of suspense accounts.
2. In what sense are valuation accounts suspense accounts?
3. What is the suspense ledger? What does its use indicate? What
information should such a ledger present?
4. What is the process of hypothecating accounts receivable? What does
such a practice usually indicate?
5. Discuss fully the problem of accounting for hypothecated accounts.
6. What advantage has the system of numbering accounts over that of
naming them?
7. Show how a numeric-alphabetic system may be constructed.
8. Present a complete schedule of numbered accounts.
9. Explain the insurance contract.
10. How should fire-damaged property be handled in order to base a
claim for loss?
11. How is the amount of the liability of the insurance company
determined?
12. What is the effect of the coinsurance clause? Illustrate the three
cases.
13. How should the records be kept to facilitate adjustment of fire
losses?
14. Explain fully the method of booking a fire loss and its adjustment.
=Chapter XXXIII=
1. State some of the uses to which statistics may be put in business.
2. What is the importance of statistics in railroad accounting and
management?
3. What kinds of manufacturing data may be presented in statistical
form?
4. What kinds of trading data may be presented in statistical form?
5. Discuss the use of graphs in the presentation of statistics.
6. What principles should be observed in graphical presentation?
7. Explain the purpose, content, and operation of private books.
8. What is a journal voucher, its purpose and method of use?
9. Explain the two ways in which income and expenses of buildings owned
may be treated and the purposes each method serves.
10. How should the expense of social betterment work be treated?
=Chapter XXXIV=
1. In what respects is the balance sheet of the holding company
deficient and unsatisfactory?
2. Differentiate between the consolidated balance sheet and the holding
company’s balance sheet.
3. When, in the case of partial ownership of the subsidiaries, does the
consolidated balance sheet reflect true condition?
4. State fully how partial ownership may best be shown.
5. How are intercompany accounts handled on the consolidated balance
sheet?
6. How are the various inventories valued for the consolidated balance
sheet?
7. Explain the manner of showing capital stock on the consolidated
balance sheet.
8. Explain the manner of showing surplus (or deficit) on the
consolidated balance sheet.
9. Explain how the consolidated profit and loss summary should be drawn
up. How does it differ from the holding company’s profit and loss
summary?
=Chapter XXXV=
1. Distinguish between assignee, receiver, and trustee, and state their
respective duties.
2. What accounts should a receiver in equity keep? What reports should
he make to the court?
3. What initial statements are presented to the court in: (a) Voluntary
bankruptcy proceedings? (b) In involuntary bankruptcy?
4. What reports does the court require of the trustee? How often?
5. What is a liquidating dividend?
6. In a case of bankruptcy what classes of creditors are there?
7. What is the statement of affairs and what information does it
attempt to present?
8. What basis of valuation of the assets is used for the statement of
affairs?
9. What is the realization and liquidation statement? What purpose does
it serve?
10. What theories underlie its make-up?
11. How are cash and valuation reserves best handled?
12. What problem is involved in partnership liquidation by instalments?
13. How should it be solved theoretically? How is it often solved in
practice?
INDEX
A
ACCIDENTS, CONTINGENT DEPRECIATION, 131
ACCOUNTING,
branch house (See “Branch house accounting”)
department, organization, manufacturing business, 26
difference between factory and financial, 49
ACCOUNTS,
branch (See “Branch house accounting”)
current,
reconcilement of, consolidated balance sheet, 607
deficiency, 633
Forms, 635, 638
doubtful, reserve for,
a suspense account, 558
head office, 531
impairment of capital, 633
valuation of, 222
manufacturing, 690
numbered (See “Numbered accounts”)
open,
discounted, accounting for, 562
discounting, 560
operating expense, classification, 567
operating revenue, classification, 566
payable, 345
consigned goods sold, 349
definition, 347
deposits, 348
dividends not yet paid, 349
future deliveries, 349
long-term notes, 349
“not due” and “past due,” 348
realization and liquidation, 639-650
Forms, 642
receivable,
analysis of customers’ accounts as basis for estimate
of bad debts, 217
basis of estimate of bad debts, 219
discounted, 560
discounted, accounting for, 562
items included, 215
objection to title, 215
“trade debtors,” 216
valuation of, 215
receivers’ (See “Receivers”)
reserve (See “Reserves”)
salvage, 188
showing of intercompany, 606
surplus (See “Surplus”)
suspense (See “Suspense accounts”)
trustee (See “Trustee”)
valuation, 187
bond investments, 267
showing on the balance sheet, 77
ACCRUAL METHOD, 250
ACCRUED DEPRECIATION (See “Depreciation”)
ACCRUED EXPENSES (See “Expenses”)
ACCRUED INCOME (See “Income”)
ADAPTATION, APPRECIATION DUE TO, 207
ADJUSTMENT,
fire losses (See “Fire losses”)
plant ledger, 193
ADMINISTRATIVE SCHEDULES, PROFIT AND LOSS SUMMARY, 491
ADVANCES,
to subsidiaries, 262
rules for valuation, 263
ADVERTISING,
creation of good-will by, 334
statistics, 584
AGENCY,
accounts, 525
branch and, differentiated, 522
foreign purchasing, 555
foreign sales, 552
periodic conversion of results, 553
ALLOWANCES,
purchase, under voucher system, 40
AMORTIZATION,
bond discount and premium, 269
schedule showing, 270
leaseholds, 315
ANNUITY,
compound interest, formulas, 164
formulas, 272-276
method of calculating depreciation,
Chart, 166
appraisal of, 181
compound interest method, 161, 163-167
fixed periodic amount, 165
interest, 165
APPRAISAL METHOD OF CALCULATING DEPRECIATION, 169, 170, 183
APPRAISAL SCHEDULE,
sinking fund method of calculating depreciation, 162
APPRAISALS (See “Valuation, principles of”)
APPRECIATION,
due to physical changes, 207
adaptation, 207
solidification and seasoning, 207
land values, 304
issue of bonds, 305
sale of old and erection of plant on less valuable land, 305
offset to depreciation, 206
profits due to, 404
unearned increment, 209
ASSESSMENT, STOCK,
creation of a margin, 409
ASSETS,
contingent, 81
current,
depreciation, 119
transfer of, into fixed assets common cause of insolvency, 494
disposal of, 295
effect of losses on future profits, 393
grouping on balance sheet, 70-74
immovable tangible fixed,
buildings, land, and wasting assets, 297-315
intangible, 316-338
losses,
charged against current profits, 396
charged to capital, 397
legal decisions as to, 394
treated as deferred expense charge, 396
movable fixed,
machinery and tools, furniture and fixtures, and other
equipment, 279-296
plant, grouping and classification of, 191
profits due to appreciation of, 404
subject to depreciation a deferred charge to operations, 93
undervaluation, creating a secret reserve, 418
valuation of,
current assets, 96
deferred charges to operation, 96
fixed assets, 96
wasting (See “Wasting assets”)
ASSIGNEE,
accounting features same as for receiver and trustee, 621
appointment of, 620
function of, 620
AVERAGE CLAUSE,
fire insurance contract, 574
AVERAGES,
theory of, repairs, 147
B
BAD DEBTS (See “Debts, bad”)
BALANCE SHEET, 60-80
account form of, 74-76
accrued items, 250
anticipation of profits or losses on stock-in-trade, 227
bonds,
presentation of, 369
valuation, 266
business methods under the microscope, 60
capital stock, 374, 383
cash, 210-214
classification, 70
comparative, receiver’s report to the court, 627
condensation of information in, 77
condensed, 693
consolidated (See “Consolidated balance sheet”)
content and valuation, 81
contingent assets, 81
contingent liabilities, 81
contingent liabilities, kinds of, 352
definition, 62
depreciation reserve, 199
accounts, 187
English form,
double-account form, 68
Form, 69
origin of, 65
variation of, 67
form of, 63
groups, 70
arrangement of, 72
distinction between current and working assets, 71
main, of asset items, 95
suggested scheme, 74
titles, 71
intangible assets, 316-338
interrelation of profit and loss and, 466
lack of clearness, 79
estimates rather than facts, 80
purposeful misrepresentation, 80
vagueness of terminology, 79
land, donated, contingent value of, 713
liabilities, 339-342
arrangement, 340
cancellation of, against assets, 341
items within groups, 341
notes payable, classification of, 346, 347
purposes and uses, 64, 77
reading of, 61
knowledge of accounts, 61
knowledge of the principles of valuation, 61
relation between, and trial balance, 62, 77
report form of, 74-76
sales discounts on, 415
sinking fund, 457
valuation of, 276
statutory requirements as to frequency of, 77
stock-in-trade, 225-240
temporary investments; accrued and deferred items, 241-257
titles, 70
notes receivable, 223
treasury stock, 383
types of, 65
Continental, 65
English, 65
use of supporting schedules, 79
valuation accounts, 77
valuation and content rather than form, the problem, 97
BANK,
account, voucher checks given a new series of numbers to
facilitate reconciliation with, 37
disposition of cash funds, 211, 213
loans, 347
BANKRUPTCY, 620-654
appointment,
receiver, 621, 622
trustee, 621, 622
creditors’, first meeting of, 622
deficiency account, 633
Form, 635, 638
disposing of property, 629
duty of trustee, 502
involuntary, 622
liquidating dividends,
declaration of, in hands of referee, 630
method of liquidating, 502
proceedings, initial statements presented to the court, 627
realization and liquidation account, 639-650
Forms, 642
receiver, reports to the court, 625
relative standing of creditors, 630
statement of affairs, 631
Forms, 634-638
basis of valuation, 633
voluntary, 622
BARRELS, VALUATION OF, 293
BASKETS, VALUATION OF, 293
BETTERMENTS, 89-93
distinction between repairs and renewals, 113
leased buildings, 300
recording depreciation on the books, 189
BONDS,
accounting for issue of, 363
entry of interest payments on books, 366
entry of premium or discount on books, 365
entry on books, 364
relation of interest to premiums or discount, 367
amortization of discount and premium, 269
authority for issue of, 361
bonus, 13
classification, 359-361
character of issuing corporation, 359
conditions incident upon payment of principal and interest, 360
purpose of the issue, 359
security underlying, 359
difference between, and real estate mortgages, 358
discount,
nature of, 266
profit and loss summary, 474
example of true interest cost, 368
financial considerations involved in issue, 361
fixed liability, 357
interest rate, 267
issue of, on appreciated land values, 305
kinds of, 358
methods of valuing,
annuities, formulas for, 272-276
compound interest, formulas for, 271
nature of, 357
payment of dividends in, 438
premium, 343
nature of, 266
presentation on balance sheet, 369
priority of lien, 361
record of investments, 267
sinking fund, 447-465
surety, signature to, contingent liability, 355
valuation of, when held for temporary investment, 245
values and market interest rates, 265
versus stock issues, 362
BONUS,
bonds, 13
stock, 13, 16
stock issued as, 383
treated as entries to a margin account, 409
BOOKS (See “Records”)
private (See “Private books”)
BORROWING, TO PAY DIVIDENDS, 436
BOTTLES, VALUATION OF, 293
BOXES, VALUATION OF, 293
BRANCH HOUSE ACCOUNTING, 521-555
adjustment on branch and head office books, 535
advantages of branch and agency system, 521
agency accounts, 525
agency and branch differentiated, 522
agency, foreign sales, 552
periodic conversion of results, 553
books, 529
degree of control desired, 523
example of adjusting entries, 537
factors of successful management, 523
foreign branch
accounts opened on books, 544
conversion of branch results, 546
example of a London control account, 550
example of journal entries to adjust
New York books, 549, 550
example of trial balance, 548, 549
handling fluctuations in exchange, 545
illustrative bookkeeping problem, 548
local supervision of, 552
problem of, 543
foreign exchange, 542
handling fluctuations in, 545
foreign purchasing agency, 555
head office accounts, 531
illustration of complex accounts, 529
illustration of simple accounts, 526
main principles of, 524
purchases, 533
records, 526
reports from branch, 539
customers’ accounts collected, 541
examples of, 540
periodic cash summary, 540
sales, 534
BROKERS,
stocks and bonds as stock-in-trade, valuation of, 245
BUILDINGS,
cost of, 298
issue of stocks or bonds, 298
purchased outright for cash, 298
put up by the concern itself, 299
depreciation,
application of, 301
rates, 301
uses and construction determine life, 301
expense and income,
allocation of, 596
methods of bookkeeping, 598
workmen’s dwellings and social betterment work, 599
leased betterments on, 300
owned as freehold for life, 302
ownership versus renting, 597
real property, 297
valuation of, 300
BURDEN, definition of, 50
C
CAPITAL,
deficiency, false good-will to cover, 336
expenditures (See “Capital expenditures” below)
liquidating dividends, 445
losses,
charged to, 397
relation to dividends, 443
profits, 405
return of, in form of dividends when property is subject
to depletion, 311
working, donated, disposition of, 475
CAPITAL EXPENDITURES, 87
asset subject to depreciation a deferred
charge to operations, 93
authorization for booking, 94
construction costs, 94
defined, 87
distinction between, and revenue, 95
repairs on second-hand plant, 94
treatment of cost-cutting changes, 92
CAPITALIZATION,
combinations and consolidation, 516
cost, 376
earnings, 375
increase of book, 375
of profits, valuation of good-will based on, 335
CAPITAL RECEIPTS, 87
CAPITAL STOCK (See “Stock”)
CARRIERS, VALUATION OF, 293
CASH, 210-214
disposition of funds, 213
bank, 213
petty cash, 213
safe or drawer, 213
various working funds, 213
held abroad, 214
petty, 211
imprest system, 211
principles of valuation, 210
realization and liquidation statement, 643
sale of capital stock or bond issues, 213
stamps remitted as, 212
statistics, 584
temporary disbursements, 213
tying up, in stocks of material, cause of insolvency, 494
unwise use of, for paying dividends, 495
what the term includes, 210
working funds, 211
imprest system, 211
CASH BOOK,
separate, for special bank account, 670
CASKS, VALUATION OF, 293
CERTIFICATE OF STOCK, 9, 10
CHARTS (See “Graphs”)
CHECK,
voucher, 32
canceled, 32
distribution of charges, 32
folded, 32
Forms, 33
given a new series of numbers to facilitate reconciliation
with bank account, 37
single, 32
Forms, 34
CLASSIFICATION,
accounting, of depreciation on patents, 322
accounts (See “Numbered accounts”)
plant assets, 191
alphabetic numeric system, 191
combined alphabetical and decimal numerical system, 191
numerical, 191
CLIMATIC CONDITIONS, FACTOR IN DETERMINING DEPRECIATION RATE, 143
“CLOSE” CORPORATIONS, 2
COINSURANCE CLAUSE, 574
COLLATERAL, LOANS ON, 370
COLLECTIONS COSTS,
allocation of, 414
statistics, 584
valuation of trade debtors, 221
COMBINATIONS AND CONSOLIDATIONS, 507-520
capitalization, 516
closing the books of the merged concerns, 518
consolidations,
distinction between, and merger, 510
formation of, 511
earning capacity, 515
equalization of conditions, 513
good-will, 515
merger,
formation of, 511
opening the books, of, 519
payment of amalgamated interests, 517
principles of valuation of the constituent companies, 512
reasons for, 507
types of, 507
valuation of, principle, 514
COMMERCIAL CORPORATIONS, 2
COMMON STOCK (See “Stock”)
COMPARATIVE STATEMENT OF PROFIT AND LOSS
(See “Profit and loss summary”)
COMPOSITE LIFE METHOD,
calculating depreciation, 155
appraisement of, 177
COMPOUND INTEREST,
formulas for, 271
CONDENSATION, BALANCE SHEET, 77
CONDITION PER CENT, 172
test of, 195
CONSIGNED GOODS SOLD, CURRENT LIABILITY, 349
CONSOLIDATED BALANCE SHEET, 261, 600-619
capital stock, 611
conditions under which used, 602
current accounts, reconciliation of, 607
deficit, 612
function, 600
holding company, 602
illustration of, 616-619
intercompany accounts, 606
notes discounted, 607
partial ownership, 601
profit and loss summary, 612-615
purpose, 600
setting up of, 603
surplus, 611
valuation of inventory, 607
minority interests, 610
valuation of liabilities, 611
CONSOLIDATED PROFIT AND LOSS SUMMARY, 612-615
CONSOLIDATIONS (See “Combinations and consolidations”)
CONSTRUCTION COSTS, 94
CONTAINERS, VALUATION OF, 293
CONTINGENT DEPRECIATION (See “Depreciation”)
CONTINGENT LIABILITIES (See “Liabilities”)
CONTRACTS,
length of cost period, 236
long-term, profits on, 401
redemption, covering preferred stock, 384
uncompleted, valuation of, 234
valuation of, 234
CONTROL, PERMANENT INVESTMENT FOR, 261
CONVERTIBLE PREFERRED STOCK, 6
COPYRIGHTS, 325
valuation of, 325
CORPORATIONS, 1-25
bonds (See “Bonds”)
classification, 1
commercial or trading, 2
de facto, 2
de jure, 2
domestic, 2
financial, 2
foreign, 2
industrial or manufacturing, 2
private corporations, 2
public corporations, 1
public utility or quasi-public, 2
stock and non-stock private corporations, 2
combinations and consolidations, 507-520
definition, 1
dividends (See “Dividends”)
holding companies, accounting for, 500
liquidation (See “Liquidation, corporations”)
organization, working, 3
board of directors, 3
committees, 3
officers, 3
ownership, method of, 2
advantages, 3
“close,” 2
“open,” 2
“sole,” 3
profits (See “Profits”)
records,
dividend book, 20
instalment book, 20
minute book, 20
register of transfers, 20
stock certificate book, 20
stock ledger, 20, 21
Form, 22
stock register, 21
stock transfer book, 20
subscription book, 20
subscription ledger, 20
transfer book,
Form, 21
stock (See “Stock”)
COSTS,
accrued, operating reserves for, 413
buildings, 298
bought by issue of stocks or bonds, 298
purchased outright for cash, 298
put up by the concern itself, 299
capitalization on basis of, 376
collection,
allocation of, 414
valuation of trade debtors, 221
construction, capital expenditures, 94
factory (See “Costs, factory,” below)
goods sold,
manufacturing concern, 478
trading concern, 479
land, 303
original, factor in calculating depreciation, 150
statistics, 584
stock-in-trade, 230
cash discount, 230
distribution of, 231
objections to valuation at less than, 226
summary argument for valuing at, 228
valuation at, 225
temporary investments, 245
COSTS, FACTORY, 49-59
contracts and length of cost period, 236
cost-cutting changes, treatment of, 92
definitions of terms, 49
direct costs, 50
factory expense, overhead or burden, 50
full cost, 50
indirect cost, 50
prime cost, 50
total manufacturing cost, 50
depreciation and plant efficiency, 113
difference between factory and financial
accounting, 49
expense,
basis of distribution, 58
elements entering into, 58
inventory-taking, 237
methods, 238
perpetual, 239
rules, 238
labor,
accrued wages, 57
direct and indirect, 53
distribution of charges, 57
materials,
accounting for, 52
auxiliary, 51
nature of, 51
perpetual inventory system, 53
record of purchases and periodical inventory, 52
operation of machine accounts, 282
patents, effect of rate of depreciation, 324
pay-roll, 55
methods of payment, 56
safeguarding, 55
prime costs,
direct and indirect labor, 53
materials, 52
special purposes of cost records, 50
predetermination of selling price, 51
stores department,
function of, 52
summary of manufacturing cost, 59
supplies,
manufacturing, 52
nature of, 51
operating, 52
time-keeping records, 54
cards, 54
valuation of manufacturing inventory, 233-236
contracts, 234
finished goods, 233
goods in process, 234
raw material, 234
valuation of scrap, 236
CREDIT, MERCANTILE, 216-224
application for, balance sheet as basis for, 79
bad debts,
analysis of customers’ accounts as basis for estimate of, 217
basis for estimate of, 219
classification of accounts according to time overdue, 218
estimating, 216
length of credit period, 217
trade debtors as basis of estimate of, 219
classification of accounts according to length
of time overdue, 218
deferred, 351
discounts and collection costs, 221
notes receivable,
balance sheet titles for, 223
interest on, 223
loss on, 222
risk and length of credit period, 217
risk from losses, 216
valuation of receivable items on open account, 221
CREDITORS,
bankruptcy proceedings, final meeting, 629
first meeting of, in bankruptcy proceedings, 622
relative standing of, receiver in equity, 630
status of, in liquidation, 504
voucher index of, 38
CRYSTALLIZATION, CAUSE OF DEPRECIATION, 133
CUMULATIVE PREFERRED STOCK, 5
CURRENT ASSETS,
depreciation, 119
valuation of, 96
CURRENT LIABILITIES (See “Liabilities”)
CUTS, VALUATION OF, 294
D
DEBENTURE STOCK, 4, 8
DEBTS,
bad (See “Debts, bad,” below)
settled by—
conversion of an asset, 453
creation of another liability, 453
increase in net worth, 453
sinking fund, effect of, 448, 452
DEBTS, BAD,
basis for estimate of, 216, 219
analysis of customers’ accounts, 217
classification of accounts according to length of
time overdue, 218
sales as, 220
summary, 220
trade debtors as, 219
loss of notes receivable, 222
reserve for, 411
risk and length of credit period, 21
DECREPITUDE, 173
DE FACTO CORPORATIONS, 2
DEFERRED—
charges,
accounting for, 256
danger of overvaluation, 255
definitions, 253
kinds of, 253
to operation, valuation of, 96
valuation of, 254
credits, 351
income, 343
misuse of term, 417
maintenance, 109
DEFICIENCY, SHARES OF,
liquidation of partnership by instalments, 652
DEFICIT, SHOWN ON CONSOLIDATED BALANCE SHEET, 612
DE JURE CORPORATIONS, 2
DELIVERY EQUIPMENT (See “Equipment”)
DEPLETION,
application of income tax law to, 312
assets subject to (See also “Wasting assets”)
basis of charge, 312
contingent cause of depreciation, 134
distinction between depreciation and, 117
leaseholds, 314
reserves, 413
return of capital in form of dividends, 311
unusual risks, 313
wasting assets (See “Wasting assets”)
DEPOSITS, CURRENT LIABILITIES, 348
DEPRECIATION,
“accounting” and “fair,” 107
accrued, 109
a cost of operation, 137
actual or absolute, 104
a means of financing, 140
danger of viewpoint, 141
appraisement of methods, 173-186
annuity method, 181
appraisal method, 183
arbitrary methods, 179
composite life method, 177
compound interest methods, 179
effect on return on investment, 185
fifty per cent method, 183
fixed per cent of diminishing value method, 178
general considerations, 173, 174
insurance method, 184
maintenance method, 182
percentage of gross earnings method, 184
proportional methods, 175-178
replacement method, 183
service output method, 177
sinking fund method, 181
straight line method, 175
sum of expected life-periods method, 179
unit cost method, 182
variable percentage methods, 178-179
working hours method, 176
appreciation,
as an offset to, 206
due to adaptation to use, 207
due to physical changes, 207
unearned increment, 209
aspects and definitions, 99-119
asset subject to, a deferred charge to operations, 93
attitude of law, 110
authoritative opinions, 101
buildings, 301
freehold for life, 301
rates, 301
buildings and machinery of a wasting asset, 313
calculating, 150-172
annuity, 161, 163-167
formulas, 164
appraisal method, 169, 170
arbitrary interest rate, 150
arbitrary with decreasing amounts, 157, 160
arbitrary with increasing amounts, 157, 160
changing percentages of cost less scrap method, 157, 159
composite life, 152, 155
compound interest methods, 150, 160
condition per cent, 171
estimated service life, 150
factors to be considered, 150
fifty per cent method, 169, 170
fixed percentage of diminishing value method, 157
chart, 158
gross earnings method, 169, 171
insurance method, 169, 170
maintenance method, 169
methods of, 150
original cost of asset, 150
proportional methods, 150
replacement method, 169
scrap or residual value, 150
service output, 152, 156
sinking fund, 161
straight line method, 152
symbols to be used, 151
unit cost method, 161, 167-169
variable percentage methods, 150
working hours, 152-155
causes, 120-135
accidents, 122
age, 120
analysis of, 120
chart showing, 121
contingent depreciation, 130-134
decrepitude, 122
depletion, 134
effective depreciation, 135
functional depreciation, 123
inadequacy as a factor, 123
inadequacy due to unforeseen development, 125
inadequacy imposed from without, 126
inadequacy through change of policy, 124
inadequacy through motives of economy, 125
obsolescence, 127-130
terminable rights, 134
wear and tear of use, 122
chart showing relation of efficiency to uniform depreciation, 115
comparison of actual and theoretical, 105
complete and incomplete, 108
complication of short fiscal periods, 138
contingent,
accidents, 131
depletion, 134
disease, 133
electrolysis, 134
current assets, 119
decision of Supreme Court, 111
deferred maintenance, 109
distinction between, and depletion, 117
distinction between repairs and renewals, 113
distribution of charge, 174
effective, 135
estimate of charges due to obsolescence, 129
fire losses, 579
fluctuations in market value, 116, 117
franchises, 328
ruling of Public Service Commission, 329
furniture and fixtures, 291
good-will, 337
hand tools, 289
individual and composite, 108
inefficiency a factor of, 116
journal vouchers, 595
land, 304, 306
leaseholds, 314, 315
machinery,
estimate of, 283
methods of applying, 286
merchandise, 119
methods (See “Depreciation, appraisement of methods” and
“Depreciation, calculating,” above)
patents, 319, 320
accounting classification, 322
booking, 322
effect on costs of manufacture, 324
obsolescence, 320
supersession, 320
time lapse, 319
physical and functional, 109
plant efficiency, 113
purpose of, fundamental, 136
rates, 136-149
accounting viewpoint, 141
attitude of regulatory bodies, 147
based only on normal factors at time
of installation, 144
basis of normal, 144
buildings, 301
change in ownership and policy, 144
change in requirements of the market, 144
climatic conditions, 143
complication of short fiscal periods, 138
composite and group, 197
contingent factors, 142, 144
cost of operation, 137
danger of financing viewpoint, 141
effect of local conditions, 142
engineering problem, 142, 146
engineering viewpoint, 141
exterior or movable apparatus, 144
factors in determining, 143
financing viewpoint, 140, 141
fixed equipment including boilers and piping, 145
frequency of revision of, 194
fundamental purpose, 136
idle time a factor, 139
installed operating and generating machinery, 144
insufficient charge, 205
load or normal intensity of operation, 143
means of financing, 140
methods of handling repairs, 147
misuse and neglect brought about by the demands of the trade, 144
normal climatic conditions, 143
operating conditions, 143
periodic revision of, 194
repairs policy, 143
results achieved as the basis, 139
service life as the basis, 139
“stable or normal” factors, 142, 143
standardization of, 142
recognition of the depreciation factor, 112
Federal Income Tax Law, 112
Federal Trade Commission, 112
Interstate Commerce Commission, 112
Treasury decisions, 112
recording, 187-209
adjustment of value, on plant ledger, 193
asset record, 192
balance sheet, 187
cases when no determination of betterment values is made, 189
composite or group rates, 197
credit balance in the reserve, 189
debit balance in the reserve, 189
plant ledger, 191
Form, 193
frequency of revision of rates, 194
grouping and classification of plant assets, 191
mean age, direct method, 198
mean life, direct method, 197
mean life, dollar-year, or weighted ratio method, 198
methods commonly employed, 187
periodic adjusting entry, 187
periodic revision of rates, 194
renewals and replacements, 188
reserve account, 187
reserves, 199-204
subsidiary records, 190
table of expectancy, 196
test of condition per cent, 195
valuation account, 187
relation between, and sinking fund, 463
reserves,
decreasing, 200
distinction from reserve for doubtful accounts, 411
financing of replacements, 203
fluctuating, 199
increasing, 200
index of financial condition, 199
insufficient charge, 205
methods of financing replacements, 203
not leased on cost of replacement, 202
relation to efficiency, 201
relation to expanding plant, 201
secret, 204
suspense account, 558
stockholders’ relation to policy pursued, 209
stock-in-trade, 119, 229
terminable rights, 134
theoretical, 104
unit efficiency, 114
unusual risks, 313
“wasting” assets, 118
effect on different kinds of business, 118
why factor arises, 103
DETERIORATION, 140
rate of, 145
stock-in-trade, 229
DEWEY DECIMAL SYSTEM, 564
advantages of the mnemonic over, 565
combined with mnemonic, 566
DIES, VALUATION OF, 294
DIRECT COST, DEFINITION OF, 50
DIRECTORS,
control over profits, 429
liability of, in the matter of dividends, 433
DISBURSEMENTS, CASH, TEMPORARY, 213
DISCOUNTS,
accounts receivable, 560-563
bond,
amortization of, 269
entry on books, 365
nature of, 266
profit and loss summary, 474
relation to interest, 367
schedule showing amortization of, 270
cash,
inclusion of, in cost of stock-in-trade, 230
on purchases, voucher system, 44
permanent investments, treatment of, 257
sales,
on the balance sheet, 415
proper allocation of estimated, 413
stock, 13
charging to organization expense, not approved, 14
requirements of Interstate Commerce Commission, 13
treatment of, 378
valuation of trade debtors, 221
DISEASE, CONTINGENT DEPRECIATION, 133
DISSOLUTION,
valuation for purposes of, 83
voluntary, 501
liquidation under, 503
DISTRIBUTION OF DEPRECIATION CHARGE, 174
DIVIDENDS, 428-446
accounting record, 442
book, 20
corporation profits,
directors’ control over, 429
disposition of, 428
shareholders’ rights as to, 429
declaration of, 432
provisos as to, 430
definition, 428
ex-dividend, 442
in stock, 382
effect of, 382
liability of directors, 433
liquidating, 445, 506, 629
booking, 446
declaration of, in hands of referee, in bankruptcy, 630
method of payment, 434, 436
borrowing, 436
borrowing on property, 438
in bonds, 438
in property, 438
paid in form of salaries, 435
scrip, 438
not yet paid, current liability, 349
paid but not yet charged against surplus, 688
payment, to whom payable, 441
profit and loss summary, 474
proportional to holdings, 441
relation of capital losses to, 443
resolution declaring, 441
return of capital included in, 311
revocation of, 434
shareholders’ rights to, 431
stock, 439
estate accounting, 440
unwise use of cash for paying, 495
DOMESTIC CORPORATIONS, 2
DONATED—
land, 308
stock, 11, 15
creation of a surplus, 409
DOUBTFUL ACCOUNTS,
reserve for, as a suspense account, 558
DRAFTS,
negotiated, contingent liability, 352
sight, treated as cash transactions when honored, 673
DRAWINGS, VALUATION OF, 294
DRAYAGE, COST OF STOCK-IN-TRADE, 230
E
EARNINGS, VALUE OF STOCK DEPENDENT UPON, 374
EFFICIENCY,
chart showing progress of uniform depreciation and of
diminishing efficiency, 115
employees’, statistics, 584
plant, depreciation, 113
relation of depreciation reserve to, 201
unit, 114
ELECTROLYSIS, CAUSE OF DEPRECIATION, 133
ELECTROTYPES, VALUATION OF, 294
ENGINEERING,
rate of depreciation a problem of, 142, 146
EQUIPMENT,
average, normal use, 139
basis of normal rate, 144
delivery,
carriers, valuation of, 293
containers, valuation, 293
definition, 292
valuation, 292
disposal of assets, 295
distinction between personalty and real property, 279
furniture and fixtures,
definition of, 291
depreciation, 291
valuation of, 291
general considerations, 279
idle time, 139
machine accounts, operation of, 282
machinery,
abnormal operation, 285
basis of valuation, 287
estimate of depreciation, 283
expenditure for rearrangement, 290
history of, 284
home-made, valuation of, 289
map of location, 286
methods of application of depreciation, 286
scrap, 287
standards of operation, 285
valuation of, 283
machinery and tools, 281
accounting records, 281
molds, valuation of, 294
patterns, valuation of, 294
service, 139
tools,
accounting for, 288
hand, depreciation on, 289
home-made, valuation of, 289
issue on requisition, 289
valuation of, 279-296
ESTATE ACCOUNTING, STOCK DIVIDENDS, 440
ESTIMATES, PRINCIPLES OF VALUATION, 97
EXPECTANCY,
mean age, direct method, 198
mean life,
direct method, 197
dollar-year, or weighted ratio method, 198
table of, 196
EXPENDITURES,
capital (See “Capital expenditures”)
revenue (See “Revenue expenditures”)
EXPENSES,
accrued, 343
booking of, 350
current liabilities, 350
capital, 87
factory,
basis of distribution, 58
definition of, 50
elements entering into, 58
organization, 88
F
FACTORY COSTS (See “Costs, factory”)
FEDERAL RESERVE BOARD,
statement required of contingent liability, 352
FINANCIAL ACCOUNTING, DIFFERENCE BETWEEN FACTORY AND, 49
FINANCING,
depreciation a means of, 140
danger of viewpoint, 141
FINISHED GOODS, VALUATION OF, 233
FIRE LOSSES, ADJUSTMENT OF, 570-580
adjusting entries, 578
depreciation, 579
bases of settlement, 573
coinsurance clause, 574
examples of, how applied, 575, 576
determination of value, 572
insurance contract, 570
cancellation of, 571
inventory of stock-in-trade, 580
method of record-keeping to facilitate ready adjustments, 577
options of the insurance company as to settlement, 576
pro rata or contributing clause, 574
rates, 574
requirement in case of loss, 571
settlement of points in dispute, 573
valuations for, 83
FISCAL PERIODS,
complication of short, in the case of depreciation, 138
FIXED ASSETS, VALUATION OF, 96
FIXED LIABILITIES (See “Liabilities”)
FIXTURES (See “Equipment”)
FLUCTUATIONS, RESERVE FOR INVESTMENT, 243
FOREIGN BRANCH (See “Branch house accounting”)
FOREIGN CORPORATIONS, 2
FOREIGN COUNTRIES, CASH HELD IN, 214
FOREIGN EXCHANGE, 542
handling fluctuations in, 545
FOREIGN PURCHASING AGENCY, 555
FOREIGN SALES AGENCY, 552
periodic conversion of results, 553
FORFEITED STOCK, 12, 19
FORMS (See list in table of contents, page xxiii)
FOUNDERS’ SHARES, 4, 7
FRANCHISES, 326-330
definition, 326
depreciation on, 328
ruling of Public Service Commission, 329
indeterminate, 328
kinds, 326
limited, 327
perpetual, 327
valuation, 328
FREIGHT,
cost of stock-in-trade, 230
distributed over stock-in-trade, 231
FUNCTIONAL DEPRECIATION, 123
FURNITURE (See “Equipment”)
FUTURE DELIVERIES, LIABILITY, 349
G
GOODS,
consigned, sold, current liability, 349
finished, valuation of, 233
in process, valuation of, 234
profits on,
awaiting delivery, 402
made for stock but not sold, 399
made to order, 400
work in progress, 399
returned, statistics, 584
sold, cost of,
manufacturing concern, 478
trading concern, 479
GOOD-WILL, 331-338
combination and consolidation, 515
creation of, by advertising, 334
definition of, 331
“going value,” 338
local and personal character of, 333
merger, 332
nature of, 331
valuation of, 333
based on capitalization of profits, 335
based on excess profits, 335
based on normal profits, 334
depreciation, 337
false, to cover capital deficiency, 336
periodic revaluation, 337
GRAPHS,
advantages of, 586
principles of construction, 587
use of, in presentation of statistics, 585
GROSS EARNINGS,
method of calculating depreciation, 169, 171
GUARANTEED STOCK, 4, 7
GUARANTEES,
as contingent liability, 353
quality and performance, 348
H
HOLDING COMPANY, 508 (See also “Combinations
and consolidations”)
accounting for, 509
advances to subsidiaries, 262
rules for valuation, 263
consolidated balance sheet, 600-619
consolidated profit and loss summary, 612-615
permanent investments of, 261
HOUSING WORKMEN, AND SOCIAL BETTERMENT WORK, 599
HYPOTHECATION ACCOUNTS RECEIVABLE, accounting for, 560
I
IDLE TIME, FACTOR IN DEPRECIATION, 139
IMPAIRMENT OF CAPITAL ACCOUNT, 634
IMPREST SYSTEM, PETTY CASH OPERATED UNDER, 211
INADEQUACY, 173
factor in depreciation, 123-127
INCOME,
accrued,
accounting for, 251
correct method of handling, 250
illustration of different methods of recording, 251
inadequacy of cash method of handling accruals, 249
nature of, 248-253
showing on balance sheet, 250
valuation of items, 250
deferred, 343
misuse of term, 417
INCOME AND EXPENDITURES (See “Profit and loss summary”)
INCOME STATEMENT (See “Profit and loss summary”)
INCOME TAX LAW OF 1916, APPLICATION OF, TO WASTING ASSETS, 312
INCREMENT, UNEARNED, 209
IDENTIFICATION (See “Classification”)
INDEX,
journal vouchers, 594
Forms, 594, 595
voucher, of creditors, 38
INDIRECT COST, DEFINITION OF, 50
INDUSTRIAL CORPORATIONS, 2
INSOLVENCY, CAUSES OF,
current assets transferred into fixed assets, 494
inability to secure cash for refunding operations, 496
tying up cash in stocks of material, 494
unwise use of cash for dividends, 495
INSTALMENT ACCOUNTS, VALUATION OF, 22
INSTALMENTS,
book, 20
liquidation of a partnership by, 650
illustration of, 653, 654
INSURANCE,
buildings and equipment, leasehold, 688
cost of stock-in-trade, 230
fire (See “Fire losses, adjustment of”)
INSURANCE METHOD,
calculating depreciation, 169, 170
appraisal of, 184
INTERDEPARTMENTAL PROFITS, 404
INTEREST,
accrued, recording of, 268
annuity method of calculating depreciation, 165
arbitrary rate of,
methods of calculating depreciation, 150
as a cost of manufacture, 468
arguments against, 470-472
bonds,
example of true interest cost, 368
fixing the rate, 267
relation of, to premium or discount, 367
compound,
formulas for, 271
methods of calculating depreciation, 160, 179
notes receivable, 223
on money invested in stock-in-trade, 231
payments on bonds, entry on books, 366
problem of charging, on books, 471
rates, market, bond values and, 265
INTERSTATE COMMERCE COMMISSION,
method of handling depreciation reserve at the time of
replacement, 189
requirements as to discounts and premiums, 13
INVENTORY,
adjustment of, profit and loss summary, 490
contracts and length of cost period, 236
finished goods, 690
goods in process, bringing on the books, 690
of liabilities, 342
periodical, 52
perpetual, 52, 238
necessity for physical count, 240
pricing of, 232
weighted average, 232
statistics, 584
stock-in-trade, fire loss, 580
taking, 237
methods, 238
rules, 238
valuation of,
consolidated balance sheet, 607
minority interests, 610
valuation of manufacturing, 233-236
contracts, 234
finished goods, 233
goods in process, 234
raw material, 234
scrap, 236
INVESTMENTS,
effect on return on, under various methods of calculating
depreciation, 185
land, valuation of, 307
permanent, 258-278
accrued interest on bonds, 268
advances to subsidiaries, 262
advances to subsidiaries, rules for valuation, 263
amortization of bond discount and premium, 269
amortization of bond discount and premium, schedule showing, 270
annuities, formulas for, 272-276
as an aid to operation, 259
bond values and market interest rates, 265
controlling investment, 261
holding company and subsidiary enterprises, 261
in partial holdings, 264
interest, compound, formulas for, 271
land, valuation of, 278
nature of, 258
nature of bond discount or premium, 266
producing no income, 265
record of bond investments, 267
sinking funds, methods of employing, 276, 277
sinking funds, valuation of, 276
valuation account, 267
valuation of, 259
temporary, 241-248
cost of, 245
nature of, 241
reserve for fluctuations, 243
“stock rights,” 244
summary of valuation formula, 248
treasury stock, valuation of, 247
unissued stock, valuation of, 246
valuation of, 242
valuation of bonds, 245
INVOICES,
voucher system, 26-48
distribution, 34
J
JOURNAL,
methods of authorizing entries, 596
purchase, expansion, 27
JOURNAL VOUCHERS (See “Voucher system”)
L
LABOR,
charges,
accrued wages, 57
distribution of, 57
direct and indirect, 53
LAND, 302-310
accounting, 302
plots, 302
appreciation, 304
issue of bonds, 305
sale of old, and erection of new plant
on less valuable land, 305
as stock-in-trade, 310
depreciation, 304
of values, 306
donated, 308
reserve of surplus covering, 713
mortgages on, 308
real property, 297
valuation of, 303
valuation of investments in, 278, 307
inflation of values, 307
LASTS, VALUATION OF, 294
LAW, STOCK ISSUES, 377
LAWSUITS, PENDING, CONTINGENT LIABILITY, 354
LEASEHOLDS, 314, 315
appreciation in value, 315
depreciation and amortization, 315
distribution of depreciation on buildings, 688
insurance, distribution of, 688
length of leases, 314
long-term, contingent liability, 354
sale of, 314
LEDGER,
classification of accounts, 568
methods of recording depreciation in, 187
plant, 191
Form, 193
purchase, used with voucher system, 46
stock, 20, 21
Forms, 21
stores, 53
subsidiary records, 190
suspense, use of, 559
trial balance, 62
LIABILITIES, 339-371
balance sheet, 339-371
arrangements on, 340
cancellation of liabilities against assets, 341
items within groups, 341
contingent, 81, 344, 351-355
accumulated dividends on preferred
stock, 355
drafts negotiated, 352
guarantees as, 353
kinds of, 352
long-term leases, 354
notes discounted, sold, or otherwise transferred, 352
pending lawsuits, 354
purchases for future delivery, 354
signature to surety bond, 355
statement of, 351
stock not fully paid, 354
current, 345-351
accounts payable, 345, 347
accrued expenses, 350
accrued expenses, booking of, 350
consigned goods sold, 349
deferred credits, 351
deposits, 348
dividends not yet paid, 349
future deliveries, 349
guarantees, 348
loans from bank, 347
notes payable, 345
notes payable, classification of, 346, 347
fixed, 356-371
accounting for bond issue, 363-369
bonds, kinds of, 358
bonds, priority of liens, 361
corporation bonds, 357
difference between bond and real
estate mortgages, 358
loans on collateral, 370
nature of, 356
purpose of, 356
real estate mortgages, 369
short-term securities, 370
grouping on the balance sheet, 70-74
inventory of, 342
accrued expenses, 343
contingent, 344
deferred expenses, 344
deferred income, 343
premium on bonds, 343
overvaluation for purpose of creating secret reserve, 418
valuation of, 97
consolidated balance sheet, 611
LIQUIDATING DIVIDENDS, 445
LIQUIDATION AND REALIZATION ACCOUNT, 639-650
Forms, 642
LIQUIDATION, CORPORATIONS, 493-506
accounting for, 505
bankruptcy, 502
causes of insolvency, 494
current assets transferred into fixed assets, 494
inability to secure cash for refunding operations, 496
tying up cash in stocks of materials, 494
unwise use of cash for paying dividends, 495
complete, 493
dividends, 506
partial, 493
reasons for, 493
receivership, 501, 503
status of creditors in, 503
valuation for purpose of, 83
voluntary dissolution, 501, 503
LIQUIDATION, PARTNERSHIP,
by instalment, 650
deduction from capital, 651
illustration of, 653, 654
LOAD,
normal factor in determining depreciation rate, 143
LOANS,
bank,347
borrowing to pay dividends, 436-438
on collateral, 370
LOCATION, MAP OF MACHINE, 286
LOSSES,
anticipation of, undesirable, 227
asset,
charged against current profits, 396
charged to capital, 397
effect on future profits, 393
legal decisions as to, 394
treated as deferred expense charge, 396
capital, relation of, to dividends, 443
credit, risk from, 216
fire (See “Fire losses, adjustment of”)
notes receivable, 222
M
MACHINERY (See “Equipment”)
MAINTENANCE,
accrued, 123
cost of, standardized, 122
deferred, 109, 123
definition of, 89
distinction between repairs and renewals, 113
method of calculating depreciation, 169
policies as to, effect on rates of depreciation, 145
MAINTENANCE METHOD,
calculating depreciation, appraisement of, 182
MANUFACTURING ACCOUNT, HANDLING OF, 690
MANUFACTURING CORPORATIONS, 2
MANUFACTURING INVENTORY (See “Inventory”)
MANUFACTURING, PURCHASING FOR, 26
MAP, MACHINE LOCATION, 286
MARGIN (See “Surplus”)
MARKET VALUE,
capital stock, 373
depreciation and fluctuations in, 116, 117
valuation of stock-in-trade at, 225, 228
MATERIALS,
factory costs, 51
raw, valuation of, 234
stores department, 52
MEAN AGE,
plant expectancy, direct method, 198
MEAN LIFE OF DEPRECIATION,
direct method, 197
dollar-year or weighted ratio method, 198
MERCANTILE CREDITS (See “Credit, mercantile”)
MERCHANDISE (See “Stock-in-trade”)
MERGERS,
capitalization, 516
closing the books, 518
closing the books of the old companies, 518
distinction between consolidation and, 510
formation of, 511
opening the books, 519
MINUTE BOOK, 20, 24
MNEMONIC SYSTEM, 564
advantage, 565
combined with Dewey decimal system 566
example of application to a machine, 566
MODELS, VALUATION OF, 294
MOLDS, VALUATION OF, 294
MONOPOLY PATENTS, 317
MORTGAGES,
difference between, and bond, 358
on land, 308
real estate, fixed liabilities, 369
N
NON-CUMULATIVE PREFERRED STOCK, 5
NON-PARTICIPATING PREFERRED STOCK, 6
NON-STOCK CORPORATIONS (See “Corporations”)
NO PAR VALUE STOCK, 9, 20
NOTES,
discounted,
consolidated balance sheet, 607
sold or otherwise transferred, contingent liability, 352
long-term, 349
payable, 345
classification of, 346, 347
handling of, under voucher system, 43
statistics, 584
receivable,
balance sheet titles for, 223
interest on, 223
losses on, 222
valuation of, 215, 223
short-term securities, 370
NUMBERED ACCOUNTS, 563-570
advantages, 564
allotment of numbers, 563
classification, 564
general ledger accounts, 568
main points, 570
manufacturing plant, 566
operating expense accounts, 567
operating revenue accounts, 566
primary accounts, 567
combination of mnemonic and Dewey decimal systems, 566
Dewey decimal system, 564
advantage of mnemonic over, 565
mnemonic system, 564
advantages over Dewey decimal system, 565
example of application to a machine, 565
symbols, 564
O
OBSOLESCENCE, 173
cause of depreciation, 127
treatment of, 128
estimate of depreciation charge due to 129
patents, 320
under Federal Income Tax of 1916, 130
“OPEN” CORPORATIONS, 2
OPERATION,
abnormal machine, 285
asset subject to depreciation a deferred charge to, 93
depreciation a cost of, 157
load on normal intensity of determining depreciation rate, 143
normal conditions of, determining depreciation rate, 143
permanent investments as an aid to, 259
standards of machine, 285
statistics, 584
ORDINARY STOCK, 4
ORGANIZATION,
accounting department, manufacturing business, 26
corporate,
board of directors, 3
committees, 3
officers, 3
expenses, 14, 18
treatment of, 330
ORIGINAL COST,
factor in calculating depreciation, 150
OVERHEAD, DEFINITION OF, 50
OWNERSHIP (See also “Stock”)
OWNERSHIP, CORPORATE,
advantages, 3
“close,” 2
“open,” 2
partial, consolidated balance sheet, 601
“sole,” 3
P
PARASITES, CAUSE OF DEPRECIATION, 133
PARTIAL PAYMENTS, HANDLING OF, UNDER VOUCHER SYSTEM, 42
PARTICIPATING PREFERRED STOCK, 6
PARTNERSHIP,
liquidation of, by instalments, 650
deduction from capital, 651
illustration of, 653, 654
shares of deficiency, 652
valuation of, in a combination and consolidation, 514
PAR VALUE,
capital stock, 373
sale of stock at less than, 11
stock of no, 9, 20
PATENTS, 316-324
and costs of manufacture, 324
depreciation,
accounting classification of, 322
booking, 322
developed within the plant, 318
elements of depreciation, 319
obsolescence, 320
supersession, 320
time lapse, 319
infringement costs, 321
monopoly grant, 317
purchased and not used, 319
purchase of, 317
royalties, 323
sale price of, 324
service life of, 320
writing off the value, 321
PATTERNS, VALUATION OF, 294, 317
PAYMENTS,
part, handling of, under voucher system, 42
PAY-ROLL, 55
checks drawn to order of treasurer of company, 671
distribution of labor charges, 57
methods of payment, 56
safeguarding, 55
PERCENTAGE,
variable, methods of calculating depreciation, 150
PERPETUAL INVENTORY, 239
necessity for physical count, 240
PERSONALTY, DISTINCTION BETWEEN, AND REAL PROPERTY, 279
PETTY CASH, 211
imprest system, 211
PLANT,
assets, grouping and classification of, 191
efficiency, depreciation and, 113
ledger, 191
Form, 193
POSTING, SUMMARY TOTALS, VOUCHER SYSTEM, 36
PREFERRED STOCK (See “Stock”)
PREMIUM,
bond, 343
amortization of, 269
entry on books, 365
nature of, 266
relation to interest, 367
schedule showing amortization of, 270
permanent investments, treatment of, 257
stock, 14
creation of surplus, 408
requirements of Interstate Commerce Commission, 13
treatment of, 378
PREPAID ITEMS,
accounting for debit and other items, 256
danger of overvaluation, 255
definitions and kinds, 253
valuation of, 254
PRICE,
cost, valuation of stock-in-trade at, 225
market, valuation of stock-in-trade at, 225
PRIME COST,
definition of, 50
direct and indirect labor, 53
raw materials, 52
PRIVATE BOOKS,
closing, 591
content, 589
operation, 590
illustration of, 590
purpose, 589
PRIVATE CORPORATIONS, 2
non-stock, 2
stock, 2
PROBLEMS,
branch accounts,
complex, 529
foreign branch, 548
simple, 527
consolidated balance sheet, 616
different methods of recording accrued items, 252-253
liquidation by instalments, 653
realization and liquidation statement, 645
statement of affairs and deficiency account, 635
PRODUCTION, STATISTICS, 584
PROFIT AND LOSS SUMMARY, 466-492
adjustment of inventories, 490
closing the records of a corporation, for the fiscal year, 474
consolidated balance sheet, 612-615
content and manner of showing, 489
correction of closing errors, 476
cost of goods sold,
manufacturing concern, 478
trading concern, 479
discount on bonds, 474
dividend declaration, 474
form,
account form, 483
comparative statement of, 488
examples of two forms of presentation, 485
manufacturers and merchants, 487
non-technical or report form, 484
standardization of, 477
interest as a cost of manufacture, 468
arguments against, 470-472
problem of charging on books, 471
interrelation of, and balance sheet, 466
periodical adjustments, 467
profit, method of showing, 482
profits between departments, 473
schedules for special need, 492
selling expense and administrative schedules, 491
sinking fund, 475
statement, 410
supporting schedules, 489
terms,
desirability of uniformity in, 481
differentiation of, 480
synonymous, 478
unrealized profits, 472
working capital, 475
PROFITS, 387-406 (See also “Profit and loss summary,” above)
anticipation of, undesirable, 227
asset losses,
charged against current profits, 396
charged to capital, 397
effect of, on future profits, 393
legal decisions as to, 394
treated as deferred expense charge, 396
capital, 405
margin account, 409
capitalization of,
valuation of good-will based on, 335
corporation,
directors’ control over, 429
disposition of, 428
shareholders’ rights as to, 429
definition,
accounting, 390
economics, 387
legal, 389
determining,
difficulty of, 387
double entry, 391
goods awaiting delivery, 402
goods made for stock but not sold, 399
goods made to order, 400
long-term contracts, 401
methods of, 391
single entry, 391
summary of principles governing, 405
work in progress, 399
disposition of, 410
due to appreciation of assets, 404
excess, valuation of good-will based on, 335
intercompany, reserve for, 610
interdepartment, 404
method of showing on profit and loss summary, 482
normal, valuation of good-will based on, 334
problem a question of valuation, 392
relation of sinking fund to, 454
reserves of, secret, 418
statistics, 584
unrealized, 472
PROPERTY,
payment of dividends in, 438
real,
definition of, 297
distinction between personalty and, 279
stock issued for, 14
valuation of stock issued for, 380
PROPORTIONAL METHODS (See “Depreciation”)
PROPRIETORSHIP, RESERVES FOR, 417
PRO RATA CLAUSE, 574
PUBLIC CORPORATIONS, 1
quasi-public, 2
PUBLIC UTILITY CORPORATIONS, 2
valuation for rate regulation, 82
PURCHASES,
branch house, 533
foreign purchasing agency, 555
future delivery, contingent liability, 354
journal, expansion of, 27
manufacturing business, 26
returns and allowances, under voucher system, 40
valuation for, 83
voucher system (See “Voucher system”)
cash discount, 44
Q
QUASI-PUBLIC CORPORATIONS, 2
R
RAILROAD STATISTICS, 582
RATE REGULATION, VALUATION FOR, 82
RATES, FIRE INSURANCE, 574
RATES OF DEPRECIATION (See “Depreciation”)
RAW MATERIAL, VALUATION OF, 234
REAL ESTATE (See “Buildings” and “Land”)
REALIZATION AND LIQUIDATION ACCOUNT, 639-650
Forms, 642
cash account, 643
evolution of, 640
handling of valuation reserves, 644
illustration of, 645
receiver’s cash account, 648
supporting schedules, 643
theory underlying, 640
uses to which statement may be put, 644
REAL PROPERTY (See also “Buildings” and “Land”)
definition of, 297
distinction between personalty and, 279
RECEIPTS AND DISBURSEMENTS (See “Profit and loss summary”)
RECEIPTS, CAPITAL, 87
RECEIVERS, 620-654
accounts, 628
initial statements presented to the court in
bankruptcy proceedings, 627
appointment, 620
deficiency account, 633
Form, 635, 638
in bankruptcy, 620, 621
in equity, 621
accounts of, 623-625
relative standing of creditors, 630
reports of, 623-628
procedure, 622
realization and liquidation account,
cash account, 648
example of balance sheet, 645
illustration of statement, 646
realization and liquidation statement, 644
Forms, 646
reports, 628
“charge and discharge” form, 626
initial statements presented to court in
bankruptcy proceedings, 627
reports to the court, 625
comparative balance sheet, 627
items covered, 626
statement of affairs, 631
Forms, 634-638
basis of valuation, 632
RECEIVERSHIP,
method of liquidating, 501, 503
RECORDS,
accounting,
dividends, 442
machinery and tools, 281
asset, 192
bond investments, 267
distinctive, of corporation, 20
dividend book, 20
instalment book, 20
minute book, 20, 24
private (See “Private books”)
register of transfers, 20
special purposes of cost, 50
predetermination of selling price, 51
stock book,
Forms, 22, 23
stock certificate book, 20
stock ledger, 20, 21
Form, 21
stock register, 21
stock transfer book, 20
Forms, 22
subscription book, 20
subscription ledger, 20
time-keeping, 54
REDEEMABLE PREFERRED STOCK, 6
REDEMPTION,
capital stock, 381
preferred stock, 19, 384
REFEREE,
in bankruptcy, liquidating dividends, 630
REFUNDING, INABILITY TO SECURE CASH FOR, 496
REGISTER,
accounts payable, 34
plant, form of, 191
stock, 21
transfer, 20
voucher,
form of, 34, 35
posting of summary totals, 36
proof of distribution, 37
purchase discount column, 44
status of when purchase ledger is used, 46
RENEWALS,
definition of, 89, 90
distinction between, and repairs, 113
methods of handling, 147
of parts, treatment of, 91
recording depreciation on the books, 188
first method, 188
second method, 189
REPAIRS,
cost of, included in depreciation charge, 148
estimates, 149
definition of, 89, 90
distinction between, and renewals, 113
methods of handling, 147
on second-hand plant, 94
policy, determining depreciation rate, 143, 145
preliminary estimates, 147
reserve for, 148
theory of averages, 147
REPLACEMENTS,
definition of, 89
distinction between repairs and renewals, 113
financing of, 203
borrowed funds, 203
increase of capital stock, 203
profits of the past reserved in the business, 203
method of calculating depreciation, 169
appraisement of, 183
Interstate Commerce Commission’s instructions, 189
methods, 188
recording depreciation on the books, 188
REPORTS, (See also “Statements”)
branch,
customers’ accounts collected, 541
examples of, 540
periodic cash summary, 540
receivers (See “Receivers”)
trustees (See “Trustee”)
REQUISITIONS, STORES, 53
RESERVES, 410-424
bad debts, 411
classification of, 423
proprietorship reserves, 424
valuation reserves, 424
collection costs not under contract, 414
contingent, 416
continuity of policy, 421
covered, 422
“reserve fund,” 422
deferred income, misuse of term, 417
depletion, 413
depreciation,
accounts, 187
decreasing, 200
financing of replacements, 203
increasing, 200
index of financial condition, 199
insufficient charge, 205
methods of financing replacements, 203
not based on cost of replacement, 202
on balance sheet, 199
relation to efficiency, 201
relation to expanding plant, 201
secret, 204
suspense account, 558
different meanings of, 411
distinction between, and accrued items, 415
doubtful accounts as a suspense account, 558
earmarking of, 420
for investment fluctuations, 243
intercompany profits, 610
market fluctuations in merchandise, 228
operating, for accrued costs, 413
estimated sales discounts, 413
proper allocation of taxes, 413
proprietorship, 417
repairs, 148
sales discounts on the balance sheet, 415
secret, 418
argument against, 419
argument for, 419
overvaluation of liabilities, 418
undervaluation of assets, 418
sinking fund, treatment of, 463
under- and over-estimate of, 412
valuation,
handling of, realization and liquidation account, 644
RETURNS,
purchase, under voucher system, 40
REVALUATION,
periodic, of good-will, 337
REVENUE EXPENDITURES,
defined, 87
distinction between, and capital, 95
RIGHTS,
stock, received while stocks are held for
temporary investment, 244
terminable or limited, depreciation, 134
RESIDUAL VALUE,
factor in calculating depreciation, 150
RISKS, UNUSUAL, IN CONNECTION WITH ESTIMATE FOR DEPRECIATION
AND DEPLETION, 313
ROYALTIES, PATENTS, 323
S
SALARIES, DIVIDENDS PAID IN FORM OF, 435
SALES,
basis of estimate of bad debts, 220
discounts,
on the balance sheet, 415
proper allocation of estimated, 413
instalment basis, valuation of accounts, 222
statistics, 584
to branch house, 534
valuation for purpose of, 83
SALVAGE ACCOUNT, 188
SCHEDULES,
for special needs, profit and loss summary, 492
selling expense and administration, 491
supporting,
profit and loss summary, 489
realization and liquidation account, 643
use of, as a means of condensing balance sheet, 79
SCRAP,
machinery, 287
valuation of, 236
SCRAP VALUE,
factor in calculating depreciation, 150
SCRIP, PAYMENT OF DIVIDENDS IN, 438
Seasoning, appreciation due to, 207
SECRET DEPRECIATION RESERVE, 204
SECRETS, TRADE, 325
SELLING EXPENSE,
schedules, profit and loss summary, 491
SELLING PRICE (See “Market value”)
SERVICE,
life, estimated, factor in calculating depreciation, 150
SERVICE OUTPUT METHOD,
calculating depreciation, 156
appraisement of, 177
SHARES (See “Stock”)
SINKING FUND, 447-465
accounting for, 456
appear only among assets, 456
balance sheet, 457
booking the trustees’ report, 460
entries, 459
accumulation based on agreement, 451
bond redemption, 458
compound interest method of calculating depreciation,
appraisal schedule, 162
Chart, 162
formula, 161
debts, effect of settlement of, 452
schedule of debit and credit, 452
definitions, 447
final disposition of, 462
mathematical principles on which based, 449
method of calculating depreciation, appraisement of, 181
origin and use, 448
policy of investment, 276
outside securities, 276, 277
own bonds, 276, 277
profit and loss summary, 475
relation between depreciation and, 463
relation to profits, 454
treatment of income and expense, 461
treatment of reserve account, 463
valuation of, 276
SOLIDIFICATION, APPRECIATION DUE TO, 207
STAMPS, REMITTED AS CASH, 212
STANDARDIZATION, DEPRECIATION RATES, 142
STANDARDS, MACHINE OPERATION, 285
STATE,
report to, balance sheet as, 79
STATEMENT,
assets and liabilities, 70
balance sheet, 63, 64
contingent liabilities, 351
financial, 70
of affairs, bankruptcy proceedings, 631
Forms, 634-638
profit and loss (See “Profit and loss summary”)
realization and liquidation
(See “Realization and liquidation account”)
resources and liabilities, 70
surplus, 425
STATISTICS, 581-589
application of, 584
graphs,
advantages, 586
principles of construction, 587
use of, in presentation, 585
manufacturing, 583
mercantile, 583
railroad, 582
classification, 582
operating details, 582
results of operation, 582
value of, 581
STOCK, 372-386
accounting for, 13
bonus stock, 16
discount, 13
forfeited stock, 19
no par value, 20
premium, 14
property exchanged for, 14
redemption of preferred stock, 19
treasury stock donated, 15
treasury stock purchased, 18
assessment, creation of a margin, 409
bonus, 13, 16
capital and treasury stock on the balance sheet, 383
capitalization,
cost, 376
earning capacity, 375
increase in book, 375
capital, showing of, on consolidated balance sheet, 611
certificate book, 20
certificate of, 9, 10
common, 4
no par value, 9
debenture, 4, 8
discount on, 13
dividend book, 20
dividends in, 382, 439
effect of, 382
estate accounting, 440
donated, 11
creation of surplus, 408
exchanged for property, 14
ex-dividend, 442
forfeited, 12, 19
founders’, 4, 7
fully paid and non-assessable, 11
guaranteed, 4, 7
instalment book, 20
issued as a bonus, 383
issue of, bonds versus, 362
kinds of, 372
law and issues of, 377
ledger, 20
Form, 21
no par value, 9, 20 not fully paid, contingent liability, 354
ordinary, 4
preferred, 4, 5
accumulated dividends on, contingent liability, 355
convertible, 6
covered by redemption contract, 384
cumulative, 5
non-cumulative, 5
non-participating, 6
participating, 6
redeemable, 6
redemption of, 19
premium, 14
creation of surplus, 408
property purchases, 14
records, stock book, 22, 23
redemption and reduction of capital stock, 381
at book value, 381
surplus adjustment, 381
register, 20, 21
rights, received while stocks are held for purposes
of temporary investments, 244
sale of, at less than par, 11
sinking fund, 448
subscription book, 20
subscription ledger, 20
transfer book, 20
Form, 22
treasury, 10, 247
balance sheet, 383
bonus, 16
donated, 11, 15
purchased, 18
valuation of, 380
unissued,
distinction between treasury stock and, 11
valuation of, 246
used to pay organization expense, 14
valuation,
balance sheet, 374
book value, 373
dependent upon earning capacity, 374
market, 373
of property, 11
par, 373
problems of, 372
real, 373
treasury stock, 380
treatment of discount or premium, 374
when issued for property, 380
watered, 10
STOCK CORPORATIONS (See “Corporations”)
STOCKHOLDERS,
balance sheet as formal report to, 79
depreciation policy and, 209
rights as to profits, 429
rights to dividends, 431
status of, in liquidation, 504
STOCK-IN-TRADE, 225-240
anticipation of profits or losses undesirable, 227
balance sheet, 227
brokerage firms,
valuation of stocks and bonds held, 245
definition and scope of term, 225
depreciation, 119, 229
deterioration, 229
distribution of costs over, 231
fluctuations in market price, 228
reserve for, 228
full costs of, 230
cash discount, 230
drayage, 230
duty, 230
freight, 230
insurance, 230
interest on money invested, 231
seasoning, 230
warehouse charges, 230
inventory-taking, 237
methods, 238
perpetual, 239
rules, 238
land as, 310
method of treatment, 228
objections to valuation at less than cost, 226
pricing of the inventory, 232
weighted average, 232
valuation of, consolidated balance sheet, 607
valuation of, cost or market price, 225
summary arguments, 228
valuation of manufacturing inventory, 233, 234
finished goods, 233
goods in process, 234
raw materials, 234
scrap, 236
STORES DEPARTMENT,
accounting for materials, 52
ledger, 53
requisitions, 53
STRAIGHT LINE METHOD,
calculating depreciation, 152
appraisement of, 175
formula, 152
graphic chart, 153
SUBSCRIPTION,
book, 20
ledger, 20
rights, received while stocks are held for
temporary investment, 244
SUBSIDIARIES,
advances to,
by holding company, 262
rules for valuation, 263
permanent investments in, by holding company, 261
SUBSIDIARY RECORDS, RECORDING DEPRECIATION ON THE BOOKS, 190
SUPERSESSION, PATENTS, 320
SUPPLIES, FACTORY COSTS, 51
SURETY BOND,
signature to, contingent liability, 355
SURPLUS, 407-410
account, legitimate use of, 424
adjustment of, through redemption or reduction
of capital stock, 381
definition, 407
disposition of profits, 410
margin, 407
capital profits and bonuses, 409
capital stock premiums, 408
creation of, 408
stock assessments, 409
stock donation, 408
showing on consolidated balance sheet, 611
statement of, 425
SUSPENSE ACCOUNTS, 556-563
accounts receivable hypothecated, 560
definition, 556
general purposes, 556
reserve for depreciation, 558
reserve for doubtful accounts, 558
use of suspense ledger, 559
SYMBOL SYSTEM APPLIED TO ACCOUNTS
(See “Numbered accounts”)
SYMBOLS, USED IN CALCULATING DEPRECIATION, 151
T
TAXATION, VALUATION FOR, 83
TAXES, PROPER ALLOCATION OF, 413
TIME,
idle, factor in depreciation, 139
units of, 139
TIME CARDS, ANALYSIS OF, 57
TIME-KEEPING,
records, cards, 54
TOOLS (See “Equipment”)
TRADE DEBTORS,
accounts receivable, 216
discounts and collection costs, 221
TRADE-MARKS, 326
valuation of, 326
TRADE SECRETS, 325
TRADING CORPORATIONS, 2
TRANSFER BOOK, STOCK, 20
Forms, 22
TRANSFERS, REGISTER OF, 20
TREASURY STOCK (See “Stock”)
TRIAL BALANCE,
conversion of, foreign branch, example of, 548, 549
relation between balance sheet and, 62, 77
tested as to equality of debits and credits, 695
TRUSTEE, 620-654
accounts, 628
bankruptcy, 502
deficiency account, 633
Form, 635, 638
disposing of bankrupts’ property, 629
liquidating dividends, 629
declaration of, in hands of referee, 630
realization and liquidation account, 639-650
Forms, 642
cash, 643
evolution of, 640
handling of valuation reserves, 644
illustration of, 646
supporting schedules, 643
theory underlying, 640
uses to which statement may be put, 644
records, 629
relative standing of creditors, 630
reports, 628
sinking fund, booking report, 460
statement of affairs, 631
basis of valuation, 632
Forms, 634-638
TURNOVER, STATISTICS, 584
U
UNEARNED INCREMENT, 209
UNISSUED STOCK, VALUATION OF, 246
UNIT,
cost method, calculating depreciation, 161, 167-169, 182
efficiency, 114
product, 139
time, 139
UTILITY, PUBLIC CORPORATIONS, 2
V
VALUATION ACCOUNTS, SHOWING ON THE BALANCE SHEET, 77
VALUATION, PRINCIPLES OF, 81-93
accounts receivable, 215
accrued items, 250
advances to subsidiaries, 263
asset subject to depreciation, a deferred charge to operations, 93
authorization for booking capital expenditures, 94
balance sheet concerned with, and content, rather than form, 97
balance sheet, content of, 81
contingent assets, 81
contingent liabilities, 81
buildings, 300
capital stock, 372-386
carriers and containers, 293
cash, 210-214
combinations and consolidations, 512
cost-cutting changes, 92
cost value usual basis, 86
definition,
capital and revenue expenditure, 87
maintenance, 89
renewals, 89
replacement, 89
delivery equipment, 292
depreciation, 99, 101
depreciation and fluctuations in market value, 116, 117
estimates, 97
fire loss adjustments, 83
franchises, 328
furniture and equipment, 291
going concern, 83
good-will, 333-338
home-made machinery and tools, 289
inventory, 232, 233
kinds of value, 84
land, 303
investments, 307
liability items, 97
liquidation, 83
machinery, 287
main groups of asset items, 95
current assets, 96
deferred charges to operation, 96
fixed assets, 96
mercantile credits, 215-224
necessary to read the balance sheet, 6
notes receivable, 215
organization expenses, 88
over- and undervaluation, 97
patents, 317
patterns, molds, etc., 294
permanent investments, 259
present value of property, 86
profits, 392
purchase, 83
rate regulation, 82
repairs on second-hand plant, 94
sale, 83
sinking funds, 276
source of data as to value, 85
stock-in-trade, 225-240
taxation, 83
temporary investments; accrued and deferred items, 241-257
treatment of renewal of parts, 91
VALUE,
cost, 85, 86
kinds of, 84
market, 85
depreciation and fluctuations in, 116, 117
no par, stock of, 20
“normal” or “average,” 109
par and no par, of stock, 9
present, 86
source of data as to, 85
VARIABLE PERCENTAGE METHODS (See “Depreciation”)
VOLUNTARY DISSOLUTION, 501
liquidation under, 503
VOUCHER SYSTEM, 26-48
“Accounts Payable Register,” 34
advantages, summary of, 47
canceled checks, 32
cash discount on purchases, 44
adjustment of difference between discount columns
in voucher register and cash book, at the close
of fiscal period, 45
customary method, 46
supplementary voucher, 45
checks, given a new series of numbers to facilitate
reconciliation with bank account, 37
control of vouchers payable, 39
definition, 28
description of, 28
development of, 27
disadvantages, summary of, 48
distribution of charges, 31
distribution of vouchers, 34
effect on cash book and bank account, 37
expansion of the purchase journal, 27
form of voucher register, 34
index of creditors, 38
introduction of, 39
journal vouchers, 592-596
Forms, 592, 593
content, 595
index, 594
Forms, 594, 595
method of use, 593
methods of authorizing journal entries, 596
need for, 592
modifications, 46
house vouchers, 47
purchase ledger sometimes used, 46
notes payable, handling of, 43
operation, 31
summary of, 47
organization of an accounting department of a
manufacturing business, 26
partial payments, 42
payment of vouchers, 37
purchase returns and allowances, 40
purchasing for the manufacturing business, 26
register,
posting of summary totals, 36
proof of distribution, 37
purchase discount column, 44
status of, when purchase ledger is used, 46
voucher check, 32
distribution of charges, 32
folded, 32
Forms, 33
single, 32
Forms, 34
voucher forms, 29, 30
voucher register, 34
Forms, 35
W
WAGES, ACCRUED, 57
WAREHOUSE CHARGES, COST OF STOCK-IN-TRADE, 230
WASTING ASSETS (See also “Depletion”)
application of income tax to, 312
basis of depletion charge, 312
characteristics, 311
definition, 311
depreciation on buildings and machinery of, 313
dividends may include return of capital, 311
effect on different kinds of business, 118
leaseholds, 314, 315
unusual risks, 313
water rights, 313
WATERED STOCK, 10
WATER POLLUTION, CAUSE OF DEPRECIATION, 133
WATER RIGHTS,
acquired along with a wasting asset, 313
WORKING CAPITAL, PROFIT AND LOSS SUMMARY, 475
WORKING HOURS METHOD,
calculating depreciation, 153
Chart, 155
appraisement of, 176
WORKMEN’S DWELLINGS, 599