Practical garage accounting; a complete system of general and cost records for the garage
i 5 5 E • * I 3 : • 1 a E % f < i 1 1 Ik IK j | 2 1 I i z « w t1. I s •$ ^ 1 r ^ H 5& Sr v < ^^ W 5j'§ Pll Pi § e S1« < £ « ;u v> " r^ JOURNAL, I x8 inches. J\ m in the cut c s CO «•< I i 3 w ,-1 bJ '*^^> < %z I 3 5 CO -« c c ' i 1 " s 3 i i M <fc 2j ^ 2 ^ - 73 -S 2 S-7 - . 3 ; 3 ^ 3« I"S - 1-5 fe ^ I N. 1 ! ? 1 i "^ 1 ^S Q 5 7 j I •-•-, o 3 | <x> • SALES DISTRIBUTION AND BILLING 51 52 PRACTICAL GARAGE ACCOUNTING Garage Departments A— New Car B— Used Car C — Parts and Accessories (General Stock) D— Tire Stock E — Gasoline F — Live Storage G — Dead Storage H — Livery I— Wash Rack J — Car Repairs K — Tire Repairs L — Battery M — Paint Shop Three optional methods are recommended for sales distribution and billing, the one selected to depend on the office equipment and personnel. These three will hereinafter be referred to as the Duplicate Statement Method, the Duplicate Bil- ling Method, and the Triplicate Billing Method. Forms 13 and 14 — Duplicate Statement Method This is suitable for offices in which the book- keeping must all be done by hand because no typewriter is available or the bookkeeper or bil- ling clerk is not sufficiently skillful in its use. The simplest and most economical way under these circumstances, is to distribute the sales and costs among the departments, directly on the cus- tomer's (Accounts Receivable) Duplicate State- ment ledger sheets, from the original records of charges as made on Time Cards, Material Re- SALES DISTRIBUTION AND BILLING 53 quisitions, etc. Form 13 shows a superior model for this kind of Duplicate Statement. The costs are to be entered, of course, only on the office, or carbon copy. At the end of the month the charges for the month under each department, on each customer's account, are to be footed, as also the costs on the office copy; and these totals sum- marized in the Sales Journal, to obtain the total Sales and Costs in each department. In this way only the totals of each department's Costs and Sales to each customer need be entered in the proper column after the customer's name. If this form of ledger-statement is objection- able for any reason, Form 14 may be used. This form makes no provision for department divis- ion of Sales or for recording Costs. Hence a synopsis of each item charged to customers must be entered in the Sales Journal with Cost, from the Time-Card or Material Requisition Slip constituting the original memorandum of the charge. By using a good quality of medium heavy linen paper for the Customer's Statement as il- lustrated in Form 14, the statements may be made out on the typewriter, taking out from the ledger each customer's statement and duplicate upon which charges are to be entered. This method requires considerable care in handling the state- ments out and into the ledger so many times dur- 54 PRACTICAL GARAGE ACCOUNTING ing the month, if they are to be kept in a present- able condition. It necessitates an excessive a- mount of detail distribution in the Sales Jour- nal, and to our minds is unnecessarily cumber- some and awkward when a typewriter can be o Form 13— DUPLICATE STATEMENT LEDGER COST-FINDING FORM Size 11x11 inches, with 1^4 inch binding margin. This illustrates customer's copy — the original. For record duplicate see Form IZa SALES DISTRIBUTION AND BILLING 55 used. Our preference is for the use of Form 13 where the typewriter is not available, and the daily duplicate or triplicate billing system if a typewriter is used. o 0= Form 13a— DUPLICATE STATEMENT LEDGER COST-FINDING FORM Size 11x11 inches. Posting (duplicate) copy, showing cost columns. 56 PRACTICAL GARAGE ACCOUNTING Ul !{ 1! S: s 9 It ^« ?M (J - 8 SALES DISTRIBUTION AND BILLING 57 Forms 15 and 16 — Duplicate Billing Method This method requires the use of a typewriter. Customers' invoices are made directly from the workmen's Time Cards and the Material Re- quisition slips. These invoices should be made out daily. By use of carbon paper a copy of each invoice is made at the same time which is called the "posting copy". The cost of the various items are entered on the posting copy only, at the time that the invoice is made out. Two methods of aligning the forms so that the cost figures shall not appear on the customer's invoice are illus- trated in Forms 15, iSa and 16. The invoices should be numbered consecutively, each dupli- cate bearing the same number as the correspond- ing original. The original or customer's copy may be mailed to customer at once or filed until the end of the month or billing period. The post- ing copies should be placed in numerical order in a post binder from which the bookkeeper will post the charges to the Accounts Receivable led- ger. The sales and cost of sales will then be dis- tributed departmentally in the Sales Journal, but only the serial number and department totals of each invoice need be entered. The charges on repair jobs extending over several days may be accumulated until the job is finished and then invoiced all at once. For the 58 PRACTICAL GARAGE ACCOUNTING 0 I 3 i | t ft i • 1 1 o • | i o. a h s ^p S 9 i S X •2 .3 ^ • I 5 s * § 2 1 ^ "3 INVOICE fad Motor Gomp FIRE PROOF GARAGE DEBAKER and FORD AUTOMOBII Eureka, Illinois All bill. H«. Ur»i ol month loll«wln« H-., .1 i • National Automobile Trade ient SERVICE we base onr j ' ill i 1 •g *o I ,| I 1 h!h i i ' SALES DISTRIBUTION AND BILLING 59 0» fc • • 21 o: R < < •+* O ft ° ° 1 * a I tinjiiilaiii <auouft.ox» *->x u s 60 PRACTICAL GARAGE ACCOUNTING SALES DISTRIBUTION AND BILLING 61 purpose of keeping the Time Cards and Material Requisitions on each job together, an ordinary alphabetical box file or vertical drawer file will be found very convenient. But the file must be cleaned out at the end of the month, and all un- completed work invoiced and charged, whether the invoice is rendered to the customer or not. Triplicate Billing Method This varies slightly from the preceding, being a still shorter and more convenient method made possible by the use of an adding and listing ma- chine, eliminating entirely the use of the Sales Journal. It involves the use of a three-sheet bil- ling form for charges to customers. The Posting copy in this case does not contain the cost col- umns, but is a duplicate of the customer's copy. The third copy, called the "Cost Copy," is to be filed during the month, under the name of the department that is to be credited with the sale. For this reason separate invoices must be made out for each department's sales. At the end of the month the invoices under each department are to be added on the adding machine, the list pasted to the back of the last invoice, and the in- voices placed all together in the department order in the "Cost binder" for the bookkeeper to post the month's costs as shown by the lists, to the debit 62 PRACTICAL GARAGE ACCOUNTING of Cost of Sales account, and to the credit of the proper merchandise Stock account, in the Gen- eral ledger. The cost of labor Sales will be charged to Pro- ductive Labor account from the Payroll Sheet; but the amount should be entered in the Sales Journal or on each invoice, and the items totalled, including the cost of labor charged on Inter-de- partment Sales (See Chapter V) ; and the grand total cost of labor charged for be compared with the total of Productive Labor paid for, with which it must approximately agree. CHAPTER V INTER-DEPARTMENT SALES SERVICES rendered by one department of the Garage to another, or Merchandise is- sued by one of the Merchandise departments -the General Stock Room, Tire Stock or Gaso- line departments — for use by another depart- ment, are to be charged to the department Inside Expense or other operating account of the de- partment receiving the service, etc., and credited to Inter-department Sales of the department per- forming the service. In the Sales Journal these charges are to be entered on separate pages from those to customers ; the name of the department or account to be charged for the service is to be en- tered in the column headed "Customers", and the amount of cost entered in the proper column un- der the heading of the department to be credited. The costs only will be entered during the month ; at the end of the month the charge to the depart- ment receiving the benefit, for the month's total, will be fixed at as nearly as possible the actual cost plus "overhead". In commencing a cost system it will be necessary to estimate the overhead, but after the system has been in operation for a month the actual costs as shown by the first monthly Cost 63 64 PRACTICAL GARAGE ACCOUNTING H U cu Q u H Z 1 1 J 8 1 1 i" -s O o i ii U, O ill, INTER-DEPARTMENT SALES 65 Sheet will be the basis for the next month's charges of Inter-department Sales. After the system has been in operation for a longer period, the average of the preceding three or six months costs should in every case be used as a basis for these charges. When the triplicate billing method is em- ployed the Inter-department Sales should be billed monthly or oftener on a special one-sheet form. (Form 17) . Department symbols are used in making out these forms, and very little detail need be given, thereby reducing the work to a minimum. The entire month's charges from each department to another can usually be writ- ten on one invoice. The Inter-department sales, from the Inter-department invoices under each department, should be listed on the machine, the lists plainly marked with department for the Cost Sheet sales analysis, and the total posted to the credit of Inter-department Sales account. Cost of Sales are also to be listed and totalled for each department separately, the amounts credited to the respective Stock accounts and the grand total charged to Cost of Sales account. Inter-department Credits The principal ways in which such sales are likely to be made are listed below, with a sug- 66 PRACTICAL GARAGE ACCOUNTING gested basis for charges until the average over- head can be ascertained. GENERAL STOCK ROOM : The cost of operating the General Stock Room is handled on the monthly Cost Sheet as a General Expense charge, the purchasing and carrying cost being distri- buted accurately over the departments through which sales of General Stock are actually made. The transfer of materials or parts from the Gen- eral Stock Room to other departments, such as the Car Repair Department, Battery Department, Paint Shop, Tire Repair Department, etc., for sale to customers in connection with the work done by those departments, is not to be considered as Inter-department sales nor entered on the In- ter-department sales sheets of the journal. The charge to customers for such materials or articles will, of course, be entered on the customers' sales sheets or invoices as a credit to the department through which the sale was made; only direct sales from General Stock being credited in the General Stock sales column. But materials sup- plied from the General Stock Room, Gasoline Department, or Tire Department to other depart- ments for use in the department, are to be charged to that department as an Inter-department Sale, credited to General Stock Sales Department as before provided. The General Stock Room over- INTER-DEPARTMENT SALES 67 head may be estimated at 15% of the cost, until a more accurate rate has been determined. CAR REPAIR DEPARTMENT : This department ^ will frequently perform labor for the New Car Sales, Used Car Sales, and Livery departments, and occasionally will furnish workmen to make repairs or betterments on the buildings, especi- ally when owned by the proprietor of the garage. The labor on the building should be charged at full selling price, the same as to any customer, as the profit or loss on the real estate investment should be kept carefully separate from the garage operating accounts. The garage is charged full rental, which is credited to real estate income; so any work performed by garage employees on the property should be charged at full rates to the Real Estate Accounts. For charges to the other garage departments, estimate labor overhead at 80% until the actual average rate is ascertained. STORAGE DEPARTMENT: If a definite part of the floor space is not set apart for the use of the New Car Department, Used Car department and Livery department, the overhead on which is charged to these respective departments direct, it will be necessary to enter a charge in the Sales Journal monthly against these departments for floor space in the Live Storage department oc- cupied by new or used cars on hand for sale or 68 PRACTICAL GARAGE ACCOUNTING demonstrating purposes. It is suggested that the cost price be estimated at 80% of the amount charged customers until the actual cost of storage space per car is ascertained for a three or six months average. If a service car is kept, Service Car Expense should be charged with the space occupied. BATTERY DEPARTMENT, TIRE REPAIR DEPART- MENT, PAINT SHOP and other departments fre- quently perform inter-department service, and the charge and credit for same should be entered in the Sales Journal or billed as an Inter-depart- ment sale in the manner outlined above. Inter-department Charges The principal accounts to be charged with these Inter-department sales are as follows : INSIDE EXPENSE : A separate account with this designation should be opened for each de- partment affected, as "New Car Inside Expense", "Livery Inside Expense," etc. These accounts represent the purchases of labor and materials from other departments for operating purposes. The distinction between this classification of ex- pense and the Non-productive labor cost within each department should be clearly recognized. FREE SERVICE: A Free Service Account should be opened for each department giving free INTER-DEPARTMENT SALES 69 service on a "policy" basis to customers. The de- partment performing the service should be cred- ited with the amount as an Inter-department sale ; the department benefiting be charged. These charges are usually to New Car Free Service; occasionally to Used Car Free Service, Livery Free Service, Storage Free Service, etc. The de- partments to be credited are most frequently Car Repair Department (for free repairs on cars sold) , and General Stock Sales (accessories given free with cars sold). USED CAR STOCK: Materials or labor ex- pended in the process of rebuilding or perma- nent betterment of used cars, usually by the Car Repair, Tire Stock or Battery departments. Carefully distinguish this classification from re- pairs or up-keep, which is a charge to New Car Inside Expense, Used Car Inside Expense, Liv- ery Inside Expense, or Service Car Expense. REAL ESTATE ACCOUNT: Labor and mater- ials furnished by the garage for the building, in making additions or other permanent better- ments. MAINTENANCE OF BUILDINGS: Labor or materials in making repairs to the buildings owned by the garage proprietor. T CHAPTER VI SALES JOURNALIZING HE departments through which labor is usually sold are as follows : Car Repair Shop Tire Repair Shop Battery Department Livery Department Wash Rack Storage Department Paint Shop The departments should appear in the order on the sales journal sheets that will bring those hav- ing the largest number of items nearest the detail columns. Some of the labor costs in the above departments cannot be shown against each sep- arate customer's job, but will have to be charged to the department in general, i. e., to the process of operating the department; for example, vul- canizing tubes, charging batteries, driving livery cars, car washing, care of cars in the Live Storage Department, and work in the Paint Shop. In all of these departments it is customary to charge work by the job rather than per hours of labor 70 SALES JOURNALIZING 71 performed; and it is frequently impossible for the workman to keep his time separate for each job. Where it is possible it should be required that they do so; but particularly in the Tire Re- pair Shop, Battery department and Live Storage department it is impracticable and the cost of this labor so far as it applies to work for cus- tomers, should be charged to the department pro- cess on the Sales Journal Sheets; or, if a dupli- cate billing system is used, the time cards for de- partment process work should be accumulated during the month in a suitable file, in the same way that Inter-department charges are, and be assessed against the department sales at the end of the month. MERCHANDISE SALES are made through the following departments: Gasoline and Oil General Stock Car Repair Shop Battery Department Tire Stock Tire Repair Shop New Car Used Car Paint Shop In some of the above departments, notably the Battery Department, the Tire Repair Shop and the Paint Shop, it will be necessary to charge some of the merchandise sold to customers to the 72 PRACTICAL GARAGE ACCOUNTING general sales of the department or department process, as the quantity used on each job cannot be measured and assessed against each particular sale; as for example, rubber stock used in repair- ing tubes. Miscellaneous Sales Miscellaneous sales are sales that cannot be classified as of merchandise or labor. They usu- ally consist of Battery Current and Live and Dead Storage. Where a separate meter is used in the Battery department it is possible to charge the cost of battery charging to each particular job; but where this current is taken through the same meter as that measuring the current used for lighting or power purposes, a proportion should be charged to Battery department on the monthly cost sheet; and no costs, therefore, will appear under this head on the sales journal sheet. Simi- larly all costs on storage sales in the Live and Dead Storage departments appear on the monthly cost sheet as a part of overhead expense. Cash Sales One sheet in the Sales Journal should be de- voted each month to an analysis of cash sales. The Material Requisitions, or adding machine tape, constituting the original record of these sales, should be analyzed daily, preferably on a SALES JOURNALIZING 73 special form (No. 2) providing columns for costs and amounts of sales in each department, and transferred to the cash sales sheets of the Sales Journal as a daily total under each department. By thus summarizing on a separate form each day's cash sales it will be necessary to use only one line a day for their entry in the Sales Journal, and therefore but one page a month. Similarly, when the triplicate billing system is used (without the distributing Sales Journal,) the days sales in each department may be summarized on one invoice. For this purpose use the single-copy "Interde- partment Sale" form, (No. 17) accumulate these in a separate binder sorted among the depart- ments, list on the adding machine at the end of the month, and see that the grand total balances with cash sales receipts as shown by the Cash Re- ceived Journal. Sales Journal Summary If the Sales Journal is used a summary of the month's business must be drawn off. Use one of the Journal sheets for the purpose. Enter first the total of the customers' sheets under each de- partment. Next the totals of the Cash Sales sheets should be brought forward and added to the Charge Sales totals. Beneath these totals of sales to customers should then be entered the 74 PRACTICAL GARAGE ACCOUNTING totals of the Inter-department sales, and then the grand total of sales under each department brought down. The totals of the labor costs in the various de- partments should approximately agree with the totals of the charges on the payroll sheets to Pro- ductive Labor. The amount shown by the Sales Journal will be somewhat larger than the charge from the payroll, as the time charged on the Sales Journal will be in round figures and may to some extent overlap, and a small portion of the work- man's time be charged to two jobs ; but this dif- ference should not aggregate more than a few cents to a dollar or two — if more the difference should be located and corrected. If the payroll sheets, however, show a larger amount than the Sales Journal it will indicate that some of the men's time has not been properly charged to cus- tomers or expense accounts on the Sales Journal, and in that case a careful check should be made of the time cards to discover the errors. CHAPTER VII THE GENERAL JOURNAL AND MONTHLY ENTRIES THE General Journal (Form 18) is intended for such adjusting entries as cannot prop- erly be made in any of the other journals. Some of these entries are incidental, such as the transfer of balances from the Accounts Receiv- able to the Accounts Payable ledger, or the entry of new Notes Receivable or Notes Payable, etc. Other entries covering accruing expenses, appli- cation of the month's proportion of deferred charges to operations, etc., should be made monthly; and to facilitate the making of these entries and to avoid forgetting any of them, a schedule or list should be kept and referred to at the end of each month, as the basis for the entries. Following is a list and explanation of the more important and usual of these monthly adjust- ments : Rent If the property occupied is owned by the gar- rage a monthly entry should be made charging Rent account and crediting Real Estate Income 75 76 PRACTICAL GARAGE ACCOUNTING i ': s 4 1 s o 1 I $ i 1 ^ 1 ) ! fo 1 i • i< / ! z '« ^> >» ; d R < c py '«d GENERAL 18— THE GENERAL JOU 11x11 inches. Both sides t !« I ! in ) i 30 1 GENERAL JOURNAL AND MONTHLY ENTRIES 77 with a suitable rental for the premises. This should be as nearly as possible at the figure for which the property could reasonably be expected to rent to an outside party. Business property is usually expected to yield from 8 to 10% gross on the investment. It is therefore suggested that, as a basis for the rental charge, a percentage of 8 to 10% of the cost of the property be fixed as the yearly rental, one-twelfth being debited and cred- ited each month; and all expenses of maintain- ing the property be charged to suitable real estate expense accounts, such as Taxes, Insurance, De- preciation and Maintenance. This will make it possible to show the garage earnings and real es- tate earnings separately and accurately on the Balance Sheet and Profit and Loss statement. Taxes One-twelfth of the estimated amount of taxes on equipment and stock for the current year should each month be charged to Garage Taxes, and one-twelfth of the estimated tax on Real Es- tate be charged Taxes on Real Estate, and the total be credited to Tax Reserve. When taxes are paid, usually the following year, the actual amount will be charged to Tax Reserve, and an adjusting entry may then be made debiting or 78 PRACTICAL GARAGE ACCOUNTING crediting the balance to the expense accounts or to Profit and Loss. Fire Insurance An insurance schedule should be made up on opening the books, showing all policies in force. After dividing the unexpired premium on each policy into the correct future months' proportions, these amounts should be entered in columns headed by the names of the months cov- ered. When the schedule is complete it will be possible to foot these columns and so ascertain the total insurance cost for each month ; and this amount should be charged to Fire Insurance ac- count in the garage expense section, and to Build- ing Insurance account in the real estate section of the ledger, the total being credited to Prepaid in- surance. All actual payments for insurance are charged to the latter account. The insurance schedule must be corrected whenever any new insurance is taken out or old insurance expires or is cancelled. Depreciation All property of every nature in use by the gar- rage should have an estimate of its depreciation charged off on the books monthly. The length of time that the building or equipment may be ex- pected to last should be estimated, and the cost GENERAL JOURNAL AND MONTHLY ENTRIES 79 thereof divided by the number of years. Divide this quotient by 12 to ascertain the monthly pro- portion, and charge this amount monthly to De- preciation Expense account, crediting Reserve for Depreciation accounts, one of which should be opened for each property (used cars, equip- ment, fixtures, machinery or tools) account. These Reserve Accounts will appear on the Bal- ance Sheet as a deduction from the asset account representing the property. A reasonable depreciation on machinery, fur- niture and fixtures is ten percent a year; on small tools and used automobiles, twenty percent. Salaries Salaries of such officers or other employees of the Company as are permitted to have a drawing account with the Company should be credited monthly to their personal accounts and charged to the proper salary expense accounts. Estimated Bad Debt Loss A certain loss on charge accounts due to fail- ure to collect, is inevitable. The probable a- mount of this loss should be estimated as closely as possible on the basis of statistics of pre- vious years. The percentage of these losses to sales should be calculated or estimated, and this 80 PRACTICAL GARAGE ACCOUNTING percent of charge sales charged to Bad Debt Loss monthly, being credited to Reserve for Bad Debts, which account appears on the balance sheet as a deduction from Accounts Receivable. Actual bad debt losses when ascertained should be charged to Reserve for Bad Debts, not to Bad Debt Loss account. Reserve for Bad Debts will require adjustment periodically, it being usual to make such adjustments at the close of each fis- cal year. Interest The exact amount of interest accruing on Notes and Mortgages receivable and payable should be entered on the books monthly. Interest on Notes Payable is usually prepaid. If so, the amount prepaid should be shown as a debit balance in Prepaid Interest account; and the amount accru- ing monthly be charged to Interest account and credited to Prepaid Interest. Interest not pre- paid on Notes or Mortgages Payable should be accrued monthly, charged to Interest and cred- ited to Reserve for Interest on Notes (or Mort- gages) Payable. Interest accruing on Notes Re- ceivable should be charged to Accrued Interest on Notes Receivable Account, and credited to Interest account, monthly. GENERAL JOURNAL AND MONTHLY ENTRIES 81 Payroll The total amount due to employees for their services each month should be charged to the dif- ferent labor accounts and credited to Payroll. Actual payments of wages or salaries to employ- ees will be charged through the Cash Paid Jour- nal to Payroll account. The balance of Payroll account at the end of the month shows the amount due employees on wages at that date. CHAPTER VIII THE GENERAL LEDGER- CLASSIFICATION OF ASSETS THIS is the principal book of account of the business. It contains the condensed and classified record of all transactions, and from the General Ledger it should be possible at any time to draw off a complete Balance Sheet without reference to any other record. General Ledger accounts should not be opened at haphazard nor in alphabetical order, but in the order in which they appear on the Balance Sheet. For this reason a loose-leaf ledger is much more convenient than a bound book, as leaves may be inserted in the former in any section in which it is desired to open an account. The double head ruling or old style form is better for this ledger than the three-column ruling, for when the latter is used it is necessary to show the credit balances in red in order to distinguish them from the debit balances, and this is not convenient and increases liability to error in entering balances, and in drawing off the Trial Balance. 82 THE GENERAL LEDGER 83 Proper classification of ledger accounts is one of the most important features of scientific ac- counting. The following list shows the prefer- red order in which the various classes of accounts should appear in the General Ledger. It will be noted that the assets are arranged in order of their availability to a going business — the "quick" or "current" assets first, then the tangible fixed as- sets, then the intangible, such as "Good Will". Similarly, the current or floating liabilities are shown first, then the fixed liabilities, if any, such as long-time bonds or other obligations. Lastly the Net Worth Accounts appear in their proper order — Capital, Surplus, or Partners' Invest- ment accounts, Profit and Loss and the operating accounts, such as Sales, Cost of Sales, Expenses, etc. A study of the Balance Sheet and its prepa- ration will make more apparent the desirability of following this order. Assets (1) Cash (2) Receivables, Accounts and Notes (3) Deferred Charges to Operations (4) Merchandise Accounts (5) Equipment Accounts (6) Real Estate Liabilities (7) Payables, Accounts and Notes (8) Accrued Future Due Accounts (9) Liens or Fixed Liabilities 84 PRACTICAL GARAGE ACCOUNTING Net Worth (10) Capital Stock, or Partners' Investment Accounts (11) Surplus (12) Profit and Loss Account (13) Operating Accounts (14) Capital Income and Expense Accounts The accounts usually appearing under the above divisions will each be treated briefly in the following pages. Cash CASH IN BANK: This account should be charged with the total of cash on hand, deposited in bank or banks at the commencement of busi- ness; and at the end of every month should be charged with the total cash received and depos- ited as shown by the total of the Cash Received Journal entries for the month. It is to be credited with the total of checks issued as shown by the Cash Paid Journal, and also with any amounts charged by the bank for which a check was not issued ; entry for the latter being made through the General Journal. After posting the month's entries the balance should be compared with the balance shown in the last column of the Cash Paid Journal, with which it should , of course, agree. The bank balance should be reconciled monthly with the bank's account. Check off the CLASSIFICATION OF ASSETS 85 paid and cancelled checks returned by the bank against the entries in the Cash Paid Journal; make a list of the checks not checked off and therefore not paid by the bank, up to the date of the bank's balance; add to the total of this list of unpaid checks the balance of Cash in Bank Ac- count; if the sum does not agree with the balance on deposit as shown by the bank, the error or errors thus indicated should be located and cor- rected. Make out deposit slips in duplicate if practicable with the name of the person or com- pany from which the check was received written opposite the amount. Each entry of deposit by the bank teller in the Pass Book should be compared with the duplicate deposit check retained in the office. These duplicate slips should be kept on file for six months or a year at least. Banks retain their copies for ten years. They will frequently be found very valuable for reference. IMPREST FUND: The method of handling this fund has been explained in connection with the description of the Cash Paid Journal. (Chap- ter III). The balance of this account as it ap- pears in the General Ledger should be the amount of the Imprest Fund in the office cash drawer, and should not change except when the fixed amount of the fund is increased or de- creased. 86 PRACTICAL GARAGE ACCOUNTING (2) Receivables ACCOUNTS RECEIVABLE: The balance of this account should at all times represent the total of the balances of the Accounts Receivable ledger. For this reason it is called a "representative" or "controlling" account. In opening the books charge it with the total of all Accounts Receiv- able balances; and at the end of each month charge it to the total of charge sales to customers from the summary sheets of the Sales Journal, and credit the total cash received from customers from the Cash Received Journal. This account should also be charged with any cash refunds to customers through the Cash Paid Journal, and with any adjusting entries affecting Accounts Re- ceivable from the General Journal. Miscella- neous charges to customers which cannot be en- tered in the Sales Journal because notinthenature of a sale, are likely to arise frequently. Charge for long distance telephone service, and for ex- press, etc., on parts specially ordered, are of this description. It will be found convenient to set aside a page for these charges each month in the General Journal. The debits to each customer's account are entered as they come up, without mak- ing the credit entry. At the end of the month the credits will be entered in totals, to the proper ac- counts, as Telephone and Telegraph, Freight on General Stock, Freight on Tire Stock, etc. CLASSIFICATION OF ASSETS 87 Only accounts receivable considered good, i. e., collectible, should be included in the Accounts Receivable ledger and in this General Ledger ac- count. DOUBTFUL ACCOUNTS: All accounts with customers which are long past due and upon which further credit has been denied should be separated from Accounts Receivable, the amount charged to Doubtful Accounts, and the detail ac- counts placed in a separate section of the Ac- counts Receivable Ledger. In opening the Gen- eral Ledger the accounts receivable considered doubtful should all be charged to this account and a considerable reserve set up to cover possible losses thereon, say fifty per cent. This ac- count should not, of course, include any accounts considered actually bad or uncollectible. Any entries of cash collected on these accounts or ad- justments in any of the journals will be posted to this account, as well as to the detail account in the Doubtful Accounts section of the Accounts Re- ceivable Ledger. RESERVE FOR BAD DEBTS: This is a contra- account to the two accounts receivable accounts just described; that is to say, it is contra to or against them because a reduction of their value on the Balance Sheet. To this account must be credited, in opening the books, the amount that is 88 PRACTICAL GARAGE ACCOUNTING estimated will be lost in collecting the total of the Accounts Receivable and Doubtful Accounts. Thereafter a monthly credit to the account should be made of the estimated percent of the total charge sales for the month that will prove uncollectible, say one to three per cent, which amount should be charged to Bad Debt Loss Ac- count in the Expense accounts section of the Led- ger. The balance of this reserve account should be adjusted at the end of each fiscal year to con- form to the actual percentage of losses ascer- tained by a careful check over the individual ac- counts. GUARANTEE DEPOSITS WITH MANUFACTUR- ERS: Such deposits are usually required from automobile dealers by the manufacturers. One general ledger account should be opened in this section including all such deposits, the amounts of which, however, should be separately spec- ified in opening the account. CUMULATIVE DISCOUNTS ON NEW CARS: A fixed or sliding scale of extra discounts, the amount depending on the number of new cars sold during the season, is usually a feature of the deal- er's contract with the automobile manufacturer. These discounts are sometimes payable in cash or by credit memorandum as soon as earned but more often are accumulated until the expiration CLASSIFICATION OF ASSETS 89 of the yearly contract at the end of the selling season. These discounts should not be anticipated or taken into account until earned, that is, until the number of cars entitling the dealer to the extra discount have been bought. As soon as the dis- count has been so earned, whether payable im- mediately or at some future time, it should be taken into account, the amount thereof being charged to Cumulative Discount on New Cars account, and credited, if on cars already sold, to Cost of (New Car) Sales; or, if on cars in stock, to New Car Stock account. Thereafter in en- tering Cost of Sales on New Cars Sold, in the Sales Journal, care must be taken to use the new net price, deducting the total discount applying in each particular case. NOTES RECEIVABLE: This account represents the total due to the company on promissory notes. Debit entries will usually be made to it from the General Journal, credit entries from the sundry column of the Cash Received Journal. ACCRUED INTEREST ON NOTES RECEIVABLE: This account should represent at all times the amount of interest accrued to date on promissory notes due to the company. A monthly entry should be made through the General Journal charging the total accrual for the month to this 90 PRACTICAL GARAGE ACCOUNTING account; while all actual payments of interest on notes receivable are to be credited herein, as ex- plained in Chapter VII. (3) Deferred Charges to Operations PREPAID INSURANCE: The amount of unex- pired premium on all insurance policies at the opening of the books should be charged to this account, and afterward all actual payments of premiums. The monthly proportion of premium expiring should be credited to this account through the General Journal, as heretofore ex- plained. PREPAID INTEREST: Interest on notes payable especially those given banks, is usually prepaid. In such case it should be charged to this account; the monthly accrual to be credited here at the end of each month, and at that time charged to In- terest Account. FUEL: It being usual to purchase several weeks' or months' supply of fuel at a time, it is proper to consider such purchases as Deferred Charges to Operations, and to charge these pur- chases to Fuel account as an asset. At the end of each month the amount of fuel consumed should be estimated as closely as possible and credited to this account; at which time it is to be charged to Heating expense. CLASSIFICATION OF ASSETS 91 Other deferred charge accounts are sometimes opened, such as for office supplies, repair shop materials, paint shop supplies, etc. If it is desired to carry such purchases as an asset until they are actually used in the business, it is best to charge the items to General Stock, (Parts and Acces- sories) and issue the materials to the departments using them in quantities necessary for immediate use as an Inter-department Sale. Or, if that is impracticable, charge purchases to a deferred charge account, estimate the average number of months' supply purchased at a time, and charge off that proportion of total supply on hand at the end of each month to the proper expense account, crediting the deferred charge account. Thus, if it is estimated that the usual purchase is a six months' supply, charge off one-sixth of the bal- ance of the deferred charge accounts to the oper- ating account each month. (4) Merchandise Accounts NEW CAR STOCK : Charge the cost, including inbound freight, of all new cars to this account; and credit the total cost of new cars sold each month from the Sales Journal summary sheet. A separate New Car Stock account may be kept for each car agency had, if desired. A card record of each new car, showing cost and freight 92 PRACTICAL GARAGE ACCOUNTING paid, may be advantageously kept in a section of the stock record drawer. USED CAR STOCK: Charge original cost of used cars, whether cash paid or the amount al- lowed on a new car sale for the used car taken in trade, to this account; and also the materials and labor expended in rebuilding and put- ting these cars into salable condition, as ex- plained elsewhere in this book, under the head- ing "Inter-department sales." A separate record should be kept with each used car to which the same items that are charged in totals to this account in the General Ledger will be charged in detail to the car concerned. This record may be in a section of either the General Ledger or the Accounts Receivable ledger, or on Stock Re- cord Cards ; and the totals of the balances of this section should, of course, at all times agree with the balance of the Used Car Stock Account. By means of the detail record it will be easy to ascer- tain immediately upon the sale of a used car just what the car has cost the company to date (aside from the actual up-keep of the car, which is con- sidered as a department expense in demonstrating these cars to possible purchasers). This actual cost is to be entered against the selling price of the car in the Sales Journal, whether the amount for which it is sold is greater or less than the cost. CLASSIFICATION OF ASSETS 93 The total of these costs at the end of the month will be credited to this account, and the items separately credited to the detail account of each used car sold. RESERVE FOR DEPRECIATION ON USED CARS: A suitable reserve for depreciation should be set aside monthly on all used cars on hand, based on the estimated average life of the cars. It is ob- vious that used cars deteriorate rapidly in value, and it is much better to spread this loss over the period that the car is carried than to show the whole loss at the time of selling the car. The rate for this depreciation used by many garages is 20 per cent per year. General journal entries should be made monthly covering this deprecia- tion, which should be charged to Depreciation Expense. Reserve for depreciation on Used Cars immediately follows Used Car Stock account in the General Ledger, and appears on the Balance Sheet as a deduction from that account. GENERAL STOCK, OR PARTS AND ACCESSORIES: This account is to be charged with amount on hand at opening books, and with all purchases of parts and accessories of all descriptions, carried in the general stock room, in show-cases, etc. When desired it may, of course, be divided into any number of separate accounts covering different lines. The cost of general stock sales, whether 94 PRACTICAL GARAGE ACCOUNTING made through the General Stock Sales depart- ment, the Car Repair department or the Battery department, as shown by the monthly summary sheet of the Sales Journal, should be credited to this account at the end of each month, so that the balance of the account after posting the month's entries will show the cost value of the stock of parts and accessories on hand. TIRE STOCK: Casings and tubes are usually carried as a separate stock from Parts and Ac- cessories, and sometimes where they are kept in a separate stock room certain tire accessories are included in the Tire Stock Account. Purchases and sales in this stock should be handled as di- rected under General Stock. GASOLINE: Sales of gasoline, because of the difference in the nature of the commodity and method of handling it, are accounted for sepa- rately from General Stock sales. Gasoline is usually handled in a different part of the build- ing, and frequently by a separate set of em- ployees. A card stock record of gasoline should be kept, but it should be corrected as frequently as possible whenever the actual amount of stock on hand can be ascertained. This correction should be by means of a journal entry debiting or crediting the stock account; the contra-entry to be made in the Cost of Sales account. 