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the Bills (h) issued and received during the quarter, are collected and entered in the
column. On the principle above referred to the aggregate total of this money column should correspond with the aggregate total of the postings on either side of the Ledgers, as abstracted into the Balance Book. For example, the total amount of the entries in all the separate books of entry (including Bills) during the quarter ending March 31st, is £23,480 8s. rod. (see Test Journal page 56) and the total amount of the postings (whether Dr. or Cr.) as abstracted into columns 5 and 6 of the Balance Book corresponds with this sum, (see Summary of Balance Book, page 55).
If there should be a discrepancy between the totals of the Dr. and Cr. columns of the Balance Book, by comparing the total of each column with the total of the Test Journal it can be at once determined whether the error that causes the discrepancy is on the Dr. or the Cr. side of the Ledgers, or whether there are mistakes on both sides. The correctness of each side of the Ledgers can thus be ascertained separately, and if one side corresponds it is only necessary to examine the other (i).
As the particulars required for the Test Journal can be collected and entered in a few minutes, and there may be mistakes of the same amount on both sides of the Ledgers, it is well to have this further proof of the correctness of the book-keeping, even though the Dr. and Cr. columns of the Balance Book may correspond.
THE TRADING ACCOUNT, CAPITAL ACCOUNT
AND BALANCE SHEET.
The reader is here recommended to peruse again pages 15 to 17, where the preparation of the Balance Sheet, and Profit and Loss and Capital Accounts in their simplest form, has already been described.
Columns 10 and 11 of the Balance Book (see pages 52 to 55 contain all the balances in the Ledgers on June 30th. The totals of the balances in the Purchases and Sales Ledgers, which comprise only personal accounts, and also the balances of the Bills Ledgers, are transcribed to a list of final balances, see page 56, prepared on a separate sheet of paper.
It is explained on page 16 that the balances of the nominal accounts which represent expenditure or income are transferred to the Trading Account and the balance of the Trading Account is subsequently
(h) It is pointed out in the description of the Bills Ledger, see page 68, that, contrary to all other transactions, Bills are entered directly into the Ledgers with out first being entered in a separate book. The total amounts of Bills issued and received during the quarter are, however, entered in the Test Journal as though they were recorded in separate books.
(i) In Set II. the principle of Test Journal is extended and it is shewn how the Ledgers may be balanced one by one and the Dr. and Cr. sides of each separately. Mistakes are thus localised and may be discovered by examining only those books where the abstract of entries does not agree with the abstract of postings.
transferred to the Capital Account. In the specimen accounts (Set I) however, there are certain peculiarities of adjustment which call for further elucidation and it may be well therefore to describe the treatment of the Private Ledger Accounts seriatim.
The closing transfers and entries are printed in italics and should be carefully considered.
The first three accounts in the Balance Book, Section iii., are left open until the other accounts in the Private Ledger have been closed. Folio 4.
Discounts Account (Cr. Balance £i os. 4d.) By referring to the account on pages 44 and 45, it will be seen that amounts are reserved on January ist to cover discount on the Dr. and Cr. balances at that date. Similar reserves have to be made to cover discount on the Dr. and Cr. balances on June 30th. The Cr. balances in the Purchases Ledger amount to £2,808 16s. 8d., see page 53, and the discounts which will be deducted therefrom, are estimated at £70 4s. 8d. This sum is therefore entered as a reserve on the Cr. side of the Discounts Account and is brought down to the Dr. side of the same account for the next half-year. The new balance is also transcribed to the list of final (Dr.) balances (see page 56). Conversely the Discount which will be allowed on Dr. balances in the Sales Ledger, is computed at £151 14s. 6d. and that sum is entered as a reserve on the Dr. side of Discounts Account. It is likewise brought down as a Cr. to the same account for the next half-year and transcribed to the list of final (Cr.) balances. When this adjustment has been made, the balance of the old account will represent the true gain or loss resulting from Discounts arising out of the half-year's transactions and it is transferred to the Trading Account.
The proper treatment of the discounts account is of considerable importance and will be further discussed in the explanations of Set II. and subsequently under the head of Finance.
Folio 5. Cash Account, Dr. Balance £52 35. 4d. and
Folio 6. Huddersfield Banking Company, Cr. Balance £186 19s. id.
The balances of both these accounts are brought down and transcribed to the list of final balances, page 56.
Folio 7. Carriage Account, Dr. Balance £32 155. 3d. On June 30th, £8 4s. 2d. due to the Railway Company is assumed to be outstanding. It is therefore entered on the Dr. side as a reserve. This entry increases the balance to £ 40 19. 5d., which amount is transferred to the Trading Account as the exact cost of carriage for the half-year. The £8 4s. 2d. reserved is brought down to the Cr. of the same account for the next half-year and is transcribed to the list of final Cr. balances, page 56.
Folio 8. Rent and Power, Gas and Insurance Account, Dr. Balance £211 gs. 4d. A reserve is also made in this account for unpaid Rent and Power and Gas calculated to June 30th, less apportionment of the amount paid in advance for Fire Insurance. This reserve increases the balance to £355 135. 4d. which sum is transferred to the Trading Account. The £ 144 45. od. reserved is brought down to the Cr. of the next half-year and is transcribed to the list of final Cr. balances, page 56.
Folio g. Incidental Expenditure Account. The Dr. Balance £122 8s. od. is transferred to the Trading Account.
Folio 1o. Contras Account. The Dr. and Cr. sides of this account being equal it is simply ruled off. Folio II. Mill Wages Account, Dr. Balance £1797 125. 6d.,
and Folio 12. Warehouse and Office Salaries, Dr. Balance £80 8s. od.
The balances of both these accounts are transferred to the Trading Account.
Folio 13. Drawings Account, A. Crosland. The Dr. balance of this account £160 178. od., representing the amount withdrawn from the business during the half-year for personal expenditure, is transferred to the Capital Account.
Folio 14. Traveller's Salary and Expenses Account, Dr. Balance £222 18s. 4d.
Material and Manufacture Account, Dr. Balance £7,614 8s. gd.
Folio 16. Mill Furnishings, Repairs and Renewals ACcount, Dr. Balance £237 Is. Id. Folio 17. Sales Account, Cr. Balance £10,791 os. 8d.
The balances of the four preceding accounts are transferred to the Trading Account.
We now turn back to Folio 3, Plant and Machinery Account, Dr. Balance £3225 35. 7d. This sum represents the value of the plant and machinery according to the balance sheet of January ist, 1884, with the net cost of new machinery purchased since added thereto. The Wear and Tear during the half-year will have caused a depreciation (1) in value, and to provide for this the sum of £118 145. 6d. (equivalent to 71% per annum or 3% for the half-year upon the valuation of January ist) is entered on the Cr. side of the Plant and Machinery Account and also on the Dr. side of the Trading Account. The balance of the Plant and Machinery Account is then brought down and transcribed to the list of final balances on page 56.
In the Trading Account we have now presented to us an epitome of the expenditure and income arising out of the trading during the half-year.
An important charge, which should never be omitted in calculating the profit of a business is interest upon the Capital employed therein (k).
(j) The question of Depreciation, one of much importance in the adjustment of the Trading Account of a manufacturing concern is fully discussed in Chapter VI.
(k) If the Capital were borrowed the business would have to pay interest thereon and the proprietor of the concern could obtain interest on his capital if it were employed elsewhere; consequently the concern should be charged with interest as an expense of the business.
Interest computed at the rate of 5% per annum upon the balance of the Capital Account on January ist, amounts to £365 os. 7d., which sum is entered to the Dr. of the Trading Account and to the Cr. of the Capital Account.
The value of the Stock on hand on June 30th, has now to be entered on the Cr. side of the Trading Account and brought down as a Dr. balance to the same account for the next half-year. It is also transcribed to the list of final Dr. balances, page 56. With the addition of the stock, the Trading Account now shews a surplus of income over expenditure, or a profit gained during the half-year of £460 75. 3d. The account is therefore closed by transferring that sum to the Cr. of the Capital Account. The balance of the Capital Account is brought down and transcribed to the list of final (Cr.) balances, see page 56.
The list of final balances is then arranged in the form of a Balance Sheet as set out on pages 50 and 51. An explanation of the increase of Capital may with advantage be given in a side note on the face of the Balance Sheet, as shewn in the example.
When the Balance Sheet has been completed, the Balance book should be re-opened by entering therein the Balances in the Ledger as specified in the list of final balances on page 56.
Should any reader desire to accustom himself to some extent to the work of a book-keeper before applying his knowledge in actual business experience, he is advised to write out in foolscap books, ruled as required, the models given on pages 26 to 56. The working of the various books should be followed as though he were engaged in actual business. The items on January ist, for instance, should be entered in the Purchases Day Book, Sales Day Book and Cash Book and then posted to the Ledger. The items on January 2nd, should then be dealt with in the same way, and so on with each succeeding day. After the entries for a month or two months have been posted, they should be examined so as to ascertain that the postings are correct. When all the entries and postings are made, the books should be closed and the Balance Sheet and Trading Account prepared without reference to the model, which should be consulted only in case of need.
MANUFACTURERS' Books. Ser II.
For convenience of reference the examples of the several books of Set II. precede the explanations.
With two exceptions, the list of books comprised in Set II. is identical with that of Set I.
The exceptions are : (i.) The Private Ledger, which is subdivided into Nominal
Ledger and Private Ledger. The Nominal Ledger receives all nominal accounts that are not of a private nature. The Balance Sheet, Trading Account, Capital Accounts and the principal Property Accounts are kept in the Private Ledger.
The result of the trading, the partners' respective interests in the concern and the valuations of the assets are thus kept secret, without in anywise interfering with the progress of the book-keeping or the periodical
balancing. (ii.) An additional book is employed, entitled Mill Sales Day
Book, in which are recorded the sundry sales of waste and disused articles, as well as work done on commission.
THE PURCHASES DAY BOOK,
THE RETURNS and CLAIMS (Purchases) DAY BOOK,
THE MILL SALES DAY BOOK,
follow on pages 82 to 96.