PART II.-CORPORATION ACCOUNTING.

CHAPTER IX.

THE CORPORATION BOOKS AND ACCOUNTS.

§ 61. General.

In the larger corporations the books of account are under the direction of an auditor. In many corporations, however, the books of account are either kept by the treasurer or are under his direct supervision and are therefore properly considered in the present volume. The treasurer should thoroughly understand bookkeeping even though his duties do not include the keeping of the general books and accounts.

§ 62. Scope of Treatment.

In the present work it is taken for granted that the treasurer already understands the general principles of accounting and for these reasons no full presentation of elementary bookkeeping has been attempted. The intention of the present discussion is to bring out the general principles which govern modern bookkeeping, and to give such details of the various systems and the methods employed as will illustrate the application of these principles.

§ 63. The Records of a Corporate Business.

The usual records of a corporate business may be divided into six classes,—(a) the special corporate records; (b) the financial records; (c) the purchase records; (d) the sales

records; (e) the cost records (in case of establishments which. produce the commodities they sell), and (f) the general records.

§ 64. (a) The Special Corporate Records.

These are the books in which matters peculiar to the corporate form are recorded, and are usually in charge of the secretary. They consist of the minute book, stock certificate book, stock transfer book, stock ledger, etc. The secretary's books are outside the province of the present volume.

§ 65. (b) The Financial Records.

Since it is customary for the treasurer to have the custody of all moneys and securities, it follows that the financial records should be either kept by him or under his supervision. It is, therefore, essential that he have a thorough knowledge of their functions, and of the relation which they bear to the other classes of records, all of which form integral parts of the complete accounting system. The financial records consist of the cash receipts book and cash disbursements book, which, when combined into one book, are designated as the cash book; and the petty cash book, bank pass book, check book, bond register, coupon register, securities ledger, etc. These books are discussed in Chap. XI, " The Financial Records."

66. (c) The Purchase Records.

As the name indicates, these records have to do with the purchasing department and consist of the purchase requisition blanks, goods received blanks, purchase book or its equivalent, creditors' ledger or its equivalent, and the stock ledger-in so far as the recording of purchases are concerned. This stock ledger, which provides a going inventory of the merchandise dealt in or manufactured, must not be confused with the secre

tary's stock-ledger in which the interests of the stockholders in the corporation are recorded. The purchase records are treated of in Chap. XII, "The Purchase Records."

§ 67. (d) The Sales Records.

All records used for recording transactions peculiar to the selling department belong in this category; e. g.,-salesmen's orders, shipping orders, duplicate bills, summary of sales, returns and allowances book, customers' ledgers, monthly analysis of selling expenses, etc. These records are treated of in Chap. XIII," The Sales Records."

§ 68. (e) The Cost Records.

Corporations engaged in manufacturing should be able to ascertain from the accounting records the cost of producing each kind of commodity, or the cost of each job, as the case may be. This can only be accomplished by properly conducted cost records, designed to meet the requirements peculiar to the particular business. The cost records of a manufacturing system of accounts include labor tickets, monthly distribution of labor, requisitions for raw materials, stock ledger-in so far as it has to do with the quantity and cost of raw materials and supplies used in each job or process and the commodities produced,―monthly analysis of manufacturing expenses, cost ledger, etc. These records are treated of in Chap. XIV, “The Manufacturing Cost Records."

$69. (f) The General Records.

These records consist of the journal, general or private ledger, trial balance book, analysis of general and administrative expenses, etc., and are treated of in Chap. XV, "The General Records."

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CHAPTER X.

BOOKKEEPING TERMS DEFINED.

§ 70. Bookkeeping.

Bookkeeping is the act of recording business transactions in books or their equivalent. There are two general methods of bookkeeping, (a) scientific and (b) unscientific.

(a) Scientific bookkeeping, better known as double entry bookkeeping, is the act of classifying and recording business transactions in chronological sequence, according to scientific principles which are applicable to all cases.

(b) Unscientific bookkeeping, commonly termed “ single entry," is the recording of business transactions without regard to any scientific principles. The term may be applied to any plan other than double entry bookkeeping.

§ 71. Double Entry Bookkeeping.

Double entry bookkeeping derives its name from the fact that in recording transactions each entry is divided into two parts, a debit and a credit, forming a perfect equation; i. e., whenever a transaction is recorded, the debit side of some general ledger account, or accounts, is increased and the credit side of some other general ledger account, or accounts, is correspondingly increased.

From this is derived the general rule of double entry bookkeeping:-"Debit what is received and credit what is given." For instance, goods are purchased for cash, and consequently "Purchases" account should be debited (because

purchased goods are received) and "Cash" account credited (because cash is given); or goods are sold on account, and consequently "Accounts Receivable" account should be debited (because the implied promise of the buyer is received) and "Sales" account credited (because goods are given).

§ 72. The Trial Balance.

Transactions are recorded in the different books of original entry, or books of summarization, as the case may be, in accordance with the rulings provided and the plan of the system, but the effects of these entries as to the ledger accounts are always the same, the debits and credits of the proper general ledger accounts are equally increased after all postings are made. It follows, therefore, that the sum total of all debits in the general ledger must equal the sum total of all credits, if the entries have been properly made, and that if the balance of every general ledger account is taken, the sum total of all debit balances must equal the sum total of all credit balances. This gives rise to the trial balance, which is a list of all debit and credit balances, the totals of which should agree. If they do, it proves that all transactions have found their way into the general ledger-the book of classification-in the form of perfect equations.

§ 73. The Balance Sheet.

The trial balance includes the debit and credit balances of all open accounts appearing in the general ledger without regard to the character of these accounts. The balance sheet is composed of the debit and credit balances of the various accounts remaining after the proper transfers have been made to the "Profit and Loss" account and the balance of that account in turn transferred to "Surplus" account. It is an exhibit of the assets and liabilities of the business at a particular time.