COMPARATIVE STATEMENTS
16. The trial balances shown in the preceding pages illustrate some of the advantages of properly classified accounts. The information gained can be made of still greater value by the construction of comparative statements; for, as has been stated, the chief value of many of the figures shown lies in the opportunity for comparisons. Statements which permit of comparison of items of a like nature from month to month furnish a valuable survey of the progress of the business.
The following is a trial balance taken from the books of a manufacturing business, and will be used as a basis for the construction of comparative statements.
| TRIAL BALANCE | ||
|---|---|---|
| Dr. | Cr. | |
| Cash in Office | $162.50 | |
| Bank | 8,500.00 | |
| Accounts Receivable | 7,500.00 | |
| Bills Receivable | 4,500.00 | |
| Inventory, Materials (Jan. 1) | 9,500.00 | |
| Inventory, Manufactured Goods | ||
| (Jan. 1) | 6,000.00 | |
| Real Estate | 20,000.00 | |
| Machinery and Tools | 17,500.00 | |
| Furniture and Fixtures | 3,500.00 | |
| Bills Payable | $7,000.00 | |
| Accounts Payable | 5,000.00 | |
| Capital Stock | 50,000.00 | |
| Surplus | 10,000.00 | |
| Undivided Profits | 900.00 | |
| Advertising | 1,200.00 | |
| Salesmen's Salaries | 1,000.00 | |
| Salesmen's Expenses | 720.00 | |
| General Expense | 430.00 | |
| Interest and Discount | 97.50 | |
| Salaries Administrative | 900.00 | |
| Factory Expense | 850.00 | |
| Factory Labor | 1,750.00 | |
| Repairs to Machinery | 150.00 | |
| Depreciation | 175.00 | |
| Taxes and Insurance | 25.00 | |
| Material Purchases | 4,600.00 | |
| In-Freight and Cartage | 126.00 | |
| Sales | 16,491.00 | |
| Returns and Allowances | 400.00 | |
| 89,488.50 | 89,488.50 | |
In Fig. 16 a. is shown a working balance sheet in which the accounts as found in the trial balance are segregated in the four groups, Manufacturing, Trading, Profit and Loss, and Balance Sheet. First, the trial balance is entered in the two columns at the left. Next, the manufacturing account is made up by extending the inventory of material at end of preceding period, the manufacturing expense accounts, material purchases and freight on same. This gives the total charges to manufacturing account, but not the month's expenditures, for the present inventory of material must be considered. An inventory shows the value of material in stock to be $4,550.00. Deducting this leaves $12,626.00, the total operating cost for the month. To find the cost of goods completed during the month an inventory is taken of work in process, the amount is deducted from the total operating cost and the result, $9,126.00, represents cost of goods manufactured.
The trading account is now made up, this $9,126.00 taking the place of purchases, and the gross profit is carried to profit and loss account.
The manufacturing, trading, and profit and loss accounts are now ready for analysis, which is made on a percentage basis. In the analysis of the manufacturing account, the total operating cost is used as a basis and the different items of manufacturing cost are figured on this basis. We find that the expense items are 23.3% and the material 76.7% of the total which furnishes a tangible basis for a comparison of the same items in other months. Having the percentage of each item, we can note the fluctuations from month to month, and know where to retrench if any item appears to be increasing too rapidly.
The basis of the analysis of the trading and profit and loss accounts is the turnover. Figuring on this basis, we find the total expenses, exclusive of manufacturing costs, to be 41% of the turnover, and the net profit, 20%. The gross profit is 60% of the turnover. Ordinarily the total expense and net profit would equal the gross profit, but in this case there is a capital profit of $97.50 from interest earned.
Sometimes these comparative percentages are figured on the gross sales, but the turnover is considered the proper basis, for it is less subject to marked fluctuations. The sales in one month may show abnormal profits, while in the next these profits may return to normal. If based on sales, the cost percentages would fluctuate accordingly, when in reality they may have remained stationary.