Chapter D: A. Hall employs H. D. Snyder as traveling salesman for the purpose of (3)

=4. Classification of Accounts.= A classification of the accounts of the executor naturally divides into: (a) _Personal estate account_; (b) _asset accounts_; and (c) _distributive accounts_. The personal estate account, as we have seen, is a controlling account which represents the total of all assets. It is also referred to as the capital account. It is, as well, a controlling account of the distributive accounts, and in the end exhibits a schedule of transactions in the order in which they occur.

The asset accounts, representing the different classes of properties or assets of the estate, correspond to the asset accounts of an ordinary business.

The distributive accounts may be likened to the revenue accounts of a business enterprise. These accounts are debited with all amounts distributed—as expense of administering the estate—and credited with all income or revenue other than that representing the conversion of the original estate into cash.

=5. Executors' Commissions.= While the commission allowed administrators and executors varies in different states, the amount specified by law in New York applies as a general rule. The commission allowed is 5% on the first thousand dollars received and disbursed, 2½% on the next ten thousand dollars, and 1% on all amounts above eleven thousand dollars.

If the value of the personal property is $100,000.00, or more, in excess of all debts, each executor is entitled to receive the commissions provided in case of a single executor; except that if there are more than three executors, the amount which the three would receive must be divided in proportion to the services rendered.

In cases where the will provides a specific remuneration, the executor is not entitled to a commission. He can, however, decline a legacy and in lieu thereof take the usual commission.

Commissions are not allowed on specific legacies, that is, where specific property, as household effects, automobiles, etc., are named. An annuity is a series of legacies and the commission is not allowed on its payment. However, when a beneficiary is given the use of a fund, the beneficiary is charged with the commission.

In all cases where administrators or trustees are responsible for the investment of the funds of an estate, they are entitled to receive commission on the income. The commission in all of these cases is at the regular rate, that is, 5% on the first thousand dollars received and paid out, etc.

EXAMPLES

1. Two trustees collect in one year an income of $36,000.00 for a beneficiary, the expense being $3,000.00. If each trustee receives an equal share, what commission will be paid to each, and what sum shall be paid to the beneficiary? Ans. Each trustee, $275.00; beneficiary, $3,275.00.

2. Executor X collects of the corpus of an estate $30,000.00, executor Y collects $40,000.00. Together they pay out $55,000.00. Commissions are to be divided in proportion to the amount collected by each. What commission will each receive and what is the net amount to be paid to the residuary legatee? Ans. Commissions: X, $381.43; Y, $508.57. Residuary legatee, $14,110.00.

3. Four trustees collect and pay out of an estate $350,000.00, the total debts of the estate being $135,000.00. What commission will each trustee receive? Ans. $2,767.50.

SAMPLE ACCOUNTS

=6.= Following are the transactions and accounts of David Brown, executor of the estate of Henry Snow, deceased. For keeping the accounts, the journal, cash book, and ledger are the books used.

June 1, 1908
Henry Snow died this day, naming David Brown _executor_.

—3—
Estate inventoried and appraised as follows:
Cash in bank $390.50
Mortgages 5,000.00
R. R. stocks $5,000.00 appraised @ 112 $5,600.00
Household furniture 1,000.00
Debtors to the estate
Henry Alton $160.00
J. L. Lawrence 52.00
D. Pringle 75.00
F. D. Smith 84.50 371.50
-------
Interest accrued on mortgages $5,000.00
—5 mo. @ 5% 104.16
Accrued dividends on stock estimated
at 3% semi-annual, payable July
1st—5 mo. accrued 137.50
---------
12,603.66

—30—
Approved the following claims:
Dr. Knight bill 200.00
Funeral expenses—Undertaker 250.00
Henry Cole account 62.00
H. Dawson account 17.00
Probate expenses 100.00

—30—
Additional assets discovered
Geo. Smith owes the estate 50.00

July 1
Collected 6 mo. interest on mortgage
at 5% 250.00

—1—
Collected the following accounts:
Henry Alton 160.00
D. Pringle 75.00

—1—
Paid the following:
Dr. Knight 200.00
Funeral expenses 250.00
Henry Cole 62.00
H. Dawson 17.00
Probate expenses 100.00

—5—
Received dividend on R. R. stock
3½% semi-annual on $5,000.00 $175.00

—5—
Sold R. R. stock $5,000.00 @ 132 6,600.00

Sept. 1
Collected the following account:
J. L. Lawrence 52.00

—20—
Sold H. H. furniture 790.00
Depreciation on H. H. furniture 210.00

Nov. 1
Collected the following accounts:
F. D. Smith 84.50
Geo. Smith 50.00

Dec. 1
Collected 6 mo. interest on mortgage
$5,000.00 @ 5% 125.00

—1—
Sold mortgage 5,000.00

A GENERAL VIEW OF THE PLANT OF THE FOX TYPEWRITER COMPANY, GRAND
RAPIDS, MICH.
]

Executor's Journal
]

Executor's Account of Cash Receipts and Disbursements
]

Classified Ledger Accounts of an Executor
]

Classified Ledger Accounts of an Executor
]

Classified Ledger Accounts of an Executor
]

Schedule Filed by an Executor
]

Schedule Filed by an Executor
]

EXERCISE

=7.= George Williams died on March 5th, bequeathing his entire property, after payment of all debts and funeral expenses, to the following beneficiaries: George Williams, Jr., one-fifth; John Williams, one-fifth; Fred Williams, one-fifth; Mary Williams, three-tenths; and George Robinson, one-tenth.

The inventory filed by his executors was as follows:

Stocks and bonds $4,000.00
Mortgages 6,000.00
Wearing apparel 100.00
Cash in bank 40.00

There are two executors, and their transactions are as follows:

CASH RECEIPTS
Stocks and bonds sold 3,341.00
Mortgages realized 4,656.00
Wearing apparel sold 50.00
Dividends collected on stocks and bonds 1,800.00
Interest collected on mortgages 2,400.00
Interest received on deposits in bank 100.00
Real estate sold 1,000.00
Rents collected 720.00
Cash in bank at decease, withdrawn 40.00
---------
14,107.00

CASH DISBURSEMENTS
Funeral expenses 30.00
Expenses of probate 200.00
General legal expenses 400.00
Repairs to building 220.00
Stationery, postage, etc. 10.00
Accountant's fee 80.00
Debts of deceased 500.00
Taxes 800.00
Insurance 10.00
George Williams, Jr., on account of legacy 2,200.00
John Williams, on account of legacy 2,500.00
Fred Williams, on account of legacy 2,220.00
Mary Williams, on account of legacy 3,100.00
George Robinson, on account of legacy 960.00
---------
13,230.00
=========

The inventory at the date on which they wish to account is as follows:

Stocks and bonds $1,000.00
Mortgages 1,280.00
Cash in bank 877.00

Make up summary statement of the Executor's Accounts showing the balance due each legatee.

ACCOUNTS WITH TRUST PROVISIONS

=8.= In the accounts shown in the preceding illustrations the entire estate is distributed by judicial decree. When all of the property has been distributed, the custodian accounts will have been closed into the personal estate account, which in turn is closed by the distribution of the estate. In many cases the will of the deceased provides that certain beneficiaries shall have a life interest in certain of the assets. Quite frequently the widow is given the income on certain investments which will revert to the estate at her death. This is illustrated in the following example of trust accounts:

Edward Brown died on June 15, 1907, leaving a will which elected that after payment of all just and lawful debts the following legacies should be made:

To his widow, that part of the real estate consisting of his residence, the household effects therein, and the income from $50,000.00 to be invested.

To his son and daughter, $20,000.00 each, and an equal share of the above $50,000.00 at his widow's death.

The inventory made up for the preliminary accounting was as follows:

Cash in house $200.00
Cash in bank 1,500.00
Household effects valued at 2,500.00
Stocks 40,000.00
Book accounts 20,000.00
Merchandise, fixtures, and stock in trade 25,000.00

The real estate consists of

The residence of the deceased, valued at 15,000.00
5 houses valued at 15,000.00
(to be sold according to will)

Executor's Accounts With Trust Provisions
]

Executor's Accounts With Trust Provisions
]

Executor's Accounts With Trust Provisions
]

Executor's Accounts With Trust Provisions
]

Executor's Accounts With Trust Provisions
]

Accounting of an Executor, in the Form of an Account of Charge and
Discharge
]

A FACTORY CHEMICAL LABORATORY AT THE PLANT OF THE S. OBERMAYER CO.,
CINCINNATI, OHIO
]

Accounting of an Executor, in the Form of an Account of Charge and
Discharge
]

REALIZATION AND LIQUIDATION ACCOUNTS

=9.= A _realization and liquidation account_ is an account showing the result of the liquidation of a business or an estate.

It is debited with the total assets as shown by the _balance sheet_ or _statement of affairs_, and is credited with all liabilities to outside creditors. The account is subsequently credited with the amounts realized on assets, and debited with liabilities liquidated together with the expenses of realization and cost of liquidation.

Realization and liquidation accounts are frequently prepared in the form of an _account of charge and discharge_ as shown in the preceding pages for executor's accounts.

STATEMENT OF AFFAIRS

=10.= A statement of affairs is frequently confused with a balance sheet. This is because, like a balance sheet, a statement of affairs exhibits the resources and liabilities of a business. The difference lies in the fact that a statement of affairs is made up partly from information gained from the books and partly from information secured from other sources.

A statement of affairs is used chiefly in the preparation of a statement of the condition of an insolvent concern, or one whose affairs have been, for any reason, placed in charge of an Administrator. In a going business, all facts that have a bearing on its financial standing should be recorded on the books, when the statement will be made in the form of a balance sheet.

Statements of affairs of a going business are sometimes made when it is desired to make a showing for a special purpose, or at a date other than a regular closing date. When the books have been improperly kept, a statement of affairs, or statement of assets and liabilities, is necessary to get all of the facts properly recorded.

=11. Statement of Affairs of a Bankrupt.= A statement of affairs of a bankrupt is prepared on a somewhat different basis than a similar statement for a going concern. Such a statement is prepared for the benefit of creditors, and should be based on the probability of the creditors receiving their claims in whole or in part.

A Statement of Affairs of a Bankrupt
]

On the left-hand side of the statement, the liabilities should be listed, showing whether they are actual, contingent, or provisional; which are preferable or ordinary, or secured partly or wholly by assets held by creditors of the concern as security for their claims. On the right, the assets of the concern should be shown. These should be classified as to whether they are free for distribution among the ordinary creditors or subject to special liability or claims and which must be liquidated before the assets can be released for distribution.

The assets may be listed on the basis of their value in a going concern, or on the basis of the prices they are estimated to bring at forced sale. The best practice is to list the assets to show, in one column, their nominal value, and in another column the amounts they are expected to realize. The statement is prepared for the express purpose of showing the probability of creditors—preferable, secured, partly secured, and ordinary—receiving their claims in full or being obliged to accept a dividend. In preparing such a statement, therefore, the investigation should be extended beyond the mere bookkeeping records. While the statement should be based on the properly balanced books of account, it must be supplemented by information from other sources.

The statement of liabilities should include, not only all of the liabilities shown on the books of the debtor, but all other enforcible claims, including contingent liabilities on account of the debtor's name being on commercial paper as an endorser.

Preferable claims for taxes, wages, and salaries which must be paid in full out of the assets of the estate, should be deducted from the assets in order to show the net value of the estate available for distribution among ordinary creditors. The details of such claims should be included among the liabilities, but without extending the amounts to the total column.

Claims of secured creditors also are entered on the liabilities side of the statement, but are not carried to the total column. Such claims are deducted from the assets forming the specific security held, the balance only being included among the assets available for distribution and carried to the total assets column.

Partly secured claims are entered among the liabilities, but the amount to which they are secured is deducted, and the balance, which must take the same chances of payment as other unsecured claims, is entered in the liabilities column. The corresponding assets are entered on the assets side but not extended.

A Deficiency Account Which Shows the Causes of Loss
]

These adjustments are necessary to show clearly the net assets that will be available for the ordinary creditors, and the total amount of claims to be satisfied out of these assets.

Every statement of affairs should also have appended to it schedules showing the fullest particulars of the different entries which appear in the statement. The names and addresses of all creditors should be given and the nature of the debt, whether a trading debt or for borrowed money, should be clearly shown. Full particulars of any security held should also be given.

It is much more difficult to ascertain the value of the assets of a bankrupt than the amount of the liabilities. While it is comparatively easy to get at the cost or book value of the assets, if the books have been properly kept, it is usually necessary to write off a considerable portion of this value to arrive at the amount likely to be realized on forced sale. It is usually advisable, therefore, to call in an appraiser, familiar with the line of business involved, to set the values of the assets on the basis of a going business and on forced sale.

By showing the book value of the assets and the values they are expected to realize, the probable deficiency as a result of the liquidation of the estate is readily seen. Book debts should be classified as good, doubtful, and bad. Good debts are extended at face value, doubtful debts at the amount they are expected to realize, while the bad debts are entered on the statement without extending any amounts.

Assets should be listed in the order of their availability, those most readily realized being placed first. At the bottom of the statement, in the form of a note, the dividend available for ordinary creditors, exclusive of expense of realization and liquidation, is shown.

A statement of affairs is shown, Page 27, which will make the explanation clear.

Every statement of affairs should, when possible, be accompanied by a _deficiency account_. The purpose of the deficiency account is to show, as far as may be, the cause of insolvency. This account is credited with the losses and shrinkage in the estate shown by the statement of affairs, the losses shown by the books, and the withdrawals of the owner or partners. It is debited with the capital at the last known date of solvency, all additions of capital, and all profits shown by the books. The balance is the net amount of the deficiency, and should agree with the amount shown by the statement of affairs. A deficiency account is shown in connection with the illustration of a statement of affairs.

STOCK EXCHANGE BUILDING, CHICAGO, ILL.
]

STOCK BROKERS' ACCOUNTS[4]

=1.= The principal feature of brokerage accounting is that such companies are not supposed to make investments upon their own account, but to act as intermediaries or agents for those who desire either to buy or sell.

Footnote 4:

_Copyright, 1909, by American School of Correspondence._

As this is the case, such companies' profits depend entirely upon the commission charged their clients, which is charged whether they buy or sell for a client. There is also a margin of profit on the interest account, as large brokerage firms are enabled to secure money from banks at very favorable rates, sometimes much lower than the regular six per cent charged to customers.

The legitimate broker actually buys and sells, as instructed by his client. If a customer instructs the broker to buy one thousand shares of D. & R. G. preferred at 88½, the customer deposits the margin required by the broker, usually 10 per cent, and the broker at the first opportunity thereafter, buys in open market the one thousand shares of D. & R. G. stock ordered, paying in full for the same. The customer may have a certain time to take up this stock, say thirty or sixty days, but as he is still indebted to the company for ninety per cent of the purchase, he is required to pay six per cent interest upon the deferred payments until such time as the stock is finally taken up and paid for.

LARGE CAPITAL REQUIRED

=2.= It will be seen that in a multitude of transactions of this character, a very large amount of money is required by the broker, to carry on his business successfully. As very few of them have the amount of capital necessary, they resort to bank loans. Banks are very willing to loan money with listed stocks as collateral security, and frequently do so at favorable rates for the broker. This rate is determined by the condition of the money market, but is invariably less than the rate of interest charged to the client.

GRAIN PURCHASES

=3.= Purchases of grain at a stipulated price differ from stock purchases, inasmuch as the full amount of the purchase does not have to be paid until the delivery of the goods, although there are frequently charges, such as storage and insurance, which must be made upon long time purchases. These charges do not accrue, however, until after delivery. If a customer buys fifty thousand bushels of wheat in April for September delivery, the purchase is made by the brokers at the earliest date possible, in order to avoid any fluctuation of the market. When the broker makes the purchase he pays over the amount necessary to secure the same. If the deal is carried through to maturity, the grain is delivered to the broker who has made the purchase for his client, and is in turn delivered to the client upon the payment of the balance due, including all charges upon the same.

It is frequently the case, however, that before the actual delivery takes place, the client has ordered the broker to sell a sufficient amount to cover the deal. This may be either at an advance or a decline from the price purchased, but in either case the broker receives his commissions for both transactions—buying and selling.

BULLS AND BEARS

=4.= Investors who are always figuring upon an advance in prices are termed _bulls_, and those who are confident of lower prices are termed _bears_. If a seller sells for future delivery what he does not own, he is termed _short_ and becomes temporarily a buyer, in order that he may have a sufficient amount to fill his orders. If a buyer holds stock or grain for a rise, or contracts for future delivery, he is termed _long_ and becomes temporarily a seller, seeking to bring his holdings down to the normal demand.

EXACT BOOKKEEPING NECESSARY

=5.= It will be seen from the nature of the business that the bookkeeping department must be very exact, careful in its dealings, and as prompt as a bank in its action. Every precaution must be taken to safeguard the broker and protect the customer. The accounts must show, with each transaction, the brokerage or commission charges and, as in active times the transactions are very numerous, they must be quickly and accurately recorded in the books of the company.

BROKER'S COMMISSION

=6.= The percentage or commission due to the broker is included in the amount deposited to protect the deal, which is called a _margin_. If there should be a decline in price of either stock or grain, sufficient to cause the broker to feel insecure, he always reserves the right to call upon the customer for an additional deposit, even though the time of delivery has not yet arrived. In case the customer fails to make such additional deposit, the broker can sell the securities, grain, or other purchase, at once, in order to protect himself; the amount primarily deposited by the customer is thereby forfeited.

All orders for the purchase and sale of any article are received and executed with the distinct understanding that _actual delivery_ is contemplated and that the party giving the order so understands and agrees.

SECURITIES

=7.= It is understood and agreed between the broker and his client, that all securities carried in his account, or deposited to secure the same, may be carried in the broker's general loans, and may be bought or sold at public or private sale without notice, when such sale or purchase is deemed necessary by the broker for his protection.

It is also understood and agreed that the right is reserved by the broker to close transactions on all accounts without notice, when protection is exhausted, or when, in his judgment, it is near enough exhausted as to endanger the account, and the broker reserves the right to settle contracts with his client, in accordance with the rules and customs of the exchange where the order is executed.

BUCKET SHOPS

=8.= The class of brokerage concerns termed _bucket shops_ are those which do not actually carry out the orders of their customers, who neither buy nor sell anything, but who expect quick deals, frequent changes and, speaking plainly, merely _gamble_ with their clients, allowing them to take whichever side they prefer. The large margin which this fraternity receives is a commission on deals whether they win or lose.

In order to maintain at least a pretense of legality, there must be an _actual_ transfer of all stocks and commodities speculated in. The broker must acquire nominal possession of something which represents stocks, grain, cotton, or other commodities. To do this he must borrow money from the bank, or borrow stock or warehouse receipts from those who have them to lend. In either instance he charges interest to his speculative customers.

It is estimated that the brokers in New York City who are members of the various exchanges, have an average amount in call loans outstanding of about $600,000,000.00, all of which vast sum is used to finance the orders of the brokers' customers. In dull times the minimum falls as low as $350,000,000.00, but there have been periods of speculative activity when $1,100,000,000.00 have been thus employed. The interest rate charged brokers constantly varies, but those who have had dealings with them state that their accounts rarely show less than five per cent interest. The broker charges the customer six per cent, thus averaging one per cent profit upon all money borrowed.

The New York Stock Exchange was founded for a high and honorable purpose, the same being true of the New York Produce Exchange, The Chicago Board of Trade, and other institutions for coöperative trading and the determination of values, in accordance with the recognized codes of business, and in conformity with the laws of supply and demand. Such exchanges serve admirably the producer and the merchant. They have a valid function to the investor in railroad and corporation securities, and are indispensable in facilitating the massing and distribution of capital required by large commercial enterprises.

LEGITIMATE DEALERS

=9.= Every legitimate brokerage concern has its representative or representatives on the board of trade in the city wherein it is located, and they are members in good standing of the board. When an order is given by a customer, either through the wicket or by wire, it is immediately transferred to the floor man and he proceeds to buy or sell as the instructions are given. In an active market the client must take the chances of slight fluctuations, which are just as likely to be in his favor as against him. The floor man reports the sales or purchases as soon as made, with the price paid and from whom purchased. The entries are immediately made to the customer's account.

CLEARING HOUSE

=10.= The boards of trade in different cities maintain a clearing house somewhat similar to that used by the banks, to settle the deals of each member of the board each day. The deals consummated during the day's session are reported to the clearing house and the amounts due from and payable to each firm or individual member are computed. If the brokerage firm has purchased ten thousand dollars more than it has sold, a check is given to the board for ten thousand dollars, as there must be some other firm or firms who have sold more than they have purchased to whom this ten thousand dollars is due, and to whom it is paid. Deliveries of stock are made at the time the balance is paid.

RING SETTLEMENT

=11.= At the close of the day, settlements for grain purchases are made between brokers at an agreed _settlement price_. If brokers have bought and sold to each other in varying amounts, only the difference in the price is adjusted with each other. What are called _ring settlements_ save considerable time, money, and labor. The _ring settlement_ is a settlement between three or more parties without the necessity of margining and may be illustrated in this manner:

_A_ has bought 50,000 bushels of wheat of _B_, and has sold 50,000 bushels to _C_. By inquiry, it is found that _C_ has sold 50,000 bushels to _B_. It is ascertained that the transactions between _A_, _B_, and _C_ offset each other, and instead of each party being obliged to put up margins upon each transaction, a settlement may be effected by paying the difference in price, as the sale from _C_ to _B_ may be at a different price from the sale made by _B_ to _A_, and the sale made by _A_ to _C_, may have been at a still different price. By the adjustment between the different parties of the difference in price, the necessity of margining by _A_, _B_, or _C_ is rendered unnecessary.

ILLUSTRATION

_A_ bought 50,000 bushels of wheat of _B_ at $1.23; A sold 50,000
bushels of wheat to _C_ at $1.23½. By making up the ring it was
found that _C_ has sold to _B_ 50,000 bushels at $1.22½. In making
the settlement it is found that _C_ is indebted to _B_ ½ cent per
bushel for the amount sold, as _B_ sold at ½ cent advance; _C_ is
also indebted to _A_ ½ cent per bushel as he purchased of _A_ at a ½
cent advance on the price _A_ bought from _B_. The settlement of
this deal would be made by _C_ giving his check for the amount due
to _B_ and to _A_, and there would be no necessity for any one of
the three brokers putting up a margin on the deals. The amount of
grain is offset one by the other, and the difference in price has
been adjusted by payment of cash.

COMMODITIES HANDLED

=12.= The commodities that are handled upon the board and by brokers in general—food stuffs—are wheat, corn, oats, pork, lard, and short ribs. The various listed stocks are also bought and sold, a considerable business is done in bonds, and in some exchanges mining properties are listed, bought, and sold; although the latter is not common in the larger and more important exchanges. Cotton is a very important factor in some exchanges, and tobacco in others.

CORNERING THE MARKET

=13.= To _corner the market_ is to offer to buy and be prepared to carry out your offer, for an amount more than is offered for sale, thus causing the price to advance. Sometimes this is done by large operators to their advantage and sometimes, in spite of their large purchases, which encourage a rising market, the prices fall before their deals are consummated, and they are left high and dry with a considerable loss instead of a large profit. The _bull_ who tries to run a corner has a strong foretaste of what it means to advance sensationally, a staple article of consumption. Stocks and bonds may be hoisted ever so high; real estate may be boomed to far beyond its intrinsic or even potential worth—the public has no objection; the process is, in fact, rather pleasing to it. A lift in cereals or cotton above the normal lines encounters many protests and the higher the lift, the more savage the protest. This of course does not include the farmer or planter, unless he has disposed of his output; then he willingly enough joins the chorus of protestation.

VALUE OF THE WIRE

=14.= The telegraph is a very important factor to the grain and stock broker, as a large majority of their business is done by wire. Many of their clients are distributed through the country and keep close watch of the fluctuations of the market, sending their orders by wire, at what they consider an opportune time.

Most brokerage firms have a number of customers outside of the city, and these customers as well as those in the city who are large buyers, keep a considerable deposit on hand with the broker at all times. This deposit is frequently augmented by advantageous sales or decreased by losses, commissions, and interest charges. Reports of the condition of customers' accounts are made with frequency and any customer who finds that he has more money in the hands of the broker than is considered necessary, can secure part of the same by asking, or if he desires to close all transactions, the total amount due him is paid over at once. All amounts thus deposited are credited to customers' accounts and properly taken care of through the bookkeeping department.

SETTLEMENT OF CONTRACTS BY OFFSET

=15.= To quote from the rules of the Chicago Board of Trade:

In case it shall appear that the delivery of any outstanding trade
or contract between members of the association may be offset by some
other corresponding trade or contract, made by the parties with
other members of the association; and the parties to such trade or
contract, or their authorized agents, consent to such offset, such
trade or contract shall be deemed to have been settled; any balance
between the current value of the property covered by such trade or
contract, and the several contract prices shall be due and payable
immediately by the party from whom such balance may be due, to the
party entitled to receive the same under his contract.

This is the rule applying to ring settlements hereinbefore described. To quote further:

"MARKET VALUE TO BE POSTED

The current market value of the property contracted for shall be
conspicuously posted, at a stated hour each day, under the direction
of the Board of Directors, in the Exchange Hall and in the
Settlement Room of the Board, which posting shall serve as a basis
for the adjustment of all contracts settled, as herein provided on
that day.

"ADJUSTMENT OF BALANCES ON SETTLEMENT

In order to facilitate the operation of this section, each member is
required to keep a _settlement book_, in which shall be entered the
names of parties with whom settlements have been made and the dates
and terms of the trades included in such settlement, and the terms
of such settlements, and the prices at which the commodities were
originally sold or purchased, and the amounts due to or from him or
them on each separate settlement, also the net amount due to or from
him or them on all settlements.

"CLEARING HOUSE AND REPORTS

The Board of Directors is hereby authorized to provide a suitable
office, with the necessary employes, to which members shall be
required, at stated hours each day, to make reports, showing the net
balance due to or from each member, as shown by such settlement
book, and also the general balance due to or from him or them upon
all such settlements; each report to be accompanied with an
acceptable check for the balances, if any, due from him or them on
the contracts so settled; whereupon, if said report is found to be
correct, as compared with other reports rendered him, the person in
charge of said office shall, at a stated hour each day, pay to each
of the parties making such report any balances which he may have
collected, and which shall appear to be due to them by said reports,
less such charges as shall be prescribed by the Board of Directors
as compensation for the services of said office.

"CONFIRMATION OF TRANSACTIONS FOR FUTURE
DELIVERY, ETC.

It shall be the duty of each member or firm making a transaction for
future delivery of grain or flax-seed in five thousand or one
thousand bushel lots, lard and pork in two hundred and fifty or
fifty package lots, and D. S. short ribs and D. S. extra short
clears in lots of fifty thousand or twenty-five thousand pounds,
under the Rules of the Association, to confirm such transaction by
sending to the clearing house a memorandum of the same by 6 o'clock
P. M. of the day on which it is made; such memorandum shall be in
writing, and shall state on its face the date of the transaction,
the quantity and kind of property covered by the same, the month of
delivery, the price, and the name of the party to whom sold or of
whom bought, and shall be signed by the party or firm making the
same. All transactions of the same date made with any member or firm
may be included in one memorandum, and all such memoranda shall be
sent to the clearing house by the member or firm making the same, in
unsealed envelopes addressed to the member or firm with whom such
transactions were made. It shall be the duty of the clearing house
manager to assort and have ready for delivery by 8 o'clock A. M. of
the following day, and to deliver, on application, all envelopes
containing such memoranda as are left with him in compliance with
this section.

There is a fine imposed upon any member failing to comply with the above provisions.

"FAILURE TO DELIVER OR RECEIVE ON CONTRACT

In case any property contracted for future delivery is not delivered
at maturity of contract, the purchaser may, if he shall so elect,
consider the contract forfeited; or he may purchase the property on
the market for the account of the seller, by 1:15 o'clock P. M. of
the next business day, notifying him at once of such purchase; or he
may require a settlement with the seller at the average market price
on the day of maturity of contract, and any damages or loss due to
the purchaser, by reason of such purchase or declared settlement,
shall be due and payable by the seller immediately.

A SECTION IN THE GENERAL OFFICES OF THE SIMMONS HARDWARE COMPANY,
ST. LOUIS, MO.
]

In case any property contracted for future delivery is not received
and paid for when properly tendered, it shall be the duty of the
seller, in order to establish any claim on the purchaser, to sell it
on the market at any time during the next twenty-four hours, at his
discretion, after such default shall have been made, notifying the
purchaser within one hour of such sale; and any loss resulting to
the seller shall be paid by the party in default.

DEPOSITS TO SECURE THE FULFILLMENT OF TIME CONTRACTS

Fig. 1. Memorandum of Deposit with Broker to Secure Contracts
]

=16.= The rules of the board of trade provide that on time contracts, purchasers shall have the right to require of sellers as security, a deposit of ten per cent, which amount is based on the contract price of the property purchased; they are also further allowed to demand security from time to time to the extent of any advance in the market value above selling price. Sellers shall have the same right on property sold, and, in addition, any difference that may exist or occur between the estimated legitimate value of any such property and the price of sale. It is required that all securities shall be deposited with the treasurer of the association or with some bank duly authorized by the board of directors to receive such deposits. The board requires in each instance a memorandum which shall state the name of the depository, the date on which the deposit is made, the name of the depositor, and also the name or names of the party or parties in whose favor the deposit is to be made, together with the amount of such deposit in detail and also in the aggregate. The left-hand part of the memorandum is retained by the depository selected, the right-hand portion thereof being taken by the depositor after being duly signed by the person authorized to receipt for the said deposit, and without delay this memorandum must be placed in the office of the clearing house. A detail of this memorandum is shown in Fig. 1.

Upon the fulfillment or settlement of any contract or upon the closing of any contract—deposits upon which have been made—when the full adjustment of all differences relating to the same shall have been effected, the deposit shall be paid to the party depositing.

COMMISSIONS ALLOWED BY BOARD TO BROKERS

=17.= The commissions to be collected by brokers from customers are fully prescribed by the board of trade in each city and do not materially differ. While it will not be possible to give all the rates of brokerage or the charges allowed for buying, selling, or accounting, the commissions allowed on the Chicago Board of Trade for buying _or_ selling, or for buying _and_ selling, are as follows:

For the purchase, or for the sale, or for the purchase and
sale by grade alone of wheat, corn, or oats, to be delivered in
store, either for immediate or for future delivery, one-eighth of
one cent per bushel.

For the purchase, or for the sale, or for the purchase and
sale, by grade alone, of rye, barley, or flax-seed, to be delivered
in store, either for immediate or for future delivery, one-quarter
of one cent per bushel.

For the purchase, or for the sale, or for the purchase and
sale of lard, six cents per tierce.

For the purchase, or for the sale, or for the purchase and
sale of pork, five cents per barrel.

For the purchase, or for the sale, or for the purchase and
sale of D. S. short ribs, or D. S. extra short clears, twenty-five
cents per thousand pounds.

The minimum rates allowed upon the above transactions made for
the account of members of the board are one-half of the foregoing
minimum rates.

BOOKS AND FORMS USED

=18.= There are a number of ordinary forms, such as checks, drafts, receipts, requisitions, etc., that are common with most lines of business and used in the brokerage business, which will not be necessary to reproduce. Most brokers have all such forms printed or lithographed for their especial use with their name and address prominently displayed thereon.

ORDER BLANK

Fig. 2. Telegraphic Buying and Selling Orders
]

=19.= The first form of importance in connection with the accounting department of a brokerage firm is the _order_ of the customer. This must invariably be in written form with the signature of the customer and the order must be expressed in the plainest terms so that there is no possibility of misconstruction. As these orders are frequently received by wire, or often dispatched by wire to New York or other branch office for execution, blanks for the purpose, as shown in Fig. 2, are furnished to customers, those used for buying orders being printed in black and those used for selling orders being printed in red. These orders are made out by the purchaser or his authorized agent and should not only show the date of the order but also the time of the day it was given, which is frequently of great importance in an active market. Whatever margin is required by the broker upon the deal must be deposited by the client at the time the order is given, as without this protection, the broker will not proceed to execute the order. It is sometimes the custom for brokers to accept collateral covering a certain amount of margin, in which case the broker gives the customer a receipt in due form, holding the collateral as trustee until settlement of account. All orders are executed at the earliest possible moment after their receipt. Legitimate brokers are members of the board of trade often in various cities and have their representatives on the floor, during the business hours of the board, to buy or sell as ordered.

Fig. 3. Credit Slip Given to Customer by Broker
]

DEBIT AND CREDIT SLIP

=20.= As soon as the transaction is accepted by the broker, he gives to the customer a debit or credit slip showing the nature of the transaction, or it is sent by mail, as soon as possible after business hours; the charge or credit depend upon whether it is a purchase or a sale. The blanks for this purpose, as shown in Fig. 3, should be printed on different colored paper; the debit blank is usually on white and the credit blank on buff or yellow paper. If a client buys, the amount of his purchase appears as a debit to his account, with the commission added. He receives credit for whatever amount of margin he deposits, and the account stands thus until delivery, when the entire balance must be paid. If a sale is made by the client before the time of delivery, the amount of the sale is credited to his account, less the commission due for selling and any other charges. The difference in the account, whether it is an amount due from the broker to the client or from the client to the broker, is paid in cash as soon as the deal is closed.

Fig. 4. Daily Sales Journal or Record of Stock Sales
]

DAILY RECORD SHEET

=21.= As a most perfect record must be kept of every transaction, the daily record sheets, as shown in Fig. 4, are of the greatest importance. This book is called the _daily journal_ as frequently as it is designated the _daily record_.

Fig. 5. Daily Sales Journal or Record of Grain Sales
]

This book is most convenient when kept in loose-leaf form, as a small number of leaves may be kept in the binder for current use, and after the sheet is filled, it may be filed away for future reference. The size of the sheet is usually 16 by 14 inches, and it is ruled and printed to show date, remarks, shares, stock, price, charge stock account, commission, credit account of, and folio. The _purchase blank_ for this record is exactly the same with the exception that it is used to credit stock account instead of charging, and to charge customers' accounts instead of crediting. There should also be a _grain sales sheet_ and a _grain purchase sheet_, which differ slightly in the column headings but not necessarily in the ruling—_number of bushels_ taking the place of the column headed _shares_, and _kind of grain_ taking the place of _stock_, as shown in Fig. 5. There should also be a _sundries sales and purchase sheet_ for recording orders upon other commodities than grain or stock. Its form is the same as that shown with the exception that _amount_ takes the place of _shares_, and _commodities_ the place of stock in each form.

Fig. 6. Special Journal Used by a Grain Commission Company
]

As soon as an order is received, it is entered upon the proper record with all of the particulars, and the postings to customers' accounts are made daily, but the posting to the general ledger accounts need not be made more frequently than once a month, unless it is desired to take off a general ledger balance at more frequent intervals.

Fig. 7. Daily Advice of Purchase or Sale Rendered to Customers
]

GRAIN COMMISSION JOURNAL SHEET

=22.= In this connection it is advantageous for the student to study the journal form used by an exclusive grain commission company, Fig. 6. This form is used for recording the sales as they are made in a manner similar to that described in the daily record sheet. The form is loose-leaf and may be 11 by 14 inches in size, or if preferred could be made 16 by 14 inches, giving the advantage of a longer page. The necessity for a long or short page is determined altogether by the amount of business done by the house in one day, as it is the intention with this record to use one full page or more for each day's transactions. This journal bears the day and the date at the top of the page, and is ruled and printed to show columns for folio, names, number of sale, net proceeds, insurance, sack rent, freight and charges, commission, and total. The entries in this journal are made from the sales sheet, and the total amount is posted to the ledger for customers from this medium.

Fig. 8. Record of Stocks in Hands of the Broker
]

ADVICE OF PURCHASE OF SALE

=23.= A very important document used by commission merchants and brokers is the _advice_ or _notification to customer_ of their action in filling his orders. This advice is rendered daily to each customer and should be checked by him carefully, so that there may be no errors in the deals and no differences in opinion between the client and his broker. The advice would begin with the date and read something like this: "Mr. Geo. Bronson, Milwaukee, Wis.: We have this day bought for your account and risk, 100 shares American Car and Foundry (preferred) at 111⅛; 200 shares Canadian Pacific at 177; 100 shares Pullman at 187." On the lower part of the form, as shown in Fig. 7, are printed the rules of the house in regard to the order and it should be signed by some one in authority. If the customer accepts the same, it is an evidence that the transaction is according to orders.

STOCK RECORD

=24.= Owing to the fact that a very large amount of stock of various companies is being bought and sold continually by a brokerage firm, no book kept in the accounting department is of greater importance than the _stock record_. Not only is the broker's business with customers but it is also very largely with other brokerage concerns as he is buying and selling continually. Every share of stock which is bought or sold must be recorded in the stock record. This record shows: Record number, date, number of certificate, number of shares, from whom received, in name of, record number, number of shares, to whom delivered, and date of delivery, as in Fig. 8. It is not necessary in this book, to keep a record of either the price paid or the price at which sold, as this register is intended merely to show the disposition of the certificates of stock and whether they are still in the house, or if disposed of, to whom they have been delivered. It is needless to point to the necessity for the greatest care in keeping this record, as any errors might make it very difficult to trace the paper and result in loss, or at least considerable trouble for the house.

CASH BOOK

=25.= The general cash book for a brokerage firm in loose leaf should be sheet size 14 by 14 inches. In a bound book, it would not be necessary to have it more than 12 inches wide. In this particular business, it is not desirable to carry the general cash debit on one sheet and the general cash credit on another, although it might be advantageous in certain cases to run the grain in the general cash book and to keep a subsidiary cash book for the stocks, which might be run upon similarly ruled sheets, the total of the day's transactions being brought into the general cash at night. By doing this the posting clerk could be using one of the cash books while the cashier was working on the other.

Fig. 9. Broker's General Cash Book
]

At the heading of the general cash sheet appears the sheet number and either the date (providing one sheet or more is used for each day), or the month with an extra day column, next to the margin. The columns are ruled and printed to show stocks, grain, and general ledger on the debit side and the same on the credit side, with the posting columns and sufficient room for the names of customers in center, as in Fig. 9. In this cash book should be entered all payments for margin on purchases of either grain or stock, all deposits by customers, which should be carried into the column indicated by their account—if they deal in grain their account is in the grain ledger and if in stocks their account is in the stocks ledger. All items of receipts or expenditures, not from or to customers, should be entered in the general ledger column, except as shown in the subsidiary cash sheet called _office cash disbursements_. Cash book sheets should always be paged consecutively when made, and each sheet accounted for, if loose-leaf cash books are used.

The best binder to use for a loose-leaf cash book is a flat opening spring back holder, in which may be placed enough leaves to last for the month, to be used for the current work, and when the new month is started the sheets for the previous month are placed in a reserve binder—which should be of the sectional post variety—for reference. If the back of the binder is labeled as the front and the leaves are reversed when placed in the transfer binder, they will run consecutively as to pages and dates.

At the end of the month the totals of the grain ledger and stocks ledger are brought into the general ledger column and posted to the controlling account for that ledger.

OFFICE CASH DISBURSEMENTS

=26.= As there are a number of disbursements for office help, advertising, telegraph, etc., that should be kept separate from the general cash, it is very desirable to establish an _office cash fund_. This fund is started by charging to office cash in the general ledger a definite amount, say $500.00, which amount is drawn from the bank or set aside for special checking for the payment of all miscellaneous bills or drawings of principals on account of salary, also the drawings of salaried employes. This account may be as large as is required for the purpose, and when the office cash becomes depleted, more is drawn which can be added to the account. At the end of the month, a statement is made of the totals of the different columns which should be a duplicate of the office disbursement sheet. These totals are entered in the general cash posted therefrom, a check given for office cash disbursements for the amount of the interest, say $500.00, and credit given the account for the difference in the amount spent as shown by the statement.

Fig. 10. Detailed Record of Office Cash Disbursements
]

The office cash disbursement sheet, shown in Fig. 10, should be 14 by 16 inches in size, with _sheet number_ and _month of_, in the heading. The box headings are as follows: Day, item, posting, general ledger, salaries, office help, advertising, private wire, tickers, telephone and telegraph, special commissions, rent, and sundries. The office cash balance should be kept independent of the general cash balance and, preferably, by another clerk.

Entries should be made as money is disbursed, with the proper vouchers for the same, to be turned in with the report.

Fig. 11. Record of Margin Balances to Protect the Customer's Account
]

The totals of the different accounts, having been entered in the general cash, are posted to the debit of their respective accounts in the general ledger.

In localities where cotton is largely dealt in, or where tobacco is largely dealt in, it may be necessary to add columns for the tobacco ledger or the cotton ledger in the general cash, but in localities where the transactions are not frequent, the accounts for such transactions and also the deals in provisions are carried in the grain ledger.

Any cash book sheet which should happen to be spoiled should be marked _void_ in red ink, and filed in its regular order with the other cash sheets, but _in no case should it be destroyed_.

MARGIN BOOK