store large quantities of their wares at distributing centers that they
may promptly supply the trade. Another reason for this practice is a
financial one. When a manufacturer exchanges his wares for a warehouse
receipt, he can immediately borrow on its security, thus securing
capital to carry on his business until the regular selling season for
his particular product.
The merchandise broker and manufacturers' agent sometimes have their own
warehouses and combine the business of buying and selling with that of
storage and, if they possess sufficient capital, advance money to the
manufacturer.
Perishable products handled by the produce commission merchant are also
stored in cold storage warehouses, both to preserve them and to hold for
more favorable market conditions.
STORAGE ACCOUNTS
=59.= Storage charges are usually based on a 30 day period, though
sometimes for shorter periods, and any period less than a full month is
charged for at the 30 day rate.
The storage is frequently charged for the exact time that goods are in
the warehouse, that is, the amount is figured for each amount withdrawn.
The following example demonstrates this, storage being charged on each
quantity withdrawn at the rate of 10c per case per month.
════════════════════╤═══════════════╤═════╤════╦═══════
Received │ Delivered │Time │Rate║Amount
────┬──┬────────────┼────┬──┬───────┼─────┼────╫────┬──
Nov.│15│600 cs. eggs│Dec.│10│100 cs.│1 mo.│10c ║ 10│00
│ │ │ │ │ │ │ ║ │
│ │ │Jan.│ 6│300 cs.│2 mo.│20c ║ 60│00
│ │ │ │ │ │ │ ║ │
│ │ │Feb.│14│200 cs.│3 mo.│30c ║ 60│00
────┼──┼────────────┼────┼──┼───────┼─────┼────╫────┼──
│ │ │ │ │ Total │ │ ║ 130│00
This is known as simple storage.
Another method is to charge storage for the average time at a given rate
per month of 30 days. This method is most commonly used when receipts
and deliveries are frequent, and is called average storage. The
following example demonstrates the method.
═══════╤════════╤══════════╤═══════╤══════╤═════════════
DATE │RECEIPTS│DELIVERIES│Balance│ Time │ QUANTITY
│ │ │ │ │ STORED FOR
│ │ │ │ │ ONE DAY
────┬──┼────────┼──────────┼───────┼──────┼─────────────
Nov.│15│600 cs. │ │600 cs.│15 da.│ 9,000 cs.
Nov.│30│200 " │ │800 " │10 da.│ 8,000 "
Dec.│10│ │100 cs. │700 " │27 da.│ 17,900 "
Jan.│ 6│ │300 " │400 " │39 da.│ 15,600 "
Feb.│14│ │200 " │200 " │10 da.│ 2,000 "
Feb.│24│ │200 " │000 " │ │
────┼──┼────────┼──────────┼───────┼──────┼─────────────
│ │800 │800 │ │ │30)52,500
Average for 1 mo.│ 1,750
1,750 cs. @ 10¢ $175.00 (Amt. of charges)
SPECIAL RECORDS REQUIRED
=60.= One of the most important records required is a storage record
showing receipts and deliveries. A special form is necessary and should
be adapted to the requirements of the particular class of storage
business in which it is to be used.
The form illustrated is typical in that it provides for a record of
storage of any class of goods handled in packages. The storage charges
are always shown so that a statement of the account can be made at any
time. At the end of each month the storage charges extended during the
month are debited, through the journal, to the personal accounts of the
owners. The total of all such storage charges is credited to a _storage
account_ in the general ledger.
When there are frequent receipts and deliveries, the owner should be
given a detailed statement showing all changes in quantities and storage
charges. Such a statement should be a transcript of the storage record.
The form illustrated answers the requirements of simple storage.
[Illustration:
Storage Record
]
[Illustration:
Statement of Storage Charges
]
[Illustration:
BIRD'S-EYE VIEW OF THE PLANT OF SWIFT & COMPANY, CHICAGO, ILL.
]
SINGLE ENTRY BOOKKEEPING
COMPARATIVE STATEMENTS[3]
SINGLE ENTRY BOOKKEEPING
=1.= To this point all of the discussions in this work have related to
the double entry system of bookkeeping, and all demonstrations have been
carried out according to that system. The reason for this is that double
entry is the best and the only satisfactory method of bookkeeping; it is
the only method that fulfils the important function of bookkeeping by
furnishing a true record of the results of all business transactions.
Footnote 3:
_Copyright, 1909, by American School of Correspondence._
It might appear that instruction in keeping books by the single entry
method has no place in a modern treatise on bookkeeping; and if our
purpose were to teach single entry as a method to be used, this would be
true.
_Single entry bookkeeping is not recommended as a method to be used in
any business._
The only reason for introducing single entry is to show the student how
to change a set of books from the antiquated single entry to a modern
double entry system. Though inadequate, single entry is still used to
some extent. It is more commonly found in small retail establishments,
but occasionally encountered in the offices of corporations and
manufacturing enterprises. The bookkeeper who is called upon to fill a
position where this method is used must know how to keep books by single
entry, that he may more clearly demonstrate the advantages of the double
entry method.
When the advantages of double entry are demonstrated, few employers will
object to a change from single entry. In most offices where single entry
is still used, the reasons which have prevented a change may be summed
up as ignorance of the double entry method, or a fear that double entry
will increase the work without a corresponding benefit. This latter idea
is a misconception inherited from the days of the old time bookkeeper,
who considered it necessary to laboriously journalize every transaction.
While it may have possessed some merit at that time, it is no longer
true. Modern ideas, improved forms of account books, labor saving
devices, and short cuts without number have reduced the labor of
bookkeeping to a minimum, and if any attempt at a proof of accuracy is
made, double entry actually requires less labor than single entry.
=2. Distinctive Features of Single Entry.= The distinctive feature of
single entry is that only personal accounts are kept. When goods are
sold or purchased, records are made of the transactions as they affect
the persons to whom sold or from whom purchased. The records do not show
the increase or decrease of any specific form of assets, like
merchandise, for no property accounts are kept. An account is usually
kept with cash, but this approaches double entry, for when a person pays
money to the business, cash is debited and the person credited; and when
money is paid out, cash is credited and the person debited.
Sometimes, in a set of books otherwise kept by single entry, such
accounts as merchandise, expense, and real estate are found, but when
such accounts are introduced the books begin to take on double entry
features.
=3. Books Used=. The principal books of a single entry set usually
consist of day book or journal, cash book, and ledger. Both the day book
and cash book are books of original entry, from which transactions are
posted direct to the ledger. Auxiliary books used are order book, bill
book, and check book.
The day book or journal is the familiar two-column form, the left-hand
column being used for debits and right-hand column for credits.
The _cash book_ has two columns on each page, and these columns are used
to separate the items affecting personal accounts, which are to be
posted, and all other items, none of which are posted. See illustration.
The _ledger_ is the same form as used in the double entry method.
The _order book_ is usually the regular two-column journal form. In
retail businesses it is used as a principal book, transactions being
posted from it to the ledger. Sometimes the first column is used for
prices, the extensions being made only when the order is filled.
The _bill book_ is quite essential in a single entry set for the reason
that no Bills Receivable and Bills Payable accounts are kept in the
ledger.
=4. Rules for Debit and Credit.= The rules for debit and credit are the
same in single entry as in double entry, except that no debits and
credits are recorded which do not effect persons or cash—when a cash
account is kept. Briefly, these rules applying to single entry are:
_Debit the person_
When he receives anything of value;
When you pay him cash.
_Credit the person_
When you receive anything of value;
When he pays you cash.
_Debit cash_
When you receive it.
_Credit cash_
When you part with it.
=5. Posting.= There is no difference between posting to a single entry
ledger and one kept by the double entry method. However, the only
accounts posted are personal accounts, and the ledger shows merely how
much money the business owes to persons and how much money persons owe
the business. A single entry ledger does not show the amount of our
notes outstanding, or the amount of other persons' notes held by us.
This information can be found only in the bill book. The ledger does not
show the value of merchandise purchased or sold, expenses of the
business, nor the amount of our investments in land, buildings, or other
forms of property.
=6. Proprietor's Account.= A proprietor's investment or capital account
is kept in single entry just as it is in double entry. This may or may
not include withdrawals. They may be recorded in a personal or private
account, in which case the proprietor's account will exhibit the net
investment in the business.
=7. Proving the Work.= Since but one side of each journal entry is
posted, the two sides of the ledger will not agree as in double entry.
Hence a trial balance is, strictly speaking, impossible. The only
absolutely sure method of checking the accuracy of a single account in
the ledger is to carefully check all postings; this is also true of
double entry. But it is possible to prove that the correct totals have
been posted in single entry, as it is in double entry. Since the ledger
is never in balance as in double entry, the proof is not found by
comparing the two sides of the ledger, but by comparing the difference
between the two sides of the ledger, with the difference between debits
and credits in the columns of books of original entry from which
postings have been made. If the difference between debits and credits in
the ledger agrees with the difference between debits and credits in the
books of original entry, the work may be assumed to be correct.
To prove the work, first find the balances of all ledger accounts and
enter the amounts in the debit and credit columns on journal paper—as
for a trial balance. Foot and find the difference between the two
columns. Next foot the order book, day book, cash book, or any other
books from which posting is done, and list the totals which should be
posted to debit and credit of ledger accounts. Foot and find the
difference.
SAMPLE TRANSACTIONS
=8.= For the first demonstration of single entry bookkeeping, we have
selected a small retail business, using transactions which have been
used to illustrate a double entry set. This set is kept in the most
simple manner possible, the books used being journal, cash book, and
ledger.
The business is opened by Wm. Webster on the 21st day of November, 190-.
He is to conduct a retail grocery business and has rented a store from
Wm. Bristol at a monthly rental of $30.00. His resources consist of
cash, $600.00; a stock of groceries, $946.50; personal accounts due him
as follows: Henry Norton $25.00, L. B. Jenkins $22.70. His liabilities
consist of two accounts, as follows: Brewster & Co., $115.20; Warsaw
Milling Co., $64.00. The opening entry recording the above, is made in
the journal as in double entry, but only personal items are posted. Cash
is transferred to the cash book.
[Illustration:
CUTTING OFF DEPARTMENT IN THE PLANT OF THE UNION TWIST DRILL CO.,
ATHOL, MASS.
]
—Nov. 21—
Sold to Henry Norton on account
10# sugar 5½¢ $.55
2 cans corn .25
1 can peas .15
3# rice .30
-----
1.25
—21—
Sold to John Smallwood on account
5# butter $1.00
4# lard .50
1 doz. eggs .25
-----
1.75
—21—
Cash sales 14.10
—22—
Sold to Harry Webster on account
7 bars Lenox soap .25
1 pkg. gold dust .20
1 pkg. matches .15
¼ bbl. flour 1.35
-----
1.95
—22—
Bought for cash
10 doz. eggs .21 2.10
—23—
Bought from H. Kling & Co. on account
244# hams .12½ 22.50
201# lard .07½ 15.08
-----
45.58
—23—
Sold to F. W. Bradley on account
2 bu. potatoes 1.60
—23—
Sold to C. D. Glover on account
1 bbl. apples 3.25
5 gal. vinegar 1.25
-----
4.50
—23—
Cash sales 13.20
—24—
Sold to A. C. Maybury on account
1# bkg. powder $.50
1# corn starch .10
1# soda .10
1 pkg. jello .20
-----
.90
—24—
Sold to John Smallwood on account
2# cheese .32
1 bottle vanilla .35
1# coffee .35
1# tea .60
-----
1.62
—24—
Bought from John Smallwood on account
100 bu. potato .60 60.00
—24—
Paid John Smallwood
Cash on account 25.00
—24—
Cash sales 15.00
—25—
Paid Brewster & Co.
Cash on account 115.20
—25—
Sold to L. B. Jenkins on account
½# pepper .20
12# ham .14 1.68
-----
1.88
—25—
Received from Henry Norton
Cash 26.25
—25—
Cash sales 13.00
—26—
Credited Wm. Bristol
for one month's rent $30.00
—26—
Sold to Wm. Bristol on account
11# ham .14 1.54
1 qt. bottle olives .50
2# coffee .70
20# sugar .05½ 1.10
-----
3.84
—26—
Sold to C. D. Glover on account
¼ bbl. flour 1.35
1# bkg. powder .50
7 cks. borax soap .25
-----
2.10
—26—
Paid cash for clerk hire 8.00
—26—
Cash sales 18.70
—28—
Sold to H. N. Shaw on account
1 bu. potatoes .80
1 doz. cans corn 1.50
-----
2.30
—28—
Sold to Watkins Hotel Co. on account
10 bu. potatoes .75 7.50
50# lard .10 5.00
20# ham. .13½ 2.70
-----
15.20
—28—
Cash sales 9.45
—29—
Bought from Lowell & Sons on account
500# sugar .04¾ $23.75
50 gal. molasses .30 15.00
-----
38.75
—29—
Bought from Star Salt Co. on account
10 bbls. salt .80 8.00
—29—
Sold to R. H. Sherman on account
1# coffee .25
1# chocolate .45
1 qt. olive oil 1.35
¼# ginger .15
¼# pepper .15
1 pkg. mince meat .10
2# lard .25
-----
2.70
—29—
Cash sales 14.35
—30—
Received from F. W. Bradley on account
Cash 1.60
—30—
Paid Warsaw Milling Co. on account
Cash 64.00
—30—
Sold to John Smallwood on account
1 bbl. salt 1.10
—30—
Sold to D. E. Johnson on account
10# lard .10 1.00
1# bkg. powder .50
1 pk. apples .35
-----
1.85
—30—
Bought for cash
5 bu. apples 1.00 $5.00
—30—
Cash sales 17.90
At the close of business, Nov. 30, the ledger is proved, in accordance
with the rules given in Art. 7. All open accounts in the ledger are
listed on ordinary journal ruled paper and the balances extended to the
debit and credit columns. These columns are footed, the total of the
credit columns being $1,564.02, and of the debit column, $56.08.
Subtracting the latter from the former, we find the difference to be
$1,507.94. The total postings—debit and credit—from the journal and the
cash book are then entered and added, the total debit postings being
$296.44, and the total credit postings, $1,804.38. The former deducted
from the latter leaves $1,564.02, which agrees with the _difference_ in
the ledger balances. This proves the correctness of the postings to the
ledger, and takes the place of the trial balance used in the double
entry method.
[Illustration:
Single Entry Journal
]
[Illustration:
Single Entry Journal
]
[Illustration:
Single Entry Journal
]
[Illustration:
VIEW IN THE GROUNDS OF THE FORE RIVER SHIPBUILDING COMPANY, QUINCY,
MASS.
Showing the Facilities for Handling Material in the Plate Yard and a
Typical Arrangement of the Shops. The Great Electric Crane Shown has
a Span of 175 Feet, and Travels Over 1,000 Feet of Track. It is Said
to be One of the Largest of Its Kind in the World.
]
[Illustration:
Single Entry Cash Book
]
[Illustration:
Single Entry Ledger
]
[Illustration:
Single Entry Ledger
]
[Illustration:
Single Entry Ledger
]
[Illustration:
AUTOMATIC MACHINE TOOL ROOM, FOR THE MANUFACTURE OF PARTS FOR ROCK
DRILLS, COAL MINING MACHINES, DIAMOND DRILLS, ETC., IN THE
CLAREMONT, N. H., FACTORY OF THE SULLIVAN MACHINERY COMPANY
]
[Illustration:
Proof of Single Entry Ledger
]
[Illustration:
Single Entry Profit and Loss Statement
]
DETERMINING THE PROFIT
=9.= Having no nominal accounts, we cannot close through trading account
into profit and loss, but must use another method to find the profit or
loss for a given period. It will be necessary to first ascertain the
present worth of the business. Therefore the first step will be to take
an inventory, just as we would if closing a double entry ledger. Our
inventory shows merchandise $1,042.77. Next, we will make a statement of
assets and liabilities, following the same form as the balance sheet
when the books are kept by double entry. This will give us the present
worth.
From the present worth, we will deduct the capital investment (or the
present worth at the time of making the last statement) which will show
the profit for the period. If the present worth is less than the capital
investment, the business shows a loss.
It will be noted that while this method shows net profits, it does not
show how those profits were made. Having no accounts with purchases and
sales, we can have no trading account to show gross profits, and without
expense accounts there is no data from which to make up a detailed
profit and loss statement. Herein is one of the shortcomings of the
single entry method of bookkeeping.
CLOSING THE BOOKS
=10.= To close a single entry ledger, all that is necessary is to credit
the proprietor's investment account, or any account representing
capital, with the net gain, or debit the account with the net loss. Then
rule the personal accounts and bring down the balances.
EXERCISE
On a certain date the assets and liabilities of David Henry are as
follows:
_Assets_
Cash $450.00
Due from sundry debtors 75.20
Merchandise per inventory 762.50
_Liabilities_
Due sundry creditors 144.00
The following transactions are recorded:
Sales to sundry persons on account 44.71
Bought from sundry persons on account 337.54
Sold for cash 94.90
Received cash on account 62.00
Paid cash on account 132.50
Paid cash for rent 35.00
Paid cash for clerk hire 7.00
At the close of the period in which these transactions were recorded,
the inventory of merchandise on hand was $987.75.
_First._ Open single entry books, entering these transactions in the
journal and cash book.
_Second._ Post to ledger using the terms _Debtor_ and _Creditor_ to
represent account of customers and those from whom goods were purchased.
_Third._ Prove the ledger.
_Fourth._ Make a statement of assets and liabilities.
_Fifth_. Has there been a gain or a loss, and how does it affect the
account of the proprietor?
CHANGING TO DOUBLE ENTRY
=11.= How to change the method of keeping a set of books from single to
double entry is an important question to the bookkeeper, for he may be
called upon any time to do the work. When once understood, the change
involves only very simple entries. The routine may be briefly described
as follows:
_First._ Prepare a statement of assets and liabilities.
_Second._ Enter this statement in the journal and post to the ledger,
debiting all accounts which represent assets and crediting all accounts
which represent liabilities. Credit proprietor's account with the
difference, which is the present worth.
If a new ledger is to be opened, new accounts will be opened for each
form of asset or liability represented in the entry.
If the old ledger is to be used new accounts are to be opened with
assets and liabilities not already represented by accounts in the
ledger, and the net gain only will be credited to the proprietor's
account. Check personal accounts, but do not post.
_Third._ Take a trial balance to see if the ledger is in balance, as it
should be after posting these entries.
EXERCISE
Following the rules given, change the books of David Henry to double
entry using the old ledger.
Show necessary journal entry and indicate what new accounts must be
opened.
CHANGING PARTNERSHIP BOOKS TO DOUBLE ENTRY
=12.= We will suppose that the ledger illustrated in the following model
set (pages 23-27) represents the business of Benton, Douglas, and Kemp,
and that the books have been kept by single entry.
They wish to adopt the double entry method and call you in to make the
necessary changes in their books.
Your first step is to make a statement of the ledger accounts, including
all except the capital accounts of the partners. This statement gives
you the following information:
Personal Accounts, _Debit Balances_ $189.25
Personal Accounts, _Credit Balances_ 2,828.50
Cash in Bank 7,313.73
You also balance the cash book and compare the balance with the cash in
drawer, and find that the amount shown, $21.60, is correct.
In the meantime an inventory is being taken. When completed, the results
shown are:
Merchandise $2,114.50
Furniture and Fixtures 2,000.00
The next step is to make a statement of assets and liabilities for the
purpose of finding the present worth of the business.
STATEMENT OF ASSETS AND LIABILITIES
_Assets_
Cash in Bank (Ledger) $7,313.73
Cash in Office (Cash Book) 21.60
Personal Accounts (Ledger) 189.25
Merchandise (Inventory) 2,114.50
Furniture and Fixtures (Inventory) 2,000.00
---------
Total Assets $11,639.08
_Liabilities_
Personal Accounts (Ledger) 2,828.50
----------
Present Worth 8,810.58
The capital accounts of the partners show the original investment to
have been $9,000.00, which is more than the present worth. Deducting the
latter from the former will give the net loss.
Investment $9,000.00
Present Worth 8,810.58
---------
Net Loss 189.42
The partnership agreement provides that profits and losses are to be
shared equally, but contains no reference to the payment of interest on
withdrawals, or allowance of interest on personal credits.
The statement of assets and liabilities is entered in the journal and
accounts opened in the ledger with _merchandise inventory_ and
_furniture and fixtures_—the only items not already represented by
ledger accounts. To complete the change and balance the ledger the
following single entry is made in the journal and posted to partners'
personal accounts.
James Benton Dr. $63.14
Horace Douglas Dr. 63.14
Henry Kemp Dr. 63.14
A trial balance will now show the ledger to be in balance.
You have followed the routine necessary to change the books of a
partnership from single to double entry under the conditions given. A
general rule to be followed is to ascertain the present worth, make the
partnership adjustment as in double entry, and post as in changing books
of a single proprietorship.
EXERCISE
The books of Lancaster, Jenkins, and Stubb have been kept by single
entry, but they desire to change to double entry.
The partnership agreement provides that each partner shall share in the
profits in proportion to his net investment. Separate accounts are kept
with each partner to cover his investment and withdrawals.
The following is a statement of the ledger accounts as they appeared
December 31st. The balances of partners' investment accounts are the
same as when the last adjustment was made, no additional investments
having been made during the present period.
STATEMENT OF LEDGER
Lancaster, Investment Credit Balance $2,000.00
Jenkins " " " 1,500.00
Stubb " " " 1,500.00
Personal Accounts " " 900.00
" " Debit " 2,200.00
Lancaster, Withdrawals " " 325.00
Jenkins " " " 250.00
Stubb " " " 175.00
Bank " " " 2,150.00
Cash in office 50.00
An inventory is taken and shows the value of merchandise in stock to be
$1,850.00, fixtures $300.00.
_First._ Transfer debit balances of partners' withdrawal accounts to
investment accounts.
_Second._ Show entries to make the partnership adjustment and to change
books to double entry.
_Third._ Indicate by check (√) what accounts are to be posted, the old
ledger being used.
[Illustration:
Single Entry Partnership Ledger
]
[Illustration:
Single Entry Partnership Ledger
]
[Illustration:
Single Entry Partnership Ledger
]
[Illustration:
Single Entry Partnership Ledger
]
[Illustration:
Single Entry Partnership Ledger
]
CHANGING CORPORATION BOOKS TO DOUBLE ENTRY