THE VOUCHER SYSTEM AND ACCOUNTING CHARTS
VOUCHER SYSTEM OF ACCOUNTING
1. Voucher. A document which vouches the truth of accounts.
Receipt. An acknowledgment of money paid.
The voucher system is sometimes referred to as a modern system of accounting, but a study of the above standard definitions indicates that it is modern only in respect to forms of records and routine.
In the nomenclature of accounting the term voucher is quite commonly used in the same sense as the term receipt. The only distinction appears to be that a voucher is usually understood to be an acknowledgment of the payment of a particular item on account, while a receipt may be an acknowledgment of the payment of money without reference to the item or items covered.
Since the transaction of business began receipts or vouchers in some form have undoubtedly been used. Some form of acknowledgment of money paid has always occupied a place in business. But at first, receipts were not required—they were incidental; given as a matter of courtesy; a "thank you" in written form.
When the first man, after paying his grocery bill, was forced to pay it a second time because the merchant had failed to mark his account "paid," he demanded a receipt. He learned then and there that accounts, and those who keep them, are not infallible. He told his neighbors, and the custom of demanding receipts for money paid, came into being.
The receipt was demanded as a matter of self-protection, to prevent the possibility of payment of an amount being successfully demanded a second time. But the receipt was not an integral part of the accounting records of a business; it might or might not be demanded without affecting the records. So long as business was conducted by single proprietors or small partnerships, this was satisfactory, since the receipt was not required as a record between partners.
With the advent of joint-stock companies and corporations, came ownership by a large number of investors. Having their capital invested, these owners had a right to know what was being done with their property, and there came a demand for a more strict accounting of money and property entrusted to the care of the managers of the business.
As business expanded and corporations grew in size and power, with wider spheres of activity, it became necessary to divide the operations of business concerns into departments, with corresponding divisions of authority. This meant the creation of a central authority to whom an accounting must be made by the departments or branches.
Audits were introduced. Not only did stockholders want to know that the business was honestly conducted, but the managers demanded proof that property entrusted to subordinates was accounted for and that the accounts were accurate—that is, truthful. Not satisfied with the evidence offered by entries in account books, auditors asked for further proof of the payments recorded; they demanded receipts, vouchers.
The voucher as used in modern accounting practice is then something more than a receipt for the payment of money; it is a proof that property has been administered as claimed by the accounting records. "A document which vouches the truth of accounts,"
2. Use of Vouchers. The most general use of the voucher still is as an acknowledgment of the payment of money. In fact, when we speak of a voucher it is usually understood to mean a receipt or acknowledgment of the payment of money for a specific purpose.
A voucher states the exact purpose for which the money is paid, the items either being listed or reference made to a specific invoice or account. Then when receipted it becomes a voucher in fact and takes its place as an integral part of the accounting records. The voucher may be said to form a connecting link, furnishing proof that the money was expended as shown in the records and that it was received by the payee. In this respect it acts as a check against a misappropriation of funds.
As the system of vouchers for payment of money came into more general use, many accountants argued that it should be carried still further. Sales records were vouchered by original orders, shipping receipts, and invoice copies, and purchases by the regular vouchers, but there was no voucher for transactions involving transfers of values from one account to another. In making journal entries involving such transfers, many opportunities for fraud were opened. Just such entries have been frequently used to cover up fraudulent transactions.
The logical step to make the voucher system complete in every detail was the introduction of the journal voucher. If a voucher is provided for each journal entry, the bookkeeper can produce authority for every transaction recorded in his books.
The journal voucher is a voucher of authority, that is, it authorizes the entry involved and must be signed by an officer having power to make such authorization. To the bookkeeper, it is in many cases a protection, for if a question arises as to the legality of a transaction, he can produce his authority for the entry, which will place the responsibility where it belongs.
We have come in contact with cases in which the bookkeeper, following the explicit instructions of an officer of a company, has made entries clearly intended to defraud either creditors or stockholders, only to be later made the "scapegoat" and held jointly responsible with his superior officer.
Not all such entries show their clear intent, though their real purpose be fraudulent. Some of them are so ingenuous and supported by such plausible explanations, that the bookkeeper has no suspicion of their real nature. A case in point: a corporation was organized in a small town to engage in a manufacturing enterprise. Like many another corporation of similar character, the benefits which would accrue to the town, were dwelt upon at length by the promoters, and citizens were induced to invest their savings in small blocks of stock. Also, like many another enterprise entered into and managed by men with no technical training, this little factory struggled along for a few years, always operated at a loss. But a change came; an experienced manager was secured and the business began to exhibit symptoms of a healthy growth. The second year showed a profit; almost enough to wipe out the deficit. The third year the business outgrew the capacity of the plant, and $20,000.00 was invested in new machinery. Not an old machine was discarded. The manager instructed the bookkeeper to charge $15,000.00 of the amount to repairs, explaining that it would off-set the amount which should have been charged off as depreciation in former years. Perhaps,—but it made the books show a small loss instead of a substantial profit for the year. And it is significant that several holders of stock, worth face value, and more, sold their holdings to the manager at an average price of .65. If no profit could be made on such a volume of business as had been transacted that year, what hope for the future?
Fig. 1. Voucher to be Receipted and Returned
To what extent a bookkeeper is justified in presuming to conserve the morals of his employer, is not a subject for present discussion. Just where the line should be drawn between moral and legal responsibility, is sometimes difficult to determine. But that bookkeeper innocently assisted in robbing unsuspecting stockholders. Had he insisted on the signed authority of the manager—that is, demanded a voucher—the entry might never have been made; he, at least, would have been freed from any possible charge of complicity.
3. Forms of Vouchers. The essential feature of a voucher is that it must show clearly the purpose for which it is drawn, and provide a proper form of receipt. There are many forms of vouchers designed to meet the requirements of different businesses.
Fig. 2. Back of Voucher Showing Distribution
The most simple form of voucher is a statement of items paid, with a receipt to be signed by the payee. A remittance in the form of cash or a check accompanies the voucher, the receipted voucher being returned by the payee. A form of voucher of this class is shown in Fig. 1.
The items paid can be listed on the voucher, or there may be a reference to certain invoices included in the payment. Some accountants attach the original invoice to the voucher, but for certain reasons we do not advocate this practice. Until the receipted voucher is returned there is no record of the items covered, unless the invoice has been copied.
Fig. 3. Combined Voucher and Check Used by the Pennsylvania Railroad Company
Some houses are slow in returning receipted invoices, resulting in many annoying delays. If the invoice is kept on file we at least have a record of the transaction, and it may be very necessary to refer to the invoice for prices or other information.
The back of the voucher is usually printed with a form for a distribution of the amount to the account or accounts to which it should be charged. A typical form is shown in Fig. 2. For permanent filing a voucher of this style is folded so that the number appears at the top, followed by the name of the payee, and the distribution record.
4. Voucher Checks. A step in advance of the early form of voucher with separate check is the voucher check. This is a form which combines the voucher and check.
Of voucher checks there are many forms, each designed to meet some special condition, or to conform with the ideas of the accountant. While these forms exhibit many variations in detail they may be divided into two general classes: folded voucher checks and single voucher checks.
The folded voucher check is usually twice the width of an ordinary check, making it regular check size when folded. This is intended to provide a receipt for the payment of items listed, by the endorsement of the check. Several such forms are illustrated.
Fig. 3 is a form of combined voucher and check used by the Pennsylvania Railroad Company, The account is transcribed on A, this being a sheet twice the width of a check. This form is made in duplicate, B being the carbon copy which is filed as a record of authority for the issuance of the voucher. The check itself, shown in C, is written on the back of the original voucher. A. When folded, this form is the size of a regular check and goes through the bank in the usual manner. The endorsement of the payee is a receipt in full for the items covered by the voucher.
This is a representative form of the folded voucher check. Naturally the details recorded will vary in different businesses, but the general plan is subject to slight changes. Some objection is raised by banks to the folded form. The claim is made that considerable inconvenience is caused in handling in the bank, by checks slipping between the folds.
Many of the earlier forms of voucher checks were not checks until certain conditions had been complied with. On the face of the voucher was printed "when properly receipted this voucher will be paid through ... Bank." This required a receipt in some special place, instead of the usual endorsement of a check, and it was not always easy to tell, at a glance, the amount to be paid.
Very naturally, objections were raised by the banks against the use of these complicated forms, but forms have been simplified in ways that have largely overcome these objections.
Fig. 4. Form of Voucher Check that Requires no Folding
An improvement is the ordinary check form arranged to provide a valid receipt for stated items. Such a form is illustrated in Fig. 4. This is an ordinary check form of regulation size, on which is noted the item or items paid. The checks are put up in pads and numbered as used. When endorsed, the check provides a valid receipt for the items covered.
Fig. 5. Duplicate Voucher Check in Loose Leaf Form
Fig. 6. Voucher Distribution
Sheet
A voucher check with some advantageous features is shown in Fig. 5. This is made in duplicate. A is the original voucher check, while B is the duplicate. When sent out, the stub shown in B, a duplicate of the statement on the original check, is attached to the check. This is detached by the payee for his records, and enables him to deposit the check without waiting to make the entry in his cash book.
These voucher checks are made in sheets and punched for filing in a loose-leaf binder. The balance of the form shown in B, the part remaining after the check and duplicate statement have been removed, is a copy of the check, and remains in the binder.
The checks are numbered consecutively, but the voucher number is entered when used and corresponds with the number of the voucher paid.
The office record of the items paid is made on the voucher form shown in Fig. 6. These are numbered consecutively, in the order in which they are approved, and when paid are filed in numerical sequence.
Another style of loose-sheet voucher check is illustrated in Fig. 7. This form is made on the typewriter, in triplicate, and includes the original check, a receipt and a copy of the check. The forms are made two to a sheet, and when a check is to be written the triplicate sheet is placed in the machine, three copies being made at one writing.
Fig. 7. Triplicate Form of Voucher Check that Provides a Receipt and a Copy of the Check
PLANT OF THE W. L. GILBERT CLOCK CO. AT WINSTED, CONN.
The triplicate form, or copy of the check, is the permanent record from which posting is done. Both the check and receipt are mailed and the payee is expected to return the receipt. If not returned within a reasonable time, the payee is followed up by letter and asked to return the receipt, as this becomes a part of the permanent office records.
Fig. 8. Duplicate Voucher with Check Attached
An excellent form of voucher with check attached is shown in Fig. 8. The voucher is made in duplicate, the check being attached to the original. The duplicate is kept on file for the office record, while the original, with check attached, is mailed to the vendor. He detaches the check and deposits it, keeping the original statement in his files. In the event of discrepancies, the vendor is expected to return both voucher and check, endorsement being considered as a receipt in full for items included in the statement.
5. Journal Vouchers. As previously explained, a journal voucher is a properly signed authorization of a journal entry. Journal vouchers are not intended to be used for the ordinary journal entries of a business, as closing entries and ordinary adjusting entries. They are more particularly intended for special credit items or allowances, and special transfer or adjusting entries.
Fig. 9 illustrates a convenient form of journal voucher. This form is intended to be filed in a loose-leaf binder, and when so filed, becomes the journal itself, posting being made direct to ledger accounts. The usual method, however, is to make the entry in the journal and file this voucher as an evidence of authority.
A journal voucher should require the final approval of some one man before it becomes valid. The head of a business can keep in touch with all special allowances by having the journal vouchers brought to him for his signature.
Fig. 9. Journal Voucher for Adjusting Entries
One reason for the use of journal vouchers in large establishments having several departments is that special credits and allowances are constantly coming up, with which only one department manager is familiar. His O. K. is obtained, and the voucher must be approved by the manager, which makes these men responsible for the transaction.
6. The Voucher Register. Though the form of voucher is of considerable importance, and should be designed to meet the requirements of the business, the keystone of the voucher system of accounting is the voucher register. Wherever used, the voucher register possesses certain uniform characteristics, but in each business the form takes on special features; in fact, the voucher register is distinctively a special form.
The voucher register is really a form of purchase book, with other features added, and takes the place of these records. In addition to the usual features of the purchase book or invoice register, the voucher register furnishes a complete record of payment of bills, and shows at all times the net amount of Accounts Payable. Another most important feature is that it exhibits all expenditures, for whatever purpose. A voucher is provided and properly registered for every check issued, insuring a receipt in proper form for every dollar paid out.
When properly handled, the voucher system does away with the purchase ledger, no ledger accounts with creditors being necessary. The register in connection with a file of unpaid vouchers, furnished a complete record of each individual creditor's account. At the same time, a controlling account is provided, which exhibits the total of outstanding accounts, and balances with the voucher register.
To furnish representative illustrations, we show several forms of voucher registers, which exhibit the special features usually found in such records. These may be used as guides in designing registers for any business.
Figs. 10 and 11 show forms identical in general arrangement, except that one is designed for a mercantile business, while the other is intended for a manufacturing establishment. The columns beginning at the extreme left are as follows: Date Entered, Voucher Number, Name of Payee and nature of account, Date of Invoice, Vouchers Payable (the total), and Date Due. The columns following are for distribution of the total to the different accounts. Columns are provided for those accounts in each group to which most frequent charges are made. The amounts of the vouchers are extended in these columns and footings carried forward to the end of the month.
In every business there are certain expense accounts to which charges are infrequent, not more than one charge a month, and in some cases one or two in a year. Examples of these accounts are insurance, taxes, rent, etc. To add columns to an already large voucher register for the accommodation of these few items is impractical, hence the Sundries column is provided for charges to accounts for which special columns are not provided. Space is allowed for entering the names of the accounts, and each item is posted direct to the ledger account.
Fig. 10
Fig. 11
Fig. 12
Fig. 13
Typical Forms of Voucher Registers
Designed for Use in Different Businesses
The form of voucher register illustrated in Fig. 12 is designed for use where a complete voucher system, including the use of journal vouchers, is maintained. The special feature of this form is the addition of several columns for credit accounts. Space is provided for entering the names of the accounts to be credited, the amounts being carried to the proper ledger columns. This makes it possible to enter any journal voucher, and since full particulars are shown in the voucher itself, no explanations are required in the register.
At the right of these forms are columns for recording particulars of settlement. A column headed Unpaid Vouchers will also be noted. On the last day of the month, when all items have been entered, the amounts of all unpaid vouchers are extended in this column, and the total is carried forward to the next month's sheet, where it is entered in the vouchers payable column. When these vouchers are paid, particulars of payment are entered on the sheets containing the original record; as would have been done if they were paid in the month in which they were entered.
The footings of all columns are carried forward to the end of the month, when the totals of all distribution columns, excepting sundries, are posted to the debit of the corresponding ledger accounts. The footing of the vouchers payable column, less unpaid amount brought forward, must agree with the total footings of all distribution columns, since it represents the total of all vouchers registered. The net amount, that is, the footing of the vouchers payable column, less the amount of unpaid vouchers brought forward, is posted to the credit of a vouchers payable account.
On the credit side of the cash book, two columns headed Vouchers Payable are provided for the entry of payments. One column is headed Discount and the other Amount of Check, the discount column being a memorandum only. At the end of the month the total of these columns is posted to the debit of the vouchers payable account, the controlling account of the voucher register. When the footing of unpaid vouchers is brought forward at the end of the month, it should agree with the balance of the vouchers payable account.
Another method of handling unpaid vouchers is to provide both debit and credit columns on the voucher register, headed Suspense Accounts, as shown in Fig. 13. All unpaid vouchers are carried to the credit column at the end of the month, and when paid the entry is made in the debit column. Footings of the suspense columns are carried forward in pencil, for, when all amounts on one sheet have been paid, those items need not be considered in obtaining the balance. One advantage claimed for this method is that it keeps the vouchers payable column free of all but current items.
Another feature of this form, Fig. 13, is the absence of a check number in the payment column. In this case, a voucher check is used, which necessitates but one series of numbers. When bills are audited, the voucher checks are made out and numbered, but the dates are omitted until payment is made, when they are entered with other particulars under the head of Payments.
An objection is sometimes made that with the voucher system, allowing but one line to an invoice, no provision is made for partial payments. This can be easily overcome with this form of register. Any unpaid balance of a current item will be carried to the suspense column. If further partial payments are likely to be made, the amount should be entered in the credit column and the name of the payee in the remarks column. Several lines should then be allowed for the account, permitting the entry of as many separate payments.
When all bills are paid as soon as audited, taking advantage of cash discounts, there is no necessity for columns intended to care for suspense items. All vouchers will be paid not later than during the month next following the date of entry, and there will be no unpaid vouchers not found on the current or next preceding month's record.
7. Operation of Voucher System. While accountants have introduced many details into the operation of the voucher system, all intended to make the application of the system more nearly perfect in some particular business, the general routine of conducting the system is summed up in the following:
1. Auditing of invoices.
2. Executing and registering vouchers.
3. Filing audited vouchers.
4. Paying vouchers.
5. Filing paid vouchers.
6. Indexing paid vouchers.
8. Auditing of Invoices. When invoices are received they should immediately go to the purchasing agent. If there is no regularly appointed purchasing agent, or in a business like a department store where there are several buyers, the invoices should be kept by the auditor, comptroller, or chief accountant until the goods are received, when he will obtain the O. K. of the person who ordered the goods or incurred the obligation.
Pending the receipt of the goods, the invoices should be filed alphabetically, under the name of the vendor. The file may be one of the flat files which can be kept on the desk or if the number of invoices be large, a section of a vertical file drawer can be used.
When the goods have been received, which will be attested by a report in some form by the receiving clerk, the invoice is O. K.'d for quantities and prices by the buyer, and extensions are checked by the auditor or chief accountant.
9. Executing and Registering Vouchers. As soon as the invoices are audited, vouchers are executed and entered in the invoice register. Extensions are made to the proper columns, placing the accounts on the books, just as would be done if invoices were credited to accounts of the vendors in the general or purchase ledgers.
Vouchers should never be made for invoices in dispute, as to prices or on account of claims for shortage, damaged goods or other cause. Until such claims are adjusted, the invoices should be kept in a file reserved for items in suspense. When the books are closed, such items must be included under liabilities in the balance sheet. To avoid actually entering them on the books, they may be entered in the balance sheet under some such caption as "Suspense Accounts."
10. Filing Audited Vouchers. The vouchers are now ready for filing until date of payment. This does not apply if invoices are always paid as soon as audited, but in the majority of business houses at least a part of the vouchers will not be paid until the last due date; or if discounts are taken, they will be paid on the last discount date.
Some provision must be made for bringing these vouchers to notice on the date at which they should be paid. For this purpose, a "tickler" or date file is used. This consists of a file with an index of 31 numbered index sheets, intended to represent the days of the month, and sometimes a set of twelve index sheets printed with the names of the months.
The audited vouchers are filed under the date when payment is to be made, either the discount date or the last due date, by placing them back of the index sheet bearing the corresponding number. To illustrate; if an invoice is dated the 2nd of the month, and terms are 2/10, the last discount day will be the 12th, and the voucher will be filed back of the No. 12 index sheet. If payment is due in a subsequent month, the voucher is filed back of the corresponding monthly index, then on the first of the month these vouchers are distributed under the proper dates.
11. Paying Vouchers. Each day the vouchers filed back of that day's index are removed from the file for attention. If for any reason they are not to be paid that day, they should be filed under the next date when it is desired to bring them to notice. It may be well to note at this point that the vouchers and invoices are usually filed together in the date file.
The check is now written and entered in the cash book or the check register, attached to the voucher, and mailed. Or if a voucher check is used it is only necessary to date and enter. These payments are posted from the cash book to the voucher register. It is not a safe plan to enter the voucher check direct in the voucher register, as postings to the cash book are liable to be overlooked. Payments in one day may be recorded on widely separated pages of the voucher register, while in the cash book or check register they would be entered consecutively, making posting much less difficult.
When the voucher and check have been mailed the invoices are placed in a temporary file, indexed alphabetically, where they are kept until the return of the receipted voucher. It will be noted that we do not advocate mailing the original invoice with the voucher. This temporary file is examined from time to time, and if any vouchers have been out an unreasonable length of time, the vendors are asked to sign and return them, or sign duplicates sent for the purpose.
When the voucher check is used, the temporary file for invoices is not required. The checks, if cashed, must be returned through the bank, and the invoices can be filed permanently.
12. Filing Paid Vouchers. On the return of the voucher, properly receipted, the invoices which it pays are removed from the temporary file, when all are ready for permanent filing.
The invoices are permanently filed in an alphabetically indexed file, under the names of the vendors, keeping all invoices from each firm together. At some time before filing, preferably when the voucher is executed, the voucher number should be entered on the invoice, and when several invoices are paid by one check, they should be fastened together with a staple or other suitable device.
The paid vouchers should be filed in numerical sequence, with indexes numbered by 100's and 20's to separate them and to assist in locating any desired number. If we want to find voucher No. 964, we turn to the index 900, constituting the main division, then to index 60, back of which the desired voucher will be quickly located. A file should be procured of suitable size to accommodate the voucher to be filed.
Fig. 14. Card Index of Vouchers Paid
13. Indexing Vouchers. With the permanent filing of the paid voucher the transaction is closed, with one exception. There must be another index to the voucher file. Knowing the number, we can quickly locate any voucher or find its record on the register, but if we want to locate the voucher paid to Jackson & Co.—without knowing the number—we have no guide.
Reference to the original invoices, filed alphabetically, on which the numbers are noted, will locate the voucher, but there are vouchers for which no invoices are on file. To locate these by name of payee, an alphabetical index is necessary, and it is advisable to include all vouchers even when invoices are on file.
For this purpose, a card index is recommended, and a suitable form is shown in Fig. 14. A card is used for each person or firm to whom vouchers are issued, and all vouchers are listed by date and number. The cards are filed alphabetically, making it easy to find any name.
14. Voucher File. The manner of filing and indexing invoices and vouchers, from the receipt of the invoices to the permanent filing of the paid voucher, has been explained. For the file itself, the vertical file is recommended.
Fig. 15. File Showing Method of Indexing Vouchers
Fig. 15 illustrates one drawer of a vertical file, subdivided with the different indexes required, showing how in a small business a single drawer can be made to answer all purposes.
In a large business several drawers would be required. The first drawer would be for pending invoices, where would be filed invoices for which shipments have not been received. The second drawer would contain audited vouchers held for payment, and suspense items; the latter including invoices held for adjustment of claims. Paid invoices and paid vouchers would each require a separate drawer.
Files should be selected with reference to the size of the papers to be filed. Manufacturers of such equipment now supply cabinets in sections, in a great variety of sizes, making it possible to build up a filing cabinet with drawers to fit every paper of standard size.
DEMONSTRATION
15. The operation of the voucher system in respect to the records in the register is demonstrated in the illustration, Fig. 16, the record showing how the following transactions are handled. Invoices listed have been audited for payment.
Fig. 16. Voucher Register Showing Entries
The illustration, Fig. 16, shows the complete record of these transactions in the voucher register. The total footings of all distribution columns agree with the total of vouchers payable column, proving the extensions to be correct. The combined totals of checks and discounts equal the total payment column. Unpaid vouchers are extended, and the total of this column added to the total payments equals the total of vouchers payable.
Fig. 17. Cash Disbursement Book
Our voucher register being in balance, footings are now posted. The total of vouchers payable column is posted to the credit of that account in the general or private ledger, and the footings of the distribution columns are posted to the debit of their respective accounts.
Fig. 17 illustrates how the payments are recorded on the disbursement or credit side of the cash book. When the checks are written they are entered in the cash book, from which they are posted to the voucher register. Voucher numbers are entered when the amounts are posted.
At the end of the month the columns are footed, and the totals of the discount and check columns are posted to the debit of vouchers payable. Footings of discount and total columns are posted to the credit of discount on purchases and bank accounts.
The vouchers payable account in the ledger would now appear as follows:
| Vouchers Payable | ||
| Dr. | Cr. | Balance |
| $777.00 | $1,216.50 | $439.50 |
We have already seen that the voucher register balances, and turning to that record, we find the footing of the unpaid vouchers column to be $439.50, which agrees with the balance of vouchers payable account.
EXERCISE
Prepare a form of voucher register providing for distribution to the following accounts: Merchandise, Purchases, In-Freight, Expense, Salaries, and Sundries. One of the chief requisites of the accountant is the ability to prepare suitable forms for accounting records. Care should be used in preparing this form to omit no detail that should be included in such a voucher register.
When the register has been prepared, record the following transactions.
Foot all columns as for posting at end of the month.
UNIT SYSTEM OF VOUCHER ACCOUNTING
16. In all classes of accounting records, the unit system is rapidly gaining in popularity. The unit system, so called, consists of individual records of each transaction or each item recorded, instead of a combination of several transactions in one record.
The increase in the use of the unit system has been brought about very largely by the improvements in typewriters, which make it possible to produce several copies of a given document at one writing. An example of the application of the unit idea is seen in modern sales records, where duplicate invoices are made, one copy serving as a sales sheet and posting medium.
A VIEW IN THE GENERAL OFFICES OF THE S. OBERMAYER CO., CINCINNATI, OHIO
The unit system has been very successfully applied to voucher accounting, saving much time and resulting in very complete records. Compared with ordinary voucher systems, the most prominent feature of the unit system is a method of distribution by filing, rather than by means of a voucher register.
All vouchers are made on the typewriter, in manifold, one or more copies being used for record purposes only. The original is used exactly as described in the preceding pages.
An essential feature of the system is that a copy of the voucher is provided for each account to which it is to be distributed. When one account only is involved, the voucher is made in duplicate, but if the amount is to be distributed to two accounts an extra copy is required. The voucher should be so arranged that the distribution can be shown on the face of the duplicate and triplicate copies.
The duplicate voucher is filed according to its distribution, instead of recording the amount in the voucher register. A vertical file is used for this purpose. The index cards are headed with the names of the accounts, and are arranged in the order of the accounts in the ledger; this being the order in which the same accounts would be arranged in a voucher register. Back of each index is a folder in which the vouchers are filed.
Each voucher copy is filed in the folder representing its proper account, and is securely fastened to the folder with a staple or paper fastener. When this voucher is filed it is also recorded on the outside of the folder, which is printed as shown in Fig. 18.
This form is designed for a record of amounts, distributed under the proper monthly headings. The amount of each voucher is carried to the current month's column. At the end of the month, the footing of the column shows the amount to be charged to that particular account in the general ledger.
To arrive at the total of vouchers payable account, a recapitulation sheet, ruled as shown in Fig. 19, is used. This is an index card, and is placed in the front of the file. Totals of all account folders are entered in the proper columns of this sheet, at the end of each month. Payments are posted to this sheet at the end of the month, from the cash book, and the balance extended. This balance, of course, represents the unpaid vouchers and is checked against the unpaid voucher file.
Fig. 18. Front of Folder for Unit System of Voucher Accounting
Fig. 19. Monthly Recapitulation for Unit System of Voucher Accounting
The totals of the different account columns are posted to their respective accounts in the general ledgers, either directly from the recapitulation sheet, or through the journal. The recapitulation sheet, as here shown, is a transcript of the vouchers payable account, and might be used as a ledger card, but it is generally considered better practice to carry the account in the general or private ledger, as usual.
Such a voucher system furnishes a complete record, with much less transcribing of items, than is involved in the use of the voucher register. The copy of the voucher is made at the same writing as the original, the amount of each individual voucher is entered but once, on the account folder, and monthly totals, only, are carried to the distribution columns on the recapitulation card.
This system is equally well adapted to the loose-leaf method. A sheet is used for each account, behind which the vouchers are filed, and a monthly recapitulation sheet is provided for distribution.
COMBINED PURCHASE LEDGER AND INVOICE FILE
17. Not every business readily adapts itself to a complete voucher system. Special conditions sometimes arise which make it seem advisable to keep ledger accounts with all firms from whom the business is making purchases. A case in point is a business, lacking capital to pay all bills promptly, necessitating payments on account, or by note, instead of payments covering certain invoices in full.
To obviate the difficulties, in maintaining a complete voucher record, under these and similar conditions, many substitutes have been devised. As an example of what may be accomplished in this direction, we illustrate a system which is in successful operation in a manufacturing business.
In the ledger, the usual nominal accounts are kept but no purchase or voucher register is used. Columns are provided on the credit side of the cash book for such expense accounts as are usually paid in cash, that is, for which no invoices are rendered, and for accounts payable.
For the purchase accounts with firms and individuals, a vertical file is used. Each creditor is assigned a folder, on the front of which a suitable record form is printed. This form is shown in Fig. 20. The name and address are written at the top, and the ledger account is kept in the columns at the extreme left of the form. All of the columns for distribution are left blank, it being seldom that purchases from one firm are distributed to more than a half dozen different accounts.
When an invoice has been O. K.'d it is immediately filed in the proper folder. The total is entered in the credit column and distributed to the proper accounts, the names of which are written at the head of the distribution columns. Payments on account are posted to these ledger accounts from the cash book.
If the distribution is properly made, the totals of all distribution columns will agree with the total of the credit column. At the end of the month the total of these distribution columns on the individual account folders are drawn off on the monthly recapitulation sheet illustrated by Fig. 21. The totals shown by the recapitulation are posted to the debit of the corresponding ledger accounts, while the grand total is posted to the credit of accounts payable account;—which is the controlling account of the purchase ledger. Totals of payments on account are posted to the controlling account from the cash book.
The proof of accuracy of the controlling account is found in the usual way, by checking against the balances of the individual purchase accounts.
With this system, invoices are filed, and the amounts posted, with practically one operation. The items which make up each ledger account are distributed as soon as posted, totals only being carried to the recapitulation sheet, from whence they reach the ledger.
Accounts are quickly located, as the folders are indexed alphabetically. When an account is balanced it must be left in its place until the end of the month, provided credits have been entered in the current month, so that totals of distribution will be carried to the recapitulation sheet. At the end of the month, all accounts which balance may be transferred to a section of the file reserved for closed accounts. Should any of these accounts again become active, they are transferred to the regular file without the slightest confusion.
For the purpose of saving time, the balances of all open accounts may be drawn off when the totals of the distribution columns are obtained.
Fig. 20. Combined Purchase Ledger and Voucher System
Fig. 21. Monthly Recapitulation and Distribution Sheet
While not recommended for general adoption this system has its points of merit, and in certain contingencies would undoubtedly prove very satisfactory. The main reason for its publication in this work is to show the possibilities of modifying a system, in respect to details, without destroying its more important features. The voucher feature, the obtaining of a formal receipt for every payment, can be maintained just as effectively with this system as with a more formal voucher system.
THE PRIVATE LEDGER
18. A ledger, devised to contain such accounts as the principals of a business desire to keep from the knowledge of the bookkeeper or other office employes, is known as a private ledger. The title is also frequently used to designate an ordinary general ledger.
The accounts most frequently found in the private ledger are Capital accounts, Profit and Loss, Reserves, Surplus, Bills Payable, Bonds and Mortgages Payable, and Controlling accounts with the general or personal ledgers. It may also contain such accounts as Salaries of Officers, or Partners, Investment and Drawing accounts, and accounts with real or nominal assets. If it is desired to keep from the employes, knowledge of the exact nature of any transaction, or the standing of a particular account, it can be done by making use of the private ledger.
When both ledgers are used, the private ledger contains only those accounts which it is desired to keep private, while the general ledger is kept for all other accounts, except those included in the personal ledgers.
The private ledger is most commonly used in large businesses where, for various reasons, a number of employes have access to the books, and it is desired to keep them in ignorance of the private affairs of the concern. The private ledger is usually kept by one of the partners, an officer, the auditor, or the chief accountant.
19. Advantages of Private Ledger. The primary advantage of the private ledger to the principals of a business, is that by its use, they can keep to themselves all details of transactions of a special nature.
Some other advantages that accrue to the principal may be enumerated as follows:
He can, through the private ledger, keep an eye on the activities and condition of the business as a whole, or of any particular department or branch of that business.
He can keep in touch with the liabilities, or with the total amount of personal accounts outstanding.
He can absolutely control the distribution of expense in manufacturing operations.
He can keep from his employes, knowledge of the profits or losses of the business.
Partners can keep private the amount of their investments, or the salaries drawn.
Salaries paid to individual officers or employes can be kept private.
Dividends declared, capital subscribed, investments of a special nature, or amount of assets of any kind, can all be kept from the knowledge of employes.
20. How Operated. Accounts in the private ledger must not conflict with accounts in general or personal ledgers, and the fact that private accounts are kept should not interfere with the balance of the general books. To insure against any such conflict, a private ledger controlling account is kept in the general ledger.
In the general cash book, and sometimes in the journal, debit and credit columns headed Private Ledger are provided. All entries affecting private ledger accounts are extended in these columns, but no particulars are recorded. At the end of the month, the totals of these columns are posted to a private ledger account in the general ledger. This controlling account then appears in the general ledger trial balance, and must agree with the balance of accounts in the private ledger.
With the private ledger a private journal is used, in which entries affecting private ledger accounts are made, with explanations in detail.
As an example of the use of the private ledger we will suppose that a payment of $500.00 is to be made to a certain party, and it is desired to keep that transaction private. The bookkeeper is instructed to draw a check for the amount, to be charged to private ledger account. He enters the check in the general cash book, debiting private ledger and crediting cash or bank. The entry is posted from the general cash book to the private journal, where full particulars are recorded, from which it is posted to the private ledger. In the case referred to, the amount of the check is debited to the proper nominal account, and credited to a general ledger account.
The general ledger account in the private ledger is a controlling account which agrees with the private ledger account in the general ledger. Only entries affecting general ledger accounts are posted to this account. Entries involving changes in private ledger accounts only, are made in the private journal direct.
Some concerns keep the controlling accounts with the sales and purchase ledgers in the private ledger. At the end of the month, total debits and credits to accounts in these ledgers are entered in the private journal. These totals are obtained from the general cash book, sales book, purchase book, and any other books from which postings are regularly made.
Fig. 22. Cash Book with Columns for Private Ledger Accounts
When a private ledger is kept, it precludes the possibility of forced balances in the general ledger trial balance, since the balances of the private ledger accounts must agree with the private ledger controlling account in the general ledger, and if sales and purchase ledger controlling accounts are kept in the private ledger, these must balance with the personal accounts in those ledgers. The use of a private ledger not only acts as a check on trial balance errors, but simplifies the trial balance by making possible a proof of ledgers in sections.
Fig. 22 is an illustration of a cash book with columns for the private ledger account.
21. Manufacturing Accounts in the Private Ledger. Not infrequently, manufacturers find it advisable to keep private certain details which affect costs, or even all knowledge of the exact cost of their manufactured product. This may be done by keeping certain manufacturing controlling accounts in the private ledger.
In determining the cost of manufacture of any class of goods, three elements enter into the computation; material, labor, and expense. To determine the cost of the first two items is comparatively simple, requiring only an efficient system of records in the factory. But to determine the amount of expense of all classes, included in the cost of a given article, job, or operation, is more difficult.
A system of records that will show the exact cost of such items as power, heat, or taxes properly chargeable to an individual job or operation is obviously impossible, and it has been found necessary to apportion these, and all similar items of expense, on a percentage basis. Usually this percentage is based on some element of cost which can be determined with accuracy.
Cost accountants and engineers have worked out this percentage on the basis of various elements of cost, as direct labor, material, machine hour, man hour, or a combination of two or more of these elements. The exact method used, which must be adapted to the conditions existing in the individual factory, does not enter into this discussion.
Since there are numerous items of expense of the character referred to, it is customary to group them, for purposes of cost computation. Sometimes all such expense items are grouped under the one head of General Expense. It is by means of a controlling account in the private ledger, that the distribution of expense is made, thereby keeping private the exact cost of manufacture.
The known cost of a certain job or article—the cost of material and labor—is frequently referred to as the prime cost. The duties of the cost clerk may end with determining the prime cost, his computations not including expense items.
The total cost of material and labor for the month is charged to private ledger account, material and labor accounts receiving proper credit. The exact amounts of the various items of expense for the month are also charged to private ledger account, with credits to expense accounts.
In the private journal, these items are charged to various controlling accounts, and credited to the general ledger controlling account. The usual entries are:
| Manufacturing Account | $______ | ||
| General Ledger | $______ | ||
| For material | $______ | ||
| For labor | $______ | ||
| Expense Distribution | $______ | ||
| General Ledger | $______ | ||
| For rent | $______ | ||
| For power | $______ | ||
| For repairs | $______ | ||
| Etc. | Etc. | ||
The percentage of expense for the current month on whatever element based, has been determined from the actual results of the preceding month. To illustrate, we will suppose that expense is apportioned on the basis of direct labor; the cost of this item during the month was $1,600.00, and the amount of expense charged to operation of the plant during the same period was $240.00;—which gives us a ratio of 15%.
We wish to determine the cost of jobs as they are completed during the current month. The records turned in by the cost department give us the actual cost of material and direct labor, but not knowing the exact ratio of expense to direct labor for this month, we use last month's ratio, and add an amount equal to 15% of the known cost of direct labor. When the actual results for the month are determined it is quite probable that the ratio will vary from last month's record, as either factor may change. It will be necessary to adjust this difference, which is the reason for an expense distribution or expense adjustment account in the private ledger.
By keeping the expense controlling account in the private ledger, the principal can keep private, not only the actual cost of an article, but the percentage of expense and the basis of the expense apportionment. If thought desirable, he can add further amounts for the purpose of establishing a selling price.
In actual operation, the amount of expense to be charged against completed work will be computed, and the following entry made:
| Manufacturing Account | $______ | |
| Expense Distribution | $______ | |
| The amount of expense charged to jobs completed. |
If the expense ratio used were exact, the expense distribution account would balance at the end of each month, but owing to the fluctuations, a balance will remain. This is adjusted by increasing or decreasing the percentage used during the following month, and in this way the accounts are kept in balance.
Manufacturing account has been charged with labor, material, and expense,—the total manufacturing cost. Completed goods are charged to a finished goods account, the entry being:
| Finished Goods | $______ | |
| Manufacturing Account | $______ | |
| Net cost of goods completed |
But manufacturing account will not balance, for there always will be work in process, and the balance of the account will be the cost to date of this work in process, a most important record.
This discussion is not intended to cover every possible use of the private ledger, but, by means of examples, to suggest its possibilities. The explanations and examples should afford the student many hints of value.
EXERCISE
On a certain date, the following transactions are recorded on the books of Carter & Adams:
| Purchases on account | $560.00 |
| Sales on account | 420.00 |
| Paid for rent | 75.00 |
| Sales for cash | 82.00 |
| Henry Carter (partner) | |
| Withdrew cash | 50.00 |
| John Adams (partner) | |
| Advanced to the business | 300.00 |
What items in the above list of transactions should, in your opinion, be posted to the private ledger? On journal paper, make the entries and show necessary private ledger accounts.
CHARTING THE ACCOUNTS
22. The proper arrangement of the accounts of a business is best shown by a chart, in which the accounts to be kept are grouped according to their relative importance. In laying out a chart of accounts, they should be first separated into their proper divisions. The natural divisions are capital, trading, and profit and loss.
Each division contains only those accounts that naturally belong in that particular class. These divisions are then subdivided into groups containing specific kinds of accounts, the groups being arranged in logical sequence. As an example, the trading division of a manufacturing business is divided into manufacturing and trading. There may be several subdivisions of the manufacturing account; several classes of goods may be manufactured and a manufacturing account kept for each class, or it may be necessary to manufacture completed parts, each requiring a complete manufacturing process. Detailed costs being required for each of these completed parts, manufacturing accounts are kept for each, the main division representing the cost of the finished product, as a result of the assembling of the parts. The completed parts are treated as raw material, when drawn for use in the finished product, the total costs being finally absorbed by the main manufacturing account. One of the many examples that might be cited is a packing business, operating its own can factory and keeping a manufacturing account to show the cost of cans. Other accounts show the cost of the product packed in those cans, and both costs are absorbed in the cost of the commodity as marketed.
The trading account is similarly subdivided. In a department store, the manager of a department may receive a certain percentage of the profits of his department. This necessitates trading accounts for each department. A mercantile concern may operate branch stores and keep trading accounts with each, on the books of the main office; a factory may produce several lines of goods, with a corresponding subdivision of trading accounts.
A chart of accounts not only furnishes a guide to the bookkeeper, but presents in the most logical form, the natural divisions of the business. It is both a working guide and a mirror of the accounting records.
23. Chart of Small Trading Business. The most simple chart of accounts is one for a small trading business conducted by a single proprietor. Following is a chart of the accounts of such a business.
Fig. 23. Chart of Profit and Loss Accounts
A study of this chart will disclose the reasons for the general grouping of the accounts. The first general group, capital accounts is subdivided into assets and liabilities. The assets are grouped in the order of their availability; the order in which they can most readily be converted into cash. The liabilities are grouped according to the security; unsecured, secured and capital.
There being but one trading account, it is represented by a single group, purchases and in-freight representing the cost of goods, and sales the gross proceeds. The balance of this account exhibits the gross profits.
Fig. 24. Chart of Profit and Loss Accounts
We now come to the profit and loss account by which the trading or gross profits are absorbed. This group contains, first, the revenue producing accounts not represented in the trading account; second, the revenue expenditures or expense accounts. The outer brackets of the chart group all of the accounts under Debit and Credit. This shows that the balances of the accounts are debit or credit as the case may be.
We have traced the profits to the profit and loss account, but in closing the books they will finally be absorbed by the proprietor's capital account. The chart, Fig. 23, traces the profits from trading to proprietor's account. In the trading account, the gross profit completes the balance. This profit is now absorbed by the profit and loss account. Net profit completes the balance of profit and loss account, and is, in turn, absorbed by the proprietor's account. Here, the net profit added to previous investment, equals the present worth. The chart, Fig. 24, also traces profits to the proprietor's account.
24. Chart of Manufacturing Accounts. A chart of the accounts of a manufacturing business follows similar lines to that of a trading business, the only change being the addition of the accounts of the manufacturing group. The accounts of this group will depend both upon the nature of the business and the extent to which the details of operation are recorded.
A chart of the accounts of a harness and saddlery manufacturing business is given herein. This business is divided into three departments; harness, collar, and saddlery.
A record of the gross profits, resulting from the operation of each department, being desired, we have three manufacturing and three trading accounts.
The chart shows the accounts classified to exhibit detailed operations of each department. The number of accounts in this chart is 98. This is rather more than is required in the average business of this character, but the chart furnishes a good illustration of the possibility of segregating accounts of various classes.
Even so large a number of accounts, with the minute subdivisions here shown, does not present the difficulties that might appear at first glance. The principal requirement is a thorough knowledge of the items entering into each account; the actual keeping of the accounts is a matter of close attention to these details. When an elaborate chart of accounts is laid out, it should be accompanied by detailed explanations and instructions. Some large concerns issue printed instructions which are given to all officers and employes who may be called upon to determine, to what account an item should be charged.
CHART OF ACCOUNTS—HARNESS MANUFACTURING
Capital Accounts
Assets
1 Cash
2 Bills Receivable
3 Accounts Receivable
Inventories—Harness Department
4 Finished Stock
5 Leather
6 Hardware
7 Supplies
Inventories—Collar Department
8 Finished Stock
9 Leather
10 Hardware
11 Supplies
Inventories—Saddlery Department
12 Finished Stock
13 Leather
14 Hardware
15 Supplies
Inventories—Machinery
16 Machinery—Harness
17 Machinery—Collar
18 Machinery—Saddlery
Inventories—Tools
19 Tools—Harness
20 Tools—Collar
21 Tools—Saddlery
Inventories—General
22 Office Fixtures and Supplies
23 Delivery Equipment
24 Real Estate—Land and Buildings
Liabilities
25 Accounts Payable
26 Bills Payable
27 Mortgages
Reserves
28 Depreciation of Buildings
29 Depreciation of Machinery
30 Depreciation of Tools and Fixtures
31 Bad Debts
32 Capital Stock
33 Surplus
Manufacturing Accounts
A Harness Department
34 Purchases—Leather
35 Purchases—Hardware
36 Purchases—Supplies
37 In-Freight
38 Labor—Cutting Department
39 Labor—Manufacturing Department
40 Inventory Adjustment
B Collar Department
41 Purchases—Leather
42 Purchases—Hardware
43 Purchases—Supplies
44 In-freight
45 Labor—Cutting Department
46 Labor—Manufacturing Department
47 Inventory Adjustment
C Saddlery Department
48 Purchases—Leather
49 Purchases—Hardware
50 Purchases—Supplies
51 In-Freight
52 Labor—Cutting Department
53 Labor—Manufacturing Department
54 Inventory Adjustment
D Manufacturing Expense Adjustment
55 Power, Heat and Light
56 Engine Room Supplies
57 Salaries—Superintendent and Factory Clerks
58 Wages Engineers and Miscellaneous
59 General Factory Expense
60 Repairs and Maintenance—Buildings
61 Repairs and Maintenance—Machinery
62 Repairs and Maintenance—Tools
Trading Accounts
E Harness Department
63 Sales
64 Returns and Allowances
65 Inventory Adjustment
F Collar Department
66 Sales
67 Returns and Allowances
68 Inventory Adjustment
G Saddlery Department
69 Sales
70 Returns and Allowances
71 Inventory Adjustment
H Profit and Loss
72 Interest Credits
73 Cash Discount Credits
74 Rent Credits
I Administration
75 Insurance and Taxes
76 Salaries—Officers
77 Salaries—Bookkeepers and Clerks
78 Printing and Stationery
79 Legal Expenses
80 Postage, Telegraph and Telephone
81 Office Expenses
82 Traveling Expense—Officers
83 Misc. General Expense
J Sales Expense
84 Advertising
85 Salaries—Salesmen
86 Commission
87 Traveling Expense—Salesmen
88 Trade Show Expense
89 Out-Freight and Express
K Collecting
90 Collection Fees
91 Cash Discounts Allowed
L Delivery Expense
92 Wages
93 Maintenance Horses and Wagons
94 Maintenance Motor Trucks
M Depreciation Adjustment
95 Buildings
96 Machinery
97 Tools and Fixtures
98 Bad Debts
25. Chart Explained. The following explanations will give the student a working knowledge of the operation of these accounts. Accounts, 1 to 33, inclusive, comprising assets and liabilities, are omitted, as no instructions will be required for keeping these accounts. All accounts are referred to by number.
34. Purchases—Leather. Charged with all purchases of leather for use in harness department. Credited with all leather transferred to other departments.
35. Purchases—Hardware. Charged with all purchases of hardware for use in harness department. Credited with all hardware transferred to other departments,
36. Purchases—Supplies. Charged with all purchases of supplies and materials, other than leather and hardware, for use in harness department. Credited with all transfers to other departments.
37. In-Freight. Charged with the cost of freight and cartage on all purchases for the harness department. Totals pro-rated to department purchase accounts at the end of each month.
38. Labor—Cutting Department. Charged with the wages of all men employed in cutting department, including foreman.
39. Labor—Manufacturing Department. Charged with the wages of all harness makers, and others employed in the harness manufacturing department.
40. Inventory Adjustment. An account used for the temporary adjustment of inventories for the purpose of obtaining monthly balances. At the end of the fiscal period, or whenever the books are closed, the balance of this account is transferred to inventory accounts.
Accounts 34 to 40, inclusive, are finally closed into a harness manufacturing account.
The same instructions apply to accounts 41 to 47, inclusive, in respect to the collar department, and to accounts 48 to 54, inclusive, in respect to the saddlery department.
55. Power, Heat and Light. Charged with all fuel and electric power, consumed for power, heat and light.
56. Engine Room Supplies. Charged with all oils, waste and other supplies, used in the engine room.
57. Salaries—Superintendents and Factory Clerks. Charged with salaries of general superintendent, superintendent's clerk and all clerks employed exclusively in the factory, as time keepers and clerks.
58. Wages—Engineers and Miscellaneous. Charged with wages of engineer and assistants, wages of shipping clerk and assistants, wages of receiving and stock clerks, wages of all general laborers whose time is not chargeable to a specific department.
59. General Factory Expense. Charged with all miscellaneous items of factory expense not provided for in other accounts.
60. Repairs and Maintenance—Buildings. Charged with all material and labor consumed in the repairs and maintenance of buildings.
61. Repairs and Maintenance—Machinery. Charged with same items as No. 60, as applied to machinery.
62. Repairs and Maintenance—Tools. Same as No. 61, applied to tools.
Accounts 55 to 62, inclusive, are closed into a manufacturing expense adjustment account, monthly. This account is credited with expense charged to each departmental manufacturing account, the distribution being made on a percentage basis.
63. Sales—Harness Department. Credited with the amount of all sales in the harness department.
64. Returns and Allowances. Charged with all returns and allowances on account of harness sales, except cash discount.
65. Inventory Adjustment. An account used for the temporary adjustment of inventories of finished stock, for the purpose of obtaining monthly statements of gross profits. At the end of the fiscal year, the balance of the account is transferred to inventory of finished goods account, through the trading account.
Accounts 63 to 65, inclusive, are closed into a harness trading account, at the end of the fiscal year. For purposes of comparison, monthly trading statements are made, leaving these accounts undisturbed until the end of the year.
Accounts 66 to 68, inclusive, and 69 to 71, inclusive, are handled exactly the same manner, in relation to the collar and saddlery departments.
72. Interest Credits. Credited with all interest collected on past due accounts, or received on outside investments.
73. Cash Discount Credits. Credited with all discounts earned by the prepayment of bills.
74. Rent Credits. Credited with all amounts received from rentals of property owned by the company, or as a result of subletting leased property.
75. Insurance and Taxes. Charged with all sums paid for fire, liability or other insurance, state and municipal taxes, and license fees.
76. Salaries—Officers. Charged with the salaries of all administrative officers, and directors' fees.
77. Salaries—Bookkeeper and Clerks. Charged with amounts of salaries of all bookkeepers, stenographers, and other office clerks.
78. Printing and Stationery. Charged with the cost of all stationery and printed matter used in the offices.
79. Legal Expense. Charged with attorney's fees and all expense of litigation.
80. Postage, Telegraph and Telephone. Charged with all sums paid for postage, and telegraph and telephone service.
81. Office Expenses. Charged with sundry items of office expense, not provided for in other accounts.
82. Traveling Expense—Officers. Charged with all legitimate traveling expenses incurred by officers in the interest of the company.
83. Misc. General Expenses. Charged with all expense items not otherwise accounted for.
Accounts 72 to 83, inclusive, are closed into an administration account.
84. Advertising. Charged with all sums paid for advertising, including periodical advertising, catalogs, circulars, and novelties.
85. Salaries—Salesmen. Charged with the salaries of all traveling salesmen.
86. Commissions. Charged with all commissions paid to brokers or salesmen.
87. Traveling Expenses—Salesmen. Charged with all legitimate expenses of salesmen, incurred in the interest of the company.
88. Trade Show Expense. Charged with all expenses incurred on account of exhibitions at trade shows. Sometimes treated as a part of advertising expense.
89. Out-Freight and Express. Charged with all freight and express paid on goods sold at delivered prices.
Accounts 84 to 89, inclusive, are closed into a sales expense account.
90. Collection Fees. Charged with all fees paid to banks, attorneys or others, for the collection of accounts.
91. Cash Discounts Allowed. Charged with all allowances to customers, for prompt payment of bills.
Accounts 90 and 91 are closed into a collecting account.
92. Wages. Charged with the wages of drivers and barn men.
93. Maintenance.—Horses and Wagons. Charged with cost of feed, stable supplies, repairs to harness and wagons, blacksmithing and horse-shoeing.
94. Maintenance—Motor Trucks. Charged with all expense of up-keep and repairs to delivery trucks.
Accounts 92 to 94, inclusive, are closed into a delivery expense account.
95. Depreciation—Buildings. Credited monthly with current charges for depreciation.
96, 97, and 98. Handled the same as No. 95.
Accounts 95 and 98 are closed into a depreciation adjustment account.
Manufacturing Ledger with Closing Entries
Manufacturing Ledger with Closing Entries
Manufacturing Ledger with Closing Entries
The illustrations (pp. 48-50) show how all of these accounts are assembled into main groups, and finally closed into profit and loss, and capital accounts. An explanation of the accounts in the harness department will be sufficient to show how all of the accounts are treated.
Harness manufacturing, account A, is charged with accounts 34 to 39, inclusive, and the proper portion of account D. It is credited with the cost of all finished goods, the amount being transferred to account E, harness trading. It is credited with the increase in inventories over the preceding month, this amount being transferred to account 40; if inventories show a decrease, the amount is charged.
Harness trading, account E, is charged with cost of finished goods from account A; with account 64; with gross profits, transferred to profit and loss, account H. It is credited with sales, account 63; with increase in inventory, account 65.
Gross profits on account of trading are closed into profit and loss.
Inventory adjustment accounts Nos. 40 and 65, are still open and the balances show total inventories. The actual amounts of inventories are transferred to accounts 4 to 7, inclusive. This will leave a balance in inventory adjustment account No. 40, representing work in process in the harness factory. These inventory adjustment accounts are closed only at the end of the fiscal year, or when the books are closed. At the beginning of a new fiscal period the inventories are again charged to inventory adjustment accounts, and adjusting entries made monthly in manufacturing and trading accounts.
REVIEW QUESTIONS.
PRACTICAL TEST QUESTIONS.
In the foregoing sections of this Cyclopedia numerous illustrative examples are worked out in detail in order to show the application of the various methods and principles. Accompanying these are examples for practice which will aid the reader in fixing the principles in mind.
In the following pages are given a large number of test questions and problems which afford a valuable means of testing the reader's knowledge of the subjects treated. They will be found excellent practice for those preparing for Civil Service Examinations. In some cases numerical answers are given as a further aid in this work.
REVIEW QUESTIONS
ON THE SUBJECT OF
THEORY OF ACCOUNTS
PART I
1. Name three objects of bookkeeping.
2. Define and give examples of three classes of debits; of credits.
3. What are the general rules for debit and credit?
4. What is meant by the term balance? When is an account said to show a debit balance, and when a credit balance?
5. How many methods of bookkeeping are in use? Name them.
6. How is double entry distinguished from single entry bookkeeping?
7. What is the fundamental principle of double entry bookkeeping?
8. Name two or more advantages of double entry bookkeeping.
9. What name is given to books used for bookkeeping records?
10. Into how many classes are account books divided? Give examples.
11. Name and give the principal uses of the most commonly used books.
12. What is meant by journalizing? by posting?
13. What is a promissory note?
14. What is your understanding of the term bills receivable and bills payable?
15. What is the name of the book in which a record of bills receivable and bills payable is kept?
16. What is an acceptance?
17. What is discount? exchange?
18. What is a deposit slip and how is it used?
19. What is a signature card and what are its uses?
20. What is meant by indorsement of checks?
21. Prepare three forms of indorsement and explain the meaning of each.
22. What is meant by petty cash? How is the account of petty cash kept?
23. Mr. H. B. Emerson is a dealer in coal and lumber. That he may know what profits are made in each branch of his business, he keeps accounts in his ledger with coal and lumber. In his sales book, one column is used for lumber sales and one for coal sales. No purchase book is kept. His assets and liabilities are as follows:
| ASSETS | |||
| Cash in State bank | $1,427.30 | ||
| Inventory, | coal | 600.00 | |
| " | lumber | 1,750.00 | |
| Frank Knowlton, note due Aug. 2nd | 75.00 | $3,852.30 | |
| ———— | |||
| LIABILITIES | |||
| Eastern Coal Co., open account | 260.00 | ||
| Northern Lumber Co., " | 420.00 | 680.00 | |
| ———— | |||
The following transactions are recorded:
May 3. Bought from John Weber, for cash, lumber $130.00; paid by check No. 19.
May 4. Sold to Edward Walsh, on account, 2 tons coal @ 7.00, $14.00.
May 5. Drew from bank for petty cash, check No. 20, $10.00; sold to Franklin & Co., lumber, $256.00.
May 6. Sold for cash, coal $17.50; received from Edward Walsh, on account, $10.00.
May 7. Gave Northern Lumber Co., check No. 21, $220.00, 60-day note, $200.00.
May 8. Accepted 30-day draft of Eastern Coal Co., $260.00; paid for repairs to desk, cash, $1.50.
Make all necessary entries in books of original entry to properly record the above.
REVIEW QUESTIONS
ON THE SUBJECT OF
THEORY OF ACCOUNTS
PART II
1. Into what two general and what three special classes are accounts divided in double entry bookkeeping?
2. Define and give examples of personal, real, representative, and nominal accounts.
3. What is a merchandise account? What accounts are substituted for the merchandise account in modern bookkeeping? In what particular is the use of these accounts an improvement over the older method of using a merchandise account?
4. Name and define four classes of assets, giving examples of each.
5. Give two examples of fixed assets in one business which become floating assets in another business. Give two examples of floating assets in one business which become fixed assets in another business.
6. What are revenue receipts? revenue expenditures? What accounts are designated by the term revenue accounts?
7. What is the broad term by which all revenue expenditure accounts are designated? Name and define five commonly used subdivisions of this account.
8. What is meant by journalizing? When purchase and sales books are used, what class of entries are made in the journal? Give three examples of journal entries involving transfers of value from one account to another.
9. What is a three column journal, and how is it used?
10. Journalize the following transactions:
| April 15. | Bought from Reliance Mills, on account | ||
| 94 bbls. flour @ | $4.75 | ||
| Sold to D. H. Pointer, on account | |||
| 15 bbls. flour @ | 5.35 | ||
| Sold to H. S. Fleming, on account | |||
| 60 bu. wheat @ | 1.05 | ||
| April 16. | Gave to Reliance Mills, my note payable in 60 days, to balance account | ||
| Received from D. H. Pointer note for 30 days to balance account. | |||
11. What is meant by posting? Explain the operation of posting, using one of the above transactions as an example.
12. In what particular does posting from the cash book differ from posting from the journal? Explain this difference, and illustrate with two examples.
13. What is a trial balance, and for what purpose is it taken? What does a trial balance prove?
14. What are cash discounts? Are cash discounts a proper charge against capital, or against revenue? Why?
15. Name two ways of treating cash discounts in the ledger, based on your answer to the previous question.
16. Illustrate two methods of entering cash discounts allowed in the cash book; illustrate the customer's ledger account as it would appear after posting the credit, from each of these entries. Which method, in your opinion, most clearly shows how the account was settled?
17. Should cash discounts earned be credited against the cost of goods purchased, or credited to profits? Why?
18. What is a profit and loss account? What does the balance of this account represent? How frequently is the balance of profit and loss account transferred? To what accounts, in a proprietorship or partnership? in a corporation?
19. What is a trading account, and what is its purpose? With what classes of items should trading account be debited and credited? How is the trading account constructed?
20. What is meant by the turnover? How can the amount of the turnover be shown in the trading account?
21. What is a manufacturing account, and of what items is it made up? What does the balance of the manufacturing account represent?
22. What is a merchandise inventory account, and when and for what purpose is it used? When are the books said to be closed?
23. What is a balance sheet? In what order should the asset and liability accounts be listed on the balance sheet?
24. From the following trial balance prepare trading account, profit and loss account, and balance sheet.
| TRIAL BALANCE | ||
| Proprietor (Investment) | $7,500.00 | |
| Bill Payable | 3,000.00 | |
| Accounts Payable | 1,550.00 | |
| Bank | $1,254.84 | |
| Accounts Receivable | 2,685.11 | |
| Bills Receivable | 3,860.00 | |
| Merchandise Inventory | 6,277.76 | |
| Furniture and Fixtures | 750.00 | |
| Purchases | 7,605.78 | |
| Expense | 1,416.30 | |
| Discount on Sales | 112.65 | |
| Interest | 44.20 | |
| Sales | 11,990.70 | |
| Cash | 122.46 | |
| ————— | ————— | |
| $24,084.90 | $24,084.90 | |
| Inventory at end of period $6,807.09. | ||
25. Give examples of the proper journal entries when the following transactions occur in respect to notes receivable:
When a note is received;
When a note is paid;
When a note is collected by the bank.
26. Complete the explanations of the following entries, and state under what circumstances they would be made:
| Bank | $199.00 | |
| Interest | 1.00 | |
| Bills Discounted | $200.00 | |
| Bills Discounted | 200.00 | |
| Bank | 200.00 | |
| Bills Receivable | 5.00 | |
| Bills Discounted | 1,000.00 | |
| Bank | 1,005.00 |
27. Make the proper journal entries under the following circumstances:
When a note is past due;
When a note is renewed;
When a renewed note has been discounted.
28. We buy from Marshall Field & Company a bill of dry goods, amounting to $978.40, and give them our note @ 60 days in payment. What entry?
29. Marshall Field & Company discount our note, and it is presented for payment by the Continental National Bank. We give our check in payment of the note, with interest @ 5%. How much do we pay, and what is the entry?
30. We borrow $1,000.00 from our bank on our note @ 30 days, interest @ 6%. What is the exact entry?
31. When a draft has been accepted how should it be treated on the books?
32. What is the proper entry when a customer pays our sight draft?
33. We draw on George Johnson for $650.00 @ 60 days sight. He accepts the draft, which we discount at our bank 3 days later, the bank charging us 7% interest. What entries are necessary?
34. We accept a draft from John V. Farwell & Co. for $416.00 payable in 90 days. What is the entry on our books? What is the entry on the books of Farwell & Co.?
35. We pay a sight draft drawn by Cable Piano Co. What entry?
REVIEW QUESTIONS
ON THE SUBJECT OF
SINGLE PROPRIETORS' AND PARTNERS' ACCOUNTS
1. What books are generally used in a small retail business? What is a blotter, and how is it used?
2. What is the special feature of the journal ruled ledger, and of what advantage is such a ledger in a retail business?
3. In a single proprietorship, what does the proprietor's account represent?
4. Name one good reason why withdrawals of the proprietor should be charged to a personal account.
5. When the books are closed, what account absorbs the profit or loss?
6. What is meant by taking an inventory, and what processes are involved?
7. Should an inventory be based on cost or on selling prices? Why?
8. What is meant by closing the books?
9. In a retail business, such as is discussed in the text, what regular accounts are closed into trading account?
10. What does the balance of trading account represent? Into what account is this balance closed?
11. What does the difference between assets and liabilities, as shown by the balance sheet, represent? In a single proprietorship, with what ledger account does this balance agree?
12. George Thompson commences business to-day, with assets consisting of cash, $1,650.00; an account due from Henry Watson, $84.60. His transactions consist of purchases on account as follows:
| From | Henry Karl & Co. | $460.00 |
| " | White & Black | 320.50 |
| Purchases for cash | 129.00 | |
| Sales | for cash | 87.50 |
| " | on account | 274.80 |
| Paid on account to Karl & Co. | 300.00 | |
| Collected on account | 124.80 | |
| Paid for sundry expenses | 63.70 | |
| Inventory at close of business | 655.50 | |
Open the books, enter the transactions in journal, cash book, and sales book, and make all postings to the ledger. Prepare a trial balance,
At the close of business, prepare a trading account, close into profit and loss, and close net profits into proprietor's account, Prepare a balance sheet,
13. What is a sales ticket, and for what purpose is it used?
14. What benefit is derived from keeping departmental purchase and sales records.
15. Prepare suitable forms for departmental purchase and sales records for a business divided into three departments.
16. What is a partnership?
17. What is the purpose of a partnership agreement?
18. By what names are the different classes of partners known?
19. On what basis are the profits of a partnership usually divided?
20. How are the personal and capital accounts of partners distinguished? What is the purpose of each of these accounts?
21. When the books of a partnership are closed, into what accounts are the revenue accounts closed? Into what accounts is the profit and loss account closed?
22. When the business of a partnership is sold, or liquidated, how are the net assets divided?
23. If any part of the assets, other than the goods in which the firm is trading, brings a price above cost, what journal entry is necessary? What entry if the price is below cost?
24. When partners invest unequal amounts in the business, what is the usual method of adjusting the inequality?
25. White, Black, and Brown who have been conducting business under a partnership agreement, decide to liquidate the business and dissolve the partnership. In the final settlement White agrees to accept the accounts receivable, which amount to $6,432.00, in part payment of the amount due him, provided 10% is first charged off to cover doubtful accounts. What journal entry is necessary?
26. H. W. Hackett has been conducting a grocery business. His books have been kept by double entry, and were last closed December 31st, 1908. At that time, his net worth was $2,698.50. April 30th, 1909, he sold to John Ransom a half interest in the business for $1,500.00. Ransom made a cash payment of $1,000.00, and gave his note for $500.00 payable on demand, with interest at 6%. The profits for the four months ending April 30th, 1909, (estimated from the books), were $325.00. This amount was to be allowed to Mr. Hackett and placed to his credit on the books. Make journal entries for the allowed profit and for the sale of the half interest. The books are not to be closed at the beginning of the new partnership.
27. Prepare in proper form a solution of the problem given in Art. 40, Page 72.
28. Prepare a complete solution of the problem given in Art. 42, Page 74.
REVIEW QUESTIONS
ON THE SUBJECT OF
CORPORATION ACCOUNTS
1. Into what two general classes are corporations divided? Name and give examples of two classes of private corporations.
2. How are joint stock companies distinguished from corporations? In what ways are they like corporations?
3. How are corporations created? Name 5 common requirements of the certificate of incorporation or application for a corporate charter.
4. What is meant by a stockholder, and how may a person become a stockholder in a corporation? What is a stock certificate?
5. What is meant by the capitalization of a corporation? What is the difference in meaning of the terms capital and capital stock, as these terms are usually understood?
6. Define the two principal classes of stock issued by corporations. Name and define two kinds of preferred stock. What is meant by the term treasury stock? Watered stock?
7. By whom are the affairs of a corporation managed? From whom do they receive their authority? Has a director, as such, the power individually to bind the corporation?
8. What special powers have the directors? In what way do the powers of officers and directors differ?
9. Name five of the necessary powers of a corporation, as such. Name three of the rights of an individual stockholder.
10. What is meant by a dividend? By whose authority are dividends declared? What is your understanding of the term stock dividend?
11. What class of records is implied by the term corporation bookkeeping? Name, and describe briefly, the books used in corporation bookkeeping.
12. Give examples of the proper entries on the books, under the following conditions:
(a) The entire capital stock ($100,000.00) is subscribed and paid for in cash.
(b) Only $60,000.00 of the stock is subscribed, but this is paid in cash. It is not desired to show on the books more capital than is paid in.
(c) Cash subscriptions are received for $49,000.00 of an authorized issue of $100,000.00, but it is desired to show the total capitalization on the books.
(d) The entire capital stock ($150,000.00) is subscribed but not paid in. It is desired to show the capital stock, without opening accounts in the general books with individual subscribers.
(e) A payment of 20% is called for on the above stock.
13. A corporation is organized with a capitalization of $50,000.00 to take over the business of Henry Thompson. He is to pay his liabilities out of his assets, and transfer the balance of the property belonging to the business to the corporation, receiving $25,000.00 full paid stock. The following discloses the condition of his affairs:
| ASSETS | ||
| Cash in Bank | $1164.50 | |
| Accounts Receivable | 3760.00 | |
| Real Estate | 10000.00 | |
| Merchandise Inventory | 7642.50 | |
| Furniture and Fixtures | 600.00 | $23167.00 |
| ———— | ||
| LIABILITIES | ||
| Bills Payable | 1000.00 | 1000.00 |
| ———— | ———— | |
| Balance | $22167.00 | |
What is the proper entry on the books of the corporation, the balance of the stock being unsubscribed?
14. A corporation agrees to purchase a mine, issuing $1,000,000.00 full paid stock in payment. The owner of the mine, to whom the stock is issued, agrees to donate to the company $500,000.00 of his stock to provide working capital. Subsequently, $100,000.00 of this stock is sold at 50% of its face value; $200,000.00 at 60%; $100,000.00 at 70%; and $100,000.00 at par. Working capital is maintained at the amount realized from the sale of the donated stock. Make all entries to show these transactions, it being understood that all subscriptions are paid in cash.
15. If the stock of a corporation sells at a premium, how would you enter the amount received above par? To what account would you transfer the premium when closing the books?
16. What would be the entries in the stock books to record the transactions shown in questions 12 and 14?
17. A promoter organizes a corporation to develope a mine, receiving as his fee $50,000.00 in stock. What are the entries on the books of the corporation?
18. The profits of a corporation with a paid up capital of $200,000.00, are $18,750.00. The directors declare a cash dividend of 6%, and create a special surplus fund of $5,000.00. Make all necessary entries.
19. The losses of the above corporation during the following year were $2,750.00. Make proper entries, with full explanations.
20. The accumulated surplus of a corporation capitalized at $1,000,000.00, with a paid up capital of $600,000.00, is $110,000.00; the current profits are $100,000.00. The directors declare a cash dividend of 7%, and a stock dividend of 25%. Make all entries to record these transactions on the general books of the corporation.
21. The following statistics are taken from the books of a corporation:
| Capital Stock | $300,000.00 |
| Merchandise Inventory | 97,600.00 |
| Machinery | 110,800.00 |
| Undivided Profits | 600.00 |
| Profit and Loss (Credit) | 31,210.00 |
It is desired to set aside a special surplus fund as a machinery depreciation reserve, the depreciation being figured at 10% a year, and to pay a dividend of 6%. What entries are necessary?
22. Parsons, Young, and Searles are partners and decide to form a corporation with capital stock of $40,000.00, which is to be issued as full paid stock in exchange for their present business. Each partner is to receive stock in proportion to his interest in the present business. The balance sheet of the partnership is as follows:
| ASSETS | ||
| Cash | $3,500.00 | |
| Bills Receivable | 6,000.00 | |
| Accounts Receivable | 6,500.00 | |
| Merchandise | 14,000.00 | |
| ————— | ||
| Total | $30,000.00 | |
| LIABILITIES | ||
| Bills Payable | 4,000.00 | |
| Accounts Payable | 2,000.00 | |
| Parsons | 10,000.00 | |
| Young | 8,000.00 | |
| Searles | 6,000.00 | |
| ————— | ||
| Total | 30,000.00 | |
Make entries on books of the partnership.
Make entries on books of the corporation.
23. Hoadley and Stockton are partners and desire to incorporate a company. The stock is to be divided equally between Hoadley and Stockton after giving Hopper $1,000.00. The balance sheet of the partnership is as follows:
| ASSETS | ||
| Cash | $960.00 | |
| Accounts Receivable | 1,570.00 | |
| Merchandise | 720.00 | |
| ————— | ||
| Total | $3,250.00 | |
| LIABILITIES | ||
| Accounts Payable | 460.00 | |
| Bills Payable | 500.00 | |
| Hoadley | 1,145.00 | |
| Stockton | 1,145.00 | |
| ————— | ||
| Total | 3,250.00 | |
Make all necessary entries on the books of the partnership.
Make open entries on the books of the new company.
24. The National Manufacturing Co. has an authorized capital of $100,000.00 of which $60,000.00 is paid up and $40,000.00, unsubscribed. It is decided to permit employes to subscribe for $10,000.00 of the stock by paying 10 per cent in cash, all dividends declared to be applied to the payment of subscriptions.
What entries are made when this stock is subscribed for?
A 10 per cent dividend being declared at the end of the first year, what entry is required?
25. The Atlas Novelty Co. has a capital stock of $50,000.00. All of the stock has been subscribed for, but only 40 per cent has been paid. A surplus of $10,000.00 has been accumulated. It is desired to reduce the stock to $25,000.00 full paid. What is the necessary proceeding, and what entries are required?
26. A company has a capital stock of $50,000.00 full paid, and a surplus of $11,172.00. A stockholder who owns $7,000.00 stock in the company wishes to dispose of his stock and, to secure cash, offers to sell it to the company at par. His offer is accepted and the stock purchased, but the company does not wish to reduce its capitalization. What is the entry?
27. What is a reserve? Give three examples showing purposes for which reserves are created.
28. What is a reserve fund? Why is a reserve fund treated as a liability?
29. What is a sinking fund, and what is its purpose?
30. What is a bond? Describe three classes of bonds.
31. When bonds are issued, by what account are they represented in the ledger? Does this account represent an asset, or a liability?
32. If bonds are sold at a premium, to what account is the premium credited? Would it be correct to credit this premium to profit and loss? Why?
33. To what account is the interest paid on bonds charged? When bonds are sold with accrued interest, which is paid by the purchaser, what disposition is made of the interest received? What disposition should be made of expense incurred in the sale of bonds?
34. What is the most important point to be kept in mind when devising a system of accounts for a manufacturing business?
35. From what items is the manufacturing account made up? What does the balance of manufacturing account represent?
36. Describe, briefly, a method of obtaining the necessary statistics to make up the manufacturing account for a business in which but one line of goods are manufactured? What is the object of sectionalizing the pay-roll by departments?
37. What is an expense inventory account; when is it used; and how is it made up? When is an expense liability considered; by what account is it represented; and how is the account made up?
38. What is meant by a balance ledger? Illustrate a form of balance ledger.
39. For what purpose is an invoice register used? Explain the general plan of such a book.
40. Make up a manufacturing account from the data given on Page 76. Show the journal entries used in making up this account.
REVIEW QUESTIONS
ON THE SUBJECT OF
THE VOUCHER SYSTEM
1. State, in your own words, the generally accepted meaning of the term voucher, as used in business.
2. What is the nature of a journal voucher, and for what purpose is it used?
3. Prepare a form of voucher to be accompanied by a separate check.
4. Prepare a form of voucher check.
5. For what book is the voucher register substituted? What book is dispensed with?
6. Explain the purpose of the sundries and unpaid voucher columns in the voucher register.
7. With what controlling account must the total of unpaid vouchers as shown by the register, agree? Explain the sources of debits and credits posted to this controlling account.
8. Prepare a form of voucher register, suitable for a manufacturing business using three classes of raw material, operating five shops, and selling the product through traveling salesmen.
9. What are the necessary steps in auditing, executing, and registering vouchers? How should audited vouchers be filed?
10. Describe the routine in paying vouchers, and in filing invoices and paid vouchers. How should vouchers be indexed?
11. What is the distinguishing feature of the unit system of voucher accounting?
12. If a voucher pays items to be charged to three accounts, how many copies are required and how is the distribution shown?
13. Explain the method of filing and recording vouchers in the unit system. How are monthly totals recorded?
14. What routine should be followed to carry the totals to the ledger?
15. Describe, and illustrate with the necessary forms, a system in which a purchase ledger and invoice file are combined.
16. What is a private ledger and for what purposes is it used?
17. Name some of the special advantages of the private ledger.
18. Describe, briefly, the operation of the private ledger, giving an example.
19. Describe, and illustrate with journal entries, in what way a manufacturer can make use of the private ledger.
20. Transactions of the following classes are recorded on the books of Dane & Whitney:
Purchases on Account
Sales on Account
Paid for Rent
Paid Dane's Salary
Sales for Cash
Whitney advanced cash to the business.
What items, in the above, should be recorded in the private ledger?
21. In charting the accounts of a business, into what three main groups should they be divided? Give an example of the subdivision of one of these groups.
22. Prepare a chart of the accounts of a small trading business conducted by a partnership. Explain this chart.
23. Prepare a chart of the accounts of a manufacturing business making three classes of goods.
24. What are the principal characteristics of a chart of accounts of a manufacturing business?
25. Using the above manufacturing chart, explain how profits are traced from group to group until they reach the surplus account.