Accounting theory and practice, Volume 2 (of 3)

by Roy B. Kester

CONTENTS

CHAPTER			PAGE
I	The Corporation		[ 1]
	The Corporation
	Classification and Definitions
	Method of Ownership
	Working Organization
	Different Classes of Stock
	Common Stock
	Preferred Stock
	Guaranteed Stock
	Founders’ Stock
	Debenture Stock
	Stock of No Par Value
	Watered Stock
	Treasury Stock
	Forfeited Stock
	Bonus Stocks or Bonds
	Accounting for Stocks
	Discount on Stock
	Premium on Stock
	Property Exchanged for Stock
	Treasury Stock Donated
	Bonus Stock
	Treasury Stock Purchased
	Redemption of Preferred Stock
	Forfeited Stock
	Stock of No Par Value
	Distinctive Records
	Stock Ledger
	Minute Book
	Conclusion
II	The Voucher System		[26]
	Purchasing for the Manufacturing Business
	Expansion of the Purchase Journal
	Development of Voucher System
	Definition and Description of Voucher
	Operation of Voucher System
	Voucher Check
	Form of Voucher Register
	Distribution of Vouchers
	Posting of Summary Totals
	Effect on Cash Book and Bank Account
	Payment of Vouchers
	Voucher Index of Creditors
	Control of Vouchers Payable
	Introduction of System
	Purchase Returns and Allowances
	Partial Payments
	Handling of Notes Payable
	Cash Discount on Purchases
	Modifications of System
	Summary of Operation and Advantages
III	Factory Costs		[49]
	Difference Between Factory and Financial Accounting
	Definitions of Terms
	Special Purposes of Cost Records
	Nature of Raw Materials and Supplies
	Accounting for Material Cost
	Direct and Indirect Labor
	Time-Keeping Records
	Pay-Roll
	Safeguarding the Pay-Roll
	Distribution of Labor Charges
	Expense
	Summary of Manufacturing Cost
IV	The Balance Sheet		[60]
	Business Methods under the Microscope
	The Reading of the Balance Sheet
	Definition
	Relation Between Balance Sheet and Trial Balance
	Form of Balance Sheet
	Purpose and Uses
	Types of Balance Sheet
	Origin of English Form of Balance Sheet
	Variation of English Form
	Balance Sheet Titles
	Grouping and Classification
	Arrangement of Groups
	Report and Account Forms
	Valuation Accounts
	Statutory Requirements as to Frequency of
	Balance Sheets
	Condensation of Information in the Balance Sheet
	Use of Supporting Schedules
V	General Principles of Valuation		[81]
	Content of the Balance Sheet
	Valuations for Rate Regulation
	Valuation for Sale and Purchase
	Other Kinds of Valuations
	Going Concern Valuation
	Kinds of Value
	Source of Data as to Values
	Cost Value the Usual Basis
	Definition of Capital and Revenue Expenditures
	Organization Expenses
	Definition of Replacements, Renewals, Maintenance, etc.
	Treatment of Renewal of Parts
	Treatment of Cost-Cutting Changes
	Asset Subject to Depreciation a Deferred Charge to Operations
	Authorization of Booking Capital Expenditures
	Repairs on Second-Hand Plant
	Construction Costs
	Distinction Between Capital and Revenue Expenditures
	Often Based on Opinion
	Main Groups of Asset Items
	Valuation of Liability Items
	Over- and Under-Valuation
	The Balance Sheet an Expression of Opinion
VI	Depreciation—Aspects and Definitions of Terms		[99]
	Aspects of Depreciation
	Definitions
	Authoritative Opinions
	Why the Depreciation Factor Arises
	Actual or Absolute Depreciation
	Theoretical Depreciation
	Comparison of Actual and Theoretical Depreciation
	“Accounting” and “Fair” Depreciation
	Complete and Incomplete Depreciation
	Individual and Composite Depreciation
	Physical and Functional Depreciation
	Deferred Maintenance and Accrued Depreciation
	Attitude of the Law
	Decision of Supreme Court
	Recognition of the Depreciation Factor
	Distinction Between Repairs and Renewals
	Depreciation and Plant Efficiency
	Unit Efficiency
	Depreciation and Fluctuations in Market Value
	Distinction Between Depreciation and Depletion
	Effect on Different Kinds of Business
VII	Depreciation—Its Causes		[120]
	Analysis of Causes
	Age as a Cause of Depreciation
	Wear and Tear of Use
	Functional Depreciation
	Inadequacy as a Factor
	Inadequacy Through Change of Policy
	Inadequacy Through Motives of Economy
	Inadequacy Due to Unforeseen Development
	Inadequacy Imposed from Without
	Obsolescence as a Cause
	Treatment of Obsolescence
	Contingent Depreciation
	Terminable Rights
	Effective Depreciation
VIII	Depreciation—Factors of Rate Determination		[136]
	Fundamental Purpose of Depreciation
	Depreciation a Cost of Operation
	Complication of Short Fiscal Periods
	The Factor of Idle Time
	Depreciation a Means of Financing
	Danger of the Financing Viewpoint
	The Standardization of Depreciation Rates
	Effect of Local Conditions
	Factors in Determining Depreciation Rate
	Bases of Normal Rate
	Policies as to Repairs
	Depreciation Rate an Engineering Problem
	Attitude of Regulatory Bodies
	Methods of Handling Repairs
IX	Depreciation—Methods of Calculating		[150]
	Methods of Calculation
	Factors of Calculation
	Symbols to be Used
	1. Proportional Methods
	(a) Straight Line Method
	(b) Working Hours Method
	(c) Composite Life Method
	(d) Service Output Method
	2. Variable Percentage Methods
	(a) Fixed Percentage of Diminishing Value Method
	(b) Changing Percentage of Cost Less Scrap Method
	(c, d) Arbitrary Methods
	3. Compound Interest Methods
	(a) Sinking Fund Method
	(b) Annuity Method
	(c) Unit Cost Method
	4. Miscellaneous Methods
	(a) Maintenance Method
	(b) Replacement Method
	(c) The Fifty Per Cent Method
	(d) Appraisal Method
	(e) Insurance Method
	(f) Gross Earnings Method
	Condition Per Cent
X	Depreciation—Appraisement of the various Methods		[173]
	General Considerations
	Ideal Basis for Distribution of Depreciation Charge
	1. Proportional Methods
	(a) Straight Line Method
	(b) Working Hours Method
	(c) Composite Life Method
	(d) Service Output Method
	2. Variable Percentage Methods
	(a) Fixed Per Cent of Diminishing Value Method
	(b) Sum of Expected Life-Periods Method
	(c, d) Arbitrary Methods
	3. Compound Interest Methods
	General Considerations
	(a) Sinking Fund Method
	(b) Annuity Method
	(c) Unit Cost Method
	4. Miscellaneous Methods
	(a) Maintenance Method
	(b) Replacement Method
	(c) Fifty Per Cent Method
	(d) Appraisal Method
	(e) Insurance Method
	(f) Percentage of Gross Earnings Method
	Effect on Return on Investment
XI	Recording Depreciation on the Books		[187]
	Methods Commonly Employed
	Renewals and Replacements
	Subsidiary Records
	Grouping and Classification of Plant Assets
	Form of Plant Ledger
	Asset Record
	Periodic Revision of Rates
	Frequency of Revision of Rates
	Test of Condition Per Cent
	Composite and Group Rates
	The Reserve as an Index of Financial Condition
	The Reserve in Relation to Expanding Plant
	Reserve as Related to Efficiency
	Reserve Not Based on Cost of Replacement
	The Financing of Replacements
	Secret Reserve
	Insufficient Charge
	Appreciation as an Offset to Depreciation
	Appreciation Due to Physical Changes
	Appreciation Due to Adaptation to Use
	Unearned Increment
	Depreciation Policy and Stockholders
XII	Cash and Mercantile Credits		[210]
	Introduction
	What Cash Includes
	Stamps Remitted as Cash
	Temporary Cash Disbursements
	Disposition of Cash Funds
	Cash Held Abroad
	Accounts and Notes Receivable
	Objection to the Title, Accounts Receivable
	Risk for Credit Losses
	Risk and Length of Credit Period
	Analysis of Customers’ Accounts as the Basis
	for Estimate of Bad Debts
	Basis of Estimate of Bad Debts
	Discounts and Collection Costs
	Valuation of Other Receivable Items on Open Account
	Loss on Notes Receivable
	Interest on Notes Receivable
	Balance Sheet Titles for Notes Receivable
XIII	Merchandise Stock-in-Trade		[225]
	Definition and Scope of Term
	Valuation at Market or Cost Price
	Objections to Valuation at Less than Cost
	Anticipation of Profits or Losses Undesirable
	Method of Treatment and Summary
	Depreciation of Stock-in-Trade
	Full Costs of Stock-in-Trade
	The Distribution of Costs Over Stock-in-Trade
	The Pricing of the Inventory
	Valuation of Manufacturing Inventory
	Contracts and Length of Cost Period
	Valuation of Scrap
	Inventory-Taking
	Perpetual Inventory
XIV	Temporary Investments; Accrued and Deferred Items		[241]
	Temporary Investments
	Nature of Temporary Investments
	Valuation of Temporary Investments
	Reserve for Investment Fluctuations
	“Stock Rights” on Investments
	Cost of Investments
	Valuation of Bonds
	Valuation of Unissued Stock
	Valuation of Treasury Stock
	Summary of Valuation Formula
	Accrued and Deferred Items
	Nature of Accrued Income
	Inadequacy of Cash Method of Handling Accruals
	Correct Method of Handling Accruals
	Showing of Accrued Items on Balance Sheet
	Valuation of Accrued Items
	Accounting for Accrued Income
	Illustration of Different Methods of Recording Accrued Items
	Prepaid Items—Definitions and Kinds
	Valuation of Prepaid Items
	Danger of Overvaluation
	Accounting for Deferred Debit and Other Items
XV	Permanent Investments		[258]
	Nature of Permanent Investments
	Permanent Investments as an Aid to Operation
	Valuation of Permanent Investments
	Holding Company and Subsidiary Enterprises
	Controlling Investments
	Advances to Subsidiary Concerns
	Rules for Valuation
	Investments in Partial Holdings
	Investments Producing No Income
	Bond Values and Market Interest Rates
	Nature of Bond Discount or Premium
	Record of Bond Investments
	Amortization of Bond Discount and Premium
	Formulas for Compound Interest
	Formulas for Annuities
	Formulas for Bond Valuation
	Valuation of Sinking Funds
	Valuation of Investments in Land
XVI	Machinery and Tools, Furniture and Fixtures,
	and Other Equipment		[279]
	General Considerations
	Distinction between Personalty and Real Property
	Machinery and Tools
	Accounting Records
	Operation of Machine Accounts
	Valuation of Machinery and Tools
	Estimate of Depreciation
	History of Machine
	Standards of Operation
	Abnormal Operation
	Map of Machine Location
	Methods of Application of Depreciation
	Basis of Valuation
	Scrap Material
	Accounting for Tools
	Depreciation on Hand Tools
	Valuation of Home-Made Machinery and Tools
	Expenditure for Rearrangement of Machinery
	Definition of Furniture and Fixtures
	Valuation of Furniture and Fixtures
	Delivery Equipment—Definition and Valuation
	Carriers and Containers—Valuation
	Patterns, Molds, etc.—Valuation
	Disposal of Assets
XVII	Buildings, Land, and Wasting Assets		[297]
	Definition of Real Property
	Cost of Buildings
	Valuation of Buildings
	Betterments on Leased Buildings
	Application of Depreciation
	Accounting for Land
	Valuation of Land
	Depreciation or Appreciation of Land
	Appreciation of Land Values
	Depreciation in Land Values
	Valuation of Land Investments
	Mortgages on Land
	Donated Land
	Land as Stock-in-Trade
	Wasting Assets—Definition and Characteristics
	Dividends May Include Return of Capital
	Basis of Depletion Charge
	Application of Income Tax to Wasting Assets
	Depreciation on Buildings and Machinery of a Wasting Asset
	Unusual Risks
	Water Rights
	Leaseholds
XVIII	Intangible Assets—Patents, Franchises, Good-Will		[316]
	General Considerations
	Patents a Monopoly Grant
	Purchase of Patents
	Patents Developed Within the Plant
	Patents Purchased and Not Used
	Elements of Depreciation on Patents
	Service Life of Patents
	Booking Depreciation on Patents
	Accounting Classification of Depreciation on Patents
	Royalties
	Relation of Depreciation Rate to Cost of Manufacture
	Sale Price of Patents
	Copyrights
	Trade Secrets
	Trade-Marks
	Franchises—Definition and Kinds
	Depreciation on Franchises
	Organization Expenses
	Good-Will—Definition and Nature
	Local and Personal Character of Good-Will
	Difficulty of Valuing Good-Will
	Creation of Good-Will by Advertising
	Valuation of Good-Will Based on Normal Profits
	Valuation of Good-Will Based on Excess Profits
	Valuation of Good-Will Based on Capitalization of Profits
	False Good-Will to Cover Capital Deficiency
	Periodic Revaluation of Good-Will
XIX	Liabilities on the Balance Sheet; Current and
	Contingent Liabilities		[339]
	Form and Valuation
	Arrangement on Balance Sheet
	Items Within Groups
	Cancellation of Liabilities Against Assets
	Inventory of Liabilities
	Contingent Liabilities
	Current Liabilities
	Loans from Bank
	General Classification of Notes
	Accounts Payable
	Accrued Expenses
	Booking of Accrued Expenses
	Deferred Credits
	Nature of Contingent Liabilities
	Statement of Contingent Liabilities
	Notes and Drafts Transferred
	Guarantees as a Contingent Liability
	Long-Term Leases
	Purchases for Future Delivery
	Pending Lawsuits
	Stock Not Fully Paid
	Accumulated Dividends on Preferred Stock
	Signature to Surety Bond
XX	Fixed Liabilities—Bonds and Mortgages		[356]
	Nature of Fixed Liabilities
	Purpose of Fixed Liabilities
	Corporation Bonds
	Nature of Bonds
	Difference Between Bond and Real Estate Mortgages
	Kinds of Corporation Bonds
	Authority for the Issue of Bonds
	Financial Considerations Involved in Issue
	Bonds versus Stock Issues
	Accounting for Bond Issue
	Entry of Issue on Books
	Entry of Premium or Discount on Books
	Entry of Interest Payments on Books
	Relation of Bond Interest to Premium or Discount
	Example of True Interest Cost
	Presentation on Balance Sheet
	Other Fixed Liabilities
XXI	Capital Stock and its Valuation		[372]
	Problems in Valuation
	Kinds of Stock
	Par, Real, and Market Values
	Value Dependent upon Earning Capacity
	Increase of Book Capitalization
	Capitalization on Cost
	The Law and Stock Issues
	Treatment of Discount or Premium
	Valuation of Stock Issued for Property
	Valuation of Treasury Stock
	Redemption and Reduction of Capital Stock
	Dividend Stock
	Stock Issued as a Bonus
	Unissued and Treasury Stock on the Balance Sheet
	Preferred Stock Covered by Redemption Contract
XXII	Profits		[387]
	Difficulty of Determining Profits
	Economic Definition
	Legal Definition
	Accounting Definition
	Methods of Determining Profits
	The Problem a Question of Valuation
	Effect of Asset Losses on Future Profits
	Legal Decisions as to Asset Losses
	Loss Charged Against Current Profits
	Loss Treated as Deferred Expense Charge
	Loss Charged to Capital
	Profit on Work in Progress
	Goods Made for Stock but Not Sold
	Goods Made to Order
	Profits on Long-Term Contracts
	Profit on Goods Awaiting Delivery
	Interdepartment Profits
	Profits Due to Appreciation of Assets
	Capital Profits
XXIII	Surplus and Reserves		[407]
	Definition
	Creation of Margin
	Disposition of Profits
	Reserves
	Different Meanings of Reserves
	Reserve for Bad Debts
	Under- and Over-Estimate of Reserves
	Depletion Reserves
	Operating Reserves for Accrued Costs
	Collection Costs Not under Contract
	Sales Discounts on the Balance Sheet
	Distinction Between Reserves and Accrued Items
	Contingent Reserves
	Deferred Income—Misuse of Term
	Proprietorship Reserves
	Secret Reserves
	Argument for Secret Reserve
	Argument Against Secret Reserve
	Earmarking of Reserves
	Continuity of Reserve Policy
	Covered Reserves
	Classification of Reserves
	Legitimate Use of Surplus Account
	Statement of Surplus
XXIV	Dividends		[428]
	Introduction
	Disposition of Corporation Profits
	Shareholders’ Rights as to Profits
	Directors’ Control over Profits
	Provisos as to Declaration of Dividends
	Stockholders’ Rights to Dividends
	Declaration of Dividends
	Liability of Director
	Revocation of Dividends
	Payment of Dividends
	Dividends Paid as Salaries
	Methods of Paying Dividends
	Borrowing to Pay Dividends
	Dividends Paid in Property, or by Borrowing on Property
	Bond and Scrip Dividends
	Stock Dividends
	Dividends Proportional to Holdings
	To Whom Payable
	Accounting Record
	Relation of Capital Losses to Dividends
	Liquidating Dividends
XXV	The Sinking Fund		[447]
	Origin and Use
	Definitions
	Mathematical Principles on which Based
	Accumulation Based on Agreement
	Effect of Settlement of Debt
	Relation of Fund to Profits
	Accounting for Sinking Fund
	The Sinking Fund on the Balance Sheet
	Entries to Sinking Fund
	Booking the Trustee’s Report
	Treatment of Income and Expense
	Final Disposition of Fund
	Treatment of Sinking Fund Reserve
	Relation Between Depreciation and Sinking Fund
XXVI	Problems in Connection with the
	Profit and Loss Summary		[466]
	Interrelation of Profit and Loss and Balance Sheet
	Periodic Adjustments
	Interest as a Cost of Manufacture
	Arguments Against the Inclusion of Interest
	Problem of Charging Interest on Books
	Unrealized Profits
	Corporation Dividends
	Discount on Bonds
	Sinking Funds
	Working Capital
	The Correction of Closing Errors
XXVII	The Profit and Loss Summary—Form and Content		[477]
	Standardization of Form
	Synonymous Terms
	Cost of Goods Sold—Manufacturing Concern
	Cost of Goods Sold—Trading Concern
	Further Differentiation of Terms
	Desirability of Uniformity in Terms Used
	Profit and Method of Showing
	Form of Presentation—Account Form
	Non-Technical or Report Form
	Examples of Forms of Presentation
	Form for Manufacturers and Merchants
	Content and Manner of Showing
	Supporting Schedules
	Adjustment of Inventories
	Selling Expense and Administrative Schedules
	Schedules for Special Needs
XXVIII	Liquidation of a Corporation		[493]
	Reasons for Liquidating—Partial and Complete Liquidation
	Current Assets Transferred into Fixed Assets
	Tying up Cash in Stocks of Material
	Unwise Use of Cash for Paying Dividends
	Inability to Secure Cash for Refunding Operations
	Excessive Borrowing on Short-Term Securities
	Losses in Conducting the Business
	Loss Through Fraud, Theft, or Unavoidable Causes
	Methods of Liquidation
	Liquidation under Bankruptcy
	Liquidation under Voluntary Dissolution
	Liquidation under Receivership
	Status of Creditors in Liquidation
	Accounting for Liquidation
XXIX	Combinations and Consolidations		[507]
	Reason for Combination
	Types of Consolidation
	Accounting for the Holding Company
	Distinction between Consolidation and Merger
	Formation of Consolidation and Merger
	Principles of Valuation of the Constituent Companies
	Fundamental Principle of Equalization of Conditions
	Valuation of Partnership
	Earning Capacity
	Good-Will
	Capitalization of a Consolidation or a Merger
	Payment of Amalgamated Interests
	Closing the Books of the Merged Concerns
	Opening the Books of the Merger
XXX	Branch House Accounting		[521]
	Advantages of Branch and Agency System
	Agency and Branch Differentiated
	Degree of Control Desired
	Factors of Successful Management
	Main Principles of Branch Accounting
	Agency Accounts
	Branch Accounting Records
	Illustration of Simple Branch Accounts
	Illustration of More Complex Branch Accounts
	Purchases
	Sales
	Adjustments on Branch and Head Office Books
	Example of Adjusting Entries
	Reports from the Branch
	Examples of Reports
XXXI	Branch House Accounting (Continued)		[542]
	Foreign Exchange
	The Accounting Problem of the Foreign Branch
	Accounts Opened on Books
	Handling Fluctuations in Foreign Exchange
	Conversion of Branch Results
	Illustrative Bookkeeping Problems
	Local Supervision of the Foreign Branch
	The Foreign Sales Agency
	Method of Conversion of Results
	The Foreign Purchasing Agency
XXXII	Suspense Accounts; Numbered Accounts;
	Adjustment of Fire Losses		[556]
	Suspense Accounts
	Definition of Suspense Accounts—General Purpose
	Reserve for Doubtful Accounts as a Suspense Account
	Use of Suspense Ledger
	Accounts Receivable Hypothecated
	Accounting for Accounts Receivable Discounted
	Numbered Accounts
	Allotment of Numbers to Accounts
	Adjustment of Fire Losses
	The Insurance Contract
	Requirements in Case of Loss
	Determination of Value of Loss
	Adjustment of Differences
	Effect of Coinsurance Clause
	Method of Record-Keeping to Facilitate Ready Adjustment
	Adjusting Entries for Fire Losses
XXXIII	Statistics in Business; Private Books; Journal
	Vouchers; Building Expenses and Income		[581]
	Statistics in Business
	Value of Business Statistics
	Railroad Statistics
	Manufacturing Statistics
	Mercantile Statistics
	Use of Graphs in the Presentation of Statistics
	Advantages of the Use of Graphs
	Principles of Graph Construction
	Private Books
	Purpose and Content
	Operation of Private Books
	Journal Vouchers
	Need for the Journal Voucher
	Index to Journal Vouchers
	Content of Voucher
	Other Methods of Authorizing Entries
	Building Expenses and Income
	Allocation of Building Expense
XXXIV	The Consolidated Balance Sheet and
	Profit and Loss Summary		[600]
	Purpose and Function
	Problem of Partial Ownership
	Conditions under which Used
	The Setting Up of the Consolidated Balance Sheet
	Showing of Intercompany Accounts
	Showing of Notes Discounted
	Reconcilement of Current Accounts
	Valuation of Inventory
	Reserve for Intercompany Profits
	Valuation of Inventory—Minority Interests
	Valuation of Liabilities
	Showing of Capital Stock
	Showing of Surplus
	Showing of Deficit
	Showing of Profit and Loss Summary
	The Consolidated Profit and Loss Summary
	Illustration of Consolidated Balance Sheet
XXXV	Accounts and Reports of Receivers and Trustees		[620]
	Appointment of Assignee or Receiver
	Appointment of Trustee
	Accounts and Reports of a Receiver in Equity
	Reports to the Court
	Accounts and Reports in Bankruptcy Proceedings
	Initial Statements Presented to the Court
	Reports and Accounts of Receiver or Trustee
	Liquidating Dividends
	Relative Standing of the Creditors
	Statement of Affairs
	Basis of Valuations in Statement of Affairs
	Deficiency Account
	Illustration of Statement of Affairs and Deficiency Account
	Realization and Liquidation Account
	Evolution of the Realization and Liquidation Account
	Supporting Schedules
	The Question of Cash
	The Handling of Valuation Reserves
	Illustration of Realization and Liquidation Statement
	Uses to which Realization and Liquidation Statement May be Put
	Liquidation of a Partnership by Instalments
	Nature of the Problem
	Illustration of Liquidation by Instalments
Appendix	A—Practice Work for Student—First Half-Year		[655]
	B—Practice Work for Student—Second Half-Year		[694]
	C—Miscellaneous Problems for Supplementary Work		[727]
	D—Review Questions		[755]

FORMS AND CHARTS

	Page
Stock Book or Stock Ledger	[22]
Stock Book to be Kept by Brokers
(New York Form Prescribed by Comptroller)	[23]
Stock Book to be Kept by Corporations and Transfer Agents
(New York Form Prescribed by Comptroller)	[23]
Voucher	[30], [31]
Voucher Check—Double	[33]
Voucher Check—Single	[34]
Voucher Register	[35]
Chart Showing Actual and Theoretical Depreciation	[105]
Chart Showing Progress of Uniform Depreciation
and of Diminishing Efficiency	[115]
Graphic Chart—Straight Line Method	[153]
Graphic Chart—Working Hours Method	[155]
Graphic Chart—Fixed Percentage of Diminishing Value Method	[158]
Graphic Chart—Sinking Fund Method	[162]
Graphic Chart—Annuity Method	[166]
Plant Ledger	[193]
Branch Report to Head Office	[541]
Head Office Ledger Account—Summary of Branch Expenses	[541]
Chart Showing Comparison of Sales with Cost of Advertising	[585]
Chart Showing Comparison of Sales with Gross Profits	[586]
Chart Showing Comparison of Sales, Purchases,
and Sales Salaries	[587]
Chart Showing Comparison of Sales with Cost of Sales	[588]
Journal Voucher	[593]
Card Index for Journal Vouchers	[594], [595]

Accounting—Theory and Practice

CHAPTER I
THE CORPORATION

The Corporation

In Volume I, Chapters XLVIII and XLIX, the fundamental characteristics of the corporation were explained and discussed briefly and some of its peculiar accounting features were set forth. Here these matters will be gone into more fully and additional aspects of this type of organization will be treated. In Volume I were explained the advantages and disadvantages of the corporate form, the procedure incident to the formation of a corporation, its charter, officers, working organization and management, the records peculiar to a corporation, the showing of proprietorship, opening the corporation’s books, booking premium and discount on stock, change from partnership to corporation, the distribution of profits, dividends, etc. Only so much of the information already presented will now be repeated as may be necessary to make the treatment here complete.

Classification and Definitions

As instruments for the transaction of business, corporations may be classified in a number of ways. First, all corporations are either public or private. Public corporations are the governmental organizations set up to transact the collective business of a city, a county, a township, or school district.