Similar to the journal voucher as authority for entry is the debit and credit slip used for authorizing inter-ledger postings. In a large establishment where the sales ledger, for instance, is divided alphabetically among a number of ledger clerks, adjustments as between the different ledgers are usually made by means of these debit and credit slips, which when properly signed by the head bookkeeper give the authority for making the necessary ledger entry.
Building Expenses and Income
Allocation of Building Expense
It is purposed here to draw attention to two problems in connection with the bookkeeping records of buildings owned by the business. The one problem has to do with the proper allocation of the various building expenses as between the different departments of a business such as manufacturing, selling, general administration, etc., and even the subdepartments within these general classifications. It frequently happens that the same building is used partially for manufacturing and partially as a warehouse and sales room, while it may also contain the administrative offices. Within each of these groups there may be various subdepartments. A large store may be departmentalized and it may be desirable to show the results of operation by departments. If cost accounting by departments is determined upon, it becomes necessary to carry the departmental analysis beyond the gross profit stage, in which case building expense must be taken account of and spread equitably over the various departments. Likewise, within the factory it may be desirable to allocate the item of building expense over the various departments of storeskeeping, costing, and production proper, and even a further analysis may be necessary depending somewhat on the detailed information desired. Where building expense has to be spread over these various departments and subdepartments, an equitable basis of distribution must be found. A common basis is the amount of floor space used by the various departments. This method is not always fair inasmuch as some portions of the building are subject to heavier wear and tear, and therefore to heavier maintenance and depreciation charges, than other portions. Consideration must be taken of all the physical factors involved in order to secure an equitable distribution of the expense.
Ownership versus Renting
The second problem has to do with the gathering of information as to the relative advantages of owning or renting a building. The chief elements of expense which must be met in connection with the ownership of buildings are maintenance, depreciation, taxes, and insurance. In determining the relative advantages of ownership or leasing, the item of interest on investment in buildings must also be taken into consideration. It is doubtful, however, whether this last item should be brought onto the books as a cost of ownership. As in the case of a manufactured product, the item of interest is best handled by means of a statistical record rather than as an entry upon the financial records of the business.
Methods of Bookkeeping
Two methods of presenting the information on the books are met with. In the one case, an account is kept with Building Expense and Income to which are charged all expenses in connection with the building and to which are credited any items of income, as from subleasing, etc. Instead of having the one account, separate accounts may be kept and cleared at the end of the fiscal period through Building Expense and Income account before transfer to Profit and Loss. The difference between the net cost of building ownership, as indicated by Building Expense and Income account, and the market rental value of similar space and accommodations elsewhere will represent the net advantage or disadvantage of ownership as compared with leasing. At this point, before making the comparison, it will be necessary to take into consideration the item of interest on the money invested.
The second method is simply a variation of the first so far as securing the information desired is concerned. Under it the Building Maintenance account is charged with all expenses as above and credited with a fair rental value as determined by market conditions for similar space elsewhere. The difference between the charges and credits to the Building Maintenance account will be an indication of the profit or loss on the policy of the ownership. A theoretical objection to this last method is that the crediting of a fair rental to the account makes necessary a charge to a rent account, which will have to be shown as a charge to some department or phase of business activity, such as the factory, sales department, etc. As in the case of interest, the best authority inclines towards treating rent as an item of financial management rather than as a burden to the other departments of the business. Practically, however, where the expense of rent is actually incurred through the use of a building belonging to outside parties, the prevailing practice at the present time is to charge rent expense to the departments using the accommodations. Consistency seems to demand that both interest and rent be treated in the same way, and handled as financial management items.
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