Part 8

In certain lines of business a record of quantities of different kinds of merchandise sold is of almost equal value to records of values. Examples are—wholesale coal business, in which records are kept of quantities and values of different grades and sizes or the product of different mines; lumber, in which sales are divided as to lumber, lath, shingles, sash, and doors; wholesale paper, in which some of the divisions are book, flats, bonds, cover, etc. A sales book designed for a business of this class is shown in Fig. 25 _a._ This is arranged for a record of sales in a coal business, segregating sales of the product of each of three mines.

There are businesses in which returns and allowances are so frequent as to constitute an important item in the record of transactions. Such cases demand special columns in either journal or sales book. Another condition occasionally met with is where purchases are frequently made from customers, resulting in accounts in both ledgers. This requires journal entries to adjust the accounts, but instead of making these in the regular journal, special columns can be provided for the purpose in the sales book. Fig. 25 _b._ illustrates a sales journal with columns for returns and allowances, and columns for purchase adjustments. The total of these adjustment columns are posted to the sales ledger controlling account.

_Sales recapitulations_ are of very great importance in department stores and similar businesses where it is desired to ascertain the total sales of each sales person as well as the result by departments. In Fig. 25 _c._ is shown a sales recapitulation sheet arranged for daily records of sales of each clerk and of each department. All sales tickets are lettered or numbered to indicate the clerk, and at the end of the day these tickets are tabulated by numbers. One of these recapitulation sheets is used for a month's record, and it can of course be designed to accommodate as many departments and clerks as there are in the establishment. Recapitulation sheets arranged on this plan are found very convenient in many lines other than department stores.

PAY-ROLL RECORDS

=28.= The designing of pay-roll records to meet the special conditions in the great variety of manufacturing industries, offers a wide field for the ingenuity of the bookkeeper or accountant. Where all employes are paid a stated wage and their employment in one department is continuous, the problem is a simple one, resolving itself into a mere record of the number of hours worked each day, the rate, and the amount due. But this condition seldom exists.

In most industries more complex problems are encountered. The same employe may be called upon to work in more than one department during a pay-roll period, or he may do several different kinds of work in the same department. In either case the form for the record must be so constructed as to furnish complete information relative to the cost of the different classes of work. Elaborate systems for gathering records of time on each detail of the work are employed in most modern factories, and the pay-roll record or time book is arranged for a consolidation of these detailed records.

Fig. 26 illustrates a form used in one factory for a distribution of time records where men are employed on different kinds of work in different departments, and on both day wage and piece work plans. In this form provision is made for the record in each department, and each day's record is divided between time and piece work. Several lines are set aside for each employe, so that the record will be complete for each kind of work. At the extreme right, department totals are extended. These are quickly calculated for the reason that while an employe may do different kinds of work and in different departments the same operation is not performed in more than one department. To provide for records of more kinds of work this principle can be carried still farther by allowing more space for each employe, and in some cases a full sheet is assigned for each. In one factory the pay-roll book is loose leaf, one sheet being used for each employe. Each side of the sheet holds the record for two weeks, and by using both sides, it gives a complete record for four pay-roll periods.

=29. Combined Pay-Roll and Check Register.= Many industries pay their employes by means of checks instead of in currency. Special pay checks are used which merchants willingly cash as an accommodation to their customers. Whenever the check system of payments is adopted it is best to carry a special bank account for the purpose. When the amount of the pay-roll is determined, a check should be drawn on the regular bank account and deposited in a special fund against which the pay checks will be drawn.

Fig. 27 shows a form, designed for the use of a concern paying by check, which combines a check register with the pay-roll record. Since all checks drawn against this special fund are pay checks, this register gives a complete record of the special bank account.

TRUSTEES AND EXECUTORS' ACCOUNTS

=1.= From the accounting standpoint, business can be divided into two general classes: (a) Business conducted by the owner or a person appointed by him for the benefit of the owner; (b) Business that is the property of persons incapable of transacting business, necessitating the appointment, by the owners or other authority, of persons to transact business in place of the owner. It is with business of the latter class that we now have to deal.

In this class the owner or proprietor is supplanted by the _administrator_ of the business. The generic term _trustee_ applies to the administrator, who also takes more specific titles, depending upon the nature of the trust—as _executor_, _administrator_, _assignee_, _guardian, receiver_, etc. He is subject to the powers granted by the source of his appointment, and to the restrictions and requirements imposed by law.

A trustee—by whatever specific name designated—acting in his capacity as substitute for the owner, is the owner of the trust property as against the public. He is accountable to no one but the beneficiaries for whom he is acting as custodian. As owner of the estate, he can sue or be sued and perform many functions pertaining to the ordinary property owner. The beneficiary, by reason of his equity in the estate, can compel the trustee to carry out the provisions of his trust.

EXECUTOR'S ACCOUNTING

=2.= While an executor may keep his accounts in a manner chosen by himself, his _accounting_ must conform to the legal requirements of the state in which the accounting is made. The form in which the accounting is to be made is not subject to rigid rules, but must conform to certain regulations. While requirements differ according to the jurisdiction, the regulations in general are as follows:

The preliminary accounting consists in filing an inventory of the personal estate of the deceased, showing both the nominal or face value of the assets and the amount they are expected to realize as stated by the appraisers. An executor usually files two accounts—an _intermediate account_, filed at some date prior to the final account, and a _final account_, showing the property in his hands subject to distribution by judicial decree. The intermediate account may be filed either voluntarily or by order of the court. The account must be accompanied by the following schedules:

=SCHEDULE A=

1. Statement of property contained in the inventory, which has been sold, with the manner of sale and amounts realized. 2. Statements of debts due the estate as scheduled in the inventory, which have been collected. 3. Statement of all interest and dividends received by the executor.

=SCHEDULE B=

1. Statement of debts due the estate that have not been collected or are uncollectible, with reasons. 2. Statement of personal property named in inventory that has not been sold, with reasons, and the appraised value of such property. 3. Statement of all property belonging to the estate that is lost through no fault of the executor, with the cause of loss and appraised valuation. 4. Statement that no other property than set forth in the inventory or schedules has come into the possession or the knowledge of the executor. 5. Statement that the increase or decrease in value of all assets of the deceased is allowed for or charged in Schedules A and B.

=SCHEDULE C=

1. Statement of all amounts expended by the executor for funeral and other necessary expenses, together with the receipts for, and objects of, such expenditures.

2. Statement of the date when the executor caused a notice for claimant to present claims against the estate to be published, together with order, notice, and proof of publication herewith filed, to which the executor refers as a part of his account.

=SCHEDULE D=

1. Statement of all claims of creditors allowed by executor or disputed by him, for which a judgment or decree has been rendered, with the names of the claimants, nature of claim, amount and date of judgment.

2. Statement of all money paid to creditors of the deceased, with names and time of payment.

=SCHEDULE E=

1. Statement of all money paid to legatees, widow, or next of kin, of the deceased.

=SCHEDULE F=

1. Statement of names of all persons entitled—as widow, legatee, and next of kin, of the deceased—to a share of his estate, with place of residence, degree of relationship, and statement as to which are minors, whether they have a general guardian, and if so, the name and place of residence to the best of the executor's knowledge, information, and belief.

=SCHEDULE G=

1. Statement of all other facts affecting the administration of said estate, executor's rights, and those of others interested.

These schedules provide all the material from which to make the account proper. In his account, the executor charges himself as follows:

With amount of inventory $_________ With amount of increase as per schedule A _________ With amount of income as per schedule A _________ _________ Total debits _________

He credits himself:

With amount of losses on sales as per schedule B $_________ With debts not collected as per schedule B _________ With articles mentioned in inventory lost, schedule B _________ With funeral expenses and other expenses, schedule C _________ With money paid creditors, schedule D _________ With money paid to legatees, widow, or next of kin, schedule E _________ Total credits $_________ Balance _________ Add articles unsold _________ Add debts not collected _________ _________ Total to be distributed _________

FORM OF ACCOUNTS

=3.= The devising of forms of trust and executory accounts offers a wide scope for the application of accounting knowledge. Many intricate problems arise in the interpretation of details of the trust and in the apportionment of sums received, between capital and revenue. Broadly, these accounts are prepared in one of two forms: (a) An account of charge and discharge; (b) in the form of regular ledger accounts. As has been intimated, legal requirements are complied with by the first form, but the second form is preferable. When ledger accounts are kept on the double entry plan, the fullest information can be obtained about the condition of the trust at any time, and from these accounts, the account of charge and discharge or any form required by the court can be made for each period.

In preparing the accounts the exact relationship of the trustee to the estate (as the property in trust is called) must be kept in mind. As the owner of the property, he is a creditor of the estate (the business) just as the proprietor of the business is the creditor of that business. On the other hand, as custodian, he is a debtor, being in possession of the property of others.

In the ledger, property accounts are opened with the different classes of properties represented in the estate, which accounts are debited for the appraised value of the properties. These are known as _custodian accounts_.

A contra account representing the estate—sometimes called the capital—is opened under some such caption as _Personal Estate Account_. This account is credited with the combined values of all properties represented by the custodian accounts.

When the assets are entered and posted, the ledger accounts will appear as follows:

These asset accounts represent the value of the individual properties, while the personal estate account represents the combined values of all personal property of the estate (No. 1, No. 2, and No. 3). The personal estate is known as the _corpus_, distinguishing it from the real estate.

If the trustee, as the custodian, is called upon merely to distribute the estate to the beneficiaries, his accounting is a very simple problem. In many cases, however, he is called upon to take care of the income arising from the corpus or the real estate.

When he receives such income in the shape of cash, he debits himself as custodian through a cash account, and credits an income account under an appropriate title—as _interest account_, _rent account_, _dividend account_, etc. The account may represent the income from a specific property, or all income of a stated class. For example, rent account may represent the rents received from all properties, or there may be a separate rent account for each.

Distinguished from the income accounts, the trustee sometimes has accounts representing the sale of real estate, which must then be treated as personal property. When real estate is sold, cash is credited and an account, usually called _Sale of Real Estate_, is credited.

=4. Classification of Accounts.= A classification of the accounts of the executor naturally divides into: (a) _Personal estate account_; (b) _asset accounts_; and (c) _distributive accounts_. The personal estate account, as we have seen, is a controlling account which represents the total of all assets. It is also referred to as the capital account. It is, as well, a controlling account of the distributive accounts, and in the end exhibits a schedule of transactions in the order in which they occur.

The asset accounts, representing the different classes of properties or assets of the estate, correspond to the asset accounts of an ordinary business.

The distributive accounts may be likened to the revenue accounts of a business enterprise. These accounts are debited with all amounts distributed—as expense of administering the estate—and credited with all income or revenue other than that representing the conversion of the original estate into cash.

=5. Executors' Commissions.= While the commission allowed administrators and executors varies in different states, the amount specified by law in New York applies as a general rule. The commission allowed is 5% on the first thousand dollars received and disbursed, 2½% on the next ten thousand dollars, and 1% on all amounts above eleven thousand dollars.

If the value of the personal property is $100,000.00, or more, in excess of all debts, each executor is entitled to receive the commissions provided in case of a single executor; except that if there are more than three executors, the amount which the three would receive must be divided in proportion to the services rendered.

In cases where the will provides a specific remuneration, the executor is not entitled to a commission. He can, however, decline a legacy and in lieu thereof take the usual commission.

Commissions are not allowed on specific legacies, that is, where specific property, as household effects, automobiles, etc., are named. An annuity is a series of legacies and the commission is not allowed on its payment. However, when a beneficiary is given the use of a fund, the beneficiary is charged with the commission.

In all cases where administrators or trustees are responsible for the investment of the funds of an estate, they are entitled to receive commission on the income. The commission in all of these cases is at the regular rate, that is, 5% on the first thousand dollars received and paid out, etc.

EXAMPLES

1. Two trustees collect in one year an income of $36,000.00 for a beneficiary, the expense being $3,000.00. If each trustee receives an equal share, what commission will be paid to each, and what sum shall be paid to the beneficiary? Ans. Each trustee, $275.00; beneficiary, $3,275.00.

2. Executor X collects of the corpus of an estate $30,000.00, executor Y collects $40,000.00. Together they pay out $55,000.00. Commissions are to be divided in proportion to the amount collected by each. What commission will each receive and what is the net amount to be paid to the residuary legatee? Ans. Commissions: X, $381.43; Y, $508.57. Residuary legatee, $14,110.00.

3. Four trustees collect and pay out of an estate $350,000.00, the total debts of the estate being $135,000.00. What commission will each trustee receive? Ans. $2,767.50.

SAMPLE ACCOUNTS

=6.= Following are the transactions and accounts of David Brown, executor of the estate of Henry Snow, deceased. For keeping the accounts, the journal, cash book, and ledger are the books used.

June 1, 1908 Henry Snow died this day, naming David Brown _executor_.

—3— Estate inventoried and appraised as follows: Cash in bank $390.50 Mortgages 5,000.00 R. R. stocks $5,000.00 appraised @ 112 $5,600.00 Household furniture 1,000.00 Debtors to the estate Henry Alton $160.00 J. L. Lawrence 52.00 D. Pringle 75.00 F. D. Smith 84.50 371.50 ------- Interest accrued on mortgages $5,000.00 —5 mo. @ 5% 104.16 Accrued dividends on stock estimated at 3% semi-annual, payable July 1st—5 mo. accrued 137.50 --------- 12,603.66

—30— Approved the following claims: Dr. Knight bill 200.00 Funeral expenses—Undertaker 250.00 Henry Cole account 62.00 H. Dawson account 17.00 Probate expenses 100.00

—30— Additional assets discovered Geo. Smith owes the estate 50.00

July 1 Collected 6 mo. interest on mortgage at 5% 250.00

—1— Collected the following accounts: Henry Alton 160.00 D. Pringle 75.00

—1— Paid the following: Dr. Knight 200.00 Funeral expenses 250.00 Henry Cole 62.00 H. Dawson 17.00 Probate expenses 100.00

—5— Received dividend on R. R. stock 3½% semi-annual on $5,000.00 $175.00

—5— Sold R. R. stock $5,000.00 @ 132 6,600.00

Sept. 1 Collected the following account: J. L. Lawrence 52.00

—20— Sold H. H. furniture 790.00 Depreciation on H. H. furniture 210.00

Nov. 1 Collected the following accounts: F. D. Smith 84.50 Geo. Smith 50.00

Dec. 1 Collected 6 mo. interest on mortgage $5,000.00 @ 5% 125.00

—1— Sold mortgage 5,000.00

EXERCISE

=7.= George Williams died on March 5th, bequeathing his entire property, after payment of all debts and funeral expenses, to the following beneficiaries: George Williams, Jr., one-fifth; John Williams, one-fifth; Fred Williams, one-fifth; Mary Williams, three-tenths; and George Robinson, one-tenth.

The inventory filed by his executors was as follows:

Stocks and bonds $4,000.00 Mortgages 6,000.00 Wearing apparel 100.00 Cash in bank 40.00

There are two executors, and their transactions are as follows:

CASH RECEIPTS Stocks and bonds sold 3,341.00 Mortgages realized 4,656.00 Wearing apparel sold 50.00 Dividends collected on stocks and bonds 1,800.00 Interest collected on mortgages 2,400.00 Interest received on deposits in bank 100.00 Real estate sold 1,000.00 Rents collected 720.00 Cash in bank at decease, withdrawn 40.00 --------- 14,107.00