Henry Rand Hatfield.

Modern accounting, its principles and some of its problems online

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balance but by checking each Debit against its correspond-
ing Credit. When this was done it was of great assistance


to have easy reference from one account to the other, and
this was conveniently given by including in each Ledger
entry both the name and the folio number of the account
in which the corresponding entry appeared. Bookkeepers
long since found it was more useful to refer to the Journal
page containing the original entry than to the page con-
taining the balancing Ledger entry. But the entry of the
name of the Ledger account long persisted, and is even
now inculcated in some text-books. The absurdity of cling-
ing to this convention is greatest when the corresponding
entry is not found in a single account but in several, when
convention demanded that the Ledger should bear the
meaningless reference to " Sundries." But while refer-
ence to the corresponding account is still general in Con-
tinental practice, and is doubtless frequently found even
in this country, it is no longer considered necessary by
American accountants. In this respect, as in the avoidance
of the needless labor of actually closing out all ledger
accounts into a Balance Account, American practice shows
good sense in lessening the drudgery of bookkeeping with-
out making its record of business transactions less valuable
to the proprietor.

A more important improvement in the form of the
Ledger has been the substitution of cards or loose leaves
in the place of a bound book. The advantages of this are :

The elimination of dead accounts.

The ease of reference, the accounts being self -indexing.

The nice adjustment to accounts of varying lengths,
without overcrowding or wasting of blank pages.

The ease of expansion with a growing business.

The facility with which the accounts may be divided up
so that many clerks can work simultaneously.

Unfortunately some prejudice has existed against the
innovation on the ground that it makes fraud more easy.
Indeed, the careful prescription of some laws, such as the


Code de Commerce of France, to the effect that legal valid-
ity can attach only to accounts kept in bound books with
serially numbered pages certified by a public official, have
been a positive bar to the introduction of card ledgers,
which elsewhere have been less absolutely opposed by con-
servatism and prejudice.

"While the advocates, and especially the manufacturers
of loose-leaf systems, vehemently deny that a bound ledger
is any more secure, their claims seem somewhat exagger-
ated. It is true that the Ledger at best is not the authori-
tative record, yet the falsification of the Ledger is not an
unusual method of concealing fraud. Even the keeping of
Ledgers, duplicate except in some doctored accounts, has
been resorted to by those wishing to hide their frauds. Cer-
tainly such manipulation can be more easily accomplished
where each account is on a separate sheet or card. But
on the other hand the same precautions which should be
observed to prevent fraudulent manipulation of bound
books would also prevent fraud in handling a loose-leaf
system. In either case there is no security without a care-
ful system of auditing, and where this is provided frauds
will be prevented because of the certainty that they will
be discovered. Certainly the use of Card Ledgers has made
great advances since they were first introduced in 1889 by
Mr. J. A. Langstroth, the accomplished accountant of the
San Francisco Savings Union. The advantages far out-
weigh any possible objections to the system.

There has been considerable controversy as to the rela-
tive merits of cards and loose leaves temporarily bound in
a holder. Universal preference should be given neither to
one nor the other. Where there are a vast number of ac-
counts with infrequent entries in each, as for instance in a
great savings bank, separate cards seem to have the advan-
tage. In other cases the Loose-Leaf Ledger is more easy
to handle, less time being consumed in turning pages tha


in taking out and returning the card. Thus a savings bank
may wisely keep its depositors' accounts on cards while its
General Ledger accounts are kept in a Loose-Leaf Ledger.
The relative merits of competing devices for holding the
loose leaves need not be discussed here. The interested
reader can easily obtain unlimited advertising matter on
the subject.

The use of cards has been of great service in other lines
of accounting than as a ledger. Particularly true is this in
keeping track of maturing notes, interest payments, insur-
ance, contracts on hand, unfilled orders, etc. They serve
also to keep a continuous record or inventory of merchan-
dise or material on hand, each class of article being listed
on a separate card. This furnishes a record of quantities
of stock, parallel with the ledger accounts showing values,
and constitutes a most valuable check on the accuracy of
the inventory, and on the pilfering tendency of employees.
For use in such subsidiary records, outside of the account-
ing system in the strict sense, cards have proved indis-

3. So much of the labor of accounting consists in tha
performance of arithmetical calculations that the intro-
duction of mechanical devices for doing this work is one
of the marked improvements in bookkeeping technic. The
more important instruments of this kind fall into three
groups: (1) adding machines, (2) " calculating " ma-
chines, designed primarily for multiplying and dividing,
and (3) the mechanical tabulator.

Foremost among these are the mechanical devices for
adding. Of these three groups may be mentioned: (1)
Those in which the addition is performed by the operator
moving a part of the instrument for each digit to be added,
the distance through which the moving part passes corre-
sponding to the value of the digit; (2) those in which the
addition is p'erformed by pressing a key indicating the de-


sired digit; and (3) machines similarly operated by keys
but listing the items at the same time that they are added.

The first class of instruments have considerable vogue,
due to their portability and cheapness. To accomplish the
result various mechanical devices are used, such as the rota-
tion of wheels, the revolving of endless chains bearing num-
bered links, and the sliding of bars. In these instruments
the carrying of tens to the next higher order of digits is
automatically performed. Many such adding machines are
in the market, costing from one to twenty-five dollars, each
of which has its own advocates. But all of these are rela-
tively inefficient as compared with key-operated machines.

In the key-adding machines the pressing of a separate
key bearing the appropriate digit serves to make the proper
addition, with, of course, great increase in both speed of
operation and price of machine as compared with the sim-
pler type of adding machine. The use of such key machines
is rapidly increasing. In some large establishments special
operators are provided whose duty it is to go from desk
to desk as occasion requires, and perform the additions
demanded in the several departments. While the speed of
adding figures already listed in a column may not be much
greater when performed by an operator on an adding ma-
chine than when done by a highly skilled bookkeeper, the
cost of having the work done is much less because of the
lower grade labor that can operate the machine.

The listing machine is arranged on practically the same
line as the nonlisting key machine, but is accompanied
with a device for printing the item at the same time that
it is added. Many machines of this type, differing in detail
but very similar in form and operation, are on the market.

Considerable rivalry exists between the advocates of
listing and nonlisting adding machines. As a matter of
fact they are not truly rivals, each being appropriate for
its particular service. The nonlisting machine performs


the adding operations much more rapidly than can be done
on the listing machine. Where the figures to be added are
already listed it is, therefore, best adapted. The only ob-
jection to be made is the supposedly greater ease in detect-
ing errors where a listing machine is used, as the items can
be checked off from the list. But with a little practice mis-
takes in either type of machine are infrequently made, and
it is but little slower to verify additions by repeating the op-
eration on a nonlisting machine than it is to check off the
printed list against the original items. But where a list
of items needs to be made, it is evident that the listing
machine has no fear of rivalry from the nonlisting machine.
The nonlisting machine has, however, an advantage for
certain kinds of work in that it lends itself readily to sim-
ple operations of multiplication, and less readily to divi-
sion, operations which are similarly performed on a listing
machine but with a relative disadvantage in speed greater
than that in adding.

The second type of mechanical aids is the calculating
machine or, more concretely, a device for performing mul-
tiplication and division. Earliest of these is the slide rule,
a device long since introduced into engineering but rather
slowly adopted by accountants. The slide rule, in its vari-
ous forms, whether a simple rule, or in the circular, spiral,
or cylindrical forms is a logarithmic scale, that is, a scale so
ruled that addition is substituted for multiplication. Thus,
for instance, on a given scale 3 is indicated at a point one
inch from the left-hand end of the rule. But the value in-
dicated at a point one inch further along is not 6, but 9 ; the
addition of the second inch on the scale not adding 3 but
multiplying by that number. Similarly, division is per-
formed by simple subtraction. The application of this prin-
ciple is very wide. It is especially serviceable in working
out percentages. The slide rule is the most convenient of
all instruments for working out values where one factor is


a constant, as for instance in translating a table of prices
from one currency into another. Here only one setting of
the machine is needed, the various values being read off
without further manipulation of the slide. In this there
is an advantage even over the more mechanical calculating
machines. The chief objection is that there is required
some little practice in taking off accurate readings, and at
best these are not accurate beyond the fifth significant fig-
ure. To accountants, who are accustomed to have their
additions prove to the last cent, that is, to show accuracy
say to the tenth figure, this seems at first objectionable. It
should, however, be borne in mind that the original data
on which calculations are made rarely are accurate beyond
the third figure, so that for most purposes the slide rule ia
sufficiently exact.

Multiplication being only addition on a larger scale,
the key machines, designed primarily for addition, prove
most serviceable for multiplication, with certain limita-
tions. If, for instance, 123 is to be multiplied by 321, it
can probably be done more quickly on the key-adding ma-
chine than on any other mechanical device. All that is
necessary is to press the keys indicating 123 once, then
moving the fingers one place to the left to press the keys
twice (that is, multiply 1230 by 2, which is equivalent to
multiplying 123 by 20), and so on. This requires no set,
ting up of a machine, and no skill in reading results. The
drawback comes when the two factors are large, as the dif-
ficulty of manipulating the larger number of keys more
than offsets the time required to set up the factors on a
calculating machine proper.

Of the latter there are several models, principally of
foreign manufacture. In the most advanced type the mul-
tiplicand is set up by moving sliding indexes, and the
multiplication is performed by moving an indicator to each
of the successive figures of the multiplier and turning the


handle once for each digit. These machines are made with
a capacity of eight digits in both multiplier and multipli-
cand, and sixteen figures in the quotient. After the opera-
tion is performed the dials exhibit multiplier and mul-
tiplicand, as well as product thus checking against errors.
Division can also be performed, but less conveniently. The
advantage of this type of calculating machine is that it is
accurate to the last figure, even when applied to factors
containing so many digits. Such minute accuracy is more
demanded in astronomical calculations, for instance, than
in commercial accounting, but nevertheless such machines
are being increasingly used in large establishments, such as
railroads and factories, principally for working out per-

The last type of mechanical aid to be mentioned is the
mechanical tabulator. This is a device first introduced into
the United States Census Office for tabulating census re-
turns. The method used is that of punching holes in cards,
the location of the hole indicating certain statistical facts,
as for instance the number of the job, the number of the
workman, the terms on which the work is done, the time con-
sumed, etc. By running the cards thus punched through
an electrical machine, a device, which works by an elec-
trical connection being made wherever the hole is punched,
indicates the various charges made for each job or each
part of the operation. This system has been used by some
of the railroads, for instance, the New York Central, and
by some of the larger manufacturing plants.

So far have been described some of the more important
technical improvements by which the labor of bookkeeping
has been lessened. Parallel with these improvements, and
in part logically implied in the improvements themselves,
there has been a continuous progress by which accounting
practice is brought into closer coordination with the chang-
ing economic conditions. Indeed, it is no mere accident


that systematic bookkeeping first appeared in the Italian
republics and during the period of their commercial su-
premacy. It was not until commerce began to assume
importance that systematic accounting became important,
and hence it naturally appeared at the time and in the
place where commerce, in any modern sense, first began.
Some of the minor technical improvements described in
this chapter are seen to be conditioned on the change in
economic environment, as for instance when the establish-
ment of uniform currency made obsolete the forms which
were used when the coinage was in a state of chaos.

The greatest impetus to formal accounting has, how-
ever, been due to more recent economic changes, two fac-
tors of which, distinct yet closely connected being especially
important. These are the introduction of machine produc-
tion, due to the great inventions centering around iron
and steam, and the development of the corporate form of

Taken together these two factors have made exact ac-
counting necessary, for three reasons: (1) Ownership has
been separated to a large extent from management of in-
dustry and there has been an imperative need for a scheme
of accounting which would disclose to the stockholders the
status of the business entrusted by them to the directors;
(2) the large scale on which business has been conducted
has made accounting more complicated and hence has led
to greater systematization in its methods; and (3) the use
of fixed capital, assuming unheard of proportions since the
great inventions, has made necessary accounting methods
which would regard changes covering long periods of time,
a marked contrast to the simple enterprises of the middle
age when capital changes were disregarded.

Of less importance may be mentioned the effect of the
general growth of the credit system, necessitating a closer

scrutiny of business transactions ; and the disappearance of


the old prejudice against interest, with the consequent rec-
ognition of interest calculations in inventory taking and
in cost accounting.

The accounting problems of to-day as discussed in this
book may be seen to be closely dependent on the economic
changes mentioned above. Most of the debated questions
have had to do with the Balance Sheets of corporations,
and the problems concerning Capital Stock. The most
puzzling question concerning Profits has related to the
treatment of changes in the value of invested capital and
the recognition of depreciation in machinery. And the new
problem of Cost Accounting, the most recent contribution
to accounting literature, is entirely an outgrowth of the
factory system of production.

It is apparent, therefore, that accounting never has been
a stationary art, -but has changed with changing conditions.
Altogether wrong is the quaint panegyric of North, written
in 1714:

" I do not know, that any Art practiced among Men is
come up to a positive ne plus ultra, but that of Accompting.
. . . No Limit of Invention is known, thro' which they [the
other Arts] may be improved. But the Art of Regular
Accompting, or Book-keeping, altho' useful beyond any,
and of infinite Variety, and of which not a few, able enough
in other things, are utterly incapable; yet in Rule and
Method is so contracted and circumscribed, that without
a Fault, nothing can be rescinded from, or added to it."

While accounting does, indeed, rest on a few simple
principles enunciated while Columbus was still on his voy-
ages of discovery, yet much needed to be added to the sim-
ple rules laid down by the " humble professor of sacred
theology " before the art could reach the present advanced
but still incomplete stage of Modern Accounting.



DICKSEE, L. R. Bookkeeping: Its Adaptability to the Require-
ments of Every Class of Undertaking. Article in Encyclopaedia
of Accounting, I, pp. 496-301.

GAINES, M. W. Tabulating Machine Cost Accounting for Factories
of Diversified Product. Engineering Magazine, XXX, pp.

KERR, W. H. Calculating Machines. Article in Encyclopaedia of
Accounting, II, pp. 1-14.

RISQUE, F. W. Loose Leaf Books and Systems for General Busi-
ness. St. Louis, 1907.

Row FOGO, J. History of Bookkeeping. In "A History of Ac-
counting and Accountants," edited by R. Brown. Edinburgh,

SEWARD, G. H. Card System and Mechanical Aids in Accounting.
Series of articles in Business World, 1902-1903.

SPRAGUE, C. E. The Philosophy of Accounts. New York, 1908,
pp. 82-129.

SWEETLAND, C. A. Loose Leaf Bookkeeping and Accounting.
Fourth edition. New York, 1905.

THOMPSON, E. W. Bookkeeping by Machinery. New York, 1906.

THORNE, W. W. The Abolition of the Trial Balance. Detroit, 1 906.

Twentieth Century Bookkeeping and Business Practice.

Detroit, 1904. [The two books last named contain many prac-
tical suggestions as to forms and methods.]


Abstainers & General Insurance
Co., in re, 78.

Acceptances, 192.

Accounts, capital, 144; differenti-
ation of, 5, 7, 9; mixed, 10,
22; negative goods, 14, 24;
negative proprietorship, 24,
27; positive and negative
items in, 19; two sets of, 9.
See, also, titles of particular

Accuracy, 55, 83, 170, 306.

Active, 44.

Adding machines, 350.

Adjustment accounts, 119, 123.

Allis-Chalmers Co., 136.

American bookkeeping, 345.

American District Telegraph Co.,

Anticipation accounts, 119; rela-
tion to depreciation, 123.

Appraisal, 83. See, also, INVEN-

Appreciation of assets, 223.

Assets, appreciation of, 223; capi-
tal, 46; deferred, 46, 118, 123;
difficulty in distinguishing,
70; distribution of, in insol-
vency, 327, 330; immaterial
ch. vi, 75, 141; purchased
with securities, 79.

Assets, wasting, 214; legal deci-
sions, 205; treatment in ac-
counts, 203.

Assets accounts, 19.

Atchison, Topeka & Santa Fe* Ry.,

49, 60, 67, 150, 184, 242.
Atlantic Coast Line, 228.
Austria, accounting rules in, 92,

102, 124, 149, 159, 224, 240.

Babbage, C., 293.

Badham v. Williams, 225.

Balance, 18.

Balance account, 41.

Balance sheet, ch. iii ; accuracy in,
55, 83; of Atchison, Topeka
& Santa Fe Ry., 60, 184;
and balance account, 41;
classes of items in, 50; double
account, 48, 184, 202; English
form, 42 ; history of, 40 ; mar-
shaling items in, 46; misrep-
resentations in, 55 ; model
forms of, 59-66; purposes of,
54; subdivisions in, 45; and
trial balance, 37; two sides of,

Balancing, 29.

Bank of England, 84.

Bank of France, 92.

Barrow Haematite Steel Co., in r#,
109", 219.

Belfast & Moosehead Lake Ry. Co.
v. Belfast, 229, 268.

Bills rediscounted, 32.

Birmingham Small Arms Co.,




Bolton v. Natal Land & Coloniza-
tion Co., 86.

Bond v. Barrow Haematite Steel
Co., 124, 206", 210, 214.

Bonds, discount on, 77, 96, 188;
formula for value of, 94 ; pre-
mium on, 93, 187, 222; repay-
able at a premium, 190; re-
purchased, 191; in sinking
fund, 269; unissued, 190; val-
uation of, 90.

Bookkeeping, "American," 345;
double entry, 9; equation, 1,
28; single entry, 7, 10.

British East India Co., 41.

Breaker and Chapman, 332, 339.

Buildings, valuation of, 88.

Burton, F. G., 307.

Butler v. Ballard, 330'.

Calculating machines, 352.

Caldicott, O. H., 116.

Camden v. Stuart, 115, 157.

Capital, chs. viii-ix; circulating,
. 208, 210, 214, 218; fixed, 116,
208, 210, 214; interest on,
321; and revenue, 72; wast-
ing, 206.

Capital account, of corporation,
145; of individual, 144; in
partnership, 144, 317.

Capital assets, 46; appreciation of,

Capital losses, 199; in American
courts, 211; booking of, 218;
and dividends, 214-221; in
English courts, 205-211 ; when
not to be shown, 221.

Capital stock, canceled, 151; in
consolidations, 179; discount
on, 158; donated, 176; issued
for property, 79, 161-171;

market value of, 163; nomi-
nal value of, 165; premium
on, 155, 221, 222; reacquired,
151; reduction of, 159; sale
below par, 157; subscriptions
to, 147; uncalled subscriptions
to, 153; unissued, 147.

Capital stock issued below par,
157, 161 ; in American balance
sheets, 168; booking of, 158,
167; in England, 158; legal
decisions, 157, 165; for prop-
erty, 163; unnecessary, 163.

Cash account, 5, 19"; position in
balance sheet, 46.

Cash book, 343, 346.

Chemical National Bank, 63, 64,
68, 240.

Chicago & Alton Ry., 46.

Chicago & Northwestern Ry., 32",
253, 266; sinking fund, 263,
266, 268; treasury stock of,
152; unissued bonds of, 191.

Chicago City Railway, 290.

Chicago, Rock Island & Pacific
Ry., 262.

Child, P., 116.

Chronological record, 341-345.

Church, A. H., 300, 302, 303, 305.

Circulating assets, 81, 210.

Circulating capital, 208, 214, 218.

Clearwater v. Meredith, 216.

Coats, J. & P., 55.

Colorado Fuel & Iron Co., 221.

Columbia Straw Paper Co., 112,

Columnar journal cash book, 344.

Columnar records, 343, 345.

Companies Acts, Great Britain,
42, 55, 66, 68, 77, 153, 158, 171,
248.. 335, 339; Quebec, 149.

Connecticut corporation law, 80.



Consolidations, 179.

Construction account, 72, 75, 77,
78, 118, 189.

Contingent liabilities, 32, 192.

Controlling account, 119.

Conville v. Shook, 125.

Cooper, E., 116, 228.

Corporate organization, effect on
accounting, 355.

Cony v. Londonderry & Ennis-
killen Ry., 228.

Cost, factory, 296; prime, 296;
total, 296.

Cost accounts, ch. xvi, 293; ac-
curacy of, 306; application of
results, 307; cost ledger, 313;
expense of, 306; in Govern-
ment Printing Office, 306;
materials, 309; purpose of,
293; records needed, 309; req-
uisitions, 312; stores record,
311; technic of, 308; terminol-
ogy, 295; wages, 309.

Cost price, 90; actual or construc-
tive, 103; as basis of valua-
tion, 75, 102, 108; what
constitutes, 75; of property
purchased with securities, 79.

Getting v. New York & New Eng-
land R.R. Co., 213.

Courts, attitude regarding over-
valuation, 162; regarding
profits, 231.

Cox v. Edinburgh & District
Tramways Co., 73.

Credit, 19, 20.

Credit system, effect of account-
ing, 355.

Crichton's Oil Co., in re, 209.

Davis v. Flagstaff Silver Mining
Co., 229.

Davison v. Gillies, 124, 201'.

Dawson, S. S., 248.

Day book, 343.

Debit, 19, 20.

Debits and credits, equation of,
23, 28; personification of, 21;

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Online LibraryHenry Rand HatfieldModern accounting, its principles and some of its problems → online text (page 26 of 27)