Part 26

Coal 3,750.00 Horses and Wagons 800.00 Furniture and Fixtures 300.00

Make necessary journal entries to change to double entry. Provide a reserve of 5% for uncollectible accounts, 10% for depreciation of horses and wagons, 10% for depreciation of furniture and fixtures. Declare a dividend of 10% and transfer balance of profits to surplus, making all journal entries to record these transactions.

TWO HEMISPHERICAL BOTTOMS FOR 100,000-GALLON ELEVATED TANKS RIVETED TOGETHER, SHOWING CLASS OF WORKMANSHIP NECESSARY ON WORK OF THIS CHARACTER Chicago Bridge & Iron Works, Chicago, Ill. ]

TRIAL BALANCES AND COMPARATIVE STATEMENTS

=14.= The construction of comparative statements is one of the most important duties of the bookkeeper. The ability to properly classify the accounts that make up trading and profit and loss statements, and balance sheets is a valuable asset to the bookkeeper who aims to advance to the highest position.

Statements of this kind, unless properly classified, are unintelligible to the average business man. A mere statement of the balances of the ledger accounts arranged without respect to their relationship, one to the other, may show that the ledger is in balance, but does not present information of special value to the manager of a business. What he wants—and expects—is a statement from which he can readily extract desired information; it must emphasize the salient points.

The classification of accounts has already been touched upon, but no harm will be done by placing still greater emphasis on the importance of this feature. For with the right classification of accounts in the ledger, the trial balance itself will supply some very interesting information, instead of being a mere list of balances. The following rules should be observed in the arrangement of accounts in the ledger.

All asset accounts should be assembled in the first section and grouped according to their classification; i. e., active, fixed, and passive or fictitious.

The liabilities should be divided into secured or funded, unsecured or floating, and capital; the latter includes any reserve accounts that may be maintained.

The expense accounts should follow and should be subdivided as to selling, general, and administrative.

The trading accounts should be grouped and divided into purchases, in-freight, and sales.

If a manufacturing business, the manufacturing accounts should be divided as to purchases, labor, and expenses.

The advantages of card and loose leaf ledgers are apparent in connection with the proper arrangement of accounts. They readily lend themselves to any desired classification, and new accounts as needed can be inserted at any point.

For the purpose of showing some of the possibilities in the classification of accounts, we give a few examples of model trial balances.

TRIAL BALANCE

Assets Cash $264.20 Bank 4,728.50 Accounts Receivable 6,270.00 Inventory (Jan. 1) 7,860.00 Real Estate 10,000.00 Furniture and Fixtures 5,000.00

Liabilities Mortgage Payable $3,000.00 Bills Payable 5,000.00 Accounts Payable 6,120.00 Capital Stock 20,000.00

Profit and Loss Advertising 475.00 Salesmen's Salaries 300.00 Traveling Expenses 189.70 General Expense 74.00 Interest and Discount 22.60 Building Maintenance 37.00 Taxes and Insurance 42.00 Salaries 525.00

Trading

Purchases 5,500.00 In-Freight and Cartage 96.20 Sales 7,219.00 --------- --------- 41,361.60 41,361.60

If the accounts in this trial balance were listed without regard to the groups in which they belong, it would merely show that the ledger balances. In its present form, it gives at a glance much valuable information. Total expenses and expenses of each class are readily ascertained, sales are shown, and expenses can be compared with sales. With the exception that it does not show the changes in the account of the inventory, this trial balance exhibits the condition of the business.

Supposing that an inventory is taken, the following statements are quickly prepared.

BALANCE SHEET Assets Cash $264.20 Bank 4,728.50 Accounts Receivable 6,270.00 Inventory (Feb. 1) 7,995.00 Real Estate 10,000.00 Furniture and Fixtures 5,000.00

Liabilities Mortgage Payable $3,000.00 Bills Payable 5,000.00 Accounts Payable 6,120.00 Capital Stock 20,000.00 Surplus 137.70 --------- ---------- 34,257.70 34,257.70

TRADING STATEMENT Inventory (Jan. 1) 7,860.00 Purchases 5,500.00 In-Freight 96.20 ---------- 13,456.20 Less Inventory (Feb. 1) 7,995.00 ---------- 5,461.20 Sales 7,219.00 Gross Profit 1,757.80 --------- --------- 7,219.00 7,219.00 --------- ----------

PROFIT AND LOSS STATEMENT Gross Profit $1,757.80 Advertising $475.00 Salesmen's Salaries 300.00 Traveling Expenses 189.70 General Expense 74.00 Interest and Discount 22.60 Building Maintenance 37.00 Taxes and Insurance 42.00 Salaries 525.00 Net Profits 137.70 --------- --------- 1,780.40 1,780.40 --------- ---------

The facts that sales were $7,219.00, or that the expense for salesmen's salaries was $300.00 mean nothing in themselves. It is only when compared that they exhibit vital facts. If we find that last month's sales were $8,400.00 and salesmen's salaries the same as this month, we know at once that our present selling cost is proportionately higher than during the preceding period.

The following trial balance should be compared with the preceding and the difference in their values, in respect to the information given, carefully noted. The accounts in this trial balance are arranged in the order in which they were found in the ledger.