Part 11

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

=27.= It is as necessary in the brokerage business to know the condition of customers' accounts as it is in a bank, and perhaps a little more so, as fluctuations in the market may _wipe out_ his margin without his knowledge, and while it is not absolutely obligatory on the part of the broker to notify his customer, still it is very much to his interest to do so.

The margin clerk has the balance of each customer every morning. All orders to buy or sell received during the day pass through his hands and he makes the necessary memorandum against the customer's account. He keeps posted on the fluctuations of the market and immediately notifies the principals of any account which needs protection. After the trading for the day is finished, which on the board is 1:15 o'clock P.M. on any day except Saturday, and Saturday at 12:00 M., the margin clerk extends the balances of the various customers' accounts, these balances are checked by the bookkeeper from his accounts to prove their correctness, and a new list of the balances is made for the use of the margin clerk the following day.

This book is kept in most houses as a form of blotter, but the best form is a short sheet with numbered lines for the names of customers and a long sheet with similarly numbered lines divided into inch columns, with the balance column at the beginning and at the end, to be inserted under the short sheet, to care for the transactions of the day. By this means the names of customers will not have to be duplicated daily.

The sheets should be kept in a holder so that the names run alphabetically and the initial letter of the names on one short sheet should be penciled upon the long sheet each day. The bookkeeper can, if desired, have a duplicate set of the short sheets, shown in Fig. 11, to use for making up the balances for the succeeding day.

Where there are a sufficient number of accounts to warrant, they should be divided by tabbed index sheets with a leather tab projecting, in alphabetical arrangement, so that any account may be turned to instantly; for instance, if the account of L. S. Tucker & Co. is wanted, turning up the tab _T_ will bring to light all of the customers whose names begin with _T_. This index may be further subdivided if it is deemed advisable.

The sheets for each day's work should be dated at the beginning of the day and may be kept, if desired, for reference, although after they have been proven by the books, they are of no practical value.

THE LEDGERS

=28. Stock Ledger.= Some brokerage firms, besides keeping the stock record, keep a stock ledger, opening an account with each line of stock bought or sold and posting therein daily from the orders. This ledger account, with each class of stock, indicates at all times just how much of each line is held by the house and is very necessary in order to show what may be sold if occasion demands. As a large amount of stock held by brokerage firms is usually deposited with their bank as collateral for loans, and, as it is frequently the case that portions of this stock must be delivered to customers or sold upon their order, it is necessary to frequently change the collateral deposited with the bank, substituting other stock for that taken from the bank.

The stock ledger form in loose leaf is 13¾ by 14 inches, and the name of the stock should be inserted in the heading. It is ruled and printed to show: Date bought, preferred, common, extra column, price, account, date sold, preferred, common, extra column, and price, as shown in Fig. 12. Each sheet should have a number, and these numbers should follow consecutively. There are two ways of indexing these accounts. The one strictly in accordance with the theory of loose leaf is the insertion of the sheets in their proper alphabetical sequence. When the accounts are carried in this manner, leather tabbed index sheets appear at intervals throughout the ledger or ledgers. The division of the alphabet depends entirely upon how many accounts it is necessary to run and ledgers may be alphabetically subdivided into from twenty-five to two hundred divisions. The better the subdivision, the easier it becomes to turn to an account.

Since the majority of listed stocks are designated by initials or abbreviations in order to handle them with greater ease, some firms prefer to run the stock ledger on the numerical plan. By this plan each account is numbered and the accounts follow consecutively. Tabbed index sheets occur at intervals of from ten to twenty numbers, showing the location of any numbered account. With this arrangement it is necessary to keep a separate index of the various listed stocks, with their respective numbers, and to find an account the number of the stock must first be ascertained. By constant handling and entering, the bookkeeper becomes very familiar with the numbers and it is but little trouble for him to locate an account. The greater difficulty would be for someone who is unfamiliar with the books to find an account when wanted. Owing to this fact, the alphabetical arrangement is preferred.

=29. Customers' Ledger.= Brokers who deal in grain and other food products, cotton, and stocks, usually require ledger sheets slightly differing, to keep a record of customers' accounts. The different rulings are not frequently used for the same customer, as those who deal in grain are not often stock manipulators. As interest is charged to the customer for deferred payments upon stock deals, this item must be taken care of in the ledger. Upon grain transactions, the balance on the purchase price is not paid until the delivery of the goods, consequently there are no interest charges upon these accounts until after maturity.

Fig. 13 shows rulings of six ledgers used by prominent brokerage houses in Chicago and St. Louis, and a study of the different forms as to the columnar arrangement will show how varied are ideas in regard to ledger rulings. All of these forms are useful, and the choice is merely a matter of individual preference. One thing which should be borne in mind in regard to ledger rulings is that the information shown in the ledger account should be exactly the same as that which it is necessary to convey to the customer in his monthly or weekly statement. The reason for this is that it should never be necessary to refer to any book except the ledger in preparing customers' statements, and it will be noticed in the statement of Logan & Bryan, shown later, that it is not only a reproduction of the ledger account as to matter contained therein, but also follows it exactly in form and ruling.

This book is used the same as any other loose-leaf ledger with the exception that there is much more detail entered in these ledger accounts than is usual in a mercantile business.

Not more than one account should be entered on one leaf, for the reason that it is impossible to maintain a perfect alphabetical arrangement unless each account is absolutely independent.

After the names have been entered, the ledger sheets should be arranged alphabetically under each leather tabbed indexed subdivision. This arrangement should be carried, if necessary, to the fifth or sixth letter and when names are the same, like _Smith_, they are indexed alphabetically by initials. The brokerage business is one where there should be no loss of time in referring to accounts, hence the more perfect the indexing the more easily the account is located. Ledgers can be balanced daily by the aid of an adding machine without writing off the amounts of the balances.

The binders to use for this ledger are a current binder for active accounts and a transfer binder for closed accounts.

Postings should be made from the daily record sheet to the ledger as soon as possible after the consummation of the deal, and the postings from the cash book must also necessarily be kept up to date. At any moment the statement of the customer may be required, and it would be quite inconvenient for the broker if, on account of delayed posting, the statement were incomplete or incorrect. The number of customers' ledgers that should be kept depends entirely upon the number of customers. One loose-leaf ledger binder will accommodate at least five hundred accounts, and if the number exceeds this, two current binders should be used. By keeping the ledgers well gleaned and transferring closed accounts to a transfer ledger, the active accounts only remain in the current binder, which facilitates posting, statement making, and reference.

Some firms use the vertical filing drawer for transferred accounts instead of placing them in another binder, as it is much easier to secure these accounts for replacement in the current binder in case the account is reopened.

=30. General Ledger.= A general ledger should be kept for the personal accounts of members of the firm, controlling accounts of subsidiary ledgers, controlling account of bills receivable and bills payable, and all impersonal accounts. This book may be in loose leaf if desired, although many firms prefer to use a bound ledger for this purpose. The best form is the regular four-column ledger, debit, credit, debit balance, and credit balance, as in Fig. 14.

The periodical statement of the condition of the firm is taken from the general ledger, and all subsidiary books controlled through its accounts must balance with the amounts shown therein.

Most large brokerage houses have branches in different cities and it is necessary to keep accounts in the general ledger with each of these branches showing the expense of the branch and the receipts therefrom, taken from the regular statements furnished at whatever period required. It is very necessary that the profits or losses from these branches be readily computed as it might be deemed expedient, if it were known that the branch was not doing well, to discontinue it. Frequent statements, complete in their nature as to receipts and expenditures, should be demanded.

The principal expense accounts of a brokerage firm are salaries, rent, private telegraph wires, telephone booths, tickers, advertising, special commissions, and sundry expenses. As before stated, the receipts are from commissions and interest. Commissions accruing to brokers from the sale of stock are twenty-five cents per share—twelve and one-half cents for sales, and the same amount for purchases.

CUSTOMERS' STATEMENT

=31.= In a brokerage and commission business, customers are very likely to demand a statement at any time, and even should they not do so, it is deemed expedient to make statements to customers often enough to keep them fully posted regarding the condition of their accounts. The best form of statement to use for this purpose is shown in Fig. 15, and is an exact reproduction of the ledger account. As these statements are made very frequently it is unnecessary to provide blanks with more than nine or ten lines.

BILLS PAYABLE RECORD

=32.= Taking into consideration the large amount of money borrowed in this business, and the constant fluctuation of the amount due to banks, it will be seen that a careful, complete, and simple _bills payable record_ is a prime necessity. This usual record shows date of loan, call or time, from whom borrowed, to whose account, rate of interest, securities—amount, when paid; securities—when released. A more simple form of this record is shown in Fig. 16.

Loans made should be reported immediately to the cashier in writing, and the data concerning them should be entered at once in the cash book and the bills payable record. In some cases, banks arrange with the brokerage firm for what is called a _blanket loan_ varying in amount—from $100,000.00 upward—according to the requirements of the firm. In increasing a loan of this character it is always necessary to keep upon deposit with the bank, collateral amply sufficient to cover the highest amount required, and any part of this collateral may be withdrawn by the substitution of other collateral satisfactory to the bank. In such a case there should be a blanket loan account kept in the general ledger showing, specifically, the collateral in the hands of the bank, and by the system of debit and credit, the record of that withdrawn and that substituted should be kept.

In case there is sufficient fluctuation in values to warrant, a bank can demand additional security at any time or the withdrawal of that held by them and the substitution of something more acceptable, or they may, upon call loans, demand a part or full payment at any time, in which case it is necessary for the broker to make arrangements to take up the loan at once.

JOURNAL

=33.= All orders received are copied from the order blank into the journal, as the order blank used is not of a character to allow its being numbered and filed consecutively, nor can it be readily adapted to the division of the buying and selling accounts.

The journal sheet should have debit and credit columns for each ledger used for customers, and a general ledger column as shown in Fig. 17. Entries from the orders are carried into the proper ledger column. If a man buys stock, he is debited in the stock ledger column; if he buys grain he is debited in the grain ledger column; and if he sells either, he is credited in the proper column.

In making a statement to the customer of purchase and sale, the profit or loss together with the commission charged is shown.

CHECK REGISTER

=34.= Most brokers have accounts with several banks; it is therefore necessary that a _check register_ be kept with each bank, showing the date, number, to whom issued, amount of each check drawn, the deposits, and the daily balance, as in Fig. 18.

By using this register the account with each bank may be kept separately, and the necessity for filling out stubs in a check book entirely avoided. Many houses have given up the use of check books altogether, having their checks padded in numerical sequence and as the numbers follow consecutively on the check register, each numbered check must be accounted for. In case a check is spoiled, the line should be _voided_ in red ink, and the spoiled check filed with returned checks.

In case the _office cash_ carries an account for itself from which checks are made, a separate check register should be kept for this account, as its balance does not enter into the general cash balance of the firm.

In no just sense can a broker be held to be the owner of shares of stock which he purchases and carries for a customer, and it is a breach of trust to use this collateral to his own advantage. The certificate of shares of stock is not considered, according to the decision of the Supreme Court of the United States, property itself; it is but the evidence of the property in the shares.

To sum up, the accounting work in connection with the brokerage business is in taking care of the orders received from customers, being sure that they are correctly interpreted and promptly filled, noting the loans necessary to complete the contract, keeping a careful record of commissions and interest due the house, being watchful in regard to the margins of customers, and arranging all accounts with customers so that they may be kept up to date and instantly available.

GLOSSARY OF BOARD OF TRADE TERMS

=BEAR:= One who believes the conditions are ripe for a decline in prices, or one who desires such an event. One may believe that the price of a certain security is about to decline and therefore is said to be a _bear_ on that particular security, whereas he may not be so on others. The natural attitude of a _bear_ is that of a seller but he may be so for the sake of buying at a lower price later.

=BEARING THE MARKET:= An artificial lowering or forcing down of prices.

=BID PRICE:= The price offered or bid for any security or commodity.

=BORROWING STOCK:= A broker borrows stock when he has made a contract to deliver and the stock which he has sold, for any one of various reasons cannot be delivered at the time agreed.

=BREAK IN THE MARKET:= A sudden and considerable decline in price.

=BROKEN LOT:= Same as _odd lot_ in reference to stocks and less than ten thousand dollars par value in bonds.

=BUCKET SHOPS:= Offices run by irresponsible brokers not members of any stock exchange and who do a marginal business upon one dollar per share and upwards. As a matter of fact the stock itself is neither purchased nor sold for the customer by these operators. If the order is actually executed upon a _bonâ fide_ exchange then the _bucket shop_ puts in a contrary order for a like amount. For example: This kind of a dealer would sell an amount equivalent to a customer's purchase or purchase an amount equivalent to a customer's sale, thus, in no event carrying stocks.

=BULL:= One who believes that conditions are ripe for an advance in prices or one who desires such an advance and talks _bullish_ in consequence. One writer defines a bull as a man who has something to sell, consequently he is anxiously waiting for prices to go up that he may sell at a good price.

=BUY AT MARKET:= An order to buy at the lowest prices at which the security can be obtained without any price limit being set by the one giving the order.

=BUYER'S OPTION:= A contract under the terms of which the buyer of a security need not receive delivery until the end of a specified time, but he has the right to demand delivery at any time within the period covered by the contract by giving the seller one day's notice. The understanding is briefly expressed as "buyer 4," "buyer 10," the figures indicating the number of days provided for in the agreement.

=BUYING ORDER:= An order given to a broker to buy a certain security with or without limit as to price as the case may be. An order to buy is good for the date for which it was given only, unless otherwise specified. Sometimes an order is given "until countermanded" or "until cancelled" by which the broker understands that there is no definite limit as to time; but brokers usually remind their customers regarding orders to be sure that they still desire them to be kept in force.

=CABLES:= Telegrams from foreign countries on the conditions of the market. Large brokers receive cables each morning from London, Paris, and other points giving closing prices of grain and provision in that market.

=CALL:= A privilege which one party buys of another to _call_ (receive) from him a certain amount of stocks, grain, etc., at a certain price and date.

=CARRYING CHARGES:= The interest charged by brokers for the amount of money advanced by them to customers in marginal transactions; also used by a Chicago firm to indicate storage rates, interest, and insurance on grain or provisions.

=CASH GRAIN:= Grain for delivery at once. _Spot grain_ has the same meaning.

=COMMISSIONS:= The charge made by any broker for buying or selling securities for someone else.

=CURB:= Securities which are not traded in upon the large stock exchanges or new securities which have not yet been listed upon such exchanges are handled in what is known as the _curb market_. The reason for the existence of "curb market" in the open rather than in some building is that if the latter plan were pursued there would, in truth, exist another exchange, and it would not be permissible for a member of the regular exchange of the same city to be represented thereon as he frequently now is upon the _curb_.

=CURBSTONE BROKER:= One who usually, not being a member of the stock exchange, goes from office to office or transacts his business on the curb.

=DELIVERY:= The actual turning over to the buyer of the thing bought. If delivery is offered after hours, the buyer may refuse it until the following business day, but the seller has no right to demand interest for extended time.

=DIVIDEND:= A portion of the profit of a corporation authorized by the board of directors to be paid to the stockholders.

=DUMP:= An amount of stock that is forced upon the market for the purpose of getting rid of it. It does not mean so much the disposing of an undesirable investment but in offering any investment in large amounts.

=EVEN:= A broker is even on stock when he has contracted to receive and deliver equal amounts of the same stock with another broker. A settlement of the difference in prices is the only thing called for.

=FLURRY:= A small panic. An excitement caused by a rapidly falling market and advancing money rates.

=FUTURES:= Buying or selling grain for future delivery. Literally speaking when you buy grain in February which is known as _May grain_ you contract for delivery in May at prices then existing.

=IN SIGHT:= The amount of grain, coffee, cotton, tobacco, or any commodity available for immediate use.

=LIMIT:= A price which a broker must not exceed in executing an order for his customers. It may also be a restriction of the amount to be purchased or sold.

=LISTED SECURITIES:= Securities before they can be listed upon any board of trade or stock exchange must have complied with certain rules of the exchange. This does not imply that listed stock has any greater intrinsic merit than unlisted stock but it merely shows that certain facts and figures in relation to the security have been given more or less publicity.

=LONG:= One who holds stock or grain for a rise in price, or, one who has a contract under which he can demand such stock or grain on or before a certain day. The opposite of _short_.

=MARGIN:= An amount of money deposited with the broker to insure him against loss; a part of the purchase or selling price.

=O:= The "Ticker" abbreviation for _offered_ when accompanied by figures; for instance, "G. N. O. 76" would mean that Great Northern Common Stock was offered at $76.00 per share.

=OPEN MARKET:= A market where any or all may buy or sell.

=OPEN ORDER:= An order which is good until cancelled.

=OPTION:= An agreement of purchase or sale, good only for a certain time.