ial work like circulars of newspaper-sheet size may occasionally be run off. This, as well as other sources of miscellaneous receipts, which are often quite numerous, should not be overlooked.

Magazine and book publishing is very frequently combined in one business, but this fact of itself does not introduce any complications except in the apportionment of general charges. The magazine and book departments will ordinarily be found to be quite distinct.

BREWERIES

In breweries there is probably a greater opportunity for theft of supplies or product and misapplication of collections than in almost any other business. The containers-boxes, bottles, kegs, and barrels—are never sold, but remain the property of the brewer. The value of these should not be set up in the balance sheet as accounts receivable if they are charged against customers. This is sometimes done. It is easily seen that the loss in such stock is considerable, and that the value set upon it should be investigated carefully. The auditor should see that adequate accounting methods are in force, not only for the containers, but for all other stock, and, if not, report should be made thereon.

The fact that collections are frequently made by the drivers is a weak point, requiring special attention and necessitating close scrutiny of all allowances and discounts.

Usually a large amount of money is invested in saloons either owned or controlled by reason of loans made. Frequently the brewery pays for the license and collects on same from the saloon keeper in monthly installments. The auditor should see that the income from these sources is properly taken up, and at the same time see that adequate provision is made for bad and doubtful accounts, as the loss on these advances is considerable and is looked upon as being an expense of keeping the product before the public. In addition to amounts actually loaned to customers, the brewery frequently guarantees loans made to customers by others. Such guarantees constitute a large contingent liability and should be set up as such in a balance sheet or indicated in a footnote.

MINING-COAL MINES

A practitioner engaged to audit the accounts of a mining enterprise for the first time will do well to make an inspection of the entire mine workings and equipment, accompanied by the client's engineer or mine superintendent. Careful observation will give him some idea of the condition of the equipment and scope of the undertaking, which should be of assistance to him when auditing the books and preparing the financial statements.

As the largest source of income is from the sale of coal, the inventories and the sales tonnages should be proved with the production records. Deductions from miners' wages for "blacksmithing" (dressing their tools) are frequently made on the basis of production; when so, the collection of this income can be verified in total. Arrangements are usually made with companies operating general stores at the mines (unless the mining company operates its own store, which will, in that case, be audited separately) to allow the miners to make purchases on credit, the amounts due therefor being deducted from the wages of the mining company's employees. Commissions on these collections are generally charged by the mining companies. The colleclection of rents from houses occupied by employees and owned by the mining company should also be checked.

Some coal companies own railroad cars, for the use of which income should be received from the railroad companies on a mileage basis.

The matter of royalties on coal mined from leased lands requires careful attention. They are based upon tonnage of production or cubic yards or acreage of the seams worked, and the royalty agreements usually provide for a minimum annual payment, in the event of the production being so small that the regular royalty rate would not require payments equal to the fixed minimum.

In the case of comparatively new mines, the minimum royalties will usually be paid during the sinking of shafts and period of development work. If the lease agreement allows a lessee to recoup himself subsequently for the proportion of the minimum. royalty paid in excess of the amount earned (calculated on a tonnage basis), such excess is usually carried among the assets.

as a deferred charge. As the production increases to a point beyond that at which the royalty, calculated on a tonnage basis, equals the fixed minimum, and the lessee begins to recoup himself for the advance royalties, the amounts of such retained royalties should be applied in reduction of the deferred charge above mentioned.

It is important that all royalty agreements be carefully examined, and if they do not provide that the lessee may recoup himself for advance royalties, the latter should be charged against revenue. It sometimes occurs, where a mine is being operated under several leases, that only a portion of the leased lands are being mined, and that portions thereof will never be worked. Obviously, any minimum royalties paid under terms of leases covering lands in that class should not be carried as deferred charges, and for that reason the advance royalties account should be analyzed and such charges eliminated if included therein.

If a time limit is set in which the lessee must recoup himself for advance royalties, any portion still carried as a deferred charge at the time the limit expires should be at once charged off.

All lands, plants, and equipment accounts should be scrutinized, and only such charges should be included as represent the cost of lands which add to the area of coal available for future mining, or which cover expenditures for development, construction, and equipment which will result in increased production.

Provision should be made for reduction of equipment, development, and construction accounts to the amount of the residual value of the machinery included therein by the time the mines are exhausted. This is usually done by charging mining costs at a certain rate per ton of production. The depreciation of railroad cars, if any are owned, and of live stock, should not be taken care of on such a basis, however, but on the basis of probable length of service.

While it is desirable to provide for depreciation in value of lands by reason of the depletion of the coal thereunder, it is not certain that mining companies are legally required to replace such wasting capital by reserving any portion of their earnings therefor. In instances where this is not done, the auditor can only call attention to the advisability of such a course, which,

when followed, is usually based on the number of tons produced. The following extract from a paper prepared by A. Lowes Dickinson, C. P. A., and read at the St. Louis Congress of Accountants in 1904, is of interest in this connection:

In the case of minerals, the product taken out of the land becomes the stock-in-trade of a corporation as soon as it is extracted, and whatever the land was worth before its extraction, it is clearly worth an appreciable amount less thereafter. The provision to be made should be on the basis of the number of tons extracted, having regard to the total tonnage available and to the realizable value of the property after the minerals have all been extracted. The same principle would also apply to timber lands where no provision is made for reforesting. The contention is sometimes made that no provision need be made for exhaustion of minerals where the amount of mineral known to be in a definite tract at the end of any period is largely in excess of that which had been discovered at the beginning of the period. This argument cannot, however, for a moment be admitted, except as a reason for reducing the tonnage rate to be provided. As a general principle, whatever there was in the land, whether known or unknown, has been reduced during the period under consideration by whatever amount has been extracted; and while the new discoveries may be accepted as reducing the necessary rate of provision for extinction from, say, one dollar to one cent per ton, the original principle that provision must be made holds good on the smaller figure, whatever it is. It may be, of course, that the provisions made in earlier years have been sufficient to cover a number of future years on the basis, from the commencement, of the rate subsequently found to be sufficient in view of the new discoveries, and in this case there is obviously no necessity to provide further for extinction until the total production at the new rate is equal to the total amount written off.

Mortgages upon coal and ore lands usually provide for the establishment of a sinking fund from which to pay off the mortgage, either in installments or in full on a specified date. The auditor should read carefully all the mortgages of the property of his client and call attention to any unpaid sinking fund charges.

Some mortgages require payments to be made into the sinking funds on the basis of the entire tonnage mined (which would include all coal consumed in the company's operations), while others base the charge only on commercial production, which would be only that actually sold.

The cash held by trustees of sinking funds is to be used for retiring mortgage obligations only, and therefore should be

shown separately on the balance sheet and not mingled with current cash accounts.

GOLD MINES

Accountants are often engaged by committees of dissatisfied creditors or stockholders to investigate the disposition of the cash capital invested in gold, silver, copper, and other mining enterprises. In instances where the ore is found in profitable quantities, the auditor should not feel compelled to accept the periodical cash, production, and shipping statements received from the mine office, unless accompanied by original vouchers, ore records, assay reports, and shipping data.

Not only should the shipping memoranda be compared with the sales reports, the vouchers for expenditures at the mines compared with the cash statements, and all of the mine reports carefully checked and compared with the general books, but every effort should be made to account for the entire production. Where the product is sent to outside smelters for reduction, tests should be made, using the client's assay reports of values shipped as a basis, to ascertain that the smelter returns are correct.

The correctness of the distribution of expenditures between capital and operating accounts should be certified to by the mine manager. He should be requested to furnish a certificate setting forth in detail the local current assets and liabilities or the fact that none exist.

A report from the mine manager upon the efficiency of the plant and equipment, and upon the age and condition of the buildings and other more or less permanent local assets, is necessary in order to properly consider the question of depreciation which should be allowed for in the accounts.

A large portion of the mine employees' wages is based on production, and tests of the correctness thereof can readily be made. The balance of the wages should be carefully scrutinized and portions of the pay rolls compared with timekeepers' records.

Often mining companies own and operate stamping mills, smelters, short connecting railroads, and other enterprises, the accounts of which should also be carefully examined.

As the accounts and the conditions under which various mining enterprises are carried on differ widely, no set instructions