54. Continuing the example in Art. 50, we find that the amount of bonds outstanding is $30,000.00, and a sinking fund must be established which will equal this amount when the bonds mature. Following the rule in Art. 38, we divide the interest on $30,000.00 for one year at 4 per cent ($1,200.00) by the compound interest on $1.00 for 10 years at 4 = (.48024) obtaining as a result $2,498.75, the amount necessary to be invested at the end of each year. This amount must be provided each year for permanent investment to meet the principal and an additional $1,500.00 must be provided each year for interest.
The entries which follow are the ones necessary to record the sales shown in Art. 50.
At the end of the year when the interest is paid and the first installment of the sinking fund is set aside, these entries are made:
| —January 31— | ||
| Interest on bonds | 1,500.00 | |
| Cash | 1,500.00 | |
| ———— | ||
| Sinking fund | 2,498.75 | |
| Cash | 2,498.75 | |
The illustrations (page [240]) show the status of all of these ledger accounts at the end of the year.
MANUFACTURING AND COST ACCOUNTS
55. Manufacturing began in this country many years ago and was for a long time confined to the eastern and New England states. Encouraged and fostered by national, state, and local governments, and by discoveries of sources of supplies, it has extended to all parts of the country. Manufacturing has grown to proportions which place it at the very head of our industries, if we except agriculture, the growth of which has been largely influenced by the progress in manufactures. One result is that the business of manufacturing has perhaps more than any other, attracted capital from great numbers of investors, large and small. Owing to its very nature, manufacturing readily lends itself to the corporate form of organization, and it is for manufacturing that a very great number of corporations have been formed. Manufacturing has, therefore, been selected for a more complete exposition of corporation accounting.
The accounts of a manufacturing business are to a certain extent peculiar to itself. Regardless of the nature of the product, there are certain underlying principles which should govern the devising of a system of accounts for a manufacturing business. Perhaps the most important feature to be kept in mind is to so arrange the system that the cost of manufacturing the goods will be shown.