None
5. Notes Receivable Discounted or Sold with Indorsement or Guar- anty 7. Accounts Receivable, Customers (not past due) 9. Notes Receivable, Customers (past due ; cash value, $ ) II. Accounts Receivable, Customers (past due; cash value $ ) Less: 13. Provisions for Bad Debts $ 15. Provisions for Dis- counts, Freights, Al- lowances, etc Inventories : 17. Raw Material on Hand $. 19. Goods in Process 21. Uncompleted Contracts. $ Less — Payments on Account thereof 23. Finished Goods on Hand 284 APPENDIX 285 Other Quick Assets (describe fully) : $ Total Quick Assets (excluding all investments) $. Securities : 25. Securities Readily Marketable and Salable Without Impairing the Business $ ■z-j. Notes Given by Officers, Stock- holders, or Employees 29. Accounts Due from Officers, Stock- holders, or Employees Total Current Assets $. Fixed Assets : 31. Land Used for Plant $ 33. Buildings Used for Plant 35. Machinery 37. Tools and Plant Equipment 39. Patterns and Drawings 41. Office Furniture and Fixtures 43. Other Fixed Assets, if any (de- scribe fully) $ Less: 45. Reserves for Depreciation Total Fixed Assets Deferred Charges: 47. Prepaid Expenses, Interest, In- surance, Taxes, etc Other Assets (49) Total Assets $. 286 ACCOUNTING PRACTICE AND PROCEDURE LIABILITIES Bills, Notes, and Accounts Payable: Unsecured Bills and Notes : 2. Acceptances Made for Merchan- dise or Raw Material Pur- chased $ 4. Notes Given for Merchandise or Raw Material Purchased 6. Notes Given to Banks for Money- Borrowed 8. Notes Sold Through Brokers ID. Notes Given for Machinery, Ad- ditions to Plant, etc 12. Notes Due to Stockholders, Offi- cers, or Employees $. Unsecured Accounts : 14. Accounts Payable for Purchases (not yet due) $ 16. Accounts Payable for Purchases (past due) 18. Accounts Payable to Stockhold- ers, Officers, or Employees Secured Liabilities : 2oa. Notes Receivable Discounted or Sold with Indorsement or Guaranty (contra) $ 2ob. Customers' Accounts Dis- counted or Assigned (contra) 20c. Obligations Secured by Liens on Inventories 2od. Obligations Secured by Securi- ties Deposited as Collateral 22. Accrued Liabilities (interest, taxes, wages, etc.) Other Current Liabilities (describe fully) : $ Total Current Liabilities $. APPENDIX Fixed Liabilities : 24. Mortgage on Plant (due date ) $. 26. Mortgage on Other Real Estate (due date . . . . ) 28. Chattel Mortgage on Machinery or Equipment (due date ....).. 30. Bonded Debt (due date ) 32. Other Fixed Liabilities (describe fully) : $. Total Liabilities. Net Worth : 34. If a Corporation — (a) Preferred Stock (less Stock in Treasury) $. (b) Common Stock (less Stock in Treasury) (c) Surplus and Undivided Profits $. Less: (d) Book Value of Good- Will .... $. (e) Deficit 287 Total $. 36. If an Individual or Partnership — (a) Capital $ (b) Undistributed Profits or Deficit Total $. INDEX Account, income, and consolidated balance sheet, 176 profit and loss, 33, 47, SS-74 (See also "Profit and Loss") Accountant, duties and responsibilities of, 212-248 in respect of audit, 231-240 audit certificates, responsibility for, 236 Canadian practice, 235 company audits, American and English practice, 235 English practice, 231, 235 moral and legal responsibility, 240 qualified certificates, 239 in respect of liquidation and reconstruction, 240-248 insolvency, conditions leading up to, 242 responsibility of accountant, 241 liquidation reports, 241 reorganization, 245 in respect of prospectus, 213-230 adjustments, 222 certificate of financial condition, 227 certificate of profits without certificate of assets, 228 depreciation and renewals in their relation to profits, 221 English requirements as to prospectuses, 214 estimates of anticipated economies, 223 estimates of future earnings, 224 fluctuations of profits, 217 interest in its relation to profits, 219 liability of certifying accountant, 230 necessity for accountants' certificates, 213 period to be covered by prospectuses, 215 results for broken periods, 219 salaries as affecting profits, 220 statements of profits, varying requirements of, 222 treatment of unusual profits or losses, 217 Accountant's qualifications, 249 289 290 INDEX Accounting and finance, corporation, 175-189 (See also "Corpora- tion accounting") Accounting for holding companies, 175-184 (See also "Holding companies") Accounts, balance sheet (See "Balance sheet") controlling, 21 English law as to, 259-260 expense and cost, 28 general ledger, 29 impersonal, 14 personal, 14 Accounts and bills receivable, 114-116 Accounts payable, miscellaneous, 145 Accounts receivable, as cause of insolvency, 243 Additions and improvements to property, 154, 155 profits on, 156 Adjustment of inventories on transfer of business, 188 Advances, 86 to agents, 90 Agency and commission, profit and loss account, 59 Agents, advances to, 90 American practice as to company audits, 235 American rule as to corporate profits, 72 Amortization of leaseholds, 173 Analysis, of balance sheet assets, 38-41 (See also "Assets") current assets, 40 fixed assets, 38 investment of reserves, 39 permanent investments, 38 suspense debits, 41 working assets, 39 of balance sheet liabilities, 41-47 (See also "Liabilities") capital stock, 41 current liabilities, 43 depreciation, 44 funded and unfunded debt, 43 profit and loss, 47 surplus, 45 appropriated, 46 suspense credits, 45 Annual income charge, interest on bonds, 134-141 methods of determining, 137-141 varying conditions affecting, 135 INDEX 291 Annuity method of providing for depreciation, 167, 168 accumulations, 168 expenditures, 168 objections to method, 168 Appropriated surplus, 46 Appropriations, 149 (See also "Reserves") Assets, balance sheet, 34-41, 75-126 analysis of, 38-41 capital assets, 75-88 fixed property, 75-82 buildings and structures, 11 changes in value of, 80 furniture and fixtures, 78 land and improvements, 76 movable equipment, 78 patents, goodwill and franchises, 19 patterns, drawings, dies, etc., 78 plant, machinery and fixed tools, 11 investment of reserves, 87 permanent investments, 82-87 advances, 86 investments for purposes of control, 83, 85 minor investments, 85 non-income producing investments, 86 current assets, 40, 93-126 accounts and Dills receivable, 114-116 present values, 115 cash, 118-120 on current account, 119 outstanding cheques, 119 restricted cash balances, 120 foreign exchange, 120-126 dealings in, 125 investments, 116-118 issued stock or bonds in treasury, 117 unissued stock or bonds, 116 valuation of investments, 117 life insurance company, 118 stocks on hand, 93-114 book inventories, 108 physical verification of, 110 carrying charges, treatment of, 106 contracts of purchase, 112 cost accounting, 99 292 INDEX Assets, balance sheet (Continued) Current assets (Continued) Stocks on hand (Continued) distribution of expense burden, 100 expenses, allocation of, 102 increasing value of seasoning material, 104 interest, status of, 103 inventory credits and liabilities, 112 inventory, taking the, 96 inventory valuations, accuracy of, 113 monthly charges. 111 profits, essentials for ascertaining correct, 96 profits on work in progress, 106 reserves for contingencies, 108 selling expenses as part of cost, 102 fixed assets, 38 (See also "Fixed property" above) investment of reserves, 39, 87 order of, 36 permanent investments, 38 (See also "Permanent investments ' above) wprking assets, 39, 88-92 advances to agents, 90 expenses incurred in advance of accrual, 91 royalties, 92 stores and supplies, 89 Assets, certificate of profits without certificate of, 228 current, losses on, 187 guarantee of, 223 Audit, accountant's duties and responsibilities, 231-240 audit certificates, responsibility for, 236 Canadian practice, 235 company audits, American and English practice, 23S English practice, 231, 235 moral and legal responsibility, 240 qualified certificates, 239 English law as to, 251-257 shareholders', Canadian Bank Act, 272-279 B Balance sheet, 31-54 accounts, 33 an approximation, 31 INDEX 293 Balance sheet (Continued) assets, analysis of, 38-41 (See also "Assets") current assets, 40 fixed assets, 38 investment of reserves, 39 permanent investments, 38 suspense debits, 41 working assets, 39 consolidated, 176-184 and income account, 176 legal status of, 179 other forms, 183 English requirements, 48 financial statement, condensed, SO forms of, 34, 48 proposed for merchants and manufacturers, 284-287 statutory, 51 steam roads, 280-283 liabilities, analysis of, 41-47 (See also "Liabilities") capital stock, 41 current liabilities, 43 depreciation, 44 funded and unfunded debt, 43 profit and loss, 47 surplus, 4S appropriated, 46 suspense credits, 45 misleading statements in, 49 net worth, causes affecting, 33 order of assets and liabilities, 36 Bank loans, current, 144 manner of repayment, characteristic of, 144 Banks, profit and loss account,- 60 Bills, discounted, 146 Bills receivable, 114-116 Bonds, 116-118, 133-143 annual income charge, 134-141 methods of determining, 137-141 varying conditions affecting, 135 discounts and premiums on, 66, 134, 135, 142 interest rate on, 66, 134-141 issued, held in treasury, 117 of life insurance company, valuation of. 118 unissued, 116, 14i 294 ™°^^ Book inventories, 108 physical verification of, 110 Bookkeeping, 13-30 controlling accounts, 21 double-entry, 13 early bookkeeping methods, 17 impersonal accounts, 14 loose-leaf records, 22, 23 mechanical aids in bookeeping, 23 modern bookkeeping methods — pro forma system, 23-30 cash records, 25 creditors' or purchase records, 27 expense and cost accounts, 28 general ledger accounts, 29 journal entries, 29 passing bills for payment, 26 sales and customers' records, 23 opening the books, IS personal accounts, 14 progress of bookkeeping, 30 subsidiary ledger, 18, 29 trial balance, 16 Books, cash book, 25 cost ledger, 28 expense analysis book, 28 loose-leaf or card ledger, 22, 23 opening the, IS voucher record, 26 Borrowing, excessive, as cause of insolvency, 243 Buildings and structures, 11 Burden, expense, 100, 196 Canadian audit practice, 235 Canadian Bank Act, requirements as to shareholders' audit, 272-279 Capital assets, 75-88 (See also "Assets") Capital invested, comparisons between production and, 208 Capital outlay, interest and overhead charges as part of, ISS Capital, payment of interest out of, English rule, 270, 271 Capital resources, available, 143 Capital stock (See "Stock, capital") Card ledger, 22, 23 INDEX 295 Cash, 118-120 on current account, 119 outstanding cheques, 119 restricted cash balances, 120 statement of, in a balance sheet, 118 Cash book, 25 Certificate, accountant's, audit, accountant's responsibility for, 236, 240 qualified, 239 liability of accountant for, 230 necessity for, 213 of anticipated economies, 223 of financial condition, 227 of future earnings, 224 of profits, 222 without certificate of assets, 228 Charges, annual income, 134-141 carrying, 106 interest (See "Interest") monthly, for material. organization of corporation, questions arising, 186-189 adjustment of inventories on transfer of business, 188 initial surplus, 186 losses on current assets acquired, 187 profits earned before date of consolidation, 185 299 Impersonal accounts, 14 Improvements, 76, 154, 155, 163, 164 profits on, 156 300 INDEX Income, 63 account, and consolidated balance sheet, 176 annual charge, interest on bonds, 134-141 methods of determining, 137-141 tables, 140, 141 varying conditions affecting, 13S Initial surplus, 186 Insolvency, accountant's duties and responsibilities in case of, 240-245 causes or conditions leading up to, 242 Intercompany profits and accounting, 180 Interest, and rent, relation to manufacturing cost, 200, 201, 204 charges in capital outlay, 155 on accumulated depreciation, 171 on bonds, 66, 134-141 annual income charge, 134-141 methods of determining, 137-141 varying conditions affecting, 135 payment of, out of capital, English rule, 270, 271 relation to profits, 219 savings effected by additional facilities, 206 status of, 103 treatment of, in connection with costs, 206 Interstate Commerce Commission, statement prescribed for steam roads, 280-283 Inventory, accuracy of valuation, 113 adjustment of, on transfer of business, 188 book, 108 physical verification of, 110 credits and liabilities, 112 taking the, 96 Investments, 116-118 commercial, 200 issued stock or bonds held in treasury, 117 permanent, 38, 82-87 advances, 86 investments for purposes of control, 83, 85 minor investments, 85 non-income producing investments, 86 reserves, 39, 87 unissued stock or bonds, 116 valuation of, 117 life insurance company, 118 INDEX Invoice, 23 Invoice card, 26 Issued stock or bonds held in treasury, 117, 130 J Journal entries, 29 Journal voucher, 23, 29 Land, improvements on, 76 (See also "Improvements") Leaseholds, amortization of, 173 Ledger, expense, 28 general, accounts in, 29 loose-leaf or card, 22, 23 subsidiary, 18, 29 Legal responsibility of accountant as to audit certificates, 240 Liabilities, and credits, inventory of, 112 guarantee of, 223 Liabilities, balance sheet, 41-47, 127-152 analysis of, 41-47 appropriations, 149 available capital resources, 143 bonded debt, 133-143 annual income charges, 134-141 varying conditions affecting, 135 discount on bond issues, 142 , effective interest rate on bonds, 134 methods of determining annual charge to income, 137-141 capital stock, 41, 127-133 discounts and premiums on, 127 railway companies, requirements for, 130 redemption of, 129 steamship companies, requirements for, 130 treasury stock, 130 English rule, 133 without par value, 128 contingent liabilities, 145 bills discounted, 146 contracts, liability under for labor or goods, 146 of purchase, 147 guarantees on loans, 146 shares not fully paid, 146 301 302 INDEX Liabilities, balance sheet (Continued) current liabilities, 43, 143 bank loans and commercial paper, 144 miscellaneous accounts payable, 14S percentages retained on contracts, 144 taxes, 145 depreciation, 44 funded and unfunded debt, 43 order of liabilities, 36 profit and loss, 47 secret reserves, ISO sinking fund reserves for redemption of debt, 148 surplus, 45 appropriated, 46 Liability of certifying accountant, 230 Life insurance company, reserve for fluctuations in value of bonds, 118 valuation of bonds, 118 Liquidation and reconstruction, accountant's duties and responsi- bilities as to, 240-248 (See also "Accountant") Loans, bank, current, 144 guarantees on, 146 Loose-leaf records, 22, 23 Loss and gain terminology, 55 suggested, 62 Losses due to shrinkage of current assets, 187, 242 Losses or profits, on sale of property, 65 unusual, 217 M Machinery, plant and fixed tools, 11 Maintenance expenditures, 159-164 classification of, 162 treatment of, by railroads, 160 Manufacturing, elements of, 190 profit and loss account, 57 Manufacturing cost, as a price basis, 211 constituent elements of, 195 inclusion of rent as a, 203 profit-sharing in its relation to, 210 relation of interest and rent to, 200, 201, 204 selling expenses as part of, 102 INDEX 203 Material (See "Stock on hand") Merchandizing business, profit and loss account, 58 Merchants and manufacturers, form of balance sheet proposed by Federal Reserve Board, 284-287 Methods, modern bookkeeping— pro forma system, 23-30 (See also "Bookkeeping") Methods of determining bond interest charges to income, 137-141 operation of, 138 table, 140 when proportionate discount is written off, 139 table, 141 Methods of providing for depreciation, 167-174 (See also "Depre- ciation") Minerals, exhaustion of, 172 Alines and timber, expenditures upon, 76 N Net worth, causes affecting, 32 Non-income producing investments, 86 O Opening the books, IS Organization of holding corporation, questions arising, 186-189 adjustment of inventories on transfer of business, 188 initial surplus, 186 losses on current assets acquired, 187 Outstanding cheques, 119 Overhead and interest charges in capital outlay, ISS Overhead expense, distribution of, 100, 196 Par value, stock without, 128 Patents, goodwill and franchises, 79 Patterns, drawings, dies, etc., 78 Payment of interest out of capital, English rule, 270, 271 Permanent investments, 38, 82-87 (See also "Investments") Personal accounts, 14 Physical verification of book inventories, 110 Plant, machinery and fixed tools, 17 Premiums, on bonds, 66, 134, 135 on stock, 128 304 INDEX Private accounts, 62 Production, comparisons between capital invested and, 208 Professional accounts, 61 Profit and loss account, 33, 47, 5S-74 classification of activities, 56-62 agency and commission, 59 banking, 60 manufacturing, 57 merchandising, 58 private accounts, 62 professional accounts, 61 transportation, 59 corporate profits, 68-74 American rule, 72 English rule, 68 general rule, 73 forms for statements of loss and gain, 63 items properly chargeable to profit and loss, 65 discounts and premiums on bonds, 66 profits or losses on sale of property, 65 loss and gain terminology, 55 suggested, 62 nature of profits, 67 single-entry determination of profits, 67 varying purposes of financial statements, 55 Profit and loss statement, 63, 222 Profits, certificate of, without certificate of assets, 228 corporate, 68-74 American rule, 72 English rule, 68 general rule, 73 depreciation and renewals in their relation to, 221 earned before date of consolidation, 185 essentials for ascertaining correct, 96 fluctuations of, 217 intercompany, 180 interest in its relation to, 219 nature of, 67 on construction work, 156 on work in progress, 106 or losses, on sale of property, 65 unusual, 217 INDEX 305 Profits (Continued) salaries as affecting, 220 single-entry determination of, 67 statements of, varying requirements, 222 Profit-sharing in its relation to costs, 210 Property, fixed, 38, 7S-82 (See also "Assets") profits or losses on sale of, 65 Property expenditures, 154-174 classification of, 154 interest and overhead charges in capital outlay, 155 maintenance expenditures, 159-164 classification of, 162 treatment of, by railroads, 160 methods of providing for depreciation, 167-174 amortization of leaseholds, 173 annuity method, 167, 168 combination method, 168, 170 diminishing balance method, 167, 170 exhaustion of minerals, 172 interest on accumulated depreciation, 171 straight line method, 167, 169 profits on construction work, 156 reconstruction and improvements, ISS renewals and depreciation, 164 Prospectus, accountant's duties and responsibilities as to, 213-230 adjustments, 222 certificate of financial condition, 227 certificate of profits without certificate of assets, 228 depreciation and renewals in their relation to profits, 221 English requirements as to prospectuses, 214 estimates of anticipated economies, 223 estimates of future earnings, 224 fluctuations of profits, 217 interest in its relation to profits, 219 liability of certifying accountant, 230 necessity for accountants' certificates, 213 period to be covered by prospectuses, 215 results for broken periods, 219 salaries as affecting profits, 220 statements of profits, varying requirements of, 222 treatment of unusual profits or losses, 217 English law as to, 261-269 3o6 INDEX Purchase, contracts of, 112, 147, 188 records, 27 Q Qualifications of accountant, 249 Qualified certificates, 239 R Railroads, requirements as to treasury stock, 130 treatment of maintenance expenditures by, 160 Receipts from sales, cash, 24 Reconstruction and liquidation, accountant's duties and responsi- bilities as to, 240-248 Reconstruction of property, 155 profits on, 156 Redemption, of debt, sinking fund reserves for, 148 of stock, 129 Renewals, repairs, depreciation, and new construction, 153-174 (See also "Property expenditures") Rent and interest, relation to manufacturing cost, 200, 201, 204 Rental charges, 203 Reorganization, 245 Repairs, renewals, depreciation, and new construction, 153-174 (See also "Property expenditures") Reports (See "Statements") liquidation, accountant's, 241 Reserves, difference between voluntary and necessary, 149 dividends and English law, 258-260 for contingencies, 108 investment of, 39, 87 secret, 150 sinking fund, for redemption of debt, 148 Responsibilities and duties of public accountant, 212-248 (See also "Accountant") in respect of audit, 231-240 in respect of liquidation and reconstruction, 240-248 in respect of prospectus, 213-230 Responsibility, accountant's, for audit certificates, 236 moral and legal, 240 Revenue, 63 INDEX 30; Royalties, 92 Rules of considering profits, 68-74 American rule, 72 English rule, 68 general rule, 73 Salaries as affecting profits, 220 Sale of property, profits on, 65 Sales and customers' records, 23 Scrap material, valuation of, 99 Secret reserves, 150 Selling cost, 198 as part of manufacturing cost, 102 Shareholders' audit, extracts from Canadian Bank Act, 272-279 Shares (See "Stock") Single-entry, 67 Sinking fund reserves for redemption of debt, 148 Statement, balance sheet, 34, 48, 51 analysis of assets, 38 analysis of liabilities, 40 consolidated, 176-184 proposed for merchants and manufacturers, 284-287 steam roads, 280-283 varying purposes of, 55 condensed, SO loss and gain, 63 of profits, varying requirements of, 222 Steam roads, statement prescribed, 280-283 Steamship companies, requirements as to treasury stock, 130 Stock, capital, 41, 117, 127-133, 143, 146 discounts and premiums on, 127 issued, held in treasury, 117 not fully paid, 146 redemption of, 129 treasury, 130 English rule, 133 unissued, 116, 143 without par value, 128 Stock on hand, 93-114, 243 as cause of insolvency, 243 3o8 INDEX Stock on hand (Continued) book inventories, 108 physical verification of, 110 carrying charges, treatment of, 106 contracts of purchase, 112 cost accounting, 99 distribution of expense burden, 100 expenses, allocation of, 102 increasing value of seasoning material, 104 interest, status of, 103 inventory credits and liabilities, 112 inventory, taking the, 96 monthly charges.