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ments, first revised is^ue, effective July 1, 1910. It also supersedes con-
flicting instructions contained in Accounting Bulletin, No. 8.



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4 ACCOUNTS FOR STEAM ROADS § 34

The plan of merging the accounts of expenditures for additions and
betterments with the accounts for investment in road and equipment
provides that carrier's records shall be kept in such form that the expendi-
tures for additions and betterments may be reported separately from those
for original road, original equipment, and road extensions.

Distinct accounts have been provided for the investment in several
classes of buildings which, under the former Classification, were included
in the account Miscellaneous Structiu'es.

The general and special instructions contain a comprehensive statement
of the principles underlying the Qassification, indicating generally the
application of the accounting rules. The attention of accounting ofl&cers
is called to the imp>ortance of reqtiiring all employes who are assigned to
accounting work in connection with investment in road and equipment
to familiarize themselves thoroughly with these instructions.

In the preparation of the revision of the accounting rules contained in
this and other Classifications for steam roads, which are concurrently
issued, the Commission has had the cooperation of the Association of
American Railway Accounting Officers, and of its Standing Committee on
Corporate, Fiscal, and General Accounts.

The Qassification, in tentative form, was presented for criticism and
suggestions to the chief accounting officer of each railway and to the rail-
way commissions of the several States. All suggestions received from such
parties have been given careful consideration and many of them have
been incorporated in the Classification as here issued.



PRIMARY ACCOUNTS

7. Division of Accounts. — ^The accounting system pre-
scribed in this classification provides for three general classes of
accounts— road, equipment, and general expenditures — each of
which is subdivided into primary accounts as follows:



Road



1.


Engineering


11.


2.


Land for transportation pur-


12.




poses


13.


3.


Grading


14.


4.


Underground power tubes




5.


Tunnels and subways


15.


6.


Bridges, trestles, and culverts


16.


7t


Elevated structures


17.


8.


Ties


18.


9.


Rails


19.


10.


Other track material


20.



Ballast

Track laying and surfacing

Right-of-way fences

Snow and sand fences and

snowsheds
Crossings and signs
Station and ofl&ce buildings
Roadway buildings
Water stations
Fuel stations
Shops and enginehouses



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§34 ACCOUNTS FOR STEAM ROADS 6

21. Grain elevators 36. Paving

22. Storage warehouses 37. Roadway machines

23. Wharves and docks 38. Roadway small tools

24. Coal and ore wharves 39. Assessments for public im-

25. Gas-producing plants provements

26. Tel^raph and telephone lines 40. Revenues and operating ex-

27. Signals and interlockers penses during construction

28. Power dams, canals, a^d pipe 41. Cost of road piurchased

lines 42. Reconstruction of road pur-

29. Power-plant buildings chased

30. Power-substation buildings 43. Other expenditures, road

31. Power-transmission systems 44. Shop machinery

32. Power-distribution sjrstems 45. Power-plant machinery

33. Power-line poles and fixtures 46. Power-substation apparatus

34. Underground conduits 47. Unapplied construction mate-

35. Miscellaneous structures rial and supplies

Equipment

51. Steam locomotives 55. Motor equipment of cars

52. Other locomotives 56. Floating equipment

53. Freight-train cars , 57. Work equipment

54. Passenger-train cars 58. Miscellaneous equipment

General Expenditures

71. Organization expenses 75. Taxes

72. General officers and clerks 76. Interest during construction

73. Law 77. Other expenditures, general

74. Stationery and printing

8. Handling of Primary Accounts. — The proper han-
dling of these accounts is explained in the special instructions
given in connection with each account and in fourteen para-
graphs of general instructions as follows:

Accounts for investment in road and equipment, items to
be charged, basis of charges, cost of construction, excavated
material, items to be credited, property retired and replaced,
property retired and not replaced, equipment retired, land
retired, adjustments for converted property, expenses in con-
nection with additions and betterments, interpretation of item
lists, submission of questions.

A close study of each paragraph in the general instructions
will bring out many important features. For example, the
second paragraph deals with the construction of the original
road and original equipment, also the construction of new road



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6 ACCOUNTS FOR STEAM ROADS § 34

that was in the original plan but the construction of which was
deferred, as well as the purchase of the equipment for it. It
also deals with fixed improvements, such as ttmnels, bridges,
btdldings, earthworks, etc.; with additional facilities, such as
additional eqtdpment, tracks, buildings, bridges, and other
structures; and with betterments, which improve the existing
facilities through the substitution of superior parts for inferior
parts retired. While these are presented clearly, without close
analysis they will be more or less confusing.

9. Original Investments. — In the investment accoimts
a distinction is made between original investments, additions,
and betterments, and the records must be kept with sufficient
care that expenditures for additions and betterments may be
reported separately from those for original road, original
equipment, and road extensions, and will show separately the
expenditure imder each authorized addition and betterment.

Original investment includes cost of'land, bridges, buildings,
tunnels, earthworks, etc. provided and arranged for under the
original plan for the construction of a new road or construction
of extensions of existing main lines, additional branch lines,
and extensions of existing branch lines. Also rolling stock,
boats, highway vehicles, etc., when provided and arranged for
under the original plan for the construction of a new road, are
classed as original investment. Equipment purchased on
accoimt of increased mileage of tracks is not classed as original
investment but as additions.

Original road and road extensions shall not be construed to
include fixed improvements that imder the original plans for
the roads or extensions it is proposed to substitute, at some time
subsequent to the beginning of commercial operations, for the
improvements originally installed and used for transportation
operations, such as steel bridges substituted for trestles.

10. Additions and Betterments. — Under the head of
additions come also additional facilities, such as additional
tracks, eqtdpment, buildings used in connection with transpor-
tation, bridges, additions to buildings, extensions to tracks,
additional ties laid in existing tracks, air brakes applied to cars



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§ 34 ACCOUNTS FOR STEAM ROADS 7

not previously thus equipped, etc. When the acquisition of
equipment under the original plan is deferred, such eqtiipment,
when acquired, shall be considered as additions.

Betterments are improvements of existing facilities through
the substitution of superior parts for inferior parts retired, such
as the substitution of steel-tired wheels for cast wheels tinder
rolling stock. The cost chargeable to betterments is the excess
cost of new parts over the cost, at current prices, of new parts
of the kind retired.

II, When entering investment items, care should be taken
not to include items showing investment in property not devoted
to transportation, as such items appear in the balance sheet
under the heading Miscellaneous Physical Property.



PRIMARY ACCOUNTS REQUIRING SPECIAL STUDY

12, Usually the name of a primary accotint will clearly
indicate its use. There are primary accotints tuider each general
accoimt, however, that require special study, for there may be
items chargeable to them that at first it may be thought should
be charged to some other account ; also, there may be some items
that it would seem should be charged to them that by the general
or special instructions of the classifications must be charged
to another account. Under this general account, a few of the
primary accounts requiring special study are the following:

13, Account No. 1, Elngineerlng. — ^Account No. 1
includes the pay and expenses of engineers, assistants, and clerks
engaged in the survey and construction of new lines and exten-
sions, and in making additions and betterments of the carrier's
road, including wharves and docks. When, however, such
employes are engaged in the maintenance of road their pay and
expenses must be charged to operating expenses. If they are
engaged in preliminary surveys, such expense must be carried
in a suspense accotint until it is determined whether the work
shall continue or not. If the work is continued, the preliminary
expense must be transferred to the proper account for the work;



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8 ACCOUNTS FOR STEAM ROADS § 34

but if the plan is abandoned, this preliminary expense must be
transferred to operating expenses, income, or profit and loss,
as may be appropriate. As a result, the handling of pay and
expenses in this department must oftentimes be distributed to
other accotmts the same as in industrial cost accounting.

14. Account No. 6, Bridges, Trestles, and Culverts.

Account No. 6 includes the cost of substructures and super-
structures that carry the tracks of the carrier over water courses,
highways, and other railways. When, however, a bridge or
trestle is converted, by filling, into an earth embankment,
the value of the structure so used must be adjusted between this
accotmt and accounts for grading, and operating expenses.
Another peculiarity in connection with this account is that while
the cost of bridges over under-grade crossings including the
necessary piers and abutments for sustaining the bridges shall
be charged to this account, the cost of under-grade roadways,
paving on right of way, drainage systems, and retaining walls
outside of the bridge abutments is to be charged to Accoimt
No. 15, Crossings and Signs.

15. Account No. 12, Track Laying and Surfacing.

The cost of distributing, laying, and adjusting ties and other
track materials used in construction of structures including
repair tracks for the movement or storage of locomotives or
cars is chargeable to Account No. 12, but not the cost of tracks
for car floats or temporary tracks. The cost, however, of
handling track material for repairs, both when such material is
replaced in kind and when replaced with improved or heavier
material, is chargeable to operating expenses. Therefore,
repairs are to be paid for from revenue and not to be confused
with construction costs.

16. Account No. 16, Crossings and Signs. — To

Accotmt No. 15 is charged the cost of constructing farm passes,
highways, and other railway crossings across the carrier's right
of way, except railways crossing at grade. The cost of bridges
or trestles carrying tracks over roads, highways, or other
railways is to be charged to Accotmt No. 6, Bridges, Trestles,



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§ 34 ACCOUNTS FOR STEAM ROADS 9

and Culverts. The cost df a bridge or other structure that
carries farm passes, highways, or the tracks of another carrier
over the accoimting carrier's tracks is to be included in this
account. But it is necessary to notice that a bridge taking the
accounting csurier's tracks over the tracks of another carrier
is charged to bridges, while a bridge built by the accounting
carrier to carry the tracks of another, over the accounting
carrier's tracks is charged to the account. Crossings and Signs.
The cost of shop and station over-grade foot-bridges and sub-
ways not public highways are to be included in the cost of the
building.

17. Account No. 16, Station and Office Buildings.

To Account No. 16 is charged the cost of station and office
structiu*es, including the fixtures, furniture, etc. necessary first
to equip the building for use. But buildings used^ exclusively
in connection with the maintena^ice of way are to be charged to
Account No. 17, Railway Buildings; and those used exclusively
in connection with the maintenance of equipment are to be
charged to Account No. 20, Shops and Engine Houses.

The cost of grading and preparing grounds both before and
after the construction of the station and office building, including
the cost of sidewalks, driveways, etc., should be charged to the
cost of the building, but the cost of restoring the grounds after
addition and betterment work must be charged to the appro-
priate operating expense account. The cost of permanent water
rights should be included in the cost of the building.

18« Account No. 23, Wharves and Docks. — ^Accoimt
No. 23 includes wharves, docks, dry docks, slips, float bridges,
and other landings including the dredging* and float bridge
machinery, etc., except that the cost of coal and ore wharves
and docks is charged to Account No. 24, Coal and Ore Wharves.

The cost of the land on which wharves are built and the cost
of riparian rights are not charged to this account but to Account
No. 2, Land for Transportation Purposes. The cost of buildings
located on the wharves is to be charged to the accoimts appropri-
ate for the class of building.



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10 ACCOUNTS FOR STEAM ROADS § 34

19. Account No. 27, Signals and Interlockers.

Account No. 27 includes the cost of interlocking and other signal
apparatus for governing the movement of trains, including the
towers and other btiildings in connection therewith. If, how-
ever, the apparatus is located in a station btiilding, the entire
cost of the btiilding should be included in Accotmt No. 16, Sta-
tion and OflSce Btiildings.

20. Account No. 32, Power Distribution Systems.

Account No. 32 includes the cost of distribution systems,
whether overhead, surface, or underground, for conveying low-
tension electric power from producing plants or transformer
stations to trains and cars, or for power, heat, light, or general
purposes.

The cost of distribution systems located in shop buildings, or
station and oflSce buildings, should be included in the cost of the
building.- The cost of distribution systems used exclusively
for operating signals and interlockers shall be charged to Account
No. 27, Signals and Interlockers.

When the electric current generated or received is changed
by means of converters, generator sets, or static transformers,
that portion of the line or outside conductor system carrying
current of other than the operating kind of voltage should be
classed as transmission system, and all of its expense charged to
Account No. 31, Power Transmission Systems; but when the
electric current is generated or received and used substantially
unchanged in voltage and kind, the line or outside conductor
system shall be classed wholly as a distribution system.

21. Account No. 36, Paving. — ^Account No. 36 is to be

charged with the cost of paving about tracks in public highways
through which the carrier^s tracks are laid. The cost of paving
upon the carrier's lands within the grounds of buildings or other
structures must be charged to the accounts provided for the
.costs of those structures; and the cost of paving upon the car-
rier's right of way at crossings must be charged to Account
No. 15, Crossings and Signs.

In the handling of the expense for paving is shown the thor-
oughness with which the Commission has gone into detail in



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§34 ACCOUNTS FOR STEAM ROADS U

the division of cx>sts in connection with the la3mig out of this
classification.

22. Account No. 45, Power-Plant Macliineiry. — ^The
cost of machinery and other apparatus for generating power in
power plants used for the operation of trains and cars, or for
furnishing power, heat, and light for stations, shops, or general
ptirposes, including the cost of special foundations and installa-
tions, must be charged to Account No. 45. The cost of founda-
tions other than those special to particular machines and other
apparatus shall be included in the cost of the building and not in
this accoimt.

Power machinery installed in a shop as a part of the shop
equipment must, however, be charged to Account No. 44, Shop
Machinery. Power machinery and other apparatus installed
in stations and oflSces solely for use there shall be included in
Accotmt No. 16, Station and Office Buildings. Power machinery
and apparatus in plants used solely for operating signals must be
charged to Account No. 27, Signals and Interlockers.



EQUIPMENT

23» The several primary accounts under the general equip-
ment account are designed to show the cost of the several classes
of equipment owned by the carrier, or held imder equipment-
trust agreements for purchase. The appropriate primary
accotmt shall be charged with the cost of all equipment, the
costs of additions, and the excess cost of betterments. The
cost of removing the old appliances and applying the improve-
ments shall be charged to operating expenses.

The ledger value of each unit of equipment shall be credited
to the appropriate equipment account when it is retired from
service. The amotmt of this credit shall be concurrently
charged as follows:

The amount of the balance-sheet accrued depreciation account with
respect to the equipment thus retired shall be charged to that account;
the salvage recovered shall be charged to the materials and supplies account
or elsewhere, according to the purpose for which used; the amount of
depreciation prior to July 1, 1907, not previously written off or provided
ILT 234—11



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12 ACCOUNTS FOR STEAM ROADS § 34

for, shall be charged to profit and loss; and the remainder shall be charged
to the appropriate operating expense account for equipment retired.
The cost of demolishing the equipment, if demolished by or for the carrier,
shall be charged to the appropriate operating expense account for equip-
ment retirements.

When the cost of the renewals to be made to any unit of equipment
will constitute the major portion of its value as renewed, the equipment,
when taken out of service, shall be considered as retired and accounted
for as provided in the preceding paragraph, and for the purpose of this
classification the renewed equipment shall be considered an addition and
the appraised cost thereof shall be included in the account appropriate for
the cost of the equipment. In no case shall the charge for the renewed
equipment exceed the cost (at current market prices of labor and material)
of new equipment of similar type, equal capacity, and equal expectation
of life in service, less a suitable allowance on account of the second-hand
parts remaining therein.

When an important addition and betterment project or the construction
of new lines^ necessitates the purchase of equipment to be used exclusively
therein, the cost of such equipment shall be included in the accounts
representing the cost of the work, and no charge shall be made to operating
expenses for depreciation on such equipment while the cost remains so
charged. The amount realized from any subsequent sale, or the appraised
value of the equipment retained after the completion of the special work
for which it was purchased, shall be credited to the accounts charged with
its cost. The appraised value of such equipment retained shall be debited
to the appropriate primary account herein, and thereafter, for the purposes
of accounting, such appraised value shall be considered as the cost of the
equipment.

When second-hand equipment acquired is in such physical condition
that it is necessary to make extensive repairs to it to bring it up to the
standard required by the carrier, the cost of such repairs shall be included
in the account appropriate for the cost of the equipment. A compre-
hensive statement of the amount estimated to be necessary to rebuild
second-hand equipment in accordance with the above provision shall be
furnished to the Commission as soon as the estimate is made.



GENERAL EXPENDITURES

24. The primary accounts of the general expenditures
accoimt are designed to include expenditures made in connection
with the acquisition and construction of original road and equip-
ment, and with extensions, additions, and betterments, to road
and equipment property, when such expenditures cannot prop-
erly be included in any of the foregoing accoimts as a part of



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§34 ACCOUNTS FOR STEAM ROADS 13

the cost of any specific work. When assignable, such expen-
ditiires shall be included in the cost of the property in ccmnection
with which the expenditures occur.

25» Account No. 71, Organization Expenses.

Account No. 71 shall include all fees paid to governments for
the privilege of incorporation, and oflSce'and other expenditures
incident to organizing the corporation and putting it in readiness
to do business; cost of preparing and distributing prospectuses;
cost of soliciting subscriptions for stock; cash fees paid to
promoters, and the actual cash value (at the time of the organiza-
tion) of securities paid to promoters for their services in organiz-
ing the enterprise; special counsel fees; cost of preparing and
issuing certificates of stock; cost of procuring the necessary
certificates from State authorities; and other like costs. The
cost of soliciting for loans or for the sale of bonds or other
evidences of indebtedness, however, shall be charged to the
balance-sheet Account No. 725, Discotmt on Ftmded Debt.

26. Account No. 76, Interest During Construction.

The handling of Account No. 76 is so important that all that is
said in the classification tmder this accotmt is given here. It is
as follows:

When any bonds, notes, or other evidences of indebtedness are sold, or
any interest-bearing debt is incurred for acquisition and construction, of
original road and equipment, extensions, additions, and betterments, the
interest accruing on the part of the debt representing the cost of property
chargeable to road and equipment accounts (less interest, if any, allowed
by depositaries on unexpended balances) after such funds become avail-
able for use and before the receipt or the completion or coming into service
of the property so acquired shall be charged to this account. ,

When such securities are sold at a premium, the proportion of such
premium assignable to the time between the date of the actual issuance
of the securities and the time when the property acquired or the improve-
ment made becomes available for service shall be credited to this account.

This account shall also include such proportion of the discount and
expense on funded debt issued for the acquisition of original road, original
equipment, road extensions, additions, and betterments, as is equitably
assignable to the period between the date of the actual issuance of securi-
ties and the time when the property acquired or the improvement made
becomes available for the service for which it is intended. The proportion



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14 ACCOUNTS FOR STEAM ROADS § 34

of discount and expense thus chargeable shall be determined by the ratio
between the period prior to the completion or coming into service of the
facilities or improvements acquired and the period of the entire life of
the securities issued.

. This account shall also include reasonable charges for interest during
the construction period before the property becomes available for service,
on the carrier's own funds expended for construction purposes.

Note A. — Interest on bonds, notes, or other evidences of indebtedness accruing before
the proceeds from the sale of the securities becomes available for use shall not be included
in this account, nor shall there be included any interest accruing after the property with
resi)ect to which the proceeds are expended is received or becomes available for use in
connection with commercial service.

Note B. — If any securities which have been issued or assumed by the carrier are sold
or exchanged by or for the carrier for a consideration the actual money value of which at
the time of such sale or exchange is less than the value of the securities at par and the



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