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This method requires the entries in the separate books to
be arranged so that the items posted to the different
Ledgers may be readily dissected. (v.) By the method explained in Sets I. and II., which will be
found to combine all the advantages obtained from the
methods i. to iv. In a small business where the books are kept by the proprietor himself, method ii. is perhaps the simplest and most appropriate. Methods i., iii. and iv. may be adopted with advantage in some instances, but method v. is recommended for ordinary cases.
Most works on book-keeping advocate the systematic arrangement of transactions in separate books of entry, but this seldom has for its object facility in balancing. The tendency is always towards arrangement according to the nature of the entries, and the present treatise also takes full advantage of such classification. It, however, goes further, and requires the classification of the entries according to the Ledgers to which they are posted, in order that the total entries may be compared with the total postings in each Ledger.
The method of calculating interest, for any number of days, or on Account Current, which is illustrated on the following page, is perhaps the best and simplest that has been designed.
The ruling of the page containing the account may of course be modified as required, and with the addition of other money columns varying rates of interest may be conveniently worked out on this plan.
The interest should be calculated on the nearest pound.
The rule on which the calculation is based is described in several works of Arithmetic, and is as follows:
Multiply the principal by the number of days, and by double the rate
per cent., and divide by 73,000. In the example the several balances are each multiplied by the number of days that they respectively rest until altered by another transaction. However, instead of completing the calculation of each item separately, the products are added up at the date when the interest is to be charged, and the total is multiplied by double the rate per cent, and divided by 73,000.
When the interest is 5 per cent., adding a cipher is equivalent to multiplying by double the rate. The division of 73,000 is effected by adding to the dividend one-third of itself, then one tenth of that third, and again one-tenth of the last quotient, and striking off 5 decimal places thus : 183694 x double 5% or 10 1836940 add 1/3rd
612313 add 1/10th 61231 add 1/10th
25*16607= £25 : 3 : 31
This method, although sufficiently correct for all practical purposes, slightly overcalculates the interest, and to be exact, td. must be deducted for every £10 of interest. Therefore the interest in this case should be £25 : 3 : 3$; fth of one penny being deducted.
If the balances are not always on the same side an additional column should be pro
vided for extending the calculations on the Dr, and Cr, balances separately.
IV. How to Discover and Avoid Common Errors. The preparation of a Trial Balance discovers only certain classes of errors; and balancing should be regarded as a means of proving the arithmetical accuracy of the postings, rather than as a means of discovering inaccuracies in the book-keeping. Prevention, in regard to errors, is obviously better than cure, and every reasonable precaution should be taken to ensure correct work as the book-keeping proceeds. Practice and experience are better than precept in this matter, but the following rules and suggestions will be found useful. To prevent and avoid errors :Call over all postings to the ledgers: where two or more clerks
are employed, one clerk should take the book of entry and
another the ledger. Check all additions and the totals carried forward to subsequent
folios. Ascertain also that the totals are carried forward to their proper columns.
up and rule off Ledger Accounts as settlements are made, and always see that the remaining balance of an account
is made up of current specific items. Balance cash, and call over the items of the Banker's Pass Book
and reconcile with the Cash Book, at frequent intervals. Irregularities in the cash, if honest, generally mean mis
takes in the books. Do not make erasures in the books. Let each day's transactions be entered up during the day. The
memory fails and omissions and mistakes arise when work
is allowed to accumulate. Always date entries and postings precisely-giving the year
where not already stated-and keep them in order of date.
Avoid interpositions at irregular dates.
5, 7 and 9, which are often mistaken one for another.
one another, as irregularity in this respect frequently
causes errors in addition. Never copy or transcribe figures that are added up without
re-casting the copy.
To discover errors when preparing the Trial Balance ; observe that :
A difference of 10/- may arise :-
should be re-cast.
to the books of entry, one half the postings, i.e., either those with, or those without double figures in the shillings column. If the mistake is not discovered whilst calling over the postings, the item which causes the error will be found
without a tick in the books of entry. Differences of £10, £100, and £1000 usually arise from errors in addition. Such errors and also errors of 10/- and iod., may be caused by the figure 7 or 9 being made so long that it comes before a figure or figures on the line beneath.
Errors of transposition are very common, such as 19s. gd. for £19 : gs.: od., or £24 : 55.: od. for £20 : 45. : 5d. The clerk who calls out the entries should habituate himself to careful articulation. It is not sufficient for him to say nineteen nine or twenty, four, five, but nineteen pounds, nine shillings, and twenty pounds, four shillings and fivepence. The posting clerk should repeat the figures.
Errors of transposition are very difficult to discover, but it can be ascertained at once whether a transposition is the cause of a difference in the trial balance by adding as follows to the amount of the difference:
To the pence, sufficient to make up a shilling:
number added to the pence:
the number added to the shillings, and so on. Thus, assume the difference in the trial balance to be
6 경 8 5
85 6 showing that a transposition of £85: 6:0 for £8:5: 6 may account for the difference of £77:0:6.
If the figures do not coincide as shewn, the difference in the Trial Balance is not the result of a single transposition of figures.
Sometimes an item is posted to the wrong side of the Ledger, in which case the columns of the Test Journal, when compared with the Balance Book, would show a difference of a like sum on both sides of the Ledger in question, and the item could be discovered by seeking for the amount in the book of entry.
When the abstracts of entries in the Test Journal exceed the abstracts of postings in the Balance Book, the difference may arise from an entry not being posted.
When the postings in the Balance Book exceed the entries in the Test Journal the error may arise from a posting being abstracted which belongs to a previous quarter. To prevent this a tick should be placed after the postings when the abstracts are made so as to show to what point the account has been abstracted. (See page 209).
Always persevere until a mistake is discovered ; it will not rectify itself by delay.
V. The Advantages of a Professional Audit. Amongst the many advantages of a professional audit, the following may be mentioned :
The work of the book-keeper and cashier is thoroughly supervised; dishonesty is to a large extent prevented; and a tendency to relaxation of moral rectitude is corrected by the fear of detection which must always exist where an auditor is employed.
The books may be made to appear as though they were properly balanced by an unscrupulous or indolent book-keeper, for which reason the balancing should either be performed by, or checked and verified by, an Auditor.
(-2,7 6 is added to make up the pence to a shilling.
5 is added to the shillings to make them into 6, equal to the number added to the pence.
8 is added to the pounds to make the units 5, equal to the number added to the shillings.
The tens of the pounds require nothing further to be added to make them into 8, equal to the number added to the units,
A competent Accountant, who has a considerable practice, is always able to afford very useful information regarding the customary rates of profit, cost and expenditure, as well as depreciation. He can also direct attention to the weak points of a business and suggest remedies. Traders will therefore act wisely in obtaining the services of an experienced Accountant whose practice is principally amongst those who carry on their own particular business.
Partnership books should always be adjusted by an Accountant, if for no other reason than that he will act impartially and thus avoid disputes and suspicion. He will also be more likely to comply fully with the terms of the partnership deed, if any. The books of a public company, or other enterprise wh
many are interested in the results, should also be audited by an Accountant. A false economy sometimes leaves this important office to parties interested in the undertaking, and who have no special qualification for the work. The author has brought to light many lamentable muddles in the affairs of public companies, which would have been avoided by the employment of a skilled Auditor.
An Auditor will be able to suggest improvements in the system of book-keeping, and in the conduct of the financial operations. He will also be able to advise as to the adjustment of revenue and capital items.
Accounts signed by a professional Auditor are usually accepted by Income Tax surveyors.
Although in the sets of books given in this treatise general plans have been laid down which can be adopted in every instance, there are many modifications of great utility which could be suggested by an Accountant conversant with the ever-varying requirements of different classes of business.
Principals and chief cashiers are strongly recommended to examine and verify the daily entries of cash received and paid. This ordinary act of business diligence may be performed in such a manner as not to offend the most sensitive, while the supervision of the “master's eye ” may do much to prevent dishonesty. It will also check irregularities which cannot be detected by an Auditor, whose attendance is rare.
VI. INCOME TAX.
The mode of ascertaining profit for Income Tax Assessment differs very materially from the ordinary method of computing the profits of trade, and the points of difference are indicated in the following remarks.
The chief reason for the difference is that the duty is charged at the source whence the income arises, and the provisions of the enactments enable those who pay the tax to recover subsequently from the persons who are in the enjoyment of the income. There are five schedules under which the Tax is charged :Schedule A.-Touches income from Landed Property, including houses. The rack rent is the measure of charge, and in