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International
Library of Technology



234



A SERIES OF TEXTBOOKS FOR PERSONS ENGAGED IN ENGINEER-
ING PROFESSIONS, TRADES, AND VOCATIONAL OCCUPATIONS
OR FOR THOSE WHO DESIRE INFORMATION CONCERN-
ING THEM. FULLY ILLUSTRATED



ACCOUNTING/METHODS OF BANKS

OPERATING ON THE NEW YORK STOCK

EXCHANGE .

STOCK-BROKERAGE ACCOUNTING

METHODS

ACCOUNTS FOR STEAM ROADS

ACCOUNTS FOR MINING COMPANIES

ACCOUNTS FOR INSURANCE COMPANIES

MUNICIPAL ACCOUNTING

GRAPHS

C. P. A. QUESTIONS AND ANSWERS



SCRANTON

INTERNATIONAL TEXTBOOK COMPANY

1921



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I 4 :^ a. '. 55G5H



Accounting Methods of Banks: Copyright, 1920, by International Textbook
Company.

Operating on the New York Stock Exchange: Copyright, 1920, by International
Textbook Company.

Stock-Brokerage Accounting Methods: Copyright, 1920, by International Text-
book Company.

Accounts for Steam Roads: Copyright, 1915, by International Textbook
Company.

Accounts for Mining Companies: Copyright, 1915, by International Textbook
Company.

Accounts for Insurance Companies: Copyright, 1915, by International Text-
book Company.

Municipal Accounting: Copyright, 1920, by International Textbook Company."

Graphs: Copyright, 1915, by International Textbook Company.

C. P. A. Questions and Answers: Copyright, 1915, by In-^ernational Textbook
Company.



Copyright in Great Britain



All rights reserved



PSXSS OF

Intbxnational Tsxtbook Company

SCRANTON« Pa.



91352



234



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PREFACE



The volumes of the International Library of Technology are
made up of Instruction Papers, or Sections, comprising the
various courses of instruction for students of the International
Correspondence Schools. The original manuscripts are pre-
pared by persons thoroughly qualified both technically and by
experience to write with authority, and in many cases they are
regularly employed elsewhere in practical work as experts.
The manuscripts are then carefully edited to make them suit-
able for correspondence instruction. The Instruction Papers
are written clearly and in the simplest language possible, so as
to make them readily understood by all students. Necessary
technical expressions are clearly explained when introduced.

The great majority of our students wish to prepare them-
selves for advancement in their vocations or to qualify for
more congenial occupations. Usually they are employed and
able to devote only a few hours a day to study. Therefore
every effort must be made to give them practical and accurate
information in clear and concise form and to make this infor-
mation include all of the essentials but none of the non-
essentials. To make the text clear, illustrations are used
freely. These illustrations are especially made by our own
Illustrating Department in order to adapt them fully to the
requirements of the text.

In the table of contents that immediately follows are given
the titles of the Sections included in this volume, and under
each title are listed the main topics discussed. At the end of
the volume will be found a complete index, so that any subject
treated can be quickly found.

International Textbook Company



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CONTENTS



Accounting Methods of Banks Section Page

Bank Bookkeeping 31 - 1

Bookkeeping System .31 3

Receiving Teller 31 4

Paying Teller 31 10

Collection Department 31 17

Note Teller 31 23

Proof-Book Clerk 31 29

Individual-Ledger Bookkeeper 31 31

General-Ledger Bookkeeper 31 37

The Clearing House 31 42

Bank Statement 31 47

Bank Examination \ . . . 31 49

Operating on the New York Stock Exchange

Early History of Exchange Systems 32 1

Listing Securities 32 4

Operators on the Exchange 32 6

Trading on the Exchange 32 7

Use of Credit in the Stock Market 32 13

Classes of Stock 32 17

Wall Street's Instruments 32 18

Language of the Street 32 21

Recording a Purchase and Sale 32 22

The Curb Market 32 25

Stock-Brokerage Accounting Methods

Books and Methods Used 33 1

Order Book 33 2

Purchase and Sales Book 33 5

Customer's Margin Record 33 9

V



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yi . CONTENTS

Stock-Brokerage Accounting Methods — .

Continued, Section Page

The Blotters 33 11

Revenue Tax Register 33 22

Customers' Ledger 33 25

Customer's Statement 33 28

Securities Ledger 33 30

Stocks Borrowed and Loaned Book 33 32

Money Borrowed and Loaned Book 33 34

Stock Transfer Register 33 37

Vault List 33 39

Private Ledger .* 33 40

General Ledger 33 41

Closing the Books 33 41

Audit of a Brokerage Firm's Books 33 45

The Clearing House 33 48

Accounts for Steam Roads

Investment in Road and Equipment 34 1

New Investment Classification 34 3

Primary Accounts , 34 4

Primary Accounts Requiring Special Study. 34 7

Equipment 34 11

General Expenditures 34 12

Study of Classification .... , » . 34 14

Operating Revenues and Operating Ex-
penses . • 35 1

Depreciation 35 5

Operating Expenses on Account of Wages

Paid Employes 35 8

Study of Classification ,35 14

Income, Profit-and-Loss, and General

Balance-Sheet Accounts 36 1

Study of Classification 36 13

Accounts fob Mining Companies

Accounting Methods 37 1

Books and Accounts 37 2

Actual Report of a Mining Company 37 ' 16



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CQNTENTS vii

Accounts for Insurance Companies Section Page

Life Insurance 38 1

Insurance Contracts 38 1

Methods of Conducting Life-Insurance

Companies 38 2

Business of a Company 38 6

Fire Insurance 38 14

Municipal Accounting

General Explanations 39 1

Municipal Corporations 39 5

The Budget 39 13

The Accounting Plan , . 39 20

Books Used .' 39 20

The Accounts 39 21

Current Accounts 39 23

Assessment Accounts 39 41

Capital and Sinking Fund Accounts 39 50

Trust Accounts 39 56

Appendix (Annual Report) 39 59

Graphs

Use and Preparation of Graphs 41 1

Straight-Line Graphs 41 2

Broken-Line Graphs 41 7

Circle Graphs 41 13

C. P. A. Questions and Answers

Preliminary Remarks 42 1

Questions and Answers ... * 42 2

Questions and Answers (Continued) 43 1



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ACCOUNTING METHODS OF
BANKS



METHOD OF WORK



INTRODUCTION

1. Bank bookkeeping, so called, consists principally of
making records of transactions on separate forms, and the
main part of the work, therefore, is bookkeeping only in a
limited sense. The forms used differ considerably and the
system followed varies, but the method in all banks is the same
in principle. The work of a bank is divided among the dif-
ferent departments, the number of which vary according to
the importance of the bank and the volume of business trans-
acted. In treating of bank bookkeeping, therefore, it seems
advisable to describe the work as it would be done in a bank
of average size and with an organization such as is found in
one of the smaller cities of the country.

2. For the purpose of description, we have assumed that
the bank under consideration is located in Hartford, Connecti-
cut, and that it is named the Equitable National Bank. It has
a capital stock of $500,000 and a surplus of $200,000 and dpes
an ordinary commercial business. Its principal officers are
M. A. Bigelow, president, and J. E. AUard, cashier. It is a
member of the Hartford Clearing House Association and its
clearing house number is 6. The following is a list of the
names and numbers of all the Hartford banks belonging to
the Clearing House Association: (1) Hartford National

COPYRIOHTED SY INTERNATIONAL. TKXTSOOK COMPANY. ALL RIOHTS RESERVED

§31

ILT 234-2



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2 ACCOUNTING METHODS OF BANKS § 31

Bank, (2) Farmers and Mechanics National Bank, (3)
National Exchange Bank, (4) State Bank, (5) First National
Bank, (6) Equitable National Bank.

The Hartford banks not members of the Clearing House
Association are: Merchants Bank, Security Trust Company.

The principal correspondents of the Equitable National Bank
are the Eastern National Bank of New York and the First
National Bank of Boston.

3. The work of the bank is divided among seven depart-
ments, which are: (1) Receiving teller, (2) paying teller,
(3) collection clerk, (4) note, or discount, clerk, (5) proof-
book clerk, (6) individual-ledger bookkeeper, (7) general-
ledger bookkeeper. This division of the work represents
merely what is considered to be convenient in carrying on the
work of this particular bank. The employes of the bank rank,
according to the importance of their positions, as follows:
Paying teller, receiving teller, discount clerk, general-ledger
bookkeeper, individual-ledger bookkeeper, collection clerk,
proof-book clerk.

4. In the wo^k of the bank all checks and other items pay-
able at banks that are members of the Hartford Clearing House
Association are classed as clearings. Items payable at banks
not members of the Association are classed as non-clearings.

Each non-member of the clearing house carries an account
with a bank that is a member, and this bank clears for such
depositor bank all its checks drawn on clearing-house members.

Special arrangements are made by the Clearing House Asso-
ciation to clear each afternoon at a given time items drawn on
banks in near-by towns, known as foreign clearing-house banks.
By this arrangement all items drawn on the banks in one place
are sent direct to a town in one letter. Items drawn on banks
in distant places are sent to the correspondent banks in New
York or Boston.



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§31



ACCOUNTING METHODS OF BANKS



BOOKKEEPING SYSTEM

5. The bookkeeping system followed here is known as the
loose-leaf strike-sheet system. By this system the records of
the receiving teller, paying teller, note teller, and collection
clerk are made on individual sheets designated as strike
slieetSy and the work of each one can be proved by itself and
also by the figures in the proof book.

All items and checks from the different departments are
sent to one place, where they are entered in what is called the




Fig. 1

proof book under headings for each department. As an
equal debit or credit is made for each item received, the general
strike of the total amount and the amounts of the different
departments should agree.

When a strike, or proof, is made of the work and it is found
that the debit and credit sides of the proof book agree, the
items are distributed to the individual-ledger bookkeeper,
general-ledger bookkeeper, local and foreign clearing houses,
and the correspondent clerk. The total of the items posted by



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ACCOUNTING METHODS OF BANKS



§31



the bookkeepers must agree with the figures shown by the
proof book.

The day's work of a bank is balanced when the total amounts
of all the different departments agree with the figures shown
by the proof book and the debit and credit sides of the proof
book agree.

6. The relation of the departments of a bank to each other
will be seen by a reference to the chart shown in Fig. 1. It
will be seen from this that the proof-book department is the
central point in bank work, as all items go to this department
on their way to the ledgers and the clearing house. Of the
total amount taken in by a bank, about one-half is handled by
the receiving teller, one-fourth by the paying teller, and one-
eighth each by the discount and collection tellers. As already
stated, all transactions are sent to the proof-book department
and are distributed from there in about equal ^mounts to the
individual ledger, the general ledger, and the clearing house.



RECEIVING TELLER



7. The receiving teller ranks in importance after the paying
teller. It is his duty to receive the deposits of customers and
to enter the amount and the date in the pass book of each one.



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Mg Myers James



tM^MnmU SgMtar* for EQUITABLE HATIONAL BANK. HARTFORD. CONN.






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Fig. 2



The record of the daily work of the receiving teller is made
on the receiving teller's strike sheet and a daily balance sheet
These sheets are dated and filed after the day's work is
balanced.



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§31



ACCOUNTING METHODS OF BANKS



8. The transactions of the receiving teller involve the use
of the following forms :

On opening an account at a bank, each customer is required
to fill out a sigrnature card similar to the one shown in
Fig. 2. The customer writes his name on this card in exactly
the same way it will be signed on checks, gives his home or
business address, the nature of his business, and the name of
the person by whom he was introduced to the bank. If the
depositor is a firm or corporation, the card shows the names of
the partners or those of the corporation officers authorized to
sign checks. After the car^ is
filled out, the date the account
was opened, and the name of the
customer is typewritten at the
top by the bank, and the card is
then filed alphabetically in a case
located conveniently for the tell-
ers and bookkeepers to compare
signatures on checks.




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9. Deposit tickets, the

form of which is shown in
Fig. 3, are furnished for the
use of depositors, who are ex-
pected to make them out. This
saves the time of the teller but it
has a greater advantage of fa-
cilitating a checking of the items
by him. In making out a deposit ticket, the depositor writes
the date and his name in the spaces at the top and lists
the items of a deposit in the lines below. Currency, gold,
silver, and checks are listed separately as shown. Checks
drawn on the bank where the deposit is made are usually desig-
nated by the name of the drawer, those drawn on other local
banks by the name of the bank, and those drawn on out-of-
town banks by the name of the bank and the city or town and
state in which it is located or more frequently only by the name
of the city or town.



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ACCOUNTING METHODS OF BANKS



§31



When a deposit is received, the teller verifies the items by
counting the cash and comparing the amounts on the checks



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with the amounts listed on the deposit slip. Each check must
be examined carefully to see that it is made out in proper form
— ^that is, that it is dated, that the amount given in figures and
in words agree, that it is signed by a responsible person, and
that it is properly indorsed. If the amount of a check is not
expressed the same in figures and in words, the amount written
in words is taken as correct. After the items of the deposit

slip are checked, the col-
umn of figures is added
and the total entered in
the depositor's pass book.

10. A pass book, the

form of which is shown in
Fig. 4, is a book furnished
to each depositor when his
account is opened. It
serves as a receipt book and
is presented each time a
deposit is made. In mak-
ing an entry, the date of
the deposit is given on the
left-hand side of the page and the amount on the right-hand
side. Proceeds of discounts and collections are entered from




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§31



ACCOUNTING METHODS OF BANKS



credit slips made out by the note or collection clerk, in which
case the initials of the clerk who made out the slip are entered
in the column between the date and the amount columns.

If the pass book is not presented with a deposit, the receiv-
ing teller makes out a credit slip similar to that shown in Fig. 5.

11. The receiving teller's strike slieet is of the form
shown in Fig. 6. Only the cash transactions of the teller are
shown on the sheet, the total amount of currency, gold, and



.^/-/f RECEIVING TELLER'S STRIKE SHEET






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silver of each deposit being entered as one item. Checks listed
on deposit slips are not considered as cash and are not entered
on the sheet, being disregarded in balancing the daily work of
the receiving teller. When more than one receiving teller is
employed, the work of each is distinguished by a pencil of a
certain color. After the cash part of a deposit is recorded on
the teller's sheet, the deposit slip and checks are sent to the
proof-book department. At the close of the day's work the
receiving teller's sheet is footed, the total showing the amount
received during the day.



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§ 31 ACCOUNTING METHODS OF BANKS 9

12. The receiving teller's daily balance sheet, shown in
Fig. 7, is a form used for recording the amount of cash in the
hands of the teller at the close of the day's business. The
various denominations are counted and the amount of each
entered in the column under the proper heading. In the column
headed Nickel is entered the amount in pennies and under it
the amount in five-cent pieces. In the Silver column are
entered in order, one under the other, the amounts in ten-cent
pieces, twenty-five cent pieces, and fifty-cent pieces, and finally
the amount in silver dollars. In the Gold column are entered
the amounts in the various denominations of gold coins; and
in the Bills column are entered the amounts of each of the
various denotninations of bills. After the cash is thus listed,
the columns are totaled and the totals carried to the recapitu-
lation column on the right-hand side of the sheet. The total
of this column shows the actual amount on hand, but in order
to compare this with the total of the teller's strike sheet. Fig. 6,
the amount brought over from the previous day's business must
be deducted. As shown in Fig. 7, the amount was $1,000, and
the balance agrees with the amount in Fig. 6. The $1,000
is again added to give the amount on hand, and from this sum
is deducted any amount turned over to the paying teller, which
leaves the amount to be carried over to the next day's business.



TRANSACTIONS

13. The following were the transactions at the receiving
teller's window on Tuesday, September 8, 19 — :

Deposit of new customer:
James Myers,

Bills $ 60.00

Coin 1125

Checks

J. H. Steele & Co 150.00

First, Boston 287.50

First National 400.00

Hartford 5.00

Springfield, Mass 194.10

$1,107.85



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10 ACCOUNTING METHODS OF BANKS § 31

Deposits of- regular customers :
W. H. Gillette & Co.,

Bills $ 106.44

Gold 40.00

Checks

Farmers & Mechanics 984.90

Chattanooga 1,564.00

Merchants 10.00

$2,705.34
F. T. Peabody,

Bills $ 320.00

Coin .- 57.75

Checks

W. H. Gillette & Co 400.00

James Myers 158.80 .

National Exchange 631.00

Security Trust 1,040.61

$2,608.16
Lucy B. Fostelle,

Bills $ 50.00

Checks

First National 10.00

National Exchange 42.00

F. T. Peabody 30.00

$ 132.00
Cash on hand in detail at the close of business :

Gold coin ^ $ 50.00

Bank notes 1,536.00

Fractional silver 58.75

Nickels and cents .69



$1,645.44



PAYING TELLER

14. The paying teller of a bank ranks in importance next
to the officials. He has charge of the bank's money, and it is



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