Part 3

COMBINED ORDER AND SALES RECORD

=17.= Instead of keeping separate order and sales books, both records may be combined on one blank. This is accomplished by the use of order blanks provided with columns for the distribution of sales to the different departments. Before the order is filled these blanks are handled in the same manner as those without distribution columns. When filled, the amounts are extended in the proper columns and the invoice made. The orders are then filed in a binder, each day's orders being kept together, and postings made direct to customers' accounts. The footings are carried forward to the end of the month and totals posted to sales accounts. The original orders thus become a loose leaf sales book.

ABSTRACT OF SALES

=18.= When the order blank is used as a sales record, making a sales book with a record of a single sale to a sheet, it is somewhat inconvenient to determine from the footings the total sales for the day. This information is of considerable value, as a knowledge of what is being done from day to day is of importance to the principals of a business. Such a record is provided for by an abstract of sales on a separate sheet. This abstract should show total sales for each day, both cash and on account, divided by departments.

The blank may be made the same size as the order blanks, and filed in the sales binder at the beginning of the month. Sales are recorded daily and footings carried forward to the end of the month, when the totals may be posted direct to the credit of the sales account in the general ledger. The totals of sales on account will be posted to the debit of the sales controlling account in the general ledger.

OUT FREIGHT

=19.= The proper treatment of freight paid on outgoing shipments is an important question in accounting. When goods are sold at delivered prices, the freight paid is one of the items of expense in selling the goods, and when the books are closed the account will be closed into profit and loss. However, in a wholesale business, freight is sometimes paid as an accommodation to the customer when the goods have been sold at f. o. b. prices. Although the amount should be added to the invoice it should not be credited to the sales account as this would be taking credit for a fictitious trading profit. Such an item should be made a special charge against the customer by means of a journal entry.

Customer Dr. Out Freight Cr.

SALES EXPENSE

=20.= In a wholesale or manufacturing business it is very desirable that the exact cost of selling goods be known. Broadly, this cost is covered under the general head of sales expense, but this is usually divided into several classes of expenditures. The segregation of the various items of sales expense is desirable for the purpose of determining the percentage of each. The items which properly belong in sales expense depend somewhat on the nature of the business. For example, traveling expenses are usually a direct sales expense, but in some businesses they may be chargeable to the cost of purchases. The items entering into sales expense of the average business are: advertising, salaries of salesmen, traveling expenses of salesmen, commissions paid on sales, cost of packing and shipping, out freight.

=21. Advertising.= This account should be charged with all expenditures for publicity such as newspaper, magazine, street car, and bill board advertising, cost of printing catalogs, booklets, and circulars. Where there is any reason for so doing, the cost of the different classes of advertising can, of course, be kept in separate accounts. The aim and object of advertising being to increase the sale of goods, it is properly considered an item of sales expense.

=22. Salaries of Salesmen.= This account is charged with all salaries paid to salesmen whether traveling or working in the house. Commissions and bonuses are sometimes included in this account, but it is usually considered best to keep them in separate accounts.

=23. Traveling Expenses of Salesmen.= This account is charged with all legitimate traveling expenses of salesmen, the specific items included depending largely on the nature of the business. For example, in some businesses a liberal allowance is made for the entertainment of customers, while in others this item is never allowed. In any business the traveling expense account requires careful scrutiny. Salesmen should be required to furnish an itemized statement or voucher of expenses at stated intervals. For convenience, this should be made on a form specially provided for the purpose. One of the most convenient and popular expense vouchers is in the form of a book of a convenient pocket size, with a page for each day of the week and a summary of the week's expenses on the last page.

=24. Packing and Shipping.= This account is charged with the entire cost of packing goods for shipment. It includes such items as wages of shipping clerk and his assistants, crates, lumber, boxes, and all other packing materials.

TRIAL BALANCE BOOK

=25.= To save rewriting the names of the accounts each month, a trial balance book can be used to good advantage. These books are made to accommodate six trial balances on a double page, and are sometimes made with alternate short leaves so that twelve trial balances may be made with one writing of the names. When the trial balance book is used, care must be exercised in providing space for the addition of new accounts in each section. Where separate sales and purchase ledgers are used, it is best to provide a trial balance book for each ledger.

THE CHECK REGISTER

=26.= Large check books are cumbersome to handle and necessitating the expenditure of much needless labor. Their use is rapidly giving way in modern offices to the check register. The check register has several distinct advantages. It exhibits, in compact form, a record of all checks issued and can also be arranged to show deposits and balance in the bank. Distribution columns can be provided with headings for the different expenditure accounts, which makes of the check register a cash expenditure book. The form should be varied to suit the business in which it is to be used. A typical form is illustrated on page 37.

=27. Checks in Pads.= When the check register is used it is the usual custom to have checks put up in pads. After the check is written, it is registered and numbered to correspond to the register number. With the use of padded checks, it is not necessary for the clerk who writes the check to know anything about the bank balance.

CASH RECEIVED BOOK

=28.= A cash book specially ruled for a record of cash received is used to supplement the check register or cash expenditure book. Columns are provided for the different classes of receipts, with one credit column. It is assumed that all cash received is deposited, payments being made exclusively by check. This does not refer to petty cash expenditures which should be kept in a petty cash book or on envelope vouchers.

SAMPLE TRANSACTIONS

=29.= The following transactions illustrate the use of the special blanks and books described.

D. A. Hall employs H. D. Snyder as traveling salesman for the purpose of increasing his business, agreeing to pay him a salary of $150.00 per month and expenses. He commences work on Feb. 11th. The amounts in the ledgers stand as shown in the last model set illustrated and these transactions are recorded:

—Feb. 11th.— Paid Altman & Sons To balance account Ck. No. 9 $350.00

—11th— Paid Garson & Co. To balance account Ck. No. 10 175.00

—11th— Sold to Daniels & Dean, Boone, Ia. 10 men's suits $7.50 $75.00 10 men's suits 6.75 67.50 20 boys' suits 2.00 40.00 ------ 182.50 Terms 2/10 N/30

—11th— Sold to A. C. Petersen, Nevada, Ia. 10 men's overcoats 8.50 85.00 10 men's suits 7.00 70.00 ------ 155.00 Terms 2/10 N/30

—11th— Received from D. A. Marcus & Son Cash 139.65 Discount 2% 2.85

—11th— Sold for cash 20 boys' suits 1.75 35.00 20 men's pants 2.00 40.00

—12th— Received from John Gorham Cash 132.30 Discount 2% 2.70

—12th— Sold to Henry Cook, Iowa Falls, Ia. 5 men's suits 8.00 40.00 5 men's suits 5.75 28.75 5 boys' suits 2.00 10.00 5 boys' suits 1.75 8.75 ------ 87.50 Terms 2/10, N/30

—12th— Sold to James Adams, Dennison, Ia. 15 men's suits 7.00 105.00 Terms 2/10, N/30

—12th— Received from Geo. Golden Cash $150.00

—13th— Sold to D. A. Marcus & Sons 10 men's pants 2.00 20.00 10 boys' suits 1.75 17.50 ------ 37.50 Terms 2/10, N/30

—13th— Paid freight on shipment to Henry Cook Ck. No. 11 3.65 Charge to Cook

—13th— Deposited cash 824.45

—13th— Sold to S. H. Allen, Mason City, Ia. 30 men's pants 1.75 52.50 Terms 2/10, N/20

—14th— Paid Adler & Co. Ck. No. 12 303.12 Discount 9.38

—15th— Sold to Marx & Sons, Charles City, Ia. 10 boys' suits 2.00 20.00 10 men's suits 7.00 70.00 ------ Terms 2/10, N/30 90.00

—15th— Received from H. A. Branch Cash 52.50

—15th— Received from Larson & Anderson Cash 78.75

—16th— Paid H. D. Snyder 1 week's salary $37.50 Ck. No. 13

—16th— Paid H. D. Snyder Traveling expenses 17.65 Ck. No. 14

—16th— Deposited cash on hand 131.25

—16th— Paid D. E. Jenkins For cartage on shipments 2.50 Ck. No. 15

EXERCISE

1. Prepare a trial balance of the ledger as it would appear after posting these transactions.

2. Assuming that gross trading profits average the same per cent of selling prices as in former transactions of this business house, find approximate inventory at close of business Feb. 16th.

3. Prepare trading and profit and loss account, based on this inventory.

COMMISSION AND BROKERAGE BUSINESS

=30.= Commission or brokerage is the business of buying and selling goods for another. The commission merchant or broker acts in the capacity of agent, charging a stated per cent or commission for his services.

Certain commodities are sold on the market at the best prices obtainable, the prices depending upon the condition of the market—the supply and demand. Since it would be both inconvenient and unprofitable for each seller to accompany his own wares to market, he avails himself of the services of the commission merchant. The class of goods most largely dealt in by commission merchants is farm produce, shipped to the cities by both producers and country dealers.

The practice of shipping produce to the broker to be sold on commission is gradually falling into disuse. As the business is now conducted, the commission merchant buys the produce outright and takes his own chances of making a profit, and thus his business becomes also that of a wholesaler.

MERCHANDISE BROKER

=31.= Certain classes of merchandise are marketed through the medium of brokers styling themselves merchandise brokers. Their business is usually transacted on a larger scale than that of the ordinary commission merchant. The merchandise broker sells in large quantities—as salt by the car load.

The distinction between the commission merchant and the broker lies in the fact that the commission merchant has the goods to be sold actually in his possession, while the broker acts as agent for the purchase and sale of goods which he does not actually handle.

MANUFACTURER'S AGENT

=32.= One distinct class of brokers is the sales agent or manufacturer's agent. He is a broker who sells goods for the manufacturer, usually by sample. As a rule the manufacturer sets the prices and determines the terms of credit. The goods are sold in the name of the manufacturer who carries the accounts on his books, paying the agent a commission for his services. In some cases, however, the manufacturer's agent maintains his own warehouse, issues a warehouse receipt for the goods which are shipped to him, and even advances money to the manufacturer. He then becomes virtually a commission merchant. He holds the goods as security for the money advanced, and, when sold, collects the money and remits the balance of the net proceeds the same as the ordinary commission merchant.

SHIPMENTS

=33.= When a principal sends goods to a commission merchant or broker to be sold on commission, it is called a shipment. As soon as the goods are sent, an account is opened with the shipment, and the shipment is designated by the name of the consignee, a number, or the name of the place—as _Shipment to Richard Roe_. If more than one shipment is made to a commission merchant an account should be opened for each one in order that the gain or loss can be determined for individual shipments. The separate accounts should be designated by number—as Richard Roe, shipment No. 2.

The shipment, when made, is entered in the same way as a sale, and the items are charged at cost price. The account is also charged with any expense incurred on account of the shipment. When the Account Sales is received, the account is credited with the net proceeds. It now shows either a profit or a loss which is transferred by a journal entry to an account called _Profit and Loss on Shipments_. This account is, in turn, closed into profit and loss when the books are closed.

If at the time of closing the books there are any outstanding shipments on which Account Sales have not been received, the debit balances represent assets the same as inventory of merchandise on hand.

=34. Agents' or Factors' Account.= If the Account Sales, when received, is accompanied by a remittance to cover net proceeds, cash is debited and the shipment account credited for the amount. When a remittance is not received with the Account Sales, the shipment account is credited with net proceeds and the amount is charged to a new account opened in the name of the consignee as _Agent_ or _Bailee_ or _Factor_—as _Richard Roe, Agent_, or _Richard Roe, Bailee_, which is treated as a personal account. This does not mean that Richard Roe is a debtor in the ordinary sense of the term, but that he holds funds in trust; and in case of his failure, the shipper could recover full value instead of being obliged to accept his pro rata share of the assets.

A CONSIGNMENT

=35.= When a broker receives a shipment of goods to be sold on commission, it is known as a consignment. He opens a memorandum account by entering a list of the goods, but without extending any amounts. He has not purchased the goods, but simply holds them for sale as agent of the shipper. If there are any charges against the consignment, as freight, cartage, or storage charges, an account is opened in the name of the consignor. The title would be _John Doe's Consignment_, and if more than one consignment is received from John Doe a separate account is opened for each. This account is debited for all charges, and as sales are made they are credited to the account. When all of the goods have been sold, the broker renders the consignor a statement, known as an Account Sales, showing sales, expenses, and net proceeds.

If, when the books are closed, there are on hand any consignments, or parts of consignments, unsold, the consignment accounts are left open and represent either assets or liabilities. If expenses have been debited and no sales credited, the account will show a debit balance representing an asset. If sales have been credited in excess of the expense charges, the credit balance will represent a liability. When an Account Sales has been rendered, the account will balance, the net proceeds having been either remitted or credited to the consignor.

=36. Principal's Account.= If the broker remits the net proceeds at the time of rendering the Account Sales, he debits the consignment and credits cash, or bills payable as the case may be. But if he renders an Account Sales without remitting, he opens an account with the consignor, as _John Doe, Principal_, or _John Doe, Bailor_, and credits the account with the net proceeds, debiting the consignment account. The title of the account shows that he is not an ordinary debtor to John Doe, but that the amount of the credit represents funds belonging to John Doe and held in trust by the broker. In case of his failure the account of John Doe, Principal, would have to be paid before the claims of ordinary creditors.

=37. Commission Account.= All sums received by the broker for services rendered in connection with the sale of goods for a shipper are credited to a commission account. When the books are closed this account is closed into profit and loss.

PRODUCE SHIPPER'S BOOKS

=38.= The most common branch of the commission business is that of shipping and selling produce. The books used vary somewhat from those used by a manufacturer's agent selling to jobbers, but the principles are the same.

Sometimes the same man conducts both the business of shipper and broker, buying certain goods which he in turn ships to other brokers to be sold for his account. In the produce commission business, however, the shipper is usually a buyer, located in the country, who buys produce from the farmer and ships to a commission merchant in the city.

The books required by the shipper are _purchase book_, _shipment book_, _shipment ledger_, _cash book_, _journal_, and _general ledger_.

=39. Purchase Book.= This book is of the same form as used in other businesses, with as many columns as may be desired to separate purchases of different classes of produce.

=40. Shipment Book.= This is the book of original entry for shipments in which each shipment is recorded in detail, showing each item, with prices (usually at cost) extended. The book can be ruled with columns for segregating shipments of different classes of produce. The total of each shipment is posted to the debit of the individual shipment account in the shipment ledger. The footings of the columns are carried forward to the end of the month when they are posted to the credit of shipment accounts in the general ledger. These general ledger shipment accounts are opened for each class of produce for which a separate record is desired, and correspond to the sale account of a mercantile business.

At the end of the month the total of all shipments is posted to the debit of a controlling account in the general ledger known as _shipment ledger account_.

If more than one class of produce is shipped to an agent at the same time it is best to make invoices for each, treating them as independent shipments. Each package should bear a number or other mark by which it can be identified as belonging to a particular shipment.

=41. Shipment Ledger.= An ordinary ledger can be used or a special form prepared. Since the debit side of the account will require much the greater amount of space, special forms are quite desirable. A convenient form is illustrated on page 55.

=42. Cash Book.= Tabular cash books with special arrangement of the column headings are used. The special features are the column on the credit side headed _shipment expense_, and the debit column headed _shipment ledger_. The shipment expense column is for the expenses paid on each shipment. Expenses are posted direct to the debit of the individual shipment accounts, and at the end of the month the total expense is posted to the debit of the shipment ledger controlling account. The shipment ledger column is for net proceeds remitted with account sales. The amounts are posted to the credit of shipment accounts, and the total is posted at the end of the month to the credit of shipment ledger controlling account.

The sundries column is for receipts other than remittances with account sales—as payments by agents who have not remitted with account sales.

=43. Shipment Ledger Account.= This is the controlling account of the shipment ledger. It is charged with total shipments through the shipment book; with advance expenses through cash book or journal; credited with net proceeds through cash book or journal. It must also be charged with profits on shipments, or it will not represent the total balance of shipment ledger.

When net proceeds are credited, the individual shipment account should be charged, through the journal, with the net profit, which is credited to _Profit and Loss on Shipments_. A special credit column is provided in the journal for profits, or if a record of profits on each class of produce is desired, two or more columns are provided. Monthly totals are posted to the credit of profit and loss on shipment account, or to more than one such account—as _profit on poultry_, _profit on butter and eggs, etc._ The total of all profit columns, which represents debits to shipment accounts, is charged to shipment ledger account.

It is to be supposed that losses will be few, and when one is incurred the entries should be made through the journal. The amount will be charged to profit and loss on shipment account and credited to both the individual shipment account and shipment ledger account.