THE BUSY RETAIL STORE OF THE L. E. WATERMAN COMPANY
At the "Pen Corner," 173 Broadway, New York City

Cyclopedia

Commerce, Accountancy,
Business Administration

Volume 4

A General Reference Work on

ACCOUNTING, AUDITING, BOOKKEEPING, COMMERCIAL LAW, BUSINESS
MANAGEMENT, ADMINISTRATIVE AND INDUSTRIAL ORGANIZATION,
BANKING, ADVERTISING, SELLING, OFFICE AND FACTORY
RECORDS, COST KEEPING, SYSTEMATIZING, ETC.

Prepared by a Corps of

AUDITORS, ACCOUNTANTS, ATTORNEYS, AND SPECIALISTS IN BUSINESS METHODS AND MANAGEMENT

Illustrated with Over Two Thousand Engravings

TEN VOLUMES

CHICAGO
AMERICAN TECHNICAL SOCIETY
1910

AMERICAN SCHOOL OF CORRESPONDENCE

AMERICAN TECHNICAL SOCIETY

Entered at Stationers' Hall, London
All Rights Reserved

Authors and Collaborators

JAMES BRAY GRIFFITH, Managing Editor

Head, Dept. of Commerce, Accountancy, and Business Administration, American School of Correspondence.

ROBERT H. MONTGOMERY

Of the Firm of Lybrand, Ross Bros. & Montgomery, Certified Public Accountants.

Editor of the American Edition of Dicksee's Auditing.

Formerly Lecturer on Auditing at the Evening School of Accounts and Finance of the University of Pennsylvania, and the School of Commerce, Accounts, and Finance of the New York University.

ARTHUR LOWES DICKINSON, F. C. A., C. P. A.

Of the Firms of Jones, Caesar, Dickinson, Wilmot & Company, Certified Public Accountants, and Price, Waterhouse & Company, Chartered Accountants.

WILLIAM M. LYBRAND, C. P. A.

Of the Firm of Lybrand, Ross Bros. & Montgomery, Certified Public Accountants.

F. H. MACPHERSON, C. A., C. P. A.

Of the Firm of F. H. Macpherson & Co., Certified Public Accountants.

CHAS. A. SWEETLAND

Consulting Public Accountant.

Author of "Loose-Leaf Bookkeeping," and "Anti-Confusion Business Methods."

E. C. LANDIS

Of the System Department, Burroughs Adding Machine Company.

HARRIS C. TROW, S. B.

Editor-in-Chief, Textbook Department, American School of Correspondence.

CECIL B. SMEETON, F. I. A.

Public Accountant and Auditor.

President, Incorporated Accountants' Society of Illinois.

Fellow, Institute of Accounts, New York.

JOHN A. CHAMBERLAIN, A. B., LL. B.

Of the Cleveland Bar.

Lecturer on Suretyship, Western Reserve Law School.

Author of "Principles of Business Law."

HUGH WRIGHT

Auditor, Westlake Construction Company.

GLENN M. HOBBS, Ph. D.

Secretary, American School of Correspondence.

JESSIE M. SHEPHERD, A. B.

Associate Editor, Textbook Department, American School of Correspondence.

GEORGE C. RUSSELL

Systematizer.

Formerly Manager, System Department, Elliott-Fisher Company.

OSCAR E. PERRIGO, M. E.

Specialist in Industrial Organization.

Author of "Machine-Shop Economics and Systems," etc.

DARWIN S. HATCH, B. S.

Assistant Editor, Textbook Department, American School of Correspondence.

CHAS. E. HATHAWAY

Cost Expert.

Chief Accountant, Fore River Shipbuilding Co.

CHAS. WILBUR LEIGH, B. S.

Associate Professor of Mathematics, Armour Institute of Technology.

L. W. LEWIS

Advertising Manager, The McCaskey Register Co.

MARTIN W. RUSSELL

Registrar and Treasurer, American School of Correspondence.

HALBERT P. GILLETTE, C. E.

Managing Editor, Engineering-Contracting.

Author of "Handbook of Cost Data for Contractors and Engineers."

R. T. MILLER, JR., A. M., LL. B.

President, American School of Correspondence.

WILLIAM SCHUTTE

Manager of Advertising, National Cash Register Co.

E. ST. ELMO LEWIS

Advertising Manager, Burroughs Adding Machine Company.

Author of "The Credit Man and His Work" and "Financial Advertising."

RICHARD T. DANA

Consulting Engineer.

Chief Engineer, Construction Service Co.

P. H. BOGARDUS

Publicity Manager, American School of Correspondence.

WILLIAM G. NICHOLS

General Manufacturing Agent for the China Mfg. Co., The Webster Mfg. Co., and the Pembroke Mills.

Author of "Cost Finding" and "Cotton Mills."

C. H. HUNTER

Advertising Manager, Elliott-Fisher Co.

FRANK C. MORSE

Filing Expert.

Secretary, Browne-Morse Co.

H. E. K'BERG

Expert on Loose-Leaf Systems.

Formerly Manager, Business Systems Department, Burroughs Adding Machine Co.

EDWARD B. WAITE

Head, Instruction Department, American School of Correspondence.

Authorities Consulted

The editors have freely consulted the standard technical and business literature of America and Europe in the preparation of these volumes. They desire to express their indebtedness, particularly, to the following eminent authorities, whose well-known treatises should be in the library of everyone interested in modern business methods.

Grateful acknowledgment is made also of the valuable service rendered by the many manufacturers and specialists in office and factory methods, whose coöperation has made it possible to include in these volumes suitable illustrations of the latest equipment for office use; as well as those financial, mercantile, and manufacturing concerns who have supplied illustrations of offices, factories, shops, and buildings, typical of the commercial and industrial life of America.

JOSEPH HARDCASTLE, C. P. A.

Formerly Professor of Principles and Practice of Accounts, School of Commerce, Accounts, and Finance, New York University.

Author of "Accounts of Executors and Testamentary Trustees."

HORACE LUCIAN ARNOLD

Specialist in Factory Organization and Accounting.

Author of "The Complete Cost Keeper," and "Factory Manager and Accountant."

JOHN F. J. MULHALL, P. A.

Specialist in Corporation Accounts.

Author of "Quasi Public Corporation Accounting and Management."

SHERWIN CODY

Advertising and Sales Specialist.

Author of "How to Do Business by Letter," and "Art of Writing and Speaking the English Language."

FREDERICK TIPSON, C. P. A.

Author of "Theory of Accounts."

CHARLES BUXTON GOING

Managing Editor of The Engineering Magazine.

Associate in Mechanical Engineering, Columbia University.

Corresponding Member, Canadian Mining Institute.

F. E. WEBNER

Public Accountant.

Specialist in Factory Accounting.

Contributor to The Engineering Press.

AMOS K. FISKE

Associate Editor of the New York Journal of Commerce.

Author of "The Modern Bank."

JOSEPH FRENCH JOHNSON

Dean of the New York University School of Commerce, Accounts, and Finance.

Editor, The Journal of Accountancy.

Author of "Money, Exchange, and Banking."

M. U. OVERLAND

Of the New York Bar.

Author of "Classified Corporation Laws of All the States."

THOMAS CONYNGTON

Of the New York Bar.

Author of "Corporate Management," "Corporate Organization," "The Modern Corporation," and "Partnership Relations."

THEOPHILUS PARSONS, LL. D.

Author of "The Laws of Business."

E. ST. ELMO LEWIS

Advertising Manager, Burroughs Adding Machine Company.

Formerly Manager of Publicity, National Cash Register Co.

Author of "The Credit Man and His Work," and "Financial Advertising."

T. E. YOUNG, B. A., F. R. A. S.

Ex-President of the Institute of Actuaries.

Member of the Actuary Society of America.

Author of "Insurance."

LAWRENCE R. DICKSEE, F. C. A.

Professor of Accounting at the University of Birmingham.

Author of "Advanced Accounting," "Auditing," "Bookkeeping for Company Secretary," etc.

FRANCIS W. PIXLEY

Author of "Auditors, Their Duties and Responsibilities," and "Accountancy."

CHARLES U. CARPENTER

General Manager, The Herring-Hall-Marvin Safe Co.

Formerly General Manager, National Cash Register Co.

Author of "Profit Making Management."

C. E. KNOEPPEL

Specialist in Cost Analysis and Factory Betterment.

Author of "Systematic Foundry Operation and Foundry Costing," "Maximum Production through Organization and Supervision," and other papers.

HARRINGTON EMERSON, M. A.

Consulting Engineer.

Director of Organization and Betterment Work on the Santa Fe System.

Originator of the Emerson Efficiency System.

Author of "Efficiency as a Basis for Operation and Wages."

ELMER H. BEACH

Specialist in Accounting Methods.

Editor, Beach's Magazine of Business.

Founder of The Bookkeeper.

Editor of The American Business and Accounting Encyclopedia.

J. J. RAHILL, C. P. A.

Member, California Society of Public Accountants.

Author of "Corporation Accounting and Corporation Law."

FRANK BROOKER, C. P. A.

Ex-New York State Examiner of Certified Public Accountants.

Ex-President, American Association of Public Accountants.

Author of "American Accountants' Manual."

CLINTON E. WOODS, M. E.

Specialist in Industrial Organization.

Formerly Comptroller, Sears, Roebuck & Co.

Author of "Organizing a Factory," and "Woods' Reports."

CHARLES E. SPRAGUE, C. P. A.

President of the Union Dime Savings Bank, New York.

Author of "The Accountancy of Investment," "Extended Bond Tables," and "Problems and Studies in the Accountancy of Investment."

CHARLES WALDO HASKINS, C. P. A., L. H. M.

Author of "Business Education and Accountancy."

JOHN J. CRAWFORD

Author of "Bank Directors, Their Powers, Duties, and Liabilities."

DR. F. A. CLEVELAND

Of the Wharton School of Finance, University of Pennsylvania.

Author of "Funds and Their Uses."

CHICAGO SALES AND DISPLAY ROOMS OF THE NEW HAVEN CLOCK COMPANY

Foreword

With the unprecedented increase in our commercial activities has come a demand for better business methods. Methods which were adequate for the business of a less active commercial era, have given way to systems and labor-saving ideas in keeping with the financial and industrial progress of the world.

Out of this progress has risen a new literature—the literature of business. But with the rapid advancement in the science of business, its literature can scarcely be said to have kept pace, at least, not to the same extent as in other sciences and professions. Much excellent material dealing with special phases of business activity has been prepared, but this is so scattered that the student desiring to acquire a comprehensive business library has found himself confronted by serious difficulties. He has been obliged, to a great extent, to make his selections blindly, resulting in many duplications of material without securing needed information on important phases of the subject.

In the belief that a demand exists for a library which shall embrace the best practice in all branches of business—from buying to selling, from simple bookkeeping to the administration of the financial affairs of a great corporation—these volumes have been prepared. Prepared primarily for use as instruction books for the American School of Correspondence, the material from which the Cyclopedia has been compiled embraces the latest ideas with explanations of the most approved methods of modern business.

Editors and writers have been selected because of their familiarity with, and experience in handling various subjects pertaining to Commerce, Accountancy, and Business Administration. Writers with practical business experience have received preference over those with theoretical training; practicability has been considered of greater importance than literary excellence.

In addition to covering the entire general field of business, this Cyclopedia contains much specialized information not heretofore published in any form. This specialization is particularly apparent in those sections which treat of accounting and methods of management for Department Stores, Contractors, Publishers and Printers, Insurance, and Real Estate. The value of this information will be recognized by every student of business.

The principal value which is claimed for this Cyclopedia is as a reference work, but, comprising as it does the material used by the School in its correspondence courses, it is offered with the confident expectation that it will prove of great value to the trained man who desires to become conversant with phases of business practice with which he is unfamiliar, and to those holding advanced clerical and managerial positions.

In conclusion, grateful acknowledgment is made to authors and collaborators, to whose hearty cooperation the excellence of this work is due.

(For professional standing of authors, see list of Authors and Collaborators at front of volume.)

VOLUME IV

Theory of Accounts	By James B. Griffith	Page [11]
Dictionary of Commercial Terms—Commercial Abbreviations—Objects ofBookkeeping—Methods—Single Entry—Double Entry—Advantages of Double Entry—Classes of Account Books—Recording Transactions—Promissory Notes—BankDeposits—Sample Transactions—Classes of Accounts—Classes of Assets—RevenueAccounts—Rules for Journalizing—Rules for Posting—Trial Balance—SampleLedger Accounts—Treatment of Cash Discounts—Profit and Loss—MerchandiseInventory Accounts—Balance Sheet—Journalizing Notes—JournalizingDrafts
Single Proprietorship and Partnership Accounts	By James B. Griffith	Page [119]
Retail Business—Proprietors' Accounts—Inventory—Retail Coal Books—Uncollectible Accounts—Sales Tickets—Departmental Records—PartnershipAgreements—Kinds of Partners—Participation in Profits—Interest onInvestments—Capital and Personal Accounts—Opening and Closing PartnershipBooks—Model Set of Books
Corporation and Manufacturing Accounts	By James B. Griffith	Page [195]
Classification of Corporations—Joint Stock Company—Creation of Corporation—Stockholders—Stock Certificates—Capitalization—Capital and Capital Stock—Stock Subscriptions—Management of Corporations—Powers of Directors andOfficers—Dividends—Closing Transfer Books—Sale of Stock Below Par—CorporationBookkeeping—Books Required—Opening Entries—Changing Booksfrom Partnership to Corporation—Stock Donated to Employes—Reserves—ComputingSinking Funds—Premium and Interest on Bonds—Manufacturingand Cost Accounts—Factory Assets—Factory Expenses—Balance Ledger
The Voucher System of Accounting	By James B. Griffith	Page [273]
Use of Vouchers—Voucher Checks—Journal Vouchers—Voucher Register—Operation of System—Auditing Invoices—Executing Vouchers—Paying, Filing,and Indexing Vouchers—Voucher File—Demonstration of System—VoucherAccounting—Unit System—Combined Purchase Ledger and Invoice File—PrivateLedger—Private Journal—General Ledger—Manufacturing Accounts—ChartingAccounts—Chart of Trading Business—Chart of ManufacturingAccounts—Examples of Charts—Explanation of Charts

Review Questions		Page [325]

Index		Page [345]

THE ACCOUNTING DEPARTMENT IN THE OFFICES OF THE GREEN FUEL ECONOMIZER COMPANY, MATTEAWAN, N. Y.

THEORY OF ACCOUNTS

PART I

Like every other special branch of study, the Theory and Practice of Accounts has its own special vocabulary of technical terms. In all literature of accounting and business methods in general, these terms are frequently employed; and the student will find it not only advantageous, but in fact absolutely necessary, to familiarize himself thoroughly with their use.

The commercial terms and definitions in the following list are the ones most commonly used in business. Great care has been exercised in preparing a list that is practical and in making the definitions clear.

DICTIONARY OF COMMERCIAL TERMS

Acceptance—When a draft or bill of exchange is presented to the payer, he writes across the face "Accepted" or "Accepted for payment at ..." and signs his name. It is then termed an acceptance.

Accommodation Note—A note given without consideration of value received; usually done to enable the payee to raise money.

Account—

(a) A statement of debits and credits.

(b) A record of transactions with a particular person or persons, or with respect to a particular object.

Account Books—Books in which records of business transactions or accounts are kept.

Account Current—An account of transactions during the present month, week, or other current period. An open account.

Account Sales—A statement in detail covering sales, expenses, and net proceeds made by a commission merchant to one who has consigned goods to him.

Accrued; Accrued Interest—

(a) Accumulated interest not payable until a specified date.

(b) Accumulated rent.

Specimen Account

Acknowledgment—A certificate to the genuineness of a document signed and sworn to before an authorized official, as a Notary Public.

Administrator—One appointed by the court to settle an estate.

Ad Valorem—According to value. A term used to indicate that duties are payable on the value rather than on the weight or quantity of articles.

Adventure—As used in business, this term signifies a venture or speculation.

Account Sales

Advice—Information with reference to a business transaction; notice of shipment; notice of draft. Transmitted by letter or telegram.

Affidavit—A statement or declaration made under oath, before an authorized official.

Agent—One authorized to act or transact business for another.

Agreement—A mutual contract entered into by two or more persons.

Acknowledgment

Allowance—An abatement; a credit for inferior goods, error in quantity, etc.

Annual Statement—A yearly summary of the transactions of a business.

Annuity—An amount payable to or received from another each year for a term of years or for life.

Antedate—To date a document or paper ahead of the actual time of its execution.

Appraise—To place a value on goods or property. An estimate made for the purpose of assessing duties or taxes.

Appreciation—An increase in value. Real estate may increase in value on account of the demand for property in the immediate vicinity.

Approbation or Approval Sales. Goods delivered to customers with the understanding that if not found satisfactory they are to be returned within a definite period and without payment.

Articles—A collection of merchandise; parts of a written agreement, as "Articles of Association."

Arbitrate—To determine or settle disputes between two or more parties, as settlement of differences between employer and employees.

Assets—All of the property, goods, possessions of value of a person or persons in business.

Assign—To transfer or convey to another for the benefit of creditors.

Assignee—The person to whom the property or business is transferred. Usually acts as a trustee of the creditors.

Assignment—The debtor's transfer or conveyance of his property to a trustee.

Assignor—The debtor who makes an assignment, or transfers property for the benefit of creditors.

Association—A body organized for a common object.

Attachment—A legal seizure of goods to satisfy a debt or claim.

Auxiliary—Books of record other than books of original entry or principal books of account. Books used for purposes of distribution or the gathering of statistics are "auxiliary" books.

Audit—To verify the accuracy of accounts by examining or checking records pertaining thereto.

Average—As applied to accounts, the mean time which bills of different dates have to run, or an average due date for several accounts. Determining the due date is sometimes referred to as averaging accounts.

Balance—The difference between the debit and credit sides of an account. To close an account by entering the amount on the lesser side necessary to make the two sides balance.

Balance Sheet—A statement or summary in condensed form made for the purpose of showing the standing or condition of a business.

Balance of Trade—The balance or difference in value between the imports and exports of a country.

Bale—The form in which certain commodities are marketed. A bale of cotton, bale of hay, etc.

Bank Balance—The net amount to the credit of a depositor at the bank.

Bank Note—A note issued by a bank, payable on demand, which passes for money.

Bank Draft—An order drawn by one bank on another for the purpose of paying money.

Bank Pass-Book—A small book furnished to a depositor by his bank, in which are entered the amounts of deposits and sometimes the checks or withdrawals.

Bankrupt—A person, firm, or corporation whose liabilities exceed their assets; who are unable to meet their obligations.

Bill—A statement or record of goods bought or sold, or of services rendered.

Bill

Bill of Exchange—An order on a given person or bank to pay a specified amount to the person and at the time named in the bill. The term is more commonly used to apply to orders on another country, being made in triplicate.

Bill of Lading—A receipt issued by the representative of a common carrier, for goods accepted for transportation to a specified point and at a given rate. It is a contract, and, when transferred to a third party, becomes an absolute title to the goods.

Bill of Lading

Bill of Sale—A written document executed by the seller, transferring title to personal property.

Bill Head—The blank or form on which a bill is made. For illustration, see Bill.