The Insurance account is here looked upon as an asset account. The only adjustment necessary, therefore, is to remove from it the portion used, the portion remaining unused being an asset. This is effected by the following entry:

Profit and Loss 750.00
 Insurance 750.00

The ledger account would appear as follows:

Insurance
19— 19—
Jan. 15500.00 Dec. 31 Profit and Loss 750.00
June 15 500.00

In favor of the first method it may be said that it brings out more sharply the difference between asset and expense accounts and the need for separating mixed accounts into their two elements of expense and asset. The second method requires less work.

The Trading or Selling Account.—For the purpose of summarizing the merchandising activities a separate account called Trading or Merchandise Trading is sometimes used to effect the partial summarization heretofore explained as being made in the Purchases and Sales accounts respectively. Where so used the Trading account becomes virtually the old Merchandise account with totals in place of details. The following entries will show its content and the method of handling it.

Trading 10,000.00
Merchandise Inventory 10,000.00
 To transfer opening inventory.
Merchandise Inventory12,000.00
Trading 12,000.00
 To set up new inventory.
Trading100,000.00
Purchases 100,000.00
 To transfer purchases for the period.
Trading3,000.00
In-Freight and Cartage 3,000.00
 To transfer in-freight and cartage expense.
Purchase Returns and Allowances5,000.00
Trading 5,000.00
 To transfer.
Sales150,000.00
Trading 150,000.00
 To transfer.
Trading6,000.00
Sales Returns and Allowances 6,000.00
Trading48,000.00
Profit and Loss 48,000.00
 To transfer the gross profit on sales.

The Trading account is thus used as a means of separating the net sales into its two elements: (1) income, or gross profits; and (2) decrease of assets, or the cost of goods sold. This method makes the Profit and Loss account a purely summary account of income and expenses. Its chief disadvantage, however, is that a picture of the entire operations for the period is not presented in one account. One seldom finds the Trading account used in actual practice. It does serve, however, as an efficient teaching device to bring out clearly the way in which the merchandise accounts are adjusted and summarized in order to effect a separation of the income and decrease in asset elements.

CHAPTER XLI
HANDLING THE CASH

General Considerations.—In keeping record of the various properties of a concern, the greatest care is usually exercised in accounting for the asset cash. This is done because of the difficulty in tracing money that is lost or stolen and the ease with which the thief may get rid of it, due to its universal use as a medium of exchange, and due also to its great value in comparison with its small bulk. Merchandise, supplies, and the like, may be purloined or misappropriated, but not so easily and profitably. Oftentimes, however, unless care is exercised in safe-keeping it, large losses occur also in merchandise. Absolute prevention of losses cannot be expected even with the employment of all possible precautions, but experience shows that certain general safeguards may be placed about both cash and merchandise. In the ultimate analysis the best safeguard is the integrity of the employee; still the employer should not tempt the employee by making the abstraction of his cash an easy performance.