General Ledger represents _one_ of the following:—
1. An asset; (Resource).
2. A liability.
3. A Loss.
4. A Profit or Gain.
_a._ Every account showing a debit balance is either an asset or a loss;
a “Personal” account showing a debit balance is an asset, an “expense”
account showing a debit balance is a loss.
_b._ Every account showing a credit balance is either a liability or a
profit; a “personal” account showing a credit balance is a liability
(something we owe), any sales account showing a credit balance is a
profit.
1. _Post Exchange Account._ Another name for this account is “Net Worth”,
or, if the Exchange is out of debt, “Surplus”. It is important that the
status of this account be shown on every monthly statement exhibited to
the Exchange Council. It is debited at the beginning of the month with
the net worth of the Exchange on that date. Credit it with such decreases
and debit it with such increases as will be shown on the “Surplus and
Adjustment Schedule” on Form 32 and discussed in connection therewith.
2. _Bills Receivable, Notes._ Debit this account for the amount owed by
any organization to the Exchange for Entrance fees, etc., and credit
it via the cash book with the amount of payments received from such
organizations.
3. _Bills Receivable, Charge Accounts._ Debit this account, as before
described, with the total amount of charge sales made during the month,
which amount is obtained from the Charge Accounts book. Credit this
account with the total of the “Customers” column on the debit side of the
cash book and also with the total of the “Credit” column in the Charge
Accounts book.
4. _Bills Receivable, Credit Coupons._ This account has been exhaustively
discussed under “Coupons”.
5. _Bills Receivable, Enlisted Men’s Laundry._ Debit this account at the
end of the month with the gross amount of laundry bills contracted by
enlisted men during the month. Credit it with the total of the cash book
(debit) column in which are entered the payments by enlisted men for
laundry work done. Also credit this account with whatever credits have
been allowed for overcharges, damages, etc., these amounts also being
charged (debited) against the Laundry account.
6. _Check Account._ See note under paragraph 4 above.
7. _Bills Payable, Merchandise._ Debit this account with balance due
creditors on 1st of the month and with Cr. Purchase column of Purchase
Record. Credit it with amount of creditors column in cash book, and with
total of Dr. Purchase column of Purchase Record.
8. _Exchange Building._ If built and owned by the Government, this item
is not an asset of the Exchange. If the building belongs to the Exchange,
we debit this account with all amounts spent upon it for additions of
any kind, but not for repairs, renewals, painting, etc. Credit this
account with all depreciation voted by the Post Exchange Council, and
debit this amount against the Depreciation Account.
9. _Laundry Building._ Same as preceding.
10. _Exchange Fixtures._ Debit this account through the cash book with
the amount of all new fixtures purchased; credit it with the amount of
depreciation voted by the Exchange Council, as before explained, also,
with the book value of all fixtures scrapped or otherwise disposed of.
When an article is merely replaced by a newly purchased one, it is proper
to make no change in the value of our fixtures, but charge the whole
purchase price against maintenance. The same applies to cost of repairs.
11. _Laundry Fixtures._ Same as preceding.
12. _Laundry._ This is a live account against which are charged
(debited):—
(_a_) The total of the Debit Laundry column in the Cost Price
Stock Record, (Form 13), also, the value of inventory at 1st of
month.
(_b_) The total cost of labor incurred by that department.
(_c_) Any CASH REIMBURSEMENTS that may have been paid to
customers.
(_d_) Such items of Freight, Expense, Maintenance, Board,
etc., as may have been paid during the month on account of the
Laundry.
(_e_) Any credits that may be allowed for damages, etc. (From
Charge Accts.)
This account is credited with:—
(_a_) The total of the Laundry columns in the Charge Accounts
Book.
(_b_) The total of the Laundry columns pertaining to the
current month on our paytable collection sheets (Form 25).
(_c_) The total shown in the Credit Laundry column of Form 13
(_d_) The total of all sales not accounted for under (a) and
(b) above.
(_e_) Inventory at last of month.
The balance, showing gross loss or gain, is transferred to the Profit and
Loss Account.
13. _Store._ This and all other departmental accounts should be handled
in the manner described in the preceding paragraph except they should
receive credit for all coupon and cash sales made during the month.
14. _Interest and Discount._ Credit this account with the total of the
Discount column on the credit side of the cash book; this anomaly being
only apparent, not real. Credit, also, the total of the Interest and
Discount column on the debit side of the cash book and debit the total
of the Interest and Discount column found on the credit side of the cash
book.
15. _Insurance._ Debit this account, through the cash book, with all
premiums paid out, at the time they are paid. Credit this account
monthly with the monthly share of such premium or premiums, and debit
them against Post Exchange. The effect of this method is to show the
unexpired policies as assets, as they should be. There can be no doubt
that an unexpired policy is an asset, nor is there any question about the
propriety of showing the value of this asset by deducting the appropriate
amount monthly. The practice of some exchanges of writing such assets off
the books immediately upon payment of premiums is not sound.
16. _Fuel and Lights._ Debit this account through the cash book with
all amounts paid out for these items, provided they cannot be properly
apportioned to the various departments.
17. _Freight and Express._ Same as preceding, except that all such
charges on incoming merchandise should be charged to the goods in
question, just as if they cost us that much more. “Out” freight, etc., is
a legitimate charge against this account.
18. _Printing and Stationery._ Same remarks as under 16.
19. _Telephone and Telegraph._ Same as under 16.
20. _General Expense._ Debit this account with all items of expense that
cannot properly be placed under one of the other expense accounts.
21. _Depreciation._ Debit this account with the total amount of
depreciation voted by the Council, and as this entails a corresponding
credit elsewhere in the ledger, the respective accounts affected must
be credited to a corresponding amount. When the books are closed, the
balance of this account is transferred to Profit and Loss by crediting
Depreciation and debiting the latter account. This Depreciation account
can be eliminated entirely, if desired, by crediting Exchange Fixtures
or what not with the amount of depreciation decreed by the Council and
debiting this amount straight against Post Exchange. This is the usual
method.
22. _Lost Accounts._ Debit this account with all bad debts which we have
decided we cannot collect. This, of course, necessitates a corresponding
credit entry in some other account, such as Bills Receivable Credit
Coupons or Charge Accounts, etc., as the case may be. When the books are
closed, this account is balanced and transferred to Profit and Loss, as
explained in 21. If any of these accounts are afterwards collected, we
must credit this account, via the cash book, with the proper amounts.
23. _Athletics._ Credit this account with all amounts voted by the
Exchange Council for the support of athletics and charge or debit the
same amount against Post Exchange (Account No. 1, above). At the end of
each month, pick out of the Appropriations column on the credit side of
the cash book, all amounts which were spent for athletics during the
month and debit them to this account. The credit balance of this account
is a liability against the Exchange.
24. _Dividends._ Credit this account with the amount of dividends
declared by the Council and debit the same amount against Post Exchange
account. Debit this account with all dividends paid to organizations. If
the dividends have not been paid out by the end of the month, they will
show up in this account as a credit balance, a liability against the
Exchange; if they have been paid, there will be no balance left to this
account.
25. _Sick in Hospital._ Same as preceding.
26. _Regimental Fund._ Same as 24.
27. _Wages._ It will be remembered that each department was debited with
its share of all labor charges incurred during the month. These “accrued
wages” are credited to this account in the Ledger. Debit this account
with the total of the Labor column on the credit side of the cash book.
Any credit balance remaining (as when part of the pay due an employee is
held back) is a liability against the Exchange.
28. _Profit and Loss._ This account is ordinarily posted only upon
closing the books. To this account, we post the balances of all those
Ledger accounts which show a profit or a loss to the Exchange. These
include all departmental accounts and also accounts numbered 14 to 29,
inclusive, except Nos. 15, 21, 23, 24, 25, 26 and No. 28, which is now
under discussion. Remember that each of these accounts which shows a
debit balance is a loss and each that shows a credit balance is a profit
or gain. After all of these accounts have been balanced and brought into
Profit and Loss, the latter is balanced and the balance transferred to
Post Exchange. Before this last named operation is performed, however,
a trial balance should be taken, because, for reasons before explained,
the books will never balance to the cent, and the entry of a small
item, usually “income not otherwise accounted for,” is necessary in this
account before the books will balance.
29. _Maintenance._ This is really in the nature of an expense account and
we should debit it with the amounts shown on the credit side of the cash
book as paid out on this account. Credit this account for such items as
can be and are debited against any of the departments (see 12 d); credit
this account for the balance remaining at the end of the month and charge
same against Profit and Loss.
Balancing the Ledger.
It has been stated above, that all “Expense” accounts are balanced
monthly and posted to Profit and Loss, and that after a trial balance
has proved the Ledger to be in balance, the balance of the Profit and
Loss account is transferred to the “Post Exchange” account. The remaining
accounts, Nos. 1-11, inclusive, etc., represent assets and liabilities
and are not transferred at all, although they are balanced every month.
We now come to the book-keepers’ bug-a-boo, the “Trial Balance”. This is
a simple thing (to describe), consisting merely going through our ledger,
taking the total of all the totals on the credit side of all our ledger
accounts and seeing if this equals the total of all the totals on the
debit side. If these totals do not agree, the book-keeper must run down
the error and correct it. There are no rules for this procedure that
would be of practical benefit. This trial balance does not necessarily
mean that the ledger is correct, it simply proves that for every debit
item entered a corresponding credit entry has been made; it does not
prove that these entries have been made in the proper accounts.
A sample trial balance sheet, worked out by Mr. Parker, cashier of the
Fort Slocum Exchange, is shown herewith.
After the ledger is balanced, we proceed to get out our monthly
statement. If it is a case of an inspector, we can get all the data he
needs by simply taking our statements since his last visit and combining
the results shown by same.
Balance
ACCOUNTS Trial Balance of Loss & Gain
Balances
Dr. Cr. Dr. Cr. Dr. Cr.
Post Exchange
Cash 555.60 372.00 183.50
Bills Rec. Charge Accts 11.62 1.62 10.00
” ” E. M. Laundry 16.00 16.00
” ” Credit Coupons 100.00 100.00
Bills Pay Merchandise 4.00 4.00
” ” Check Account 90.00 100.00 10.00
Stock Room .50 .50
Athletics 20.00 20.00
Fixtures 21.00 21.00
Store 11.50 280.55 269.05 269.05
Lunch 67.72 211.27 204.55 204.55
Pool 50.00 9.00 41.00 41.00
Barber 67.00 17.00 50.00 50.00
Tailor 46.65 59.00 12.35 12.35
Shoeshop 35.75 35.00 .50 .05
Soda Fountain 37.00 3.00 34.00 34.00
Skating 14.50 4.60 9.00 9.90
Moving Pictures 10.00 31.00 21.00 21.00
Laundry 29.00 22.00 7.00 7.00
Interest and Discount 17.60 17.60 17.60
Office 11.00 11.00 11.00
Loss and gain 336.50
TOTALS 1151.44 1151.44 521.00 521.00 507.00 507.00
Assets
ACCOUNTS and Cash Statement
Liabilities
Dr. Cr. Dr. Cr.
Post Exchange 336.50
Cash 183.50
Bills Rec. Charge Accts 10.00
” ” E. M. Laundry 16.00
” ” Credit Coupons 100.00
Bills Pay Merchandise 4.00
” ” Check Account 10.00
Stock Room
Athletics 20.00 20.00
Fixtures 21.00 21.00
Store 250.00 11.00
Lunch 170.00 6.00
Pool 8.00 50.00
Barber 14.00 67.00
Tailor 46.00 43.00
Shoeshop 29.00 35.00
Soda Fountain 3.00 37.00
Skating 4.60 14.00
Moving Pictures 31.00 10.00
Laundry 29.00
Interest and Discount 17.00
Office 11.00
Loss and gain
TOTALS 350.50 350.50 555.60 372.10
183.50
Balance 555.60 555.60
MONTHLY STATEMENTS.
General.
The primary object of the monthly statement is to give the Exchange
Council and the Commanding Officer a clear and concise understanding of
the operations and financial standing of the Exchange. The statement,
therefore, should be so simple in construction that it can be understood
at a glance by anybody, regardless of their knowledge of book-keeping.
Most statements submitted to Exchange Councils either show nothing or
lead to a waste of time, due to the necessity for asking for explanations
of obscure items. The statement should also contain such information
as will be required by the Inspector. The form of statement here shown
fulfils all of the above requirements and is a form approved by certified
public accountants. It is divided into three parts, which will be
discussed in their relative order.
General Balance Sheet.
This, Form 32, is shown in Fig. 31 and is almost self explanatory.
Attention is invited to the scheme of segregating different classes of
assets and of liabilities. A stock form of this nature would do for
all Exchanges, regardless of their size, as there are sufficient blank
lines to suit all requirements, but perhaps better satisfaction would be
obtained if the form here shown be merely taken as a model and only those
items be used as apply to the particular case in hand. Pains have been
taken, in this form, to insert a sufficient number of entries to show
clearly how any ordinary item should be handled.
Of course, the item, “Exchange building”, should be omitted if the
building belongs to the Government and not to the Exchange. The item,
“Cash Reserve”, covers the amount required by regulations to be set aside
before dividends can be declared. Under the liabilities, there will
ordinarily be no entries under “Funded Debt”; this entry merely shows
how such items should be handled in case any should exist. “Commissions
due” is the amount we owe for goods already sold on consignment; the
same item under the assets refers to the amount due us for goods sold on
consignment or commission. A declared dividend is a liability until it
is paid. Outstanding coupons are also a liability. Under the deferred
liabilities come any amounts that are payable at some future date, but
are meanwhile bona fide debts owed by the Exchange. The term “Total
Surplus” refers to the surplus at the end of the month in question,
and, while not really a liability, it is put in this place in order to
properly balance the account.
[Illustration: Figure 31, (Reduced in size)]
Surplus and Adjustments.
Under this head, we show the changes in the net worth of the Exchange
which have occurred during the month, this being, to all intents and
purposes, a repetition of the Post Exchange Account in our general Ledger.
Under “Re-valuation”, take up any increase in the value of buildings or
fixtures that may have occurred other than through the cash book (upon
appraisal, for instance). Under “Adjustment”, take up any increase
of amount owed us on any account, that is, if any account has been
corrected during the month and the amount due us on this account has
been increased, the amount of such increase should be taken up under the
head in question. The net profits for the month are obtained from the
Statement of Income and Profit and Loss, to be described later. All of
the above items serve to increase our surplus or net worth, and hence,
must be added to the net worth shown at the beginning of the month.
Under the deductions would come all amounts written off for depreciation;
dividends actually paid; appropriations paid or put to the credit of any
particular fund, such as the Athletic Fund; and all decreases in accounts
owed us, caused by the adjustment of same.
After the above notations are made, the surplus at the end of the month
is entered in the proper space in the general balance sheet. This surplus
is the net worth of the Post Exchange, and should, of course, be equal to
the balance of the Post Exchange account in the Ledger.
Statement of Income and Profit and Loss.
[Illustration: Figure 32, (Reduced in size)]
This, Form 16, gives us a very clear and concise statement of the
operations of all of our departments during the month. It is printed on
the back of Form 32. It is filled in as follows:—
_a_ Enter on the first line, the total sales for cash as shown by the
footings of the respective debit columns in the cash book.
_b_ On the second line, enter the total coupon sales of the various
departments shown by the footings of the respective columns of Form 26
(Fig. 17).
_c_ On the third line, enter the total charge sales made by each
department as shown by the footings of the respective columns of Form 7
(Fig. 6).
_d_ Add the above, both horizontally and vertically and see if the grand
totals check.
_e_ Enter on the fourth line all credits given during the month.
_f_ Subtract _e_ from _d_; the remainder shows the net sales made by each
department during the month and should be entered in the proper spaces.
_g_ Under “Inventory ... 1st”, is entered the cost price of all
merchandise on hand in the various departments at the beginning of the
month, which amounts are obtained from the Inventory Book or Inventory
cards as before described.
_h_ Under “Purchases” are entered the cost values of all merchandise sent
to the various departments, that is, the difference between the footings
of the Dr. and Cr. columns referring to each department on Form 13 (Cost
Price). No cash discount is considered.
_i_ Under “Labor”, charge each department with its proper share of the
wages paid by the Exchange. If any employee divides his time between
two or more departments, his wages should be distributed between said
departments proportionately. Book-keeper’s wages should be charged to
Office. To counterbalance this charge, some Exchanges credit all cash
discounts to Office instead of taking them up under Other Income. This is
entirely proper, as is also the procedure of crediting the Office with
mail order profits, etc. In the usual case, there being no accrued wages,
the figures for labor are taken from the Labor column in the cash book.
_j_ Under “Maintenance”, transfer from the cash book all amounts paid out
for
(1) Articles bought to replace other similar articles worn out.
(2) Paints, cleaning material or repairs and spare parts, etc.
(3) Labor charges in connection with the foregoing.
(4) In general, any expenditure for up-keep.
_k_ Under “Board”, should be entered all amounts paid out for board of
employees.
_l_ Under “Expense”, enter the value of all expendable supplies issued to
the various departments, such as paper bags, etc., or, as illustrated in
the case of a Laundry, the cost of all soaps, starch, soda, etc.
_m_ Add items (_g_) to (_l_), inclusive, and enter the totals on the
proper line. Also, add the items horizontally and check the grand totals
obtained by these two operations.
_n_ Enter under “Deduct Inventory”, the cost price of all articles found
on hand in the various departments at the end of the month.
_o_ Subtract (_n_) from (_m_) and enter the respective remainders in the
spaces for “Cost of Goods Sold”. Check these remainders vertically and
horizontally.
_p_ Subtract the Cost of Goods Sold from Net Sales and enter the
remainders in the spaces for “Gross Profit”. Check results as before.
The lower part of this form is made out as follows:—
_a_ Under “Cash Discounts” (unless credited to Office as before
explained), enter the total of the Discounts column in the cash book.
_b_ Cash in excess of daily checks is self explanatory.
_c_ Under “Goods Sold on Consignment”, should be entered all such sales
actually made during the month.
_d_ Miscellaneous credits is self explanatory, being for such items as
junk, receptacles sold, etc., as are not credited through the stock
records.
_e_ Entrance fees cover all payments by organizations joining the
Exchange.
_f_ Interest on Bank balances is self explanatory.
_g_ Lost Accounts collected refers to amounts that have previously been
dropped from the books as lost, but have afterwards been collected.
_h_ Under “Income not otherwise accounted for”, is entered the amount
that will make the books balance. As it is impracticable to give precise
weights on bulk merchandise and as mistakes will sometimes occur, the
books will never balance exactly and all discrepancies are thrown into
this item. As an example, suppose we unintentionally give short weights
on our sales of, say, crackers. At the end of the month, we will have
more money on hand than our sales would call for, and such excess is
taken up under this heading. If, as sometimes happens, there is a deficit
(for example, caused by melting and wastage of ice) it should be taken up
under the “General Expense” side of this form. It should be noted that
this item cannot be filled in until the General Balance Sheet is made out.
_i_ “Freight and Express Out” refers to transportation charges on goods
returned to our creditors or sold to our customers.
_j_ Under the item, “Insurance”, should be entered the total premiums
paid out during the month, but not the pro-rata share that is charged off
monthly.
_k_ Under “Paid on Consignment”, should be entered the net amounts paid
to our creditors for the goods sold by us.
_l_ To the Total Gross Profit, add the total Other Income, from this
amount, subtract the Total General Expense and the remainder is the net
profit for the month; it should be carried to the Surplus and Adjustment
part of the general balance sheet.
PAY ROLLS.
[Illustration: Figure 33, (Reduced in size)]
A thoroughly satisfactory form for pay rolls is shown by Form 2 in Fig.
33. The Recapitulation at the bottom of the form is for the purpose of
distributing the cost of labor among the various departments when we
make out our statement of income and profit and loss. If employees are
not paid up to date, that is, if a part of their pay due is withheld,
this form allows such information to be recorded. In some cases, it has
been found practicable to pay off three times a month, especially in
the case of civilian employees. In any case, all hands should be paid
promptly at the last of the month, thus getting all of these wages out
of the way and avoiding the necessity of any reversing entries or other
expedients to show the real operations of the Exchange. If any wages due
the employees are not paid by the end of the month, these amounts become
“accrued wages” and must be carried as such.
FIGURING SELLING PRICES.