Harry Marc Rowe.

Rowe's bookkeeping and accountancy : complete text, presenting the art of bookkeeping in accordance with the principles of modern accountancy online

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Rowe's
Bookkeeping and Accountancy

Complete Text

Presenting the art of bookkeeping in accordance

with the principles of modern

accountancy



By

HARRY M. ROWE, Ph.D.

Author of "Commercial and Industrial Bookkeeping," ** Business <
Office Practice," "Business Bookkeeping and Practice," Etc



SCRIPT BY C. P. ZANER



BALTIMORE
THE H. M. ROWE COMPANY

EDUCATIONAL PUBLISHERS



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HARVARD
UNIVERSITYl
LIBRARY



CX)LORS USED IN THE RUUNGS IN THIS

BOOK AND ACCXDMPANYINa

BLANK BOOKS.

Science has determined that the combination of
colon least trying to the eye are neutral shades of
brown and green, and that the most trying are red
and blue. For this reason the brown and green colors
used In the rulings in this book and the blank books
accompanying it have been substituted for the red
and blue usually found in books of this character.



Copyright 1910
Copyright 1911
Copyright 1918

BY

Harry M. Rowe

Entered in Stationbbs' Hall

London, 1010
Entered in Stationebs' Hall

London, 1011
BT Habrt M. Rows



Copyright protects all the copyrightable com-
ponent parts of this work and prohibits all unlaw-
ful use of its composition, Illustrations, methods,
etc Infringers will be punished to the full extent
of the law.



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PREFACE .

"Bookkeeping and Accountancy" is intended to impart a training in the art
of bookkeeping that is based upon the fundamental principles of accountancy.
It is intended for students of the age usually found in commercial schools, public
and private, who are ready to begin a study of the subject. The completion
of the full course of study provided will not only qualify for a high degree of
proficiency in the art of bookkeeping, but it will also lead up to a very thorough
understanding of the general principles and practices of accountancy.

While for many years I have closely followed the development of account-
ancy as a science, particularly in its economic relations, I am no longer a prac-
ticing accoimtant, therefore, I have presented accountancy in this work as I
have foimd it, particularly as reflected in the practical experience of many eminent
Accoimtants with whom I have consulted.

• My principal task has been to simplify the presentation of accountancy so thai
it may be understood by the average commercial student, and to prepare book-
keeping sets in various lines of business that would illustrate the application of
its principles.

I have found that in reclassifying accounts to conform with the theory and
practice of accountancy, the art of bookkeeping has been made easier to learn
and easier to teach, rather than more difficult. True science simplifies any
subject of which it treats, and accountancy is the true science of bookkeeping.

Five distinct subjects fire included: — the fundamental and elementary prin-
ciples of accountancy, the art of bookkeeping as applied in various lines of business,
business methods and practices, and office methods and practices.

The following are some of the features of particular interest:

1. For students who are beginning, teachers can have their choice of (1) the
accoimt, or skeleton ledger metliod, (2) the theory method, using transactions stated
in the form of memorandums, or (3) the illustrated theory method, in which the
business papers received and issued are^ used in connection with the printed text,
either for purely illustrative purposes, or as data from which records are to be
made in the various books. The subject matter is the same, except that it is
presented in dififerent order in each method.

2. The transactions are classified and entered in the books in which they
properly belong, from the start. Purchases, sales, notes and acceptances, cash
receipts and payments, etc., are entered directly in their respective books, from
which the proper accounts in the ledger are debited and credited.

3. Various price lists are provided with each set, which may be used, if
desired.



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IV PBEPACB

4. The transactions of each set are confined to those usually found in the
particular line of business illustrated. All unnecessary and unbusinesslike trans-
actions are omitted.

5. The transactions of each set and the accounts growing out of them are
classified according to the principles and rules of modem accountancy.

6. The business methods conmionly followed in the various lines of business
illustrated in the different sets are fully explained in connection with the transac-
tions to which they apply.

7. The trading and profit and loss statements, statements of resources and
liabilities, and the other statements, analysis sheets, etc., required in connection
with each set conform strictly to the established forms of these statements em-
ployed by accountants.

8. The business papers and forms are selections from the best lithography
produced, many of them showing unique and practical ideas in design and arrange-
ment to facilitate and safeguard business transactions.

9. Ledger closings, the gouping of accounts, the use of controlling accounts,
the analysis of accoimts, and the preparation of various supplementary and sup-
porting statements are given special attention and thorough treatment.

10. Manufacturing accounts and statements, corporation accounts, the
voucher system of accounts, branch store, agency, and other special accounts
are fully explained and illustrated.

11. Cost accounting, cost records and systems are given ample treatment
for the elementary student.

12. The principles, rules and practices of accoimtancy are fully set forth
throughout the text and its accompanying budgets.

13. Supplementary drills, that feature which proved to be so valuable in my
older bookkeeping publications, are provided wherever needed.

I wish to acknowledge the valuable services rendered in the preparation of
manuscript and the reading of the proof by my good friend, B. P. Leister, C. P. A.,
a former pupil, who was for many years a most successful teacher of the commer-
cial branched, and who is now in full practice as a certified public accountant. I
also wish to acknowledge my obligation to the many other accountants who have
assisted me in various ways in the preparation of this book, and who have responded
80 freely to my requests for suggestions and criticisms.

The Author.

Baltimore, Md

June 10, 1910.



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CONTENTS

Definitions 1

Accounts : 3

Debiting and Crediting Accounts 4

Classification of Debit and Credit Items 6

Personal Accounts 6

Ownership Accounts 16

. Proprietor's and Partner's Capital Accounts 17

Relationship Between the Owner and the Business 21

Proprietor's and Partner's Personal Accounts 22

Notes Receivable and Notes Payable 24

Notes Receivable Account 25

Notes Payable Account 31

Cash Account 37

Merchandise Accounts 42

Principal and Subsidiary Trading Accounts 42

Purchases Account— A Principal Trading Account 43

Sales Account— A Principal Trading Account 49

Inventory Accounts 53

Subsidiary Trading Accounts 66

Freight 56

"Freight In" Account 57

Warehouse Accounts 58

Warehouse Supplies Account 58

Warehouse Labor Account 60

Rebates and Allowances 62

Merchandise Discounts 63

Purchase Discounts Account 64

Sales Discounts Account 66

The Trading Statement 69

Profit and Loss Accounts 79

Current Expenses and Incomes: Use and Service Accounts 81

Selling Expense Accounts 84

Outgoing Freight, Express Drayage, etc 85

Delivery Expense Account 87

Administration Expense Account 88

Greneral Expense Accounts 91

Insurance Account 94

Insurance Expense Account 98

Interest and Discount Account 100

Property Investment Expense and Income Accounts 104

Real Estate 106

The Investment Account — Real Estate 106

Real Estate Expense and Income Accounts 108



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Vl CONTENTS

Property Investment Expense and Income Accounts— Continued

Furniture and Fixtures Account 112

Repairs and Renewals Account 114

Delivery Equipment Account 117

Profit and Loss Statement 118

Distribution of Undivided Profits 127

Journalizing, Posting, Checking Trial Balances, etc 130

Trial Balances, Inventories, Statements, etc 131

Closing the Books, Statements, etc 137

Combined Trading and Profit and Loss Statement 142

Statement of Resources and Liabilities , 145

Analysis Sheets 147

Explanation of Other Accounts 154

Shipments and Consignments 154'

Shipment Accounts 155

Consignment Accounts 157

Commission Accounts 160

Branch Store Accounts 161

Briefer Explanations of Accounts 164

Business Papers 173

Account Books 186

Cash Book 187

Purchases Book 187

Sales Book 187

Notes and Acceptance Books 188

The Journal— Other Books— The Ledger 189

Closing the Ledger 190

Errors in Trial Balances 190

Corporations. 193

Difference Between Partnerships and Corporations 195

Corporation Accounts 196

Manufacturing Accounts 200

Cost Accoimting 202

Advantages of a Cost System 209

Wage Systems 212

Distribution of Indirect Expenses 213

The Department Method of Manufacturing Accounts 221

Cost Method of Manufacturing Accounts 223

Manufacturing Statements 239

Forms of Cost Records, Reports, etc 264

The Voucher System 267



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BOOKKEEPING AND ACCOUNTANCY

1. Bookkeeping. The art of classifying and recording business transactions
and facts systematically is called bookkeeping.

2. Accountancy is that branch of practical science which treats of the methods
of classifying and recording business transactions and accounts so that the facts
they exhibit shall be shown in their proper relations, expressed in terms that will
most fully provide the information necessary to successful business and financial
administration.

3. A business transaction is an exchange of something for something between
persons; that is, one person receives something of value from another for which he
gives something of equivalent value in exchange.

4. Value is represented in anything that has worlhj purchasing power, or tdUUy
such as property, merchandise, money, uses, and services.

5. As to the time of transfer by each party, transactions are of two kinds,
completed and uncompleted,

6. A completed transaction is one in which the exchange of value is made by
both parties at the same time,

7. An uncompleted transaction is one in which the transfer is made by one
party but not by the other, the transfer by the second party being made at some
future time. Such a transfer is said to be "on account."

8. An uncompleted transaction is completed when the transfer by the second
party ic made to the first, the transfer by the first party having been made at some
previous time. Such a transfer is said to be "on account."

9. During the interval of time between the transfer by the first party and
the transfer in payment by the second party, which interval of time is known as
the "term of credit," the second party owes or is in debt to the first party and
the first party trusts or gives credit to the second party, therefore, —



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2 BOOKKEEPING AND ACCOUNTANCY

10. A debtor is one who owes or is in debt or has been trusted, and the amount
he owes is known as a debit in the account kept with him by the creditor. He
is the receiver of something of value for which he does not at that time give value.

11. A creditor is one who is owed or has given credit or trust, and the amount
that is owed to him is known as a credit in the account kept with him by the debtor.
He is the giver of value for which he does not at that time receive value.

12. An important distinction. The words "debtor" and "creditor" refer only to
persons, and, in the sense of owing or being owed, debit and credit can only be used
in connection with personal accounts. Debit and credit as applied to all other ac-
counts are used only as convenient terms to designate which side of the account is
referred to, and do not imply that the things represented by these accounts owe or
are owed.

13. Things represented by impersonal accounts, cannot owe or be owed,
although some writers erroneously personify them so as to apply the principles of
debit and credit relating to personal accounts. This can never be done, however,
without violating the simplest principles of logic and reason. Merchandise could not
owe or be owed, since it belongs to the owner and is in his possession. Merchandise
accounts show the costs of purchases and the returns from sales. Likewise cash is in
the possession of the owner, and cash account shows receipts on one side and pay-
ments on the other. The various expense items show what the expenses of the busi-
ness cost, i.e., the outlays necessary to earn the incomes of the business as shown
in the various income accounts. The only reason for using the terms "Dr." and
"Cr." to designate the two sides of impersonal accounts is because they are the
most convenient and the briefest terms that can be used.

14. A creditor trusts or gives credit to a debtor because of an expressed or im-
plied promise or contract on the part of the debtor to pay the creditor at some future
time. When expressed, the promise or contract may be made orally, i.e., " by word
of mouth," or in writing. When in writing it becomes a " written promise to pay,"
and is usually in theTform of a promissory note or of an acceptance.

15. An oral promise or contract to pay may afterwards be changed into a
written promise or contract to pay, in the form of a promissory note, accepted
draft, or other written obUgation.



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LEDGER ACCOUNTS



ACCOUNTS.



16. An account is a record of one or more items relating to the same person
or thing, kept imder an appropriate heading or title. It is the custom to place
the debit items on the left-hand side and the credit items on the right-hand side of the
accounts in the ledger. Accounts show similar items arranged in the most conveni-
ent form for arithmetical solution and analysis. They are divided into several classes
depending upon their purpose and the results they show. The following is the
standard form of a ledger account.

LEDGER ACCOUNTS.



Year^ pay



Explanation



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17. The Ledger is the book of accounts. The debit and credit items arising
from the various kinds of transactions are transferred from the diflferent books in
which the trstnsactions are classified and recorded to the proper accounts in the led-
ger. These books are the cash book, sales book, purchase book, journal, notes re-
ceivable and notes payable books, and such other books as may be required, de-
pending upon the nature and extent of the business. These are known as books of
original entry.



17a. A GRAPHIC ILLUSTRATION OF THE COURSE OP TRANSACTIONS, AND THE RE-
LATIONS OF BUSINESS AND TEACHING TO THE SUBJECTS OF BOOKKEEPING AND
ACCOUNTING.



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4 BOOKKEEPING AND ACCOUNTANCY

DEBITING AND CREDITING ACCOUNTS

18. To deteimine what accounts are to be debited and what accounts are
to be credited in any transaction we apply the laws of debits and credits which are
expressed in rules of bookkeeping. They are derived from the customs and
practices of business men, and conform with the principles of accountancy.

^ 19. A law is a statement of a principle. It is a rule of action.

20. In every transaction there are one or more debit items and one or more
credit items.

21. Debit and credit items are of three kinds, (a) those relating to personal
accounts, (b) those relating to accounts with cash, notes, acceptances, and other
mediums of exchange, and (c) those relating to accounts with property, with uses,
with services, with allowances, with expense;/, and with incomes and revenues.

22. Debit and credit items relating to accounts with persons invariably show
that each person debited is the receiver of something of value without at thai time
giving value in return, and that each person credited is the giver of something of
value without at that time receiving value in return. (If 10 and 11.) Such items
usually relate to "uncompleted transactions." (H? and 8.)

22a. Remember that the ** receiver** is the 226. Remember that the ** giver** is the

.party who receives something of value party who gives something of value to

from us without at that time giving vaU us without at that time receiving value in

ue in return. return.

23. Debit and credit items relating to accounts with cash, notes, acceptances
and other mediums of exchange, invariably show that each account is debited for the
face value of what is received (or redeemed), and that each account is credited
for the face v^ue of what is given (paid, issued, or parted with). The principal
accounts of this kind are cash account, notes receivable account and notes payable
account.

24. Debit and credit items relating to accounts with property, uses, services,
allowances, expenses, incomes, etc., invariably show that each account is debited for
the cost of what is represented by the account, and that each account is credited
for returns from what is represented by the account. The principal accounts of
this kind are those relating t9 the purchase and sale of merchandise, real estate and
buildings, stocks and bonds, furniture, fixtures, and other forms of property and in-
vestments of capital, and those showing the expenses and incomes such as in-
terest, discount, commission, merchandise discounts, freight and express charges,
rent, insurance, taxes, wages, salaries, and all other accounts showing the sources
of the losses and the gains of the business.



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DETERMINING DEBITS AND CREDITS
CLASSIFICATION OF DEBIT AND CREDIT ITEMS.



25* Notice that in debiting accounts
as stated in the preceding paragra-
phs, 22, 23 and 24, in every instance
in debiting a personal account the
receiver is debited; in debiting cash,
notes receivable and notes payable ac-
counts, they are debited for what is
received; and in debiting all other ac-
counts they are debited for the cost of
something of value received.



26. Notice that in crediting accounts as
stated in the preceding paragraphs 22,
23 and 24, in every instance in
crediting a personal account the giver is
credited; in crediting cash, notes re-
ceivable and notes payable accounts,
they are credited for wJiat is given;
and in crediting all other accounts
they are credited for the returns from
something of value given.



27. From the classification of items, as g^ven in paragraphs 25 and 26,
the following simple rule for debiting and crediting the proper accounts for all
items growing out of the current transactions of business is derived.



GENERAL RULE FOR DEBITING AND CREDITING ACCOUNTS.



28. Debit the Receiver, whatisreceivedy
and thai which costs value.



29, Credit the Giver, what is given, and
that which returns value.



30. The various applications of this general rule to all kinds of business trans-
actions will be shown under the different accounts, explained on the following pages.



PERSONAL ACCOUNTS.

• 31. These are accounts with individuals, firms, and corporations (persons),
which are required in ''xmcompleted transactions,"or those transactions "in which
the transfer is made at thai time hy one party but not by the other." (If 7 and 8)
Such transactions are said to be "on account." «•

32. The object is to ascertain what others owe to us on accoimt or what we owe
to others on accomit "dmdng the interval of time between the transfer by the first
party and the transfer in payment by the second party." (1[9) During the "inter-
val of time," if a personal account shows an amount owing, to us, it is a resource
(f461); if it shows an amount owing to others, it is a liability. (1[462)



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BOOKKEEPING AND ACCOUNTANCY



Rule for Debiting and Crediting Personal Accounts.

33. Debit the receiver: credit the giver.
34a Debit the receiver in the proper 346. Credit the giver in the proper account,
account.

35. The various applications of the rule for debiting and crediting personal ac-
counts are as follows:

(Not to be metnorisii. To be uted only a» called for,)



36.



d.



h.



k.



38



Debit persons in their accounts,
For the amount they owe us at the begin-
ning of business.

For all goods or property sold to them
on account.

For all money paid or loaned to them
on account, or paid by us to others at
their request.

For all goods, etc., we return to them
for which we have previously credited
them.

For all notes made by us (notes pay-
able) and given to them on account.
For notes and acceptances of others
(notes receivable) transferred by us to
them on account.

For all drafts drawn by them and accep-
ted or paid by us on account.
For our drafts or orders on others



Online LibraryHarry Marc RoweRowe's bookkeeping and accountancy : complete text, presenting the art of bookkeeping in accordance with the principles of modern accountancy → online text (page 1 of 27)