Order and Sales Records
]
[Illustration:
Order and Sales Records
]
[Illustration:
Departmental Abstract of Sales
]
[Illustration:
Cash Received Book
]
[Illustration:
ONE OF THE ELECTRICAL MANUFACTURING PLANTS OF THE FAIRBANKS-MORSE
COMPANY
]
[Illustration:
Check Register and Cash Expenditure Book
]
COMMISSION AND BROKERAGE BUSINESS
=30.= Commission or brokerage is the business of buying and selling
goods for another. The commission merchant or broker acts in the
capacity of agent, charging a stated per cent or commission for his
services.
Certain commodities are sold on the market at the best prices
obtainable, the prices depending upon the condition of the market—the
supply and demand. Since it would be both inconvenient and unprofitable
for each seller to accompany his own wares to market, he avails himself
of the services of the commission merchant. The class of goods most
largely dealt in by commission merchants is farm produce, shipped to the
cities by both producers and country dealers.
The practice of shipping produce to the broker to be sold on commission
is gradually falling into disuse. As the business is now conducted, the
commission merchant buys the produce outright and takes his own chances
of making a profit, and thus his business becomes also that of a
wholesaler.
MERCHANDISE BROKER
=31.= Certain classes of merchandise are marketed through the medium of
brokers styling themselves merchandise brokers. Their business is
usually transacted on a larger scale than that of the ordinary
commission merchant. The merchandise broker sells in large quantities—as
salt by the car load.
The distinction between the commission merchant and the broker lies in
the fact that the commission merchant has the goods to be sold actually
in his possession, while the broker acts as agent for the purchase and
sale of goods which he does not actually handle.
MANUFACTURER'S AGENT
=32.= One distinct class of brokers is the sales agent or manufacturer's
agent. He is a broker who sells goods for the manufacturer, usually by
sample. As a rule the manufacturer sets the prices and determines the
terms of credit. The goods are sold in the name of the manufacturer who
carries the accounts on his books, paying the agent a commission for his
services. In some cases, however, the manufacturer's agent maintains his
own warehouse, issues a warehouse receipt for the goods which are
shipped to him, and even advances money to the manufacturer. He then
becomes virtually a commission merchant. He holds the goods as security
for the money advanced, and, when sold, collects the money and remits
the balance of the net proceeds the same as the ordinary commission
merchant.
SHIPMENTS
=33.= When a principal sends goods to a commission merchant or broker to
be sold on commission, it is called a shipment. As soon as the goods are
sent, an account is opened with the shipment, and the shipment is
designated by the name of the consignee, a number, or the name of the
place—as _Shipment to Richard Roe_. If more than one shipment is made to
a commission merchant an account should be opened for each one in order
that the gain or loss can be determined for individual shipments. The
separate accounts should be designated by number—as Richard Roe,
shipment No. 2.
The shipment, when made, is entered in the same way as a sale, and the
items are charged at cost price. The account is also charged with any
expense incurred on account of the shipment. When the Account Sales is
received, the account is credited with the net proceeds. It now shows
either a profit or a loss which is transferred by a journal entry to an
account called _Profit and Loss on Shipments_. This account is, in turn,
closed into profit and loss when the books are closed.
If at the time of closing the books there are any outstanding shipments
on which Account Sales have not been received, the debit balances
represent assets the same as inventory of merchandise on hand.
=34. Agents' or Factors' Account.= If the Account Sales, when received,
is accompanied by a remittance to cover net proceeds, cash is debited
and the shipment account credited for the amount. When a remittance is
not received with the Account Sales, the shipment account is credited
with net proceeds and the amount is charged to a new account opened in
the name of the consignee as _Agent_ or _Bailee_ or _Factor_—as _Richard
Roe, Agent_, or _Richard Roe, Bailee_, which is treated as a personal
account. This does not mean that Richard Roe is a debtor in the ordinary
sense of the term, but that he holds funds in trust; and in case of his
failure, the shipper could recover full value instead of being obliged
to accept his pro rata share of the assets.
A CONSIGNMENT
=35.= When a broker receives a shipment of goods to be sold on
commission, it is known as a consignment. He opens a memorandum account
by entering a list of the goods, but without extending any amounts. He
has not purchased the goods, but simply holds them for sale as agent of
the shipper. If there are any charges against the consignment, as
freight, cartage, or storage charges, an account is opened in the name
of the consignor. The title would be _John Doe's Consignment_, and if
more than one consignment is received from John Doe a separate account
is opened for each. This account is debited for all charges, and as
sales are made they are credited to the account. When all of the goods
have been sold, the broker renders the consignor a statement, known as
an Account Sales, showing sales, expenses, and net proceeds.
If, when the books are closed, there are on hand any consignments, or
parts of consignments, unsold, the consignment accounts are left open
and represent either assets or liabilities. If expenses have been
debited and no sales credited, the account will show a debit balance
representing an asset. If sales have been credited in excess of the
expense charges, the credit balance will represent a liability. When an
Account Sales has been rendered, the account will balance, the net
proceeds having been either remitted or credited to the consignor.
=36. Principal's Account.= If the broker remits the net proceeds at the
time of rendering the Account Sales, he debits the consignment and
credits cash, or bills payable as the case may be. But if he renders an
Account Sales without remitting, he opens an account with the consignor,
as _John Doe, Principal_, or _John Doe, Bailor_, and credits the account
with the net proceeds, debiting the consignment account. The title of
the account shows that he is not an ordinary debtor to John Doe, but
that the amount of the credit represents funds belonging to John Doe and
held in trust by the broker. In case of his failure the account of John
Doe, Principal, would have to be paid before the claims of ordinary
creditors.
=37. Commission Account.= All sums received by the broker for services
rendered in connection with the sale of goods for a shipper are credited
to a commission account. When the books are closed this account is
closed into profit and loss.
PRODUCE SHIPPER'S BOOKS
=38.= The most common branch of the commission business is that of
shipping and selling produce. The books used vary somewhat from those
used by a manufacturer's agent selling to jobbers, but the principles
are the same.
[Illustration:
Two Column Shipment Book
]
Sometimes the same man conducts both the business of shipper and broker,
buying certain goods which he in turn ships to other brokers to be sold
for his account. In the produce commission business, however, the
shipper is usually a buyer, located in the country, who buys produce
from the farmer and ships to a commission merchant in the city.
The books required by the shipper are _purchase book_, _shipment book_,
_shipment ledger_, _cash book_, _journal_, and _general ledger_.
=39. Purchase Book.= This book is of the same form as used in other
businesses, with as many columns as may be desired to separate purchases
of different classes of produce.
=40. Shipment Book.= This is the book of original entry for shipments in
which each shipment is recorded in detail, showing each item, with
prices (usually at cost) extended. The book can be ruled with columns
for segregating shipments of different classes of produce. The total of
each shipment is posted to the debit of the individual shipment account
in the shipment ledger. The footings of the columns are carried forward
to the end of the month when they are posted to the credit of shipment
accounts in the general ledger. These general ledger shipment accounts
are opened for each class of produce for which a separate record is
desired, and correspond to the sale account of a mercantile business.
At the end of the month the total of all shipments is posted to the
debit of a controlling account in the general ledger known as _shipment
ledger account_.
If more than one class of produce is shipped to an agent at the same
time it is best to make invoices for each, treating them as independent
shipments. Each package should bear a number or other mark by which it
can be identified as belonging to a particular shipment.
=41. Shipment Ledger.= An ordinary ledger can be used or a special form
prepared. Since the debit side of the account will require much the
greater amount of space, special forms are quite desirable. A convenient
form is illustrated on page 55.
=42. Cash Book.= Tabular cash books with special arrangement of the
column headings are used. The special features are the column on the
credit side headed _shipment expense_, and the debit column headed
_shipment ledger_. The shipment expense column is for the expenses paid
on each shipment. Expenses are posted direct to the debit of the
individual shipment accounts, and at the end of the month the total
expense is posted to the debit of the shipment ledger controlling
account. The shipment ledger column is for net proceeds remitted with
account sales. The amounts are posted to the credit of shipment
accounts, and the total is posted at the end of the month to the credit
of shipment ledger controlling account.
The sundries column is for receipts other than remittances with account
sales—as payments by agents who have not remitted with account sales.
[Illustration:
Shipment Ledger for Commission Business
]
[Illustration:
Cash Journal for Commission Business
]
=43. Shipment Ledger Account.= This is the controlling account of the
shipment ledger. It is charged with total shipments through the shipment
book; with advance expenses through cash book or journal; credited with
net proceeds through cash book or journal. It must also be charged with
profits on shipments, or it will not represent the total balance of
shipment ledger.
When net proceeds are credited, the individual shipment account should
be charged, through the journal, with the net profit, which is credited
to _Profit and Loss on Shipments_. A special credit column is provided
in the journal for profits, or if a record of profits on each class of
produce is desired, two or more columns are provided. Monthly totals are
posted to the credit of profit and loss on shipment account, or to more
than one such account—as _profit on poultry_, _profit on butter and
eggs, etc._ The total of all profit columns, which represents debits to
shipment accounts, is charged to shipment ledger account.
It is to be supposed that losses will be few, and when one is incurred
the entries should be made through the journal. The amount will be
charged to profit and loss on shipment account and credited to both the
individual shipment account and shipment ledger account.
=44. Journal.= As already explained, the journal should be provided with
extra columns for profits on each class of shipment.
When an agent transmits an account sales without a cash remittance, the
transaction must be journalized to close the shipment account. When
proceeds are to be charged to his account, the entry is:
Dr. Cr. Cr.
Richard Roe, Agt. $160.00
To Shipment Ledger
Richard Roe Shipment No. 1 $160.00
Richard Roe, Shipment No. 1 18.00
To Profit and Loss on Shipments $18.00
If a note to cover net proceeds is received, the entry is the same
except that Bills Receivable is debited instead of Richard Roe, Agt.
When a loss is incurred the entry is:
Dr.
Profit and Loss on Shipments $18.00
To Shipment Ledger Account
Richard Roe Shipment No. 1 $18.00
and postings will be made direct to all accounts affected.
TREATMENT OF ACTUAL SALES
=45.= The shipper may sell a portion of his produce outright, and if a
large share of his business is transacted in this manner, sales can be
treated exactly the same as though he was not engaged in a commission
business, with separate sales book and sales ledger.
Most shippers, however, will not find it necessary to segregate sales to
this extent. Sales can be charged to shipment accounts in the shipment
ledger, but will of course be charged at a profit, and credited to
shipment account in general ledger. Payments on these accounts will be
entered in the cash book as net proceeds.
SHIPPER'S TRADING ACCOUNT
=46.= The trading account of the shipper is made up somewhat differently
than for a mercantile business where all sales are supposed to be
entered at a profit.
If all his produce is sold through commission merchants, and the
inventory of produce in stock exactly equals the difference between
purchases and shipments, the account, _profit and loss on shipments_
represents the trading profit. But this state of affairs seldom if ever
exists. Either there will have been outright sales or a discrepancy will
appear in the inventory. The latter is usually the case in a produce
business, for some value will be lost owing to the perishable nature of
the goods handled.
The trading account is charged with all purchases and inventory, if any,
at beginning of the period, and credited with all shipments and
inventory at end of period.
The trading account now exhibits the true trading profits with a
complete segregation of profits from actual sales and commission sales.
The inventory does not include outstanding shipments, these being
treated as a separate item in the balance sheet.
TRADING a/c
════════════════════╦═══════╤══╦════════════════════╤═══════╤══
To Purchases ║$10,000│00║By shipments │ $9,000│00
║ │ ║ │ │
Profit on Sales ║ 465│00║ " Inventory │ 1,465│00
────────────────────╫───────┼──╫────────────────────┼───────┼──
║$10,465│00║ │ │
════════════════════╬═══════╪══╬════════════════════╪═══════╪══
║ │ ║ By Profit on Sales│ $465│00
SAMPLE TRANSACTIONS
=47.= The following transactions, taken from the books of John Doe,
shipper of poultry and butter and eggs, illustrate the books and
accounts used.
—Nov. 1, 1908—
Commenced business with a
cash investment of $1,000.00
—1st—
Bought for cash
200# chickens @ .11½ 23.00
100# ducks @ .13 13.00
—1st—
Bought from
Henry Meyers
400# turkeys @ .16 64.00
—2nd—
Shipped to
Richard Roe, to be sold on my a/c
220# chickens @ .11½ 25.30
98# ducks @ .13 12.74
—2nd—
Ctg. and Exp. on above
paid in cash 2.25
—3rd—
Bought for cash
100 cs. eggs, 3,000 doz. @ .16 480.00
—3rd—
Shipped to
Richard Roe to be sold on my _a/c_
95 cs. eggs, 2,850 doz. @ .16 456.00
—3rd—
Sold to Johnson & Sons on _a/c_
5 cases eggs, 150 doz. @ .20 30.00
—4th—
Shipped to Richard Roe to be sold
on my a/c 200# turkeys @ .16 $32.00
—4th—
Paid freight on eggs to Roe 2.98
—4th—
Paid freight on turkeys to Roe 1.80
—5th—
Received from Richard Roe
Account Sales for Shipment No. 1
Net proceeds remitted in cash 47.73
—6th—
Received from Richard Roe
Account sales for shipment No. 2
Net proceeds retained by him 518.12
—6th—
Paid for labor
cash 9.00
[Illustration:
Shipment Book
]
[Illustration:
Columnar Purchase Book and Journal
]
[Illustration:
Cash Journal for Commission Business
]
[Illustration:
Shipper's Purchase and Shipment Ledger
]
[Illustration:
Shipper's General Ledger
]
[Illustration:
THE ADMINISTRATION BUILDING OF THE MINNEAPOLIS STEEL & MACHINERY CO.,
MINNEAPOLIS, MINN.
]
[Illustration:
Shipper's General Ledger
]
EXERCISE
=48.= On a certain date a trial balance of the ledger of Henry Donnely,
shipper of produce, stood as follows:
DEBITS
Purchases of apples $1,264.00
Purchases of potatoes 1,500.00
Shipment Ledger Account 736.00
Cash 450.00
CREDITS
Shipment Account—apples 1,200.00
Shipment Account—potatoes 1,200.00
Profit on Shipments—apples 250.00
Profit on Shipments—potatoes 350.00
Accounts Payable 950.00
During a subsequent period, his transactions were as follows:
Cash purchases of apples 1,000.00
Cash purchases of potatoes 1,000.00
Shipments of apples 900.00
Shipments of potatoes 1,100.00
Profits on apples 100.00
Profits on potatoes 200.00
Account Sales for which cash was received 1,800.00
Account sales charged to Agts. 600.00
Shipment Ledger Account decreased 100.00
Sundry expenses paid in cash 50.00
Inventory at end of period
Apples 210.00
Potatoes 190.00 400.00
Prepare trading and profit and loss accounts showing net profits or
losses on both apples and potatoes for the entire period represented by
the accounts.
COMMISSION MERCHANTS' BOOKS
=49.= The books required by a produce commission merchant are _receiving
book_, _cash book_, _consignment ledger_, _sales book_, _sales ledger_,
_journal_, and _general ledger_. If he buys produce to be sold on his
own account, he also requires a _purchase book_ and _purchase ledger_.
=50. The Receiving Book.= This is usually a rough blotter with ordinary
day book ruling, though some merchants use special forms.
When a consignment is received it is given a lot number and entered in
this book in the name of the shipper, but without extending the amounts.
If any expenses have been incurred, an account is opened immediately in
the consignment ledger in the name of the shipper.
=51. The Cash Book=. On the credit side of the cash book, under the
general heading _consignment ledger_, are three columns, headed _net
proceeds_, _expense_, and _commission_. The commission column is a
memorandum column only, the total being posted, at the end of the month,
to the credit of commission account in the general ledger.
Net proceeds, expense, and commission on each consignment are posted as
separate items to the debit of that particular consignment account. At
the end of the month, the total of these three columns is posted to the
debit of consignment ledger account in the general ledger.
=52. Sales Book.= The sales book is provided with special columns for
sales and consignment sales. The sales column represents sales of the
merchants' own goods, the totals being posted at the end of the month to
the credit of sales account in the general ledger and to the debit of
the sales ledger account.
The consignment sales are listed by lot number and posted to the credit
of the consignment accounts. As the lot numbers run consecutively in the
receiving book, this furnishes an index to the consignment accounts. The
totals of the consignment sales columns are posted to the credit of
consignment ledger account, and the consignment ledger column is posted
to the debit of sales ledger account.
=53. Consignment Ledger.= This ledger contains accounts with every
consignment received. The accounts are _charged_ with expenses, net
proceeds, and commissions from the cash book, and _credited_ with sales
from the sales book. If a remittance is not sent with the Account Sales,
the necessary entry is made in the journal, charging both consignment
account and consignment ledger account and crediting the shipper as
principal—or bills payable account when a note is sent.
=54. Consignment Ledger Account.= This is a controlling account which
receives its debits and credits from the same sources as do the
consignment accounts. Except in the case of journal entries, totals only
are posted at the end of the month.
PURCHASE AND SALE OF OWN GOODS
=55.= When the commission merchant is also a wholesaler, the purchases
and sales are treated on the books exactly as they would be if he was
not a commission merchant. The books and accounts required are the same
as those of any other wholesale merchant.
SAMPLE TRANSACTION
=56.= The following transactions include the shipments used in the last
model set, but treated from the standpoint of the commission merchant.
—Nov. 3, 1908—
Received from John Doe to be
sold for his account:
220# chickens
98# ducks
Lot No. 1
—4th—
Received from John Doe to be
sold for his account
95 cs. eggs, 2,850 doz.
Lot No. 2.
—4th—
Sold for cash
100# chickens (Lot 1) @ .16 $16.00
—4th—
Sold to Sweet & Co. on a/c
110# chickens (Lot 1) @ .16 17.60
—4th—
Sold for cash
100# ducks (Lot 1) @ .17¼ 17.25
—4th—
Paid expense on lot #1 $1.60
—4th—
Rendered Account Sales, with
remittance for Lot #1, commission 3%
—5th—
Sold for cash
20 cs. eggs., 600 doz., @ .18 (Lot 2) 108.00
—5th—
Sold to Gaston & Co., 156 Hammond St.
20 cs. eggs., 600 doz., @ .20 (Lot 2) 120.00
—5th—
Sold to Francis & Gates, 948 37th St.
30 cs. eggs, 900 doz., @ .19 (Lot 2) 171.00
—5th—
Sold to H. B. Niles, 364 Fuller Ave.
25 cases eggs, 750 doz. @ .19 (Lot 2) 142.50
—5th—
Paid expense on Lot #2 7.13
—5th—
Rendered account sales for
Lot #2, commission 3%, crediting
amount to shippers' account.
—5th—
Received from John Doe to be
sold for his account
200# Turkeys
Lot #3
—5th—
Paid expense on Lot #3 1.25
[Illustration:
Commission Merchant's Receiving Book, Journal and Sales Book
]
[Illustration:
Commission Merchant's Cash Journal
]
[Illustration:
Commission Merchant's Consignment and Sales Ledgers
]
[Illustration:
Commission Merchant's General Ledger
]
EXERCISE
=57.= During a certain period a commission merchant transacted the
following business:
Purchased goods on his own account $3,000.00
Sold goods on commission 5,000.00
Sold his own goods 2,500.00
Commissions earned 150.00
Received cash for goods sold 6,250.00
Paid expenses on consignments 37.50
Rendered account sales with which cash was
remitted to cover net proceeds 2,712.50
Rendered account sales on which net proceeds
were credited to the account of principals 2,000.00
Paid cash on account of goods purchased 2,200.00
Paid cash for sundry expenses 75.00
Inventory of goods owned at the close of the period 800.00
Prepare trading and profit and loss accounts and balance sheet.
STORAGE
=58.= Storage, as here used, is the business of furnishing storage for
merchandise on its way to market until such time as it is sold and
delivered to the purchaser. The source of supply and customs of the
trade in certain classes of merchandise render the question of storage
an important one. This is particularly true of the grain trade. Large
buyers of grain, located in important distributing centers which have
become the principal grain markets owing to their manufacturing or
transportation facilities, locate their buyers in the grain producing
sections to buy grain from the producers. At these points are located
small grain handling plants or elevators, where the grain is received
from the farmers and shipped to the distributing centers.
Here, extensive storage facilities must be provided, that these
shipments, aggregating enormous quantities of grain, may be held until
the condition of the market is favorable for selling. If it were not for
this custom of storage it would be necessary to market all of the
grain—except the small quantities stored by the farmers—soon after
harvest, which would result in lowering prices to all concerned, from
the farmer up.
These conditions have resulted in the organization of warehousing
companies to provide storage for the owners. When grain, or other
classes of merchandise, is received for storage a warehouse receipt is
issued, and the merchandise will not be delivered without the
presentation of the receipt. Warehouse receipts are negotiable and since
they are evidence of the ownership of certain merchandise stored in a
warehouse, bankers will loan money to the owner and accept the warehouse
receipt as security.