employes by means of checks instead of in currency. Special pay checks
are used which merchants willingly cash as an accommodation to their
customers. Whenever the check system of payments is adopted it is best
to carry a special bank account for the purpose. When the amount of the
pay-roll is determined, a check should be drawn on the regular bank
account and deposited in a special fund against which the pay checks
will be drawn.
Fig. 27 shows a form, designed for the use of a concern paying by check,
which combines a check register with the pay-roll record. Since all
checks drawn against this special fund are pay checks, this register
gives a complete record of the special bank account.
[Illustration:
Fig. 27. Combined Pay-Roll and Check Register
]
[Illustration:
A TYPICAL GRAIN ELEVATOR IN CHICAGO HARBOR, WITH A MODERN FREIGHTER
READY FOR LOADING
]
TRUSTEES AND EXECUTORS' ACCOUNTS
=1.= From the accounting standpoint, business can be divided into two
general classes: (a) Business conducted by the owner or a person
appointed by him for the benefit of the owner; (b) Business that is the
property of persons incapable of transacting business, necessitating the
appointment, by the owners or other authority, of persons to transact
business in place of the owner. It is with business of the latter class
that we now have to deal.
In this class the owner or proprietor is supplanted by the
_administrator_ of the business. The generic term _trustee_ applies to
the administrator, who also takes more specific titles, depending upon
the nature of the trust—as _executor_, _administrator_, _assignee_,
_guardian, receiver_, etc. He is subject to the powers granted by the
source of his appointment, and to the restrictions and requirements
imposed by law.
A trustee—by whatever specific name designated—acting in his capacity as
substitute for the owner, is the owner of the trust property as against
the public. He is accountable to no one but the beneficiaries for whom
he is acting as custodian. As owner of the estate, he can sue or be sued
and perform many functions pertaining to the ordinary property owner.
The beneficiary, by reason of his equity in the estate, can compel the
trustee to carry out the provisions of his trust.
EXECUTOR'S ACCOUNTING
=2.= While an executor may keep his accounts in a manner chosen by
himself, his _accounting_ must conform to the legal requirements of the
state in which the accounting is made. The form in which the accounting
is to be made is not subject to rigid rules, but must conform to certain
regulations. While requirements differ according to the jurisdiction,
the regulations in general are as follows:
The preliminary accounting consists in filing an inventory of the
personal estate of the deceased, showing both the nominal or face value
of the assets and the amount they are expected to realize as stated by
the appraisers. An executor usually files two accounts—an _intermediate
account_, filed at some date prior to the final account, and a _final
account_, showing the property in his hands subject to distribution by
judicial decree. The intermediate account may be filed either
voluntarily or by order of the court. The account must be accompanied by
the following schedules:
=SCHEDULE A=
1. Statement of property contained in the inventory, which has
been sold, with the manner of sale and amounts realized. 2. Statements
of debts due the estate as scheduled in the inventory, which have been
collected. 3. Statement of all interest and dividends received by the
executor.
=SCHEDULE B=
1. Statement of debts due the estate that have not been collected
or are uncollectible, with reasons. 2. Statement of personal property
named in inventory that has not been sold, with reasons, and the
appraised value of such property. 3. Statement of all property belonging
to the estate that is lost through no fault of the executor, with the
cause of loss and appraised valuation. 4. Statement that no other
property than set forth in the inventory or schedules has come into the
possession or the knowledge of the executor. 5. Statement that the
increase or decrease in value of all assets of the deceased is allowed
for or charged in Schedules A and B.
=SCHEDULE C=
1. Statement of all amounts expended by the executor for funeral
and other necessary expenses, together with the receipts for, and
objects of, such expenditures.
2. Statement of the date when the executor caused a notice for
claimant to present claims against the estate to be published, together
with order, notice, and proof of publication herewith filed, to which
the executor refers as a part of his account.
=SCHEDULE D=
1. Statement of all claims of creditors allowed by executor or
disputed by him, for which a judgment or decree has been rendered, with
the names of the claimants, nature of claim, amount and date of
judgment.
2. Statement of all money paid to creditors of the deceased, with
names and time of payment.
=SCHEDULE E=
1. Statement of all money paid to legatees, widow, or next of
kin, of the deceased.
=SCHEDULE F=
1. Statement of names of all persons entitled—as widow, legatee,
and next of kin, of the deceased—to a share of his estate, with place of
residence, degree of relationship, and statement as to which are minors,
whether they have a general guardian, and if so, the name and place of
residence to the best of the executor's knowledge, information, and
belief.
=SCHEDULE G=
1. Statement of all other facts affecting the administration of
said estate, executor's rights, and those of others interested.
These schedules provide all the material from which to make the
account proper. In his account, the executor charges himself as follows:
With amount of inventory $_________
With amount of increase as per schedule A _________
With amount of income as per schedule A _________
_________
Total debits _________
He credits himself:
With amount of losses on sales as per schedule B $_________
With debts not collected as per schedule B _________
With articles mentioned in inventory lost, schedule B _________
With funeral expenses and other expenses, schedule C _________
With money paid creditors, schedule D _________
With money paid to legatees, widow, or next of kin, schedule E _________
Total credits $_________
Balance _________
Add articles unsold _________
Add debts not collected _________
_________
Total to be distributed _________
FORM OF ACCOUNTS
=3.= The devising of forms of trust and executory accounts offers a wide
scope for the application of accounting knowledge. Many intricate
problems arise in the interpretation of details of the trust and in the
apportionment of sums received, between capital and revenue. Broadly,
these accounts are prepared in one of two forms: (a) An account of
charge and discharge; (b) in the form of regular ledger accounts. As has
been intimated, legal requirements are complied with by the first form,
but the second form is preferable. When ledger accounts are kept on the
double entry plan, the fullest information can be obtained about the
condition of the trust at any time, and from these accounts, the account
of charge and discharge or any form required by the court can be made
for each period.
In preparing the accounts the exact relationship of the trustee to the
estate (as the property in trust is called) must be kept in mind. As the
owner of the property, he is a creditor of the estate (the business)
just as the proprietor of the business is the creditor of that business.
On the other hand, as custodian, he is a debtor, being in possession of
the property of others.
In the ledger, property accounts are opened with the different classes
of properties represented in the estate, which accounts are debited for
the appraised value of the properties. These are known as _custodian
accounts_.
A contra account representing the estate—sometimes called the capital—is
opened under some such caption as _Personal Estate Account_. This
account is credited with the combined values of all properties
represented by the custodian accounts.
When the assets are entered and posted, the ledger accounts will appear
as follows:
[Illustration]
These asset accounts represent the value of the individual properties,
while the personal estate account represents the combined values of all
personal property of the estate (No. 1, No. 2, and No. 3). The personal
estate is known as the _corpus_, distinguishing it from the real estate.
If the trustee, as the custodian, is called upon merely to distribute
the estate to the beneficiaries, his accounting is a very simple
problem. In many cases, however, he is called upon to take care of the
income arising from the corpus or the real estate.
When he receives such income in the shape of cash, he debits himself as
custodian through a cash account, and credits an income account under an
appropriate title—as _interest account_, _rent account_, _dividend
account_, etc. The account may represent the income from a specific
property, or all income of a stated class. For example, rent account may
represent the rents received from all properties, or there may be a
separate rent account for each.
Distinguished from the income accounts, the trustee sometimes has
accounts representing the sale of real estate, which must then be
treated as personal property. When real estate is sold, cash is credited
and an account, usually called _Sale of Real Estate_, is credited.
=4. Classification of Accounts.= A classification of the accounts of the
executor naturally divides into: (a) _Personal estate account_; (b)
_asset accounts_; and (c) _distributive accounts_. The personal estate
account, as we have seen, is a controlling account which represents the
total of all assets. It is also referred to as the capital account. It
is, as well, a controlling account of the distributive accounts, and in
the end exhibits a schedule of transactions in the order in which they
occur.
The asset accounts, representing the different classes of properties or
assets of the estate, correspond to the asset accounts of an ordinary
business.
The distributive accounts may be likened to the revenue accounts of a
business enterprise. These accounts are debited with all amounts
distributed—as expense of administering the estate—and credited with all
income or revenue other than that representing the conversion of the
original estate into cash.
=5. Executors' Commissions.= While the commission allowed administrators
and executors varies in different states, the amount specified by law in
New York applies as a general rule. The commission allowed is 5% on the
first thousand dollars received and disbursed, 2½% on the next ten
thousand dollars, and 1% on all amounts above eleven thousand dollars.
If the value of the personal property is $100,000.00, or more, in excess
of all debts, each executor is entitled to receive the commissions
provided in case of a single executor; except that if there are more
than three executors, the amount which the three would receive must be
divided in proportion to the services rendered.
In cases where the will provides a specific remuneration, the executor
is not entitled to a commission. He can, however, decline a legacy and
in lieu thereof take the usual commission.
Commissions are not allowed on specific legacies, that is, where
specific property, as household effects, automobiles, etc., are named.
An annuity is a series of legacies and the commission is not allowed on
its payment. However, when a beneficiary is given the use of a fund, the
beneficiary is charged with the commission.
In all cases where administrators or trustees are responsible for the
investment of the funds of an estate, they are entitled to receive
commission on the income. The commission in all of these cases is at the
regular rate, that is, 5% on the first thousand dollars received and
paid out, etc.
EXAMPLES
1. Two trustees collect in one year an income of $36,000.00 for a
beneficiary, the expense being $3,000.00. If each trustee receives an
equal share, what commission will be paid to each, and what sum shall be
paid to the beneficiary? Ans. Each trustee, $275.00; beneficiary,
$3,275.00.
2. Executor X collects of the corpus of an estate $30,000.00, executor Y
collects $40,000.00. Together they pay out $55,000.00. Commissions are
to be divided in proportion to the amount collected by each. What
commission will each receive and what is the net amount to be paid to
the residuary legatee? Ans. Commissions: X, $381.43; Y, $508.57.
Residuary legatee, $14,110.00.
3. Four trustees collect and pay out of an estate $350,000.00, the total
debts of the estate being $135,000.00. What commission will each trustee
receive? Ans. $2,767.50.
SAMPLE ACCOUNTS
=6.= Following are the transactions and accounts of David Brown,
executor of the estate of Henry Snow, deceased. For keeping the
accounts, the journal, cash book, and ledger are the books used.
June 1, 1908
Henry Snow died this day, naming David Brown _executor_.
—3—
Estate inventoried and appraised as follows:
Cash in bank $390.50
Mortgages 5,000.00
R. R. stocks $5,000.00 appraised @ 112 $5,600.00
Household furniture 1,000.00
Debtors to the estate
Henry Alton $160.00
J. L. Lawrence 52.00
D. Pringle 75.00
F. D. Smith 84.50 371.50
-------
Interest accrued on mortgages $5,000.00
—5 mo. @ 5% 104.16
Accrued dividends on stock estimated
at 3% semi-annual, payable July
1st—5 mo. accrued 137.50
---------
12,603.66
—30—
Approved the following claims:
Dr. Knight bill 200.00
Funeral expenses—Undertaker 250.00
Henry Cole account 62.00
H. Dawson account 17.00
Probate expenses 100.00
—30—
Additional assets discovered
Geo. Smith owes the estate 50.00
July 1
Collected 6 mo. interest on mortgage
at 5% 250.00
—1—
Collected the following accounts:
Henry Alton 160.00
D. Pringle 75.00
—1—
Paid the following:
Dr. Knight 200.00
Funeral expenses 250.00
Henry Cole 62.00
H. Dawson 17.00
Probate expenses 100.00
—5—
Received dividend on R. R. stock
3½% semi-annual on $5,000.00 $175.00
—5—
Sold R. R. stock $5,000.00 @ 132 6,600.00
Sept. 1
Collected the following account:
J. L. Lawrence 52.00
—20—
Sold H. H. furniture 790.00
Depreciation on H. H. furniture 210.00
Nov. 1
Collected the following accounts:
F. D. Smith 84.50
Geo. Smith 50.00
Dec. 1
Collected 6 mo. interest on mortgage
$5,000.00 @ 5% 125.00
—1—
Sold mortgage 5,000.00
[Illustration:
A GENERAL VIEW OF THE PLANT OF THE FOX TYPEWRITER COMPANY, GRAND
RAPIDS, MICH.
]
[Illustration:
Executor's Journal
]
[Illustration:
Executor's Account of Cash Receipts and Disbursements
]
[Illustration:
Classified Ledger Accounts of an Executor
]
[Illustration:
Classified Ledger Accounts of an Executor
]
[Illustration:
Classified Ledger Accounts of an Executor
]
[Illustration:
Schedule Filed by an Executor
]
[Illustration:
Schedule Filed by an Executor
]
EXERCISE
=7.= George Williams died on March 5th, bequeathing his entire property,
after payment of all debts and funeral expenses, to the following
beneficiaries: George Williams, Jr., one-fifth; John Williams,
one-fifth; Fred Williams, one-fifth; Mary Williams, three-tenths; and
George Robinson, one-tenth.
The inventory filed by his executors was as follows:
Stocks and bonds $4,000.00
Mortgages 6,000.00
Wearing apparel 100.00
Cash in bank 40.00
There are two executors, and their transactions are as follows:
CASH RECEIPTS
Stocks and bonds sold 3,341.00
Mortgages realized 4,656.00
Wearing apparel sold 50.00
Dividends collected on stocks and bonds 1,800.00
Interest collected on mortgages 2,400.00
Interest received on deposits in bank 100.00
Real estate sold 1,000.00
Rents collected 720.00
Cash in bank at decease, withdrawn 40.00
---------
14,107.00
CASH DISBURSEMENTS
Funeral expenses 30.00
Expenses of probate 200.00
General legal expenses 400.00
Repairs to building 220.00
Stationery, postage, etc. 10.00
Accountant's fee 80.00
Debts of deceased 500.00
Taxes 800.00
Insurance 10.00
George Williams, Jr., on account of legacy 2,200.00
John Williams, on account of legacy 2,500.00
Fred Williams, on account of legacy 2,220.00
Mary Williams, on account of legacy 3,100.00
George Robinson, on account of legacy 960.00
---------
13,230.00
=========
The inventory at the date on which they wish to account is as follows:
Stocks and bonds $1,000.00
Mortgages 1,280.00
Cash in bank 877.00
Make up summary statement of the Executor's Accounts showing the balance
due each legatee.
ACCOUNTS WITH TRUST PROVISIONS
=8.= In the accounts shown in the preceding illustrations the entire
estate is distributed by judicial decree. When all of the property has
been distributed, the custodian accounts will have been closed into the
personal estate account, which in turn is closed by the distribution of
the estate. In many cases the will of the deceased provides that certain
beneficiaries shall have a life interest in certain of the assets. Quite
frequently the widow is given the income on certain investments which
will revert to the estate at her death. This is illustrated in the
following example of trust accounts:
Edward Brown died on June 15, 1907, leaving a will which elected that
after payment of all just and lawful debts the following legacies should
be made:
To his widow, that part of the real estate consisting of his residence,
the household effects therein, and the income from $50,000.00 to be
invested.
To his son and daughter, $20,000.00 each, and an equal share of the
above $50,000.00 at his widow's death.
The inventory made up for the preliminary accounting was as follows:
Cash in house $200.00
Cash in bank 1,500.00
Household effects valued at 2,500.00
Stocks 40,000.00
Book accounts 20,000.00
Merchandise, fixtures, and stock in trade 25,000.00
The real estate consists of
The residence of the deceased, valued at 15,000.00
5 houses valued at 15,000.00
(to be sold according to will)
[Illustration:
Executor's Accounts With Trust Provisions
]
[Illustration:
Executor's Accounts With Trust Provisions
]
[Illustration:
Executor's Accounts With Trust Provisions
]
[Illustration:
Executor's Accounts With Trust Provisions
]
[Illustration:
Executor's Accounts With Trust Provisions
]
[Illustration:
Accounting of an Executor, in the Form of an Account of Charge and
Discharge
]
[Illustration:
A FACTORY CHEMICAL LABORATORY AT THE PLANT OF THE S. OBERMAYER CO.,
CINCINNATI, OHIO
]
[Illustration:
Accounting of an Executor, in the Form of an Account of Charge and
Discharge
]
REALIZATION AND LIQUIDATION ACCOUNTS
=9.= A _realization and liquidation account_ is an account showing the
result of the liquidation of a business or an estate.
It is debited with the total assets as shown by the _balance sheet_ or
_statement of affairs_, and is credited with all liabilities to outside
creditors. The account is subsequently credited with the amounts
realized on assets, and debited with liabilities liquidated together
with the expenses of realization and cost of liquidation.
Realization and liquidation accounts are frequently prepared in the form
of an _account of charge and discharge_ as shown in the preceding pages
for executor's accounts.
STATEMENT OF AFFAIRS
=10.= A statement of affairs is frequently confused with a balance
sheet. This is because, like a balance sheet, a statement of affairs
exhibits the resources and liabilities of a business. The difference
lies in the fact that a statement of affairs is made up partly from
information gained from the books and partly from information secured
from other sources.
A statement of affairs is used chiefly in the preparation of a statement
of the condition of an insolvent concern, or one whose affairs have
been, for any reason, placed in charge of an Administrator. In a going
business, all facts that have a bearing on its financial standing should
be recorded on the books, when the statement will be made in the form of
a balance sheet.
Statements of affairs of a going business are sometimes made when it is
desired to make a showing for a special purpose, or at a date other than
a regular closing date. When the books have been improperly kept, a
statement of affairs, or statement of assets and liabilities, is
necessary to get all of the facts properly recorded.
=11. Statement of Affairs of a Bankrupt.= A statement of affairs of a
bankrupt is prepared on a somewhat different basis than a similar
statement for a going concern. Such a statement is prepared for the
benefit of creditors, and should be based on the probability of the
creditors receiving their claims in whole or in part.
[Illustration:
A Statement of Affairs of a Bankrupt
]
On the left-hand side of the statement, the liabilities should be
listed, showing whether they are actual, contingent, or provisional;
which are preferable or ordinary, or secured partly or wholly by assets
held by creditors of the concern as security for their claims. On the
right, the assets of the concern should be shown. These should be
classified as to whether they are free for distribution among the
ordinary creditors or subject to special liability or claims and which
must be liquidated before the assets can be released for distribution.
The assets may be listed on the basis of their value in a going concern,
or on the basis of the prices they are estimated to bring at forced
sale. The best practice is to list the assets to show, in one column,
their nominal value, and in another column the amounts they are expected
to realize. The statement is prepared for the express purpose of showing
the probability of creditors—preferable, secured, partly secured, and
ordinary—receiving their claims in full or being obliged to accept a
dividend. In preparing such a statement, therefore, the investigation
should be extended beyond the mere bookkeeping records. While the
statement should be based on the properly balanced books of account, it
must be supplemented by information from other sources.
The statement of liabilities should include, not only all of the
liabilities shown on the books of the debtor, but all other enforcible
claims, including contingent liabilities on account of the debtor's name
being on commercial paper as an endorser.
Preferable claims for taxes, wages, and salaries which must be paid in
full out of the assets of the estate, should be deducted from the assets
in order to show the net value of the estate available for distribution
among ordinary creditors. The details of such claims should be included
among the liabilities, but without extending the amounts to the total
column.
Claims of secured creditors also are entered on the liabilities side of
the statement, but are not carried to the total column. Such claims are
deducted from the assets forming the specific security held, the balance
only being included among the assets available for distribution and
carried to the total assets column.
Partly secured claims are entered among the liabilities, but the amount
to which they are secured is deducted, and the balance, which must take
the same chances of payment as other unsecured claims, is entered in the
liabilities column. The corresponding assets are entered on the assets
side but not extended.
[Illustration:
A Deficiency Account Which Shows the Causes of Loss
]
These adjustments are necessary to show clearly the net assets that will
be available for the ordinary creditors, and the total amount of claims
to be satisfied out of these assets.
Every statement of affairs should also have appended to it schedules
showing the fullest particulars of the different entries which appear in
the statement. The names and addresses of all creditors should be given
and the nature of the debt, whether a trading debt or for borrowed
money, should be clearly shown. Full particulars of any security held
should also be given.