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+viii.
+PREFACE.
+
+Students, their reading will naturally to a large extent be supplemented by practical experience, which, (if properly guided) is perhaps the best teacher of all. In the case of others, it must be the aim of the teacher to, so far as lies in his power, supply the place of such practical instruction, for this is a task which, it is thought, cannot be successfully accomplished by any book.
+
+It has throughout been my aim to handle the matter in such a manner that the reader may be inspired with a real interest in a subject which is in many quarters thought to be absolutely uninteresting. If this object has been achieved, the Student will have already made a great step towards a mastery of the science of Accounting ; and it is perhaps safe to say that until such an interest has been aroused his progress is not likely to be rapid. If, in this endeavour to popularise an admittedly unpopular subject, I have occasionally fallen into inaccuracies of expression, I can only hope that these will be kindly pointed out to me by my readers, and I promise that their suggestions shall receive my best attention in any subsequent edition.
+
+I should like to take this opportunity of expressing my thanks to those practitioners who have already so kindly assisted me with suggestions and information. In particular are my acknowledgements due to Mr. A. MURRAY, F.C.A., Mr. ROGER N. CARTER, F.C.A., Mr. CHARLES E. BARKER, F.C.A., and the Hon. Secretaries of the various Chartered Accountants' Students' Societies in Great Britain, who have supplied me with the material upon which Chapters XXII. and XXIII. are founded.
+
+The Appendix on the Law relating to Accounts, by Mr. J. E. G. DE MONTMORENCY, B.A., LL.B., will, I trust, be found as interesting and as instructive to my readers as it has already proved to myself, and will, I venture to hope, materially help to make the present work acceptable to Lawyers as well as to Students of Accounts. The second Appendix has been added for the convenience of those who may wish to use the work as a text-book. The questions have, for the most part, been extracted from the papers set from time to time at the Examinations of the Institute of Chartered Accountants, but also comprise some that have been set by the Joint Examining Board of Chartered Accountants in Scotland, and some set by the Author at Examinations held by the Chartered Institute of Secretaries, the University of Birmingham, the London School of Economics, and other bodies. It is hoped, therefore, that they will be found of a thoroughly representative character.
+
+LAWRENCE R. DICKSEE.
+
+COPTHALL HOUSE, LONDON, E.C.
+September 24th 1903.
+
+"ADVANCED ACCOUNTING."
+
+**ERRATA**
+
+Page 6. Six lines from end, for £13.10. od. read £1 os. od.
+- 15th Seven lines from end, for £57.10. od. read £47 108. 0d.
+- m—First column of Trading Account, for £35.35
+- m—Seventh column of Trading Account, for £35.35
+os. od. read £3,885 os. od.
+
+Page 29. For Purchases £76,516 os. od. read £76,516
+28. 94d.
+
+- 29th For Trade Expenses (cost) 233 b.d. read £293
+130. 11d., and after Difference in Exchange
+(credited)
+- 29th Ninth line, for £3.55 on 3rd read £3,395 os. gd.
+88.—For this Account substitute the following:
+Dr.
+PURCHASE IN ACCOUNT WITH VENDOR.
+Cr.
+
+
+
+
+| Inc. |
+To Purchase-price, as per Contract |
+Ex d |
+L x c |
+pay. |
+By Ground Rent from 26th to 9th December 1900, 2 days at 2/6 |
+E d |
+E d |
+
+
+
+
+ |
+Firs Insurance paid on advance of goods |
+5000 o i |
+ |
+ |
+2/6 |
+ |
+ |
+
+
+ |
+£15 by per cent. |
+17 |
+ |
+ |
+2/6 |
+o i o 3 |
+ |
+
+
+ |
+Gentleman's Bank Rate, paid in advance on 2nd December months |
+17 |
+ |
+ |
+2/6 |
+on credit from March 1900 to June 1900 |
+2/6 y |
+
+
+ |
+Interest on advance for 2nd December months at 2/6 per cent. |
+o s |
+ |
+ |
+2/6 |
+Penalty Tax for the Year ending June 1900 at 2/6 per cent. |
+2/6 y |
+
+
+ |
+Total Balance down. |
+444 |
+ |
+ |
+Balance down. |
+11/5 n |
+A s 11 |
+
+
+ | Balance down. | £500 A | |
+
+
+| Inc. | To Balance down. | 444 os 5 | Peb. 21 By Cash | | 1,000 os 7 | |
+
+
+| Inc. |
+
+Page 89.—One line from end, for 6% read 5%
+- 91st Fifth line, for 6% read 5%
+- 91st For General Expenses £3,000 real General
+- 92nd Tenth line, for £4 on od.read £3318 os. od.
+- 92nd Twenty-ninth line, for two days read £64 os. od.
+- 92nd Twenty-sixth line, for two days read £64 os. od.
+- 93rd Third line, for £40 on od.read £2032 os. od.
+- 93rd D Account* for Interest £50.74 real
+- 93rd B Account* for Interest £1414 os. od.
+- 93rd Two lines from end, for £23 on od.read
+- 93rd Twelve lines from end, for £195.55 real £189,885.
+- 93rd Seventeenth line, for £88 real £888
+- 93rd Twenty-first line from end, for £233 on od.read
+- 93rd Six lines from end, for £1,539.34 real od.read
+
+Page 254.—For Cash on Deposit £200,000 real Cash on Deposit £200,000.
+- 293 Twelfth line for £50 on od.read £3,669
+- 16o th
+- 293 Thirteenth line, for £50 on od.read £3,669
+- 43rd Third line for £13,899 in rd. real £13,898
+- 297 —The Total Amount of Profit and Loss Account is
+£4,240 to sd.
+- 297 —Twelfth line for Rs.80,355 rs.p op. read
+Rs.80,355 rs.p op.
+- 297 Second Extension of Capital Liabilities is Rs.997,958 to sd.
+- 297 —Third line for Rs.77,770 in rd.real Rs.77,770
+- 297 —Total Sales are Rs.474,147 in rd.real Rs.474,147
+
+Page 355.—For Sales Epi.soo real Sale Rs.800,000.
+- 36th For Sales Epi.soo real Sale Rs.800,000.
+- 36th Cash received from G. £200 omitted.
+- Quesion: Total payments for Rs.10,000 real
+£100,000.
+
+![]() A page from an accounting ledger with various entries and corrections marked as "ERRATA."
+
+---
+
+![]() City of Birmingham logo
+CHAPTER I.
+
+INTRODUCTION.
+
+THE object of the present work is to combine within the limits of a volume of reasonable size, such information with regard to the theory and practice of accounting as will enable, or at least assist, the reader to attain the standard fixed by such examinations as those of the Institute of Chartered Accountants (Final), the Society of Accountants and Auditors (Final), the University of Birmingham (Bachelor of Commerce), University of London (Bachelor of Science [Economics]), etc. That the requisite information can be obtained from books already published is not denied, but to obtain it from such sources would involve consulting a relatively large number of different works, from each of which the desired portion would have to be selected, while many existing publications, which are in other respects excellent, are defective by reason of not being sufficiently up-to-date to meet present requirements. From what has been said, however, it will be seen that the present volume lays no claim to absolute originality, but it is hoped that --at only on the grounds of economy, of both time and money--it will be found to meet the requirements of those who desire to claim (without unnecessary expenditure of either) a thorough knowledge of the higher branches of accounting. It is hardly to be expected that this book will be read by those who are interested in those whose practical experience with the subject has been fairly considerable; but the effort has been made in the present work to study the requirements not merely of the practical man who desires further guidance and assistance in the formulation of his ideas upon a thoroughly sound theoretical basis, but also the student in accounts who, while benefit of the advantages that can be derived only from actual practice, yet finds it necessary to acquire a sound mastery of the subject as a whole.
+
+In a work of this description, it is manifestly unnecessary to --at the waste of valuable space-- weary the reader with detailed explanations upon quite elementary matters. A reasonable amount of knowledge on his part (such as might readily be obtained by a person of Parts I. and II. of the author's course) would suffice for all purposes; this has therefore been assumed; but because it has been found that many who have arrived at this standard are yet somewhat deficient on many elementary principles of fundamental importance, some space has been devoted to the consideration of certain matters that might be regarded as not properly belonging to the study of advanced bookkeeping. These elementary questions are, however, passed over as quickly as possible, and are merely introduced for the sake of avoiding any risk of misconception as to the manner in which the more advanced problems are handled. It is hoped, therefore, that while the present work will be found sufficiently exhaustive, it will at the same time not impose too great a strain upon the patience of the advanced student.
+
+It is perhaps desirable to add a word as to the manner in which the subject has been handled. The chapters dealing chiefly with questions of principle follow the normal lines, although numerous paragraph headings have been introduced to facilitate
+
+ii
+
+2
+ADVANCED ACCOUNTING.
+
+subsequent reference. Those chapters, however, which explain actual operations in practical book-keeping are in each case illustrated by *pra formi* problems introducing the various points to be elucidated. By this means it is hoped that an abundance of practical work may be given to the work.
+
+In conclusion, it may be added that while a complete knowledge of every point mentioned is not essential to the thorough understanding of each particular section of the subject, yet to a very large extent it is impossible for the higher problems of bookkeeping to be thoroughly grasped by those who have not studied the less difficult applications of the science. It follows therefore that the fullest benefits can only be derived from each individual chapter after a careful study of all those that precede it. At the same time, it should be stated that the various chapters have been framed with a view to facilitating ready reference with regard to any particular point on which information may be sought, and it is therefore hoped that the work may be found of value to the practical man of business as well as to the student who has sufficient leisure to study the subject exhaustively.
+
+![]() A page from a book about advanced accounting.
+
+CHAPTER II.
+
+CAPITAL AND REVENUE.
+
+THE proper distinction between Capital and Revenue items is one of the most important matters in connection with accurate account- ing, and as time goes on, and the tendency is for business operations to become continually more complex, the importance of this distinction becomes increased rather than reduced. The reader who has been in the habit of preparing Balance Sheets and Profit and Loss Accounts from a Trial Balance will probably hardly need to be reminded that this operation consists in separating out of the various Ledger Balances under the headings of "Capital" and "Revenue," the two items being collected together in the form of a Balance Sheet, which the Revenue Account is collected into another account, which may be variously named "Trading Account," "Profit and Loss Account," "Revenue Account," &c., and which may (for purposes of convenience) be described by the generic term "Revenue Account." Simple as this operation may seem from the point of view of the practical bookkeeper, it is hardly overestimating the case to say that most of the errors of principle that are perpetrated in practice arise from the lack of clarity, or a lack of desire, to strictly discriminate between Capital and Revenue items; hence the vast importance of a clear understanding upon this point. This understanding may, it is thought, be best acquired by dealing with the subject upon systematic lines.
+
+EXAMPLE OF A SINGLE SHIP.
+One of the most ancient (and therefore one of the simplest) modes of transacting business is through the agency of a ship. Our first example may therefore be appropriately sought in this direction. Shortly stated, the position of affairs here is that the proprietors agree to find among them a certain sum of money, which is thought sufficient for the purposes of their undertaking. The amount of money so found by them is described as the Capital of the venture, and from the point of view of the undertaking (that is to say, in the books of the ship) it is regarded as a receipt upon Capital Account. The bulk of the money so raised would be spent in acquiring the desired vessel, and the amount so expended comes under the heading of "Capital Expenditure." Then there would follow further Capital Expenditure necessary before the ship can start upon its first voyage, in thoroughly fitting it out after it leaves the builders' hands, and in placing on board the necessary stores, &c., to enable it to take the sea. At the moment that the ship has been fully equipped it may be said that Capital Expenditure ceases, and any surplus of Capital Receipts over Capital Expenditure up to that date may be regarded as the "Working Capital"—that is to say, the excess of the moneys adventured by the proprietors over and above those necessary for the equipping of their undertaking, which is deemed necessary to enable it to engage in its business operations without being wholly handicapped by want of capital. This surplus may be represented by means of a balance sheet at any given period during its commence- ment, which will involve the receipt (or "Revenue Account") of various sums earned for freight, passage money, &c., and the expenditure incurred in the process of earning these moneys—e.g., Wages, Consumption of Stores, Coal, Port
+
+2
+
+4
+
+ADVANCED ACCOUNTING.
+
+Dues, and the like. When the voyage has been completed, all outstanding accounts collected, or paid, as the case may be, the result (after replacing those consumed, and the like, and bringing them up to the same level as before) will be that the available cash balance is either more or less than the original amount. As such, any surplus or deficit balance over the working capital will represent profit earned, and any deficiency there may be will represent loss incurred during the voyage. The problem is, from most points of view, quite simple, in that at the completion of each voyage it is possible to strike a balance of accounts, leaving practically no balances outstanding as representing uncompleted transactions. There is, however, a point that must be carefully borne in mind—namely, that this method of arriving at the profit depends for its accuracy upon the assumption that such payments have been made and charged up against Revenue as will make good any wastage that may have taken place in the original equipment of the undertaking. This wastage may be roughly divided under two headings—the consumption of specific stores which may be readily replaced by the purchase of others, and the indirect operations of wear and tear and lapse of time, which detract from the value of the assets represented by Capital Expenditure, but which cannot be conveniently made good by the immediate expenditure of a corresponding sum. This latter class of indirect wastage is known as "Depreciation." The true profits of an undertaking cannot be ascertained without first of all charging against Revenue the amount of loss sustained under the heading Depreciation, but in this particular instance it is usual to ignore Depreciation, because it is thought undesirable to allow large sums money to remain indefinitely in the hands of the ship's manager; but when this course is pursued, it is important to bear in mind that the Revenue Account, omitting as it does to provide for Depreciation, does not show the true profit earned; while, on the other hand, the Capital assets being retained in the books at a figure exceeding their actual value, are overstated to a corresponding extent.
+
+ADDITIONAL CAPITAL EXPENDITURE.
+
+The same principles apply to all other classes of undertakings, but it is rarely that they arise in quite so simple a form, because with most concerns the expenditure on Capital Account, instead of ceasing before the Revenue Account is opened, is continually being added to for the sake of extending or improving the original undertaking. Examples coming under this heading are afforded by gas works, water works, railways, and the like. In these cases Capital Expenditure and expenditure upon Revenue Account have, of necessity, to some extent be incurred simultaneously; but there is as a rule no difficulty in keeping the Capital Expenditure distinct from revenue account and in avoiding principle which are clearly enunciated with regard to it. Only that expenditure which is incurred with a view to completing or perfecting the equipment of the undertaking, and thus increasing its capacity to earn revenue, may be properly charged as Capital Expenditure; all other expenditure must be debited to Revenue.
+
+And as with these undertakings Capital Expenditure will be continually taking place; so on the other hand, will capital assets be continually wearing out; and having to be replaced in order to keep the undertaking as a whole in a proper state of working efficiency. The cost of these replacements must in all cases be charged against Revenue, and (so far as it goes) it will take the place of provision for Depreciation. If the various assets wear out, and have to be replaced very quickly, the expenditure upon renewals will very closely approximate to the actual waste caused by Depreciation; in practice however, there will always be some margin, because a certain amount of wastage must necessarily take place before expenditure can be usually incurred upon renewals and repairs. Even in these cases therefore some allowance for Depreciation is necessary in addition to the actual expenditure; if the
+
+CAPITAL AND REVENUE.
+5
+
+Revenue Account is to show the true profit of the undertaking.
+
+**CAPITAL ASSETS.**
+
+From what has been stated, it will be seen that all expenditure that may properly be regarded as Capital expenditure must be represented by more or less tangible assets, whereas nothing remains to represent expenditure that has been incurred upon Revenue Account. The expenditure under both headings is, in book-keeping, represented by a debit balance in the Ledger, and the ultimate test of the quality of Capital expenditure is so to decide where there exists an asset which may be said to still represent the expenditure incurred.
+
+When, however, a shrinkage in the value of assets has occurred, owing to causes outside the ordinary operations of carrying on the business, it would not be proper to debit such wastage to Revenue Account, for if such a wastage or loss as this were to be debited to Revenue Account the actual result of the trading operations would be obscured. It being desirable, such losses of Capital assets may not necessarily be allocated profits on Revenue Account for that purpose, but under no circumstances does the law require this to be done before profits are divided among the proprietors or undertakers, and in any event it is desirable that the accounts should clearly distinguish between proper expenditure on Revenue Account, and such incidental losses on Capital Account as may have occurred. It thus follows that Capital assets may decrease in value without Revenue being affected in consequence. So long, however, as these assets are not realised, such shrinkage can at best only be accounted for, and it is therefore usual to ignore it in the accounts. Hence, in accounts, there is no indication of the actual value of Capital assets at any given moment and the value at which they appear in the books of account. The proper basis for our present purpose may be taken to be the cost price, subject only to deduction for such Depreciation as may be properly charged against Revenue. Per contra estimated increases in the value of Capital assets should be likewise disregarded.
+
+**FIXED & FLOATING ASSETS.**
+
+The justification for thus ignoring fluctuations in the value of Capital assets is that these assets have been acquired, and are being permanently retained, not with a view to their being eventually realised at a profit in the ordinary course of business, but with a view to their being used for the purpose of enabling trading profits to be made in other ways. For example there is no fixed connection between the realisable value of a ship and its earning capacity; and in the case of a factory, its value to the undertaking depends merely upon the accommodation which it offers, and not upon irrespective of any speculation as to fall that may have taken place in the value of land or building materials. Similarly, the value of machinery to a business depends upon the amount of work that can be turned out, and not upon the quoted price of iron or steel at that particular time. For practical purposes, therefore, these fluctuations may fairly be said to be of no account, and in any event it is quite an open question whether pending a realisation (which is not contemplated), any more reliable basis of value could be adopted than the actual cost in the first instance.
+
+In the case, however, of assets which it is not intended to retain and utilise in the business (as, for example, Stock, Bank Debts, or temporary investments), a wholly different question arises. Here, if the accounts are to be upon a sound basis, it is important not to lose sight of the fact that the whole object of the business is to convert these items into cash at the earliest possible moment or as soon as any increase in their real worth occurs. In every case therefore the intrinsic value at the moment is clearly a potent factor, and any shrinkage that may have taken place must consequently be regarded as a realised loss, if the accounts are to be kept upon a sound basis, and as such it must be deducted from
+
+6
+
+ADVANCED ACCOUNTING.
+
+The value of the asset and debited to Revenue. For
+centra appreciations in the value of these floating
+assets might with equal propriety be credited to
+Revenue; but as, pending actual realisation, there
+must always be a doubt as to whether any such
+appreciation has actually occurred, it is only prudent
+to postpone the credit of such assets until realised,
+such time as it has become actually certain. A further argument in support of this method of treat-
+ment is afforded by the consideration that the proper
+time to take credit for a profit on the realisation of
+floating assets would certainly appear to be the time
+when such realisation is effected. These points
+will, however, be found further discussed later on.
+
+APPRECIATION OF FLOATING ASSETS.
+
+It has already been stated that under no circum-
+stances shall appreciation in the value of fixed
+assets be credited to Revenue, while appreciation
+in the value of floating assets may be so treated under
+circumstances not be taken credit for until actual
+realisation. With regard to the latter, however, a
+few exceptions arise. Certain assets by their nature
+regularly and consistently increase in value in
+exactly the same way (and for the same reasons)
+that most assets decrease in value with equal regularity. Two examples under this heading will,
+it is thought, be sufficient. (1) Reversion, that is to say, an asset which represents the holder's title
+to receive a sum of money at some fixed or deter-
+minate future time. As the future date approaches less
+and less, the value of the reversion increases;
+and, in case of the undertaking whose regular business it is to purchase such assets, Revenue may properly be credited with the actual appreciation from time to time, provided a reasonable margin be reserved for contingencies. Life insurance policies may for this purpose be treated as reversions. (2)
+When the asset represents freehold or leasehold property, to the possession of which the owner will be entitled at the expiration of a tenancy under which he receives a rent less than the true annual value of the property. Here the annual appreciation in value is income as much as the rent that is actually received; but unless a large number of years' property is purchased, it would not be right convenient to postpone taking credit for the amount of such increase until the expiration of the existing tenancy, when the capital value of the property might fairly be written up and Revenue be credited with the excess.
+
+PROBLEM.---A capitalist purchases the freehold of a house of the annual value of £150, subject to a lease-
+at £50 per annum, having unexpired term of five years. How much should he pay for the
+freehold in order to give him a return of 3 per cent. on his money, and what is the
+value of the property at the end of each successive year during the term of the lease?
+
+What is actually purchased in this case is an immediate annuity of £50 per annum (which at 3 per cent. is worth £1,667), and a
+reversion to a further annuity of 200 per annum, commencing 5 years hence. The value of this reversion at 3 per cent. is £1,879:02:14; the total amount to be paid for the freehold would therefore be £2,546:02:28, £2,546:14.
+
+The present value of a reversion of a perpetuity of £1 is, under the 3 per cent. Tables, is as follows:
+
+
+
+
+ |
+Years Deferred |
+ |
+ |
+ |
+ |
+ |
+
+
+
+
+| 5 |
+Deferred |
+... |
+... |
+... |
+$157953 |
+
+
+| 4 |
+... |
+... |
+... |
+... |
+$164595 |
+
+
+| 3 |
+... |
+... |
+... |
+... |
+$17993 |
+
+
+| 2 |
+... |
+... |
+... |
+... |
+$184599 |
+
+
+| 1 |
+... |
+... |
+... |
+... |
+$194763 |
+
+
+
+
+CAPITAL AND REVENUE.
+7
+
+At the end of the first year, therefore, the property may be written up to the value of a reversion deferred four years, at the end of the second year to the value of a reversion deferred three years, and so on. This gives the value of the freehold property as follows:
+
+
+
+ | At Date of Purchase |
+ |
+ |
+ |
+ |
+ |
+ $2367092 |
+
+
+ | At End of First Year |
+ |
+ |
+ |
+ |
+ |
+ 2643495 |
+
+
+ | Second Year |
+ |
+ |
+ |
+ |
+ |
+ 2727953 |
+
+
+ | Third Year |
+ |
+ |
+ |
+ |
+ |
+ 2814099 |
+
+
+ | Fourth Year |
+ |
+ |
+ |
+ |
+ |
+ 2901793 |
+
+
+ | Fifth Year |
+ |
+ |
+ |
+ |
+ |
+ 3000000 |
+
+
+
+NOTE.—The above calculation does not, of course, take into account whatever provision may be necessary for depreciation owing to the deterioration of the fabric of the buildings. This, however, is a separate question, and can only be determined after careful enquiry into the condition of the structure and the class of materials and workmanship employed in its erection.
+
+SUMMARY.
+To sum up the contents of this chapter, it may be stated that "Capital Receipts" are sums contributed to an undertaking, and intended to be permanently left in that undertaking for the sake of enabling it to carry on its business. "Capital Expenditure" is that expenditure bond fide incurred for the sake of acquiring, extending, or completing the equipment of the undertaking, with a view to placing it upon a revenue-earning basis, or applying it to any other purpose. "Working Capital" is the excess of "Capital Receipts" over "Capital Expenditure." "Capital Expenditure" is represented by assets—fixed or floating. "Fixed Assets" are those which form a part of the permanent equipment of the undertaking, which, as such are not intended for realisation. "Floating Assets" are those assets which in the ordinary course of business are continually changing, and which are intended either for consumption in the ordinary process of manufacture or trading operations, or for sale, and such intermediate forms (book debts, Bills Receivable, &c.) as they may take in the process of conversion into cash. Cash and all forms of temporary investment are also included under this heading. "Revenue Receipts" are those which properly arise out of the business operations of the undertaking—e.g., earnings.
+
+Unless the business is upon a cash basis there will, however, always be some discrepancy between the actual receipts and the receipts in respect thereof, and the period during which it is credit to Revenue Account, and the period during which it is chargeable to Depreciation. The former may extend over a period, rather than the actual receipts in cash. Revenue Expenditure consists of all those expenses incurred in connection with the earning of Revenue, including Depreciation of Fixed and Floating Assets. There will, however, always be a difference between Revenue Expenditure and payments on Revenue Account, for disregarding the fact that such payments may be made in advance, or may be in arrear) there will often be no cash payments to represent provision for Depreciation, unless the whole of the provision that is necessary under this heading has been made by actual renewals or repairs during the period in question. If, however, a "Sinking Fund" is created to provide for the renewal of wasting assets, provision for Depreciation will be a cash payment.
+
+![]() A table showing capital receipts and capital expenditure.
+
+8
+ADVANCED ACCOUNTING.
+
+**PROBLEM.**—Classify the debit and credit balances of the following undertakings under their proper headings of Capital and Revenue:
+
+(a) A Ship,
+(b) A Gas Company,
+(c) A Railway Company,
+(d) A Colliery,
+(e) An Ordinary Commercial Undertaking.
+
+**(d) A SHIP.**
+
+
+
+ | Capital Expenditure on Fixed Assets |
+ Debit Balances. |
+ Revenue Expenditure |
+
+
+ | Cost of Ship |
+ Coals |
+ Wages |
+
+
+ | Cost of Structural Improvements |
+ Sundry Provisions, &c. |
+ Insurance |
+
+
+ |
+ Sundry Debts |
+ Depreciation of Renewals |
+
+
+ |
+ Investments |
+ Depreciation (Depreciation) |
+
+
+ |
+ Cash |
+ Dividends to Proprietors |
+
+
+
+
+
+ | Receipts on Capital Account – Fixed Liabilities |
+ Receipts on Capital Account – Financing Liabilities |
+ Receipts on Revenue Account |
+
+
+ | Money received from Proprietors including Dividends, etc. |
+ Outstanding Liabilities for Stores, &c., pur- chased, &c. (Expenses) incurred |
+ Freights earned |
+
+
+ | Money received from Holders of Preference Stock, Mortgages and Bonds |
+ Undivided Profits |
+ Purchase money earned |
+
+
+ |
+ Unallocated provision for Assets |
+ Other Income |
+
+
+
+**(b) A GAS COMPANY.**
+
+
+
+ | Capital Expenditure on Fixed Assets |
+ Debit Balances. |
+ Revenue Expenditure |
+
+
+ | Lands secured |
+ Coals |
+ Coals and other Materials used in manufacture and distribution of Gas and Boiled Water. |
+
+
+ | Habilitations, Machinery, &c. |
+ Sundry Stores |
+ Wages incurred in manufacture and distribution of Gas and Boiled Water. |
+
+
+ | Mains, Meters, and Service Pipes |
+ Sundry Stores |
+ Rent and Maintenance of Works. |
+
+
+ | Cost of promoting Special Acts |
+ Incorporation Gas and Boilers supplied, &c. |
+ Furnishings and Equipment. |
+
+
+ |
+ Investments |
+ General Establishment Charges. |
+
+
+ |
+ Cash |
+ Laws and Regulations.Farliamentary Charges: Opposition:Dissolution of Companies:Interest:Dividends to Proprietors.89/22149/22149/22149/22149/22149/22149/22149/22149/22149/22149/22149/22149/22149/22149/22149/22 |
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a ship's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a gas company's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a ship's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a gas company's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a ship's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a gas company's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a ship's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a gas company's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a ship's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a gas company's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a ship's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a gas company's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a ship's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a gas company's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a ship's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a gas company's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a ship's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a gas company's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a ship's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a gas company's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a ship's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a gas company's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a ship's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets, receipts on capital account - fixed liabilities, receipts on capital account - financing liabilities, receipts on revenue account, and debits and credits for a gas company's operations.
+
+![]() A table showing the classification of capital expenditure on fixed assets,
+
+![]() A table showing the classification of capital expenditure,
+
+![]() A table showing the classification of capi-
+
+![]() A table showing the classifi-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table showing the clas-
+
+![]() A table show-
+
+**CAPITAL AND REVENUE.**
+9
+
+**CREDIT BALANCES.**
+
+
+
+ | Receipts on Capital Account - Fixed Liabilities |
+ Receipts on Capital Account - Floating Liabilities |
+ Receipts on Revenue Account |
+
+
+ | Money received from Proprietors (in- cluding Premiums) |
+ Duees due for Materials supplied and Expenses |
+ Sale of Gas |
+
+
+ | Money received from holders of De- btor Stock, Mortgages, and Bonds |
+ Unpaid Dividends |
+ Sale of Residential Products |
+
+
+ |
+ Unallocated Provision for Losses |
+ Interest on Loans |
+
+
+ |
+ |
+ Transfer Fees |
+
+
+ | (c) A RAILWAY COMPANY. |
+ |
+ Other Income |
+
+
+ |
+ |
+ |
+
+
+ | Capital Expenditure on Fixed Assets |
+ Capital Expenditure on Floating Assets (which must be made good out of Revenue) |
+ Revenue Expenditure |
+
+
+ | Expenditure on Lines open for Traffic |
+ General Notes |
+ Maintenance of Permanent Way, |
+
+
+ | Expenditure on Lines in course of Construction |
+ Accounts due from other Companies |
+ Railway Power |
+
+
+ | Expenditure on Rolling Stock subscriptions in other Railways |
+ Accounts due from Post Office |
+ Carrage and Wagon Repairs |
+
+
+ | Expenditure on Stocks, Investments, &c. |
+ Accounts due from Forwarding Accounts |
+ Toll Roads |
+
+
+ |
+ Investments |
+ General Charges |
+
+
+ |
+ Cash |
+ Law Stock |
+
+
+ |
+ |
+ Preliminary Expenses |
+
+
+ |
+ |
+ Stamp Duty |
+
+
+ |
+ |
+ Taxes and Taxes |
+
+
+ |
+ |
+ Taxation of Interest on Borrowed Money |
+
+
+ | CREDIT BALANCES |
+
+
+
+| Receipts on Capital Account - Fixed Liabilities | Receipts on Capital Account - Floating Liabilities | Receipts on Revenue Account |
|---|
+
+| Money received from Proprietors (including Premiums) | Duees due to other Companies Amount due to Clearing House Sundry Liabilities for Purchases and Expenses Temporary Loans Unpaid Dividends Insurance Funds Unallocated Provision for Losses | Receipts from Passengers, Postals, Mail, Land Transport Law Stock Mortgages Items Transfer Fees Dividends on Shares in other Companies |
|---|
+
+| Money received from Proprietors (excluding Premiums) | Duees due to other Companies Amount due to Clearing House Sundry Liabilities for Purchases and Expenses Temporary Loans Unpaid Dividends Insurance Funds Unallocated Provision for Losses | Sales Consumed Wages of getting and handling Coal Consumption of Rolling Stock Interest on Loans under Purchase Agreement Dividends on Proprietors |
|---|
+
+| Cost of acquiring Property, Build- ing, Plant and Machinery Cost of developing and opening up Property | Notes Sundry Debtors Overpaid Royalties | Sales Consumed Wages of getting and handling Coal Consumption of Rolling Stock Interest on Loans under Purchase Agreement Dividends on Proprietors |
|---|
+
+| (d) A COLLIERY COMPANY. | DEBIT BALANCES. | |
|---|
+
+| Capital Expenditure on Fixed Assets Capital Expenditure on Floating Assets (which must be made good out of Revenue) | Receipts Expenditure Notes Sundry Debtors Overpaid Royalties Interest on Loans under Purchase Agreement Dividends on Proprietors | |
|---|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
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+
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+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+|
+
+
+
+10
+
+ADVANCED ACCOUNTING.
+
+CREDIT BALANCES.
+
+Receipts on Capital Account—Fixed Liabilities
+
+Receipts on Capital Account—Floating Liabilities
+
+Receipts on Revenue Account
+
+Receipts from Shareholders, Debenture-bolders, and Mortgagors (including Premiums)
+
+Ordinary Credits for Goods supplied and Expenses incurred Unallocated Provision for Losses
+
+Sales of Goods Interest Transfer Fees Other Income
+
+(e) A COMMERCIAL COMPANY.
+
+DEBIT BALANCES.
+
+Capital Expenditures on Fixed Assets
+
+Land and Buildings Plant and Machinery Fixtures, Fittings, and Furniture
+
+Raw Materials Unfinished Goods Special Debts Investments Cash
+
+Capital Expenditures on Floating Assets (subject to which must be made good out of Revenue)
+
+Raw Materials Consumed Expenses of Manufacture (including wages) Expenses of distribution (including wages) Rent, Rates, and Taxes General and Administrative Charges Depreciation Interest Discount Dividends to Proprietors
+
+Revenue Expenditure
+
+
+
+
+ |
+ |
+ |
+
+
+
+
+ | Receipts on Capital Account—Fixed Liabilities |
+ Receipts on Capital Account—Floating Liabilities |
+ Receipts on Revenue Account |
+
+
+ | Receipts from Proprietors, Debenture-bolders, and Mortgagors (including Premiums on issue of Shares or Debentures) |
+ Ordinary Credits for Goods supplied and Expenses incurred Unallocated Provision for Losses |
+ Sales of Goods Interest Transfer Fees Other Income |
+
+
+
+
+CHAPTER III.
+
+THE ORGANIZATION OF ACCOUNTS.
+
+UNDER this heading may be included those arrangements which are designed to, as far as possible, ensure the accuracy and regularity of accounts in all respects. A system of accounts may be well designed to meet the requirements of a particular undertaking, and may yet fail to achieve its purpose through slackness on the part of those on whom the duty of supervision devolves. This failure may arise from the work being allowed to get into disorder through neglect (whether wanton or fraudulent) or being allowed to arise. Whatever the exact cause may be, the result will as a rule be the same—a loss will be experienced, and in addition the reputation of the business may suffer. The subject is therefore one of very considerable importance to all who are interested in accounts.
+
+The designing of a proper system of accounts is, from our point of view, a purely theoretical matter—the practical adaptation of that system to the record of the transactions of the undertaking—and its adaptation upon regular and systematic lines, with a view to avoiding irregularities and losses of all kinds—comes under the heading of "Organisation," an essentially practical matter, which is now being dealt with.
+
+It goes without saying that, however much trouble may be taken by those responsible for the record of business transactions, errors will occasionally arise. The object of a proper system of organisation is to detect these errors at the earliest possible moment, thus reducing to a minimum the inconvenience or loss that they might occasion. Shortly stated, the only means of detecting errors of any kind is by careful checking, and a proper system of organisation will always provide for the checking of every item of work in connection with accounting, and particularly in connection with Invoices, Statements of Account, Returns, and the like, which are issued to third parties.
+
+AUDITS, PROFESSIONAL AND "STAFF."
+
+All such checking as that just described may, from one point of view, be regarded as auditing. Save in the case of the smallest undertakings, a distinction may very properly be made between that portion of the work upon which it is desirable to employ skilled accountants who are entirely independent of the administrative staff, and that part which (under suitable supervision) may be equally well performed by the staff itself. Many items may, in point of fact, be better checked by the staff than by independent Auditors, on account of the greater familiarity of the former with the actual facts involved. At the same time, if the system of check is to be complete, it is important that there should be a clear understanding as to what that work is to be performed each day, and this best results by allowing the outside Auditor to organise the whole system of internal check. This is the more desirable, in that the experience of the Auditor will enable him to organise such a system more effectively than could be reasonably expected on the part of one who has received no special training in that direction; but, the system once organised, the duty of seeing that it is actually carried out, in precisely
+
+12
+ADVANCED ACCOUNTING.
+
+same manner as was originally designed, may to a large extent be left to the chief of the counting-house.
+
+From some points of view the matters dealt with in this chapter are intimately connected with those discussed in Chapter XVII., which deals with various classes of fraud, and the methods to be adopted by their prevention. In most cases the majority of cases where fraud has occurred, the attempt will have been made to conceal it by means of false entries, and it should be the aim of every system of internal check, or audit, to detect these falsifications at the earliest possible moment. So long however, as this point is clearly understood the two matters may, it is thought, be most conveniently dealt with separately.
+
+The general aim of every system of internal check is to provide for the detection of all errors in accounts, whatever their description, and the best means of doing so is to make at least two persons responsible for every entry that occurs, and also for the proper record of every transaction that has taken place. In order not to make undue demands upon the time of more important persons, the system must be so arranged that relatively unimportant matters are checked in detail by those occupying a comparatively subordinate position ; and, in order that the work when so arranged may be properly performed, it is important not merely that some responsible person shall supervise it, and see that every detail of the system is duly carried out by the prescribed persons, but also that the duties of the various persons concerned be changed about from time to time. This latter is especially important as a safeguard against fraud. In many cases of comparatively small undertakings, it is sometimes difficult to arrange matters upon this footing, on account of the smallness of the staff, or of that portion of the staff which can be relied upon for purposes of internal check. In such cases, however, it is usually practicable for the principal himself to do something in the direction indicated ; if a proper system be formulated, this might readily be done without making undue claims upon the principal's time, and the professional audit may be so arranged as to cover the whole scheme of internal check in general terms, and to supply in detail those parts which are lacking in the staff audit. The exact point where the staff audit should leave off and the professional audit commence cannot be indicated in general terms, as the matter is to a large extent one of expediency. The professional audit must in all cases be sufficiently full to enable the Auditor to satisfy himself not merely of the general correctness of all entries, but also as to their accuracy and truthfulness ; but so long as it is sufficiently full to ensure this object, the balance of advantage lies in throwing as much responsibility as possible upon the staff audits, because (for reasons already stated) those who are actually in touch with the transactions engaged upon are better capable of verifying the detailed records than those whose only knowledge of the transactions is such as may be gained from the records themselves.
+
+PRO FORMA RULES.
+
+The following is a short, and necessarily incomplete, summary of the various matters that should ordinarily be provided for when organising a set of accounts and designing a system of internal check with regard thereto. Naturally, however, it will in many cases require elaboration at one point or another.
+
+(1) All cash received to be paid into the bank daily, a due round being kept of who is responsible for the handling of the same.
+
+(2) No one having the handling of money should have control of any books of account other than the corresponding Cash Book. (If practicable, the cashier should not even write up the Cash Book.)
+
+(3) All payments, other than Petty Cash payments, to be made by cheque.
+
+---
+
+THE ORGANIZATION OF ACCOUNTS.
+13
+
+(4) The Petty Cash Book should be kept on the "Imprest" system, under the supervision of the cashier.
+
+(5) No person entrusted with the receipt of money should be authorised to make any payments out of the monies so received by him.
+
+(6) Counterfoil (or other) Receipt Books should be used to acknowledge all monies received.
+
+(7) Proper vouchers should be received for all payments made. It is not desirable that these should be upon a uniform form supplied to the payers.
+
+(8) All cash balances should be regularly and systematically verified daily, and a permanent record kept of the daily balances. The balance of every bank account should be verified at least once a week.
+
+(9) All Ledgers should be rendered "self balancing," and their balance frequently tested by some one in authority. The detailed postings should be checked by someone independent of the Ledger Keeper. Trade Ledgers should be balanced at least once a month, and other Ledgers at least once a quarter.
+
+(10) An adequate system of Stock Accounts and Cost Accounts should be provided.
+
+(11) A proper system of checking all invoices for goods received by several independent persons should be instituted, and rigorously carried out.
+
+(12) In the same way, adequate safeguards should be taken to ensure that no goods leave the premises without being first charged up as Sales.
+
+(13) Similar precautions should be taken with regard to the Returns and Allowances, both inwards and onwards.
+
+(14) All trade payments should before being made--be systematically checked, and passed by several independent persons.
+
+(15) There should be a constant supervision of the Book Debits, and especially of those overdue, in order to ensure that no losses are incurred through carelessness or dishonesty.
+
+(16) In order to as far as possible guard against this, every time the Sold Ledgers are balanced a verified list of all accounts more than a certain number of days overdue should be submitted to the chief of the counting-house, and by him to one of the principals for further instructions.
+
+(17) Special precautions should be taken with regard to all payments made by cash (e.g., Wages), with a view to ensuring the accuracy with which the lists of amounts due have been completed. Several different persons should be made individually responsible for each part of the work.
+
+CONCLUSION.
+It is, perhaps, desirable to again repeat that no system of organisation can be really effective which does not, in addition to making two persons responsible for everything, so systematic matters as to make it impossible for any member of the staff to make any entries whatever in the books which are not, for the time being, in his keeping. If mistakes and frauds are to be avoided, it is important that there should be no doubt as to who is responsible for the entries appearing from time to time in each book, and also as to who is responsible for the checking of those entries and the seeing that they completely record the transactions. If these very useful precautions are neglected there is practically nothing to prevent either inadvertent or fraudulent mistakes from remaining undetected.
+
+CHAPTER IV.
+
+METHODS OF BALANCING.
+
+I T is assumed that the reader is fully acquainted with the general particulars of double entry bookkeeping, and the manner in which the accuracy of the Ledger postings may be tested by the agreement of the Trial Balance. It is, however, desirable to discuss the various methods by which the balancing of a large set of books may be simplified, and also the means by which a set of books that have not been completely kept by double-entry may be balanced.
+
+"SELF-BALANCING" LEDGERS.
+
+Where the business is sufficiently large to render the employment of more than one Ledger desirable, it is very convenient to be possessed of some means of balancing each Ledger independently of the rest. This is desirable for two reasons: (1) Trade Ledgers should be balanced at frequent intervals so that any error that has occurred may be speedily rectified, while it is convenient that the whole set of Ledgers should be balanced so often. (2) In the event of the Trial Balances of the books as a whole not agreeing, it is a great saving of time to be able to localise the error in one particular Ledger, and so confine further investigation to that point.
+
+The general principle of "Self-Balancing" Ledgers cannot be said to form part of "advanced" bookkeeping, and as, moreover, it has been fully described in the author's "Bookkeeping for Accountant Students" it is not now proposed to go over the same ground again; suffice it to say that in order to make each Ledger self-balancing it must be made to contain within itself a two-fold record of every transaction that it covers. This, of course, involves posting to each separate Ledger numerous items which, although necessary to complete the double-entry, would not be included in that Ledger unless it were desired to render it self-balancing. All these additional items are (so far as possible) condensed into totals to save labour, and--having been so condensed---are posted to one general account, called the "Adjustment Account."
+
+Where, however, there are two, or more, Ledgers, it is desirable that one of the series should contain the "key" to all the rest. It is usual to select for this purpose a Ledger kept by one of the most responsible employees--i.e., either the Private Ledger or the Nominal Ledger. In this Ledger, instead of having only one Adjustment Account to complete the double-entry of that Ledger, a separate Adjustment Account is opened in respect of every other Ledger. The particular Adjustment Account selected for the posting of what may be termed the "redundant entries" being in each case the one relating to the Ledger which contains in detail the other half of the transaction. For example, assuming the Nominal Ledger is the one containing all the keys; purchases are entered on the debit of this ledger whilst sales are being balanced contains no corresponding credit; to render it self-balancing the monthly totals of the Purchases are posted to the credit of an Adjustment Account, and the "Bought Ledger Adjustment Account" is selected for that purpose because the contra entry for the Purchases is posted in detail to the credit of the Bought Ledger. If there were two or more
+
+
+
+ | Chapter IV. |
+
+
+ | Methods of Balancing. |
+
+
+ | I T is assumed that the reader is fully acquainted with the general particulars of double entry bookkeeping, and the manner in which the accuracy of the Ledger postings may be tested by the agreement of the Trial Balance. It is, however, desirable to discuss the various methods by which the balancing of a large set of books may be simplified, and also the means by which a set of books that have not been completely kept by double-entry may be balanced. |
+
+
+ | "SELF-BALANCING" LEDGERS. |
+
+
+ | Where the business is sufficiently large to render the employment of more than one Ledger desirable, it is very convenient to be possessed of some means of balancing each Ledger independently of the rest. This is desirable for two reasons: (1) Trade Ledgers should be balanced at frequent intervals so that any error that has occurred may be speedily rectified, while it is convenient that the whole set of Ledgers should be balanced so often. (2) In the event of the Trial Balances of the books as a whole not agreeing, it is a great saving of time to be able to localise the error in one particular Ledger, and so confine further investigation to that point. |
+
+
+ | The general principle of "Self-Balancing" Ledgers cannot be said to form part of "advanced" bookkeeping, and as, moreover, it has been fully described in the author's "Bookkeeping for Accountant Students" it is not now proposed to go over the same ground again; suffice it to say that in order to make each Ledger self-balancing it must be made to contain within itself a two-fold record |
+
+
+
+METHODS OF BALANCING.
+15
+
+Bought Ledgers, a separate Adjustment Account would be opened in the Nominal Ledger for each. There would, however, be no difficulty in ascertaining how much of the total purchases had been posted in detail to each separate Bought Ledger Adjustment Account, as each would have its own Bought.
+
+PROBLEM.--The following Balance Sheet and Profit and Loss Account have been prepared from the books of the British Motor Car Company, Limited. These books included Bought, Sold and Private Sales, but did not show the Trial Balance of each separate Ledger as it would have appeared in the books before any provision had been made for bad and doubtful debts or depreciation.
+
+
+
+ | Liabilities |
+ £ s d £ s d |
+ Assets |
+ £ s d £ s d |
+
+
+ | Capital Account, 100,000 |
+ |
+ |
+ |
+ Building, Plant, Machinery, |
+ |
+ |
+ |
+
+
+ | Shares of £1 each |
+ 10,000 o o |
+ |
+ |
+ etc., etc. |
+ 60,000 o o |
+ |
+ |
+
+
+ | Less Cash in Arrear |
+ 462 o o |
+ |
+ |
+ Less Depreciation |
+ 1,200 o o |
+ 88,800 o o |
+ |
+
+
+ | Trade Creditors, viz: | A.-A. | C.-C. | D.-D. | E.-E. | F.-F. | G.-G. | H.-H. | I.-I. | J.-J. | K.-K. | L.-L. | M.-M. | N.-N. | O.-O. | P.-P. | Q.-Q. | R.-R. | S.-S. | T.-T. | U.-U. | V.-V. | W.-W. | X.-X. | Y.-Y. | Z.-Z. |
+
+ |
+ 540 o o |
+ 75 o o |
+ 920 o o |
+ 62 o o |
+ 1,202 o o |
+ 9938 o o |
+ 471 o o |
+ 180 o o |
+ 21 o o |
+ 180 o o |
+ 351 o o |
+
+
+ | Profit and Loss Account | | | | | | | | | | | | | | | | | | | | | | |
+
+ |
+
+De. PROFIT AND LOSS ACCOUNT for the year ended 31st December 1900. Cr.
+
+To Rent, Salaries and General Expenses ... £2,594
+- Directors' Fees ... 1,094
+- Depreciation ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...
+- Bad Debts... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ............
+Balance £22.76
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+THE BRITISH MOTOR CAR COMPANY, LIM.
+Bought Ledger Trial Balance, 31st December 1900.
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