This balance sheet, or the data required to compile it, furnishes the proper information for the initial entry or set of entries necessary to start a new system of accounts; also the condition of a business at the close of a fiscal period is reflected in its balance sheet. It will thus be seen that the data essential to the compilation of a balance sheet represent the beginning and end of scientific bookkeeping results.

When the books of account are taken over by the incoming treasurer of a corporation they should be accompanied by a formal balance sheet. This will give the initial entry or set of entries necessary to open new books if this is intended, or otherwise will afford an exhibit of the condition at that time of both the corporate books and the corporate business.

$74. Profit and Loss Statement.

A profit and loss statement is an exhibit showing in logical order and in comprehensive form the gross results from and expenses of operating a business for a given period of time. It should show the gross profit and how it is arrived at, the expenses of the selling department, the expenses of the general and administrative department, the net profit on business done, extraneous income and expenditure, interest charges and discounts, and net profit for the period. An excellent form for a profit and loss statement is shown in " Exhibit B" of the audit report given in Chapter XIX of the present volume.

§ 75. Records of Original Entry.

Each transaction of business must be systematically recorded and for this purpose special books and forms are provided; e. g., cash received is recorded in a cash book, sales are recorded on duplicate bills, purchases are recorded in a voucher register, notes are issued and journal entries are made to record the transactions. Any book or form used for the original

bookkeeping record of a transaction belongs to the "records of original entry." It is obvious that the books of summarization, such as the various ledgers, do not belong to this class.

§ 76. Records of Summarization.

Books used for the purpose of summarizing a particular class of transactions from the records of original entry in order to arrive at classified monthly totals, and thus facilitate postings to the general ledger, are called books of summarization. To this class belong such books as the summary of sales, summary of purchases, summary of productive labor, summary of raw materials used, etc.

When duplicate bills are used, in lieu of a sales book, these bills constitute records of original entry, and customers' accounts are charged direct from them. The summary of sales book is written up from these duplicate bills in order to ascertain the total sales, total cost of sales, etc., and the footings only are posted into the general ledger.

§ 77. Assets and Liabilities.

The assets and liabilities of most businesses may be divided into four classes,-(a) fixed assets; (b) floating assets; (c) fixed liabilities, and (d) floating liabilities. For the ledger accounts coming under each of these heads, their functions and entries, see Chapter XVI, "Ledger Accounts,Their Functions and Entries."

$78. (a) Fixed Assets.

Briefly, fixed assets may be defined as those which are permanent in nature, such as land, factory buildings, machinery, patterns, patent rights, horses and wagons, office equipment, store fixtures, good-will, etc.

§ 79. (b) Floating Assets.

Floating assets, as opposed to fixed assets, are those not permanent in nature. They are the ever-changing assets resulting from the carrying on of the business, such as cash, accounts receivable, notes receivable, finished products, goods in process of manufacture, raw materials, supplies, manufacturing expenses paid for in advance, merchandise, etc.

80. (c) Fixed Liabilities.

Fixed liabilities include all liens on fixed assets, such as mortgages, mortgage bonds, chattel mortgages, etc.; also obligations payable several years from their date, such as debenture bonds which are not specific liens on any particular

assets.

Capital stock outstanding represents a fixed obligation of the business to the stockholders, payable, however, only after dissolution and after all creditors have been satisfied. Since much of the capital stock outstanding is often issued for the equipment and good-will of a business, or issued for cash which is converted into fixed assets, it follows that capital stock issued may be logically classed amongst the fixed liabilities. So long as there is a surplus, based upon a true valuation of the assets and liabilities, the business is nominally liable to the stockholders for the par value of all outstanding capital stock. If there is a deficit the value of the capital stock outstanding is impaired and the business is liable only for the unimpaired balance (difference between par value of stock issued and amount of deficit). This liability is, as stated, conditional, only payable on dissolution and then only to the extent of the surplus assets after all other liabilities have been paid. (See § 331.)

§ 81. (d) Floating Liabilities.

Current liabilities, resulting from the carrying on of the business, belong to this category; e. g., accounts payable, notes payable, wages for labor accrued but not due, etc.

§ 82. Accounting Systems.

An accounting system consists of the books and forms used for classifying and recording all the transactions of a business. There are three kinds of systems,-(a) the "Hitor-Miss" or "Good-Enough Good-Enough" system, (b) the system, (b) the "Coat-ofMany-Colors system, and (c) the scientifically designed system.

§ 83. (a) The "Hit-or-Miss" or "Good-Enough" System.

The origin of a system of this sort as regards any particular business, may usually be traced to the beginning of that business. The officials, not recognizing the importance of starting with a system designed to meet the requirements of the business, leave that important feature of organization and administration to the bookkeeper, engaged at a very low salary "on account of the business being in its infancy." Obviously, the results from such a system are commensurate with the quality of skill employed in producing them.

Bookkeepers in charge of such systems do not usually remain long,—not through any fault of theirs but rather through the fault of their employers, who do not appreciate the fact that a workman cannot accomplish good results without good tools. As a consequence a succession of bookkeepers come in and each new bookkeeper changes the system to meet his own ideas,-ideas usually brought from his last engagement regardless of how widely the two businesses differ. The management, however, despite the changes in bookkeepers and bookkeeping, are never able to ascertain from the records the

information they want, when they want it, or in the way they want it.

§ 84. (b) The "Coat-of-Many-Colors" System.

During the reign of this "Hit-or-Miss" (with emphasis on the "Miss") system, sundry salesmen for sundry manufacturing stationers call and extol the merits of their card systems, loose-leaf systems, bookkeeping machines, etc., all of which are made to meet all requirements, especially those peculiar to the business of the prospective buyer. The billingmachine salesman offers to design a complete system of accounts if his machine is installed, and the card-index salesman vows that bound books are a snare and a delusion and that only his wares will work wonders.

Driven to desperation from trying to secure results by means of a mongrel system, and impressed by the flowery representations of some of the many systematizing salesmen, the management usually procures from several of them several parts of a system and from this medley attempts to construct a system of accounts, which, when constructed, resembles a coat of many colors.

There are no advantages to be gained from permitting manufacturing stationers to install free systems in order to sell their goods. Such offers, if accepted, are a striking illustration of the prize package without the prize. If the goods had merit they would be utilized in the right place and in the right way through the recommendation of men who are not personally interested in the sale of the goods and who are capable of judging their utility. When a wise man is ill he secures the services of a physician; he does not try fifty-seven kinds of patent medicines each of which is guaranteed to cure all human ills. By the same token a wise business management should secure the services of a competent accountant when an effective and scientific system is desired.