Chapter D: A. Hall employs H. D. Snyder as traveling salesman for the purpose of (1)

increasing his business, agreeing to pay him a salary of $150.00 per month and expenses. He commences work on Feb. 11th. The amounts in the ledgers stand as shown in the last model set illustrated and these transactions are recorded:

—Feb. 11th.—
Paid Altman & Sons
To balance account
Ck. No. 9 $350.00

—11th—
Paid Garson & Co.
To balance account
Ck. No. 10 175.00

—11th—
Sold to Daniels & Dean, Boone, Ia.
10 men's suits $7.50 $75.00
10 men's suits 6.75 67.50
20 boys' suits 2.00 40.00
------
182.50
Terms 2/10 N/30

—11th—
Sold to A. C. Petersen, Nevada, Ia.
10 men's overcoats 8.50 85.00
10 men's suits 7.00 70.00
------
155.00
Terms 2/10 N/30

—11th—
Received from D. A. Marcus & Son
Cash 139.65
Discount 2% 2.85

—11th—
Sold for cash
20 boys' suits 1.75 35.00
20 men's pants 2.00 40.00

—12th—
Received from John Gorham
Cash 132.30
Discount 2% 2.70

—12th—
Sold to Henry Cook, Iowa Falls, Ia.
5 men's suits 8.00 40.00
5 men's suits 5.75 28.75
5 boys' suits 2.00 10.00
5 boys' suits 1.75 8.75
------
87.50
Terms 2/10, N/30

—12th—
Sold to James Adams, Dennison, Ia.
15 men's suits 7.00 105.00
Terms 2/10, N/30

—12th—
Received from Geo. Golden
Cash $150.00

—13th—
Sold to D. A. Marcus & Sons
10 men's pants 2.00 20.00
10 boys' suits 1.75 17.50
------
37.50
Terms 2/10, N/30

—13th—
Paid freight on shipment to
Henry Cook
Ck. No. 11 3.65
Charge to Cook

—13th—
Deposited cash 824.45

—13th—
Sold to S. H. Allen, Mason City, Ia.
30 men's pants 1.75 52.50
Terms 2/10, N/20

—14th—
Paid Adler & Co.
Ck. No. 12 303.12
Discount 9.38

—15th—
Sold to Marx & Sons, Charles City, Ia.
10 boys' suits 2.00 20.00
10 men's suits 7.00 70.00
------
Terms 2/10, N/30 90.00

—15th—
Received from H. A. Branch
Cash 52.50

—15th—
Received from Larson & Anderson
Cash 78.75

—16th—
Paid H. D. Snyder
1 week's salary $37.50
Ck. No. 13

—16th—
Paid H. D. Snyder
Traveling expenses 17.65
Ck. No. 14

—16th—
Deposited cash on hand 131.25

—16th—
Paid D. E. Jenkins
For cartage on shipments 2.50
Ck. No. 15

EXERCISE

1. Prepare a trial balance of the ledger as it would appear after posting these transactions.

2. Assuming that gross trading profits average the same per cent of selling prices as in former transactions of this business house, find approximate inventory at close of business Feb. 16th.

3. Prepare trading and profit and loss account, based on this inventory.

Order and Sales Records
]

Order and Sales Records
]

Order and Sales Records
]

Order and Sales Records
]

Departmental Abstract of Sales
]

Cash Received Book
]

ONE OF THE ELECTRICAL MANUFACTURING PLANTS OF THE FAIRBANKS-MORSE
COMPANY
]

Check Register and Cash Expenditure Book
]

COMMISSION AND BROKERAGE BUSINESS

=30.= Commission or brokerage is the business of buying and selling goods for another. The commission merchant or broker acts in the capacity of agent, charging a stated per cent or commission for his services.

Certain commodities are sold on the market at the best prices obtainable, the prices depending upon the condition of the market—the supply and demand. Since it would be both inconvenient and unprofitable for each seller to accompany his own wares to market, he avails himself of the services of the commission merchant. The class of goods most largely dealt in by commission merchants is farm produce, shipped to the cities by both producers and country dealers.

The practice of shipping produce to the broker to be sold on commission is gradually falling into disuse. As the business is now conducted, the commission merchant buys the produce outright and takes his own chances of making a profit, and thus his business becomes also that of a wholesaler.

MERCHANDISE BROKER

=31.= Certain classes of merchandise are marketed through the medium of brokers styling themselves merchandise brokers. Their business is usually transacted on a larger scale than that of the ordinary commission merchant. The merchandise broker sells in large quantities—as salt by the car load.

The distinction between the commission merchant and the broker lies in the fact that the commission merchant has the goods to be sold actually in his possession, while the broker acts as agent for the purchase and sale of goods which he does not actually handle.

MANUFACTURER'S AGENT

=32.= One distinct class of brokers is the sales agent or manufacturer's agent. He is a broker who sells goods for the manufacturer, usually by sample. As a rule the manufacturer sets the prices and determines the terms of credit. The goods are sold in the name of the manufacturer who carries the accounts on his books, paying the agent a commission for his services. In some cases, however, the manufacturer's agent maintains his own warehouse, issues a warehouse receipt for the goods which are shipped to him, and even advances money to the manufacturer. He then becomes virtually a commission merchant. He holds the goods as security for the money advanced, and, when sold, collects the money and remits the balance of the net proceeds the same as the ordinary commission merchant.

SHIPMENTS

=33.= When a principal sends goods to a commission merchant or broker to be sold on commission, it is called a shipment. As soon as the goods are sent, an account is opened with the shipment, and the shipment is designated by the name of the consignee, a number, or the name of the place—as _Shipment to Richard Roe_. If more than one shipment is made to a commission merchant an account should be opened for each one in order that the gain or loss can be determined for individual shipments. The separate accounts should be designated by number—as Richard Roe, shipment No. 2.

The shipment, when made, is entered in the same way as a sale, and the items are charged at cost price. The account is also charged with any expense incurred on account of the shipment. When the Account Sales is received, the account is credited with the net proceeds. It now shows either a profit or a loss which is transferred by a journal entry to an account called _Profit and Loss on Shipments_. This account is, in turn, closed into profit and loss when the books are closed.

If at the time of closing the books there are any outstanding shipments on which Account Sales have not been received, the debit balances represent assets the same as inventory of merchandise on hand.

=34. Agents' or Factors' Account.= If the Account Sales, when received, is accompanied by a remittance to cover net proceeds, cash is debited and the shipment account credited for the amount. When a remittance is not received with the Account Sales, the shipment account is credited with net proceeds and the amount is charged to a new account opened in the name of the consignee as _Agent_ or _Bailee_ or _Factor_—as _Richard Roe, Agent_, or _Richard Roe, Bailee_, which is treated as a personal account. This does not mean that Richard Roe is a debtor in the ordinary sense of the term, but that he holds funds in trust; and in case of his failure, the shipper could recover full value instead of being obliged to accept his pro rata share of the assets.

A CONSIGNMENT

=35.= When a broker receives a shipment of goods to be sold on commission, it is known as a consignment. He opens a memorandum account by entering a list of the goods, but without extending any amounts. He has not purchased the goods, but simply holds them for sale as agent of the shipper. If there are any charges against the consignment, as freight, cartage, or storage charges, an account is opened in the name of the consignor. The title would be _John Doe's Consignment_, and if more than one consignment is received from John Doe a separate account is opened for each. This account is debited for all charges, and as sales are made they are credited to the account. When all of the goods have been sold, the broker renders the consignor a statement, known as an Account Sales, showing sales, expenses, and net proceeds.

If, when the books are closed, there are on hand any consignments, or parts of consignments, unsold, the consignment accounts are left open and represent either assets or liabilities. If expenses have been debited and no sales credited, the account will show a debit balance representing an asset. If sales have been credited in excess of the expense charges, the credit balance will represent a liability. When an Account Sales has been rendered, the account will balance, the net proceeds having been either remitted or credited to the consignor.

=36. Principal's Account.= If the broker remits the net proceeds at the time of rendering the Account Sales, he debits the consignment and credits cash, or bills payable as the case may be. But if he renders an Account Sales without remitting, he opens an account with the consignor, as _John Doe, Principal_, or _John Doe, Bailor_, and credits the account with the net proceeds, debiting the consignment account. The title of the account shows that he is not an ordinary debtor to John Doe, but that the amount of the credit represents funds belonging to John Doe and held in trust by the broker. In case of his failure the account of John Doe, Principal, would have to be paid before the claims of ordinary creditors.

=37. Commission Account.= All sums received by the broker for services rendered in connection with the sale of goods for a shipper are credited to a commission account. When the books are closed this account is closed into profit and loss.

PRODUCE SHIPPER'S BOOKS

=38.= The most common branch of the commission business is that of shipping and selling produce. The books used vary somewhat from those used by a manufacturer's agent selling to jobbers, but the principles are the same.

Two Column Shipment Book
]

Sometimes the same man conducts both the business of shipper and broker, buying certain goods which he in turn ships to other brokers to be sold for his account. In the produce commission business, however, the shipper is usually a buyer, located in the country, who buys produce from the farmer and ships to a commission merchant in the city.

The books required by the shipper are _purchase book_, _shipment book_, _shipment ledger_, _cash book_, _journal_, and _general ledger_.

=39. Purchase Book.= This book is of the same form as used in other businesses, with as many columns as may be desired to separate purchases of different classes of produce.

=40. Shipment Book.= This is the book of original entry for shipments in which each shipment is recorded in detail, showing each item, with prices (usually at cost) extended. The book can be ruled with columns for segregating shipments of different classes of produce. The total of each shipment is posted to the debit of the individual shipment account in the shipment ledger. The footings of the columns are carried forward to the end of the month when they are posted to the credit of shipment accounts in the general ledger. These general ledger shipment accounts are opened for each class of produce for which a separate record is desired, and correspond to the sale account of a mercantile business.

At the end of the month the total of all shipments is posted to the debit of a controlling account in the general ledger known as _shipment ledger account_.

If more than one class of produce is shipped to an agent at the same time it is best to make invoices for each, treating them as independent shipments. Each package should bear a number or other mark by which it can be identified as belonging to a particular shipment.

=41. Shipment Ledger.= An ordinary ledger can be used or a special form prepared. Since the debit side of the account will require much the greater amount of space, special forms are quite desirable. A convenient form is illustrated on page 55.

=42. Cash Book.= Tabular cash books with special arrangement of the column headings are used. The special features are the column on the credit side headed _shipment expense_, and the debit column headed _shipment ledger_. The shipment expense column is for the expenses paid on each shipment. Expenses are posted direct to the debit of the individual shipment accounts, and at the end of the month the total expense is posted to the debit of the shipment ledger controlling account. The shipment ledger column is for net proceeds remitted with account sales. The amounts are posted to the credit of shipment accounts, and the total is posted at the end of the month to the credit of shipment ledger controlling account.

The sundries column is for receipts other than remittances with account sales—as payments by agents who have not remitted with account sales.

Shipment Ledger for Commission Business
]

Cash Journal for Commission Business
]

=43. Shipment Ledger Account.= This is the controlling account of the shipment ledger. It is charged with total shipments through the shipment book; with advance expenses through cash book or journal; credited with net proceeds through cash book or journal. It must also be charged with profits on shipments, or it will not represent the total balance of shipment ledger.

When net proceeds are credited, the individual shipment account should be charged, through the journal, with the net profit, which is credited to _Profit and Loss on Shipments_. A special credit column is provided in the journal for profits, or if a record of profits on each class of produce is desired, two or more columns are provided. Monthly totals are posted to the credit of profit and loss on shipment account, or to more than one such account—as _profit on poultry_, _profit on butter and eggs, etc._ The total of all profit columns, which represents debits to shipment accounts, is charged to shipment ledger account.

It is to be supposed that losses will be few, and when one is incurred the entries should be made through the journal. The amount will be charged to profit and loss on shipment account and credited to both the individual shipment account and shipment ledger account.

=44. Journal.= As already explained, the journal should be provided with extra columns for profits on each class of shipment.

When an agent transmits an account sales without a cash remittance, the transaction must be journalized to close the shipment account. When proceeds are to be charged to his account, the entry is:

Dr. Cr. Cr.
Richard Roe, Agt. $160.00
To Shipment Ledger
Richard Roe Shipment No. 1 $160.00
Richard Roe, Shipment No. 1 18.00
To Profit and Loss on Shipments $18.00

If a note to cover net proceeds is received, the entry is the same except that Bills Receivable is debited instead of Richard Roe, Agt.

When a loss is incurred the entry is:

Dr.
Profit and Loss on Shipments $18.00
To Shipment Ledger Account
Richard Roe Shipment No. 1 $18.00

and postings will be made direct to all accounts affected.

TREATMENT OF ACTUAL SALES

=45.= The shipper may sell a portion of his produce outright, and if a large share of his business is transacted in this manner, sales can be treated exactly the same as though he was not engaged in a commission business, with separate sales book and sales ledger.

Most shippers, however, will not find it necessary to segregate sales to this extent. Sales can be charged to shipment accounts in the shipment ledger, but will of course be charged at a profit, and credited to shipment account in general ledger. Payments on these accounts will be entered in the cash book as net proceeds.

SHIPPER'S TRADING ACCOUNT

=46.= The trading account of the shipper is made up somewhat differently than for a mercantile business where all sales are supposed to be entered at a profit.

If all his produce is sold through commission merchants, and the inventory of produce in stock exactly equals the difference between purchases and shipments, the account, _profit and loss on shipments_ represents the trading profit. But this state of affairs seldom if ever exists. Either there will have been outright sales or a discrepancy will appear in the inventory. The latter is usually the case in a produce business, for some value will be lost owing to the perishable nature of the goods handled.

The trading account is charged with all purchases and inventory, if any, at beginning of the period, and credited with all shipments and inventory at end of period.

The trading account now exhibits the true trading profits with a complete segregation of profits from actual sales and commission sales. The inventory does not include outstanding shipments, these being treated as a separate item in the balance sheet.

TRADING a/c

════════════════════╦═══════╤══╦════════════════════╤═══════╤══
To Purchases ║$10,000│00║By shipments │ $9,000│00
║ │ ║ │ │
Profit on Sales ║ 465│00║ " Inventory │ 1,465│00
────────────────────╫───────┼──╫────────────────────┼───────┼──
║$10,465│00║ │ │
════════════════════╬═══════╪══╬════════════════════╪═══════╪══
║ │ ║ By Profit on Sales│ $465│00

SAMPLE TRANSACTIONS

=47.= The following transactions, taken from the books of John Doe, shipper of poultry and butter and eggs, illustrate the books and accounts used.

—Nov. 1, 1908—

Commenced business with a
cash investment of $1,000.00

—1st—

Bought for cash
200# chickens @ .11½ 23.00
100# ducks @ .13 13.00

—1st—

Bought from
Henry Meyers
400# turkeys @ .16 64.00

—2nd—

Shipped to
Richard Roe, to be sold on my a/c
220# chickens @ .11½ 25.30
98# ducks @ .13 12.74

—2nd—

Ctg. and Exp. on above
paid in cash 2.25

—3rd—

Bought for cash
100 cs. eggs, 3,000 doz. @ .16 480.00

—3rd—

Shipped to
Richard Roe to be sold on my _a/c_
95 cs. eggs, 2,850 doz. @ .16 456.00

—3rd—

Sold to Johnson & Sons on _a/c_
5 cases eggs, 150 doz. @ .20 30.00

—4th—

Shipped to Richard Roe to be sold
on my a/c 200# turkeys @ .16 $32.00

—4th—

Paid freight on eggs to Roe 2.98

—4th—

Paid freight on turkeys to Roe 1.80

—5th—

Received from Richard Roe
Account Sales for Shipment No. 1
Net proceeds remitted in cash 47.73

—6th—

Received from Richard Roe
Account sales for shipment No. 2
Net proceeds retained by him 518.12

—6th—

Paid for labor
cash 9.00

Shipment Book
]

Columnar Purchase Book and Journal
]

Cash Journal for Commission Business
]

Shipper's Purchase and Shipment Ledger
]

Shipper's General Ledger
]

THE ADMINISTRATION BUILDING OF THE MINNEAPOLIS STEEL & MACHINERY CO.,
MINNEAPOLIS, MINN.
]

Shipper's General Ledger
]

EXERCISE

=48.= On a certain date a trial balance of the ledger of Henry Donnely, shipper of produce, stood as follows:

DEBITS

Purchases of apples $1,264.00
Purchases of potatoes 1,500.00
Shipment Ledger Account 736.00
Cash 450.00

CREDITS

Shipment Account—apples 1,200.00
Shipment Account—potatoes 1,200.00
Profit on Shipments—apples 250.00
Profit on Shipments—potatoes 350.00
Accounts Payable 950.00

During a subsequent period, his transactions were as follows:

Cash purchases of apples 1,000.00
Cash purchases of potatoes 1,000.00
Shipments of apples 900.00
Shipments of potatoes 1,100.00
Profits on apples 100.00
Profits on potatoes 200.00
Account Sales for which cash was received 1,800.00
Account sales charged to Agts. 600.00
Shipment Ledger Account decreased 100.00
Sundry expenses paid in cash 50.00

Inventory at end of period
Apples 210.00
Potatoes 190.00 400.00

Prepare trading and profit and loss accounts showing net profits or losses on both apples and potatoes for the entire period represented by the accounts.

COMMISSION MERCHANTS' BOOKS

=49.= The books required by a produce commission merchant are _receiving book_, _cash book_, _consignment ledger_, _sales book_, _sales ledger_, _journal_, and _general ledger_. If he buys produce to be sold on his own account, he also requires a _purchase book_ and _purchase ledger_.

=50. The Receiving Book.= This is usually a rough blotter with ordinary day book ruling, though some merchants use special forms.

When a consignment is received it is given a lot number and entered in this book in the name of the shipper, but without extending the amounts. If any expenses have been incurred, an account is opened immediately in the consignment ledger in the name of the shipper.

=51. The Cash Book=. On the credit side of the cash book, under the general heading _consignment ledger_, are three columns, headed _net proceeds_, _expense_, and _commission_. The commission column is a memorandum column only, the total being posted, at the end of the month, to the credit of commission account in the general ledger.

Net proceeds, expense, and commission on each consignment are posted as separate items to the debit of that particular consignment account. At the end of the month, the total of these three columns is posted to the debit of consignment ledger account in the general ledger.

=52. Sales Book.= The sales book is provided with special columns for sales and consignment sales. The sales column represents sales of the merchants' own goods, the totals being posted at the end of the month to the credit of sales account in the general ledger and to the debit of the sales ledger account.

The consignment sales are listed by lot number and posted to the credit of the consignment accounts. As the lot numbers run consecutively in the receiving book, this furnishes an index to the consignment accounts. The totals of the consignment sales columns are posted to the credit of consignment ledger account, and the consignment ledger column is posted to the debit of sales ledger account.

=53. Consignment Ledger.= This ledger contains accounts with every consignment received. The accounts are _charged_ with expenses, net proceeds, and commissions from the cash book, and _credited_ with sales from the sales book. If a remittance is not sent with the Account Sales, the necessary entry is made in the journal, charging both consignment account and consignment ledger account and crediting the shipper as principal—or bills payable account when a note is sent.

=54. Consignment Ledger Account.= This is a controlling account which receives its debits and credits from the same sources as do the consignment accounts. Except in the case of journal entries, totals only are posted at the end of the month.

PURCHASE AND SALE OF OWN GOODS

=55.= When the commission merchant is also a wholesaler, the purchases and sales are treated on the books exactly as they would be if he was not a commission merchant. The books and accounts required are the same as those of any other wholesale merchant.

SAMPLE TRANSACTION

=56.= The following transactions include the shipments used in the last model set, but treated from the standpoint of the commission merchant.

—Nov. 3, 1908—
Received from John Doe to be
sold for his account:
220# chickens
98# ducks
Lot No. 1

—4th—
Received from John Doe to be
sold for his account
95 cs. eggs, 2,850 doz.
Lot No. 2.

—4th—
Sold for cash
100# chickens (Lot 1) @ .16 $16.00

—4th—
Sold to Sweet & Co. on a/c
110# chickens (Lot 1) @ .16 17.60

—4th—
Sold for cash
100# ducks (Lot 1) @ .17¼ 17.25

—4th—
Paid expense on lot #1 $1.60

—4th—
Rendered Account Sales, with
remittance for Lot #1, commission 3%

—5th—
Sold for cash
20 cs. eggs., 600 doz., @ .18 (Lot 2) 108.00

—5th—
Sold to Gaston & Co., 156 Hammond St.
20 cs. eggs., 600 doz., @ .20 (Lot 2) 120.00

—5th—
Sold to Francis & Gates, 948 37th St.
30 cs. eggs, 900 doz., @ .19 (Lot 2) 171.00

—5th—
Sold to H. B. Niles, 364 Fuller Ave.
25 cases eggs, 750 doz. @ .19 (Lot 2) 142.50

—5th—
Paid expense on Lot #2 7.13

—5th—
Rendered account sales for
Lot #2, commission 3%, crediting
amount to shippers' account.

—5th—
Received from John Doe to be
sold for his account
200# Turkeys
Lot #3

—5th—
Paid expense on Lot #3 1.25

Commission Merchant's Receiving Book, Journal and Sales Book
]

Commission Merchant's Cash Journal
]

Commission Merchant's Consignment and Sales Ledgers
]

Commission Merchant's General Ledger
]

EXERCISE

=57.= During a certain period a commission merchant transacted the following business:

Purchased goods on his own account $3,000.00
Sold goods on commission 5,000.00
Sold his own goods 2,500.00
Commissions earned 150.00
Received cash for goods sold 6,250.00
Paid expenses on consignments 37.50
Rendered account sales with which cash was
remitted to cover net proceeds 2,712.50
Rendered account sales on which net proceeds
were credited to the account of principals 2,000.00
Paid cash on account of goods purchased 2,200.00
Paid cash for sundry expenses 75.00
Inventory of goods owned at the close of the period 800.00

Prepare trading and profit and loss accounts and balance sheet.

STORAGE

=58.= Storage, as here used, is the business of furnishing storage for merchandise on its way to market until such time as it is sold and delivered to the purchaser. The source of supply and customs of the trade in certain classes of merchandise render the question of storage an important one. This is particularly true of the grain trade. Large buyers of grain, located in important distributing centers which have become the principal grain markets owing to their manufacturing or transportation facilities, locate their buyers in the grain producing sections to buy grain from the producers. At these points are located small grain handling plants or elevators, where the grain is received from the farmers and shipped to the distributing centers.

Here, extensive storage facilities must be provided, that these shipments, aggregating enormous quantities of grain, may be held until the condition of the market is favorable for selling. If it were not for this custom of storage it would be necessary to market all of the grain—except the small quantities stored by the farmers—soon after harvest, which would result in lowering prices to all concerned, from the farmer up.

These conditions have resulted in the organization of warehousing companies to provide storage for the owners. When grain, or other classes of merchandise, is received for storage a warehouse receipt is issued, and the merchandise will not be delivered without the presentation of the receipt. Warehouse receipts are negotiable and since they are evidence of the ownership of certain merchandise stored in a warehouse, bankers will loan money to the owner and accept the warehouse receipt as security.

Manufacturers and jobbers of certain products also find it necessary to store large quantities of their wares at distributing centers that they may promptly supply the trade. Another reason for this practice is a financial one. When a manufacturer exchanges his wares for a warehouse receipt, he can immediately borrow on its security, thus securing capital to carry on his business until the regular selling season for his particular product.

The merchandise broker and manufacturers' agent sometimes have their own warehouses and combine the business of buying and selling with that of storage and, if they possess sufficient capital, advance money to the manufacturer.

Perishable products handled by the produce commission merchant are also stored in cold storage warehouses, both to preserve them and to hold for more favorable market conditions.

STORAGE ACCOUNTS

=59.= Storage charges are usually based on a 30 day period, though sometimes for shorter periods, and any period less than a full month is charged for at the 30 day rate.

The storage is frequently charged for the exact time that goods are in the warehouse, that is, the amount is figured for each amount withdrawn. The following example demonstrates this, storage being charged on each quantity withdrawn at the rate of 10c per case per month.

════════════════════╤═══════════════╤═════╤════╦═══════
Received │ Delivered │Time │Rate║Amount
────┬──┬────────────┼────┬──┬───────┼─────┼────╫────┬──
Nov.│15│600 cs. eggs│Dec.│10│100 cs.│1 mo.│10c ║ 10│00
│ │ │ │ │ │ │ ║ │
│ │ │Jan.│ 6│300 cs.│2 mo.│20c ║ 60│00
│ │ │ │ │ │ │ ║ │
│ │ │Feb.│14│200 cs.│3 mo.│30c ║ 60│00
────┼──┼────────────┼────┼──┼───────┼─────┼────╫────┼──
│ │ │ │ │ Total │ │ ║ 130│00

This is known as simple storage.

Another method is to charge storage for the average time at a given rate per month of 30 days. This method is most commonly used when receipts and deliveries are frequent, and is called average storage. The following example demonstrates the method.

═══════╤════════╤══════════╤═══════╤══════╤═════════════
DATE │RECEIPTS│DELIVERIES│Balance│ Time │ QUANTITY
│ │ │ │ │ STORED FOR
│ │ │ │ │ ONE DAY
────┬──┼────────┼──────────┼───────┼──────┼─────────────
Nov.│15│600 cs. │ │600 cs.│15 da.│ 9,000 cs.
Nov.│30│200 " │ │800 " │10 da.│ 8,000 "
Dec.│10│ │100 cs. │700 " │27 da.│ 17,900 "
Jan.│ 6│ │300 " │400 " │39 da.│ 15,600 "
Feb.│14│ │200 " │200 " │10 da.│ 2,000 "
Feb.│24│ │200 " │000 " │ │
────┼──┼────────┼──────────┼───────┼──────┼─────────────
│ │800 │800 │ │ │30)52,500
Average for 1 mo.│ 1,750
1,750 cs. @ 10¢ $175.00 (Amt. of charges)

SPECIAL RECORDS REQUIRED

=60.= One of the most important records required is a storage record showing receipts and deliveries. A special form is necessary and should be adapted to the requirements of the particular class of storage business in which it is to be used.

The form illustrated is typical in that it provides for a record of storage of any class of goods handled in packages. The storage charges are always shown so that a statement of the account can be made at any time. At the end of each month the storage charges extended during the month are debited, through the journal, to the personal accounts of the owners. The total of all such storage charges is credited to a _storage account_ in the general ledger.

When there are frequent receipts and deliveries, the owner should be given a detailed statement showing all changes in quantities and storage charges. Such a statement should be a transcript of the storage record. The form illustrated answers the requirements of simple storage.

Storage Record
]

Statement of Storage Charges
]

BIRD'S-EYE VIEW OF THE PLANT OF SWIFT & COMPANY, CHICAGO, ILL.
]

SINGLE ENTRY BOOKKEEPING
COMPARATIVE STATEMENTS[3]

SINGLE ENTRY BOOKKEEPING

=1.= To this point all of the discussions in this work have related to the double entry system of bookkeeping, and all demonstrations have been carried out according to that system. The reason for this is that double entry is the best and the only satisfactory method of bookkeeping; it is the only method that fulfils the important function of bookkeeping by furnishing a true record of the results of all business transactions.

Footnote 3:

_Copyright, 1909, by American School of Correspondence._

It might appear that instruction in keeping books by the single entry method has no place in a modern treatise on bookkeeping; and if our purpose were to teach single entry as a method to be used, this would be true.

_Single entry bookkeeping is not recommended as a method to be used in any business._

The only reason for introducing single entry is to show the student how to change a set of books from the antiquated single entry to a modern double entry system. Though inadequate, single entry is still used to some extent. It is more commonly found in small retail establishments, but occasionally encountered in the offices of corporations and manufacturing enterprises. The bookkeeper who is called upon to fill a position where this method is used must know how to keep books by single entry, that he may more clearly demonstrate the advantages of the double entry method.

When the advantages of double entry are demonstrated, few employers will object to a change from single entry. In most offices where single entry is still used, the reasons which have prevented a change may be summed up as ignorance of the double entry method, or a fear that double entry will increase the work without a corresponding benefit. This latter idea is a misconception inherited from the days of the old time bookkeeper, who considered it necessary to laboriously journalize every transaction. While it may have possessed some merit at that time, it is no longer true. Modern ideas, improved forms of account books, labor saving devices, and short cuts without number have reduced the labor of bookkeeping to a minimum, and if any attempt at a proof of accuracy is made, double entry actually requires less labor than single entry.

=2. Distinctive Features of Single Entry.= The distinctive feature of single entry is that only personal accounts are kept. When goods are sold or purchased, records are made of the transactions as they affect the persons to whom sold or from whom purchased. The records do not show the increase or decrease of any specific form of assets, like merchandise, for no property accounts are kept. An account is usually kept with cash, but this approaches double entry, for when a person pays money to the business, cash is debited and the person credited; and when money is paid out, cash is credited and the person debited.

Sometimes, in a set of books otherwise kept by single entry, such accounts as merchandise, expense, and real estate are found, but when such accounts are introduced the books begin to take on double entry features.

=3. Books Used=. The principal books of a single entry set usually consist of day book or journal, cash book, and ledger. Both the day book and cash book are books of original entry, from which transactions are posted direct to the ledger. Auxiliary books used are order book, bill book, and check book.

The day book or journal is the familiar two-column form, the left-hand column being used for debits and right-hand column for credits.

The _cash book_ has two columns on each page, and these columns are used to separate the items affecting personal accounts, which are to be posted, and all other items, none of which are posted. See illustration.

The _ledger_ is the same form as used in the double entry method.

The _order book_ is usually the regular two-column journal form. In retail businesses it is used as a principal book, transactions being posted from it to the ledger. Sometimes the first column is used for prices, the extensions being made only when the order is filled.

The _bill book_ is quite essential in a single entry set for the reason that no Bills Receivable and Bills Payable accounts are kept in the ledger.

=4. Rules for Debit and Credit.= The rules for debit and credit are the same in single entry as in double entry, except that no debits and credits are recorded which do not effect persons or cash—when a cash account is kept. Briefly, these rules applying to single entry are:

_Debit the person_
When he receives anything of value;

When you pay him cash.

_Credit the person_
When you receive anything of value;

When he pays you cash.

_Debit cash_
When you receive it.

_Credit cash_
When you part with it.

=5. Posting.= There is no difference between posting to a single entry ledger and one kept by the double entry method. However, the only accounts posted are personal accounts, and the ledger shows merely how much money the business owes to persons and how much money persons owe the business. A single entry ledger does not show the amount of our notes outstanding, or the amount of other persons' notes held by us. This information can be found only in the bill book. The ledger does not show the value of merchandise purchased or sold, expenses of the business, nor the amount of our investments in land, buildings, or other forms of property.

=6. Proprietor's Account.= A proprietor's investment or capital account is kept in single entry just as it is in double entry. This may or may not include withdrawals. They may be recorded in a personal or private account, in which case the proprietor's account will exhibit the net investment in the business.

=7. Proving the Work.= Since but one side of each journal entry is posted, the two sides of the ledger will not agree as in double entry. Hence a trial balance is, strictly speaking, impossible. The only absolutely sure method of checking the accuracy of a single account in the ledger is to carefully check all postings; this is also true of double entry. But it is possible to prove that the correct totals have been posted in single entry, as it is in double entry. Since the ledger is never in balance as in double entry, the proof is not found by comparing the two sides of the ledger, but by comparing the difference between the two sides of the ledger, with the difference between debits and credits in the columns of books of original entry from which postings have been made. If the difference between debits and credits in the ledger agrees with the difference between debits and credits in the books of original entry, the work may be assumed to be correct.

To prove the work, first find the balances of all ledger accounts and enter the amounts in the debit and credit columns on journal paper—as for a trial balance. Foot and find the difference between the two columns. Next foot the order book, day book, cash book, or any other books from which posting is done, and list the totals which should be posted to debit and credit of ledger accounts. Foot and find the difference.

SAMPLE TRANSACTIONS

=8.= For the first demonstration of single entry bookkeeping, we have selected a small retail business, using transactions which have been used to illustrate a double entry set. This set is kept in the most simple manner possible, the books used being journal, cash book, and ledger.

The business is opened by Wm. Webster on the 21st day of November, 190-. He is to conduct a retail grocery business and has rented a store from Wm. Bristol at a monthly rental of $30.00. His resources consist of cash, $600.00; a stock of groceries, $946.50; personal accounts due him as follows: Henry Norton $25.00, L. B. Jenkins $22.70. His liabilities consist of two accounts, as follows: Brewster & Co., $115.20; Warsaw Milling Co., $64.00. The opening entry recording the above, is made in the journal as in double entry, but only personal items are posted. Cash is transferred to the cash book.

CUTTING OFF DEPARTMENT IN THE PLANT OF THE UNION TWIST DRILL CO.,
ATHOL, MASS.
]

—Nov. 21—
Sold to Henry Norton on account
10# sugar 5½¢ $.55
2 cans corn .25
1 can peas .15
3# rice .30
-----
1.25

—21—
Sold to John Smallwood on account
5# butter $1.00
4# lard .50
1 doz. eggs .25
-----
1.75

—21—
Cash sales 14.10

—22—
Sold to Harry Webster on account
7 bars Lenox soap .25
1 pkg. gold dust .20
1 pkg. matches .15
¼ bbl. flour 1.35
-----
1.95

—22—
Bought for cash
10 doz. eggs .21 2.10

—23—
Bought from H. Kling & Co. on account
244# hams .12½ 22.50
201# lard .07½ 15.08
-----
45.58

—23—
Sold to F. W. Bradley on account
2 bu. potatoes 1.60

—23—
Sold to C. D. Glover on account
1 bbl. apples 3.25
5 gal. vinegar 1.25
-----
4.50

—23—
Cash sales 13.20

—24—
Sold to A. C. Maybury on account
1# bkg. powder $.50
1# corn starch .10
1# soda .10
1 pkg. jello .20
-----
.90

—24—
Sold to John Smallwood on account
2# cheese .32
1 bottle vanilla .35
1# coffee .35
1# tea .60
-----
1.62

—24—
Bought from John Smallwood on account
100 bu. potato .60 60.00

—24—
Paid John Smallwood
Cash on account 25.00

—24—
Cash sales 15.00

—25—
Paid Brewster & Co.
Cash on account 115.20

—25—
Sold to L. B. Jenkins on account
½# pepper .20
12# ham .14 1.68
-----
1.88

—25—
Received from Henry Norton
Cash 26.25

—25—
Cash sales 13.00

—26—
Credited Wm. Bristol
for one month's rent $30.00

—26—
Sold to Wm. Bristol on account
11# ham .14 1.54
1 qt. bottle olives .50
2# coffee .70
20# sugar .05½ 1.10
-----
3.84

—26—
Sold to C. D. Glover on account
¼ bbl. flour 1.35
1# bkg. powder .50
7 cks. borax soap .25
-----
2.10

—26—
Paid cash for clerk hire 8.00

—26—
Cash sales 18.70

—28—
Sold to H. N. Shaw on account
1 bu. potatoes .80
1 doz. cans corn 1.50
-----
2.30

—28—
Sold to Watkins Hotel Co. on account
10 bu. potatoes .75 7.50
50# lard .10 5.00
20# ham. .13½ 2.70
-----
15.20

—28—
Cash sales 9.45

—29—
Bought from Lowell & Sons on account
500# sugar .04¾ $23.75
50 gal. molasses .30 15.00
-----
38.75

—29—
Bought from Star Salt Co. on account
10 bbls. salt .80 8.00

—29—
Sold to R. H. Sherman on account
1# coffee .25
1# chocolate .45
1 qt. olive oil 1.35
¼# ginger .15
¼# pepper .15
1 pkg. mince meat .10
2# lard .25
-----
2.70

—29—
Cash sales 14.35

—30—
Received from F. W. Bradley on account
Cash 1.60

—30—
Paid Warsaw Milling Co. on account
Cash 64.00

—30—
Sold to John Smallwood on account
1 bbl. salt 1.10

—30—
Sold to D. E. Johnson on account
10# lard .10 1.00
1# bkg. powder .50
1 pk. apples .35
-----
1.85

—30—
Bought for cash
5 bu. apples 1.00 $5.00

—30—
Cash sales 17.90

At the close of business, Nov. 30, the ledger is proved, in accordance with the rules given in Art. 7. All open accounts in the ledger are listed on ordinary journal ruled paper and the balances extended to the debit and credit columns. These columns are footed, the total of the credit columns being $1,564.02, and of the debit column, $56.08. Subtracting the latter from the former, we find the difference to be $1,507.94. The total postings—debit and credit—from the journal and the cash book are then entered and added, the total debit postings being $296.44, and the total credit postings, $1,804.38. The former deducted from the latter leaves $1,564.02, which agrees with the _difference_ in the ledger balances. This proves the correctness of the postings to the ledger, and takes the place of the trial balance used in the double entry method.

Single Entry Journal
]

Single Entry Journal
]

Single Entry Journal
]

VIEW IN THE GROUNDS OF THE FORE RIVER SHIPBUILDING COMPANY, QUINCY,
MASS.
Showing the Facilities for Handling Material in the Plate Yard and a
Typical Arrangement of the Shops. The Great Electric Crane Shown has
a Span of 175 Feet, and Travels Over 1,000 Feet of Track. It is Said
to be One of the Largest of Its Kind in the World.
]

Single Entry Cash Book
]

Single Entry Ledger
]

Single Entry Ledger
]

Single Entry Ledger
]

AUTOMATIC MACHINE TOOL ROOM, FOR THE MANUFACTURE OF PARTS FOR ROCK
DRILLS, COAL MINING MACHINES, DIAMOND DRILLS, ETC., IN THE
CLAREMONT, N. H., FACTORY OF THE SULLIVAN MACHINERY COMPANY
]

Proof of Single Entry Ledger
]

Single Entry Profit and Loss Statement
]

DETERMINING THE PROFIT

=9.= Having no nominal accounts, we cannot close through trading account into profit and loss, but must use another method to find the profit or loss for a given period. It will be necessary to first ascertain the present worth of the business. Therefore the first step will be to take an inventory, just as we would if closing a double entry ledger. Our inventory shows merchandise $1,042.77. Next, we will make a statement of assets and liabilities, following the same form as the balance sheet when the books are kept by double entry. This will give us the present worth.

From the present worth, we will deduct the capital investment (or the present worth at the time of making the last statement) which will show the profit for the period. If the present worth is less than the capital investment, the business shows a loss.

It will be noted that while this method shows net profits, it does not show how those profits were made. Having no accounts with purchases and sales, we can have no trading account to show gross profits, and without expense accounts there is no data from which to make up a detailed profit and loss statement. Herein is one of the shortcomings of the single entry method of bookkeeping.

CLOSING THE BOOKS

=10.= To close a single entry ledger, all that is necessary is to credit the proprietor's investment account, or any account representing capital, with the net gain, or debit the account with the net loss. Then rule the personal accounts and bring down the balances.

EXERCISE

On a certain date the assets and liabilities of David Henry are as follows:

_Assets_
Cash $450.00
Due from sundry debtors 75.20
Merchandise per inventory 762.50
_Liabilities_
Due sundry creditors 144.00

The following transactions are recorded:

Sales to sundry persons on account 44.71
Bought from sundry persons on account 337.54
Sold for cash 94.90
Received cash on account 62.00
Paid cash on account 132.50
Paid cash for rent 35.00
Paid cash for clerk hire 7.00

At the close of the period in which these transactions were recorded,
the inventory of merchandise on hand was $987.75.

_First._ Open single entry books, entering these transactions in the journal and cash book.

_Second._ Post to ledger using the terms _Debtor_ and _Creditor_ to represent account of customers and those from whom goods were purchased.

_Third._ Prove the ledger.

_Fourth._ Make a statement of assets and liabilities.

_Fifth_. Has there been a gain or a loss, and how does it affect the account of the proprietor?

CHANGING TO DOUBLE ENTRY

=11.= How to change the method of keeping a set of books from single to double entry is an important question to the bookkeeper, for he may be called upon any time to do the work. When once understood, the change involves only very simple entries. The routine may be briefly described as follows:

_First._ Prepare a statement of assets and liabilities.

_Second._ Enter this statement in the journal and post to the ledger, debiting all accounts which represent assets and crediting all accounts which represent liabilities. Credit proprietor's account with the difference, which is the present worth.

If a new ledger is to be opened, new accounts will be opened for each form of asset or liability represented in the entry.

If the old ledger is to be used new accounts are to be opened with assets and liabilities not already represented by accounts in the ledger, and the net gain only will be credited to the proprietor's account. Check personal accounts, but do not post.

_Third._ Take a trial balance to see if the ledger is in balance, as it should be after posting these entries.

EXERCISE

Following the rules given, change the books of David Henry to double entry using the old ledger.

Show necessary journal entry and indicate what new accounts must be opened.

CHANGING PARTNERSHIP BOOKS TO DOUBLE ENTRY

=12.= We will suppose that the ledger illustrated in the following model set (pages 23-27) represents the business of Benton, Douglas, and Kemp, and that the books have been kept by single entry.

They wish to adopt the double entry method and call you in to make the necessary changes in their books.

Your first step is to make a statement of the ledger accounts, including all except the capital accounts of the partners. This statement gives you the following information:

Personal Accounts, _Debit Balances_ $189.25
Personal Accounts, _Credit Balances_ 2,828.50
Cash in Bank 7,313.73

You also balance the cash book and compare the balance with the cash in drawer, and find that the amount shown, $21.60, is correct.

In the meantime an inventory is being taken. When completed, the results shown are:

Merchandise $2,114.50
Furniture and Fixtures 2,000.00

The next step is to make a statement of assets and liabilities for the purpose of finding the present worth of the business.

STATEMENT OF ASSETS AND LIABILITIES

_Assets_
Cash in Bank (Ledger) $7,313.73
Cash in Office (Cash Book) 21.60
Personal Accounts (Ledger) 189.25
Merchandise (Inventory) 2,114.50
Furniture and Fixtures (Inventory) 2,000.00
---------
Total Assets $11,639.08

_Liabilities_
Personal Accounts (Ledger) 2,828.50
----------
Present Worth 8,810.58

The capital accounts of the partners show the original investment to have been $9,000.00, which is more than the present worth. Deducting the latter from the former will give the net loss.

Investment $9,000.00
Present Worth 8,810.58
---------
Net Loss 189.42

The partnership agreement provides that profits and losses are to be shared equally, but contains no reference to the payment of interest on withdrawals, or allowance of interest on personal credits.

The statement of assets and liabilities is entered in the journal and accounts opened in the ledger with _merchandise inventory_ and _furniture and fixtures_—the only items not already represented by ledger accounts. To complete the change and balance the ledger the following single entry is made in the journal and posted to partners' personal accounts.

James Benton Dr. $63.14
Horace Douglas Dr. 63.14
Henry Kemp Dr. 63.14

A trial balance will now show the ledger to be in balance.

You have followed the routine necessary to change the books of a partnership from single to double entry under the conditions given. A general rule to be followed is to ascertain the present worth, make the partnership adjustment as in double entry, and post as in changing books of a single proprietorship.

EXERCISE

The books of Lancaster, Jenkins, and Stubb have been kept by single entry, but they desire to change to double entry.

The partnership agreement provides that each partner shall share in the profits in proportion to his net investment. Separate accounts are kept with each partner to cover his investment and withdrawals.

The following is a statement of the ledger accounts as they appeared December 31st. The balances of partners' investment accounts are the same as when the last adjustment was made, no additional investments having been made during the present period.

STATEMENT OF LEDGER

Lancaster, Investment Credit Balance $2,000.00
Jenkins " " " 1,500.00
Stubb " " " 1,500.00
Personal Accounts " " 900.00
" " Debit " 2,200.00
Lancaster, Withdrawals " " 325.00
Jenkins " " " 250.00
Stubb " " " 175.00
Bank " " " 2,150.00
Cash in office 50.00

An inventory is taken and shows the value of merchandise in stock to be $1,850.00, fixtures $300.00.

_First._ Transfer debit balances of partners' withdrawal accounts to investment accounts.

_Second._ Show entries to make the partnership adjustment and to change books to double entry.

_Third._ Indicate by check (√) what accounts are to be posted, the old ledger being used.

Single Entry Partnership Ledger
]

Single Entry Partnership Ledger
]

Single Entry Partnership Ledger
]

Single Entry Partnership Ledger
]

Single Entry Partnership Ledger
]

CHANGING CORPORATION BOOKS TO DOUBLE ENTRY

=13.= Corporation books are seldom kept by single entry, but such cases are not impossible to find. In Chicago, there is a manufacturing corporation which has been in business for more than twenty years and is doing a business of a quarter million dollars a year, whose books have been kept by single entry. Not until January 1909 was an accountant called in to change their books to a modern double entry system.

In the case cited a capital stock account was kept, and dividends were paid in cash. The routine followed by the accountant was to first take an inventory of machinery, material, supplies, goods in process, and manufactured goods. Then the land and buildings were appraised at their present value. Accounts had been kept with real estate and machinery, but repairs to buildings had been charged to real estate, thus showing a fictitious increase in value, and no depreciation had been charged against machinery. There was also a merchandise account which had been charged with all purchases and credited with all sales, so that it furnished no information of value.

For these reasons only personal accounts, capital stock, bank account, and cash were taken from the books in making up a statement of assets and liabilities. In making this statement capital stock was included as a liability and the excess of assets over liabilities represented surplus.

The statement was entered in the journal and accounts representing each item were opened in a new ledger. The balance was credited to surplus account and the books were in balance. Subsequently, the different expense accounts were opened as the transactions requiring their use arose.

Had the directors insisted, the accountant would have been obliged to enter real estate and machinery at the values shown in the old accounts, but an inventory of merchandise would have been necessary in any event.

A safe rule in changing the books of a corporation to double entry is to make a statement of assets and liabilities, including capital stock in liabilities. Then open the necessary accounts and credit the difference in the statement to surplus account.

Journal Entries to Change to Double Entry
]

In the case referred to the following facts were shown by the books:

Cash in Office $156.72
Cash in Bank 7,264.20
Accounts Receivable 11,978.50
Accounts Payable 9,647.60
Capital Stock 75,000.00

The inventories and appraisals resulted in the following valuations:

Real Estate (Land and Buildings) $38,000.00
Machinery 27,750.00
Material 11,227.60
Supplies 648.50
Goods in Process 3,984.70
Manufactured Goods 5,290.00

A cost system was desired by the management, consequently in opening new books it was necessary to provide for the needed accounts. The complete entries used to change these books from single to double entry are shown in the model journal illustrated, page 29.

Ledger After Changing to Double Entry
]

Ledger After Changing to Double Entry
]

EXERCISE

The books of the Star Coal Company, a corporation with a paid-up capital of $10,000.00, have been kept by single entry. The following facts are gathered from the books:

Cash in Bank $3,500.00
Personal Accounts Debit Balances 6,500.00
Cash in Office 200.00
Personal Accounts Credit Balances 2,500.00