Chapter VIII: Part II: Classes of Accounts (6)

65. _Inventory Adjustment._ An account used for the temporary adjustment of inventories of finished stock, for the purpose of obtaining monthly statements of gross profits. At the end of the fiscal year, the balance of the account is transferred to inventory of finished goods account, through the trading account.

Accounts 63 to 65, inclusive, are closed into a harness trading account, at the end of the fiscal year. For purposes of comparison, monthly trading statements are made, leaving these accounts undisturbed until the end of the year.

Accounts 66 to 68, inclusive, and 69 to 71, inclusive, are handled exactly the same manner, in relation to the collar and saddlery departments.

72. _Interest Credits._ Credited with all interest collected on past due accounts, or received on outside investments.

73. _Cash Discount Credits._ Credited with all discounts earned by the prepayment of bills.

74. _Rent Credits._ Credited with all amounts received from rentals of property owned by the company, or as a result of subletting leased property.

75. _Insurance and Taxes._ Charged with all sums paid for fire, liability or other insurance, state and municipal taxes, and license fees.

76. _Salaries--Officers._ Charged with the salaries of all administrative officers, and directors' fees.

77. _Salaries--Bookkeeper and Clerks._ Charged with amounts of salaries of all bookkeepers, stenographers, and other office clerks.

78. _Printing and Stationery._ Charged with the cost of all stationery and printed matter used in the offices.

79. _Legal Expense._ Charged with attorney's fees and all expense of litigation.

80. _Postage, Telegraph and Telephone._ Charged with all sums paid for postage, and telegraph and telephone service.

81. _Office Expenses._ Charged with sundry items of office expense, not provided for in other accounts.

82. _Traveling Expense--Officers._ Charged with all legitimate traveling expenses incurred by officers in the interest of the company.

83. _Misc. General Expenses._ Charged with all expense items not otherwise accounted for.

Accounts 72 to 83, inclusive, are closed into an administration account.

84. _Advertising._ Charged with all sums paid for advertising, including periodical advertising, catalogs, circulars, and novelties.

85. _Salaries--Salesmen._ Charged with the salaries of all traveling salesmen.

86. _Commissions._ Charged with all commissions paid to brokers or salesmen.

87. _Traveling Expenses--Salesmen._ Charged with all legitimate expenses of salesmen, incurred in the interest of the company.

88. _Trade Show Expense._ Charged with all expenses incurred on account of exhibitions at trade shows. Sometimes treated as a part of advertising expense.

89. _Out-Freight and Express._ Charged with all freight and express paid on goods sold at delivered prices.

Accounts 84 to 89, inclusive, are closed into a sales expense account.

90. _Collection Fees._ Charged with all fees paid to banks, attorneys or others, for the collection of accounts.

91. _Cash Discounts Allowed._ Charged with all allowances to customers, for prompt payment of bills.

Accounts 90 and 91 are closed into a collecting account.

92. _Wages._ Charged with the wages of drivers and barn men.

93. _Maintenance.--Horses and Wagons._ Charged with cost of feed, stable supplies, repairs to harness and wagons, blacksmithing and horse-shoeing.

94. _Maintenance--Motor Trucks._ Charged with all expense of up-keep and repairs to delivery trucks.

Accounts 92 to 94, inclusive, are closed into a delivery expense account.

95. _Depreciation--Buildings._ Credited monthly with current charges for depreciation.

96, 97, and 98. Handled the same as No. 95.

Accounts 95 and 98 are closed into a depreciation adjustment account.

The illustrations (pp. 48-50) show how all of these accounts are assembled into main groups, and finally closed into profit and loss, and capital accounts. An explanation of the accounts in the harness department will be sufficient to show how all of the accounts are treated.

Harness manufacturing, account _A_, is charged with accounts 34 to 39, inclusive, and the proper portion of account _D_. It is credited with the cost of all finished goods, the amount being transferred to account _E_, harness trading. It is credited with the increase in inventories over the preceding month, this amount being transferred to account 40; if inventories show a decrease, the amount is charged.

Harness trading, account _E_, is charged with cost of finished goods from account _A_; with account 64; with gross profits, transferred to profit and loss, account _H_. It is credited with sales, account 63; with increase in inventory, account 65.

Gross profits on account of trading are closed into profit and loss.

Inventory adjustment accounts Nos. 40 and 65, are still open and the balances show total inventories. The actual amounts of inventories are transferred to accounts 4 to 7, inclusive. This will leave a balance in inventory adjustment account No. 40, representing work in process in the harness factory. These inventory adjustment accounts are closed only at the end of the fiscal year, or when the books are closed. At the beginning of a new fiscal period the inventories are again charged to inventory adjustment accounts, and adjusting entries made monthly in manufacturing and trading accounts.

REVIEW QUESTIONS.

PRACTICAL TEST QUESTIONS.

In the foregoing sections of this Cyclopedia numerous illustrative examples are worked out in detail in order to show the application of the various methods and principles. Accompanying these are examples for practice which will aid the reader in fixing the principles in mind.

In the following pages are given a large number of test questions and problems which afford a valuable means of testing the reader's knowledge of the subjects treated. They will be found excellent practice for those preparing for Civil Service Examinations. In some cases numerical answers are given as a further aid in this work.

REVIEW QUESTIONS ON THE SUBJECT OF THEORY OF ACCOUNTS