Part 4

=44. Journal.= As already explained, the journal should be provided with extra columns for profits on each class of shipment.

When an agent transmits an account sales without a cash remittance, the transaction must be journalized to close the shipment account. When proceeds are to be charged to his account, the entry is:

Dr. Cr. Cr. Richard Roe, Agt. $160.00 To Shipment Ledger Richard Roe Shipment No. 1 $160.00 Richard Roe, Shipment No. 1 18.00 To Profit and Loss on Shipments $18.00

If a note to cover net proceeds is received, the entry is the same except that Bills Receivable is debited instead of Richard Roe, Agt.

When a loss is incurred the entry is:

Dr. Profit and Loss on Shipments $18.00 To Shipment Ledger Account Richard Roe Shipment No. 1 $18.00

and postings will be made direct to all accounts affected.

TREATMENT OF ACTUAL SALES

=45.= The shipper may sell a portion of his produce outright, and if a large share of his business is transacted in this manner, sales can be treated exactly the same as though he was not engaged in a commission business, with separate sales book and sales ledger.

Most shippers, however, will not find it necessary to segregate sales to this extent. Sales can be charged to shipment accounts in the shipment ledger, but will of course be charged at a profit, and credited to shipment account in general ledger. Payments on these accounts will be entered in the cash book as net proceeds.

SHIPPER'S TRADING ACCOUNT

=46.= The trading account of the shipper is made up somewhat differently than for a mercantile business where all sales are supposed to be entered at a profit.

If all his produce is sold through commission merchants, and the inventory of produce in stock exactly equals the difference between purchases and shipments, the account, _profit and loss on shipments_ represents the trading profit. But this state of affairs seldom if ever exists. Either there will have been outright sales or a discrepancy will appear in the inventory. The latter is usually the case in a produce business, for some value will be lost owing to the perishable nature of the goods handled.

The trading account is charged with all purchases and inventory, if any, at beginning of the period, and credited with all shipments and inventory at end of period.

The trading account now exhibits the true trading profits with a complete segregation of profits from actual sales and commission sales. The inventory does not include outstanding shipments, these being treated as a separate item in the balance sheet.

TRADING a/c

════════════════════╦═══════╤══╦════════════════════╤═══════╤══ To Purchases ║$10,000│00║By shipments │ $9,000│00 ║ │ ║ │ │ Profit on Sales ║ 465│00║ " Inventory │ 1,465│00 ────────────────────╫───────┼──╫────────────────────┼───────┼── ║$10,465│00║ │ │ ════════════════════╬═══════╪══╬════════════════════╪═══════╪══ ║ │ ║ By Profit on Sales│ $465│00

SAMPLE TRANSACTIONS

=47.= The following transactions, taken from the books of John Doe, shipper of poultry and butter and eggs, illustrate the books and accounts used.

—Nov. 1, 1908—

Commenced business with a cash investment of $1,000.00

—1st—

Bought for cash 200# chickens @ .11½ 23.00 100# ducks @ .13 13.00

—1st—

Bought from Henry Meyers 400# turkeys @ .16 64.00

—2nd—

Shipped to Richard Roe, to be sold on my a/c 220# chickens @ .11½ 25.30 98# ducks @ .13 12.74

—2nd—

Ctg. and Exp. on above paid in cash 2.25

—3rd—

Bought for cash 100 cs. eggs, 3,000 doz. @ .16 480.00

—3rd—

Shipped to Richard Roe to be sold on my _a/c_ 95 cs. eggs, 2,850 doz. @ .16 456.00

—3rd—

Sold to Johnson & Sons on _a/c_ 5 cases eggs, 150 doz. @ .20 30.00

—4th—

Shipped to Richard Roe to be sold on my a/c 200# turkeys @ .16 $32.00

—4th—

Paid freight on eggs to Roe 2.98

—4th—

Paid freight on turkeys to Roe 1.80

—5th—

Received from Richard Roe Account Sales for Shipment No. 1 Net proceeds remitted in cash 47.73

—6th—

Received from Richard Roe Account sales for shipment No. 2 Net proceeds retained by him 518.12

—6th—

Paid for labor cash 9.00

EXERCISE

=48.= On a certain date a trial balance of the ledger of Henry Donnely, shipper of produce, stood as follows:

DEBITS

Purchases of apples $1,264.00 Purchases of potatoes 1,500.00 Shipment Ledger Account 736.00 Cash 450.00

CREDITS

Shipment Account—apples 1,200.00 Shipment Account—potatoes 1,200.00 Profit on Shipments—apples 250.00 Profit on Shipments—potatoes 350.00 Accounts Payable 950.00

During a subsequent period, his transactions were as follows:

Cash purchases of apples 1,000.00 Cash purchases of potatoes 1,000.00 Shipments of apples 900.00 Shipments of potatoes 1,100.00 Profits on apples 100.00 Profits on potatoes 200.00 Account Sales for which cash was received 1,800.00 Account sales charged to Agts. 600.00 Shipment Ledger Account decreased 100.00 Sundry expenses paid in cash 50.00

Inventory at end of period Apples 210.00 Potatoes 190.00 400.00

Prepare trading and profit and loss accounts showing net profits or losses on both apples and potatoes for the entire period represented by the accounts.

COMMISSION MERCHANTS' BOOKS

=49.= The books required by a produce commission merchant are _receiving book_, _cash book_, _consignment ledger_, _sales book_, _sales ledger_, _journal_, and _general ledger_. If he buys produce to be sold on his own account, he also requires a _purchase book_ and _purchase ledger_.

=50. The Receiving Book.= This is usually a rough blotter with ordinary day book ruling, though some merchants use special forms.

When a consignment is received it is given a lot number and entered in this book in the name of the shipper, but without extending the amounts. If any expenses have been incurred, an account is opened immediately in the consignment ledger in the name of the shipper.

=51. The Cash Book=. On the credit side of the cash book, under the general heading _consignment ledger_, are three columns, headed _net proceeds_, _expense_, and _commission_. The commission column is a memorandum column only, the total being posted, at the end of the month, to the credit of commission account in the general ledger.

Net proceeds, expense, and commission on each consignment are posted as separate items to the debit of that particular consignment account. At the end of the month, the total of these three columns is posted to the debit of consignment ledger account in the general ledger.

=52. Sales Book.= The sales book is provided with special columns for sales and consignment sales. The sales column represents sales of the merchants' own goods, the totals being posted at the end of the month to the credit of sales account in the general ledger and to the debit of the sales ledger account.

The consignment sales are listed by lot number and posted to the credit of the consignment accounts. As the lot numbers run consecutively in the receiving book, this furnishes an index to the consignment accounts. The totals of the consignment sales columns are posted to the credit of consignment ledger account, and the consignment ledger column is posted to the debit of sales ledger account.

=53. Consignment Ledger.= This ledger contains accounts with every consignment received. The accounts are _charged_ with expenses, net proceeds, and commissions from the cash book, and _credited_ with sales from the sales book. If a remittance is not sent with the Account Sales, the necessary entry is made in the journal, charging both consignment account and consignment ledger account and crediting the shipper as principal—or bills payable account when a note is sent.

=54. Consignment Ledger Account.= This is a controlling account which receives its debits and credits from the same sources as do the consignment accounts. Except in the case of journal entries, totals only are posted at the end of the month.

PURCHASE AND SALE OF OWN GOODS

=55.= When the commission merchant is also a wholesaler, the purchases and sales are treated on the books exactly as they would be if he was not a commission merchant. The books and accounts required are the same as those of any other wholesale merchant.

SAMPLE TRANSACTION

=56.= The following transactions include the shipments used in the last model set, but treated from the standpoint of the commission merchant.

—Nov. 3, 1908— Received from John Doe to be sold for his account: 220# chickens 98# ducks Lot No. 1

—4th— Received from John Doe to be sold for his account 95 cs. eggs, 2,850 doz. Lot No. 2.

—4th— Sold for cash 100# chickens (Lot 1) @ .16 $16.00

—4th— Sold to Sweet & Co. on a/c 110# chickens (Lot 1) @ .16 17.60

—4th— Sold for cash 100# ducks (Lot 1) @ .17¼ 17.25

—4th— Paid expense on lot #1 $1.60

—4th— Rendered Account Sales, with remittance for Lot #1, commission 3%

—5th— Sold for cash 20 cs. eggs., 600 doz., @ .18 (Lot 2) 108.00

—5th— Sold to Gaston & Co., 156 Hammond St. 20 cs. eggs., 600 doz., @ .20 (Lot 2) 120.00

—5th— Sold to Francis & Gates, 948 37th St. 30 cs. eggs, 900 doz., @ .19 (Lot 2) 171.00

—5th— Sold to H. B. Niles, 364 Fuller Ave. 25 cases eggs, 750 doz. @ .19 (Lot 2) 142.50

—5th— Paid expense on Lot #2 7.13

—5th— Rendered account sales for Lot #2, commission 3%, crediting amount to shippers' account.

—5th— Received from John Doe to be sold for his account 200# Turkeys Lot #3

—5th— Paid expense on Lot #3 1.25

EXERCISE

=57.= During a certain period a commission merchant transacted the following business:

Purchased goods on his own account $3,000.00 Sold goods on commission 5,000.00 Sold his own goods 2,500.00 Commissions earned 150.00 Received cash for goods sold 6,250.00 Paid expenses on consignments 37.50 Rendered account sales with which cash was remitted to cover net proceeds 2,712.50 Rendered account sales on which net proceeds were credited to the account of principals 2,000.00 Paid cash on account of goods purchased 2,200.00 Paid cash for sundry expenses 75.00 Inventory of goods owned at the close of the period 800.00

Prepare trading and profit and loss accounts and balance sheet.

STORAGE

=58.= Storage, as here used, is the business of furnishing storage for merchandise on its way to market until such time as it is sold and delivered to the purchaser. The source of supply and customs of the trade in certain classes of merchandise render the question of storage an important one. This is particularly true of the grain trade. Large buyers of grain, located in important distributing centers which have become the principal grain markets owing to their manufacturing or transportation facilities, locate their buyers in the grain producing sections to buy grain from the producers. At these points are located small grain handling plants or elevators, where the grain is received from the farmers and shipped to the distributing centers.

Here, extensive storage facilities must be provided, that these shipments, aggregating enormous quantities of grain, may be held until the condition of the market is favorable for selling. If it were not for this custom of storage it would be necessary to market all of the grain—except the small quantities stored by the farmers—soon after harvest, which would result in lowering prices to all concerned, from the farmer up.

These conditions have resulted in the organization of warehousing companies to provide storage for the owners. When grain, or other classes of merchandise, is received for storage a warehouse receipt is issued, and the merchandise will not be delivered without the presentation of the receipt. Warehouse receipts are negotiable and since they are evidence of the ownership of certain merchandise stored in a warehouse, bankers will loan money to the owner and accept the warehouse receipt as security.

Manufacturers and jobbers of certain products also find it necessary to store large quantities of their wares at distributing centers that they may promptly supply the trade. Another reason for this practice is a financial one. When a manufacturer exchanges his wares for a warehouse receipt, he can immediately borrow on its security, thus securing capital to carry on his business until the regular selling season for his particular product.

The merchandise broker and manufacturers' agent sometimes have their own warehouses and combine the business of buying and selling with that of storage and, if they possess sufficient capital, advance money to the manufacturer.

Perishable products handled by the produce commission merchant are also stored in cold storage warehouses, both to preserve them and to hold for more favorable market conditions.

STORAGE ACCOUNTS

=59.= Storage charges are usually based on a 30 day period, though sometimes for shorter periods, and any period less than a full month is charged for at the 30 day rate.

The storage is frequently charged for the exact time that goods are in the warehouse, that is, the amount is figured for each amount withdrawn. The following example demonstrates this, storage being charged on each quantity withdrawn at the rate of 10c per case per month.

════════════════════╤═══════════════╤═════╤════╦═══════ Received │ Delivered │Time │Rate║Amount ────┬──┬────────────┼────┬──┬───────┼─────┼────╫────┬── Nov.│15│600 cs. eggs│Dec.│10│100 cs.│1 mo.│10c ║ 10│00 │ │ │ │ │ │ │ ║ │ │ │ │Jan.│ 6│300 cs.│2 mo.│20c ║ 60│00 │ │ │ │ │ │ │ ║ │ │ │ │Feb.│14│200 cs.│3 mo.│30c ║ 60│00 ────┼──┼────────────┼────┼──┼───────┼─────┼────╫────┼── │ │ │ │ │ Total │ │ ║ 130│00

This is known as simple storage.

Another method is to charge storage for the average time at a given rate per month of 30 days. This method is most commonly used when receipts and deliveries are frequent, and is called average storage. The following example demonstrates the method.

═══════╤════════╤══════════╤═══════╤══════╤═════════════ DATE │RECEIPTS│DELIVERIES│Balance│ Time │ QUANTITY │ │ │ │ │ STORED FOR │ │ │ │ │ ONE DAY ────┬──┼────────┼──────────┼───────┼──────┼───────────── Nov.│15│600 cs. │ │600 cs.│15 da.│ 9,000 cs. Nov.│30│200 " │ │800 " │10 da.│ 8,000 " Dec.│10│ │100 cs. │700 " │27 da.│ 17,900 " Jan.│ 6│ │300 " │400 " │39 da.│ 15,600 " Feb.│14│ │200 " │200 " │10 da.│ 2,000 " Feb.│24│ │200 " │000 " │ │ ────┼──┼────────┼──────────┼───────┼──────┼───────────── │ │800 │800 │ │ │30)52,500 Average for 1 mo.│ 1,750 1,750 cs. @ 10¢ $175.00 (Amt. of charges)

SPECIAL RECORDS REQUIRED

=60.= One of the most important records required is a storage record showing receipts and deliveries. A special form is necessary and should be adapted to the requirements of the particular class of storage business in which it is to be used.

The form illustrated is typical in that it provides for a record of storage of any class of goods handled in packages. The storage charges are always shown so that a statement of the account can be made at any time. At the end of each month the storage charges extended during the month are debited, through the journal, to the personal accounts of the owners. The total of all such storage charges is credited to a _storage account_ in the general ledger.

When there are frequent receipts and deliveries, the owner should be given a detailed statement showing all changes in quantities and storage charges. Such a statement should be a transcript of the storage record. The form illustrated answers the requirements of simple storage.

SINGLE ENTRY BOOKKEEPING COMPARATIVE STATEMENTS[3]

SINGLE ENTRY BOOKKEEPING

=1.= To this point all of the discussions in this work have related to the double entry system of bookkeeping, and all demonstrations have been carried out according to that system. The reason for this is that double entry is the best and the only satisfactory method of bookkeeping; it is the only method that fulfils the important function of bookkeeping by furnishing a true record of the results of all business transactions.

Footnote 3:

_Copyright, 1909, by American School of Correspondence._

It might appear that instruction in keeping books by the single entry method has no place in a modern treatise on bookkeeping; and if our purpose were to teach single entry as a method to be used, this would be true.

_Single entry bookkeeping is not recommended as a method to be used in any business._

The only reason for introducing single entry is to show the student how to change a set of books from the antiquated single entry to a modern double entry system. Though inadequate, single entry is still used to some extent. It is more commonly found in small retail establishments, but occasionally encountered in the offices of corporations and manufacturing enterprises. The bookkeeper who is called upon to fill a position where this method is used must know how to keep books by single entry, that he may more clearly demonstrate the advantages of the double entry method.

When the advantages of double entry are demonstrated, few employers will object to a change from single entry. In most offices where single entry is still used, the reasons which have prevented a change may be summed up as ignorance of the double entry method, or a fear that double entry will increase the work without a corresponding benefit. This latter idea is a misconception inherited from the days of the old time bookkeeper, who considered it necessary to laboriously journalize every transaction. While it may have possessed some merit at that time, it is no longer true. Modern ideas, improved forms of account books, labor saving devices, and short cuts without number have reduced the labor of bookkeeping to a minimum, and if any attempt at a proof of accuracy is made, double entry actually requires less labor than single entry.

=2. Distinctive Features of Single Entry.= The distinctive feature of single entry is that only personal accounts are kept. When goods are sold or purchased, records are made of the transactions as they affect the persons to whom sold or from whom purchased. The records do not show the increase or decrease of any specific form of assets, like merchandise, for no property accounts are kept. An account is usually kept with cash, but this approaches double entry, for when a person pays money to the business, cash is debited and the person credited; and when money is paid out, cash is credited and the person debited.

Sometimes, in a set of books otherwise kept by single entry, such accounts as merchandise, expense, and real estate are found, but when such accounts are introduced the books begin to take on double entry features.

=3. Books Used=. The principal books of a single entry set usually consist of day book or journal, cash book, and ledger. Both the day book and cash book are books of original entry, from which transactions are posted direct to the ledger. Auxiliary books used are order book, bill book, and check book.

The day book or journal is the familiar two-column form, the left-hand column being used for debits and right-hand column for credits.

The _cash book_ has two columns on each page, and these columns are used to separate the items affecting personal accounts, which are to be posted, and all other items, none of which are posted. See illustration.

The _ledger_ is the same form as used in the double entry method.

The _order book_ is usually the regular two-column journal form. In retail businesses it is used as a principal book, transactions being posted from it to the ledger. Sometimes the first column is used for prices, the extensions being made only when the order is filled.

The _bill book_ is quite essential in a single entry set for the reason that no Bills Receivable and Bills Payable accounts are kept in the ledger.