ex[)ense 
 Loss due to Expense 
 Commission 400.00 
 
 Profit and Loss 
 Gain due to Commission 
 Merchandise 620.00 
 
 Profit and Loss 
 Gain due to Merchandise 
 
 $1000.00 
 
 400.00 
 
 620.00 
 
 CLOSING A SET OF BOOKS 
 
 69 
 
 Note. — This entry is made after having posted the inventory entry to Merchandise, 
 as the profit or loss of this account cannot be obtained without first having introduced 
 the inventory. 
 
 Interest i 160.00 
 
 Profit and Loss $160.00 
 
 Q-ain due to Interest 
 
 Profit and Loss ^ 100.00 
 
 Taxes ' 100.00 
 
 Loss due to Taxes 
 
 All the entries necessary to close our Nominal Accounts into 
 Profit and Loss have now been made, and when posted, leave that 
 account with a credit balance of $80.00. Since the Profit and Loss 
 Account is but a collection of the balances of the various Nominal 
 Accounts, it is in itself a Nominal Account ; and a credit balance must 
 necessarily be the net gain for the entire business. This gain of 
 $80.00 directly affects the Proprietor's Account, in that it increases 
 his interest in the business to that extent ; hence, this amount must 
 be shown in his account. This is accomplished by the following 
 Journal entry : 
 
 Profit and Loss $80.00 
 
 Proprietor $80.00 
 
 Transfer of Net Q-ain 
 to the Proprietor'' s Account 
 
 All the accounts in the Ledger have now been closed, with the 
 exception of the Proprietor's Account and the Financial Accounts. 
 These must remain open, as each Financial Account is representative 
 of so much value, either in or owed to or by the business ; and the 
 Proprietor's Account is the concrete expression of the ownership of 
 these assets and liabilities. 
 
 While these accounts cannot be closed, it is advantageous to rule 
 and balance them, in order to commence the new period with but 
 one debit or credit amount as a balance in each of these accounts. 
 
 Proprietor 
 
 1918* 
 
 Oct. 
 
 « 
 14 
 
 Present Worth* 
 
 
 50080 
 
 00 
 
 1913 
 
 Oct. 
 
 1 
 
 J 
 
 1 
 
 50000 
 
 00 
 
 
 
 
 
 
 00 
 
 Oct. 
 
 14 
 14 
 
 Present Worth 
 
 11 
 
 80 
 
 00 
 
 
 50080 
 
 50080 
 
 00 
 
 
 
 
 
 50080 
 
 00 
 
 1 1 
 
 ♦In red ink 
 
 
 
 
 
 
 
 
 
 

 
 70 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Expense 
 
 1918 
 
 Oct 
 
 1 
 2 
 3 
 4 
 
 J 
 
 1 
 1 
 2 
 3 
 
 100 
 300 
 350 
 250 
 
 00 
 00 
 00 
 00 
 
 00 
 
 00 
 
 1918 
 
 Oct. 
 
 14 
 
 J 
 
 11 
 
 1000 
 
 00 
 
 
 KHN) 
 1000 
 
 1000 
 
 00 
 
 
 
 
 
 
 
 
 1918 
 
 Oct 
 
 14 
 
 Commission 
 
 1918 
 
 Oct 
 
 1 
 
 2 
 14 
 
 J 
 
 1 
 
 1 
 11 
 
 100 
 150 
 400 
 
 00 
 00 
 00 
 
 00 
 
 1918 
 
 Oct. 
 
 3 
 
 J 
 
 2 
 
 650 
 
 00 
 
 
 650 
 
 650 
 
 00 
 
 
 
 1 
 
 
 Merchandise Inventoiy 
 
 11 
 
 2000 
 
 00 
 
 
 
 Cash 
 
 1918 
 
 Oct. 
 
 1 
 
 J 
 
 1 
 
 12000 
 
 00 
 
 1913 
 
 Oct 
 
 4 
 
 J 
 
 3 
 
 16000 
 
 00 
 
 
 2 
 
 
 1 
 
 6000 
 
 00 
 
 
 5 
 
 
 4 
 
 7000 
 
 00 
 
 
 4 
 
 
 3 
 
 20000 
 
 00 
 
 
 6 
 
 
 4 
 
 6000 
 
 00 
 
 
 5 
 
 
 4 
 
 6500 
 
 00 
 
 
 6 
 
 
 5 
 
 4000 
 
 00 
 
 
 6 
 14 
 
 Balance 
 
 4 
 
 3500 
 
 00 
 
 00 
 
 00 
 
 Oct. 
 
 14* 
 
 Balance * 
 
 
 88000 
 
 15000 
 
 00 
 
 
 48000 
 
 48000 
 
 00* 
 
 
 48000 
 
 00 
 
 Oct 
 
 15000 
 
 00 
 
 
 
 
 
 *In red ink. 
 
 CLOSING A SET OF BOOKS 
 
 Notes Receivable 
 
 71 
 
 1918 
 
 Oct 
 
 5 
 
 6 
 
 14 
 
 J 
 
 Balance 
 
 4 
 4 
 
 30000 
 20000 
 
 00 
 00 
 
 00 
 
 00 
 
 1918 
 
 Oct. 
 Oct. 
 
 13 
 14* 
 
 J 
 
 Balance * 
 
 12 
 
 30000 
 20000 
 
 00 
 00* 
 
 
 50000 
 
 50000 
 
 50000 
 
 00 
 
 Oct. 
 
 20000 
 
 00 
 
 
 
 
 
 * In red ink. 
 
 Interest 
 
 1918 
 
 Oct 
 
 10 
 12 
 
 14 
 
 J 
 
 6 
 6 
 
 11 
 
 50 
 100 
 
 150 
 
 160 
 
 00 
 00 
 
 00 
 
 00 
 00 
 
 1913 
 
 Oct. 
 
 11 
 
 J 
 
 6 
 
 310 
 
 00 
 
 
 310 
 
 310 
 
 00 
 
 
 
 
 
 • 
 
 
 
 
 Taxes 
 
 1918 
 
 Oct 
 
 14 
 
 11 
 
 100 
 
 00 
 
72 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Merchandise 
 
 1913 
 
 
 
 
 
 
 1918 
 
 
 
 
 
 
 Oct. 
 
 1 
 
 J 
 
 1 
 
 9120 
 
 00 
 
 Oct. 
 
 3 
 
 J 
 
 2 
 
 14200 
 
 00 
 
 
 1 
 
 
 1 
 
 176o0 
 
 00 
 
 
 4 
 
 
 4 
 
 8060 
 
 00 
 
 
 2 
 
 
 1 
 
 18350 
 
 00 
 
 
 4 
 
 
 4 
 
 2040 
 
 00 
 
 
 3 
 
 
 2 
 
 1500 
 
 00 
 
 
 5 
 
 
 6 
 
 760 
 
 00 
 
 
 4 
 
 
 5 
 
 2500 
 
 441 2<) 
 
 00 
 
 IK) 
 
 
 14 
 
 
 10 
 
 17680 
 
 427400 
 
 00 
 
 00 
 
 
 14 
 
 
 11 
 
 620 
 
 00 
 00 
 
 
 14 
 
 
 11 
 
 2000 
 44740 
 
 00 
 
 
 44740 
 
 00 
 
 
 
 
 
 
 
 
 
 Notes Payable 
 
 -f 
 
 1913 
 
 Oct. 
 Oct. 
 
 10 
 
 « 
 14 
 
 J 
 
 Balance* 
 
 
 
 
 1918 
 
 
 6 
 
 4000 
 
 00 
 
 Oct. 
 
 3 
 
 
 10000 
 
 00 
 00 
 
 
 3 
 4 
 
 14 
 
 14000 
 
 
 
 Oct. 
 
 
 • 
 
 
 
 
 Balance 
 
 ♦ In red ink. 
 
 L. Schwartz 
 
 ii 
 
 1 
 
 2 
 2 
 
 4000 
 
 6000 
 4000 
 
 14000 
 
 14000 
 
 
 10000 
 
 ♦ In red ink. 
 
 00 
 
 00 
 00 
 
 00 
 
 oo" 
 
 1913 
 
 
 
 
 
 
 1913 
 
 
 
 
 
 
 Oct. 
 
 6 
 
 J 
 
 4 
 
 4000 
 
 00 
 
 Oct. 
 
 7 
 
 J 
 
 5 
 
 7080 
 
 00 
 
 
 7 
 
 
 5 
 
 80 
 
 00 
 
 
 10 
 
 
 6 
 
 2020 
 
 00 
 
 
 7 
 
 
 6 
 
 3000 
 
 00 
 
 
 
 
 
 9100 
 
 00 
 
 
 8 
 
 
 6 
 
 2020 
 
 00 
 
 
 
 
 
 
 
 
 9 
 10 
 
 
 6 
 6 
 
 2080 
 2000 
 
 00 
 00 
 
 00 
 
 Oct. 
 
 14 
 
 Balance ♦ 
 
 
 4080 
 
 00 
 
 
 131^» 
 
 
 
 
 14 
 
 Balance 
 
 
 13180 
 
 00 
 00 
 
 
 
 
 
 13180 
 
 00 
 
 Oct. 
 
 
 4080 
 
 
 
 
 CLOSING A SET OF BOOKS 
 
 Profit and Loss 
 
 73 
 
 1913 
 
 
 
 
 
 
 1913 
 
 
 
 
 
 
 Oct. 
 
 14 
 
 J 
 
 11 
 
 1000 
 
 00 
 
 Oct. 
 
 14 
 
 J 
 
 11 
 
 400 
 
 00 
 
 
 14 
 
 
 11 
 
 100 
 
 00 
 
 
 14 
 
 
 11 
 
 620 
 
 00 
 
 
 14 
 
 
 11 
 
 80 
 
 00 
 
 
 14 
 
 
 11 
 
 160 
 
 00 
 
 
 1180 
 
 00 
 
 1180 
 
 00 
 
 
 
 
 
 
 
 A glance at Cash, Notes Payable, L. Schwartz, Notes Receivable, 
 or the Proprietor's Account, will illustrate the method of balancing 
 a Financial Account. It will be noted that the debit or credit differ- 
 ence in any of these accounts has been placed on the lesser side in- 
 dicated to be marked in red ink, to show clearly that this amount is 
 an insert and not an entry through the Journal. Each red ink 
 amount has been brought down below the final rulings on the oppo- 
 site side of the account in black ink, as a red ink figure simply 
 denotes the excess of the other side. This principle of balancing 
 accounts may be used at any time, whenever an account becomes 
 unwieldy by virtue of an excessive number of debits or credits ; and 
 in order to preserve the balance of the Ledger the red ink amount 
 must always be brought down on the other side. 
 
 While we closed the Merchandise Account and left the Inventory 
 Account with a debit balance of $2000.00, representing the goods 
 on hand, it is customary, after closing the accounts and ascertaining 
 the present worth of the proprietor, to transfer this debit balance of 
 Inventory to the Merchandise Account. As this is now the begin- 
 ning of a new period, the amount of goods on hand, in its relation 
 to the Merchandise Account, stands as a new purchase. The entry 
 
 is: 
 
 Merchandise 
 
 $2000.00 
 
 Inventory 
 
 $2000.00 
 
 The posting of this entry closes the Inventory Account. 
 
 What is known as a proof Trial Balance is now taken from the 
 Ledger. It is, in fact, a Statement of Assets and Liabilities, as 
 the nominal accounts have all been closed. This same Statement 
 will subsequently be termed a Balance Sheet, but at this time it is 
 used merely to test the balance of the Ledger after closing. 
 
fi 
 
 74 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Proof Trial Balance 
 
 Cash 
 
 Notes Receivable 
 
 Merchandise 
 
 Real Estate 
 
 L. Schwartz 
 
 T. Smith 
 
 J. King 
 
 15000 
 20000 
 2000 
 9000 
 4080 
 5000 
 6000 
 
 61080 
 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 
 00 
 
 Notes Payable 
 H. B. Denny 
 S. P. Clothier 
 
 10000 
 450 
 650 
 
 00 
 00 
 00 
 
 Proprietor 
 
 50080 
 
 61080 
 
 00 
 
 00 
 
 Note. — When this Statement is used as a Balance Sheet, it is customary to group 
 the personal accounts under the headings *' Accounts Receivable" and ** Accounts 
 Payable/' 
 
 In making closing entries it is not necessary to make a separate 
 entry for each Loss and Gain Account, as all the losses may be com- 
 bined in one entry, and similarly, all the gains combined in one 
 entry. Thus, a proper entry is : 
 
 and Loss $2000.00 
 
 
 Rent 
 
 3^500.00 
 
 Commission 
 
 400.00 
 
 Interest 
 
 100.00 
 
 Expense 
 
 1000.00 
 
 Closing of the losses into 
 
 
 Profit and Loss Account 
 
 
 ment 
 
 PROBLEM 30 
 
 From the following Trial Balance prepare a Six-Column State- 
 also Journal entries necessary to close this set of books. 
 
 CLOSING A SET OF BOOKS 
 
 75 
 
 
 
 Trial Balance 
 
 
 
 
 
 
 
 
 Db. 
 
 
 Cb. 
 
 
 
 1 
 
 Proprietor 
 
 
 
 50000 
 
 00 
 
 
 2 
 
 Cash 
 
 10500 
 
 00 
 
 
 
 
 3 
 
 Merchandise 
 
 8640 
 
 22 
 00 
 
 
 
 
 4 
 
 Land 
 
 7000 
 
 
 
 
 5 
 
 Buildings 
 
 15000 
 
 00 
 
 
 
 
 6 
 
 Accounts Receivable 
 
 7030 
 
 24 
 
 
 
 
 7 
 
 Accounts Payable 
 
 
 
 3850 
 
 69 
 
 
 8 
 
 Notes Receivable 
 
 703 
 
 00 
 
 
 
 
 9 
 
 Notes Payable 
 
 
 
 2942 
 
 00 
 
 
 10 
 
 Machinery 
 
 6000 
 
 00 
 
 
 
 
 11 
 
 Tools 
 
 1000 
 
 00 
 
 
 
 
 12 
 
 Commission 
 
 132 
 
 00 
 
 
 
 
 13 
 
 Interest 
 
 43 
 
 02 
 
 
 
 ! 
 
 14 
 
 Expense 
 
 744 
 
 21 
 
 
 
 •' 
 
 56792 
 
 69 
 
 56792 
 
 69 
 
 jf 
 
 
 
 
 
 PROBLEM 31 
 
 From the following Trial Balance prepare a Six-Column State- 
 ment, at the same time making the Journal entries necessary to close 
 the books. 
 
 Trial Balance 
 
 
 
 W. S. Jamison, Capital 
 
 
 
 60000 
 
 00 
 
 
 
 W. S. Jamison, Personal 
 
 2000 
 
 00 
 
 
 
 % 
 
 
 Cash 
 
 Real Estate 
 
 Furniture and Fixtures 
 
 Expense 
 
 12750 
 
 20000 
 
 3250 
 
 9500 
 
 25 
 00 
 00 
 75 
 
 
 
 
 
 Interest 
 
 137 
 
 50 t 
 
 
 
 
 Rent 
 
 1100 
 
 00 
 
 
 
 
 
 Storage 
 
 
 
 600 
 
 50 
 
 
 
 Commission 
 
 
 
 2600 
 
 00 
 
 
 
 Notes Receivable 
 
 1500 
 
 00 
 
 
 
 
 
 Accounts Receivable 
 
 19540 
 
 84 
 
 
 
 
 
 Notes Payable 
 
 
 
 7500 
 
 34 
 
 
 
 Accounts Payable 
 
 
 
 19762 
 
 16 
 
 
 
 Merchandise 
 
 5683 
 
 66 
 
 
 
 
 
 Machinery 
 
 15000 
 
 00 
 
 
 
 
 90463 
 
 00 
 
 90463 
 
 00 
 
 
 
 
 
 
 Merchandise inventory, at end of year, 112,640.34. 
 
 » 
 
 1 
 
'I 
 
 u 
 
 I 
 n 
 
 f i 
 
 li 
 
 1 
 
 76 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 PROBLEM 32 
 
 From the following Trial Balance, present the Six-Column State- 
 ment, making at the same time the Journal entries necessary to close 
 the books. 
 
 Trial Balance 
 
 CLOSING A SET OF BOOKS 
 
 
 
 Cash 
 
 4200 
 
 00 
 
 1 
 
 
 
 Accounts Receivable 
 
 9700 
 
 00 
 
 
 
 
 
 Accounts Payable 
 
 
 
 6000 
 
 00 
 
 
 
 Notes Receivable 
 
 1200 
 
 00 
 
 
 
 
 
 Notes Payable 
 
 
 
 5419 
 
 00 
 
 
 
 Merchandise 
 
 4700 
 
 00 
 
 
 
 
 
 Rent 
 
 
 
 3000 
 
 00 
 
 
 
 Interest 
 
 
 
 250 
 
 00 
 
 
 
 Commissions 
 
 3750 
 
 00 
 
 
 
 
 
 Real Estate 
 
 15000 
 
 00 
 
 
 
 
 
 Furniture and Fixtures 
 
 2500 
 
 00 
 
 
 
 
 
 Machinery 
 
 8200 
 
 00 
 
 
 
 
 
 Discount 
 
 17 
 
 00 
 
 
 
 
 
 Expense 
 
 402 
 
 00 
 
 
 
 
 
 Harris, Investment 
 
 
 
 15000 
 
 00 
 
 
 
 Goldsmith, Investment 
 
 
 00 
 
 20000 
 
 00 
 
 
 49669 
 
 49669 
 
 00 
 
 
 
 
 
 
 Merchandise inventory, $3350.00. 
 
 PROBLEM 33 
 
 You are required to keep the following set of books for 
 J. M. Harris, who is starting in the retail coal business; to give 
 Mr. Harris a Statement at the end of the two-week period in the 
 form of a Six-Column Statement ; and to close the books. 
 
 Jan. 1, 1913. — J. M. Harris invests cash in the retail coal business, $12000.00. 
 Jan. 2, 1913. — Paid one month's rent for coal yard, in advance, $200.00. 
 
 Purchase for cash, pea coal, $5000.00. 
 Jan. 3, 1913. — Purchase two horses and wagons (Horse & Wagon Account) for 
 
 delivery service, paying for them in cash, $800.00. 
 Jan. 4, 1913. — Purchase from Phoenix Coal Co., on account, nut coal, 
 
 $5000.00. 
 Jan. 5, 1913.— Sell Globe Mfg. Co., on account, coal, $ 750.00. 
 Jan. 6, 1913. — Give Phoenix Coal Co. 30-day note to settle account. Pay 
 
 drivers and bookkeeper, $50.00. 
 
 77 
 
 Jan. 8, 1913.— Sell Keystone Supply Co. $2000.00 worth of coal. Receive 
 
 30-day note in payment. 
 Discount above note at the bank. Discount rate is 6 %. 
 Jan. 9, 1913.— Mail to L. Harwood check for $20.00, as commission for sell- 
 ing coal to Keystone Supply Co. 
 Jan. 10, 1913.— Sell Randall & Co. $4000.00 worth of coal. Receive ctmh 
 
 $1000.00, and 30-day note for $2000.00, balance on 
 account. 
 Jan. 11, 1913. — Pay for repairs to one of the wagons, $25.00. 
 Jan. 12, 1913.— Buy from Phoenix Coal Co., on account, $2000.00 worth of 
 
 coal. 
 Buy from Stationery Supply Co., on account, new books and 
 stationery, $75.00. 
 Jan. 13, 1913. — Sell J. R. Wood Co., on account, $1200.00 worth of coal. 
 
 In response to a request, the business takes up its note given 
 
 to Phoenix Coal Co., on Jan. 6, less $ 18.75 for discount. 
 Pay weekly wages of drivers and bookkeeper $50.00. 
 
 Note. —The horses and wagons are estimated to be worth .^ 50.00 less than cost, 
 and the Expense Account shows an inventory of $ 100.00, due to two weeks' unexpu-ed 
 rent. Merchandise inventory is 14250.00. 
 
CHAPTER XII 
 
 THE CASH BOOK 
 
 Thus far in making original entries we have used only the 
 Journal, in which book we have recorded transactions involving : 
 
 1. Receipts and expenditures of cash. 
 
 2. The purchase and sale of merchandise, or other commodities. 
 
 3. Promissory notes. 
 
 4. Expenses of the business. 
 6. Adjustment of accounts. 
 6. Closing entries. 
 
 Inadequacy of the Journal. — The ability of the Journal to cope 
 with all these transactions is commensurate with the volume of the 
 business. There comes a time when the increase in business makes 
 it a physical impossibility for one man to record in one book all of 
 these transactions. 
 
 Other Books Required. — It was found that the ordinary business 
 transactions could be classified under the above six headings ; 
 further, that there were sufficient transactions under headings 1, 2, 
 and 3 to warrant the use of separate books for their entry. The 
 books resulting from this classification came to be known as : 
 
 xl. The Cash Book. 
 
 2. The Sales Book. 
 
 3. The Purchase Book. 
 
 4. The Bill Book. 
 
 The Cash Book. — The handling of cash involves its receipt and 
 expenditure ; and after removing the cash transactions from the 
 general Journal, we may go a step further and divide our Cash 
 Book so as to provide on the left page for receipts, and on the right 
 page for payments. This segregation of cash receipts and cash pay- 
 ments is permissible, since all cash receipts are debits and all cash 
 payments, credits. So much for the cash itself, but it must be 
 understood that each page is a Cash Journal complete in itself, since 
 each page applies the principles of debit and credit. 
 
 Take for example the Cash Book shown on pages 80 and 81. 
 
 78 
 
 THE CASH BOOK 
 
 79 
 
 It will be noted that the various debits (receipts) have been 
 listed on the left page of the Cash Book and the credits (payments) 
 on the right page in columns provided for that purpose. At the 
 same time, in the Account Column on the left page appear the several 
 accounts which have shifted their responsibility to Cash as it came 
 into the business ; hence each of these several accounts is a credit, 
 the debit for which is always Cash. On the right page in the Ac- 
 count Column appear the accounts which have been responsible for 
 cash going out of the business; hence each of these accounts is a 
 debit, the credit for which is always Cash. Thus, every entry in 
 this book comprises in itself a debit and a credit. 
 
 Summary of Cash Book Principles. — The above principles may be 
 summarized as follows: 
 
 1. To place an amount in the debit column automatically debits 
 
 cash. 
 
 2. To place the name of an account on the left side of this book 
 
 in itself credits that account. 
 
 3. To place an amount in the credit column automatically 
 
 credits cash. 
 
 4. To place the name of an account on the right side of this 
 
 book in itself debits that account. 
 
 Explanation of the Cash Book Entries : 
 
 On Jan. 1, Alton B. Kirk invests $5000.00 in the business; 
 hence Cash is debited and Alton B. Kirk credited. 
 
 On Jan. 1, $ 100.00 is paid for rent of store for one month; hence 
 Expense is debited and Cash is credited. 
 
 On Jan. 2, * 100.00 worth of Merchandise is sold to D. W. 
 Hoi ton for cash; hence Cash is debited and Merchandise is credited. 
 
 On Jan. 4, James Garvin pays his bill of the 2d inst. for 
 f 400.00; hence Cash is debited and James Garvin credited. 
 
 On Jan. 6, P. D. Dolan's bill of the Ist for i 200.00 is paid; 
 hence P. D. Dolan is debited and Cash is credited. 
 
 On Jan. 6, Alton B. Kirk discounts his 60-day note for f 600.00 
 at his bank; receiving in cash $594.00, this amount being the face 
 of the note less the discount. If we had no Cash Book the entry 
 for this transaction would be: 
 
 Cash 
 Discount 
 
 $594.00 
 6.00 
 
 Notes Payable $600.00 
 
 t 
 
80 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Cash Book 
 
 Cash Debits 
 
 
 1918 
 
 JaD. 
 
 Datk 
 
 Jan. 
 
 1 
 2 
 4 
 
 5 
 
 6 
 
 8 
 
 10 
 
 11 
 
 12 
 12 
 15 
 16 
 
 L.F. 
 
 AccorwT 
 
 Alton B. Kirk 
 Merchandise 
 James Garvin 
 Notes Payable 
 Notes Receivable 
 Merchandise 
 Discount 
 Mdse. Discount 
 Cash Debit 
 
 Balance 
 Merchandise 
 James Garvin 
 Merchandise 
 Cash Debit 
 
 Explanation 
 
 Investment 
 To D. W. Holton 
 Paid bill of 1st 
 Discounted our note 
 C. B. Lyons' note 
 To H. C. Clarke 
 On note to Smith 
 M. A. Ellis' bill 
 
 To D. W. Holton 
 Paid bill of 10th 
 To C. B. Lyons 
 
 Debit 
 
 5000 
 100 
 400 
 600 
 700 
 300 
 2 
 
 2 
 
 100 
 200 
 400 
 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 
 00 
 00 
 00 
 
 J104 
 7104 
 
 4108 
 
 700 
 
 00 
 
 00 
 
 00 
 
 00 
 
 THE CASH BOOK 
 
 Cash Book 
 Cash Credits 
 
 81 
 
 i 
 
 I 
 
 Datk 
 
 1913 
 
 Jan. 
 
 1 
 2 
 5 
 6 
 8 
 10 
 11 
 
 L.F 
 
 AOCOITNT 
 
 Explanation 
 
 Cekmt 
 
 Expense 
 Merchandise 
 Discount 
 P. D. Dolan 
 M. A. Ellis 
 Notes Payable 
 M. A. Ellis 
 Cash Credit 
 Balance * 
 
 * In red ink 
 
 Rent, one month 
 From H. Bliss 
 On our note 
 Paid our bill of 1st 
 Paid our bill of 2d 
 To N. Smith 
 Bill of 3d 
 
 100 
 2200 
 6 
 200 
 190 
 200 
 100 
 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 
 2996 
 410 8 
 7104 
 
 00 
 
 00* 
 
 00 
 
i 
 
 82 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 This is the entry which must be made through the Cash Book ; but 
 we cannot debit cash and credit notes payable in the Cash Book for 
 1594.00, as this would be a violation of the rule that promissory 
 notes must be recorded at their face value. Therefore, to keep 
 within our principles, and at the same time make a true entry in the 
 Cash Book, we record the receipt of $ 600.00 from notes payable on 
 the debit side and credit the payment of $6.00 for discount on the 
 credit side, thereby showing the net result of $594.00, the cash 
 actually received. 
 
 Posting. — The procedure to be followed in closing the Cash 
 Book is to credit in the Ledger each individual account appearing 
 on the debit side; and the offsetting debits, instead of being posted 
 in detail to the cash account, are posted in total, designated in the 
 illustration as "cash debit." The folio column is used similarly to 
 that of the Journal. 
 
 On the credit side of the books the procedure is to debit in the 
 Ledger each individual account; and the offsetting credits to cash 
 are posted to the Cash Account in the Ledger in total, designated in 
 the illustration as " Cash Credit." 
 
 The balancing of the Cash Book, which may be done as occasion 
 requires, is similar to the balancing of an account in the Ledger. 
 Care should be taken, however, in bringing the balance down to the 
 opposite side, as it must be placed in the second money column so 
 that it will not be again posted to the Ledger. By posting our total 
 debits and credits of the Cash Book to the Ledger account " Cash," 
 it now reveals the same balance as the Cash Book; and future 
 postings to the Cash Account in the Ledger must be only for new 
 receipts and payments. 
 
 Advantages of the Cash Book. — The advantages of the Cash Book 
 are as follows: 
 
 1. Relieves the general Journal. 
 
 2. Facilitates the original entries for cash. 
 
 3. Readily reveals a balance when wanted without the necessity 
 
 of posting. 
 
 4. Facilitates posting in that but one debit and one credit to 
 
 cash need be posted. 
 
 CHAPTER XIII 
 THE SALES BOOK 
 
 The Sales Book. — The necessity of relieving the Journal of its 
 volume of entries was explained in the last chapter, which introduced 
 the Cash Book. The next relief found to be necessary was the sepa- 
 ration from the Journal of all transactions involving the sale of 
 Merchandise. These in turn have been placed in a separate book, 
 the Sales Book, a page of which follows : 
 
 Sales Book « 
 
 July 1, 1913 
 
 Hemphill & Collins, net 30 days 
 
 100 bu. Potatoes @ $ .60 
 
 50 cr. Peaches 2.00 
 
 25 cr. Plums 2.25 
 
 2 
 
 Hays & Miller, 2/10 ; net 30 days 
 
 20 bu. Onions @ $ .50 
 
 *" 40 bu. Potatoes .62 
 
 6 cr. Peaches 2.25 
 
 3 
 
 H. B. Bains, 2/10; net 30 days 
 
 10 bx. Oranges @ ^4.00 
 
 10 bx. Lemons 3.00 
 
 25 cr. Peaches 2.00 
 
 10 cr. Plums 2.05 
 
 Hopwood & Co., net 30 days 
 
 250 bu. Potatoes @ f .55 
 
 40 bu. Onions .48 
 Cash 
 
 60 bu. Potatoes @ $ .65 
 
 10 bu. Onions .50 
 
 2 cr. Peaches 2.50 
 
 2 cr. Plums 2.75 
 
 1 bx. Oranges 4.50 
 
 2 bx. lemons 3.50 
 Merchandise Credit ' 
 
 83 
 
 60 
 
 00 
 
 100 
 
 00 
 
 56 
 
 25 
 
 10 
 
 00 
 
 24 
 
 80 
 
 11 
 
 25 
 
 40 
 
 00 
 
 30 
 
 00 
 
 50 
 
 00 
 
 21 
 
 50 
 
 140 
 
 25 
 
 19 
 
 20 
 
 39 
 
 00 
 
 5 
 
 00 
 
 5 
 
 00 
 
 5 
 
 50 
 
 4 
 
 50 
 
 7 
 
 1 
 
 00 
 
 216 
 
 46 
 
 141 
 
 25 
 
 05 
 
 50 
 
 159 
 
 66 
 
 629 
 
 45 
 
 00 
 
 25 
 
\\ 1 
 
 1 f 
 
 84 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Explanation. — Heretofore in the Journal every sale of merchan- 
 dise has been recorded as a credit to the Merchandise Account; and 
 it is tliis fact which permits the grouping of merchandise sales in 
 one book, when, by recording the amount of the sale in the money 
 column, we register a credit to the Merchandise Account, the debit 
 for which is the customer. 
 
 It will be noted that after each customer's name the terms of the 
 sale are given. For instance, in the sale on July 2 to Hays & Miller 
 the terms are 2/10, net 30 days, meaning that if the bill is paid 
 within ten days 2% discount will be allowed; otherwise the bill will 
 be due for the full amount at the end of thirty days. Such terms 
 are a matter of agreement between customer and seller. 
 
 Another common practice is to place the address of the purchaser 
 on the line below his name. This is done only in cases where the 
 customer is new to the firm, or where his address is outside of the city. 
 
 The first four sales need no further explanation, as they are 
 simply a listing of the goods sold, with a detail of prices, the names 
 of the purchasers, and the terms of sale. 
 
 The fifth transaction, a sale for cash, is somewhat different in its 
 nature. It represents the sale of merchandise for cash to one or 
 several persons on that day; and being a cash transaction, ordinarily 
 appears only in the Cash Book. However, it is the purpose of the 
 Sales Book to reveal at any time the volume of the sales, so it is 
 necessary that cash sales appear in the Sales Book as well as in the 
 Cash Book. The Cash debit, however, is posted only from the Cash 
 Book, and the Merchandise credit from the Sales Book. To do this 
 we list the cash sales in the Sales Book, thereby automatically 
 crediting Merchandise; and the name of the account to be debited. 
 Cash, is checked, so that it will not be posted from the Sales Book. 
 The $66.00 is now entered on the debit side of the Cash Book, being 
 the amount of cash received from cash sales, thereby automatically 
 debiting Cash; and the account seemingly to be credited from the 
 Cash Book, Merchandise, is checked (^) so that it will not be 
 posted. Thus: 
 
 Cash Debit 
 
 July 
 
 Merchandise 
 
 Cash Sales 
 
 66 
 
 00 
 
 THE SALES BOOK 
 
 85 
 
 Another method often advanced for the handling of such sales is 
 to debit in the Sales Book each customer making a cash purchase, 
 and then immediately to debit Cash in the Cash Book and credit the 
 individual customer's account. This is good procedure if our cash 
 sales are made to customers who ordinarily purchased on account, 
 so as to show in their accounts the volume of business with them; 
 but as such is seldom the case, and as it is against practice to open 
 useless accounts in the Ledger, this method may be discarded. 
 
 The customary method of handling these cash sales is to keep a 
 record of them in a supplementary book termed " Cash Sales Book," 
 entering each cash sale as it is made, and then at the end of the day 
 transferring the totals of this book to our Sales Book, and entering 
 the total cash receipts from such sales in the Cash Book. 
 
 This illustration of cash sales has been taken from the standpoint 
 of a retailer. If our illustration were the books of a wholesaler, we 
 might find no use for a " Cash Sales Book," as " cash sales " in a 
 large business often means ^ve to ten days for payment. Accord- 
 ingly, even for this short period, the sale is on account, and is 
 charged to the account of the purchaser. 
 
 Posting of the Sales Book. — From the Sales Book every customer 
 is debited in his account in the Ledger for the amount opposite his 
 name, the corresponding credit being made to the Merchandise 
 Account in the Ledger for the total sales, as expressed in the illus- 
 tration, "merchandise credit." 
 
 As the Sales Book continues from page to page, each page is 
 totaled, and opposite the total is written " Forward," this amount 
 being taken to the top of the next page, where it is expressed 
 " Brought forward," so that at any time, without difficulty, we can 
 ascertain the amount of sales to be posted to the Merchandise 
 Account in the Ledger, as a credit. 
 
 Return of Goods Sold. — When an entire sale, or part of a sale 
 of merchandise is returned because of a difference in price, or 
 through failure of the goods to meet the standard desired, an entry 
 is made debiting Merchandise, which again takes on responsibility, 
 and crediting the original purchaser with the amount returned. 
 This being an adjustment, the entry is made in the Journal. 
 
 Allowances on Sales. — When an allowance is made to a customer 
 on some particular sale, an entry is made inthe Journal debiting 
 "Allowance" Account and crediting the customer. Allowance 
 Account in this case represents the amount of credit given a cu^^ 
 
r 
 
 f 
 
 86 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 tomer because of some inferiority in the goods, or for other causes, 
 and is debited because it is responsible for the value which was 
 credited to the customer's account. This is a Nominal Account, 
 whose balance is a loss. 
 
 Advantages of the Sales Book. —The advantages of the Sales Book 
 are as follows: 
 
 1. Relieves the general Journal. 
 
 2. Facilitates the recording of Sales transactions. 
 
 3. Readily reveals the volume of sales. 
 
 4. Facilitates posting, in that only one credit to Merchandise 
 need be posted. ^ 
 
 
 CHAPTER XIV 
 
 THE PURCHASE BOOK 
 
 The Purchase Book. — Just as the merchandise sales were taken 
 from the general Journal and grouped in the Sales Book, so may all 
 merchandise purchases be removed and grouped in a separate book, 
 the Purchase Book. 
 
 As each purchase of merchandise necessarily causes that account 
 to assume responsibility, the Purchase Book is nothing more than a 
 Purchase Journal for the recording of Merchandise debits for all 
 purchases. 
 
 The following is a page of a Purchase Book: 
 
 Purchase Book 
 July 1, 1913 
 
 L 
 
 Hartley & Meade 2/10, net 60 days 
 
 201 Produce Ave., N. Y. 
 
 200 bu. Potatoes @ 
 
 180 bu. Onions 
 
 .45 
 .40 
 
 Williams & Walker, net 10 days 
 
 300 cr. Peaches @ $ 1.75 
 
 150 cr. Plums 1.85 
 
 50 bx. Oranges 4.00 
 
 40 bx. Lemons 3.00 
 
 E. S. Winthrop, 30 days 
 
 100 bu. Potatoes @ 
 
 50 bu. Onions 
 Merchandise Debit 
 
 .46 
 .40 
 
 90 
 72 
 
 525 
 277 
 200 
 120 
 
 46 
 20 
 
 00 
 00 
 
 00 
 50 
 00 
 00 
 
 00 
 00 
 
 162 
 
 00 
 
 1122 
 
 66 
 
 1350 
 
 50 
 
 «■* 
 
 00 
 
 50 
 
 87 
 
\i 
 
 f 
 
 88 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Explanation. — The names of the various creditors, the terras of 
 the purchase, the address, if it is not already well known, and the 
 details of the purchase and price have all been lislt I in the Purchase 
 Book, similar to the listing of sales in the Sales Book. 
 
 If cash purchases are made, the procedure is based on the same 
 principle as provided for the handling of cash sales. If sufficient 
 cash purchases are made, a separate and supplementary '* Cash Pur- 
 chase Book" is used; but cash purchases by retailers from large 
 wholesale houses are uncommon from the standpoint of an actual 
 payment upon delivery of the goods. A very common use of the 
 term " Cash " in such cases means payment within five or ten days, 
 so that even during this short period the purchase has really been 
 on account; and an entry is made in regular form in the Purchase 
 Book, crediting the firm from whom the purchase is made. 
 
 Invoice Book. — Another method of procedure followed in the 
 handling of a Purchase Book is to make no written entry on the 
 purchase of goods, but on the arrival of the bill for the goods it is 
 pasted in a book used for that purpose, and becomes the original 
 record from which the debit and credit are posted. Such a book 
 is better termed an "Invoice Book." This system has its advan- 
 tages in that : 
 
 1. It saves the labor and time of writing the entry in a Purchase 
 
 Book. 
 
 2. The bills may be allowed to accumulate for a week or longer, 
 
 and then all the bills of each creditor may be pasted in to- 
 gether, causing only one credit to each creditor's account. 
 These several benefits are offset by the following disadvan- 
 tages : 
 
 1. There is no entry until the original bill is received. 
 
 2. There is a possibility of a bill being lost before it is pasted 
 
 in the book. 
 
 3. In the event of the above there is no record of the purchase ; 
 
 and on the receipt of a duplicate bill there may be a 
 doubt as to the receipt of the goods. 
 
 4. All bills received are not of the same size ; hence it is awk- 
 
 ward to paste them together. 
 6. The original bill when paid cannot be receipted. 
 The first method as illustrated is better and safer. 
 Posting of the Purchase Book. — The name of every creditor 
 appearing in the Purchase Book is credited in its respective account 
 
 THE PURCHASE BOOK 
 
 89 
 
 I 
 
 i: 
 
 in the Ledger for the amount opposite the name ; and the corre- 
 sponding debit is made to the Merchandise Account in the Ledger 
 for the total purchases, as expressed in the illustration "Merchan- 
 dise Debit." 
 
 Goods Rejected. — When an entry is made in the Purchase Book 
 and subsequently all or a part of the purchase is rejected because of 
 its being of inferior quality, etc., an entry is made in the Journal, 
 debiting the creditor from whom the goods were bought, and credit- 
 ing Merchandise, as Merchandise is no longer responsible for this 
 amount. This being an adjustment, the entry is made in the 
 Journal. 
 
 Allowances Received. — When an allowance from the purchase 
 price of a particular purchase of merchandise is received, an entry 
 is made in the Journal debiting the creditor's account and crediting 
 " Allowance Received " Account. 
 
 Value of the Purchase Book. — The value of the Purchase Book 
 lies in that it : 
 
 1. Relieves the general Journal. 
 
 2. Facilitates the recording of merchandise purchases. 
 
 3. Readily reveals the volume of purchases. 
 
 4. Facilitates posting in that but one debit to Merchandise need 
 
 be posted. 
 
THE BILL BOOK 
 
 91 
 
 CHAPTER XV 
 
 THE BILL BOOK 
 
 The Bill Book. — Unlike the Cash Book, Sales Book, and Pur- 
 chase Book, the Bill Book, which by its construction permits of its 
 use as a book of original entry, is more commonly used as an auxiliary 
 book, and as such merely furnishes a description in full of all notes 
 and accepted drafts handled by the business. Its use as an aux- 
 iliary book requires that the entries for all notes and accepted drafts 
 be made in the Journal on their issuance or receipt, and in the Cash 
 Book upon their payment. 
 
 We shall here follow the general practice of using it as an aux- 
 iliary book. An illustration is shown on pages 91 and 92. 
 
 The note or accepted draft itself furnishes the basis for the de- 
 scription provided for in the various columns. The uses for the 
 columns are shown in entering the following note which was received 
 on Aug. 15 from James Garvin, in settlement of his account. 
 
 A Promissoiy Note 
 
 ^ji2mi 
 
 (^/(^^€iit^<^(^X<^. Cy^/Z^ j4/ ^gi3 
 
 eZniy, 
 
 rc^^cu/ 
 
 <^^ 
 
 4^Z^{/ 
 
 ii^^t^ 
 
 
 L^^xg<? 
 
 C2^c-^^c^^ty ^^ ' 
 
 • CCbi*r.J 
 
 The following indorsement is on the back of the note : 
 
 Pay to the order of 
 
 Alton B. Kirk 
 
 (Signed) James Garvin 
 
 90 
 
 H 
 
 < 
 
 
 00 
 
 H 
 
 H 
 O 
 
 L 
 
 h 
 
 
 as 
 
 
 P 
 
 I 
 m 
 
 % 
 
 a 
 
 Discounted 
 
 at Farmers' 
 
 Nat'l Bk. 
 
 1 
 
 ^ 
 
 < 
 
 II 
 
 
 XKaoKy 
 
 i 
 
 •Jb. 
 
 
 > 
 
 H ■ 
 
 at 
 
 \ 
 
 H 
 
 •ooai 
 
 
 •ao^I 
 
 
 •1s>Ol 
 
 
 ld9g| 
 
 1 2 
 
 •anvl 
 
 
 Xinpl 
 
 
 autif 1 
 
 
 
 •advl 
 
 •J«K| 
 
 
 
 •qajil 
 
 
 •a«f| 
 
 
 
 ^ 
 
 q5 
 
 i 
 
 3 
 
 \ 1 
 
 < 
 
 
 CO 
 
 S2 
 
 — —^ _____ , 
 
 1 
 
 
 4j 
 
 Indorsrb 
 
 OR 
 
 Drawer 
 
 
 s 
 
 8| 
 
 
 «p8 
 
 03 
 
 ja 
 
 < 
 
 • 
 
 
 
 
 
92 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 iM 
 
 
 •J 
 
 n 
 
 < 
 
 < 
 
 h. 
 
 o 
 
 —1 
 
 § 
 
 
 
 5 
 2 
 
 
 
 
 
 l| 
 
 
 
 xkhory 
 
 
 
 UEl. 
 
 , — ^ _ 
 
 
 >• 
 H 
 
 •M 
 
 M 
 b • 
 
 h 
 O 
 
 H . 
 
 H 
 
 •< 
 
 •AON 
 
 
 
 
 
 Idas 
 
 1 
 
 
 
 
 •irny 
 Xinf 
 
 
 
 
 
 9unj' 
 
 
 
 A»K II 
 
 
 •adv II 
 
 
 •■"Wll 
 
 
 
 1 
 
 
 
 1 
 
 
 
 o| 
 
 
 
 
 • 
 
 
 1 
 
 00 
 
 u 
 
 O 
 JZ5 
 
 5? 
 
 
 
 
 
 
 
 
 
 H 
 •< 
 
 
 
 M u 
 
 • r 
 
 K PS $ 
 
 2 o •< 
 
 *! Q 
 
 ■ 
 
 
 g 
 
 
 
 Makbb 
 
 OR 
 
 Dbawbb 
 
 
 
 •< > 
 Co 
 
 
 
 
 
 1 
 
 
 THE BILL BOOK 
 
 The following is the explanation of the various columns : 
 
 93 
 
 Column 1. The number of the note, 210. 
 
 2. The date received, Aug. 15. 
 
 3. The maker, S. H. Beitzel. 
 
 4. The payee, James Garvin. 
 
 5. The indorser, James Garvin. 
 
 6. Received in settlement of account. 
 
 7. Payable at the Commercial Exchange Bank. 
 
 8. Date of making (a) 1913 
 
 (6) Aug. 
 (<?) 14th. 
 
 9. Time to run, 30 days. 
 
 10. Date of Maturity, Sept. 13. 
 
 11. Ledger folio used only when an original book. 
 
 12. Amount column, for the face of the note, ^ 1000.00. 
 
 The entry in our Journal is : 
 
 Notes Receivable f 1000.00 
 
 James Garvin $1000.00 
 Received in settlement of account. ^* 
 
 On Aug. 24 Alton B. Kirk has this note discounted at the 
 Farmers' National Bank, receiving i 996. 67. 
 
 Under the part of the Bill Book designated " Disposition of," we 
 first put i 996. 67 in the proceeds column, this being the amount re- 
 ceived from the bank. The next column gives us the date when 
 discounted or paid, in this case Aug. 24, and the final column 
 (remarks) shows the manner in which the instrument is disposed of. 
 
 The Cash Book entry is made on the debit side. Cash being 
 debited and Notes Receivable being credited for $1000.00; on the 
 credit side crediting Cash and debiting Discount for $3.33. 
 
 Had the instrument we have just entered in the Bill Book been 
 an accepted draft, the same columns would have been used, due to 
 their double capacity. The maker of a note and the drawee of a 
 draft bear the same relationship to the holder. The payee of a note 
 and the payee of a draft are likewise of similar character, and finally 
 the indorser of a note or a draft and the drawer of a draft may be 
 treated alike by the holder. 
 
 The handling of the Notes Payable Book is identical with that 
 of the Notes Receivable Book, and needs no further explanation. 
 
 ■■itiMtiM" 
 
 mm 
 
94 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Value of the Bill Book. — The Bill Book is of value in that it 
 enables the bookkeeper : 
 
 1. To keep a detailed record of every note and accepted draft 
 
 without further reference to the instrument itself. 
 
 2. To ascertain the amounts and maturity dates of notes. 
 
 3. To have a record for future reference. 
 
 CHAPTER XVI 
 
 DRAFTS 
 
 Distinction between Bills of Exchange and Drafts. — At the outset 
 it is important to distinguish between Drafts and Bills of Exchange, 
 terms which are commonly used synonymously. The "Negotiable 
 Instrument Act" of Pennsylvania defines a Bill of Exchange as 
 " an unconditional order in writing, addressed by one person to an- 
 other, signed by the person giving it, requiring the person to whom 
 it is addressed to pay on demand or at a fixed or determinable future 
 time, a certain sum in money to order or bearer." A draft, on the 
 other hand, is more comprehensive, including as it does Bills of Ex- 
 change and also a great variety of non-negotiable orders to pay 
 money. For instance, orders to transfer funds from one department 
 to another and ordinary bank checks are drafts, but not Bills of 
 Exchange. The term " draft " in the United States is applied to in- 
 struments payable in the United States, and Bills of Exchange to 
 those payable in foreign countries. We shall adhere to the common 
 usage. 
 
 A Draft 
 
 ^^/eca 
 
 ^ 
 
 fu^ar^^^ 
 
 
 
 fe^^^ 
 
 
 ^^fTCC^ 
 
 Parties. — The parties to a draft are : 
 
 1. The Drawer. 
 
 2. The Drawee. 
 
 3. The Payee. 
 
 95 
 
96 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Definition of Parties 
 
 1. The Drawer is the person or firm who draws or makes the 
 
 draft. (Paul Jones.) 
 
 2. The Payee is the person or firm to whom the draft or order 
 
 is made payable. (Theodore Roberts.) 
 
 3. The Drawee is the person or firm to whom the order to pay 
 
 is addressed. (Francis Sheridan.) 
 Purposes of Drafts. — Drafts are of value : 
 
 1. As an aid and a protection in the collection and payment of 
 
 debts. 
 
 2. As a means of avoiding the inconvenience, risk, expense, 
 
 and delay incident to the transmission of specie or legal 
 tender. 
 
 Illustration. — A in New York has stored ten car loads of grain 
 in Chicago. He has agreed to deliver five of these to B in Chicago. 
 He therefore orders C, the holder of the grain, to deliver the speci- 
 fied amount at a specified time. This obviates the necessity of send- 
 ing the grain from New York to Chicago. 
 
 Or again, A in Philadelphia has deposited in a New York bank a 
 sum of money. He owes 1^500.00 to B, also in New York. A draws 
 a check (an order to pay) on his New York bank and mails it pay- 
 able to B's order to B, to whom the money is transferred. 
 
 Thus, in both cases the indebtedness of A has been liquidated by 
 an order transferring, in the first place, the ownership of the grain ; 
 in the second, the money to B. 
 
 In the second example the check, while symbolic of a certain sum 
 of money in the bank, is also a credit instrument, and B, by deposit- 
 ing the check in his bank, is credited by that bank with the sum 
 called for on A's bank. A, of course, could send the if 500.00 in 
 specie or legal tender direct to B. 
 
 A more striking example of the transfer of credit is where A 
 in New York owes $1000.00 to B in Chicago, and C in Chicago owes 
 81000.00 to A in New York. A desires to settle his account with 
 B, and C desires to settle his account with A. A might send the 
 $1000.00 to B and C send his f 1000.00 to A; but instead A requires 
 C to pay B, thus cancelling A's indebtedness to B and C's indebted- 
 ness to A. In the former illustrations given there was a transfer of 
 grain and money; here there is a transfer of indebtedness, which il- 
 lustrates one of the chief uses of drafts. 
 
 DRAFTS 
 
 97 
 
 ( 
 
 Whereas the instruments used in the three illustrations on the pre- 
 vious page are all " Orders," the term " Draft " is applied only to the 
 last two, which are for the payment of money. Thus we see, as in 
 the second illustration, that orders of depositors upon their banks are 
 really drafts, but being such a general class, these particular drafts 
 are known as "checks." 
 
 Kinds of Drafts. — Drafts may be classified as follows: 
 
 1. Personal. 
 
 2. Bank. 
 
 In point of time of payment, personal drafts are either. 
 
 ((a) days after date. 
 (6) days after sight. 
 2. Sight or demand. 
 
 Bank drafts are always "sight" or "demand." 
 From the standpoint of parties, personal drafts may be either: 
 
 1. Two party. 
 
 2. Three party. 
 Bank drafts are always three-party drafts. 
 
 A Personal Time Draft, with Two Parties 
 
 1. Time 
 
 J^C£L 
 
 f^^'^^>^ ^ ^a(^^^ ^ .^Z^^yty ^/7ji> ^^J(/y^ 
 
 Qt^rjcp u^ir ?(y]/^^ - yd CfA^- 
 
 ^^^ y/^^^^^-cx^l^a^^^^^ " 
 
 fe^^ 
 
 
 In the illustration, Alton B. Kirk is both the Drawer and Payee. 
 
 Inserting the words " Ten days sight " instead of " Sixty days 
 after date " in the above illustration, we have another form of time 
 draft. It means that ten days after presentment to P. T. Barnes, 
 the drawee, it must be paid. Again, by inserting the words " At 
 sight " instead of " Sixty days after date," we have what is known 
 as a " Sight draft," or an order to pay the draft immediately on pre- 
 sentment to the Drawee. This form is commonly used to collect 
 debts. Drafts payable " at sight " or " on demand " are identical. 
 
98 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 A Personal Time Draft, with Three Parties 
 
 //C4PC0^ 
 
 ^yyju^ .^z ^^^^ ^^ii:^ ,^^^^^^^^ A ^?it/L 
 
 '/.f9/J 
 
 ^JcTy/ii^ 
 
 f(B^^y_. ^^.^^cx^t.a^^§ <^ 
 
 
 The same changes as to time may be made here as in the two- 
 party draft. 
 
 A Bank Draft 
 
 No 
 
 ,^4>f 
 
 Philadelphia, Pa . yyUU4>^jS' m 3, 
 
 THE COMMERCIAL EXCHANCS BANK 
 
 Pi^f^ the order o f ^C/^Chfy/u >^e^y^^ 
 
 .%^^£Jl 
 
 To MICHIGAN NATIONAL BANK, 
 
 CHICAGO 
 
 ;) 
 
 <y>^>^v.< 
 
 -yPollare. 
 
 'Cashier < 
 
 The above order is addressed to one bank by another bank, and 
 it is always true of a bank draft that the drawer and drawee are 
 banks, not persons. It finds its greatest usefulness in instances 
 where the seller of merchandise, located in a different city than that 
 of the purchaser, and unfamiliar with the latter's financial standing, 
 will not ship the goods on the purchaser's personal check. The 
 procedure is usually as follows : Alton B. Kirk has purchased 
 $500.00 worth of Merchandise from James Garvin, of Chicago. He 
 desires to purchase the above draft from his bank, the Commercial 
 Exchange, which charges him a nominal sum for the accommodation. 
 He makes out a check payable to the bank for the amount of the 
 draft plus the bank's charge. In exchange for this he receives the 
 
 3 
 
 i_ 
 
 DRAFTS 
 
 99 
 
 above draft, and, indorsing it properly, forwards it to James Garvin. 
 These bank drafts are possible because banks have, as agents, other 
 banks, called correspondents, in financial centers, with whom they 
 carry deposits against which these orders are drawn. 
 
 Negotiability. — Like other instruments having the phrase " to 
 the order of " or " bearer," drafts are negotiable, and are transfer- 
 able by indorsement and delivery. They are peculiar, however, in 
 that their negotiability dates only from the "acceptance" by the 
 drawee. 
 
 Acceptance. — By " acceptance " is meant the expressed intention 
 of the drawee to honor the order made on him by the drawer; or in 
 other words, his promise to pay the sum requested on the date 
 specified. He may make this promise by separate writing in the 
 form of memorandum or letter addressed to the drawer, but ordinarily 
 it is done by simply writing or stamping across the face of the 
 draft itself the word " Accepted," with the date, place of payment, 
 and signature. 
 
 An Accepted Draft 
 
 In the case of a "sight" as "ten days sight" draft the date of 
 acceptance is particularly important, as in those instances the time 
 runs, not from the date of the draft itself, but from the date of its 
 acceptance. 
 
 Characteristics. — By this writing of the drawee the draft loses 
 its name as such, and is termed an " Acceptance," losing its chief 
 characteristic of being an order by the drawer on the drawee to pay 
 a certain sum, to become a promise by the drawee (by his acceptance) 
 to pay the payee the agreed amount. Take for example the draft 
 given above, previous to the drawing of which the relationship of 
 the parties must have been as follows: Francis Sheridan of Buffalo 
 
100 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 owed Paul Jones of Philadelphia, and the latter in turn owed Theo- 
 dore Roberts of Scranton, Pa., the sum of i? 1000.00. Jones is 
 desirous of paying Roberts and at the same time of collecting the 
 money due him from Sheridan. He draws the draft as per illustra- 
 tion and mails it to Sheridan, wlio, after accepting it as indicated, 
 returns it to Paul Jones, or at his direction to Roberts, wlio in turn 
 receives it in payment of Paul J(mes's debt to him. 
 
 What happens, then, is this : Jones has Sheridan assume his 
 (Jones') indebtedness to Roberts. Slieridan pays Jones by giving 
 him his " promise to pay " to Roberts, and Roberts releases Jones of 
 his indebtedness on the receipt of Sheridan's "promise to pay." 
 Therefore, by regarding an "Acceptance" as a Promissory Note, 
 the recording of which is now familiar, we need make no special 
 rule, but simply apply the principles of debit and credit, and make 
 the necessary entries. 
 
 Jones' entry in this instance is made in his Journal as follows : 
 
 Theodore Roberts $1000.00 
 
 Francis Sheridan $ 1000. 00 
 
 Sheridan is credited, having accepted a 30-day draft payable to 
 Roberts. Roberts is debited, being responsible to Jones for the pay- 
 ment, and Sheridan is credited on giving up the responsibility of his 
 indebtedness to Jones. Thus, Roberts' and Sheridan's accounts, 
 before the adjustment, appear as follows: 
 
 Theodore Roberts 
 
 1(KX) 00 
 
 3 
 
 DRAFTS 
 After the acceptance they are : 
 
 Theodore Roberts 
 
 101 
 
 1000 
 
 00 
 
 1000 
 
 00 
 
 Francis Sheridan 
 
 1000 
 
 00 
 
 1000 
 
 00 
 
 Roberts, on receiving what now is equivalent to Sheridan's 
 written promise to pay, makes the following Journal entry : 
 
 Notes Receivable $ looo. 00 
 
 Paul Jones f 1000.00 
 
 Received Acceptance in settle- 
 ment of account 
 
 Note that Paul Jones is credited, and not Sheridan, for there is 
 absolutely no connection between Roberts and Sheridan. Notes 
 Receivable is debited because it is now responsible for the indebted- 
 ness previously shown in Jones' account, which account, having 
 shifted this responsibility, is credited. 
 
 The entry on Sheridan's books is : 
 
 Paul Jones 
 
 Notes Payable 
 Accepted 30-day draft 
 in full payment of account 
 
 f 1000. 00 
 
 f 1000. 00 
 
 Paul Jones is debited as he is responsible for the liability granted 
 to him by Notes Payable (credit). 
 
 The entries of the drawer, drawee, and payee of any three-party 
 time draft are on similar lines. Had Jones been payee as well aa 
 drawer, making it a two-party draft, his entry would have been ; 
 
I 
 
 102 A FIRST YEAR IN BOOKECEEPING AND ACCOUNTING 
 
 Notes Receivable 
 
 Francis Sheridan 
 
 $1000.00 
 
 11000.00 
 
 Sheridan's entry would have been the same as before. 
 
 As has been said, this form of draft is used extensively in busi- 
 ness for the collection of debts past due, as are also sight drafts, 
 the bank acting as agents for collection. 
 
 When these sight drafts are not used merely as a dun on a debtor, 
 the bank may give the drawer credit on its books immediately, trust- 
 ing to their acceptance by the drawee. For this reason in book- 
 keeping sight drafts are considered as cash, and the entries made 
 accordingly. 
 
 A Sight Draft 
 
 DRAFTS 
 
 103 
 
 Make the 
 Feb. 1, 1913.— 
 
 Feb. 2, 1913.— 
 
 Feb. 3, 1913.— 
 Feb. 4, 1913.— 
 
 .^^ 
 
 <Qea^. 
 
 (A 
 
 y3. yc^^/f^ - 
 
 
 rUyrt/ 
 
 jf.^c^.x^'C^^Cte'Ci^ ' 
 
 2^ ^t/^.€^ 
 
 L 
 
 o# /^^^ ^y^ ^'^y^,^^^ 
 
 /liA^y<^ 
 
 Feb. 6, 1913.— 
 
 Feb. 6, 1913.— 
 
 3 
 
 Alton B. Kirk's entry is : 
 
 Cash 
 
 A. L. Smathers 
 Drew sight draft in settle- 
 ment of bill, 3/12/13 
 
 Smathers' entry is : 
 
 Alton B. Kirk 
 
 Cash 
 Accepted sight draft in 
 payment of invoice, 3/12/13 
 
 $500.00 
 
 $500.00 
 
 Feb. 8, 1913.— 
 Feb. 9. 1913.— 
 
 500.00 
 
 $500.00 
 
 PROBLEM 34 
 
 entries to record the following transactions : 
 
 -Drew on George Carey, for $300.00 at 10 days sight, in favor 
 
 of N. Law ton. 
 
 L. Simmons of New York agreed to honor A. L. Pope's sight 
 
 draft for % 500.00, so Pope drew on him in favor of Bernard 
 
 Weaver, also of New York. 
 
 A. L. Pope drew on A. H. Minds for % 600.00 at sight, in favor 
 
 of himself. The draft was accepted. 
 R. H. Wilson accepted A. L. Pope's 30-day draft for % 1000.00, 
 drawn on him to-day, in Pope's favor. Pope took R. H. 
 Wilson's Acceptance of even date to bank and had it dis- 
 counted. 
 A L. Pope accepted the % 500.00 sight draft drawn on him by 
 
 R. Hamilton. 
 A. L. Pope received a sight draft for $800.00 drawn in his 
 favor by H. Markham, and drawn upon L. Neely, who 
 accepted it. 
 A L. Pope received from A. B. Ames a 60-day draft dated 
 to-day for % 1200.00, drawn upon C. D. Willard, who wrote 
 his acceptance across the face of the draft. 
 Pope took Willard's acceptance to the bank and had it dis- 
 counted. 
 Albert James owed A L. Pope $ 485.00 on an open account, 
 and the account was due to-day. James could not settle 
 his account by cash, but asked Pope to take a 60-day 
 acceptance of R. Ely for $ 500.00 in payment. The date 
 of the acceptance was Jan. 8. Pope took the draft at 
 its face value less discount at 6 % for the unexpired time. 
 L. B. Jones accepted a 60-day draft for $ 400.00 dated to-day, 
 drawn upon him by T. H. Hickson in favor of P. C. Wells. 
 A L. Pope owed C. E. Haines of New York % 1000.00, and 
 Haines requested Pope to remit by a bank draft on New 
 York. Pope gave his check for $ 1000.00 to his bank and 
 received in return a draft to his order on a New York bank, 
 which he indorsed and mailed to Haines. 
 
 Sight drafts are used largely in connection with Bills of Lading, 
 a full discussion of which is found in a subsequent chapter devoted 
 to that subject. 
 
I 
 
 ! 
 
 CHAPTER XVII 
 
 BILLS OF LADING 
 
 Closely allied to the discussion of Drafts is the Bill of Lading, 
 illustrations of which are shown on pages 105 and 106. 
 
 Our treatment of this subject may be said to begin and end in 
 the accompanying illustrations, for the instruments themselves are 
 self-explanatory. For the sake of clarity, we summarize their sev- 
 eral characteristics. 
 
 Defimtion. — A bill of lading is a quasi-negotiable instrument, 
 given by the carrier to the shipper as an acknowledgment of the 
 receipt of the goods, and a contract to carry them. Its three chief 
 characteristics are that it is : 
 
 1. Quasi-negotiable. 
 
 2. A receipt. 
 
 3. A contract. 
 
 Negotiability. — By " quasi-negotitable " is meant that it is nego- 
 tiable in a restricted sense ; that is to say, a bill of lading is not so 
 readily current as the other negotiable instruments we have discussed 
 (promissory notes and drafts). The purchaser of a bill of lading, 
 having reason to believe that the vendor is not the owner of the bill, 
 or that it is held to secure the payment of an outstanding draft, is 
 not entitled to hold merchandise covered by the bill against its true 
 owner. But it is ordinarily negotiable, in that it may be trans- 
 ferred by indorsement and delivery. Negotiability applies only to 
 those bills of lading marked "Order" and not to those marked 
 " Straight." 
 
 Receipt. — When the goods are turned over by the shipper to the 
 carrier and nothing further remains for the shipper to do, the 
 carrier's liability for the safety of the goods begins. A carbon 
 copy (blue) of the original bill of lading, called the Memorandum, 
 is given the shippei as a receipt, which is good evidence not only of 
 the quantity and kind of goods received, but also of their condition. 
 
 Contract. — A bill of lading, however, is more than a receipt for 
 goods ; it is a contract, and as such is subject to the general rules of 
 
 104 
 
 Portn 9- 1.1 
 
 ^eddin*; 
 
 Revised April 1st. I009 — West Bound Lake Traffic Clause added to SaoUon 9. 
 
 Philadelphia & Reading Railway Qompany. 
 
 STRAIGHT BILL OF LADING— ORIGINAL— NOT NEGOTIABLE. 
 
 Shippers No.. 
 Agents No.... 
 
 KBCBIVBD, aobjcct to the duMfications utd tariffs in effect oa the date of ittne of this Original -Bill of Ladinf, 
 
 J91 
 
 the praf>erty dcacrtbed below, in apparent gooil ontrr, except ai 
 
 caoditioti of ooatenlB oC package* uoknown), marketl, coosigneil j»ti(l de^tineil as indicatnl below, wliich said Cotn 
 to iu usual place of tteiiTery at aaid deithuuion, if 00 its roxl^.oUierHise to deliver to anoiher carrier oh the 
 
 aetod (coatcnta and caoditton of oootenti o( 
 
 yMjr agree* to carry to iu usual place of «U . __ _ 
 
 fWIe to said destuiatioo. It ta motually agreed, as to eacii carrier of all or any of saitl property o»-er all 01 any portion of said route, 
 todcsbnaliMi, and as to each party at any. time intrrnted in all or any of <sxid property, that ewry strvicc to be performed here- 
 under shall be subicct to all the conditiona, whether printed or. written,' lieieiti conUiued (including conditions ou back 'lereof) and wllicli 
 •ic agnta to bjr the ahipoer and accepted for hnntrif and hia assigns. 
 
 2V RaU of F*^hi from. 
 
 J» in Cente per 100 Lb$. 
 
 V-.TlM* tsl 
 
 irittClaM 
 
 VtaaciM* 
 
 W aatatt 
 
 NTMCIwa 
 
 IFHalan 
 
 IF Rate U 
 
 IF 4Ui Class 
 
 IF 6tli Class 
 
 IF eth Class 
 
 (MaU AddiMS— Not for yu i f m t t aT IMlMty.) 
 
 3 
 
 Coosigoed to 
 OeBtiostioo,^ 
 Route, 
 
 -Stste of- 
 
 -County of. 
 
 .Car Initial. 
 
 . C*ir No.. 
 
 M. 
 PftCKMH 
 
 OEanPTUM OF ARTNaiS AND SPiCUL MAttS 
 
 WEIGHT 
 (SilJBctlsCsmcllas) 
 
 CUSS OS 
 ■AH 
 
 CHECK 
 COLUM 
 
 *ir cliai-ges are tu be 
 nrepaui, M-ritc or stamp 
 Lei-e, "To be Prepaid." 
 
 Received $„..._-. ™....,.i.._. 
 to apply iu (Trepayment 
 of tlic cliaiyes- ou the 
 
 troperty ae8.cribed 
 ereon. 
 
 (TIte slcaatur* h*r* aekBovladc* 
 «ily th* smoual prafkld.) 
 
 Charges Advanced : 
 
 J>bip|ter. 
 
 ..Agent 
 
 Pter. 
 
 Per- 
 
 Tvi. uin nf I nAitt Is Is ta sicMd by lb* ■Uppw aad afut tt Um carrier i«Miia« smm.) 
 
 105 
 
w 
 
 f^eadins 
 
 Form 9— No. 2 
 
 Revised April 1st, 1009-W«st Bound Lalce Traffic Clause addad to Section 
 
 Philadelphia & Reading Railway Company. 
 
 ORDER BILL OF LADING— ORIGINAL. 
 
 Shippers No. 
 Agents No. 
 
 RECEIVKl), subjcit ti> tlic claMtficatioiii and tariffs iit rffcvt <>ii lUc- ilue of is-uc uf llii-. OnKiii.tl Bill oj UailinK, 
 
 at Philadelphia, Td., 19 
 
 fiom _ _ .- _ tlio property (lo««:riI>c<l Iwtow, in arp"™"* 8™*' «"!". •?'*P* •• 
 
 ootnl (contrnts aiul condition of contents o( packagi-s unknown), markcM, «.'t>usi^;nei| .inil <U-.tinc<l as itialuMiot beluw, which «u<t Cmn- 
 [lanjr agrws to carry to its usual plact.* of delivery at saul diMtiiiilwn, if on its rowl, ottivrwise t<> «l<.liver tij another carrier on the 
 route to snid «lesti nation. It isi mutu.Ally agreiHl, as to each cnrrior nf all or any of said propt-rty over .«ll of any portion of s.iid lonte 
 to destination, and as to each party at any "time intcrestetl in all or any of s.iid property, tli.it extry service to be pcrfonnrtl here- 
 under shall be subject to all Uie conditioiis, whether printed or written, hereiti cuntaiucU (including cuuditioiis oa boclc hereof) au>t which 
 are agreed to by the ihqiper and aoceptetl for him.sclt and his as>-i)^s. 
 
 The surrender of this Orlictnal ORDER Bill of Ladinc proper^ Indor.s^d shall h« required h«lore th« dellv«ry of the 
 rty. Inspectloii of ifroperty covered by this bill of ladin,; will not be pernlltted unless provided by law or unless permission 
 latforscd oa this orfxinal Mil of IStfiag or given In wrttlng by the shipper. 
 
 propcrt; 
 blatfoi 
 
 The Rate of Freight from 
 
 to 
 
 is in Cents per 100 Lbs. 
 
 m 
 
 ITKiaaM 
 
 irtM 
 
 IF nna *• 
 
 »sieiMs 
 
 '■■leM I irSklaflt 
 
 IP4lkC«M« 
 
 IFSMClM* IFWkClaii 
 
 irSNcW 
 
 I • 
 1 "• 
 
 <MKtl A'Mti-si.— No(i«>r purpuw* a( iMlinrrf.) 
 
 Consigned to ORDER OF 
 
 Destinatiou, 
 
 Notify 
 
 At - . 
 
 Route,- 
 
 , .State of - . 
 
 Sf.ntr of 
 
 Car Initial 
 
 Coiiuty of. ... 
 
 ..County of ... 
 Car No. 
 
 NO. 
 PkCKAGES 
 
 KSCfflPTION OF ARTIGLES MO SPECIAL MARKS 
 
 WEIGHT 
 (S«b)wltaC<n«ctiM) 
 
 ; CUSS OR 
 RATE 
 
 CHECK 
 COLUMN 
 
 
 'If cluuxes are to be 
 
 E repaid, write or stamp 
 ere, "To be Prepaid." 
 
 Keceived % — 
 
 to apply iu prepayment 
 of the ckarees oo tbe 
 property aeaoribed 
 
 (Tit* •fgiutura b*ra aek nartoilBM 
 oatjr iluf aiDuunt |.f>>|»i(t.| 
 
 Ctiaqjea Advaooed : 
 
 JShipi>cr. 
 
 Agcot 
 
 Per 
 
 Per- 
 
 IThto Bill oT Indian ta to b> Mgacd by Uio iitiirprr aad «§»•• of the eaxrwr iMuiaf < 
 
 I 
 
 106 
 
 BILLS OF LADING 
 
 107 
 
 law interpreting such instruments. It assumes the characteristics 
 of a contract after the goods are received for carriage, the agree- 
 ment being between the shipper and the carrier that the latter shall 
 convey the goods named to their proper destination, subject to the 
 conditions printed on the back of the bill of lading. A copy of 
 these conditions follows : 
 
 Conditions 
 
 Sec. 1. The carrier or party in possession of any of the property herein 
 described shall be liable for any loss thereof or damage thereto, except as herein- 
 after provided. 
 
 No carrier or party in possession of any of the property herein described 
 shall be liable for any loss thereof or damage thereto or delay caused by the act 
 of God, the public enemy, quarantine, the authority of law, or the act or default 
 of the shipper or owner, or for differences in the weights of grain, seed, or other 
 commodities caused by natural shrinkage or discrepancies in elevator weights. 
 For loss, damage, or delay caused by fire occurring after forty-eight hours (exclu- 
 sive of legal holidays) after notice of the arrival of the property at destination or 
 at port of export (if inten<led for export) has been duly sent or given, the carrier's 
 liability shall be that of warehouseman only. Except in case of negligence of the 
 carrier or party in possession (and the burden to prove freedom from such negli- 
 gence shall be on the carrier or party in possession), the carrier or party in 
 possession shall not be liable for loss, damage, or delay occuring while the property 
 is stopped and held in transit upon request of the shipper, owner, or party en- 
 titled to make such request ; or resulting from a defect or vice in the property, or 
 from riots or strikes. When in accordance with general custom, on account of 
 the nature of the property, or when at the request of the shipper the property is 
 transported in open cars, the carrier or party in possession (except in case of loss 
 or damage by fire, in which case the liability shall be the same as though the 
 property had been carried in clo8e<l cars) shall be liable only for negligence, and 
 the burden to prove freedom from such negligence shall be on the carrier or party 
 in possession. 
 
 Sec. 2. In issuing this bill of lading this company agrees to transport only 
 over its own line, and except as otherwise provided by law acts only as agent with 
 respect to the portion of the route beyond its own line. 
 
 No carrier shall be liable for loss, damage, or injury not occuning on its own 
 road or its portion of the through route ; nor after said property has been delivered 
 to the next carrier, except as such liability is or may be imposed by law, but 
 nothing contained in this bill of lading shall be deemed to exempt the initial 
 carrier from any such liability so imposed. 
 
 Sec. 3. No carrier is bound to transport said property by any particular 
 train or vessel, or in time for any particular market or otherwise than with rea- 
 
I « 
 
 108 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 sonable dispatch, unless by specific agreement indorsed hereon. Every carrier 
 shall have the right m case of physical necessity to forward said property by any 
 railroad or route between the point of shipment and the point of destination ; but 
 if such diversion shall be from a rail to a water route, the liability of the carrier 
 shall be the same as though the entire carriage were by rail. 
 
 The amount of any loss or damage for which any carrier is liable shall be 
 computed on the basis of the value of the property (being the bona-fide invoice 
 price, if any, to the consignee, including the freight charges, if prepaid) at the 
 place and time of shipment under this bill of lading, unless a lower value has 
 been represented in writing by the shipper or has been agreed upon or is deter- 
 mined by the classification or tariffs upon which the rate is based, in any of which 
 events such lower value shall be the maximum amount to govern such computa- 
 tion, whether or not such loss or damage occurs from negligence. 
 
 Claims for loss, damage, or delay must be made in writing to the carrier at 
 the point of delivery or at the point of origin within four months after delivery of 
 the property, or, in case of failure to make delivery, then within four months after 
 a reasonable time for delivery has elapsed. Unless claims are so made, the carrier 
 shall not be liable. 
 
 Any carrier or party liable on account of loss of or damage to any of said 
 property shall have the ftdl benefit of any insurance that may have been effected 
 upon or on account of said property, so far as this shall not avoid the policies or 
 contracts of insurance. 
 
 Sec. 4. All property shall be subject to necessary cooperage and baling at 
 owner's cost. Each carrier over whose route cotton is to be transported hereunder 
 shall have the privilege, at its own cost and risk, of compressing the same for 
 greater convenience in handling or forwarding, and shaU not be held responsible 
 for deviation or unavoidable delays in procuring such compression. Grain in bulk 
 consigned to a point where there is a railroad, public, or licensed elevator, may 
 (unless otherwise expressly noted herein, and then if it is not promptly unlciaded) 
 be there delivered and placed with other grain of the same kind and grade with- 
 out respect to ownership, and if so delivered, shall be subject to a lien for elevator 
 charges in addition to all other charges hereunder. 
 
 Sec. 5. Property not removed by the party entitleil to receive it within 
 forty-eight hours (exclusive of legal holidays) after notice of its arrival has been 
 duly sent or given may be kept in car, depot, or place of delivery of the carrier, 
 or warehouse, subject to a reasonable charge for storage and to carrier's responsi- 
 bility as warehouseman only, or may be, at the option of the carrier, removed to 
 and stored in a public or licensed warehouse at the cost of the owner and there 
 held at the owner's risk and without liability on the part of the carrier, and sub- 
 ject to a lien for all freight and other lawful charges, including a reasonable charge 
 for storage. 
 
 The carrier may make a reasonable charge for the detention of any vessel or 
 car. or for the use of tracks after the car has been held forty-eight hours (exclusive 
 
 !> 
 
 BILLS OF LADING 
 
 109 
 
 
 of legal holidays), for loading or unloading, and may add such charge to all other 
 charges hereunder and hold such property subject to a lien therefor. Nothing in 
 this section shall l>e construed as lessening the time allowed by law or as setting 
 aside any local rule affecting car service or storage. 
 
 Property destineil to or taken from a station, wharf, or landing at which there 
 is no regularly appointed agent shall be entirely at risk of owner after unloaded 
 from cars or vessels or until loaded into ciirs or vessels, and when received from 
 or delivered on private or other sidings, wharves, or landings, shall be at owner's 
 risk until the cars are attached to and after they are detached from trains. 
 
 Sec. 6. No carrier will carry or be liable in any way for any documents, 
 specie, or for any articles of extraordinary value not specifically rated in the pub- 
 lished classification or tariffs, unless a special agreement to do so and a stipulated 
 value of the articles are indorsed hereon. 
 
 Sec. 7. Every party, whether principal or agent, shipping explosive or dan- 
 gerous goods, without previous full written disclosure to the carrier of their nature, 
 shall be liable for all loss or <lamage caused thereby, and such goods may be ware- 
 housed at owner's risk and expense or destroyed without compensation. 
 
 Sec. 8. The owner or consignee shall pay the freight and all other lawful 
 charges accruing on said property, and, if required, shall pay the same before de- 
 livery. If upon inspection it is ascertained that the articles shipped are not those 
 described in this bill of lading, the freight charges must be paid upon the articles 
 actually shipped. 
 
 Sec. 9. Except in case of diversion from rail to water route, which is pro- 
 vided for in section 3 hereof, if all or any part of said property is carried by water 
 over any part of said route, such water carriage shall be performed subject to the 
 liabilities, limitations, and exemptions provided by statute and to the conditions 
 contained in this bill of lading not inconsistent with such statutes or this section ; 
 and subject also to the condition that no carrier or party in possession shall" be 
 liable for any loss or damage resulting from the perils of lakes, sea, or other 
 waters ; or from explosion, bursting of boilers, breakage of shafts, or any latent 
 defect in hull, machinery, or appurtenances ; or from collision, stranding, or other 
 accidents of navigation, or from prolongation of the voyage. And any vessel 
 carrying any or all of the property herein described shall have the liberty to call 
 at intermediate ports, to tow and be towed, and assist vessels in distress, and to 
 deviate for the purpose of saving life or property. 
 
 The term " water carriage " in this section shall not be construed as including 
 lighterage across rivers or in lake or other harbors, and the liability for such 
 lighterage shall be governed by the other sections of this instrument. 
 
 "If the property is being carried under a tariff which provides that any 
 carrier or carriers party thereto shall be liable for loss from perils of the sea, then 
 as to such carrier or carriers the provisions of this section shall be modified in 
 accordance with the provisions of the tariff, which shall be treated as incorporated 
 into the conditions of this Bill of Lading." 
 
If 
 
 110 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Sec. 10. Any alteration, addition, or erasure in this bill of lading which 
 shall be made without an indorsement thereof hereon, signed by the agent of the 
 carrier issuing this bill of lading, shall be without ettect, and this bill of lading 
 shall be enforceable acconling to its original tenor. 
 
 Conditions. — Some of the more important conditions are that the 
 carrier shall not be liable for loss by : 
 
 1. Acts of God, public enemy, or quarantine. 
 
 2. The variance in the weights of seeds or cereals by shrinkage. 
 
 3. Fire, after forty-eight hours from arrival in warehouse. 
 
 4. Stoppage by riots or shipper's orders. 
 
 5. Claims after four months. 
 
 Act of June 27, 1908. — On June 27, 1908 the Interstate Commerce 
 Commission took official cognizance of bills of lading by prescribing 
 uniform forms to be used by the interstate railroads, as follows: 
 
 1. The vouchers for a " Straight " Bill of Lading to be used in 
 
 connection with " straight " shipments should consist of : 
 (a) Straight Bills of Lading. 
 (h) Original Shipping Order. 
 (<?) Memorandum (all to be printed on white paper). 
 
 2. The vouchers for an " Order " Bill of Lading to apply to 
 
 " Order " shipments should consist of : 
 (a) Original (to be printed on yellow paper). 
 (6) Shipping Order, 
 (c) Memorandum (last two to be printed on blue paper). 
 
 3. All vouchers used should be 8^ inches wide, no restrictions 
 
 being made as to length. 
 
 Distinction between Straight and Order BiU of Lading. — The dis- 
 tinction between the straight and order bill of lading is that goods 
 sent as " straight " shipment are delivered to the consignee without 
 his surrendering the original bill ; and, furthermore, this form is not 
 negotiable. 
 
 On the other hand, goods shipped on order cannot be secured by 
 the consignee without his surrender of the original bill. This form, 
 previously mentioned, is negotiable by indorsement and delivery. 
 It is in conjunction with drafts that the order bill finds its principal 
 use. An explanation will be given in a later paragraph. 
 
 Description. — By reference to the preceding cuts it will be noted 
 that the following are the more important elements of every bill of 
 lading, whether order or straight : 
 
 BILLS OF LADING 
 
 111 
 
 
 1. Receipt of goods and a descriptive list thereof; giving the 
 
 number of packages, weight, and classification. 
 
 2. Names of Shipper, Consignee, Carrier, and Shipping Agent. 
 
 3. Place and destination of shipment, together with date. 
 
 4. Freight rates and other charges and prepayments thereof. 
 Comparison of Straight and Order Bill of Lading. — As previously 
 
 stated, when goods are shipped " straight," the consignee can often 
 obtain the goods without the bill of lading, and then refuse to pay 
 the bill ; or the consignee may fail to claim the goods, in which case, 
 if perishable, they may become valueless. On the other hand, goods 
 shipped on "order" overcome these disadvantages in that the pur- 
 chaser cannot obtain the goods until the amount of the bill has been 
 collected. Where the goods are perishable, an utter loss can be pre- 
 vented by directions to the holder of the original bill to sell them 
 in open market if the consignee does not claim them within a reason- 
 able time. Or, if the goods are not perishable, the railroad may be 
 instructed to ship the goods back to the shipper. 
 
 Disposition of Vouchers. — We noted above that the Interstate 
 Commerce Commission prescribed three vouchers for both the straight 
 and order bills of lading. These vouchers are : 
 
 1. Original Bill of Lading. 
 
 2. Slapping Order. 
 
 3. Memorandum. 
 
 These are disposed of as follows : The shipping clerk of the ship- 
 per makes out the original bill of lading, at the same time making 
 carbon copies of the shipping order and memorandum which are 
 identical in form except for the diiference in the headings. The 
 original is sent to the consignee, the shipping order is retained by 
 the railroad, and the memorandum is held by the shipper. It is im- 
 portant that the shipper and consignee retain their vouchers for 
 reference, to verify the freight bills and as a basis for later entering 
 claims for loss if necessary. 
 
 " Straight " Bills. — The use of straight bills of lading needs 
 little explanation. On delivery of the goods to the railroad and 
 proper disposition of the forms, the goods are simply shipped and 
 received by the consignee without any further procedure. 
 
 Order Bill of Lading with Draft Attached. — However, the opera- 
 tion of an order bill of lading, with its usual accompaniment, a sight 
 draft, is slightly more involved. To illustrate : Suppose that Alton 
 
112 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 B. Kirk, of Philadelphia, is sending goods to James Garvin, a mer- 
 chant in Chicago. He consigns the goods to himself or to the Third 
 National Bank of Chicago (Order, Notify James Garvin) and has a 
 bill of lading made out where they are shipped, being given the 
 original order bill and the memorandum. This latter he retains, but 
 the order bill, together with a sight draft drawn on James Garvin 
 for the amount of the bill, he takes to his Philadelphia bank. They 
 advance the amount, giving him credit for it at once, and make the 
 collection for themselves ; or more commonly they take it for collec- 
 tion, credit him with the amount, and charge him for " Collection " 
 after the collection is made. The bill of lading gives the bank title 
 to the goods until they are paid for. The Philadelphia bank then 
 sends the draft, with the bill attached, to the Third National Bank 
 of Chicago, and that bank attends to the collection. It presents the 
 draft to James Garvin for collection, but does not surrender the bill 
 of lading to him (without which he cannot obtain the merchandise) 
 until the draft is paid. 
 
 
 
 CHAPTER XVIII 
 
 PARTNERSHIPS 
 
 The subject of Associations, of which Partnership is a part, is too 
 comprehensive a branch of the Law for us to investigate, except in 
 a most limited manner. We shall therefore restrict our discussion 
 to the few general facts in so far as they are necessary to an intelli- 
 gent examination of the books of a firm composed of two or more 
 members. 
 
 The Supreme Court of the State of Pennsylvania has approved 
 the following definition: 
 
 Definition. — "A partnership is a relation created by contract 
 between two or more persons to place their money, effects, labor, or 
 skill, or some or all of them in lawful commerce and divide the 
 profits between them." 
 
 Articles of Partnership. — The written instrument effecting such 
 a relation is familiarly known as "Articles of Partnership," an 
 agreement of the parties governed by the general law of Contracts. 
 It should contain the following essentials with such additional pro- 
 visions as the peculiarities of the undertaking require : 
 
 1. Date. 
 
 2. Names of Parties. 
 
 3. Term of Partnership. 
 
 4. Purpose. 
 
 6. Recitation of Assets pledged (with detailed schedule of Assets 
 attached). Disposition of Liabilities also accompanied by 
 schedule. Contribution of labor or skill. 
 
 6. Sharing of losses and division of profits. 
 
 7. Provision in case of impairment of capital. 
 
 8. Limitation of activities of the partners. 
 
 9. Withdrawals and compensation of partners. 
 
 10. Firm's name and address. 
 
 11. Limitations as to partners' signing accommodation paper or 
 
 bail or becoming guarantors or sureties. 
 
 12. Proper provision for the signing of checks. 
 
 113 
 
Tjui 
 
 r -I 
 
 . r 
 
 i i 
 
 114 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 13. Length of the fiscal year as deciding when net profits are 
 
 to be distributed. 
 
 14. Realization and Liquidation in the event of dissolution or 
 
 failure. 
 
 Kinds of Partnerships. There are two classes of Partnerships : 
 
 1. Common Law. 
 
 2. Statutory. 
 
 Liability of Partners. — The difference is the extent of liability of 
 the partners, ranging from unlimited liability in the case of the 
 "Common Law Partnerships" to various degrees of liability in 
 the case of the " Statutory Partnerships," which are regulated by 
 the Acts of Legislature of the state wherein they are created. This 
 liability, generally speaking, consists of the individual responsibility 
 of each of the partners for the entire indebtedness for the firm, and 
 " there is no convenient device whereby one may become a member 
 of the ordinary partnership and acquire a right to a share in its profits 
 and to help control its affairs, without assuming an ultimate responsi- 
 bility for its debts." 
 
 Tests of Partnership. — Although profit sharing is an excellent in- 
 dication of the character of the association of individuals, and it usu- 
 ally follows that an agreement to share profits is an earmark of an 
 existing partnership, yet it does not necessarily follow; and when in 
 doubt, the element of control — the power to shape the destinies of 
 the business — should be the determining factor. Take, for instance, 
 the following examples: 
 
 A leases a coal mine to B, agreeing to take a certain amount of 
 coal in lieu of rent. By this fact alone A does not become a part- 
 ner. 
 
 Or, again, C owns a steel plant employing a thousand men who iii 
 addition to their wages receive a share of the net profits. They do 
 not thereby become partners of the business. They are not co-pro- 
 prietors. 
 
 On the other hand, it is a well-recognized rule of law that a man 
 may not have any of the usual characteristics of a partner ; yet if he 
 holds himself out as a partner, to the injury of innocent third parties, 
 the courts may hold him liable on the failure of the firm with which 
 he allowed his name to be associated. 
 
 Purposes of Partnerships. — The formation of Partnerships has its 
 advantages in ; 
 
 PARTNERSHIPS 
 
 115 
 
 L 
 
 1. The concentration of capital for the enlargement of business 
 
 enterprise. 
 
 2. The elimination of competition. 
 
 3. The cooperation of men of widely different knowledge and 
 
 varying degrees of wealth. 
 
 Bookkeeping Records of Partnerships. — Needless to say, the keep- 
 ing of books of a partnership is in no wise different from the system 
 of accounting we have been considering, other than the fact that 
 separate Personal and Capital Accounts are kept for each partner. 
 
 The Journal, as the book of original record, should show the 
 share and contributions of each partner, and careful record should 
 be kept of all subsequent additions in cash or property. Finally, 
 proper distinctions should be made between withdrawals for salary 
 and withdrawals of anticipated profits. Whereas the former is 
 charged to an expense account, the latter is debited directly to the 
 Proprietor's Personal Account. 
 
 Proprietor's Personal Account. — The Personal Account of the 
 proprietor of the business is subordinate to the Capital Account. 
 It has for its purpose the reflecting of withdrawals (except salary) 
 taken by the Proprietor, and at the end of the year shows the 
 net profit or loss. 
 
 Its purpose is to keep these smaller items out of the Capital 
 Account, which represents his ownership in the business. 
 
 At the end of a year the net balance of the Personal Account 
 may be closed into the Capital Account, either increasing or decreas- 
 ing the proprietor's present worth. 
 
 Thus, Alton B. Kirk invests $50000.00 in a business which is 
 shown in his Capital Account. He is to take $250.00 per month 
 for salary. 
 
 Alton B. Kirk, Capital 
 
 
 
 
 1913 
 
 Jan. 
 
 1 
 
 50000 
 
 00 
 
 As Kirk takes the $250.00 for salary each month, the entry is : 
 Expense (or salary) $250.00 
 
 Cash 
 
 $250.00 
 

 Mf 
 
 116 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Suppose at the end of a month Mr. Kirk does not need the money 
 and gives instructions that it is to be credited to his .account. 
 This is recorded by the entry : 
 
 Expense (or salary^ 
 
 Alton B. Kirk, Personal 
 
 » 250. 00 
 
 i 250.00 
 
 This is the method very commonly used, the entry being made 
 monthly or weekly, and as the proprietor needs cash he draws out 
 what he needs and charges it to his Personal Account. 
 
 At the end of six months, Alton H. Kirk's Personal Account 
 appears as follows : 
 
 Alton B. Kirk, Personal 
 
 May 
 
 1 
 
 C 
 
 1 
 
 1200 
 
 00 
 
 Feb. 
 
 
 J 
 
 1 
 
 250 
 
 00 
 
 June 
 
 1 
 
 
 
 800 
 
 00 
 
 Mar. 
 Apr. 
 May 
 June 
 July 
 
 
 
 
 
 3 
 4 
 
 6 
 
 8 
 
 250 
 250 
 250 
 250 
 250 
 
 00 
 00 
 00 
 00 
 00 
 
 Thus, we see that Kirk has drawn more than his salary, which 
 excess may be looked on as an amount he is going to repay by allow- 
 ing his salary to cancel it; or it can be regarded as anticipated 
 profits withdrawn, as it is considered here. 
 
 Suppose the Profit and Loss Account shows a profit for the six 
 months of f 1300. 00. This we can close into the Personal Account 
 by the entry : 
 
 Profit and Loss 
 
 Alton B. Kirk, Personal 
 
 11300.00 
 
 $1300.00 
 
 After posting this item to the Personal Account, there is a credit 
 balance of $800.00, showing that the total amount withdrawn by 
 Kirk is iJ 800.00 less than the sum of his salary and profits together. 
 He now has the privilege of drawing this 1800.00, or closing it into 
 his Capital Account, thereby increasing his present worth ; or again, 
 he may leave this balance in his Personal Account to cancel subse- 
 quent withdrawals. 
 
 The entries for the first two instances are : 
 
 PARTNERSHIPS 
 
 117 
 
 1. Alton B. Kirk, Personal 1800.00 
 
 Cash 8800.00 
 
 2. Alton B. Kirk, Personal $800.00 
 
 Alton B. Kirk, Capital $800.00 
 
 Closing the balance of Personal Account into Capital Account 
 is adopted throughout the illustrations, and is desired in the prob- 
 lems. 
 
CHAPTER XIX 
 
 A BANK ACCOUNT 
 
 From 90 to 95 % of the world's business is done on credit and 
 by means of credit instruments, largely checks. In fact, the use of 
 checks has become so general, and is such a convenience, as to be a 
 necessity to even the smallest business man. 
 
 Check Account. — A check account, or bank account, is the 
 relation an individual has with a bank, representing that he deposits 
 money with it, and has the privilege of drawing checks against the 
 money so deposited. 
 
 Checks. — A check is a written order, signed by the drawer, 
 requesting his bank to pay to the order of a second party or bearer 
 a certain sum of money on demand. 
 
 Advantages of a Bank Account. — The advantages obtained by 
 being a depositor in a bank are as follows : 
 
 1. A bank is a safer place in which to keep money than a safe 
 
 or a cash drawer. 
 
 2. It permits the use of checks, which in turn 
 (a) Facilitate the payment of bills. 
 
 (6) Act as receipts for the bills paid. 
 
 3. Provides a means for collecting checks, notes, drafts, etc., 
 
 that may come into the depositor's possession. 
 
 4. The bank, knowing the depositor to have a good account, is 
 
 more apt to consider a loan or discount. 
 Banks are, naturally, careful in their selection of depositors, but 
 they are always ready to open an account with a customer, provided 
 he is reputable and honest. 
 
 How to open a Bank Account. — The procedure in opening a 
 bank account is as follows : 
 1. To be introduced 
 
 (a) by some person recognized by the bank, or 
 (5) by another depositor, or 
 (c) by an officer of the bank. 
 
 118 
 
 A BANK ACCOUNT 
 
 119 
 
 The reason for the introduction is that the banks desire only 
 depositors who keep a desirable balance in bank, and who do not 
 overdraw their accounts ; and, further, they want to know the de- 
 positor's sponsor, as it may be a further recommendation in case he 
 desires to borrow. 
 
 DEPOSITED WITH 
 PRODUCE NATIONAL BANK 
 
 2. The depositor and sponsor must sign a card, giving their 
 
 addresses. 
 
 This is for the A Deposit SUp 
 
 bank's rec- 
 ords. 
 
 3. The depositor is 
 also requested 
 to sign an- 
 
 other card, as 
 a record for 
 the identifica- 
 tion of his 
 signature on 
 checks drawn 
 in the future. 
 
 The "signature 
 card" is kept near the 
 paying teller in the 
 bank for reference in 
 case of a doubtful sig- 
 nature. 
 
 Assuming that the 
 prospective depositor 
 has been accepted by 
 the bank, through its 
 officers in charge (very 
 often the cashier or an 
 assistant cashier), he is 
 now given : 
 
 By. 
 
 Philadelphia, 
 
 191 
 
 Si)ecie 
 Bills 
 
 Checks, as follows (enter 
 singly). 
 
 (If in city, name of bank ; 
 if out of city, name of 
 place where payable.) 
 
 Total 
 
 Dollars 
 
 Cents 
 
 1. Deposit Tickets. 
 
 2. Pass Book. 
 
 3. Check Book. 
 
 4. Coupon Envelopes. 
 
: I 
 
 
 120 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Deposit Slips. — The deposit tickets, or deposit slips, are sheets 
 specially designed by banks on which the details of a deposit are 
 listed. An illustration of a deposit slip is given on the preceding 
 page. The precise form used by one bank will naturally differ from 
 that of another, but the general divisions are the same. 
 
 Bank Deposits. — In making a deposit, it is customary to place 
 the amount of money in coin opposite the first heading, marked 
 "Specie," and the amount of money in bills opposite the second 
 heading, " Bills." 
 
 Next comes the heading " Checks," under which each check is 
 listed separately, city checks being placed first on the list ; and the 
 
 Back of Previous Stub 
 
 Stub of Page Opposite 
 
 
 
 j/f€?€? 
 
 4^Z 
 
 
 e4^isL 
 
 
 -r^u ^^^ 
 
 (^^^ 
 
 
 ^tzcii^<,^/ ><i^^^^ 
 
 ©^ 
 
 x^s 
 
 J 
 
 ^-^-frf/.?>^^ 
 
 \//^iAd^ >^ ^^^m-r^/ 
 
 JZ<>o 
 
 3ee 
 
 \ 
 
 
 name of the bank on which each check is drawn being usually given. 
 After the city checks come checks drawn on banks in other cities, 
 which are designated by the name of the city in which the banks are 
 located. Other forms of deposit slips are found in use, but the prin- 
 ciple is identical in all. 
 
 A BANK ACCOUNT 
 
 121 
 
 Pass Book. — The pass book is a receipt book, in which, when a 
 deposit is made, the receiving teller of the bank records the date 
 and the amount of the deposit. This serves as a receipt to the 
 depositor. Another use of the pass book, but one that is being sup- 
 planted, is to express the figures of the bank settlement. The de- 
 posits are added when the book is left for settlement, and from the 
 total are subtracted the checks which have been honored by the 
 bank. These checks are now returned to the depositor. The bal- 
 ance represents the amount which the bank has credited to the 
 depositor's account. This amount does not necessarily equal the 
 balance shown by the depositor's check book. A system by which 
 
 Sample Page from a Check Book 
 
 l^UI</> 
 
 j Q< 
 Izos 
 
 
 !Z02 
 
 i< ^ 
 I 
 
 I o< 
 •zoz 
 
 'P8F- 
 
 ^^^X- 
 
 ^^^J> 
 
 ^roliurr^ional^ank 
 
 ^y^^^^ ^ >^^,^»<,^*^.g.<q^ 
 
 ^=M^u< 
 
 ^jG&i 
 
 Cil/r^yS^<!i:,Ji< 
 
 
 ^^^a^^^^^0^a^^^f^^ 
 
 (^^^ZC^ 
 
 ^il/^^y(9. y(^i^ 
 
 the bank mails monthly to the depositor a statement with the honored 
 checks inclosed is supplanting the use of the pass books in settle- 
 ment. On the statement are shown individual deposits, from the 
 total of which the sum of the honored checks is subtracted, and the 
 balance is the amount then on deposit. This method is better both 
 

 122 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 for the depositor and the hank, since the depositor's check book is 
 balanced at least monthly, and thus his account is kept in closer 
 accord with the bank's record. 
 
 Check Book. — The check l)0()k is a hook given by the bank to 
 a depositor. It contains a number of blank checks with correspond- 
 ing stubs, and from it checks are issued by the depositor, and a dupli- 
 cate record of each check kept on the corresponding stub. 
 
 In the handling of a check book great care should be taken, and 
 the following principles should be observed in connection with each 
 check issued : 
 
 1. It should contain the date on which it was issued. 
 
 2. It should contain the number of the check itself. (Very 
 
 important, if it is desired to stop payment on a check.) 
 
 3. It should be drawn to the order of the party desired (payee), 
 
 whose name should be carefully spelled to prevent the 
 possibility of further trouble. It is common for checks 
 to be drawn to "Cash," or " Bearer"; but this is a dan- 
 gerous practice, as the check may be lost, and is valid in 
 the hands of the finder. 
 
 4. The amount of the check is both written in the body of the 
 
 check and placed in figures in the corner. Too great care 
 cannot be taken in writing in the amount. It should 
 commence at the extreme left of the check, and if the 
 entire line is not used, the balance should be cancelled, as 
 by the lines in the foregoing illustrations. This is to 
 prevent " raising " by the payee or any other party into 
 whose hands the check may fall ; for when the written 
 amount and the amount written in figures differ, the 
 written amount is taken as correct. 
 6. The signature of the drawer should always be the same, as 
 the banks will refuse payment on checks improperly 
 signed. 
 Indorsement of Checks. — Checks, like other negotiable instru- 
 ments, may be transferred by the payee to any other party by 
 indorsement, but the customary indorsements are to the bank of 
 deposit of the payee. The three forms which follow are common 
 for such indorsements: 
 
 1. Indorsement in blank, being merely the signature of the 
 payee. 
 
 Alton B. Kirk. 
 
 A BANK ACCOUNT 123 
 
 2. Special indorsement. 
 
 Pay to the order of the 
 Commercial National Bank, 
 
 Alton B. Kirk. 
 
 3. Or, 
 
 For deposit only, 
 
 Alton B. Kirk. 
 
 Stubs of Check Book. — As shown in the illustration the amount 
 of the clieck is also placed on its corresponding stub, and as a page 
 of the book is used, the several amounts on the stub are added. 
 This amount is subtracted from the sum of the deposits, which have 
 been previously listed on the back of the stub, as illustrated. 
 
 Bank Reconcilement. — When there is a bank settlement, either 
 by having the pass book settled at bank, or receiving from the bank 
 a monthly statement of the account, the balance as shown in the 
 check book should be immediately compared with that shown by the 
 bank. This should be done preferably on the back of the stubs in 
 the check book opposite the day of settlement, or on a separate sheet 
 subsequently to be pasted in the check book. The process is as \^ 
 follows : First, on the back of the stub, the total deposits are ascer- 
 tained as in the illustration, $4800.42; then the checks are totaled 
 on the stub, $1000.00. The bank's settlement is now examined to 
 see if any interest has been allowed, and, if so, this is added to the 
 deposits. At the same time, if any item has been charged, such as ( 
 for the collection on notes or drafts, or interest on loans, etc., it is ', 
 added to the total of the checks issued. To continue the illustration, 
 suppose f 25.00 has been allowed by the bank for interest on deposit, 
 and #75.00 interest on a loan to the depositor has been deducted. 
 To the $25.00 interest is added the amount of deposits, making 
 $4825.42, and the $75.00 is added to the total of checks issued, 
 making $1075.00. The difference between these two is the check ( 
 book balance, which seemingly should equal the balance shown by 
 the bank; this, however, is seldom true, particularly where a number 
 of checks have been issued just prior to settlement. It must be ' 
 remembered that in balancing the check-^book, every check issued to 
 the date of the settlement has been deducted, while naturally the ' 
 bank has counted only the checks presented to it for payment. 
 Hence, if there are still any checks unpaid, the sum of such unpaid 
 checks is the difference between the two balances, and, as in the 
 check book balance these unpaid checks have been deducted, and, as / 
 
124 A FIRST YEAR IN BOOKKEEPLXG AXD ACCOUNTING 
 
 they have not been in the bank balance, this figure is necessaril)^ 
 greater than the cheek book balance by that amount. To prove 
 this, the checks returned by the bank are numerically arranged and 
 compared with the stubs of the check book to see if any are missing. 
 Such missing checks are listed with the number and amount of each 
 and totaled. This total is now subtracted from the bank balance, 
 and the result is equal to the check book balance. 
 To continue our illustration : 
 
 Deposits 
 Interest to 7/3/13 
 
 Less 
 
 Total checks 
 
 $1000.00 
 and 
 
 Int. on 
 
 loan 75.00 
 
 Balance 
 The bank shows a balance of 
 
 A list of the checks outstanding shows : 
 
 Check No. 223 
 Check No. 236 
 Check No. 237 
 Check No. 251 
 Check No. 253 
 
 The check book balance, therefore, is 
 
 $ 4800.42 
 25.00 
 1^4825.42 
 
 A BANK ACCOUNT 
 
 125 
 
 1075.00 
 
 i 3750.42 
 
 $4200.42 
 
 i 100.00 
 
 50.00 
 
 75.00 
 
 25.00 
 
 200.00 
 
 $450.00 450.00 
 
 $3750.42 
 
 INCLOSE BUT ONE KIND OF COUPON HEREIN 
 
 Coupon Envelopes. —A coupon envelope, given a depositor by 
 a bank, is merely a small printed envelope in which to place coupons 
 when making deposits. 
 
 A coupon is an interest note attached to a bond, and when the 
 interest is due, it is clipped from the bond and deposited, and later 
 collected by the bank from the corporation issuing the bond. 
 
 An illustration of a coupon envelope is shown on the opposite 
 
 page. 
 
 PROBLEM 36 
 
 Bank Reconcilement 
 
 On Aug. 31, J. M. Willis' check book reveals a balance of 
 
 $10346.61. 
 
 In comparing his balance with that shown by the bank, Willis dis- 
 covers that he failed to record a deposit of 1760.39 on Aug. 20, 
 and that a check issued on Aug. 29 to the amount of $48.76 had 
 been listed on the stub as $47.76. In addition, the bank has given 
 him 180.36 interest, on deposits, and this amount has not as yet been 
 entered by him in his check book. 
 
 The bank's settlement presents Willis' balance as being 
 $12386.46. 
 
 What is the total of the checks drawn by Mr. Willis which have 
 not as yet been presented to the bank for payment ? 
 
CHAPTER XX 
 
 SHIPMENTS AND CONSIGNMENTS 
 
 Very often the business man in looking over the markets in 
 which to dispose of his goods finds that markets far removed from 
 his field of business offer far better prices. If the margin of profit 
 in the local market is small, and if the other markets offer better 
 inducements than his, it is but natural that he consider the sale of 
 his goods at the place where they will bring the greatest return. 
 
 On the other hand, there are certain classes of men who seldom 
 desire to sell their goods outright at wholesale prices, but who pre- 
 fer to place their goods for sale at the market offering the greatest 
 return and to take the chance of greater profits. Many farmers in 
 disposing of their products act in this manner. To either or both 
 of the above classes of men the shipment on account is possible. 
 
 Definitioii. — A shipment is a quantity of goods sent by one 
 business house to another, not as a sale, but to be sold for the 
 account of the shipper. When regarded from the point of view of 
 the receiver of the goods, the shipment is called a consignment. 
 
 Thus we see that shipments and consignments are identical, the 
 distinction being the standpoint from which they are regarded. 
 
 The definition also brings out the fact that shipments and con- 
 signments are not sales and purchases, and that title to the goods 
 remains in the shipper until sold, the receiver (consignee) acting 
 merely as his agent. The question may be raised as to how a local 
 dealer knows the current prices in otiier markets. He has several 
 sources of information in the trade papers and journals and through 
 daily market reports issued by the larger liouses and distributed to 
 customers and producers who ship on account. Thus, if a man has 
 goods for sale in a local market and is not satisfied with prices, he 
 has the option of storing his goods and waiting for better local 
 prices, or shipping them to better markets. To store his goods 
 means expense and the loss of so much capital while the goods are 
 stored, unless he has his own warehouse, so the results of either plan 
 must be measured. If the man decides to ship on account, he chooses 
 
 126 
 
 SHIPMENTS AND CONSIGNMENTS 
 
 127 
 
 a consignee whose reputation is unquestioned and who has good 
 business ability. Such a consignee is found either from satisfactory 
 shipments made to him previously, from inquiry within the trade, or 
 from the commercial agencies, from whom a report on his capital and 
 credit standing may be obtained. 
 
 Since the consignee is but the agent of the shipper and does not 
 own the goods, and since the ownership remains with the shipper, 
 the consignee cannot be held responsible for any definite value until 
 he has sold the goods to a third party. After such a sale the shipper 
 cannot recover the goods, but he can hold the consignee responsible 
 for their value. Hence, any goods out on shipment are to be con- 
 sidered a part of the inventory of the shipper until such time as he 
 knows the consignee has sold them and has thus become responsible. 
 
 Shipments 
 
 Shipment Memorandum. — When a quantity of goods is sent out 
 as a shipment, notice must be sent to the consignee. This notice 
 takes the form of a letter or a regular " Shipment Memo." blank ; 
 but either form may be used, provided such notice contains the 
 following: 
 
 1. Date of Shipment. 
 
 2. Quantity and description of Shipment. 
 
 3. Instructions as to methods of selling. 
 
 4. For whose account Shipment is to be sold. 
 
 The date, the quantity, and description are essential, so that the 
 consignee may know when to expect the goods, etc.; for in the 
 event of their being a standard grade, he may sell them before 
 arrival. The instructions as to selling may be omitted, in which 
 case the consignee sells at the best possible price. The cost price 
 to the shipper may be mentioned merely to give the consignee an 
 idea of the price he must ask in order to yield a profit ; or the shipper 
 may give a minimum price, below which the consignee is not to sell. 
 Naturally the name of the shipper must be given. 
 
 Upon receipt of the goods, in order to prevent any liability on 
 his part due to negligence, the consignee must take ordinary care 
 of the goods. This may include counting, storing, and insuring 
 them. It is to his advantage to obtain the highest possible price 
 for the goods, as his return is a commission, usually taken on the 
 gross amount of sales. 
 
I 
 I 
 
 128 A FIRST YEAR IN 
 
 'KKEEPING AND ACCOUNTING 
 
 Commission. — Commission is an allowance paid to an agent as 
 his return for conducting a business transaction. It is usually a 
 percentage of the total value of the transaction. 
 
 A consignee must keep a separate record of each consignment, 
 as in making return he will have to show the sales and expenses, 
 which in addition to his commission may include labor, cartage, 
 freight, storage, insurance, etc. When a consignment has been sold, 
 the consignee makes out what is known as an account sales and 
 sends it to the shipper. 
 
 Account Sales. — An account sales is a statement of the sale or 
 disposition of a particular shipment, giving details of sales and ex- 
 penses made out by a consignee and sent to the shipper. 
 
 Consignees usually have an " Account Sales Book " consisting of 
 two copies, the original account sales, and a stub for each. It is 
 customary for them to contain the following : 
 
 1. The total goods received. 
 
 2. The details of sales. 
 
 3. The details of charges and expenses. 
 
 4. The terms of settlement : 
 (a) by check. 
 
 (ft) by note or draft. 
 
 (c) proceeds due in 30 or 60 days, etc. 
 
 Thus the account sales gives the shipper a complete history of 
 his shipment from the time the consignee receives it to the time it 
 is sold, and, further, gives him a list of all charges aud expenses. 
 By the " terms of settlement " is meant the manner in which the 
 consignee is to remit the proceeds. If he sells the goods for cash, he 
 sends his check. Since he usually sells to his own customers and 
 has to await payment from them for 30 or 60 days, he may send 
 the shipper his note or merely state that the proceeds will follow in 
 a given number of days. 
 
 When the consignee forwards an account sales to the shipper, he 
 acknowledges the sale of the goods and his liability to the shipper. 
 If he does not satisfy this liability at the same time by sending his 
 check or note, he must open an account with the shipper, who is 
 now a creditor; and the shipper on receipt of the account sales 
 must open an account with the consignee, who is now a debtor. 
 
 In practice the consignee seldom awaits the sending of the account 
 sales to the shipper to notify him of the sale of his goods, but upon 
 
 SHIPMENTS AND CONSIGNMENTS 
 
 Account Sales 
 
 129 
 
 No. 
 
 Of Merchandise Received 
 
 dltan IS. /Clvk 
 
 fidy 2, f^/3. 
 
 From. 
 
 To be sold on Commission by. 
 
 ^a/y)ve^ ^oAA^-vn, 
 
 Date 
 
 DMcription 
 
 500 bx. Oranges 
 
 @ $2.80 
 
 Remarks 
 
 Settled : Check herewith 
 
 Freight 
 
 Drayage 
 
 Commission 
 
 Storage 
 
 Insurance 
 
 Advertising 
 
 Cooperage 
 
 
 40 
 
 10 
 
 140 
 
 10 
 
 ♦ In red ink. 
 
 00 
 00 
 00 
 00 
 
 Amount 
 
 1400 
 
 1400 
 
 200 
 
 1200 
 
 00 
 
 00 
 
 00 
 
 00* 
 
 / 
 
I 
 
 130 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 the sale of all, or a part, writes or telegraphs a record of such sale. 
 This is particularly true when the sale has been made at a favorable 
 sum and the consignee desires to please the shipper in order that he 
 may receive further consignments. Selling on commission is profit- 
 able to the consignee, as he has no capital represented in the goods, 
 stands no chance of losing, and will make his commission even 
 though the shipper lose considerable money. 
 
 Recording of Shipments on the Books. — We shall consider two 
 methods of recording shipments. In the first we shall use a Ship- 
 ment Account. Since the goods are not sold, we cannot debit the 
 consignee, and furthermore we do not know the amount with which 
 to charge him until we have received the account sales. In order, 
 then, to avoid this difficulty, and at the same time show a shipment 
 on the books, we debit an account called " Shipment " (to the par- 
 ticular consignee). 
 
 Illustration. — On July 1, Alton B. Kirk shipped to James Garvin 
 500 boxes of oranges, costing him $2.00 per box. The entry for 
 this in the Sales Book is as follows : 
 
 Sales Book 
 
 July 1, 1913 
 
 Shipment to James Garvin ^1 
 
 1000 
 
 00 
 
 Thus, Shipment Account assumes the responsibility for the goods, 
 and it is seen that the account also contains the name of the con- 
 signee, showing who has custody of the goods. This particular 
 account is also designated '^ # 1," since every shipment, even those 
 to the same consignee, has a separate account, in order to show the 
 profit or loss on each. 
 
 To continue : On the same day Mr. Kirk has to pay *50.00 for 
 carting this shipment of oranges to the depot. The entry for this, 
 on the credit side of the Cash Book, is as follows : 
 
 Shipment to James Garvin jf 1 
 Cash 
 
 $50.00 
 
 $50.00 
 
 SHIPMENTS AND CONSIGNMENTS 
 
 131 
 
 (The above Cash Book entry is given in the form of a Journal 
 entry to bring out more clearly the debit and credit.) 
 
 Thus, a shipment is charged with its expenses. 
 
 On July 10 an account sales is received from James Garvin show- 
 ing net proceeds of $1200.00 after all his expenses and charges have 
 been deducted. 
 
 (1) If a check is received with the account sales, the Cash Book 
 
 entry is : 
 
 Cash $1200.00 
 
 Shipment to James Garvin # 1 $1200.00 
 
 (2) If a note is received, the Journal entry is : 
 
 Notes Receivable $1200.00 
 
 Shipment to James Garvin # 1 $1200.00 
 
 (3) If the account sales merely states, " Proceeds to follow in 30 
 
 or 60 days," the Journal entry is : 
 
 James Garvin $1200.00 
 
 Shipment to James Garvin # 1 $1200.00 
 
 This last entry is made to register against James Garvin the 
 $1200.00 for which he is responsible. This debt is acknowledged 
 in the account sales, although a written acknowledgment in this form 
 is never considered a note. 
 
 If any one of the three methods of making settlement is used, the 
 Shipment Account is closed, as upon the receipt of the account sales 
 we either receive payment or know positively the amount the con- 
 signee owes. 
 
 The Shipment Account now appears : 
 
 Shipment to James Garvin §1 
 
 1918 
 
 
 
 
 
 
 1913 
 
 
 
 
 
 
 July 
 
 1 
 1 
 
 S 
 C 
 
 
 1000 
 50 
 
 00 
 00 
 
 July 
 
 10 
 
 C 
 
 
 1200 
 
 00 
 
 This shows that the shipment cost $1050.00 and produced 
 $1200.00 ; hence a gain of $ 150.00 is to be taken to Profit and Loss 
 Account in closing. 
 
132 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Shipments not Returned. — On the other hand, if at the time of 
 closing the books, no return or account sales has been received for 
 a shipment, it must not be considered a loss. Such a shipment must 
 be considered an asset, as the goods still belong to the shipper and 
 should be counted a part of his inventory. 
 
 Rules for First Method. — We can now reduce this system to 
 the following two rules : 
 
 1. Charge the shipment with the cost of the goods and all ex- 
 
 penses incidental to making the shipment. 
 
 2. Credit the shipment upon receipt of the account sales and 
 
 debit Cash, Notes Receivable, or the consignee, according 
 to the return made. 
 
 Objections to First Method. — This method of handling shipments 
 has several important objections. It records the shipment in the 
 Sales Book at a time when it is not a sale, thus improperly increas- 
 ing the sales of a certain period, and recording the sale at the cost 
 price, when the proceeds from the shipment is the real sale price. 
 Further, a shipment not accounted for is still the property of the 
 shipper, and should be counted as a part of his inventory, a plan 
 which cannot be followed in this method. 
 
 Second Method. — A system which overcomes these objections 
 and which at the same time is more comprehensive and generally 
 applicable, is one which requires an auxiliary book known as the 
 "Shipment Book" or "Shipment Ledger." Its form is greatly 
 varied, but it is sufficient if it includes the quantities and values of 
 goods shipped and all expenses paid by the shipper. It is usually 
 a loose leaf book so that shipments accounted for may be taken out 
 and tiled. When a shipment is sent out, no entry is made on the 
 regular books, but all the necessary information is registered on a 
 separate page of the Shipment Ledger. 
 
 Expenses, such as prepaid freight, cartage, etc., are charged direct 
 to Merchandise or to Cartage or Freight in the Cash Book, and a 
 memorandum is made in the Shipment Ledger. Only upon the re- 
 ceipt of the account sales are the goods considered sold, and an entry 
 is made in the Sales Book, debiting the consignee and crediting 
 Merchandise. If the consignee has sent his check or a note with 
 the account sales, a Cash Book or Journal entry is immediately 
 made, debiting Cash or Notes Receivable and crediting the con- 
 signee. 
 
 We now turn to the Shipment Ledger, and on the page represent- 
 
 SHIPMENTS AND CONSIGNMENTS 
 
 133 
 
 ing the shipment we register the amount of the proceeds, figure the 
 profit or loss, take the page out of the book, and file for future 
 reference. The profit or loss so figured is purely auxiliary and 
 does not affect our regular books, as the profit there is registered 
 through the credit to Merchandise in the Sales Book. 
 
 This system not only permits of unlimited shipments being easily 
 handled, but it overcomes the objection to the first method. It 
 further saves our regular Ledger from being flooded with various 
 Shipment Accounts. 
 
 Illustration. — To illustrate by the transactions previously taken : 
 
 1. When the goods are shipped to James Garvin, the only record 
 made is in the Shipment Ledger. 
 
 Upon the payment of $50.00 cash for carting the goods a Cash 
 Book entry is made, debiting Merchandise or Cartage and crediting 
 Cash, and a memorandum is made in the Shipment Ledger. 
 
 When the Account Sales for $1200.00 is received, a Sales Book 
 entry is made, debiting James Garvin for the merchandise sold. 
 If cash or a note is received at the same time, James Garvin's 
 Account is immediately closed by debiting Cash or Notes Receivable, 
 and crediting James Garvin. 
 
 This method is even simpler than the first. It keeps an adequate 
 record through the auxiliary Shipment Ledger of what goods are out 
 on shipment and of the various consignees. Furthermore, in taking 
 an inventory, in addition to the goods actually on hand, reference is 
 had to the amount in the Shipment Ledger, thereby revealing the 
 true amount of inventory. 
 
 The following illustration shows a page of the Shipment Ledger : 
 
 Alton B. Kirk Company 
 
 Kg. 
 
 Shipped to 
 
 James Garvin, 
 Via P. R.R., Car 71245 Chicago, 111. 
 
 July 1, 1913. 
 
 July 
 
 10 
 
 500 bu. Potatoes 
 
 Account Sales 
 
 • In red ink. 
 
 Packing 
 Cartage 
 Freight 
 Gain* 
 
 @$.60 
 
 300 
 
 00 
 
 
 15 
 
 00 
 
 
 75 
 
 00 
 
 
 110 
 
 00* 
 
 500 
 
 500 
 
 00 
 
 500 
 
 1 
 
 00 
 
 00 
 
I 
 
 I 
 
 134 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Consignments 
 
 Handling of Consignments. — Upon receipt of a consignment a 
 consignee makes no entry upon his principal books, as he may not 
 know the value of the goods and would have no amounts for an 
 entry. He records, however, tlie receipt of the goods upon a stub 
 in the Account Sales Book, from which he eventually sends an 
 account sales to the shipper. 
 
 Any expenditures he may have for this consignment, such as 
 special labor, insurance, storage, cooperage of barrels, etc., he 
 charges direct to the consignment, thereby o{)ening an account in 
 the Ledger for each consignment. When the goods are sold, the 
 consignee debits cash ; or if sold on account, he debits the pur- 
 chaser and credits the consignment. 
 
 After the goods are sold the consignee takes his return (commis- 
 sion) by reducing the credit balance of the Consignment Account, 
 debiting the consignment with a percentage of the gross sales, and 
 crediting Commission, a nominal account (a gain in this case). 
 
 The Consignment Account is now debited with all expenses, in- 
 cluding the commission, and credited with the selling price. The 
 balance must be the amount due the shipper (consignor). 
 
 Illustration. — Henry Brown ships to Alton B. Kirk 400 boxes of 
 oranges to be sold for his account. 
 
 Alton B. Kirk, upon receipt of the goods, makes the record only 
 upon the stub of his Account Sales Book. He stores the oranges 
 for a week, paying $16.00 to the Storage Co., the entry in the Cash 
 Book being : 
 
 Henry Brown's Consignment ^ 1 
 Cash 
 
 $16.00 
 
 1116.00 
 
 The oranges are sold at $4.00 per box. If sold for cash, the 
 entry in the Cash Book is : 
 
 Cash $1600.00 
 
 Henry Brown's Consignment # 1 $1600.00 
 
 If sold on account, the entry in the Journal is : 
 
 The Purchaser $1600.00 
 
 Henry Brown's Consignment # 1 $1600.00 
 
 As the goods are all sold, Alton B. Kirk can take his commission of 
 10 %. The entry in the Journal is : 
 
 SHIPMENTS AND CONSIGNMENTS 
 
 135 
 
 Henry Brown's Consignment § 1 
 Commission 
 
 $160.00 
 
 $160.00 
 
 An analysis of the last two entries clearly illustrates how Com- 
 mission Account in this case is a gain. The first entry, by crediting 
 Consignment Account with the sale, creates a liability or debt to 
 this account; and the second entry, by debiting the Consignment 
 Account with $160.00, reduces the debt to that extent, and hence 
 is a gain, expressed through the credit entry to Commission. 
 
 The Consignment Account in the Ledger now appears : 
 
 Heniy Brown's Consignment §1 
 
 1918 
 
 
 
 
 
 
 1918 
 
 
 
 
 
 
 July 
 
 1 
 
 9 
 
 Storage. 
 Commission 
 
 
 16 
 160 
 
 QO 
 00 
 
 July 
 
 9 
 
 Sales 
 
 
 1600 
 
 00 
 
 The balance, $1424.00, represents a debt to Henry Brown, and 
 if liquidated immediately, the entry in the Cash Book is : 
 
 Henry Brown's Consignment #1 $1424.00 
 
 Cash $1424.00 
 
 If not liquidated at once, but an account sales is rendered, stating 
 that the proceeds will follow in 30 days, the entry in the Journal is : 
 
 Henry Brown's Consignment #1 $1424.00 
 
 Henry Brown $1424.00 
 
 This is a positive debt of the amount due Henry Brown as 
 acknowledged in the, account sales. 
 
 At the time either of the last two entries is made, Alton B. 
 Kirk completes the stub and original in his Account Sales Books, 
 detaches the latter, and forwards it to the consignor, Henry Brown. 
 We may now formulate two rules for the handling of consignments, 
 as follows: 
 
 RULES 
 
 1. Debit the consignment with all expenses, commission, and 
 
 the net proceeds. 
 
 2. Credit the consignment with the amount of sales. 
 

 
 
 I 
 
 CHAPTER XXI 
 
 DEPRECIATION, RESERVES, AND ACCRUALS 
 
 The assertion was made before that though the Trial Balance is 
 a basis of the Six-Column Statement, yet being but a reflex of the 
 Ledger, it is insufficient in determining the present worth or profits 
 or losses of a business. It is necessary to have recourse to certain 
 "supplementary facts" not to be found in the books themselves. 
 The only " supplementary fact " with which we have dealt to date 
 has been the inventory of merchandise. This we have seen to be 
 the actual value taken at the cost price of the merchandise on hand. 
 Likewise, the actual value is taken of any of the assets of our busi- 
 ness; and it is by means of the Depreciation, Reserve, and Accrual 
 Accounts that the true " worth " of a business is correctly ascertained 
 and recorded in the books. 
 
 Depreciation 
 
 Definitioii of Depreciation. — Depreciation may be said to be the 
 
 shrinkage in the value of an asset as a result of its use and enjoyment. 
 
 Causes of Depreciation. — This depreciation in an asset may be 
 
 caused by: 
 
 1. Its use. (The operation of a machine.) 
 
 2. Mere lapse of time. 
 
 3. Replacement because of having outlived its usefulness. 
 
 4. Natural causes, such as fire and flood. 
 
 It stands to reason that it is short-sighted on the part of the 
 proprietor to consider his assets of stable value, and so list them, for 
 there comes a day of reckoning when certain assets must of necessity 
 wear out and become utterly valueless so as to make it imperative 
 that they be replaced. This may require the outlay of considerable 
 cash in perhaps an already poor year, so that the books for that 
 period, instead of showing a profit, may show a loss. The goal con- 
 stantly striven for in modern business is to have the books show a 
 rising scale of profits, instead of reaching the summits of prosperity 
 
 136 
 
 DEPRECIATION, RESERVES, AND ACCRUALS 
 
 137 
 
 one year and dropping to the depths of financial embarrassment the 
 next. For this reason a management familiar with Recounts and the 
 story they tell insists that depreciation of assets be considered every 
 fiscal period, in order that the inevitable loss of the asset (if it be of 
 a destructible nature) be allocated over a period of years approxi- 
 mating the expected life of the asset, rather than burden any one 
 year with the entire cost. 
 
 Methods of Determining Depreciation. — There are several meth- 
 ods of determining the annual amount of depreciation, but for our 
 purposes the following is sufficient. 
 
 Take for example a machine costing f 1000.00, which, by taking 
 into consideration its proper maintenance and repair, will be worth- 
 less at the end of ten years. The depreciation can then be computed 
 on a 10 % basis for ten years. Our entry on closing the books for 
 the first year is : 
 
 Depreciation of Machinery $100.00 
 
 Machinery $100.00 
 
 Depreciation charged to Machinery 
 
 "Depreciation of Machinery" is a nominal account explaining 
 the decrease in value of an asset, and is debited because it is respon- 
 sible for such loss. 
 
 It is sometimes customary to open a general " Depreciation Ac- 
 count " instead of a separate one for each asset. In that event all 
 depreciations are charged to this one account, and the various assets 
 are credited for the respective amounts. 
 
 These accounts would in turn be closed into Profit and Loss in 
 each instance ; thus : 
 
 Profit and Loss $100.00 
 
 Depreciation of Machinery $100.00 
 
 or 
 
 Profit and Loss $ 100. 00 
 
 Depreciation $ 100. 00 
 
 After posting the Machinery Account in the Ledger, it appears 
 as follows : 
 
 Machinery 
 
 1000 
 
 00 
 
 Balance 
 
 * In red ink. 
 
 100 
 900 
 
 00 
 00 
 
138 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 The true value of the machine thus appears in the account and 
 
 on the Balance Sheet. At the end of the second year the account 
 
 stands : », , . 
 
 Machinery 
 
 1000 
 
 1000 
 
 900 
 
 900 
 
 800 
 
 00 
 
 00 
 
 00 
 
 00 
 
 00 
 
 Balance ♦ 
 
 Balance ♦ 
 
 • In red ink. 
 
 100 
 900 
 
 1000 
 
 100 
 
 800 
 
 900 
 
 00 
 00* 
 
 00 
 
 00 
 
 00^ 
 
 00 
 
 While this is a possible method of recording depreciation, it is 
 not well favored, as " writing down " assets is not considered good 
 accounting practice. There are occasions when it is important that 
 the cost of an asset should appear as the balance of the account ; as, 
 for instance, in the case of an adjustment for a fire loss. How then 
 shall we consider this depreciation on our books ? The answer is 
 found in the " Reserve " Accounts which we shall now discuss. 
 
 Reserves 
 
 Definitioii. — A Reserve Account is a financial account with a 
 credit balance (a liability) created on the books for the purpose of 
 reducing the value of an asset. Tims, it is but an application of the 
 principle that to subtract in bookkeeping we may accomplish the 
 result by adding the amount to be subtracted to the opposite side of 
 that or another account. Thus, in the case above, instead of : 
 
 Depreciation of Machinery 
 
 Machinery 
 
 Depreciation 
 
 Machinery 
 
 with the resulting account : 
 
 or 
 
 $100.00 
 
 f 100.00 
 
 $100.00 
 
 $100.00 
 
 Machinery 
 
 
 1000 
 
 00 
 
 00 
 00 
 
 
 
 1000 
 
 900 
 
 Balance ♦ 
 
 * In red ink. 
 
 DEPRECIATION, RESERVES, AND ACCRUALS 
 
 139 
 
 We may now have 
 
 Depreciation of Machinery $100.00 
 
 Reserve for Depreciation 1 
 of Machinery J 
 
 or 
 Depreciation $100.00 
 
 Reserve for Depreciation 
 
 This leaves our Machinery Account unaffected. 
 
 Machinery 
 
 $100.00 
 
 $100.00 
 
 1000 00 
 
 and creates the new account : 
 
 Reserve for Depreciation of Machinery 
 
 100 
 
 00 
 
 Our final entry closing the Depreciation Account into Profit and 
 Loss is the same. 
 
 The intermediate step of first charging the Depreciation Account 
 is really not essential, and in practice is not used ; thus, the entry for 
 our illustration is: 
 
 Profit and Loss $100.00 
 
 Reserve for Depreciation i 
 of Machinery J 
 
 By this entry the necessary record is made. 
 
 So at any time the value of an asset can be readily ascertained by 
 reference to the two accounts. In a Balance Sheet the asset appears 
 at its original valuation on the left, and in order that the value of the 
 
 $100.00 
 
140 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 business be not improperly inflated, the assets are offset on the oppo- 
 site side by the various Reserve Accounts which appear as liabilities. 
 At the end of the life of the asset the Reserve Account in our 
 illustration appears as follows : 
 
 Reserve for Depreciation of Machineiy 
 
 1902 
 
 Jan. 
 
 1908 
 
 Jan. 
 
 19<>4 
 
 Jan. 
 
 1906 
 
 Jan. 
 
 1906 
 
 Jan. 
 
 1907 
 
 Jan. 
 
 1908 
 
 Jan. 
 
 1909 
 
 Jan. 
 
 1910 
 
 Jan. 
 
 1911 
 
 Jan. 
 
 
 100 
 
 00 
 
 
 100 
 
 00 
 
 
 100 
 
 00 
 
 
 100 
 
 00 
 
 
 100 
 
 00 
 
 
 100 
 
 00 
 
 
 100 
 
 00 
 
 
 100 
 
 00 
 
 
 100 
 
 00 
 
 
 100 
 
 00 
 
 
 Thus, the asset (Machinery) is completely offset by the liability 
 (Reserve for Depreciation of Machinery). 
 
 On the purchase of a new and similar machine for cash the 
 entry is : 
 
 Reserve for Depreciation of Machinery 
 
 Machinery 
 Machinery 
 
 Cash 
 
 It will now be understood that the purpose of these supplementary 
 facts, and their introduction in our books, is to produce a more exact 
 statement of our business, by properly qualifying the values therein. 
 
 We have illustrated this only with reference to fixed tangible 
 assets, such as machinery ; but it is necessary that other values of 
 the business, such as Accounts Receivable, be likewise treated. 
 
 DEPRECIATION, RESERVES, AND ACCRUALS 
 
 141 
 
 Accounts Receivable is but another name for the indebtedness to 
 the business, as evidenced by the debit balances to the various cus- 
 tomers' accounts appearing in the Ledger. While these are indica- 
 tive of value owing to the business, it is the general experience that 
 these values are seldom all realized ; and by this same experience it is 
 possible for a proprietor to state approximately the percentage of 
 the debts owing to the business which for various reasons will not be 
 paid. These unproductive accounts are known in bookkeeping tech- 
 nology as " Bad or Doubtful Debts." Of course, if an account is ir- 
 retrievably lost, the account may at once be written off to Profit and 
 
 Loss, thus : 
 
 Bad Debts 
 
 James Garvin 
 After this comes the entry : 
 
 Profit and Loss 
 
 Bad Debts 
 
 The difficulty, however, does not lie in situations of this sort. 
 It is the constant uncertainty as to which particular accounts 
 will not be paid, and last, and most important, the desire that the 
 losses incurred should be charged to the proper fiscal period, which 
 makes the Reserve for Bad Debts Account a necessity to a proper 
 
 record. 
 
 To explain, suppose in 1913 $50000.00 worth of merchandise 
 was sold on open account, and that in previous years the books 
 showed an average loss of 2 % on the Accounts Receivable. On 
 the closing of the books, Jan. 1, 1913, it would not be proper to 
 consider the Accounts Receivable as worth $50000.00, when as a 
 matter of record, year after year, the business has lost 2 %. Further- 
 more, since the merchandise was sold during the past year, any losses 
 incurred should be borne by that period. Thus, without actually 
 waiting for the debts to become bad, consideration is taken of past 
 experience, and 2%, or $1000.00, is charged to Profit and Loss 
 Account. What then of the corresponding credit or credits ? At 
 this time the various Accounts Receivable appear in good condition 
 and would ordinarily be credited only on settlement of the accounts. 
 It is now that recourse is had to the Reserve for Bad Debts Account, 
 again a financial account with a credit balance, created for the 
 particular purpose in this instance of reducing the book value of 
 Accounts Receivable. The entry is : 
 
I 
 
 142 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Profit and Loss $1000.00 
 
 Reserve for Bad Debts 11000.00 
 
 This leaves the Accounts Receivable for the time being unaffected, 
 but at the same time records the predetermined loss in a proper 
 period. Later, if James Hadley, who owes the business 150.00, 
 utterly fails, the entry is: 
 
 Reserve for Bad Debts f 50.00 
 
 James Hadley $50.00 
 
 This closes out his account, and by the previous use of the 
 Reserve Account, makes it unnecessary to go back and adjust the 
 last year's profits and losses. 
 
 Accruals 
 
 To continue the practice of allocating the profits or losses to the 
 period wherein they properly belong leads us to a consideration 
 of other items of value, commonly termed "Accrued Items" or 
 "Accruals." 
 
 Definition. — Accruals are positive amounts of value which: 
 
 (a) Have been paid in one period, for an obligation due or 
 
 applicable to a subsequent period, in which case they 
 
 are assets. 
 (i) Consist in an obligation created and existent in one 
 
 period, but which will not be discharged until a 
 
 subsequent period, in which case they are liabilities. 
 
 For example, under (a) we have rent, insurance, advertising, etc., 
 in cases where the amount expended for these items includes not 
 only the period in question, but a subsequent period. 
 
 Under (5) we have wages, commission, interest on bonds, taxes, 
 etc., in cases where these obligations have been created in the period 
 in question, but for which payment is not to be made until the next 
 period. 
 
 Thus it is plain that under (a) we have " Accruals Receivable," 
 being positive value to be received, hence " Assets " ; and under (ft), 
 "Accruals Payable," positive value to be paid, hence, "liabilities." 
 
 How Accruals are Found. — Such items of accrued value can be 
 ascertained by: 
 
 (a) An intimate knowledge of the business, 
 (ft) Previous Statements of the business. 
 
 DEPRECIATION, RESERVES, AND ACCRUALS 
 
 143 
 
 Handling on the Books. — Accruals may be better understood by 
 considering the manner in which they are handled on the books. 
 Take the following illustrations: 
 
 On July 1, the Alton B. Kirk Co. desires to close its books for 
 the six months' period just ended, and to ascertain the profit or loss. 
 On the Trial Balance is the account "Land and Buildings" 
 i^ 40000.00, and yet no account can be found for taxes. The reason 
 becomes evident when it is found that the taxes are never paid until 
 December; but a glance at the last yearly Statement reveals the 
 fact that the taxes are $600.00 per annum. Is it correct to close 
 the books and find the net profit or loss without considering a just 
 proportion of this amount ? It is evident that the present period 
 should stand its share of the annual tax loss, which is $300.00; 
 therefore, if this amount has been lost in this period and not paid, it 
 is also a liability. This fa<it can be recorded in our losses and on 
 our books by the following entries : 
 
 Taxes $300.00 
 
 Taxes Accrued $300.00 
 
 and 
 Profit and Loss $300.00 
 
 Taxes $300.00 
 
 Thus Taxes Account is closed as a loss and Taxes Accrued Account 
 remains open to show the liability. 
 
 In December, when the yearly tax bill of $600.00 is paid, the 
 Cash Book entry is : 
 
 Taxes Accrued $300.00 
 
 Taxes $300.00 
 
 Cash « 600.00 
 
 By this entry the liability of Taxes Accrued is canceled and the 
 new tax loss of $300.00 is recorded in Taxes Account, to be later 
 written off to Profit and Loss. 
 
 The first two entries mentioned above have the advantage of 
 opening the Taxes Account in the Ledger ; and though it may be 
 immediately closed, it remains as a record of the tax cost for the 
 period being closed. Another method, not following Accounting 
 principles so closely, yet having, its advantages, is to combine the 
 first two entries into: 
 
 Profit and Loss $300.00 
 
 Taxes • $300.00 
 
144 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 This places the loss directly in Profit and Loss and saves the opening 
 of Taxes Accrued Account, and the Taxes Account having no debit 
 remains open to show the liability. By this method the entry in the 
 Cash Book in December is : 
 
 Taxes 1600.00 
 
 Cash f 600.00 
 
 The Taxes Account now appears : 
 
 Taxes 
 
 Dec. 
 
 30 
 
 CB 
 
 600 
 
 (X) 
 
 July 
 
 J 
 
 300 
 
 00 
 
 Thus the liability in Taxes Account of f 300.00, carried from July 
 to December, is canceled by the debit 51600.00 and the $300.00 
 balance on the debit side is the new tax loss. 
 
 This latter method is the one more commonly used. 
 
 To take another illustration : 
 
 The same firm, Alton B. Kirk Co., has on its Trial Balance an 
 account with Advertising, showing $1200.00 debit balance. An 
 investigation of this account shows that this $1200.00 was paid 
 out on Jan. 1, for an advertising contract to run two years. 
 Although at first glance this account seems to be a total loss, inves- 
 tigation shows that since but one fourth of the contract has expired, 
 only one fourth has been lost, and the remaining three fourths must 
 be an asset, representing service due the business. Thus : 
 
 Advertising 
 
 Jan. 
 
 CB 
 
 1200 
 
 00 
 
 Of this $1200.00 we desire to register one fourth, or $300.00, as a 
 loss, and to show the balance, $900.00, as an asset. This may be 
 done by either of the following entries : 
 
 DEPRECIATION, RESERVES, AND ACCRUALS 
 
 145 
 
 Advertising Accrued 
 
 Advertising 
 
 $900.00 
 
 $900.00 
 
 and 
 
 $300.00 . 
 
 Profit and Loss 
 
 Advertising $300.00 
 
 This is similar to the first entries for the Taxes illustration, the 
 Advertising Account closing out when the $300.00 is counted as a 
 loss, and the Advertising Accrued Account remaining open to show 
 the asset : 
 
 Profit and Loss $1200.00 
 
 Advertising $1200.00 
 
 Advertising $900.00 
 
 Profit and Loss $ 900.00 
 
 By this method, regarding the entire $1200.00 as a loss and the 
 $900.00 as a gain, $300.00 is counted as a loss. 
 
 Still another method is : 
 
 Profit and Loss $300.00 
 
 Advertising $ 300.00 
 
 This method takes the actual loss of $ 300.00 direct to Profit and 
 Loss, and the debit balance necessarily existing in Advertising 
 Account shows the asset as : 
 
 
 
 
 
 
 
 '— "— -o 
 
 
 
 
 
 
 1913 
 
 Jan. 
 
 1 
 
 CB 
 
 
 1200 
 
 00 
 
 1918 
 
 July 
 
 1 
 
 < 
 
 J 
 
 300 
 
 00 
 
 
 1 
 
 Balance 
 
 
 
 00 
 00 
 
 
 • 
 
 Balance * 
 
 
 900 
 
 00* 
 
 
 1200 
 
 1200 
 
 00 
 
 July 
 
 - 900 
 
 
 
 • In red ink. 
 
 
 
 
 
 
 
 
 
 
 Thus it is seen that there are two or three methods of handling 
 accruals on the books, but the second method used in the first 
 illustration, and the third method in the second illustration, are the 
 most satisfactory. 
 
 From the illustrations it is seen that it is possible for our nominal 
 accounts to remain open on the books after closing. At such time 
 the nominal account has become temporarily a financial account, as 
 
146 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 its nominal value has been closed into Profit and Loss; and the 
 balance still carried by the nominal account is an asset or liability. 
 
 The handling of accruals is not difficult, provided each accrual 
 considered is thoroughly understood, both with regard to the amount 
 gained or lost, and the amount of the resulting asset or liability. 
 
 Perhaps a brief summary of this chapter may be expedient. We 
 have considered depreciation, reserves, and accruals in order that 
 we may be able to close the books and present Statements of the 
 business that reveal as closely as possible its true condition. It is evi- 
 dent now that the Statement of Profit and Loss taken only from the 
 facts in the books would produce a result that was possibly far from 
 being correct. The determining of what the supplementary facts 
 are and the recording of them on the books, together with the detail 
 necessary to make all the closing entries and balance the accounts, 
 are what makes the closing of the books and the preparation of the 
 Statements one of the most difficult tasks of an accountant. These 
 new considerations have been but supplementary to the original 
 procedure in finding the profit or loss, and closing the books. Now 
 that all of the st^ps have been discussed in the finding of such profit 
 or loss and closing of books, they may be listed as follows : 
 
 To dose tiie Books: 
 
 1. Take a Trial Balance of the Ledger. 
 
 2. Take an inventor}^ of merchandise. 
 
 3. Ascertain the depreciation on all depreciable assets. 
 
 4. Ascertain the reserve to be set aside for bad debts. 
 6. Consider carefully all accruals. 
 
 6. Close all nominal accounts into Profit and Loss. 
 
 7. Close the balance of Profit and Loss into the Proprietors' 
 
 Personal Accounts. 
 
 8. Close the Proprietors' Personal Accounts into their Capital 
 
 Accounts. 
 
 9. Rule and balance the various financial accounts, reducing 
 
 them to one debit or credit amount. 
 10. Take a final Trial Balance, or Balance Sheet. 
 
 PROBLEM 36 
 
 Using the following data, prepare a Statement of Loss and Gain, 
 a Statement of Resources and Liabilities, make the Journal entries 
 necessary to close the books, and prepare a final Trial Balance, or 
 Balance Sheet. 
 
 DEPRECIATION, RESERVES, AND ACCRUALS 
 
 147 
 
 Trial Balance 
 
 H. C. Atla8 
 
 March 31, 1913 
 
 
 
 H. C. Atlas, Investment 
 
 
 
 20000 
 
 00 
 
 
 
 Accounts Receivable 
 
 10000 
 
 00 
 
 
 
 
 
 Notes Receivable 
 
 2730 
 
 00 
 
 
 
 
 
 Accounts Payable 
 
 
 
 7600 
 
 00 
 
 
 
 Notes Payable 
 
 
 
 3650 
 
 00 
 
 
 
 Real Estate 
 
 7500 
 
 00 
 
 
 • 
 
 
 
 Cash 
 
 4200 
 
 00 
 
 
 
 
 
 Merchandise 
 
 9300 
 
 00 
 
 
 
 
 
 Rent 
 
 
 
 480 
 
 00 
 
 
 
 Interest 
 
 300 
 
 00 
 
 
 
 
 
 Commission 
 
 
 
 2300 
 
 00 
 
 
 34030 
 
 00 
 
 34030 
 
 00 
 
 
 
 
 
 
 NoTB. — The merchandise inventory on hand at the time of closing is S 10360.00. 
 There is $ 40.00 due for rent but not yet collected by the business. Of the item of 
 Commission $ 1100.00 represents amounts paid H. C. Atlas for service to be rendered 
 after March 31, 1913. There is .^25.00 for interest due by the business but not yet 
 paid. 
 
 PROBLEM 37 
 From the following Trial Balance prepare Statements of Loss and 
 Gain and Assets and Liabilities ; also make the Journal entries nec- 
 essary to close this set of books. Make a final Trial Balance. 
 
 Trial Balance 
 
 H. White 
 
 Cash 
 
 Real Estate 
 
 Expense 
 
 Interest 
 
 Rent 
 
 Buildings 
 
 Commission 
 
 Merchandise 
 
 Notes Receivable 
 
 Notes Payable 
 
 Machinery 
 
 Furniture and Fixtures 
 
 Wages 
 
 Insurance 
 
 Accounts Receivable 
 
 Accounts Payable 
 
 
 
 50000 
 
 5000 
 
 00 
 
 
 11500 
 
 00 
 
 
 4200 
 
 00 
 
 
 150 
 
 00 
 
 
 3600 
 
 00 
 
 
 12000 
 
 00 
 
 2500 
 
 6000 
 
 00 
 
 
 8700 
 
 00 
 
 3700 
 
 5000 
 
 00 
 
 
 800 
 
 00 
 
 
 1200 
 
 00 
 
 
 500 
 
 00 
 
 
 2250 
 
 00 
 
 4700 
 
 60900 
 
 00 
 
 60900 
 
 
 
 
 00 
 
 00 
 
 00 
 
 00^ 
 00 
 
148 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Note. — Merchandise inventory, $12000.00. Depreciation as follows: Machinery, 
 10%; Buildings, Z%\ Furniture and Fixtures, 15%. 
 
 Of the item of rent, $(K)0.00, or one month's rent, has been paid in advance. Of 
 the Commission on our books, §r)00.00, although received, is not yet due. One week's 
 wages of § 200.00 have not been paid and are not on the books. The Insurance Account 
 shows the premium for one year, of which only two months have been used. 
 
 PROBLEM 38 
 
 From the following Trial Balance and subsidiary data make the 
 Journal entries necessary to close Q. C. Brown's books. 
 
 Trial Balance 
 
 
 
 Q. C. Brown 
 
 
 
 25000 
 
 00 
 
 
 
 Real Estate 
 
 10000 
 
 00 
 
 
 
 
 
 Machinery 
 
 6000 
 
 00 
 
 
 
 
 
 Furniture and Fixtures 
 
 1000 
 
 00 
 
 
 
 
 
 Accounts Receivable 
 
 8000 
 
 00 
 
 
 
 
 
 Accounts Payable 
 
 
 
 2500 
 
 00 
 
 
 
 Notes Receivable 
 
 6200 
 
 00 
 
 
 
 
 
 Notes Payable 
 
 
 
 5000 
 
 00 
 
 
 
 Merchandise 
 
 
 
 400 
 
 00 
 
 
 
 Wages 
 
 1200 
 
 00 
 
 
 
 
 
 Rent 
 
 
 
 480 
 
 00 
 
 
 
 Commission 
 
 
 
 220 
 
 00 
 
 
 
 Interest 
 
 200 
 
 00 
 
 
 
 
 
 Insurance 
 
 600 
 
 00 
 
 
 
 
 
 Advertising 
 
 400 
 
 00 
 
 
 
 
 38600 
 
 00 
 
 33600 
 
 00 
 
 
 
 
 
 
 \ I 
 
 Note. — Wages due and not paid, $250.00. 
 
 Rent due and not collected, $ 150.00. 
 
 Inventory of goods on hand, $ 1000.00. 
 
 Commission earned but not yet received, $40.00. 
 
 The iusurance and advertising contracts were yearly contracts, placed 
 
 six months ago. 
 Depreciation : On Machinery, 10%. 
 
 On Furniture and Fixtures, 15%. 
 After making the closing entries, present a Proof Trial Balance. 
 
 CHAPTER XXII 
 
 THE BALANCE SHEET AND PROFIT AND LOSS STATEMENT 
 
 At the end of the chapter on " Closing a Set of Books " it was 
 seen that the final step in the process was a test of the equilibrium 
 of the books, which took the form of a final or proof Trial Balance. 
 This is more commonly known as a " Balance Sheet." As a Trial 
 Balance it was of interest only to the bookkeeper in telling him if 
 his books still balanced after closing; but as a Balance Sheet its 
 purpose is more general, in that it combines a statement of the 
 assets and liabilities of the business. 
 
 The terms " assets " and " liabilities " are used in their broadest 
 sense. By liabilities are meant not only the outstanding debts of 
 the business, but all financial liability accounts, including those 
 representing the interests of the owners ; and in the case of corpora- 
 tions the liabilities include the shareholders' accounts and other 
 accounts of like nature, such as surplus, undivided profits, etc. 
 
 Definition. — A broader definition of a Balance Sheet is : 
 
 A Statement of the assets and liabilities of a business at a given 
 time, representing the financial accounts of a business remaining 
 open on the Ledger after the books have been closed. 
 
 Revealing as it does a Statement of the accounts open on a 
 Ledger after the books have been closed, it must necessarily include 
 not only the results of past records of the books themselves, but the 
 results after inventories, depreciation, reserves, and accruals have 
 been considered and made to appear on the books. It is then a 
 concrete expression of the financial condition of a business. As 
 such a statement, the Balance Sheet has come to be one of the most 
 important instruments in accounting, and is of vital interest to : 
 
 1. The manager. 
 
 2. The proprietor or stockholder. 
 
 3. The creditor. 
 
 4. The investor. 
 
 The manager, proprietor, and stockholder are naturally interested 
 in a Statement which reveals the solvency facts of the business ; and 
 
 140 
 
1 
 
 I 
 
 150 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 the creditors and investors under ordinary conditions will neither 
 lend nor risk their money in a concern whose Statements reveal a 
 doubtful condition. 
 
 Importance of the Balance Sheet. — The importance of the Balance 
 Sheet is fast being recognized. The prospective creditors particu- 
 larly the banks, before granting a loan, often demand a Balance 
 Sheet of the prospective borrower, in order to ascertain the condition 
 of his business; and the investor ascertains the growth and con- 
 dition of a business by a comparison of the successive Balance Sheets. 
 This general use of Balance Sheets is being aided and facilitated by 
 an attempt at uniformity of presentation, in so far as that is possible 
 for businesses of different character. 
 
 Form of the Balance Sheet. — The sheet is divided vertically into 
 two equal parts, the assets being listed on the left-hand side and the 
 liabilities on the right. There are two principal methods of listing 
 the assets and liabilities. The first is to list them in what has been 
 termed the order of their liquidity, starting the assets with cash, to 
 be followed by accounts receivable, notes receivable, etc., and ending 
 with such stable assets as machinery, buildings, etc. The liabilities 
 begin with accounts payable, to be followed by notes payable, etc., 
 and end up with the ownership accounts of the business. While this 
 order is very often followed, it is slowly giving way to a principle 
 which considers that assets and liabilities should be listed in the 
 order of their importance and permanency. This usage considers 
 that while Cash, Accounts Receivable, Notes Receivable, etc., are 
 important accounts, they nevertheless represent a constantly chang- 
 ing value, and are necessarily of lesser importance than such items as 
 Plant, Equipment, etc., which, representing as they do the principal 
 values in the business, should be listed on the Balance Sheet so as to 
 be the first items to meet the eye of the reader. 
 
 The treatment of the liabilities is similar to the asset side, they 
 being listed according to importance. Accordingly, in the case of 
 corporations the Capital Stock Account is usually placed first, fol- 
 lowed by Bonds or Mortgages, then Accounts Payable, Notes Pay- 
 able, etc., with the Reserve Accounts, and Surplus or Undivided 
 Profits coming at the end. In the case of an individual or firm 
 Balance Sheet, it is customary to state the Capital of the proprietors 
 of the business as the last item. 
 
 This second method of presenting a Balance Sheet groups the 
 assets into the following three classes ; 
 
 BALANCE SHEET AND PROFIT AND LOSS STATEMENT 151 
 
 Fixed 
 
 Current 
 
 Deferred 
 
 This form is not applicable to the Bahmce Sheets of banks, trust 
 companies, building and loan associations, etc., but applies rather to 
 manufacturing concerns. 
 
 Fixed Assets. — "Fixed Assets" are those which aie constant 
 and stable, whose balances show very little variation; for example: 
 
 Land Buildings 
 
 Machinery Tools, etc. 
 
 These are not called " fixed assets " because they are immovable, 
 for locomotives and steamships and the like are equally fixed in 
 the accounting sense. 
 
 Current Assets. — " Current Assets " are those which are readily 
 converted into cash, whose balances are constantly changing. They 
 are sometimes called " quick " or " available " assets. Examples of 
 these are : 
 
 Cash 
 
 Goods on hand, both raw and finished material 
 Notes Receivable 
 Accounts Receivable 
 
 Deferred Assets. — " Deferred Assets " are items of value to the 
 business, neither fixed nor readily salable, such as improvements 
 that are to be written off over a number of years, good will, patent 
 rights, etc. 
 
 A group of assets apt to be found either in the " current " or 
 " deferred " class is represented by such accounts as interest paid in 
 advance, advertising, insurance premiums, taxes paid in advance, 
 etc. This may be regarded as deferred in a strict sense of the word 
 and so classed under "deferred assets." On the other hand, they 
 may be regarded as prepayments of cash, and are therefore just as 
 available as cash or other current assets. A conservative classifica- 
 tion is to place them with the current assets unless payments have 
 been made for improvements, or contracts extending over a period 
 of several years, in which case it seems preferable to assemble them 
 with the deferred assets. 
 
 Liabilities. — As has been mentioned before, the first liability to 
 be listed in the case of corporations is the Capital Stock. The next 
 
152 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 liability to be listed is the amount of bonds, or mortgages. The 
 current liabilities theii follow, which include : 
 
 Notes Payable 
 Accounts Payable 
 Unpaid taxes, wages, etc. 
 Unpaid dividends, etc. 
 
 Reserves. — Another group of liability accounts are the Reserves, 
 such as Reserve for Depreciation, Reserve for Bad Debts, etc., which, 
 when placed on the liability side of the Balance Sheet, naturally fol- 
 low current liabilities. Although these accounts appear on the 
 liability side of the Ledger, their purpose is merely to reduce the 
 value of certain assets ; and so it has become a common practice for 
 the larger companies in presenting their Balance Sheets to deduct 
 the amount of such Reserves from the value of the particular assets 
 so affected. Both methods of presenting the Reserves are shown in 
 illustrations II and III. 
 
 In the Balance Sheet of an individual or firm the present worth 
 should be placed last among the liabilities; and in the Balance 
 Sheet of a firm the interest of each individual partner should be 
 listed separately. 
 
 If the Balance Sheet is that of a corporation, such accounts as 
 " Surplus," " Undivided Profits," and " Profit and Loss " may be 
 found, representing the profits of the business. It is important that 
 the profit of the period represented by the Balance Sheet should be 
 clearly shown. 
 
 Alton B. Kirk 
 
 Illustration I 
 Balance Sheet 
 
 December 31, 1913 
 
 Real Estate 
 
 20000 
 
 00 
 
 Notes Payable 
 
 2400 
 
 00 
 
 Horses and Wagons 
 
 3000 
 
 00 
 
 Accounts Payable 
 
 4900 
 
 00 
 
 Furniture and Fixtures 
 
 500 
 
 00 
 
 Wages Accrued 
 
 200 
 
 00 
 
 Cash 
 
 4250 
 
 00 
 
 Taxes Accrued 
 
 120 
 
 00 
 
 Notes Receivable 
 
 950 
 
 00 
 
 
 
 
 Accounts Receivable 
 
 4100 
 
 00 
 
 
 
 
 Invt. of Merchandise 
 
 7600 
 
 00 
 
 Alton B. Kirk 
 
 
 Advertising 
 
 600 
 
 00 
 
 Past Worth 32250.00 
 
 
 
 Unexpired Insurance 
 
 90 
 
 00 
 00 
 
 Profits for Year 1220.00 
 
 33470 
 
 00 
 
 
 41090 
 
 41090 
 
 00 
 
 
 
 
 
 BALANCE SHEET AND PROFIT AND LOSS STATEMENT 153 
 
 Illustration II 
 
 Balance Sheet 
 
 A. B. C. Foundry Co 
 
 . 
 
 
 July 31, 1913 
 
 
 Land 
 
 Buildings 
 
 Machinery 
 
 Boilers and Engines 
 
 Tools 
 
 Furniture and Fixtures 
 
 Horses and Wagons 
 
 Investments 
 
 Cash 
 
 Notes Receivable 
 
 Accounts Receivable 
 
 Inventories of Raw and 
 
 Finished Material 
 Advertising 
 Insurance 
 
 50000 
 14000 
 12000 
 
 6000 
 800 
 
 1000 
 
 800 
 
 25000 
 
 10100 
 
 1000 
 
 4000 
 
 6500 
 
 1500 
 
 900 
 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 
 00 
 00 
 00 
 
 00 
 
 Capital Stock 
 Accounts Payable 
 Notes Payable 
 Payroll Accrued 
 Taxes Accrued 
 Reserve for Depreciation, 
 on : 
 
 Buildings 
 
 Machinery 
 
 Boilers and Engines 
 
 Tools 
 
 Furniture and Fixtures 
 
 Horses and Wagons 
 
 Bad Debts 
 Surplus 
 
 Undivided Profits 
 Bal. 7/31/12 8460.00 
 Less Dividends 
 
 to 7/31/13 8000.00 
 
 460.00 
 Net Profit, year 
 
 ended 7/31/13 9540.90 
 
 / 
 
 100000 
 
 4200 
 
 8105 
 
 450 
 
 180 
 
 80 
 
 240 
 
 51 
 
 25 
 
 50 
 
 19 
 
 198 
 
 10000 
 
 10000 
 
 00 
 00 
 00 
 00 
 00 
 
 00 
 00 
 30 
 60 
 00 
 20 
 00 
 00 
 
 90 
 
 
 133600 
 
 133600 
 
 00 
 
 
 
 » 
 
 
I 
 
 b 
 
 .J 
 
 154 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 A. B. C. Foundry Co. 
 
 Illustration III 
 Balance Sheet 
 
 July 31, 1913 
 
 Land 
 Buildings 
 Less Depreciation 
 
 Machinery 
 Less Depreciation 
 
 Boilers and Engines 
 Less Depreciation 
 
 Tools 
 Less Depreciation 
 
 Fnm. and Fixtures 
 Less Depreciation 
 
 14000.00 
 80.00 
 
 12000.00 
 240.00 
 
 eooo.oo 
 
 gl.30 
 
 800.00 
 25.60 
 
 1000.00 
 50.00 
 
 Horses and Wagons 800.00 
 
 Less Depreciation 19.20 
 
 Investments 
 Cash 
 
 Notes Receivable 
 Accts. Receivable 4000.00 
 
 Less Res. for Bad 
 
 Debts 198.00 
 
 Inventories 
 
 Raw and Finished Material 
 Advertising 
 Insurance 
 
 
 50000 
 13920 
 
 11760 
 
 6948 
 
 774 
 
 950 
 
 780 
 
 25000 
 
 10100 
 
 1000 
 
 3802 
 
 6500 
 
 1500 
 
 900 
 
 1329:{5 
 
 00 
 00 
 
 00 
 
 70 
 
 40 
 
 00 
 
 80 
 00 
 00 
 00 
 
 00 
 
 00 
 00 
 00 
 90 
 
 Capital Stock 
 Accounts Payable 
 Notes Payable 
 Payroll Accrued 
 Taxes Accrued 
 Surplus 
 Undivided Profits 
 
 Bal. 7/31/12 
 Less Dividends 
 
 to 7/31/13 
 
 The Net Profit 
 for the Year 
 ended 7/31/13 
 
 8460.00 
 
 8000.00 
 460.00 
 
 9510.90 
 
 100000 
 
 4200 
 
 8105 
 
 450 
 
 180 
 
 10000 
 
 10000 
 
 00 
 00 
 00 
 00 
 00 
 00 
 
 90 
 
 132935 
 
 90 
 
 BALANCE SHEET AND PROFIT AND LOSS STATEMENT 155 
 
 Profit and Loss Statements 
 
 In close relation to the Balance Sheet, and a necessary supplement 
 thereto, is the Profit and Loss Statement, variously known as a 
 " Statement of Losses and Gains," " Income Sheet," etc. The pur- 
 pose of such a Statement is to disclose a detailed history of the 
 profits and losses of a business for a given period. Heretofore we 
 have presented such facts in the profit and loss columns of the Six- 
 Column Statement. When we first considered the Six-Column 
 Statement, it was mentioned that while it was used in teaching to dis- 
 tinguish between loss and gain and asset and liability items, yet it 
 was too technical for practical purposes. We have already seen 
 that the asset and liability columns are presented in a separate State- 
 ment called the "Balance Sheet"; and similarly the loss and profit 
 columns are separately presented. 
 
 These Profit and Loss Statements take many forms, varying from 
 a mere reproduction of the loss and profit columns of the Six-Column 
 Statement to an elaborate Income Sheet. The form must be depend- 
 ent upon the particular kind of business, but the purpose of the 
 Statement is accomplished if the sources of profits and losses are 
 clearly revealed. 
 
 To illustrate, take the following: 
 
 Trial Balance 
 
 Alton B. Kirk 
 
 December 31, 1913 
 
 Alton B. Kirk 
 
 Cash 
 
 Land 
 
 Buildings 
 
 Merchandise 
 
 Insurance 
 
 A. R. Harris 
 
 Interest 
 
 Expense 
 
 Repairs 
 
 Wages 
 
 Commission 
 
 Merchandise Discount 
 
 J. R. Bell 
 
 A. C. Carey 
 
 
 
 20000 
 
 00 
 
 4760 
 
 30 
 
 
 
 8000 
 
 00 
 
 
 
 6000 
 
 00 
 
 
 
 1000 
 
 70 
 
 
 
 50 
 
 00 
 
 
 
 650 
 
 00 
 
 
 
 
 
 5 
 
 40 
 
 125 
 
 00 
 
 
 
 60 
 
 00 
 
 
 
 3350 
 
 00 
 
 
 
 
 
 300 
 
 00 
 
 
 
 65 
 
 60 
 
 
 
 2000 
 
 00 
 
 
 
 1625 
 
 00 
 
 23996 
 
 00 
 
 23996 
 
 00 
 
 
 
 
 
I 
 
 156 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Present a Statement of Profit and Loss from the above Trial 
 Balance, taking into consideration the following : 
 
 A reserve of 3 % for depreciation on buildings is to be created. 
 The merchandise inventory is $5000.00. 
 
 Illustration I 
 Semi-annual Statement of Losses and Gains 
 
 Alton B. Kirk December 31, 1913 
 
 Losers 
 
 1 
 
 Gains 
 
 
 Merchandise 
 
 1000 
 
 70 
 
 Interest 
 
 5 
 
 40 
 
 Insurance 
 
 60 
 
 00 
 
 Commission 
 
 300 
 
 00 
 
 Expense 
 
 125 
 
 00 
 
 Merchandise Discount 
 
 65 
 
 60 
 
 Repairs 
 
 60 
 
 00 
 
 Merchandise Inventoiy 
 
 5000 
 
 00 
 
 Wages 
 
 3350 
 
 00 
 
 
 
 
 Reserve for Depreciation on 
 
 
 
 
 
 
 Buildings 
 
 180 
 
 00 
 
 
 
 
 Net Gain * 
 
 605 
 
 30* 
 00 
 
 
 
 
 
 5371 
 
 5371 
 
 00 
 
 
 
 
 
 * In red ink. 
 
 It will readily be seen that this Statement is similar to the loss 
 and profit columns of the Six-Column Statement ; at the same time, 
 it would have very little meaning to one unfamiliar with book- 
 keeping. 
 
 A much better form of presenting these facts is shown at the top 
 of the following page. 
 
 The second illustration, which presents a much clearer picture of 
 the profit and loss facts, contains the same amounts that are in the 
 first illustration, with the exception that the Merchandise, Merchan- 
 dise Discount, and Inventory Accounts have been analyzed. Thus, 
 instead of showing Merchandise with a debit balance of f 1000. 70 as 
 a loss, and the Inventory of Dec. 31, 1913 — $5000.00, as a gain, the 
 component parts of these accounts are taken and listed, as " Sales," 
 "Purchases," "Inventory, June 30, 1913," and "Inventory, Dec. 31, 
 1913." Merchandise Discount has been similarly treated and its 
 debit and credit sides are presented as " Discount Allowed " and 
 "Discount Received." 
 
 BALANCE SHEET AND PROFIT AND LOSS STATEMENT 157 
 
 Illustration II 
 
 Semi-annual Statement of Profit 
 Alton B. Kirk 
 
 and Loss 
 
 December 31, 1913 
 
 Sales 
 
 Less Discounts Allowed 
 Inventory, June 30, 1913 
 Purchases 
 
 Less Disc't Rec'd 
 
 12700.70 
 165.60 
 
 Less Inventory, Dec. 31, 1913 
 Gross profit on Merchandise 
 Less 
 
 Insurance 
 Expense 
 Repairs 
 Wages 
 
 Reserve for Depreciation on Bldgs. 
 Net profit on Merchandise 
 Add 
 
 Interest Received 
 Commission Received 
 Net profit of business 
 
 18000.00 
 100.00 
 
 6300.00 
 
 12535.10 
 
 18835.10 
 5000.00 
 
 50.00 
 
 125.00 
 
 60.00 
 
 3350.00 
 
 180.00 
 
 5.40 
 300.00 
 
 17900 
 
 13835 
 
 4064 
 
 3765 
 
 299 
 
 305 
 
 605 
 
 00 
 
 10 
 
 90 
 
 00 
 
 90 
 
 40 
 
 30 
 
 The second illustration is the form of Statement commonly used 
 in practice. It reveals the important profit and loss amounts, such 
 as the volume of sales and purchases, the inventories at the end of 
 the last period and at the present time, the amount of discount 
 allowed and received, etc. Its presentation is facilitated in most 
 businesses by the elimination of the accounts "Merchandise" and 
 " Merchandise Discount," and the use in their stead of the accounts 
 "Purchases," "Sales," "Discount on Purchases," and "Discount 
 on Sales." 
 
CAPITAL AND REVENUE 
 
 159 
 
 » 
 
 CHAPTER XXIII 
 
 CAPITAL AND REVENUE 
 
 It is with the close of the discussion of the Balance Sheet that the 
 first glimpse of accounting in its higher sense, and the long vista of 
 its possibilities, opens up before us. Here for the first time, with the 
 proper interpretation of the accounts constituting the Statement we 
 have a bird's-eye view of the business, and we realize that these are 
 the solvency facts of which the " Capital " is composed. In close 
 relation to our Balance Sheet, and a necessary supplement thereto, 
 we meet the Income Sheet, another form of Statement, which dis- 
 closes in its "Revenue" facts a somewhat detailed history of the 
 profits and losses of the period just closed. 
 
 This leads us to a careful consideration of our chapter, Capital 
 and Revenue. 
 
 Capital. — Capital is the surplus of assets over liabilities, and com- 
 prises in its two component parts all assets on one side and all liabil- 
 ities on the other. This excess represents the indebtedness of the 
 business to its proprietor or proprietors for the unimpaired invest- 
 ment, plus the accumulated profits. If, by any chance, the liabilities 
 should exceed the assets, there would be no Capital, but a deficit ; 
 and the business would be insolvent, the deficit indicating the in- 
 debtedness of the proprietor or proprietors to the business for the 
 impaired investment. 
 
 Revenue. — Revenue is the amount earned by the carrying on of 
 an undertaking and is the excess of the profits and income over the 
 losses and expenses. If expenses and losses exceed the profits and 
 income, there is no revenue, but rather a resulting decrease in Capital, 
 either by a lessening of the surplus or by an actual deduction from 
 the Investment. 
 
 Importance of Distinction. — Too much stress cannot be laid on 
 this subject of Capital and Revenue and on the proper distinction 
 which should be made between them. As will be later seen it is the 
 confusion of these two classes of accounts which lets down the bar 
 of strict business principles and opens up endless possibilities for 
 
 168 
 
 misleading statements. At the outset it may be of assistance to 
 call attention to the fact that in Capital Accounts we have again 
 the Financial (Asset and Liability Accounts), and in the Revenue 
 Accounts we recognize the analogy to the Nominal (Profit and Loss) 
 Accounts, with which we are now familiar. We are now treating of 
 them, however, in a way which involves a finer distinction between 
 charges so nearly on the line of both Capital and Revenue. Their 
 correct interpretation is largely dependent on an intimate knowledge 
 of the accounts involved, and what they represent, but the following 
 general tests may prove of assistance if intelligently applied : 
 
 TESTS 
 
 1. Is the expenditure one that increases the permanent value of 
 
 the property ? 
 
 2. Does it increase the output or capacity of the plant ? 
 
 8. Is the property simply repaired or has there been an addition ? 
 Has it merely been kept up to its standard, or is the addi- 
 tional work or expenditure an asset? 
 
 4. Is the new item temporary, or permanent? 
 
 6. Has the work included charges part of which should be borne 
 by a subsequent period ? 
 
 Applications of Above Tests. — 1. Take, for example, our first test. 
 As the owner of a dwelling house, we have painted and papered it 
 throughout and made sundry necessary repairs in order to retain a 
 tenant. Have we increased the income on our investment or increased 
 the permanent value of our asset ? If so, it is a " Capital Charge " 
 (t.6. a debit to some Capital Account); if not, it is a "Revenue 
 Charge" (a debit to some Revenue Account). Being an expendi- 
 ture merely for the proper maintenance of our premises, it should 
 then be charged to some repair account (Revenue). If this same 
 house were later remodeled into an apartment house, increasing our 
 income three or four fold, the cost of such remodeling would indis- 
 putably be charged to Capital. 
 
 2. We have machinery in our factory now capable of producing 
 1000 units in an hour. We purchase at considerable cost a patent 
 device, which, when attached to our njachines, considerably increases 
 their working capacity, so that they now turn out 1200 units an 
 hour. Surely such an expenditure is not a loss, increasing as it does 
 the value of our plant. Therefore we charge it to Machinery or 
 some such Capital Account, thereby adding to the value of our assets* 
 
 n 
 
 I 
 
160 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 3. These same machines, as a result of wear and tear, after a 
 certain period drop to a production of 1150 units an hour. By 
 replacing the worn-out parts, etc., they are brought to their normal 
 producing capacity. Has their value been thereby enhanced, or 
 have they only been made to maintain their standard of efficiency? 
 Undoubtedly, the latter, and therefore the expenditure should be 
 borne by a Repair Account (Revenue). 
 
 4. The freight shed of our plant has been destroyed by fire. A 
 temporary one is hurriedly erected for use while our new building 
 is in process of construction. Shall this temporary shed, costing 
 $2500.00, be listed in our Balance Sheet as an Asset (charged to 
 Capital) or regarded as a loss (charged to Revenue)? Is it pro- 
 ductive of revenue? Has it increased the value of our properties? 
 The answer is that it is a necessity to the completion of our new 
 building, and, furthermore, it has been a means of producing revenue ; 
 hence, from a strict accounting standpoint, it should be charged to 
 the cost of our new building (Capital). As a matter of business 
 policy this charge would probably be made to a Revenue Account. 
 
 The importance and the difficulty of ascertaining Capital and 
 Revenue facts can now be more readily understood. It is strongly 
 urged that in making the original entry care in properly distinguish- 
 ing between them be exercised and expressed by the intelligent 
 caption of the accounts to be charged. The character of the charge 
 should be clearly indicated by the name given the account, so that 
 in taking Statements from our Ledger, the proprietors, investors, or 
 creditors will not be misled by inflated assets on the Balance Sheet, 
 and corresponding decreased losses on the Income Sheet which is the 
 effect of an incorrect charge to Capital. Far better be it to err on 
 the right side by charging as Revenue losses what should have been 
 Capital expenditures, though this is equally reprehensible from an 
 accounting standpoint. 
 
 CHAPTER XXIV 
 
 COLUMNAR BOOKS 
 
 A NOTICEABLE feature in a study of accounting is the gradual 
 evolution of principles and the possibilities of general application 
 which the elasticity of these principles permits. 
 
 The keystone of our accounting structure is the rule of debit 
 and credit, and we have seen that its use is in no way restricted to 
 the general Journal, but is equally effective in its operation on the 
 divisions of that book — viz. the Purchase Book, Sales Book, Cash 
 Book, and Bill Book. 
 
 The efficiency of specialization has not been overlooked in the 
 science of accounting, and it has been found that the actual mechan- 
 ical work of recording transactions can be greatly facilitated by a 
 further division in the above-named books themselves. This method 
 has been carried also to the general Ledger. Just as purchases and 
 sales were segregated, so the parties involved in these transactions 
 have been taken out of the Ledger and grouped in two general 
 classes and kept in separate books or separate parts of the same book, 
 viz. the Creditors' Ledger^ — containing the accounts with all the 
 creditors of the business, — and likewise a book for the customers' 
 accounts, called the Customers' Ledger. The remaining accounts, 
 property, nominal, etc., continue in the general Ledger. The ques- 
 tion naturally arises as to the effect on this book of removing from 
 it all these accounts, and the apparent impossibility of testing its 
 equilibrium by a Trial Balance. But provision has been made for 
 this by what are known as Controlling Accounts, i.e, accounts in the 
 general Ledger whose balances control or summarize the balances in 
 the subsidiary Ledger or Ledgers. Thus, the Creditors' Controlling 
 Account (or Accounts Payable Account, as we shall term it) indi- 
 cates by its balance the total balances of all the creditors' accounts 
 in the subsidiary Creditors' Ledger ; and similarly the Customers' 
 Controlling Account (to be known as Accounts Receivable) sum- 
 marizes in its balance the balances of all the customers' accounts in 
 the subsidiary Customers' Ledger. 
 
 161 
 
162 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Purchase Book 
 
 Datk 
 
 L. 
 F. 
 
 May 
 
 Name or Crkditok 
 
 Mineral Sup- 
 ply Co. 
 
 City Improve- 
 ment Co. 
 
 For "What 
 
 5000 lb. Copper® II .13 
 
 100 pigs Iron .75 
 
 75 lb. Zinc .06 
 
 Real Estate 
 
 Amoitnt 
 Ckkdit 
 
 729 
 
 20000 
 
 Sand 
 
 50 
 00 
 
 Coke 
 
 COPPEB 
 
 650 
 
 COLUMNAR BOOKS 
 
 Purchase Book 
 
 163 
 
 Oil 
 
 00 
 
 Iron 
 
 75 
 
 00 
 
 ZiNO 
 
 50 
 
 Coal 
 
 Phos- 
 phorus 
 
 Sundries 
 
 Account 
 
 Real Estate 
 
 Amoant 
 
 L. 
 F. 
 
 20000 
 
 00 
 
 
i^ 
 
 164 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 In discussing the Ledgers first in the treatment of Columnar 
 Books, the customary explanation of a set of books is reversed ; but 
 it is in posting that these books have their greatest effectiveness, as 
 will be divined from the definition and the illustrations to follow. 
 
 Coltunnar Books are books of original entry consisting of a series 
 of parallel columns, the titles of which are General Ledger Accounts. 
 
 Books Used. — The books of original entry used are : 
 
 1. Purchase Book. 3. Cash Book. 5. Bill Book. 
 
 2. Sales Book. 4. PettyCash Book. 6. General Journal. 
 
 It will be noted that with the exception of the Petty Cash Book, 
 to be explained in a later paragraph, they are identical with those 
 already used, not only similar in name, but also in purpose. The 
 sole difference is in their operation. 
 
 Take for instance the Purchase Book. Instead of having one 
 column for the merchandise debit as formerly, the merchandise now 
 consists of a number of commodities, all of which are debits ; and 
 are indicated by several parallel columns used for sand, coke, 
 copper, etc., the corresponding credits being found in the " amount 
 credit " column opposite the creditor's name. Thus, the first entry 
 in the illustrative Purchase Journal is as follows : 
 
 Bought of the Mineral Supply Co. : 
 
 50001b. Copper @|!.13 
 
 100 pigs Iron .75 
 
 75 lb. Zinc .06 
 
 Expressing it in the form of a Journal entry it is : 
 
 Copper ^650.00 
 
 Iron 75.00 
 
 Zinc 4.50 
 
 Mineral Supply Company 
 
 (Creditor) f 729.50 
 
 Any number of purchases are recorded in the same manner, so 
 that when the time comes to post, instead of posting each purchase 
 of iron, zinc, copper, etc., to the debit of their respective accounts, 
 the columns are totaled and the amounts posted to the General 
 Ledger. In order that these may have their corresponding credit 
 in that book the column "amount credit" is totaled. This is the 
 total amount purchased from all the creditors, and is posted to the 
 credit of "Accounts Payable Account" in the General Ledger 
 
 COLUMNAR BOOKS 
 
 165 
 
 which is the Controlling Account of the Creditors' Ledger. As 
 each creditor, as found in the "Name of Creditor" column, is 
 credited in his account in the Creditors' Ledger with the amount 
 opposite his name in the "Amount Credit" column, the sum of all 
 these credits necessarily equals the amount posted to the credit of 
 the Accounts Payable Account in the General Ledger ; hence, the 
 control. The number of the Ledger page on which the creditor's 
 account appears is noted in the Folio column. 
 
 Summary Entry. — The posting of a book of original entry to the 
 General Ledger may be accomplished by a summary entry, a Journal 
 entry made at the base of the book about to be posted, comprising a 
 list of the totals of the debit and credit columns. Thus, the sum- 
 mary entry of our Purchase Book is : 
 
 Sand 
 Coke 
 Copper 
 Oil 
 Iron, etc. 
 
 Accounts Payable (Amount Credit Column) 
 
 All these accounts are posted to the General Ledger, and, as was 
 explained before, the amount credited to "Accounts Payable" 
 Account in the General Ledger equals the sum of the individual 
 credits to the Creditors' Ledger. The summary entry serves the 
 additional purpose of showing whether the book of original entry 
 is in balance. 
 
 Sundries. — The columns marked " Sundries " take care of those 
 miscellaneous items whose infrequent purchase or unimportance 
 does not warrant the ruling of separate columns. But each account 
 therein, being in substance a debit columnar heading, is posted 
 individually to its account in the General Ledger and is included 
 in the summary entry with the other debit entries. 
 
 Thus the second entry in the illustration is : 
 
 Purchased real estate for $20,000.00 from the City Improve- 
 ment Company. 
 
 The Purchase Book is used to record all purchases of the 
 business, whether on account, by cash, or by note. If on account, 
 it appears only in the Purchase Book ; if for cash, in the Cash Book 
 and Purchase Book ; and if by note, in the Bill Book (or if not 
 used, in the General Journal) and the Purchase Book. 
 
166 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
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 COLUMNAR BOOKS 
 
 169 
 
 Sales Book. — The Sales Book in its operation is in all respects 
 similar to the Purchase Book. The merchandise sales are divided 
 into various classifications by devoting a separate column to each. 
 Instead of the one credit column, there are several, as in the illustra- 
 tion, used for iron castings, sand blast castings, etc., the customer 
 being debited in each instance with the total amount of his purchase 
 as shown in the "Amount Debit" column. To illustrate: 
 
 May 2, 1913. Sold to Alfred Salem: 
 
 Iron Castings $8.50 
 
 Sand Blast Castings 11.50 
 
 Brass Castings 30.00 
 
 Alfred Salem is debited and the various commodities credited, so 
 that a repeated number of similar transactions can be posted to the 
 General Ledger by again totaling the columns and having this 
 summary entry; 
 
 Accounts Receivable (Amount debit) 
 Iron Castings 
 Sand Blast Castings 
 Brass Castings 
 Phosphorus Bronze Castings 
 
 The customers are individually debited in the Customers' Ledger. 
 
 The Sales Book is used to record all sales of the business, irre- 
 spective of the terms. 
 
 The Cash Book is a duplication of the older and simpler form, 
 with additional oolumnj to indicate to which Ledger the account 
 should be posted. The " Net Cash " column on the debit side of the 
 book handles the cash coming in, less any discount (also debit) ; and 
 the account appearing in the Account Column is credited by extend- 
 ing it in the Customer's Ledger Column or General Ledger Column, 
 according to whether it is a Customer's or General Ledger Account. 
 
 May 6. Alfred Salem pays his bill of the 2d inst., less 5 % dis- 
 count. To journalize this we have : 
 
 Cash $47.60 
 
 Discount 2.50 
 
 Alfred Salem $ 50. 00 
 
 The Cash Book entry, as will be noted, is similar, the several 
 columns being used for the debit and credit. 
 
170 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 COLUMNAR BOOKS 
 
 171 
 
 A thirty -day note for $50 is discounted at bank the same day, 
 the entry for which is shown in illustration (2). When we are ready 
 to post, we add the columns and make the following summary entry : 
 
 Cash 
 Discount 
 
 Accounts Receivable 
 
 General Ledger (posted) 
 
 The discount column is here used for both bank discount and 
 merchandise discount. If sufficient items of both were to occur in 
 the business, it would be advisable to open separate columns. In 
 the illustration the merchandise discount is indicated by "M." 
 
 There is no account in the General Ledger as " General Ledger 
 Account," and it is used in the summary entry because it is necessary 
 to its equilibrium. The items of which it is composed are the 
 accounts already in the General Ledger, which are posted individu- 
 ally from the Account column of the Cash Book. All the accounts 
 appearing therein are posted as credits either in the Customers' 
 Ledger or General Ledger. 
 
 To illustrate the credit side of the Cash Book, suppose we pay 
 the City Improvement Co. for the real estate purchased on May 1. 
 
 Suppose we pay the Mineral Supply Co., less 5 % discount. 
 
 The summary entry for this side of the book is : 
 
 Accounts Payable 
 General Ledger (posted) 
 
 Cash 
 
 Discount 
 
 Petty Cash Book. — The name of this book indicates its principal 
 use, i.e. the handling of petty cash items, cash drawer expenditures 
 too small and too numerous to be handled in the general Cash Book. 
 Very often it is not used as a book of original entry, but merely as 
 a book auxiliary to the general Cash Book ; in either case it is noth- 
 ing more nor less than a record of " cash drawer " transactions, col- 
 umnized for convenience. The book consists of two distinct parts, 
 the first two columns to record the date and amount of receipts, and 
 the rest of the book to handle the expenditures. 
 
 Thus, on May 7,^50.00 is put into the Cash Drawer. It is 
 entered on the credit side of the Cash Book, charged to Petty Cash 
 (3), and at the same time entered in the receipts column of the Petty 
 Cash Book (1). 
 
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 172 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 May 8. The following expenditures are made (2) : 
 
 $2.00 for postage 
 $3.00 for printing 
 
 May 9. Purchase sundry office supplies, $8.00 (3). 
 
 May 25. Have the windows in the factory cleaned, $5.00 (4). 
 
 The above entries are made as indicated in the illustration. 
 
 Imprest System. — If the book is handled as an auxiliary book to 
 the Cash Book, and not as a book of original entry, what is kno\vn 
 as the Imprest System of posting must be used, viz. to impress or 
 transfer on our Cash Book the entries as made on the Petty Cash 
 Book. This makes it a collector of petty items for the period, to be 
 transferred in total to the Cash Book at the end of the period. 
 Thus, in the illustration on the credit side of the Cash Book the 
 accounts " Stationery and Printing " (4), " Postage " (5), ** Office 
 Supplies " (6), and " Factory Expense " (7), are charged with their 
 respective amounts of cash as appearing in the Petty Cash Book. 
 But these items have already been paid from the cash drawer, and 
 being recorded in both books, it appears that they have been paid 
 twice. Therefore, the cash drawer must be reimbursed for the 
 amount expended, $18.00, and the Cash Book having now absorbed 
 these accounts, w^e regain the original Petty Cash Book balance by 
 entering the $18.00 in the receipt column (5) and balance as shown. 
 
 Petty Cash Book as a Book of Original Entry. — By treating it as 
 
 a book of original entry, a summary entry may be made as in the 
 
 other books and posted direct to the accounts in the General 
 Ledger, thus: 
 
 Stationery and Printing 
 Postage 
 Office Supplies 
 Factory Expense, etc. 
 Petty Cash 
 
 Voucher System. — There is a third system of handling petty cash 
 which is known as the " Voucher System." A definite amount of 
 cash is placed in the cash drawer, say $100.00, of which no record 
 is made, not even in the Cash Book itself. 
 
 For every expenditure of petty cash there must be an original 
 voucher, signed by the manager, or some one in charge, authorizing 
 the payment and showing the reason for it, or the account to be 
 charged. Whenever cash is balanced, there must be in the cash 
 
 COLUMNAR BOOKS 
 
 173 
 
 drawer either $100.00 in the form of cash, or vouchers to that 
 amount. When it is desired to post, the vouchers are classified as 
 to accounts, and the total expenditures for the various accounts are 
 listed on the credit side of the Cash Book, exactly as is done through 
 the Imprest System. The Voucher System may be used with or 
 without a Petty Cash Book, and the posting or charging of the 
 accounts may be accomplished either from the vouchers themselves, 
 as explained, or from the Petty Cash Book by the " Original Entry " 
 method. 
 
 A Bill Book similar to the one explained earlier in the book may 
 be used in a Columnar Set as a book of original entry, but in the 
 problems given the notes receivable and notes payable are recorded 
 in the General Journal, and the Bill Book is used only as auxiliary. 
 
 General Journal. — The debit and credit columns of the General 
 Journal are subdivided in each instance into columns for Creditors, 
 Customers, and General Ledger Accounts. It has come to be used 
 for notes, drafts, adjustment, and closing entries, and therefore nec- 
 essarily deals with the three classes of accounts. 
 
 Thus, when Salem on May 6 gives his 30-day note in payment 
 of his bill of the 2d instant, the entry in the Journal is made by 
 debiting Notes Receivable on the left of the page in the General 
 Ledger Column and crediting Alfred Salem on the right-hand side 
 of the page in the Customers' Ledger column. 
 
 At the end of the period these several columns are totaled and 
 the summary entry made as follows : 
 
 Accounts Payable 
 Accounts Receivable 
 General Ledger (posted) 
 
 General Ledger (posted) 
 Accounts Receivable 
 Accounts Payable 
 
 As a result of the use of these summary entries in the several 
 books, it is possible to strike off a complete Trial Balance from the 
 General Ledger without reference to the subsidiary Ledgers. This 
 is, of course, only possible because of the columnar totals making up 
 the summary entry, and it is these columns which facilitate the work 
 of the bookkeeper by avoiding, a constant repetition in journalizing. 
 The posting of the General Ledger debits and credits from the vari- 
 ous books has been illustrated by means of the summary entries, but 
 
174 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 COLUMNAR BOOKS 
 
 175 
 
 i 
 
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 t 
 
 a 
 
 H 
 
 M 
 
 ** be 
 
 
 it will be readily seen that a summary entry need not be made, and 
 in fact seldom is made, the postings being made direct from the col- 
 umn totals. 
 
 For "Columnar Books" problems see "Principal Problems'* II 
 and III, at the end of the book. 
 
 8 
 
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 12 
 
REVENUE ACCOUNTS 
 
 177 
 
 
 i 
 
 
 CHAPTER XXV 
 
 REVENUE ACCOUNTS 
 
 Profit and Loss Account. — We have learned that one of the chief 
 purposes of bookkeeping is to ascertain the profit or loss of a busi- 
 ness and the sources of such profit or loss. Further, that the Profit 
 and Loss Account reflects in its balance a summary of the balances 
 of all the nominal accounts in the Ledger. Therefore, for all ordi- 
 nary purposes it seems that this account itself should give us the 
 desired information. 
 
 Insufficiency of the Profit and Loss Account — On account of the 
 increasing complexity of business enterprise, however, comprising 
 in its many details the development of a product through all its 
 processes from department to department, it becomes imperative that 
 the proprietor be apprised of the costs and profits of his various 
 departments in greater detail than the one Profit and Loss Account 
 affords. If he would conduct his business intelligently, he must 
 know : 
 
 1. The volume of business transacted in each department. 
 
 2. The expenses involved in each department. 
 
 3. The proceeds of the individual departments. 
 
 4. Those general expenses which cannot be directly applied to 
 
 any of the departments. 
 
 5. The net result of the operation of his plant as a whole. 
 
 Not that this information is not available in a Profit and Loss 
 Account. But it is necessary to separate firat the numerous items 
 under Profit and Loss and classify them under their proper headings, 
 to arrive at any intelligent result. Why not classify them in the 
 first place and avoid this unnecessary confusion? This may be 
 accomplished by disintegrating what we know as the Profit and 
 Loss Account, comprising the Revenue facts of a business, into such 
 component parts as the particular needs may dictate. 
 
 Let us take as the hypothesis a large business engaged in the 
 manufacture of a class of goods involving an expensive plant, where 
 the Factory, Sales Room, and Executive Offices occupy the same build- 
 
 176 
 
 ing. It is desired by the managers to have authentic information 
 of the costs and proceeds of each department. We therefore open : 
 
 1. Manufacturing Account. 
 
 2. Trading Account. 
 
 3. Administration Account. 
 
 4. Profit and Loss Account. 
 
 The following are pro forma outlines of these accounts : 
 
 Manufacturing Account 
 
 Opening Inventory 
 
 Raw Materials 
 
 Goods in Process 
 
 Finished Goods 
 Purchase of Materials 
 Unproductive Labor 
 Packages 
 Productive Labor 
 Fuel 
 
 Heat, Light, and Power 
 Water 
 
 Repairs to Machinery and Tools 
 Repairs to Buildings 
 General Repairs 
 Factory Expense 
 Insurance 
 Taxes 
 
 Freight (Factory Material) 
 Cartage (Factory Material) 
 Reserve Accounts 
 Accrued Mfg. Expenses 
 
 Closing Inventory 
 Raw Materials 
 Goods in Process 
 Finished Goods 
 Stocks of Fuel, etc. 
 Discounts on Purchases 
 Balance 
 
 (Being the cost of the manufactured 
 goods sold and carried to the 
 debit side of the Trading Ac- 
 count) 
 
 Trading Account 
 
 Balance (from Manufacturing) 
 Discounts on Sales 
 Reserve for Discounts on Sales 
 Salesmen's Salaries and Expenses 
 Advertising 
 Freight 
 Cartage 
 
 Reserves and Repairs (applying to Trad- 
 ing) 
 Balance (being the Gross Trading Profit 
 
 carried to credit of Profit and Loss 
 Account) 
 
 Outbound 
 
 Sales (less Returns and Allowances) 
 
11 
 
 it 
 
 ♦ 
 
 178 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Administration Account 
 
 Salaries of Officers and Clerks 
 
 Bonding of Employees 
 
 Office Expense 
 
 Greneral Expense 
 
 Postage 
 
 Stationery and Printing 
 
 Telephone 
 
 Reserve for Depreciation of Office Furni- 
 ture 
 
 Balance (carried to debit side of Profit 
 and Loss Account) 
 
 Profit and Loss Account 
 
 Balance from Administration Account 
 
 Interest on Bonds 
 
 Charities 
 
 Bad Debts 
 
 Reserve for Bad Debts 
 
 Bank Discount 
 
 Extraordinary Losses 
 
 Proprietor 
 or 
 
 Dividends 
 
 Surplus 
 
 Balance from Trading Account 
 
 Rentals 
 
 Interest (earned) 
 
 Balance < 
 
 By reference to the illustration it is seen that the accounts have 
 been grouped according to the department to which they are most 
 intimately related. Thus, just as Merchandise was charged in the 
 earlier problems with freight, in order to ascertain the cost of the 
 goods, so here the Manufacturing Account is charged with the mer- 
 chandise. It is logical in order to find the cost of the manufactured 
 goods sold to ascertain first the material on hand, plus additional 
 purchases and additional cost of manufacturing, as exhibited by the 
 debits to our account ; and after deducting the discount on pur- 
 chases, subtract the material on hand (raw, in process, and finished) 
 on the credit side of the account. 
 
 If we take the finished goods entirely from the manufacturing 
 department and do not include this inventory in manufacturing, that 
 account then shows the cost of manufacturing the goods, both sold 
 and unsold ; or in other words, the cost of all the goods manufactured. 
 
 Trading. — By charging Trading Account with the cost of manu- 
 
 REVENUE ACCOUNTS 
 
 179 
 
 facturing the goods sold, together with the appropriate departmental 
 costs, we can, by deducting this total from the sales less returns 
 and allowances, ascertain the gross trading profit. This profit is 
 naturally the chief item appearing on the credit side of the Profit 
 and Loss Account, and is offset by such revenue losses as cannot be 
 properly allocated to the other accounts, examples of which are 
 
 given above. 
 
 The Administration Account is more essentially a subheading 
 to the Profit and Loss Account than the other two. It handles only 
 those expenses which occur in the management of the business as a 
 whole, and its balance is carried directly to Profit and Loss. 
 
 Throughout these accounts there appear certain items, the proper 
 classification of which present problems not easy of solution. Their 
 treatment varies with the thought of the accountant in charge. A 
 few of them are : 
 
 1. Shall rents received from leasing a part of the factory be 
 
 crediting to Manufacturing, or to Profit and Loss ? 
 
 2. Shall taxes, if on the factory, be charged to Manufacturing, 
 
 or direct to Profit and Loss as a reduction of net earnings ? 
 
 3. Similarly, the Reserves for Depreciation. 
 
 We mention these only as an example of what must be considered 
 in treating Revenue Accounts. 
 
 It is understood, of course, that the pro forma outlines given 
 include the accounts actually appearing in the Ledger, which have 
 been previously closed into Manufacturing, Trading, Administration, 
 and Profit and Loss by Journal entry. Thus : 
 
 Inventory 
 
 Manufacturing 
 
 Raw Materials 
 
 r 
 
 Inventory 
 
 Purchases 
 
 Unproductive Labor 
 
 Packages 
 
 Productive Labor 
 
 Fuel 
 
 Heat, Light, and Power 
 
 Water 
 
 Repairs to Machinery and Tools 
 
 Repairs to Buildings 
 
\' 
 
 ( 
 
 180 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 General Repairs 
 
 Factory Expense 
 
 Insurance 
 
 Taxes 
 
 Freight 
 
 Cartage 
 
 Reserve Accounts 
 
 Expense Accruals 
 
 Discount on Purchases 
 Goods in Process 
 Finished Goods 
 
 Trading 
 
 Manufacturing 
 
 Discount on Sales 
 
 Reserve for Discount on Sales 
 
 Salesmen's Salaries and Expenses 
 
 Advertising 
 
 Freight 
 
 Cartage 
 
 Reserves 
 
 Repairs (Trading) 
 
 Sales 
 
 Trading 
 
 i* 
 
 Administration 
 
 Clerks' Accounts 
 
 Officers' Accounts 
 
 Bonding 
 
 Office Expenses 
 
 General Expense 
 
 Postage 
 
 Stationery and Printing 
 
 Telephone 
 
 Reserve for Depreciation for Office Furniture 
 
 Profit and Loss 
 
 ! 
 
 'i 
 
 Administration 
 Interest on Bonds 
 Charities 
 Bad Debts 
 
 REVENUE ACCOUNTS 
 
 Reserve for Bad Debts 
 Bank Discount 
 Extraordinary Losses 
 
 181 
 
 Trading 
 
 Rentals 
 
 Interest 
 
 Profit and Loss 
 
 Profit and Loss 
 
 Proprietor 
 Dividends 
 Surplus 
 
 It will be seen that the subject of Revenue Accounts has to do 
 with the closing of a set of books and is but an elaboration of our 
 previous chapter on that subject, with this difference, that, instead of 
 one general Profit and Loss Account, we may have as many as the 
 requirements of the particular business dictate. 
 
 One of the most interesting features of Revenue Accounts is the 
 handling of the inventories. There are two general methods. The 
 first is to close out the Inventory Account at the beginning of the 
 year, together with the totals of the various material accounts, by 
 charging them to Manufacturing and crediting Manufacturing with 
 the inventory at the close of the period. The second method presup- 
 poses that the inventory at the beginning of the year has been closed 
 into the material accounts themselves, and thus at the time of clos- 
 ing we need only consider the final inventory. This is placed on 
 the books by a debit to Inventory and a credit to the various material 
 accounts and the balance of these accounts now represents the amount 
 consumed during the period, and is closed into manufacturing. 
 
 Problems 39 to 42, on Revenue Accounts, have been taken from 
 the questions of the various State Examinations for applicants for 
 the degree of Certified Public Accountant. 
 
 The problems have not been quoted exact, verbal changes having 
 been made in the presentation of the problems. 
 
 PROBLEM 89 
 
 The Trial Balance of the Vincent Manufacturing Co., as of 
 Dec. 31, 1906, is given below. Inventory, Dec. 31, 1906, $90,000.00. 
 Prepare Manufacturing, Trading, and Profit and Loss Accounts, and 
 Balance Sheet. 
 
 • a 
 
»■■ 
 
 182 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 It 
 
 i 
 
 m 
 
 
 
 Trial Balance 
 
 
 
 
 
 
 
 Discounts, trade 
 
 40:30 
 
 00 
 
 
 
 
 
 Entertainment of Customers 
 
 2000 
 
 00 
 
 
 
 
 
 Machinery Inventory, Dec. 31, 1906 
 
 40000 
 
 00 
 
 
 
 
 
 Tools Inventory, Dec. 31, 1906 
 
 8500 
 
 00 
 
 
 
 
 
 Patents Inventory, Dec. 31, 1906 
 
 21000 
 
 00 
 
 
 
 
 
 Patterns Inventory, Dec. 31, 1906 
 
 12400 
 
 00 
 
 
 
 
 
 Purchases 
 
 410000 
 
 00 
 
 
 
 
 
 Notes Receivable 
 
 3050 
 
 00 
 
 
 
 
 
 Accounts Receivable 
 
 250000 
 
 00 
 
 
 
 
 
 Insurance : 
 
 
 
 
 
 
 
 Machinery, Tools and Patterns 
 
 500 
 
 00 
 
 
 
 
 
 Merchandise 
 
 650 
 
 00 
 
 
 
 
 
 Employees' Liability Premiums 
 
 4000 
 
 00 
 
 
 
 
 
 Taxes, Personal Property 
 
 1000 
 
 00 
 
 
 
 
 
 Interest, General 
 
 4470 
 
 00 
 
 
 
 
 
 Cash 
 
 45000 
 
 00 
 
 
 
 
 
 Labor, productive 
 
 300(K)0 
 
 00 
 
 
 
 
 
 Labor, unproductive 
 
 35000 
 
 00 
 
 
 
 
 
 Power 
 
 21000 
 
 00 
 
 
 
 
 
 Repairs, Machinery 
 
 1310 
 
 00 
 
 
 
 
 
 Factory Expense 
 
 3010 
 
 00 
 
 
 
 
 
 Office Payroll 
 
 18000 
 
 00 
 
 
 
 
 
 Inventory, Jan. 1, 1906 
 
 75000 
 
 00 
 
 
 
 
 
 Merchandise Sales 
 
 
 
 1048500 
 
 00 
 
 
 
 Allowances 
 
 10900 
 
 00 
 
 
 
 
 
 Office Furniture and Fixtures 
 
 5700 
 
 00 
 
 
 
 
 
 Salaries, Officers 
 
 15000 
 
 00 
 
 
 
 
 
 Postage 
 
 2000 
 
 00 
 
 
 
 
 
 Telegraph and Telephone 
 
 1800 
 
 00 
 
 
 
 
 
 Collection and Exchange 
 
 700 
 
 00 
 
 
 
 
 
 Stationery and Printing 
 
 3050 
 
 00 
 
 
 
 
 
 Freight in 
 
 23000 
 
 00 
 
 
 
 
 
 Freight out 
 
 10000 
 
 00 
 
 
 
 
 
 Cartage and Express in 
 
 3750 
 
 00 
 
 
 
 
 
 Bonding of Employees (Office) 
 
 250 
 
 00 
 
 
 
 
 
 Traveling Expenses (Salesmen) 
 
 17500 
 
 00 
 
 
 
 
 
 Salesmen's Commission and Salaries 
 
 40000 
 
 00 
 
 
 
 
 
 Notes Payable 
 
 
 
 99050 
 
 00 
 
 
 
 Accounts Payable 
 
 
 
 43000 
 
 00 
 
 
 
 Surplus 
 
 
 
 43520 
 
 00 
 
 
 
 Capital Stock 
 
 
 
 200000 
 
 00 
 
 
 
 Director's Fees 
 
 1500 
 
 00 
 
 
 
 
 
 Cartage out 
 
 4300 
 
 00 
 
 
 
 
 
 Discounts, trade 
 
 
 
 6300 
 
 00 
 
 
 
 Return Sales Account 
 
 41000 
 
 00 
 
 
 
 
 1440370 
 
 00 
 
 1440370 
 
 00 
 
 REVENUE ACCOUNTS 
 
 183 
 
 PROBLEM 40 
 
 This Trial Balance is taken from the Ledger of Johnson & Williams, 
 as of Dec. 31, 1910. 
 
 Trial Balance 
 
 i! 
 
 Advertising 
 
 Cartage 
 
 Wages 
 
 Stationery and Printing 
 
 Cash 
 
 Tools 
 
 Furniture and Fixtures 
 
 Salesmen's Sal. and Exp. 
 
 Clerks' Salaries 
 
 Raw Materials Purchased 
 
 Discount on Purchases 
 
 Accounts Receivable 
 
 Accounts Payable 
 
 Sales, Finished Goods 
 
 Machinery 
 
 Rents Paid 
 
 Discounts on Sales 
 
 Power and Light 
 
 Bank Discounts 
 
 Johnson 
 
 Williams 
 
 735 
 
 250 
 
 3761 
 
 176 
 
 1463 
 
 225 
 
 390 
 
 3271 
 
 1684 
 
 7500 
 
 2760 
 
 9430 
 
 592 
 
 98 
 
 675 
 
 30 
 
 33041 
 
 60 
 00 
 25 
 00 
 00 
 00 
 00 
 68 
 00 
 00 
 
 00 
 
 00 
 00 
 33 
 00 
 00 
 
 86 
 
 49 
 
 1579 
 19326 
 
 5550 
 6536 
 
 33041 
 
 67 
 
 00 
 42 
 
 00 
 
 77_ 
 86 
 
 Write off 15% on Accounts Receivable for Reserve for Bad 
 Debts. Depreciation on Machinery 7 %, on Furniture and Fixtures 
 20%, on Tools 12%. Rents paid, 25% Office, 75% Factory. 
 Cartage $115.00 on outgoing goods. Cartage tf 135.00 on incoming 
 goods. Inventory, Finished Goods $1461.32, Inventory, Raw 
 Material $729.55. 
 
 From the above data prepare Manufacturing, Trading, and Profit 
 and Loss Accounts, and final Balance Sheet, apportioning the Profit 
 and Loss between the partners in the proportion of 50 % to Johnson 
 and 50 % to Williams. 
 
 PROBLEM 41 
 
 From the following Trial Balance of the Excelsior Ribbon Com- 
 pany prepare closing Journal entries as of June 30, 1911, keeping in 
 mind the fact that the company uses Manufacturing, Trading, and 
 
184 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Profit and Loss Accounts. Also prepare a final Balance Sheet as of 
 that date. 
 
 Trial Balance 
 
 
 -ft 
 
 ; ■ • '3 
 
 m 
 
 I 
 
 
 Capital Stock 
 
 Preferred, 250 shares at 8100.00 
 
 Common, 300 shares at $100.00 
 Machinery 
 
 Inventory, Dec. 31, 1910 
 Accounts Receivable 
 Materials Purchased 
 
 Silk (raw, spun, and thrown) 
 
 Ribbon Paper, boxes, labels, etc. 
 Labor 
 
 Weaving 
 
 Throwing 
 
 Dyeing 
 
 Warping, winding, etc. 
 
 Fixing and preparing looms 
 Sales of ribbon, less returns 
 Sales, Miscellaneous 
 Discounts on Purchases 
 Profit and Loss — Surplus — Dec. 31, 1910 
 Greneral Expenses 
 
 Salaries, officers and clerk 
 
 Engineers, etc, 
 
 Rent of Mill 
 
 Commissions 
 
 Fuel, Lighting, etc. 
 
 Other expenses (including Ins., 9285.00) 
 Notes Payable 
 Interest on Notes Payable 
 Accounts Payable 
 Cash in Bank 
 Cash in Safe 
 
 24500 
 78620 
 63428 
 
 124326 
 3728 
 
 29384 
 10976 
 
 8563 
 15721 
 
 1270 
 
 00 
 15 
 30 
 
 80 
 05 
 
 07 
 25 
 43 
 18 
 60 
 
 25000 
 30000 
 
 5238 
 2068 
 2500 
 17856 
 2370 
 7650 
 
 1586 
 
 9876 
 726 
 
 410392 
 
 75 
 17 
 00 
 50 
 60 
 39 
 
 36 
 
 25 
 35 
 
 20 
 
 
 265123 
 
 2507 
 
 120 
 
 23528 
 
 00 
 00 
 
 57235 
 6875 
 
 410392 
 
 74 
 26 
 56 
 74 
 
 95 
 95 
 
 20 
 
 In closing, provide for the following : 
 
 Dividends declared at the rate of 3|% on preferred stock. 
 
 Dividends declared at the rate of 3% on common stock. 
 
 Depreciation on Machinery, 15%. 
 
 Prepaid Insurance $48.25. 
 
 Labor accrued but not paid 1850.00 (estimated). 
 
 Taxes accrued but not due 250.00 (estimated). 
 
 Inventory, June 30, 1911 96385.50. 
 
 REVENUE ACCOUNTS 
 
 185 
 
 
 PROBLEM 42 
 The following is the Trial Balance of the Arlington Manufactur- 
 ing Co., at the close of business Dec. 31, 1904, the end of the second 
 fiscal year of the company's operations : 
 
 Trial Balance 
 
 'i 
 
 Cash 
 
 Land 
 
 Buildings 
 
 Machinery 
 
 Tools and Implements 
 
 Horses, Wagons, and Harness 
 
 Office Furniture 
 
 Notes Receivable 
 
 Accounts Receivable 
 
 Investments 
 
 Salesmen's Accounts (Advances in Salaries) 
 
 Organization expense, IJ15000.00 less 2 % 
 
 Good WiU 
 
 Notes Payable 
 
 Accounts Payable 
 
 Special Accounts — Officers and Clerks 
 
 Reserve for Bad Debts, less accounts writ- 
 ten off 
 
 Reserve for Depreciation on Buildings 2^ % 
 
 Reserve for Depreciation on Machinery 6 % 
 
 Reserve for Depreciation on Horses, Wag- 
 ons, etc., 10 % 
 
 Capital Stock, 10000 shares at $100.00 
 
 Sales, less returns and allowances 
 
 Rent of part of business premises 
 
 Inventory, Dec. 31, 1903 
 
 Purchases, including cartage 
 
 Labor — factory payrolls 
 
 Salaries of officers, clerical force 
 
 Salaries of salesmen 
 
 Advertising 
 
 Taxes 
 
 Insurance 
 
 Interest and Discount 
 
 Expenses, office and legal 
 
 Maintenance, Repairs, Buildings, and Ma- 
 chinery 
 
 Profit and Loss 1903, Surplus 
 
 25324 
 100000 
 200000 
 300000 
 
 40430 
 
 30000 
 5201 
 
 25812 
 163374 
 
 20000 
 1960 
 
 14700 
 200000 
 
 104621 
 
 395662 
 
 600400 
 
 75120 
 
 60440 
 
 50300 
 
 4020 
 
 2600 
 
 6500 
 
 29750 
 
 26942 
 
 2483156 
 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 
 i 
 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 
 00 
 
 00 
 
 42000 
 98511 
 15363 
 
 112 
 
 5000 
 
 18000 
 
 3000 
 
 1000000 
 
 1240600 
 
 500 
 
 60070 
 
 2483156 
 
 00 
 00 
 00 
 
 00 
 00 
 00 
 
 00 
 00 
 00 
 00 
 
 00 
 
 00 
 
 i 
 
m 
 
 186 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Note. —Inventory, Dec. 31, 1004 
 
 Factory Payrolls accrued, but not paid 
 
 Unexpired Insurance 
 
 Reserve for Bad Debts, S% of Accounts Receivable. 
 
 $270560.00 
 
 6750.00 
 
 912.00 
 
 From the foregoing Trial Balance and notations make the Jour- 
 nal entries necessary to close the books, keeping in mind that 
 the company uses Manufacturing, Trading, Administration, and 
 Profit and Loss Accounts. Write off 2 % of original organization 
 expense. In arriving at the net proceeds for the current year, make 
 the same reserves for depreciation as were made at the end of the 
 first or preceding year. Also prepare a Balance Sheet, as of Dec. 31, 
 1904. Stable equipment is employed for delivery of goods sold. 
 
 i 
 
 r. 
 
 I 
 
 PRINCIPAL PROBLEM I 
 
 187 
 
 PRINCIPAL PROBLEM I 
 
 General Produce Business of A. J. Dexter 
 
 ^^T^i^'^''' r '^^^ ^'***^^®" '^'" '"""^"^^ *^® "'^"^^ principles set out in Chapters IV to 
 XXIII, inclusive. It is independent of the Supplementary Exercises. The student wiU 
 use the Journal and the Ledger until further directed. 
 
 Nov. 1, 1 9 1 3. — A. J. Dexter this day commenced the General Produce Business, 
 
 investing cash, $ 20000.00. 
 Rented property # 41 Exchange Place from Albert Jones, pay- 
 ing one month's rent in advance, $ 75.00. (Rent Account.) 
 Engaged a bookkeeper at $15.00 a week, and two sales clerks 
 
 at $ 12.00 a week, respectively. (No entry.) 
 Opened an account in the Produce National Bank, depositing 
 the balance of cash. (No entry.) 
 Nov. 2, 1913. — Purchased from A. C. Drake, on account ; 
 
 300 bu. Potatoes @ $ .45 
 
 200 bu. Onions .52 
 
 200 bskt. Cabbage .23 
 
 Purchased from Hansell & Co., on account : 
 300 bx. Oranges (^ $ 3. 10 
 
 200 bx. Lemons 2.05 
 
 100 bbl. Apples 3. 60 
 
 Nov. 3, 1913. — Purchased from A. W. Martin, for caah : 
 
 150 bbl Apples @ $3.55 
 
 Sold to B. S. Perkins, on account : 
 25 bbl. Apples @ $4.00 
 
 30 bu. Potatoes .55 
 
 10 bskt. Cabbage .30 
 
 Sold to T. N. Merell, for cash : 
 25 bu. Onions @ $ .60 
 
 Purchased of the Star Box Co., for cash : 
 500 Baskets @ $ .03 
 
 NoTB. — Baskets are necessary to the sale of goods ; charge Merchandise Account 
 for same. 
 
 i 
 
 U 
 
 
 Nov. 4, 1913.— 
 
 Purchased from the Phoenix Sack Co., for cash : 
 300 Potato Sacks @$ .04 
 
 (Charge similar to above.) 
 
 Sold T. N. Hawkins, on account : 
 40 bx. Lemons @ $2.50 
 
 60 bx. Oranges 3.50 
 
 / 
 
I> 
 
 Nov. 5, 1913. — 
 
 Nov. 6, 1913. 
 
 Nov. 8, 1913.— 
 
 i 
 
 188 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Sold L. Adler, on account : 
 
 10 bx. Lemons @ $2.55 
 
 15 bx. Oranges 3.60 
 
 Paid $ 18.00 for sign in front of store. (Expense Account.) 
 Paid bill of Novelty Stationery Co., just received, for Office 
 
 Books, 860.00. (Expense Account.) 
 Received cheek for $100.00 from B. S. Perkins, on account. 
 Sent A. C. Drake check for $150.00 to apply on account. 
 Sent Hansell & Co. check for $500.00 to apply on account. 
 Paid salaries of bookkeeper and clerks for the week, $ 39.00. 
 A. J. Dexter drew his weekly salary of $20.00. (Salary 
 
 Account.) 
 Purchased from A. C. Drake, on account : 
 
 200 bu. Potatoes @ $ .48 
 
 150 bu. Onions .55 
 
 Purchased from Hansell & Co., on account : 
 
 100 bx. Oranges (^$3.00 
 
 150 bx. Lemons 2.20 
 
 Received bill of $ 40.00 from Produce Cartage Co., for hauling 
 
 merchandise. Enter the bill but, do not pay it. 
 Sold to B. S. Perkins, on account : 
 
 50 bbl. Apples @ $3.90 
 
 30 bu. Potatoes .60 
 
 Sold to L. Adler, on account : 
 
 20 bx. Oranges @ $3.75 
 
 Sold to P. H. Brooks, for cash : 
 
 190 bskt. Cabbage @ $ .28 
 
 Sold Joseph Denny, on account : 
 
 125 bu. Onions @ $ .65 
 
 200 bu. Potatoes .55 
 
 Paid salaries of bookkeeper and clerks, $ 39.00. A. J. Dexter 
 
 drew his salary of $ 20.00. 
 Purchased of D. Howard, on account : 
 
 100 Baskets Cabbage @ $ .25 
 
 Purchased of the Ajax Coal Co., for cash : 
 
 10 tons Coal @ $6.00 
 
 (Expense Account.) 
 Sold to T. P. Hunter, on account : 
 
 150 bx. Oranges @ $4.00 
 
 Sold to A. S. Jackson, on account : 
 
 100 bx. Lemons @ $2.50 
 
 Received drayage bill from Produce Cartage Co., for $25.00, 
 for hauling merchandise from 9th to 18th lost. 
 
 PRINCIPAL PROBLEM I 
 
 189 
 
 Nov. 9, 1913. 
 Nov. 10, 1913. 
 
 Nov. 11, 1913. 
 Nov. 12, 1913. 
 Nov. 13, 1913." 
 
 Nov. 15, 1913. 
 Nov. 16, 1913. 
 
 Nov. 17, 1913. 
 Nov. 18, 1913.- 
 
 Nov. 19, 1913.— 
 
 Nov. 20, 1913.— 
 
 Nov. 22, 1913.— 
 Nov. 23, 1913.— 
 Nov. 24, 1913.— 
 
 Nov. 25, 1913. 
 Nov. 26, 1913. 
 Nov. 27, 1913. 
 
 Nov. 29, 1913. 
 Nov. 30, 1913. 
 
 Received from Joseph Denny, check for $100.00, to apply on 
 
 account. 
 Settled account with D. Howard by mailing check for $ 25.00. 
 Settled account with the Produce Cartage Co. by mailing check 
 
 for $65.00. 
 Paid weekly salaries. 
 Sold to Dawson & Maxwell, on account : 
 
 150 bu. Onions @ $ .65 
 
 Sold to J. H. Hammond, on account : 
 
 125 bbl. Apples (g $4.20 
 
 Sold to S. Beitler, on account : 
 
 100 bx. Lemons @ $2.50 
 
 Paid for bill heads and sundry office supplies, $ 15.00, from Cash 
 
 Drawer. (Expense Account.) 
 Received from L. Adler, check for $79.50, on account. 
 Sent check to Hansell & Co. for $300.00, on account. 
 Paid salaries of bookkeeper, clerks, and proprietor. Mailed 
 
 A. C. Drake check for $135.00, in settlement of bill of the 
 
 2d instant. 
 T. N. Hawkins sent check for $310.00, settling his account. 
 Paid the following bills : 
 
 Telephone $4.00 
 
 Gas 3.00 
 
 Electric Light 2.50 
 
 1. Post the above transactions to the Ledger, placing the ac- 
 counts on the pages designated in the index, to be found at the end 
 of the problem, on page 210. The student will index, on the first 
 two pages of the Ledger, each new account as it is opened. 
 
 2. Present a Trial Balance of the Ledger, as of Nov. 30, 1913. 
 
 Dec. 1,1913. — A. J. Dexter purchased store building and ground for 
 
 $10000.00. The building is valued at $6500.00; the 
 ground at $3500.00. Dexter paid cash for the above. 
 (Open separate accounts for *' Building " and " Land.") 
 Received from T. P. Hunter, his 30-day note dated to-day, for 
 
 $600.00, in ftiU settlement of his account. 
 Purchased for cash from the Excelsior Wagon Co., a horse and 
 wagon, $400.00. (Horses and Wagons Account.) Paid 
 one month's rent in advance from Dec. 1, for stable, $25.00. 
 (Stable Expense Account.) 
 
 Dec. 4, 1913. — Purchased for cash from the Horse Bazaar, another horse and 
 
 wagon, $400.00. 
 
 Dec. 2, 1913. 
 Dec. 3, 1913. 
 
II 
 
 I 
 
 I 
 
 II 
 II 
 
 'It' 
 
 190 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Purchased from the A. Cassel Feed Co., on account, feed, hay, 
 etc., for the stable, $25.00. (Stable Expense Account.) 
 Paid weekly salaries as follows : 
 Bookkeeper $15.00 
 
 Two clerks, each 12.00 
 
 A. J. Dexter 20.00 
 
 Two drivers,* each 10.00 
 
 Dec. 5, 1913. — Paid bill of $ 100.00, received from the A. H. Lewis Paint Co., 
 
 for painting building. (Repjurs Account.) 
 Purchased from A. C. Drake, on account : 
 400 bu. Potatoes @ $ .50 
 
 200 bu. Onions .66 
 
 Dec. 7, 1913. — Purchased from Hansell & Co., on account : 
 
 50 bx. Lemons @ $ 2.50 
 
 Sold to B. S. Perkins, on account : 
 
 75 bx. Oranges @ $4.60 
 
 Sold to T. P. Hunter, on account : 
 100 bx. Oranges @ $4.55 
 
 Dec. 8, 1913. — Received from B. S. Perkins, $19.50 in cash, to apply on 
 
 account : 
 Gave Hansell & Co. 30-day note, dated 6th, for $900.00, to 
 apply on account. 
 Dec. 9, 1913. — Received from L. Alder, 30-day note dated Dec. 6, for $75.00, 
 
 with interest at 6 %. 
 Received 30-day note from B. S. Perkins, dated Dec. 8, for 
 $213.00. 
 Dec. 10, 1913. — Purchased from D. Howard, on account : 
 
 200 bekt. Cabbage @ $ .25 
 
 Sold L. Alder, on account : 
 
 100 bskt. Cabbage % f .30 
 
 Purchased from L. Simpson & Co., on account : 
 100 bbl. Apples @$3.80 
 
 Dec. 11, 1913. — Sold to Joseph Denny, on account : 
 
 200 bu. Potatoes @ $ .65 
 
 Purchased from New York Produce Co., on account: 
 
 100 bu. Onions (o) $ .52 
 
 Paid weekly salaries, as on the 4th instant. 
 Received from Joseph Denny, check for $91.25, on account. 
 Received from A. S. Jackson his 30-day note, dated Dec. 13, 
 for $250.00, with interest at 6 %, in full settlement of his 
 account. 
 
 * (Charge to Stable expense.) 
 
 Dec. 13, 1913. 
 Dec. 14, 1914. 
 
 PRINCIPAL PROBLEM I 
 
 191 
 
 Dec. 15, 1913. — I 
 
 Dec. 16, 1913.— 
 
 Dec. 17, 1913.— 
 
 Dec. 18, 1913.— 
 
 Sent blacksmith check for $ 15.00, for shoeing horses. 
 Discounted 30-day note received from T. P. Hunter on Dec. 2, 
 
 at the Produce National Bank. 
 Gave A. C. Drake 60-day note, dated to-day, with interest at 
 
 6 %, for $178.50, to apply on account. 
 Sold to P. Woodruflf, on account : 
 200 bu. Potatoes @ $ .65 
 
 75 bu. Onions .70 
 
 (This bill is subject to 2 % discount if paid within 5 days.) 
 Received from Dawson & Maxwell, check for $97.50, in settle- 
 ment of their account. 
 Sold to Dawson & Maxwell, subject to 2 % discount within 5 
 days: 
 100 bx. Lemons @ $ 3.00 
 
 Mailed check for $52.00 to New York Produce Co., in 
 
 settlement of account. 
 Paid weekly salaries, as on 11th inst. 
 Dec. 20, 1913. — Received from P. Woodruff, check in payment of bill of 16th 
 
 instant, less 2 % discount. (Charge the discount to Mer- 
 chandise Discount Account.) 
 Purchased from New York Produce Co., on account : 
 150 bskt. Cabbage @$ .30 
 
 Dec. 21, 1913. — Received from Dawson & Maxwell, check in payment of their 
 
 purchase of 17th instant, less 2 % discount. 
 Paid the carpenter for sundry repairs in building, $ 25.00. 
 Dec. 22, 1913. — Received from J. H. Hammond, his 30-day note, dated Dec. 
 
 21, with interest at 6 %, for $525.00, in settlement of 
 his account. 
 Sold to S. Beitler, on account : 
 175 bskt. Cabbage @$ .30 
 
 Dec. 23, 1913. — Discounted B. S. Perkins' note, received on Dec. 9, at the 
 
 Produce National Bank. 
 Gave L. Simpson & Co. 30-day note dated to-day for $ 380.00, 
 in settlement of account. 
 Dec. 24, 1913. — Sold to T. N. Hawkins, on account : 
 
 100 bbl. Apples @ $ 4.60 
 
 75 bx. Oranges 4.50 
 
 Purchased from A. C. Drake the following items, subject to 
 
 5 % discount if paid within 5 days : 
 
 300 bx. Oranges (g$3.90 
 
 200 bx. Lemons 2.25 
 
 100 bbl. Apples 3.80 
 
 Paid weekly salaries as per pay roll of Dec. 18 
 
 «' 
 
 t 
 
 i 
 
II 
 
 Hi 
 
 t! 
 
 192 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Dec. 27, 1913. 
 Dec. 28, 1913. 
 
 Dec. 29, 1913. 
 
 Dee. 30, 1913. 
 
 - Receive<l check for $ 70.00 from S. Beitler, on account. 
 Sold to Andrews & Hemphill, on account : 
 100 bx. Oranges @ $ 4.50 
 
 Paid A. C. Drake for purchase of Dec. 24, thereby taking 
 
 advantage of discount. 
 Received from Andrews & Hemphill their check for $ 200.00 
 and their 30-day note, date<l to-day, for $ 250.00, in pay- 
 ment of their bill of Dec. 28. 
 Discountetl Andrews & Hemphill's note at the bank. Rate of 
 discount, 6 %. 
 Dec. 31, 1913. —Paid in cash, the following bills : 
 
 Telephone $ 4.50 
 
 Gas 2.75 
 
 Electricity 3.75 
 
 Paid weekly salaries, as per pay roll of Dec. 24. 
 
 Post the above transactions to the Ledger, opening any new 
 accounts that may be necessary on the pages designated in the index 
 on page 210. 
 
 Present a Trial Balance of the Ledger as of Dec. 31, 1913. This 
 Trial Balance includes the two months' work. 
 
 The following is the inventory of Merchandise, taken at the last 
 cost price : 
 
 240 bu. Potatoes @$ .50 
 
 275 bu. Onions .52 
 
 150 bbl. Apples 3.80 
 
 105 bx. Oranges 3.90 
 
 250 bx. Lemons 2.25 
 
 175 bskt. Cabbage .30 
 
 There is also on hand, and to be included as part of the 
 inventory : 
 
 @$.03 
 
 250 Bushel Baskets 
 200 Potato Sacks 
 
 .04 
 
 Present a Six-Column Statement as of Dec. 31, 1913, grouping 
 the personal accounts under the captions "Accounts Receivable*' 
 and "Accounts Payable." Make the Journal entries necessary to 
 close the nominal accounts into the Profit and Loss Account, and 
 transfer the balance of this account in turn to the Proprietor's 
 Account. 
 
 Balance and rule all Financial Accounts. 
 
 Present a final, or Proof Trial Balance. 
 
 PRINCIPAL PROBLEM I 
 
 193 
 
 These Statements should be made on the Statement sheets to be 
 found in the back of Blank Book # 1, and the Journal entries in the 
 Journal directly following the last entry of December. 
 
 Note. — The student will use the Journal, Cash Book, Sales Book, Purchase Book, 
 and Bill Book. Copy the balance of cash as shown in the Ledger into the Cash Book. 
 Use the Bill Book as an auxiliary book, making entries for notes receivable and notes 
 payable in the Journal. Before commencing the month, copy into the Bill Book all 
 notes handled previously by the business, entering all information at hand. All notes 
 payable are made payable at the Produce National Bank, and the notes receivable are 
 made payable at A. J. Dexter's office. 
 
 Jan. 2, 1914. — A. J. Dexter purchased the stable, paying $ 1500.00 for the 
 
 land and $ 2000.00 for the building, for which he imme- 
 diately made payment by check to the City Realty Co. 
 Gave check for $ 630.00 to Hansell & Co., to apply on account. 
 Sent check for $ 50.00 to D. Howard, in settlement of account. 
 Jan. 3, 1914. — Sent check to the New York Produce Co., for $ 45.00, in settle- 
 ment of account. 
 Sent check to A. S. Cassel Feed Co., for $ 25.00, in settlement 
 
 of account. 
 Sent check for $ 100.00 to A. C. Drake, to apply on account. 
 Jan. 4, 1914. — Received check for $ 145.00 from B. S. Perkins, on account. 
 
 Received check for $ 197.50 from T. N. Hawkins, on account. 
 Paid $25.00 to wheelwright, for repairing broken wheel and 
 axle. (Stable expense.) 
 Jan. 5, 1914. — Sold T. N. Hawkins, on account: 
 
 75 bbl. Apples @$4.90 
 
 50 bx. Oranges 4.50 
 
 20 bx. Lemons 2.50 
 
 Sold L. Adler, on account : 
 
 100 bskt. Cabbage @ $ .32 
 
 The Produce National Bank advised A. J. Dexter that they 
 have paid his 30-day note, dated Dec. 6, in favor of Han- 
 sell & Co. (Given them Dec. 8, 1913.) 
 Received check for the principal and interest on the note of 
 L. Alder, received Dec. 9, 1913. 
 Jan. 6, 1914. — Sold to B. S. Perkins, terms 5/10/30 : 
 
 50 bbl. Apples @$4.25 
 
 50 bx. Lemons 2.25 
 
 5 bx. Oranges 4.00 
 
 Sold to L. Harrison, for cash : 
 5 bx. Oranges @ $4.10 
 
 10 bx. Lemons 2.35 
 
 2 bbl. Apples 4.50 
 
194 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 ! .30 
 .65 
 .60 
 
 .58 
 
 .65 
 
 .30 
 
 4.50 
 
 $12.00 
 20.00 
 15.00 
 10.00 
 
 Jan. 8, 1914. 
 
 "n 
 
 Sold to Brown Grocery Co., for cash : 
 25 bskt. Cabbage @ i 
 
 40 bu. Potatoes 
 15 bu. Onions 
 Sold to J. Denny, on account : 
 60 bu. Onions @ | 
 
 50 bu. Potatoes 
 10 bskt. Cabbage 
 3 bbl. Apples 
 Paid weekly salaries, as follows : 
 Clerks, two, each at 
 A. J. Dexter 
 Bookkeeper 
 Drivers, two, each at 
 - Received check from L. Adler, for $ 30.00, to apply on account. 
 Received check from Joseph Denny, for $ 130.00, to apply on 
 account. 
 Jan. 9, 1914. — Sold to T. P. Hunter, on account : 
 
 50 bu. Potatoes @ $ .68 
 
 10 bu. Onions .60 
 
 15 bskt. Cabbage .28 
 
 10 bx. Oranges 4.00 
 
 Received from Joseph Denny his 30-day note, dated the 8th, 
 
 bearing interest at 6 %, for $83.80. 
 Received from T. P. Hunter his check for $ 55.00 to apply on 
 account, and his 6 %-30-day note, dated the 8th inst., 
 for $400.00. 
 Jan. 10, 1914. — Sold to L. Harrison, for cash : 
 
 3 bx. Oranges @ $ 4.15 
 
 15 bx. Lemons 2.40 
 
 1 bbl. Apples 4.25 
 
 Sold to J. Carroll, for cash: 
 20 bu. Onions @ $ .60 
 
 Jan. 11, 1914. — Purchased from the A. S. Cassel Feed Co., on account, Feed, 
 
 Hay, etc., for stable, $35.00. 
 Paid the blacksmith for shoeing horse, $8.00. 
 Jan. 12, 1914. — By arrangement with A. J. Dexter, T. P. Hunter returned the 
 
 10 boxes of Oranges purchased on Jan. 9. 
 Received from A. S. Jackson, check for principal and interest of 
 his note, received on the 14th ult. 
 Jan. 13, 1914. — Received from S. Beitler his check for $32.50 and his 30-day 
 
 note bearing interest at 6 % and dated to^iay, for $200.00, 
 in settlement of his account. 
 
 Jan. 15, 1914. 
 
 PRINCIPAL PROBLEM I 195 
 
 Paid weekly salaries, as on the 6th inst. 
 •Sold to Dawson & Maxwell, on account : 
 10 bskt. Cabbage @ $ .22 
 
 40 bu. Potatoes .65 
 
 15 bx. Lemons 2.25 
 
 30 bu. Onions .60 
 
 Sold to J. H. Hammond, on account : 
 40 bu. Onions @ $ .62 
 
 20 bx. Lemons 2.20 
 
 4 bbl. Apples 4.20 
 
 5 bskt. Cabbage .20 
 
 Note. — Before continuing, student will rule up Cash Book and Sales Book, and 
 after posting the several books, will prepare a Trial Balance. 
 
 Jan. 16, 1914. — B. S. Perkins paid his bill of the 6th inst., less discount. 
 
 Purchased from the New York Produce Co., on account : 
 50 bu. Potatoes @ | .52 
 
 40 bu. Onions .55 
 
 Purchased from L. Simpson & Co., on account : 
 50 bbl. Apples @ $3.80 
 
 40 bx. Oranges 3.75 
 
 Jan. 17, 1914. — Purchased at auction, for cash : 
 
 25 bx. Lemons @ $2.00 
 
 50 bbl. Apples 3.70 
 
 10 bx. Oranges 3.70 
 
 Purchased from B. D. Walker for cash : 
 75 bskt. Cabbage @ $ .20 
 
 40 bu. Potatoes .50 
 
 Jan. 18, 1914.— Sent check for $210.00 to A. C. Drake to settle account. 
 
 Purchased from A. C. Drake, terms 5/10/60: 
 300 bu. Potatoes @ $ .48 
 
 220 bu. Onions .52 
 
 100 bskt. Cabbage .18 
 
 Purchased from Hansell & Co., terms 5/10/60 : 
 200 bx. Oranges @ $3.00 
 
 150 bx. Lemons 2.00 
 
 100 bbl. Apples 3.50 
 
 Jan. 19, 1914.— Sold to Joseph Denny, terms 2/5/30 : 
 
 120 bu. Onions @ $ .60 
 
 250 bu. Potatoes .58 
 
 Sold to Dawson & Maxwell, on account : 
 100 bu. Onions @ $ .62 
 
 50 bbL Apples 4.25 
 
 ill 
 
 
 ri 
 
 I 
 
I 
 
 Jan. 22,1914.—' 
 
 
 I 
 
 Jan. 23, 1914.— 
 
 •J*t 
 
 I 
 
 
 196 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Jan. 20, 1 9 U. — Purchased from the New York Produce Co., on account : 
 
 50 bskt. Cabbage @ ^ .20 
 
 75 bbl. Apples 3.75 
 
 100 bu. Potatoes .55 
 
 Purchased of L. Simpson & Co., on account : 
 80 bbl. Apples @ $3.50 
 
 40 bx. Oranges 3. go 
 
 Purchased of B. D. Walker, for cash : 
 
 50 bskt. Cabbage @ $ .20 
 
 Received from J. H. Hammond, his check for the principal and 
 interest of his note, received on Dec. 22. Paid salaries as 
 per the 13th inst. 
 -The Produce National Bank a^lvised A. J. Dexter of having paid 
 his 30-day note, given to L. Simpson & Co., on the 23d ult. 
 Sold B. S. Perkins, on account : 
 75 bbl. Apples @ $4.20 
 
 60 bx. Lemons 2.30 
 
 80 bskt. Cabbage .30 
 
 Drew on B. S. Perkins at sight for $200.00. Perkins 
 accepted. 
 
 Accepted to-day a 30-day draft for $340.00, drawn by L. Simp- 
 son & Co., payable to A. P. Roberts. 
 Drew a 30-day draft for $300.00 on Dawson & Maxwell, in 
 favor of the New York Produce Co. The draft was 
 accepted. 
 Jan. 24, 1914. — Sold to Andrews & Hemphill, on account: 
 
 100 bbl. Apples @$4.10 
 
 80 bx. Oranges 4. 20 
 
 (Charge to Andrews & Hemphill.) 
 
 Received in payment for this bill a Bank Draft drawn in favor 
 of Andrews & Hemphill, and indorsed by them to A. J. 
 Dexter. (Credit to Andrews & Hemphill.) 
 Purchased from the New York Produce Co., on account : 
 100 bu. Potatoes @ $ .50 
 
 80 bu. Onions .53 
 
 100 bbl. Apples 4.00 
 
 Accepted 10-day sight draft drawn by the New York Produce 
 
 Co., payable to their order, $94.25. 
 Received from Joseph Denny, his check in settlement of his 
 
 purchase of Jan. 19, less the discount. 
 Received telegram from J. W. Boyce, of Allentown, Pa., order- 
 ing 400 bu. potatoes, (g $.60. 
 Shipped same on order bill of lading with sight draft attached, 
 
 Jan. 25, 1914.— 
 
 PRINCIPAL PROBLEM I 
 
 197 
 
 which was deposited at the Produce National Bank for 
 collection. (Bank will credit A. J. Dexter on collection.) 
 Sold to Harrisburg Produce Co., of Harrisburg, on account : 
 
 150 bbl. Apples (^ $4.20 
 
 Shipped above on straight bill of lading. 
 
 Drew at 30 days sight on the Harrisburg Produce Co., for 
 $ 200.00, payable to A. J. Dexter. (No entry.) 
 Jan. 26, 1914. — Received the above acceptance, dated to-day, from the Harris- 
 burg Produce Co. 
 Shipped to J. W. Boyce on order bill of lading with sight draft 
 attached : 
 75 bbl. Apples (^$4.20 
 
 80 bu. Onions .62 
 
 (Charge to J W. Boyce.) 
 
 Deposited bill of lading and received credit immediately for the 
 amount of the draft less 45^ (collection fee). (Collection 
 and Exchange Account.) 
 Sold to T. P. Hunter, on account : 
 60 bu. Onions @ $ .63 
 
 70 bx. Oranges 4.10 
 
 Jan. 27, 1914. — Received notification from the bank of the collection of the 
 
 sight draft drawn on J. W. Boyce, of Allentown, Pa., on 
 the 25th inst. Collection fee, 30 ^. 
 Sent check to A. C. Drake in settlement of bill of Jan. 18, 
 
 less the discount. 
 Sent check to Hansell & Co., in settlement of bill of Jan. 18, 
 
 less discount. 
 Paid salaries as per pay roll of Jan. 20. 
 Jan. 29, 1914. — Sold to A. S. Jackson, on account: 
 
 105 bskt. Cabbage @ $ .30 
 
 72 bx. Oranges 4.25 
 
 35 bx. Lemons 2.10 
 
 A. S. Jackson accepted a 30-day draft drawn on him to order 
 
 of A. J. Dexter, for $300.00. 
 Received check from Dawson & Maxwell for $24.45 to apply 
 on account. 
 Jan. 30, 1914. — Discounted A. S. Jackson's acceptance of Jan. 29 at the 
 
 Produce National Bank. 
 Purchased from A. C. Drake, on account : 
 200 bu. Potatoes @ $ .50 
 
 200 bu. Onions .54 
 
 Jan. 31, 1914.— Accepted a 30-day draft for $310.00 dated to-day and drawn by 
 
 L. Simpson & Co. 
 
1 
 
 
 I 
 
 198 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Drew 30-day draft for $200.00 on T. N. Hawkins, payable to 
 
 A. C. Drake. Hawkins accepted the draft. 
 Purchased from the A. S. Cassel Feed Co., on account : Hay 
 
 Straw, Feed, etc., $30.00. 
 Paid the following bills by checks : 
 Telephone $5.00 
 
 Gas 3.00 
 
 Electricity 4.00 
 
 1. Total and rule up the Cash Book, Sales Book, and Purchase 
 Book. 
 
 2. Post and take a Trial Balance as of Jan. 31, 1914. 
 
 3. Prepare a Six-Column Statement. (Supplementary data 
 given below.) 
 
 4. Make the necessary entries to close the Nominal Accounts 
 into Profit and Loss, and this account in turn into the Proprietor's 
 Account. 
 
 6. Balance and rule all Financial Accounts. 
 6. Take off a Proof Trial Balance. 
 
 The following is the inventory of merchandise on hand, on Jan. 
 31, 1914. 
 
 200 bu. Potatoes @ $ .50 
 
 240 bu. Onions .54 
 
 20 bbl. Apples 4.00 
 
 105 bx. Oranges 3.00 
 
 240 bx. Lemons 2.00 
 
 100 bekt. Cabbage .20 
 
 There remain in the stable hay, straw, feed, etc., to the value of 
 $30.00. 
 
 Note. — The student will continue to use the Journal, Cash Book, Sales Book, 
 Purchase Book, and the Bill Book. The Bill Book, however, is to be used only as an 
 auxiliary book. 
 
 Feb. 1, 1914. — A. J. Dexter to-day admitted W. H. Warner as an equal partner 
 
 in the business. Warner invested an amount equal to the 
 present worth of A. J. Dexter on Jan. 31, 1914. 
 Profits and losses are to be shared equally, and each partner is 
 allowed a salary of $25.00 a week. The partnership is to 
 be known as A. J. Dexter & Co. Dexter agreed to accept 
 the following items as part of the investment of W. H. 
 Warner: 
 2 cars of Potatoes, 900 bu @$ .50 
 
 1 car of Onions, 480 bu. .54 
 
 PRINCIPAL PROBLEM I 
 
 199 
 
 200 bbl. Apples 
 150 bx. Oranges 
 350 bx. Lemons 
 100 or. Celery 
 4 Horses and 1 
 2 Wagons / 
 Claims against 
 R. H. Fow & Co. 
 Davis & Brown 
 A. P. HiU 
 J. W. Henry 
 
 valued at 
 
 4.00 
 3.00 
 2.00 
 2.50 
 
 1000.00 
 
 2500.00 
 2000.00 
 1200.00 
 1150.00 
 
 Feb. 2, 1914. 
 
 Feb. 3, 1914. 
 
 Warner gave his check for the balance of the investment. 
 Received check from B. S. Perkins, for $177.00, to apply on 
 
 account. 
 Received check for $242.50 from T. N. Hawkins to apply on 
 
 account. 
 Received check from L. Adler, in full of account. 
 Mailed check to A. C. Drake for balance due him. 
 -Drew a 30-day draft for $400.00 on T. N. Hawkins in favor of 
 the New York Produce Co. T. N. Hawkins accepted the 
 draft. 
 Drew a 30-day draft for $300.00 on B. S. Perkins in favor of 
 
 firm. B. S. Perkins accepted the draft. 
 Purchased from the New York Produce Co., terms 2/5/30. 
 100 bbl. Apples @ $3.95 
 
 200 bu. Potatoes .50 
 
 Purchased from B. D. Walker, for cash : 
 
 100 bskt. Cabbage @ $ .22 
 
 Purchased at auction, for cash : 
 50 bx. Lemons @$2.10 
 
 30 bx. Oranges 3.50 
 
 50 cr. Celery 2.50 
 
 Paid premium for one year on fire insurance policies ($8500.00, 
 
 dated Feb. 1, 1914), $48.00. (Insurance.) 
 Paid $600.00 cash to cover cost of advertising for one year in 
 the Produce Trade Journal, the contract having been made 
 of the 1st instant. (Advertising Account.) 
 Paid weekly salaries as follows : 
 4 clerks, each at $12.00 
 
 1 bookkeeper 15.00 
 
 4 drivers, each at 10.00 
 
 A. J. Dexter 25.00 
 
 W. H. Warner 25,00 
 
 !| 
 
11 
 
 200 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Advice was received from the Produce National Bank that 
 they have paid the 10-day sight draft for $94.25 drawn 
 by the New York Produce Co., and accepted by A. J. 
 Dexter on Jan. 24. 
 Purchased for cash : new safe, typewriter, office desks, filing 
 cabinets, etc., at a cost of $1000.00. (Furniture and 
 Fixtures Account.) 
 Sold to L. Haines, for cash : 
 10 bx. Oranges @ $4.25 
 
 8 bx. Lemons 2.40 
 
 3 bbl. Apples 4.50 
 
 Sold to the Brown Grocery Co., for cash : 
 25 bskt. Cabbage @ $. 30 
 
 40 bu. Potatoes .62 
 
 10 cr. Celery 3.00 
 
 Feb. 5, 1914. — Sold to B. S. Perkins, on account : 
 
 40 cr. Celery @ $2.80 
 
 25 bbl. Apples 4.30 
 
 Purchased at auction, for cash : 
 50 cr. Celery @$2.20 
 
 50 bx. Oranges 3.80 
 
 Purchased from L. Simpson & Co., on account : 
 50 bx. Lemons @ $2.00 
 
 40 bx. Oranges 3.80 
 
 A. J. Dexter sent a check for $400.00 to the Life Insurance 
 Co., to cover the yearly premium on his personal policy. 
 (Open Personal Account.) 
 A. J. Dexter sent 5 boxes of oranges to a church festival, order- 
 ing them charged to his account at cost, $3.80 per box. 
 (Enter in Sales Book and charge to his Personal Account.) 
 Feb. 6, 1914. — Received from T. N. Hawkins, check for $200.00, to apply on 
 
 account. 
 Drew a 10-day sight draft for $430.00 on the Harrisburg 
 
 Produce Co., which they accepted. 
 Mailed check to the A. S. Cassel Feed Co.. in settlement of 
 
 account. 
 Sold to Joseph Denny, terms 2/10/30 : 
 70 bu. Onions @ $.58 
 
 80 bu. Potatoes .60 
 
 80 bskt. Cabbage .30 
 
 Sold to T. P. Hunter, terms 2/10/30 : 
 100 cr. Celery @$2.60 
 
 100 bx. Oranges 4.20 
 
 PRINCIPAL PROBLEM I 
 
 201 
 
 Shipped to J. W. Boyce, at Allentown, Pa., one carload of 
 potatoes (450 bu.), to be sold on account. (Make only 
 memorandum record.) 
 Shipped to the Harrisburg Produce Co., at Harrisburg, Pa^ 
 to be sold on account: 
 30 cr. Celery 
 100 bx. Oranges 
 100 bx. Lemons 
 Feb. 7, 1914. — W. H. Warner purchased for his private use at cost price : 
 
 5 bu. Potatoes @$ .50 
 
 1 bu. Onions .54 
 
 1 bbl. Apples 4.00 
 
 (Charge to his Personal Account.) 
 Sold to A. S. Jackson, on account : 
 40 bx. Oranges @ $ 4.25 
 
 20 bx. Lemons 2.20 
 
 40 bskt. Cabbage .30 
 
 Mailed check to New York Produce Co., for bill of Feb. 2, less 
 
 the discount. 
 Received check from Joseph Denny for principal and interest 
 
 of his note, received Jan. 9. 
 Paid the blacksmith for shoeing horses, $ 12.00. 
 Purchased from B. D. Walker, for cash : 
 100 bskt. Cabbage . @ $ .22 
 
 100 bu. Potatoes .50 
 
 Received check from T. P. Hunter for the principal and in- 
 terest of his note, received Jan. 9. 
 ■ Received an account sales from J. W. Boyce of Allentown, Pa., 
 showing net proceeds of $ 270.00, which amount Boyce is to 
 remit within a few days. (Enter in the Sales Book as a 
 charge to J. W. Boyce, and in explanation, " net proceeds as 
 per account sales of 450 bu. Potatoes shipped on Feb. 6.") 
 Sold to L. Haines, on account : 
 20 bx. Oranges @$4.30 
 
 10 bx. Lemons 2.45 
 
 10 cr. Celery 2.90 
 
 Sold to B. D. Harvey, on account : 
 20 bx. Lemons @ $ 2.45 
 
 10 cr. Celery 2.90 
 
 Sold to B. S. Perkins, on account : 
 100 bu. Potatoes (^ $ .58 
 
 100 bbl. Apples 4.30 
 
 10 cr. Celery 2.85 
 
 Feb. 8, 1914. 
 
lit 
 
 IMl 
 
 202 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Feb. 9, 1914. — Sold to J. Denny, terms 2/10/30 : 
 
 120 bu. Onions @ $ .57 
 
 100 bu. Potatoes .58 
 
 Sold to A. S. Jackson, tenns 2/5/30 : 
 50 bu. Potatoes @ $ .60 
 
 25 bbl. Apples 4.35 
 
 100 bx. Lemons 2.25 
 
 10 bx. Oranges 4.25 
 
 Received check for $ 500.00 from R. H. Fow & Co., to apply 
 
 on account. 
 Drew a 1 Onlay sight draft on Davis <fe Brown in favor of the 
 firm for $ 1000.00. The draft was accepted. 
 Feb. 10, 1914. — An account sales was received from the Harrisburg Produce Co., 
 
 of Harrisburg, Pa., showing that after deducting their com- 
 mission and other charges from the sales of the shipment, 
 there were net proceeds due A. J. Dexter & Co. of $ 750.00, 
 which amount is to be remitted within a few days. (Enter 
 in Sales Book, showing the net amount of the sale, and 
 showing the items sold. It is not necessary to list the exact 
 sale price of each article ; merely refer to the account sales.) 
 Received check for $ 270.00 from J. W. Boyce, of Allentown, 
 Pa., being the balance shown to be due in the account sales 
 received on Feb. 8. 
 Mailed check for $ 30.00 to the Camden Wagon Co. for repair- 
 ing and painting one of the wagons. 
 Purchased from B. D. Walker, for cash : 
 
 200 bskt. Cabbage @ $ .20 
 
 Purchased from A. C. Drake, terms 2/5/30 : 
 400 bu. Potatoes @ $ .50 
 
 300 bu. Onions .52 
 
 Purchased from Hansell & Co., terms 2/10/30: 
 200 bx. Oranges @ $ 3.00 
 
 200 bx. Lemons 2.00 
 
 Paid weekly salaries, as follows : 
 4 clerks, each at $ 12.00 
 
 1 bookkeeper 15.00 
 
 4 drivers, each at 10.00 
 
 (As A. J. Dexter and W. H. Warner did not draw their 
 salaries, they are to be credited, each for 8 25.00, in their 
 respective Personal Accounts. 
 Feb. 12, 1914. — Purchased from the Phoenix Sack Co., for cash : 
 
 500 Potato Sacks @ $ .04 
 
 (Enter in Purchase Book.) 
 
 PRINCIPAL PROBLEM I 
 
 203 
 
 » 
 
 Purchased from the Star Box Co., for cash : 
 1000 Baskets @$ .03 
 
 Purchased for cash : 
 Rubber bands, pencils, ink, and sundry other office supplies, for 
 
 $8.00. (Only Cash Book entry.) 
 Paid in cash for cleaning office and windows, $ 5.00. 
 Sold to T. M. Merrill, on account : 
 20 bu. Potatoes @ $ .60 
 
 10 bu. Onions .62 
 
 20 bskt. Cabbage .30 
 
 Sold to T. N. Hawkins, terms 2/5/30 : 
 200 bu. Onions @ $ .60 
 
 200 bu. Potatoes .58 
 
 Purchased at auction, for cash : 
 100 bx. Lemons @ $2.00 
 
 100 bx. Oranges 3.00 
 
 Received check from S. Beitler in full payment for the principal 
 and interest of his note, received on Jan. 13. 
 Feb. 13, 1914. — Received check from the Harrisburg Produce Co., for $500.00, 
 
 to apply on account. 
 Received check from J. W. Henry, for $150.00, to apply on 
 
 account. 
 Received check from A. P. Hill, for $ 200.00, to apply on account. 
 Sold to L. Adler, on account : 
 
 30 bx. Oranges @ $3.70 
 
 Sold Dawson & Maxwell, terms 2/5/30 : 
 
 100 bu. Potatoes @ $ .60 
 
 50 bu. Onions .62 
 
 Sold to T. M. Merrill, on account : 
 
 40 bskt. Cabbage @ $ .30 
 
 10 cr. Celery 2.90 
 
 Feb. 14, 1914. — Received check for $20.00 from T. M. Merrill, to apply on 
 
 account. 
 Purchased from D. Howard, on account : 
 100 bskt. Cabbage @ $ .22 
 
 20 cr. Celery 2.20 
 
 Purchased from L. Simpson & Co., terms 2/5/30 : 
 
 200 bbl. Apples @ $3.50 
 
 Purchased from A. C. Drake, terms 2/5/30 : 
 400 bu. Potatoes @ $ .50 
 
 100 bu. Onions .52 
 
 Purchased from the Ajax Coal Co., for cash : 
 6 tons Coal @$6.00 
 
r 
 
 iti 
 
 t' 
 
 204 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Advice was received from the Produce National Bank that they 
 paid the 60-day interest-bearing note given to A, C. Drake 
 on Dec. 16. 
 
 Received check from A. S. Jackson in payment of the purchase 
 of Feb. 9, less the discount. 
 
 Note. — The student will now rule up the Cash, Sales, and I*urchase Books, and 
 after posting the several books, prepare a Trial Balance before continuing. 
 
 Whenever the amount of any transaction ends with one half of a 
 cent, or a fraction greater than one half of a cent, an extra cent is 
 added. Therefore, 27 1 ^ becomes 28 ^ ; 30| ^ becomes 31 ^, etc. 
 
 Feb. 15, 1914. — Received check from J. H. Hanmiond, in full of his account. 
 
 Received check from B. S. Perkins for $136.00, to apply on 
 
 account. 
 Mailed check to Hansell & Co. for $ 125.00, to apply on account. 
 Mailed check to A, C. Drake, in settlement of bill for purchase 
 
 of Feb. 10, less the discount. 
 
 Purchased from the New York Produce Co., 2/5/30 : 
 
 200 bbl. Apples @ $ 3.90 
 
 100 bu. Potatoes .50 
 
 Purchaseil from L. Simpson & Co., 5/10/30: 
 
 100 bx. Lemons @ $2.00 
 
 100 bx. Oranges 3.60 
 
 Feb. 16, 1914. — W. H. Warner had the bookkeeper give him a check for the 
 
 balance of his Personal Account. A. J. Dexter gave the 
 business a check for an amount sufficient to close his Per- 
 sonal Account. 
 As the firm has been carrying too large a bank balance, a pur- 
 chase was made for cash, of eight (8) $ 1000.00 bonds of 
 the New York Light, Power, and Heat Co., with interest 
 from Aug. 28, 1913, at 5 %. The interest periods on these 
 bonds are Aug. and Feb. 28, and since the firm purchased 
 bonds on which 168 days interest had accrued, they had 
 to pay for the interest also. (Chai^ bonds to the account 
 "Stocks and Bonds.") 
 Received check for $ 430.00 from the Harrisburg Produce Co., 
 
 in payment of their 10-day acceptance of the 6th. 
 Received check from J. Denny, in payment of his purchase of 
 
 Feb. 6, less the discount. 
 Received check from T. P. Hunter, in payment of his purchase 
 of Feb. 6, less the discount. 
 Feb. 17, 1914. — Received from H. L. Miller, of Perth, N. Y., a consignment of 
 
 > 
 
 PRINCIPAL PROBLEM I 
 
 205 
 
 500 bu. of potatoes to be sold for his account. (Make 
 only memorandum record.) 
 Gave check to Pennsylvania R. R. Co., for $50.00, in payment 
 
 of freight on above consignment. 
 Received check for $30.00 from B. D. Harvey, to apply on 
 
 account. 
 Received check from T. N. Hawkins, in settlement of his pur- 
 chase of Feb. 12, less the discount. 
 Sold to J. H. Hammond, 2/5/30 : 
 95 bskt. Cabbage @ $ .30 
 
 155 bu. Potatoes .60 
 
 Paid weekly salaries as follows : 
 4 clerks, eaeh at $12.00 
 
 1 bookkeeper 15.00 
 
 4 drivers, each at 10.00 
 
 A. J. Dexter 25.00 
 
 W. H. Warner 25.00 
 
 Feb. 19, 1914. — Sold H. L. Miller's consignment ^1, of 500 bu. of potatoes to 
 
 B. S. Perkins, on account, at $.60 per bushel. This sale was 
 recorded in the Journal, as it was not a sale of the firm's 
 Merchandise. To record sales of consignments in the Sales 
 Book, a special column Sales Book would have to be created. 
 Entry was made in the Journal to record the firm's commission 
 of 10 % against H. L. Miller's consignment ^1. An ac- 
 count sales was made out and forwarded to H. L. Miller, 
 showing him the sales, expenses, and commission on his 
 consignment of the 17th, and also showing him the net 
 proceeds, which amount, it was stated, was to follow in 
 several days. Make the entry necessary to show the trans- 
 fer of the balance of the consignment Account to the account 
 with H. L. Miller. As the account sales acknowledged a 
 definite amount of indebtedness to H. L. Miller, it is neces- 
 sary to show H. L. Miller on the books as a creditor. 
 Received check from Davis & Brown in payment of their 
 
 acceptance of Feb. 9. 
 Mailed check to L. Simpson & Co., in settlement of purchase 
 
 of Feb. 14, less the discount. 
 Received check from J. Denny, in settlement of his purchase of 
 
 Feb. 9, less the discount. 
 Mailed check to A. C. Drake, in settlement of purchase of 
 Feb. 14, less the discount. 
 Feb. 20, 1914. — Received a second consignment from H. L. Miller of Perth, 
 
 N. Y., being 420 bu. of potatoes, to be sold for his account. 
 
> 
 
 
 206 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Paid $ 47.00 in cash, being freight on above consignment. 
 
 Received from R. Barker & Co., of New York City, a consign- 
 ment of 500 bbl. of apples, to be sold for their account. 
 
 Received from H. L. Miller, of Perth, N. Y., a third consign- 
 ment of 500 bu. of onions, to be sold for his account. 
 
 Mailed check for $ 150.00 to the Pennsylvania R. R. Co., to 
 cover freight bill of $ 100.00 on R. Barker's consignment 
 # 1, and $ 50.00 on H. L. Miller's consignment # 3. 
 
 Mailed check to Hansell & Co., in settlement of purchase of 
 the 10th, less the discount. 
 
 Mailed check to New York Produce Co., in settlement of 
 purchase of the 15th, less the discount. 
 Feb. 21, 1914. — Received check, for $ 48.00, from B. D. Harvey, in fuU of his 
 
 account. 
 
 Received check from T. M. Merrill for $45.20, in full of hia 
 account. 
 
 Paid $10.00 in cash for recoopering some of the barrels in 
 R. Barker & Co.'s consignment. 
 
 Paid $ 15.00 in cash for extra labor to sort out some of the 
 bad apples in R. Barker & Co.'s consignment. 
 
 Received 30-day note, dated Feb. 20, from A. P Hill, for 
 $ 1000.00. 
 Feb. 22, 1914. — The bank returned T. M. Merrill's check for $ 45.20, deposited 
 
 on Feb. 21, as T. M. Merrill's bank would not honor the 
 check. The firm's check for this amount was made out 
 and given to the bank, who then turned over the returned 
 check of T. M. Merrill. A. J. Dexter went to MerriU'g 
 office to have the check cashed, but found the office closed, 
 as Merrill had failed. It was ascertained that Merrill 
 had no assets, so Dexter advised the bookkeeper to write 
 Merrill's account otf to the account "Bad Debts." 
 
 Sold to L. Haines, for cash : 
 
 40 bx. Oranges 
 10 bx. Lemons 
 5 bbl. Apples 
 Sold to J. Denny, 2/5/30 : 
 200 bu. Potatoes 
 100 bu. Onions 
 80 bx. Oranges 
 
 @$4.25 
 2.40 
 4.40 
 
 @$ .60 
 
 .62 
 
 4.20 
 
 
 Advice was received from the Produce National Bank that 
 they honored the firm's 30-day acceptance, dated Jan. 23. 
 
 Received check from J. H. Hammond in settlement of bill of 
 Feb. 17, less the discount. 
 
 tl 
 
 ^1 
 
 PRINCIPAL PROBLEM I 
 
 207 
 
 Feb. 23, 1914. — The bank returned B. D. Harvey's check for $48.00, de- 
 posited on Feb. 21. The amount of Mr. Harvey's account 
 was not sufficient to meet the check. The bank was given 
 the firm's check in exchange for B. D. Harvey's check. 
 
 Sold H. L. Miller's consignment # 2, of 420 bu. of Potatoes, 
 for cash, at $ .62 per bushel. (Cash Book entry only.) 
 
 H. L. Miller's consignment # 2 was charged with the commission, 
 and a check for the net proceeds was mailed to H. L. 
 Miller, along with account sales. 
 
 Received check from B. S. Perkins for $300.00, to apply on 
 account. 
 
 Mailed check to H. L. Miller, of Perth, N. Y., for the net 
 proceeds of his consignment #1, as shown in the account 
 sales rendered him on Feb. 19. 
 Feb. 24, 1914. — Shipped to J. W. Boyce, of Allentown, Pa., 500 bu. of pota- 
 toes to be sold for the firm's account. (Only memorandum 
 record.) 
 
 Shipped to the Harrisburg Produce Co., of Harrisburg, 300 bbl. 
 apples, to be sold for the firm's account. 
 
 Prepaid the freight on the above two shipments by giving check 
 to the Pennsylvania R. R. Co. for $160.00. (Charge to 
 Merchandise Account.) 
 
 Purchased from the A. S. Cassel Feed Co., on account, Hay, 
 Straw, etc., for the stable, $30.00. 
 
 Sent check to veterinarian for $25.00 for treatment of two 
 sick horses. 
 
 Sold 300 bbl. of apples from R. Barker & Co.'s consignment 
 to A. S. Jackson, on account, @ $4.40. 
 
 Sold H. L. Miller's consignment #3, 500 bu. of onions, to 
 R. H. Fow & Co., on account, @ $.63. 
 
 Made the entry to charge the commission to H. L. Miller's con- 
 signment ijf 3. An account sales was rendered H. L. Miller 
 ' for his consignment ^ 3, and it is stated that the net proceeds 
 would follow in several days. 
 
 Mailed check to L. Simpson & Co., in settlement of bill of 
 Feb. 15, less the discount. 
 
 Received check from Harrisburg Produce Co., in settlement of 
 their acceptance of the 26th ultimo. 
 
 Paid weekly salaries as per pay roll of Feb. 17. 
 Feb. 26, 1914. — B. D. Harvey, whose check was returned by the bank, failed, 
 
 and a settlement of his affairs procured for each creditor 
 33^^ on the dollar. Accordingly, a check was received 
 to-day for $16.00, to be applied to B. D. Harvey's account. 
 

 Feb. 27, 1914.— 
 
 i 
 
 208 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Dexter advised the bookkeeper to close the balance into the 
 
 account " Bad Debts." 
 Sold the remaining 200 bbl. of apples in R. Barker & Co.'s 
 
 consignment for cash, @ $4.00 per bbl. 
 Received check from A. S. Jackson for $1320.00, to apply on 
 
 account 
 
 Charged the commission to R. Barker & Co.'s consignment, and 
 mailed check for the net proceeds. 
 
 Mailed check to H. L. MiUer for the net proceeds of his consign- 
 ment # 3, as acknowledged in accoimt sales dated Feb. 24. 
 
 Received check from L. Haines, in full of account. 
 
 Received check from Dawson & Maxwell, in full of account 
 
 MaOed check to D. Howard, in full of account. 
 
 Received check from L. Adler, in full of account 
 
 Received check from J. Denny, in settlement of bill of Feb. 22 
 less the discount. * 
 
 Mailed check to Hansell & Co., for $400.00, to apply on ac- 
 count 
 
 Sold to Dawson & Maxwell, on account : 
 
 200 bskt Cabbage @ $ .30 
 
 Sold to A. P. Hill, on account : 
 300 bu. Potatoes @ $ .60 
 
 369 bu. Onions g2 
 
 Sold to T. N. Hawkins, 2/5/30 : 
 300 bx. Oranges @ $3.50 
 
 400 bx. Lemons 2.40 
 
 Mailed check to the Excelsior Elevator Co., for $500.00, for 
 placing two freight elevators in the buUding. This expen- 
 diture has increased the value of the building. 
 Mailed check to A. P. Brown, for $75.00, for having repaired 
 
 the iron awning in front of the store. 
 Received an account sales from J. W. Boyce, of AUentown, 
 Pa., showing net proceeds of $290.00 due from the sale 
 of the 500 bu. of potatoes shipped him on the 24th. The 
 net proceeds is to follow in 30 days. 
 Received an account sales from the Harrisburg Produce Co., for 
 the shipment of 300 bbl. of apples sent them on Feb.*24. 
 The net proceeds, $1320.00, is to be remitted in 10 days. 
 Paid the following bills by check : 
 Telephone $8 00 
 
 ^^ 5.00 
 
 Electricity 7 5Q 
 
 Telegraph s^qq 
 
 Feb. 28, 1914.— 
 
 PRINCIPAL PROBLEM I 
 
 209 
 
 Received check for $200.00 from the New York Light, Power, 
 and Heat Co., being six months' interest at 5 %, due 
 Feb. 28, 1914, on the eight (8) $1000.00 bonds of 
 that company, standing in the name of A. J. Dexter & Co. 
 
 1. Total and rule the Cash, Sales, and Purchase Books. 
 
 2. Post and take a Trial Balance as of Feb. 28, 1914. 
 
 3. Make the necessary Journal entries to close all the nominal 
 accounts into the Profit and Loss Account. Close the Profit and 
 Loss Account into the Proprietors' Personal Accounts, and close 
 these in turn into their respective Capital Accounts. The subsidi- 
 ary data necessary to the proper closing of the books follows : 
 
 Inventory of Merchandise, taken at Last Cost Price 
 
 200 bu. Potatoes 
 261 bbl. Apples 
 300 bu. Onions 
 80 bx. Oranges 
 422 bx. Lemons 
 100 bskt. Cabbage 
 
 @$ .50 
 3.90 
 
 .52 
 3.60 
 2.00 
 
 .22 
 
 One month of the advertising and insurance contracts has expired. 
 Depreciation for one month is to be provided for, by creating a 
 Reserve for Depreciation on each of the following accounts : 
 
 Buildings (annual depreciation) 4 % 
 
 Horses and Wagons (annual depreciation) 10 % 
 
 Furniture and Fixtures (annual depreciation) 10 % 
 
 A "Reserve for Bad Debts" for one month on the tot^l Ac- 
 counts Receivable is to be created on the basis of 12% per annum. 
 
 One half of the weekly salaries have accrued and should be con- 
 sidered in ascertaining Profit and Loss. 
 
 4. Balance and rule all the accounts on the Ledger. 
 
 6. Prepare a " Statement of Profit and Loss " following the pro 
 forma outline given below ; also prepare a " Balance Sheet," follow- 
 ing the more approved form of listing the assets in the order of 
 their importance, also deducting the amount of any reserve from 
 the value of the particular assets so affected. 
 
 
210 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Pro Forma Outline 
 Statement of Profit and Loss 
 
 A. J. Dexter & Company 
 
 February 28, 1914 
 
 II • 
 
 u * 
 
 fi 
 
 Sales • 
 
 Less discounts allowed 
 Inventory, Jan. 31, 1914 
 Purchases 
 
 Less discounts received 
 
 Less Inventory, Feb. 28, 1914 
 Gross Profit on Merchandise 
 Less 
 
 Stable Expense 
 Expense 
 Repairs 
 Salaries 
 Insurance 
 Advertising 
 Bad Debts 
 
 Reserve for Depreciation : 
 On Buildings 
 On Horses and Wagons 
 On Furniture and Fixtures 
 Reserve for Bad Debts 
 Net Profit on Merchandise 
 Add 
 
 Interest Received 
 Commission Received 
 Net P*rofit of business 
 Distribution of Profit 
 A. J. Dexter 
 W. H. Warner 
 
 
 I 
 
 Ledger Index 
 
 The following table shows the amount of space to be allowed each account in 
 the Ledger, for the A. J. Dexter problem : 
 
 Adler, L. 
 Advertising 
 Andrews & Hemphill 
 Bad Debts 
 
 1/4 of page 19 
 1/3 of *' 12 
 1/4 of " 24 
 1/3 of " 13 
 
 Barker, R., & Co., Consign- 
 ment i 1 
 Beitler, S. 
 Boyce, J. W. 
 
 1/3 of page 28 
 1/3 of " 21 
 1/2 of *» 22 
 
 PRINCIPAL PROBLEM I 
 
 211 
 
 Buildings 
 
 Cash All 
 
 Cassel, A. S., Feed Co. 
 
 Collection & Exchange 
 
 Commission 
 
 Davis & Brown 
 
 Dawson & Maxwell 
 
 Denny, J. 
 
 Dexter, A. J. 
 
 Dexter, A, J., Personal 
 
 Discount 
 
 Drake, A. C. 
 
 Expense 
 
 Fow, R. H., & Co. 
 
 Furniture & Fixtures 
 
 Haines, L. 
 
 Hammond, J. H. 
 
 Hansen & Co. 
 
 Harrisbuig Produce Co. 
 
 Harvey, B. D. 
 
 Hawkins, T. N. 
 
 Henry, J. W. 
 
 Hill, A. P. 
 
 Horses & Wagons 
 
 Howard, D. 
 
 Hunter, T. P. 
 
 Insurance 
 
 Interest 
 
 Inventory 
 
 Jackson, A. S 
 
 Land 
 
 1/3 of 
 
 page 25 
 
 Merchandise 
 
 AUof 
 
 page 5 1 
 
 of pages 3 & 4 
 
 Merchandise Discount 
 
 1/2 of 
 
 i( 
 
 10 
 
 1/3 of 
 
 page 15 
 
 Merchandise Inventory. 
 
 
 
 1/3 of 
 
 
 12 
 
 (See Inventory) 
 
 
 
 
 1/3 of 
 
 
 6 
 
 Merrill, T. M. 
 
 1/3 of 
 
 t( 
 
 25 
 
 1/4 of 
 
 
 24 
 
 Miller, H. L. 
 
 1/4 of 
 
 
 26 1 
 
 27 ' 
 
 1/3 of 
 
 
 21 
 
 Miller, H. L., Con. #1 
 
 1/3 of 
 
 (( 
 
 1/2 of 
 
 
 20 
 
 Miller, H. L., Con. #2 
 
 1/3 of 
 
 
 27 
 27 
 
 1/2 of 
 
 
 1 
 
 Miller, H. L., Con. #3 
 
 1/3 of 
 
 
 1/2 of 
 
 
 1 
 
 New York Produce Co. 
 
 1/2 of 
 
 
 23 
 
 1/3 of 
 
 
 11 
 
 Notes Payable 
 
 1/2 of 
 
 
 16 
 
 1/2 of 
 
 
 17 
 
 Notes Receivable 
 
 1/2 of 
 
 
 16 
 
 1/2 of 
 
 
 10 
 
 Perkins, B. S. 
 
 1/2 of 
 
 
 18 
 
 1/4 of 
 
 
 24 
 
 Produce Cartage Co. 
 
 1/4 of 
 
 
 19 
 
 1/3 of 
 
 
 7 
 
 Profit and Loss 
 
 1/2 of 
 
 
 14 
 
 1/4 of 
 
 
 26 
 
 Rent 
 
 1/3 of 
 
 
 7 
 
 1/3 of 
 
 
 21 
 
 Repairs 
 
 1/3 of 
 
 
 12 
 
 1/2 of 
 
 
 17 
 
 Reserve for Bad Debts 
 
 1/3 of 
 
 
 16 
 
 1/2 of 
 
 
 22 
 
 Reserve for Depreciation, 
 
 
 
 i 
 
 1/3 of 
 
 
 25 
 
 Bldgs. 
 
 1/3 of 
 
 
 13 
 
 1/2 of 
 
 
 18 
 
 Reserve for Depreciation, 
 
 
 
 
 1/4 of 
 
 
 26 
 
 Fur. & Fixtures 
 
 1/4 of 
 
 
 14 
 
 1/4 of 
 
 
 26 
 
 Reserve for Depreciation, 
 
 
 
 n 
 
 1/3 of 
 
 
 7 
 
 Horses & Wagons 
 
 1/4 of 
 
 
 14 1 
 
 9 " 
 
 1/4 of 
 
 
 19 
 
 Salaries 
 
 All of page 
 
 1/2 of 
 
 
 20 
 
 Simpson, L., & Co. 
 
 1/2 of 
 
 (( 
 
 23 y. 
 
 1/3 of 
 
 
 13 
 
 Stable Expense 
 
 All of page 
 
 « 1 
 
 1/3 of 
 
 
 11 
 
 Stocks & Bonds 
 
 1/2 of 
 
 (( 
 
 4 ill 
 
 1/3 of 
 
 
 11 
 
 Warner, W. H. 
 
 1/2 of 
 
 (( 
 
 2 
 
 1/4 of 
 
 
 19 
 
 Warner, W. H., Personal 
 
 1/2 of 
 
 (( 
 
 2 
 
 1/3 of 
 
 
 6 
 
 Woodruff, P. 
 
 1/4 of 
 
 t( 
 
 24 
 
 1 
 
 1 
 
 1 
 
212 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 
 PRINCIPAL PROBLEM n 
 
 H. C. Burns & Co. 
 Books to be Used 
 
 Purchase Book 
 Sales Book 
 Cash Book 
 Petty Cash Book 
 Journal 
 
 Customers' 
 
 Creditors* 
 
 General 
 
 Books of Original Entry 
 
 Ledgers 
 
 Accounts to be opened in the General Ledger 
 
 Wages 
 
 Superintendence 
 
 Engineers and Firemen 
 
 Tin 
 
 Copper 
 
 Sand 
 
 Crucibles 
 
 Oil 
 
 Coke 
 
 Freight 
 
 Insurance 
 
 Real Estate 
 
 Buildings 
 
 Repairs to Machinery 
 
 Repairs to Boilers 
 
 Repairs to Buildings 
 
 Stable Expense 
 
 Phosphorus 
 
 Stationery and Printing 
 
 H. C. Bums, Personal a/c 
 
 Edwin Moore, Personal a/c 
 
 F. H. Hale, Personal a/c 
 
 H. C. Bums, Capital a/c 
 
 Edwin Moore, Capital a/c 
 
 F. H. Hale, Capital a/c 
 
 Zinc 
 
 Coal 
 
 Lime 
 
 Iron 
 
 Office Salaries 
 
 Office Supplies 
 
 Discount on Notes 
 
 Sales, Iron Castings 
 
 Sales, Sand Blast Castings 
 
 Sales, Brass Castings 
 
 Sales, Phos. Bronze Castings 
 
 Discount on Sales 
 
 Discount on Purchases 
 
 Machinery 
 
 Boilers 
 
 Tools 
 
 Horses and Wagons 
 
 Furniture and Fixtures 
 
 Cash 
 
 Petty Cash 
 
 Notes Receivable 
 
 Notes Payable 
 
 Accounts Receivable 
 
 Accounts Payable 
 
 PRINCIPAL PROBLEM II 
 
 213 
 
 The student will open additional accounts as may be required 
 and will prepare the original entry books on blank sheets of paper, 
 the rulings for the set being identical with the illustrations given in 
 Chapter 24. The student will use the remaining portion of the 
 ledger blank of the A. J. Dexter problem for his General Ledger, 
 opening three accounts to the page. The Customers' and Cred- 
 itors' Ledgers may be kept on cards or in a separate ledger book, 
 but in either case care should be taken that they are kept apart, as 
 each is a distinct Ledger and includes a special class of accounts. 
 
 July 1, 1913. — H. C. Bums & Co. this day start in the foundry business with 
 
 a cash capital of $125000.00, divided as follows: H. C. 
 Bums, $50000.00; Edwin Moore, $50000.00; and F. H. 
 Hale, $25000.00. F. H. Hale, on account of his knowl- 
 edge of the business, is to share equally with the others, 
 thus making an equal division of losses and gains between 
 the three partners. 
 
 July 2, 1913. — Purchased from the City Real Estate Co., a plot of ground 
 
 valued at $60000.00 with a foundry thereon valued at 
 $15000.00 for $75000.00. Paid for the above with 
 check for $50000.00, and a note at 45 days for $25000.00. 
 Interest on note 6 %. 
 
 July 3, 1913. — Purchased of the Penn Foundry Co. (the former lessee of the 
 
 plant), on account, boiler appraised at $5000.00 and ma- 
 chinery appraised at $15,000.00 for $20,000.00. Also 
 purchased cmcibles for $1000.00 and miscellaneous tools 
 for $500.00. 
 
 July 5, 1913. — Purchased of Stationery Supply Co., on account, office furniture 
 
 for $1000.00. Purchased from Philadelphia Horse Ex- 
 change, horses for $500.00. Paid cash on account to Penn 
 Foundry Co., $20,000.00. 
 
 July 6, 1913. — Drew for petty cash $ 100.00. Bought ledger paper, bill heads, 
 
 and envelopes from Chestnut Stationery Co., to amount of 
 $100.00, on %. Paid expressage, $.50, from petty cash. 
 
 July 8, 1913. — Paid Stationery Supply Co. bill of 5th inst., being allowed 2 % 
 
 for cash. Purchased from United States Sand Co., 3 tons 
 of sand at $ 1.50 per ton. 
 
 July 9, 1913. — Purchased of Camden Coke Co., 100 tons of coke at $2.50 per 
 
 ton. Purchased of Pittsburg Copper Co., 10000 lb. of 
 copper at $.13 per pound. 
 
 July 11, 1913.— Purchased of Texas Oil Co., 5000 gal. of fuel oU at 5^ per 
 
 gallon. Gave note at 30 days, bearing 5% interest to 
 Penn Foundry Co., for balance of account. 
 
214 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 ii 
 
 I 
 
 July 13, 1913.- 
 July 15, 1913. 
 
 July 16, 1913.— 
 
 July 18, 1913.— 
 
 July 19, 1913.— 
 
 July 20, 1913.— 
 July 22, 1913.— 
 July 23, 1913.— 
 July 25, 1913.— 
 
 July 29, 1913.— 
 
 July 31, 1913 — 
 
 Purchased of Allentown Iron Co., 160 pigs of iron at $15.00 
 per ton. (100 lb. to a pig. Ton = 2000 lb.) 
 
 Pay roll for one half of month of July is as follows : 
 
 Foundry hands $300.00 Foreman $60.00 
 
 Office Salaries 100.00 Engineer 30.00 
 
 H. C. Bums drew $50.00 on account. 
 
 Sold Peter Henderson 250 lb. iron castings at 3^, and 300 lb. 
 sand blast castings at 5 i. 
 
 Purchased of Delaware Zinc Co., 12000 lb. zinc at 6^ per 
 pound. 
 
 Purchased of Slatington Coal Co., 100 tons egg coal at $5.10 
 per ton. 
 
 Purchased of Keystone Phosphorus Co., 300 lb. phosphorus at 
 25^ per pound. Sold John Johnson 50 lb. brass castings 
 from special patterns at 28^ per pound. Paid in cash bill 
 of Philadelphia Horse Exchange, being allowed 1 % for pay- 
 ment within 15 days. 
 
 Received check from Peter Henderson in full payment for his 
 account. Sold Samuel Jackson 100 lb. brass castings at 
 25^, and 280 lb. iron castings at 3^ per pound. 
 
 Bought of Camden Wagon Co., delivery wagon for $200.00. 
 
 Bought of Kensington Harness Co., harness for $100.00. 
 
 Purchased for cash from petty cash, stamps $10.00, rubber 
 bands $1.00, pens $1.00, and pencils $.75. 
 
 Paid factory insurance premium, $200.00. The policy is for 
 one year and dates from July 1, 1913. 
 
 Received check from John Johnson for his account in frdl. 
 
 Sold Peter Smith 1000 lb. iron castings at 3^; 500 lb. sand 
 blast castings at 5 ^ ; and 200 lb. phos. bronze castings at 
 29|^. Received in settlement his 30-day note, 5 %. 
 
 Received bill from Eastern Livery & Sales Co., for feed 
 delivered during Jidy: 2 bags oats at $1.20 per bag; 
 200 lb. hay at $.90 per 100 lb. ; 100 lb. bran at $1.15 
 per 100 lb. ; 200 lb. cracked com at $1.30 per 100 lb. ; 
 200 lb. straw at $1.10 per 100 lb. 
 
 Pay roll for last half of month is as follows : 
 
 Foundry hands $500.00 Foreman $80.00 
 
 Office Salaries 100.00 Engineer 30.00 
 
 Stableman (full month) 76.00 
 
 Partners drew on account the following : 
 H. C. Bums $ 25.00 
 
 F. H. Hale 25.00 
 
 Edwin Moore 100.00 
 
 PRINCIPAL PROBLEM II 
 
 215 
 
 The student will now total the columns of the original books, 
 post to the ledgers, and take off a Trial Balance from the General 
 Ledger. The Petty Cash book in this month is to be posted by 
 means of the " Imprest " system. 
 
 Aug. 1, 1913.— 
 
 Aug. 2, 1913.— 
 
 Aug. 4, 1913.— 
 
 Aug. 6, 1913. 
 Aug. 9, 1913.- 
 
 Aug. 10, 1913. 
 
 Aug. 12, 1913. 
 
 Aug. 14, 1913.. 
 
 Aug. 16, 1913. 
 Aug. 18, 1913. 
 
 Aug. 19, 1913. 
 Aug. 21, 1913.- 
 
 Sold Peter Henderson 500 lb. iron castings at 3^, and 250 lb. 
 
 phos. bronze castings at 29^^. 
 One horse died ; value $ 150.00. (No entry at this time.) 
 Bought of Philadelphia Horse Bazaar, one horse at $200.00. 
 Note of James Dickson, which H. C. Bums & Co. had indorsed, 
 
 went to protest, and they were compelled to pay its full 
 
 value $20000.00 together with protest fees of $5.00. As 
 
 James Dickson has failed and has no assets, write off the 
 
 claim against him to " Bad Debts." 
 Allentown Iron Co. offers 500 pigs of iron (100 lb. per pig) at 
 
 $14.00 per ton, for spot cash. Offer accepted. 
 -Paid bill of Allentown Iron Co. of 4th instant. 
 •Sold James Jamison 1000 lb. iron castings at 3^, and 500 lb. 
 
 brass castings at 28 ^. 
 Bought of Texas Oil Co., 5000 gal. of fuel oil at 4f ^ per gallon. 
 Paid note of Penn Foundry Co. due today, with full interest. 
 -Sold Chas. Peters 600 lb. phos. bronze castings at 29^. 
 Paid from petty cash for hauling away dirt and mbbish, $5.00. 
 Pay roll for one half month is as follows : 
 Foundry wages $600.00 Foreman $80.00 
 
 Office salaries 100.00 Engineer 30.00 
 
 Partners drew on account as follows : 
 
 F. H. Hale $250.00 
 
 • H. C. Bums 150.00 
 
 Edwin Moore 500.00 
 
 Paid sundry private bills for H. C. Bums amounting to 
 
 $375.00. 
 ■ Paid note for real estate due to-day, interest 6%. 
 Received cash from S. Jackson for bill of July 19th. 
 Sold Jack Jackson 500 lb. brass castings at 28^; 200 lb. 
 
 phos. bronze (special) at 30 ^ ; and 1000 lb. iron castings 
 
 at 4 ^ per pound. 
 Paid bill of Philadelphia Horse Bazaar. 
 Paid for repairs to the foundry building, $ 1000.00. 
 P. Henderson paid his bill of August 1st. Chas. Peters paid 
 
 his bill of August 12th, less 10 % discount. 
 Sold P. Henderson 1000 lb. iron castings at 3 ^ per pound, and 
 
 1000 lb. brass castings at 28 ^ per pound. 
 

 216 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 \i 
 
 
 Aug. 23, 1913. 
 
 Aug. 25, 1913.— 
 
 Aug. 26, 1913.— 
 
 Aug. 31, 1913. 
 
 - Sold J. Johnson 200 lb. iron castings at 5 ^ per pound. 
 Sold Peter Smith 500 lb. phos. bronze casting at 30 ^ per pound. 
 Received check from him in settlement (51 his note with inter- 
 est in full. 
 
 Paid bill of United States Sand Co. of July 8th ; Camden 
 
 Coke Co., July 9th ; and Pittsburg Copper Co., July 9th 
 Paid bill of Texas Oil Co. of July 1 1th. 
 Bought 100 bu. lime at 28 ^ from Germantown Lime Co. 
 Paid $5.00 for cleaning of office windows; $2.00 for rubber 
 bands; $1.50 for ink; $1.00 for pens; and $10.00 for 
 oats and com. 
 Pay roU for last half of month is as follows : 
 Foundry hands $ 600.00 Foremen $ 80.00 
 
 Office Salaries 100.00 Engineer 30.00 
 
 Stableman (full month) 75 qq 
 
 Sent check to New York Life Insurance Co. for premium of 
 insurance of Edwin Moore, $ 100.00, and charged it to his 
 account. 
 
 Sold for $ 1000.00 cash one of the boilers in Plant Account. 
 
 Post and take a Trial Balance. In posting "Petty Cash," use 
 the original entry method. 
 
 Data for Closing the Books of H. C. Bums & Co. -On the 
 evening of Aug. 31, H. C. Burns & Co. take an inventory of 
 materials and supplies on hand, under the personal supervision of 
 Edwin Moore. The following comprises the inventory, either in 
 the shape of raw material or in the process of manufacture, all of 
 which IS priced on the average cost : 
 
 25 tons Iron 
 7000 lb. Copper 
 10,000 lb. Zinc 
 60 tons Coal 
 4000 gal. Oil 
 95 bu. Lime 
 97 tons Coke 
 205 lb. Phosphorus 
 
 @$ 14.15 per ton 
 
 .13 per pound 
 .06 per pound 
 
 5.10 per ton 
 .04} per gallon 
 .28 per bushel 
 
 2.50 per ton 
 .25 per pound 
 
 $353.75 
 910.00 
 600.00 
 306.00 
 190.00 
 
 26.60 
 242.50 
 
 51.25 
 
 NoTB. - (1) Extend the inventory and journalize same, charging total to Inven- 
 
 re«altmg balance, thus closing each account. 
 
 ^(2) Write off the nominal accounts to Profit and Loss Account, thus closing each 
 
 one. 
 
 PRINCIPAL PROBLEM II 
 
 217 
 
 The wear on Crucibles being great, $ 250.00 is charged to Profit 
 and Loss, crediting Crucible Account. 
 
 Bad Debts Account is written off to Profit and Loss. Credit 
 Horses and Wagons for i|150.00, at the same time debiting Profit 
 and Loss for the value of the horse that died on August 1st. 
 
 A bill for taxes that was pigeon-holed by mistake is found 
 The amount of the bill is $ 817.17. 
 
 Edwin Hale placed orders for sales of pig iron on account of the 
 Pottstown Iron xMines Co. The commission for these sales is 
 Ir 315.15 and is owing to the firm. 
 
 A serious error is discovered in the pay-roll department. Nine 
 men, whose total wages amount to ^f 260.00, were left off the last 
 pay roll by mistake. 
 
 833.33 of the insurance is charged to Profit and Loss. The 
 balance is a Financial Account. 
 
 The balance of Profit and Loss Account is divided equally amon? 
 the three partners, and is closed into their Personal Accounts. 
 
 The partners' Personal Accounts are closed into the partners' 
 Capital Accounts. 
 
 Take off a Balance Sheet in proper form after the books are 
 closed. 
 
218 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 PRINCIPAL PROBLEM III 
 
 219 
 
 I 
 
 PRINCIPAL PROBLEM m 
 
 MuDD, Clay & Co. 
 
 The student will use the General, Customers', and Creditors' 
 Ledgers, all three of which may be placed in the same Ledger, pro- 
 vided it be divided into three parts. The original entry books will 
 be ruled by the student on blank sheets, as per the instructions 
 below. 
 
 General Ledger Accounts to be Used 
 
 Henry Mudd 
 
 Charles Clay 
 
 William Green 
 
 William Green, Personal 
 
 Cash 
 
 Petty Cash 
 
 Machinery 
 
 Tools 
 
 Horses and Carts 
 
 Furniture and Fixtures 
 
 Investment 
 
 Accounts Receivable 
 
 Notes Receivable 
 
 Loan Account 
 
 Accounts Payable 
 
 Notes Payable 
 
 Kaolin 
 
 Goal 
 
 Packing Material 
 
 Bent 
 
 Stationery and Printmg 
 
 Engine Supplies 
 
 Factory Expense 
 Light, Heat, and Power 
 Repairs to Machinery 
 Repairs to Tools 
 Stable Expense 
 Office Supplies 
 Postage 
 Freight 
 
 Charities and Donations 
 Office Salaries 
 Superintendence 
 Wages 
 Discount 
 Advertising 
 Insurance 
 Commission 
 Legal Fees 
 
 Discount on Purchases 
 Packing 
 Sales Pottery 
 Bad Debts 
 
 Other accounts to be opened 
 as occasion requires. 
 
 Instructions for Ruling the Original Entry Books and the Columnar 
 
 Headings 
 
 The Purchase Book is ruled with eleven money columns and one 
 sundry column besides ordinary requirements as regards date and 
 explauatioQ, Columu headings are as follows : Date ; Ledger Folio; 
 
 Account; Explanation; Amount Credit; Kaolin; Coal; Engine 
 Supplies; Packing Material; Repairs to Machinery; Repairs to 
 Tools; Stable Expense; Advertising; Stationery and Printing; 
 Sundries Amount; Account; Ledger Folio. 
 
 The Sales Book is ruled with columns similar to the Purchase 
 Book, with column headings as follows : 
 
 Date; Ledger Folio; Account; Explanation; Amount Debit; 
 Sales ; Packing. 
 
 The General Journal is ruled in columnar form with the explana- 
 tion column in the center, and three money columns to the left and 
 right. Column headings, reading from left to right, are as follows : 
 
 Customers' Ledger ; Creditors' Ledger ; General Ledger ; Folio ; 
 Explanation ; Folio ; General Ledger ; Creditors' Ledger ; Custom- 
 ers' Ledger. 
 
 The Cash Book is ruled with both sides conforming to the same 
 ruling. The columns are headed as follows : 
 
 Date; Ledger Folio; Account; Explanation; Net Cash; Dis- 
 count; Customers' Ledger ; Creditors' Ledger; General Ledger. 
 
 The Petty Cash Book is ruled the same as the Purchase Book 
 with memorandum receipt column to the left. Columns, reading 
 from left to right, are as follows : 
 
 Receipts (subdivided into Date and Amount) ; Date ; Explana- 
 tion ; Amount Credit ; Postage; Factory Expense ; Office Supplies. 
 
 The student wUl enter the following transactions in the proper 
 books : 
 
 Jan. 1, 1914.— 
 
 Jan. 3,1914.— 
 
 Henry Mudd, Charles Clay, and WiUiam Green have this day 
 formed a partnership under the firm name of Mudd, Clay 
 & Co. for the purpose of engaging in the production of 
 pottery and chinaware. The capital of the firm is 
 $50000.00, of which Mudd invests $20000, Clay 
 $20000.00, and Green, $10000.00. 
 
 Profits are to be shared in proportion to the capital invested. 
 The above capital is paid in by the several partners in cash. 
 
 Rented from John Doe a manufacturing site, with buildings, for 
 $3000.00 per annum, and sent check for one month's rent 
 in advance. 
 
 Purchased from the Climax Machine Co., boiler and machinery 
 for $25000.00. 
 
 Purchased of the Office Furniture Co., office furniture 
 $2000.00, 
 
220 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Jan. 6, 1914.— 
 
 Jan. 8,1914.— 
 
 Jan. 11, 1914.— 
 
 Jan. 13, 1914.— 
 
 Jan. 15,1914.— 
 
 Jan. 17, 1914.— 
 
 Jan. 19, 1914. 
 
 Jan. 22, 1914. 
 
 Jan. 24, 1914 
 
 Purchased from the New Tool Co., tools aggregating in value 
 
 $3000.00. 
 Discounted the firm's note at the Merchants' National Bank for 
 
 $50000.00. Terra of note, 30 days ; discount rate, 6 %. 
 (Use 30 days as basis for discount computation.) 
 Paid Climax Machine Co.'s bill of 3d, being allowed 3% dis- 
 count for cash. 
 Ordered of the Bituminous Coal Co., 270 tons of coal at $ 2.50 
 per ton ; payment to be made on receipt of cars. (No entry 
 in Purchase Book until coal is delivered.) 
 Purchased from J. H. Jones, oil and waste for use in engine 
 
 room, $50.00. 
 Bought of Potter's Clay Co., 500 tons kaolin, $5000.00. 
 
 Terms, 2 % in 10 days. 
 First car of coal received on onler of 8th ; weight, 47 tons. 
 (Enter in Purchase Book, then in Cash Book — see 8th.) 
 Purchased of L. J. Black, 12500 packing crates, together with 
 
 straw, $1250.00. 
 Bought of Holt & Bums, 700 tons kaolin $7700.00. Gave 
 note in payment of same. Sold M. S. Pearce 1500 crates 
 of pottery at $2.50 per crate. Charged 10% additional 
 for packing. 
 Paid factory hands, $400.00. Paid engineers' wages, $ 150.00. 
 Purchased of A. K. Root, 1000 tons kaolin, $ 15000.00. 
 Received last five cars of coal, ordei-ed on 8th ; weight, 229 tons. 
 Sold to The World's Department Store Co., 1000 crates of pottery 
 
 at $3.00 per crate. Charged them $250.00 for packing. 
 Bought of the Eastern Horse Exchange, draft horses, $ 1000.00. 
 
 Paid for same in cash. 
 Purchased from Hub and Spoke, for cash, carts and harness, 
 $700.00. Sent them check for same. 
 
 Sold Hutter Bros. 1500 crates earthenware at $2.75 per crate. 
 
 Chargetl them 10 % additional for packing. 
 Purchased of the Blank Book Co., stationery, $1250.00. 
 
 Mailed check for same. 
 Drew check for petty cash purposes, $250.00. 
 
 — Sold 2000 crates finished stock to Wallingford & Co., at $ 3.00 
 
 per crate. Charged them $500.00 for packing. 
 Bought 1000 two-cent postage stamps, paying for same from 
 
 petty cash. 
 Paid insurance premium for one year in advance, $250.00. 
 
 — Received from M. S. Pearce his 30-day note in payment of bill 
 
 of 13th instant. 
 
 PRINCIPAL PROBLEM III 
 
 221 
 
 Mailed check to Office Furniture Co. in payment of bill of 3d 
 
 instant. 
 Sold James K. Wallace 3500 crates of pottery at $2.00 per 
 crate. Charged him $750.00 for packing. 
 Jan. 25, 1914. — Received bill from Poster & Paiste for advertising. (Contract 
 
 for advertising which runs one year from Jan. 1 ; amount of 
 contract, $3000.00.) 
 Received bill from Fixem & Son for repairs to machineiy, 
 $100.00. 
 Jan. 26, 1914. — Paid cash from drawer for soap, towels, and brushes for factoiy 
 
 use, $50.00. 
 Green withdrew $300.00 for personal use. 
 Ordered 300 tons of coal at $2.50 from the Bituminous Coal Co. 
 Jan. 29, 1914. — Sold to The World's Department Store Co., 750 crates of china- 
 ware at $3.00 per crate. Packing on above, $200.00. 
 Purchased from L. J. Black, 10000 packing crates and straw, 
 
 $1000.00. 
 Received 4 carloads of coal ordered on the 25th; weight, 
 205 tons. 
 Jan. 31, 1914. — Paid wages of factory hands, $800.00; engineers' wages, 
 
 $150.00; office salaries, $220.00; superintendents' wages, 
 $240.00; teamsters' and stablemen's wages, $100.00. 
 
 Total and post all books, after transferring Petty Cash totals to 
 the General Cash Book. Take Trial Balance of the General Ledger, 
 and supplement it by schedules of the Customers' and Creditors' 
 Ledgers, to prove the control of the General Ledger Accounts 
 " Accounts Receivable " and " Accounts Payable " over these sub- 
 sidiary Ledgers. 
 
 Feb. 1, 1914. — Mailed check to John Doe for rent of February. 
 
 Allowed claim of Wallingford & Co. of $119.50 on goods sold 
 
 to them on the 22d ultimo. 
 Paid Window Cleaning Co. from drawer for cleaning factory 
 windows, $50.00. 
 Feb. 3, 1914. — Received last two cars of coal ordered on the 26th ult. ; weight, 
 
 91 tons. 
 Bought from the Ribbon Typewriter Co., one typewriter costing 
 
 $100.00 net. 
 Paid bill of New Tool Co., dated Jan. 3. 
 Feb. 5, 1914. — Firm contributed gratis 10 crates of finished stock, to aid the 
 
 Charity Fair, valued at $ 100.00. 
 Returned 100 tons kaolin purchased from A. K. Root on the 
 15th ult. 
 
222 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 Paid firm's note of Jan. 6, due to-day. 
 Feb. 7, 1914. — Paid freight bill for January by check, $22.50. 
 
 Paid from drawer for pens, pencils, ink, etc., $10.00. 
 
 Discounted M. S. Pearce's note at Merchants' National Bank. 
 Face of note, $4125.00. Proceeds, $4092.69. 
 Feb. 8, 1914. — Received the following bills: Fixem & Son, for Repairs to 
 
 Tools, $75.00 ; J. H. Jones, for Engine Oil, $35.00. 
 
 Received from Hutter Bros., their note at 15 days for $4000.00, 
 to apply on account. 
 
 Paid A. K. Root, $10000.00, on account. 
 Feb. 11, 1914. — Received invoice from A. Hammer for horseshoeing, $65.00. 
 
 Bought of Holt & Burns, 300 tons kaolin, for $ 3300.00. Gave 
 in payment note for $ 1000.00 ; sight draft on J. K. Wallace, 
 $2000.00 ; balance on account. 
 
 Bought of Broker & Co., 500 shares of the capital stock of the 
 San Rosario Rubber Co., at 90 ($45000.00). Commis- 
 sion $62.50. Charge the entire amount including the com- 
 mission to the account Investments. 
 Feb. 12, 1914. — Borrowed of the National Deposit Bank, $10000.00, on de- 
 mand, at 5 %, putting up as collateral 400 shares of the 
 stock purchased. 
 
 Borrowed of the Farmers' State Bank $ 8000.00, on demand, at 
 
 5 %, giving as security 100 shares of the stock purchased. 
 Received from The World's Department Store Co., $3250.00, 
 
 in payment of invoice of the 17 th ult. 
 Feb. 14, 1914. — Discounted Hutter Bros.' note received on 8th inst. Discount, 
 
 $6.00. 
 Received from J. K. Wallace, $5000.00, on account. 
 Discounted firm's 30-day note at Merchants' National Bank 
 
 for $20000.00. Discount rate 6%. (Calculate discount 
 
 at 30 days.) 
 Mailed Broker & Co. check for $45062.50 in payment of 
 
 stock purchased. 
 Feb. 15, 1914. — Sold M. S. Pearce 1500 crates finished goods (earthenware), 
 
 $ 3750.00. Packing, $ 375.00. 
 Paid factory hands, $1200.00; engineers' wages, $150.00; 
 
 drivers' wages, $100.00. 
 Feb. 19, 1914. — Paid attomey-at-law, $100.00, for services. 
 
 Holt & Bums have drawn on firm at sight in favor of Jones 
 
 6 Smith for balance due on open account, $300.00. Firm 
 accepts draft, payable at bank. 
 
 M. S. Pearce returned 100 crates of goods purchased on 15th 
 inst. Credited his account with $250.00. 
 
 PRINCIPAL PROBLEM III 
 
 223 
 
 Feb. 23, 1914. 
 
 Feb. 25, 1914 
 Feb. 28, 1914 
 
 Pay the following bills: Poster & Paiste, $3000.00; Potter's 
 
 Clay Co., $5000.00. 
 Feb. 21, 1914. — Sold J. K. Wallace 1000 crates finished goods (chinaware) at 
 
 $2.00 per crate. Packing, $250.00. 
 Bought of the New Tool Co., additional tools, $500.00. 
 Hutter Bros, owe the firm $537.50, on account. L. J. 
 
 Black assumes this debt and pays $ 137.50 in cash. Bal- 
 ance charged to his account. 
 Discount firm's note at Merchants' National Bank for $ 10000.00. 
 
 Time of note, 10 days ; discount 6 %. 
 -Ordered from the Bituminous Coal Co., 400 tons coal at $2.50. 
 Hutter Bros, have declared an assignment for the benefit of 
 
 creditors. As indorser on theii* note, due to-day, firm paid it 
 
 with protest fees, $2.00. 
 -Received 5 cars of coal ordered on the 23d inst. ; weight, 240 
 
 tons. 
 -Paid factory hands, $1200.00; engineers' wages, $150.00; 
 
 drivers and stablemen, $ 100.00 ; superintendents' wages, 
 
 $240.00; office salaries, $220.00. 
 Received the last three cars of coal ordered on the 23d inst. ; 
 
 weight, 150 tons. • 
 Received from the assignee of Hutter Bros., 25 ^ on the dollar in 
 
 full settlement of their note of $ 4000.00 and protest fees. 
 
 Post and take Trial Balance of all Ledgers. Use Petty Cash 
 Book as a book of original entry. 
 
 Data for Closing the Books of Mudd, Clay & Co. — Prepare 
 closing entries in order to ascertain net gain or loss of the business 
 for the two months, taking into consideration the following detailed 
 data ; and using Manufacturing, Trading, and Profit and Loss Ac- 
 counts, placing all the items that would have gone into Administra- 
 tion Account into Profit and Loss Account. 
 
 (a) Provide depreciation as follows : 
 
 1. On Machinery at the rate of 10 % per annum 
 
 2. On Tools at the rate of 25 % per annum. 
 
 3. On Horses and Carts at the rate of 15 % per annum. 
 
 4. On Furniture and Fixtures at the rate of 35 % per annum. 
 Provide also the following reserves : 
 
 5. 1 % on Accounts Receivable for anticipated discounts. 
 
 6. 3 % on Accounts Receivable to cover anticipated bad debts. 
 (6) Charge off as follows : 
 
 1. Charge off the expired portion of Advertising Contract. 
 
il 
 
 224 A FIRST YEAR IN BOOKKEEPING AND ACCOUNTING 
 
 2. Charge off the expired portion of Insurance Premium, 
 (c) The following expenses have accrued and must be provided 
 for: 
 
 1. Wages 1300.00. 
 
 2. Interest on Loans, 16 days on each loan, at 5 %. 
 ((?) The inventory discloses : 
 
 Materials and Supplies together with finished stock on hand. 
 
 1. Kaolin 17200.00 
 
 2. Packing Material 874.00 
 
 3. Coal (162 tons @ ^2.50) 405.00 
 
 4. Finished Stock (Earthenware) 8000.00 
 
 (e) Divide the stable expense together with the depreciation on 
 horses and carts equally between the manufacturing and 
 trading accounts, as the use of the teams has been approxi- 
 mately half and half in each department. 
 Apportion the rent 90^ to factory and 10% to office. 
 
 (/) Provide interest on partners' capital at the rate of 6% per 
 annum, to be credited to them. Charge the same rates 
 on withdrawals. 
 
 Submit final Balance Sheet in approved form. 
 
 i 
 
 INDEX 
 
 Page 
 
 Accounting 
 
 Definition of 1 
 
 Accounts 
 
 Accrual 14^2 
 
 Allowance 85, 89 
 
 Bad Debts 141 
 
 Bond 59 
 
 Controlling 161 
 
 Financial 
 
 Personal 22 
 
 Property 22 
 
 Goods 37 
 
 Loan 59 
 
 Mortgage Payable 59 
 
 Nominal 22 
 
 Notes Receivable Discounted . . 58 
 
 Proprietorship 37 
 
 Proprietor's Capital 115 
 
 Proprietor's Personal 115 
 
 Reserve 138 
 
 Revenue (see Revenue Accounts) 
 Theory of 37 
 
 Account Sales 
 
 Definition of 128 
 
 Explanation of 128 
 
 Illustration of 129 
 
 Accruals 
 
 Definition of 142 
 
 Recording of 143 
 
 Assets 
 
 Definition of 14 
 
 Bad Debts 141 
 
 Balance Sheet 
 
 Definition of 149 
 
 Explanation of 151 
 
 Illustration of 152 
 
 Bank Account 118 
 
 Bill Book 
 
 Explanation of 93 
 
 Illustration of 91,92 
 
 Paok 
 
 Bill Book (continued) 
 
 Principle of 90 
 
 Value of 94 
 
 Bills of Lading 
 
 Characteristics of 104 
 
 Conditions to 107 
 
 Definition of 104 
 
 Description of HO 
 
 Draft attached to HI 
 
 Illustration of 105, 106 
 
 Negotiability of 104 
 
 Order HO 
 
 Straight HO 
 
 Vouchers of Ill 
 
 Bookkeeping 
 Change from Single to Double 
 
 Entry 41 
 
 Definition of 1 
 
 Development of 3 
 
 Double Entry 22 
 
 Necessity for 1 
 
 Objects of 1 
 
 Single Entry 5 
 
 Capital and Revenue 158 
 
 Cash 
 
 Definition of I^ 
 
 Cash Book 
 
 Advantages of 82 
 
 Columnar 167, 168 
 
 Explanation of 79 
 
 Illustration of 80, 81 
 
 Posting of 82 
 
 Principle of 79 
 
 Check Book 122 
 
 Illustration of 120,121 
 
 Reconcilement of 123 
 
 Checks 
 
 Definition of 118 
 
 Indorsement of 122, 123 
 
 Closing a Set of Books 67, 146 
 
 225 
 
226 
 
 INDEX 
 
 Pao« 
 
 Columnar Books 
 
 Definition of 134 
 
 Explanation of jgi 
 
 Illustration of 
 
 Cash Book 167,168 
 
 Oeneral Journal 174 
 
 Petty Cash Book 171 
 
 Purchase Book 162, 163 
 
 Sales Book iqq 
 
 Commission 
 
 Definition of jog 
 
 Recording of 13 j 
 
 Consignments 
 
 Definition of 126 
 
 Recording of 134 
 
 Coupon Envelope 124 
 
 Drafts {continued) 
 
 Sight 
 
 Time 
 
 Paob 
 
 97 
 
 97 
 
 Debit and Credit 
 
 Definition of 3 
 
 Rules for, in Double Entry .... 23 
 Rules for, in Single Entry .... 6 
 
 Theory of 37 
 
 Deposit Slips 119 
 
 Depreciation 
 
 Causes of 135 
 
 Definition of 135 
 
 Method of determining 137 
 
 Recording of 137 
 
 Discount 
 
 ^ank 53 
 
 Commercial 53 
 
 Computation of 5^ 
 
 Definition of 53 
 
 Illustration of 54 
 
 Merchandise 53 
 
 Trade ' 53 
 
 Double Entry Bookkeeping 
 Change from Single Entry .... 41 
 
 Definition of 22 
 
 Double-named Paper 5(j 
 
 Drafts 
 
 Acceptance of 99 
 
 ^^^} 97 
 
 Definition of 95 
 
 Entries for jqq 
 
 Explanation of 9(5 
 
 Illustration of . . 95, 97, 98, 99, 102 
 
 Negotiability of 99 
 
 Parties to 95 
 
 Personal * ' 97 
 
 Purposes of ^ 
 
 Financial Accounts 
 
 Definition of ^ ^ ^ 22 
 
 Indorsements 
 
 Blank ^g 
 
 Explanation of 49 
 
 Special 49 
 
 Interest 
 
 Computation of gg 
 
 Definition of 53 
 
 Illustration of 54 
 
 Inventory 
 
 Definition of 14 
 
 Recording of oo 
 
 Invoice Book * m 
 
 Journal 
 
 Columnar ^74 
 
 Double Entry 
 
 Definition of 22 
 
 Explanation of 26 
 
 Illustration of 25 
 
 Posting of 27 
 
 Single Entry 
 
 Definition of 5 
 
 Explanation of 7 
 
 Illustration of 7 
 
 Posting of 10 
 
 Journalizing 
 
 Definition of 23 
 
 Explanation of 26 
 
 Illustration of .... «>r, 
 
 zo 
 
 Rules for 23 
 
 Single Entry 7 
 
 Ledger 
 
 Creditors* jgj 
 
 Customers' \^-^ 
 
 Double Entry 
 
 Definition of 23 
 
 Explanation of 29 
 
 Illustration of 27 
 
 Single Entry 
 
 I Definition of 5 
 
 j Illustration of 9 
 
 Liabilities 
 Definition of , , . . . 14 
 
 INDEX 
 
 227 
 
 \ 
 
 Paok 
 Merchandise 
 
 Definition of 14 
 
 Negotiability 49 
 
 Requirements of 60 
 
 Nominal Accounts 
 
 Definition of 22 
 
 Notes, Promissory 15, 48 
 
 Definition of 48 
 
 Illustration of 48 
 
 Maturity of 50 
 
 Negotiation of 49 
 
 Parties to 48 
 
 Payable 15, 48 
 
 Purposes of 50 
 
 Receivable 15, 48 
 
 Recording of, in Bill Book .... 90 
 
 Partnerships 
 
 Articles of 113 
 
 Bookkeeping-for 115 
 
 Definition of 113 
 
 Kinds of 114 
 
 Purposes of 114 
 
 Pass Book 121 
 
 Petty Cash 170 
 
 Imprest System of 172 
 
 Original Entry, System of ... . 172 
 
 Voucher, System of 172 
 
 Petty Cash Book 
 
 Illustration of 171 
 
 Posting 10, 27, 82, 85, 88 
 
 Present Worth 15 
 
 Profit and Loss 
 
 In Single Entry 14 
 
 Statement in Double Entry . . . 155 
 
 Purchase Book 
 
 Advantages of 89 
 
 Columnar 162, 163 
 
 Explanation of 88 
 
 Illustration of 87 
 
 Posting of 88 
 
 Principle of 87 
 
 Reserves 
 
 Definition of 138 
 
 Recording of 138 
 
 Pagu 
 
 Revenue {see Capital and Revenue) 
 
 Revenue Accounts 
 
 Entries for 179 
 
 Explanation of 176 
 
 Illustration of 177 
 
 Rules for Debit and Credit 
 
 In Double Entry 23 
 
 In Single Entry 6 
 
 Sales Book 
 
 Advantages of 86 
 
 Columnar 166 
 
 Explanation of 84 
 
 Illustration of 83 
 
 Posting of 85 
 
 Principle of 84 
 
 Shipments 
 
 Definition of 126 
 
 Memorandum of 127 
 
 Recording of 130 
 
 Single Entry Bookkeeping 
 
 Advantages of 17 
 
 Change to Double Entry 41 
 
 Definition of 5 
 
 Disadvantages of 17 
 
 Present Worth in 15 
 
 Profit and Loss in 14 
 
 Statements in 16 
 
 Statements 
 
 Balance Sheet 149 
 
 Profit and Loss 155 
 
 Single Entry 16 
 
 The Six-Column 
 
 Explanation of 61 
 
 Illustration of 62 
 
 Value of 65 
 
 Summary Entry 165 
 
 Trial Balance 
 
 Definition of 35 
 
 Illustration of 34, 35 
 
 Location of errors in '36 
 
 Preparation of 35 
 
 Reasons for 34 
 
 Value of 36 
 
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