Bookkeeping and Accountancy

D ACCOUNTANCY , M. ROW E COM PANY- Baltimore Digitized by the Internet Archive in 2007 with funding from Microsoft Corporation http://www.archive.org/details/bookkeepingaccouOOroweuoft Bookkeeping and Accountancy Presenting the art of bookkeeping in accordance with the principles of modern accountancy By HARRY M. ROWE, Ph.D. Author of "Commercial and Industrial Bookkeeping ," "Business and Office Practice," "Business Bookkeeping and Practice," Etc. Tp\T BALTIMORE THE H. M. ROWE COMPANY COLORS USED IN THE RULINGS IN THIS BOOK AND ACCOMPANYING BLANK BOOKS. Science has determined that the combination of colors least trying to the eye are neutrai shades of brown and green, and that the most trying are red and blue. For this reason the brown and green colors used in the rulings in this book and the blank books accompanying it have been substituted for the red and blue usually found in books of this character. Copyright 1910 Copyright 1911 BY Harry M. Rowe Entered in Stationers' Hall London, 1910 Entered in Stationers' Hall London, 1911 bt Harry M. Rowe Copyright protects all the copyrightable com- ponent parts of this work and prohibits all unlaw- ful use of its composition, illustrations, methods, etc. Infringers will be punished to the full extent of the law. BALTIMORE PRINTED BY THE WILLIAMS A WILKINS COMPANY AT THE WAVERLY PRESS PREFACE. " Bookkeeping and Accountancy" is intended to impart a training in the art of bookkeeping that is based upon the fundamental principles of accountancy. It is intended for students of the age usually found in commercial schools, public and private, who are ready to begin a study of the subject. The completion of the full course of study provided will not only qualify for a high degree of proficiency in the art of bookkeeping, but it will also lead up to a very thorough understanding of the general principles and practices of accountancy. While for many years I have closely followed the development of accountancy as a science, particularly in its economic relations, I am no longer a practicing accountant, therefore, I have presented accountancy in this work as I have found it, particularly as reflected in the practical experience of many eminent accountants with whom I have consulted. My principal task has been to simplify the presentation of accountancy so that it may be understood by the average commercial student, and to prepare bookkeeping sets in various lines of business that would illustrate the application of its principles. I have found that in reclassifying accounts to conform with the theory and practice of accountancy, the art of bookkeeping has been made easier to learn and easier to teach, rather than more difficult. True science simplifies any subject of which it treats, and accountancy is the true science of bookkeeping. Five distinct subjects are included:—the fundamental and elementary principles of accountancy, the art of bookkeeping as applied in various lines of business, business methods and practices, office methods and practices, and office appliances. The following are some of the features of particular interest: 1. For students who are beginning, teachers can have their choice of (1) the account, or skeleton ledger method, (2) the theory method, using transactions stated in the form of memorandums, or (3) the illustrated theory method, in which the business papers received and issued are used in connection with the printed text;, either for purely illustrative purposes, or as data from which records are to be made in the various books. The subject matter is the same, except that it is presented in different order in each method. 2. The transactions are classified and entered in the books in which they properly belong, from the start. Purchases, sales, notes and acceptances, cash receipts and payments, etc., are entered directly in their respective books, from which the proper accounts in the ledger are debited and credited. 3. Various price lists are provided with each set, which may be used, if desired. TV PREFACE 4. Business practice with offices may be conducted with each set, if desired. 5. The transactions of each set are confined to those usually found in the particular line of business illustrated. All unnecessary and unbusinesslike transactions are omitted. 6. The transactions of each set and the accounts growing out of them are classified according to the principles and rules of modern accountancy. 7. The business methods commonly followed in the various lines of business illustrated in the different sets are fully explained in connection with the transactions to which they apply. 8. The trading and profit and loss statements, statements of resources and liabilities, and the other statements, analysis sheets, etc., required in connection with each set conform strictly to the established forms of these statements employed by accountants. 9. The business papers and forms are selections from the best lithography produced, many of them showing unique and practical ideas in design and arrange- ment to facilitate and safeguard business transactions. 10. Ledger closings, the grouping of accounts, the use of controlling accounts, the analysis of accounts, and the preparation of various supplementary and sup- porting statements are given special attention and thorough treatment. 11.. Manufacturing accounts and statements, corporation accounts, the voucher system of accounts, branch store, agency, and other special accounts are fully explained and illustrated. 12. Cost accounting, cost records and systems are given ample treatment for the elementary student. 13. The principles, rules and practices of accountancy are fully set forth in a separate chapter. 14. Office systems and appliances are explained and illustrated in a separate chapter, with incidental reference to their use at various points in the different sets. 15. Supplementary drills, that feature which proved to be so valuable in my older bookkeeping publications, are provided wherever needed. I wish to acknowledge the valuable services rendered in the preparation of manuscript and the reading of the proof by my good friend, B. P. Leister, C.P.A., a former pupil, who was for many years a most successful teacher of the commercial branches, and who is now in full practice as a certified public accountant. 1 also wish to acknowledge my obligation to the many other accountants who have assisted me in various ways in the preparation of this book, and who have responded so freely to my requests for suggestions and criticisms. The Author. Baltimore, Md. June 10, 1910. CONTENTS Definitions 1 Accounts 3 Debiting and Crediting Accounts 4 Classification of Debit and Credit Items 5 Personal Accounts 5 Ownership Accounts 16 Proprietor's and Partner's Capital Accounts 17 Relationship Between the Owner and the Business 21 Proprietor's and Partner's Personal Accounts 22 Notes Receivable and Notes Payable 24 Notes Receivable Account 25 Notes Payable Account 31 Cash Account 37 Merchandise Accounts 42 Principal and Subsidiary Trading Accounts 42 Purchases Account—A Principal Trading Account 43 Sales Account—A Principal Trading Account 49 Inventory Accounts 53 Subsidiary Trading Accounts 56 Freight 56 "Freight In" Account 57 Warehouse Accounts * 58 Warehouse Supplies Account 58 Warehouse Labor Account 60 Rebates and Allowances, 62 Merchandise Discounts 63 Purchase Discounts Account 64 Sales Discounts Account 66 The Trading Statement, 69 Profit and Loss Accounts 79 Current Expenses and Incomes : Use and Service Accounts 81 Selling Expense Accounts 81 Outgoing Freight Express Drayage, etc 85 Delivery Expense Account 87 Administration Expense Account 88 General Expense Accounts 91 Insurance Account 94 Insurance Expense Account 98 Interest and Discount Account 100 Property Investment Expense and Income Accounts 104 Real Estate 106 The Investment Account—Real Estate 106 Real Estate Expense and Income Accounts 108 VI CONTENTS Property Investment Expense and Income Accounts—Continued Furniture and Fixtures Account 112 Repairsand Renewals Account 114 Delivery Equipment Account 117 Profit and Loss Statement 118 Distribution of Undivided Profits 127 Journalizing, Posting, Checking Trial Balances, etc 130 Trial Balances, Inventories, Statements, etc 131 Closing the Books, Statements, etc 137 Combined Trading and Profit and Loss Statement 142 Statement of Resources and Liabilities 145 Analysis Sheets 147 Explanation of Other Accounts 154 Shipments and Consignments 154 Shipment Accounts 155 Consignment Accounts 157 Commission Accounts 160 Branch Store Accounts 161 Briefer Explanations of Accounts 164 Business Papers 173 Account Books 186 Cash Book 187 Purchases Book 187 Sales Book 187 Notes and Acceptance Books 188 The Journal—Other Books—The Ledger 189 Closing the Ledger 190 Errors m Trial Balances 190 Corporations 193 Difference Between Partnerships and Corporations 195 Corporation Accounts 196 Manufacturing Accounts 200 Cost Accounting , 202 Advantages of a Cost System 209 Wage Systems 212 Distribution of Indirect Expenseb 213 The Department Method of Manufacturing Accounts 221 Cost of Manufacturing Accounts 223 Method . Manufacturing Statements 239 Forms of Cost Records, Reports, etc 254 The Voucher System 257 — BOOKKEEPING AND ACCOUNTANCY 1. Bookkeeping. The art of classifying and recording business transactions and facts systematically is called bookkeeping. 2. Accountancy is that branch of practical science which treats of the methods of classifying and recording business transactions and accounts so that the facts they

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