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sumx)f $2,000. Likewise, if the customer had sold short (that
is, sold securities which he did not own) a like amount of
securities with a value of $10,000, he would be required to
deposit a margin of $2,000 on his short sales.

It is readily seen that by means of this record the broker is
better able to determine when more cash or margin must be
furnished by the customer in order to still maintain his account
so that the broker himself will not sustain a loss, or so that he
will not be forced to sell the securities which he is holding for
that customer.

13. Manner of Use, — ^Whenever an entry is made in the
Purchase and Sales Book, a corresponding entry is made in the
same customer's Margin Record. Thus, if a customer, John
Jay, buys 100 shares of Anaconda Copper at $50 per share, the
first entry would be made in the Order Book, then in the Pur-
chase and Sales Book, and then immediately the entry would be
made in the customer's Margin Record, showing :

1. The number of shares bought or sold short.

2. The kind of stock.

3. The market price and net price.

4." The margin of deposit (credit balance).

5. The margin remaining after making the necessary
adjustments regarding any losses or gains sustained.

With this information it is an easy matter to find the margin
that a customer is maintaining on his holdings at any time. All
that is necessary is to find the market value of all securities
held long or sold short and compute 20 per cent, of it ; for, as
has been stated, a margin of 20 per cent, is required by the
broker.

Should the margin fall considerably below 20 per cent., then
a call would be made by the broker on the customer for enough -
more cash or securities to recover (that is, to make up) the
margin to the; original 20 per cent, required.

14* Example of Use. — If Mr. Fordham's orders as
recorded in the Purchase and Sales Book are his only trans-



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§ 33 ' ACCOUNTING METHODS 11

actions with Broker F. A. Downe, the standing of his account
as to marginal deposit would be determined by the following
entries :

As the record of purchases shows that the broker is holding
100 shares of U. S. Steel for Mr. Fordham's account, Mr.
Fordham is long of the market to that extent; therefore/an
entry is made on the long side of his Margin Record, showing
the number of shares his account is long, the kind of stock, and
the net price, which is the market price plus commission
charge of the broker and any additional expense. The market
price paid for the security is also recorded.

In the record of sales it is found that Mr. Fordham has sold
short 200 shares of Rubber, and the data regarding his short
sale are therefore recorded, showing the number of shares and
kind of stock short, the net price, and the market price of the
stock sold short.

Since all securities held long for a customer on a margin or
sold short are required to be margined by a deposit of 20 per
cent, of the value involved, and since Mr. Fordham is holding
$9,887.50 worth of stock on margin, he will be required to
deposit 20 per cent, of it, or $1,977.50, and on the 200 shares of
Rubber which he has sold short he will deposit with the broker
20 per cent, of $18,000 or $3,600, which will give him a credit
balance in the ledger of $5,577.50. As Mr. Fordham goes on
trading, his credit balance in the ledger will change from time
to tinie, as will the securities held long or sold short, so the
margin records are very changeable.



THE BLOTTERS

15. Use. — In the bookkeeping system the next book to be
used is thejlotter. This record may be said to be a combina-
tion of the Cash Book and the Journal. Its ruling and arrange-
ment are such as to indicate whether an entry for a given trans-
action is only to show a transfer from one account to another
or whether an exchange of cash has taken place.

There are usually two blotters kept, one for entering the
transactions in Clearing House stocks in loo-share lots or



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12 STOCK-BROKERAGE § 3:3

multiples thereof. This Blotter is called the Clearing House
Blotter. The other blotter in use is known as the Ex-Clear-
ing House Blotter, and it records transactions in Clearing
House stocks which are of less amount than 100 shares ; it is
used also to record all transactions in stocks that are not Clear-
ing 'House stocks, as well as to record all transactions in bonds.
Each one of these blotters will be taken up in detail.

16. Alternating' Blotters. — In brokers' offices there are
usually two sets of blotters, kept for each division of stock as
explained above. They have one Clearing House Blotter
known as the Monday, Wednesday, and Friday C. H. Blotter,
and it records all transactions that have taken place on Tues-
day, Thursday, Friday, and Saturday ; also, one known as the
Tuesday and Thursday C. H. Blotter, and it records all trans-
actions in Clearing House stocks occurring on Monday and
Wednesday of each week.

In the same way two Ex-Clearing House Blotters are used,
on corresponding days, for recording all transactions that are
Ex-Clearing House.

By means of the alternating blotters it is possible for the
bookkeepers to keep the customers' accounts posted to date.



ENTRIESS



17. By referring to the forms. Figs. 5 and 6, showing the
ruling of each blotter, it will be plainly seen that as to ruling
and arrangement the blotters are identical. So a description of
the manner of making an entry in one blotter will explain the
method of operating either.

When a transaction is entered in the Purchase and Sales
Book, the same transaction is journalized in the Blotter.
Should the transaction in question be a sale, then it would be
entered on the To Deliver side of the Blotter and the following
data would be recorded, namely :

1. To whom sold.^

2. Number of shares sold (quantity).

3. A description of the shares sold.



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§ 33 ACCOUNTING METHODS 13

4. The price paid, on the market, per share.

5. The amount paid in settlement of contract.

6. The commission charged by the broker for his services
of selling.

7. Tax paid at the rate of $2.00 per hundred shares to the
state of New York and also at the same rate to the Federal
Government, on all stock sold with $100 par value.

8. The total amount received in settlement of each trans-
action, which includes the amount paid for the stock minus any
additional expense such as commission and tax and interest.

9. The name of the account affected.

On looking back to the forms, no doubt the reader wonders
where the interest items come from, which would be entered in
the column marked Interest. In the Clearing House Blotter
the interest items will come from interest on all borrowed and
loaned Clearing House stocks which have been called or
returned. So, should a broker have to borrow stock to make a
delivery for a customer on a short sale or for any other reason,
that broker would collect the interest coming from the trans-
action; for, it will be remembered that the broker borrowing
the stock will give his check for the full market value of the
stock borrowed, and he will receive interest on the amount given
at an agreed rate. On the other hand, should the broker loan
stock, then, instead of having an interest credit, he would have
an interest debit.

In the Ex-Clearing House Blotter, interest items will arise
from money borrowed and loaned as well as from borrowed
and loaned stock of the Ex-Clearing House division of stock.

Should the transaction be a purchase instead of a sale, then
the data recorded would be the same as that for a sale, with
the exception that instead of to whom sold we would record
from whom bought ; also, there would be no tax item, for no
tax is paid by the purchaser of securities. Interest would be
included, should any be due, from money loaned or stocks
returned.

18. Use of Blotter as a Cash Book. — So far, the
Blotter has been considered only as it records the data regard-



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18 STOCK-BROKERAGE § 33

ing transactions in securities. It will now be considered as it
records cash.

Rule. — Should cash be received, it is recorded on the Deliver
side of the Blotter, while if cash he baid, it is recorded on the
Receive side of the Blotter,

The explanation of this seeiping error is that the custom in
the street has established the fact that all sales and the cash
received therefor shall be recorded on the Deliver side, the
credit in this case being a credit to the customer and a* debit to
cash*

Also, custom has established that when a purchase is made
and paid for in cash, it is to be recorded on the Receive page
of the Blotter, the debit being a debit to the customer and a
credit to cash.

19. Posting to the Ledgers. — All posting to the ledger
accounts is done from the Blotter, and in posting the following
rule should be followed :

Rule. — When posting to the ledger account from the Blotter,
should an item appear on the right-hand, or Deliver, page, it
represents a credit to the customer and a debit to cash. Should
the item appear on the left-hand, or Receive, page, it represents
a credit to the cash account and a debit to the customer.

20. Ex-Clearing House Blotter. — On each morning
the bank balances from the previous day are entered in the
Ex-Clearing House Blotter on the Deliver side of that record.
At the same time the balances of stock from the Clearing
House Blotter of the previous day are entered on their respec-
tive sides. Thus, a Clearing House stock balance to receive
would be entered on the Receive side of the Ex-Blotter, as it is
often called, while a balance to deliver would be entered on the
Deliver side of the Ex-Blotter. Also, should a draft have been
submitted to the Clearing House, it would appear on the
Deliver side of the Ex-Blotter ; likewise, a check would appear
on the Receive side of the Ex-Blotter.

21. Example of Entries in Blotter. — A transaction
having been executed, a copy of that transaction goes to the



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§33 ACCOUNTINC; MhmiUDS 19

blotter clerk, who proceeds to journalize it in either the Clearing
House or the Ex-Clearing House Blotter, as the case may be.
Let us assume the position of the blotter clerk and journalize
the transactions that were shown in the Purchase and Sales
Book.

Going over the sales, we pick out the items in 100- share lots
of Clearing House stock and enter them on the Deliver side of
the Clearing House Blotter, giving the data as shown in Fig. 5.

We €nter the items of transactions in Ex-Clearing House
stock in the Ex-Clearing House Blotter, recording the data as
shown in Fig. 6.

We then would enter the purchases on the Receive side of
each blotter as the case may be, being cafeful to record all
100-share lots of Clearing House stock, or multiples thereof, in
the Clearing House Blotter, and all other items in the
Ex-Clearing House Blotter.

Let us assume now that the bank balance from the previous

day was $90,000, and that there had b^n no stock balances;

then we would enter the bank balance of $90,000 on the

, Deliver side of the Ex-Clearing House Blotter as the first

entry for that day.

Naturally, the reader is wonderii^ how we are to enter cash
received as margin from customers. According to the rule that
all cash received is entered on the Deliver side, all that we need
/ to enter is the amount received, crediting the customer's
account and debiting cash. Thus, the margin of $5,577.50 paid
by Mr. Fordham is entered in the Blotter on the Deliver side,
as shown in Fig. 6.

BALANCING the: BLOTTERS

22« Clearing House Blotter. — Having completely
entered the data regarding each individual transaction as
called foi' in each column on the Receive side, to balance that
side it would then be necessary to total the individual money
columns, then cross-foot the several totals, as appear in the
amount,»commission, interest, and tax columns, and the result
should be the same aS appears as the total of the Total Amount
column.



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20 STOCK-BROKERAGE §33

The third step in the operation is to carry the total of the
commission column to the commission column on the deliver
side, add this amount to the total of the commission column on
that page, then extend that total obtained to the Total Amount
column, and the account to be credited is commissions.

The fourth step in the operation is to extend the total of the
tax column on the deliver side to the Total Amount column, in
which the amount is shown divided, the Federal tax account
and the New York State tax account being credited with their
respective portions of the tax collected on all sales or transfers.
The rates of tax in each case are the same, as will be -explained
later under Revenue Tax Register.

The fifth step consists in totaling the several coltunns on the
To Deliver side as they appeared before steps three and four
were performed, then, by carrying over the totals of the com-
mission and the tax columns to the Total Amount column, and
footing the Total Amount column, the new total should agree
with the amount column and prove the correctness of the work.

The O in the Whose Account column is a symbol to show to
• the bookkeeper that the item opposite it in the Total Amount^
column is not to be posted to any account in the Ledger,
although the item is necessary in order to make the totals of
the Total Amount columns of the Receive arid the Deliver sides
agree.

The sixth step is balancing the stock in order to know what
the stock balances consist of. The method of procedure is as
follows : Go over the Receive and Deliver sides of the Blotter
and set off against each other all transactions in the same stock,
and the balance to receive or to deliver can be arrived at. For
example, suppose that we hadl)ought 100 shares of U. S. Steel,
and sold 400 shares of the same stock for our customers, then,
setting off one transaction against the other, we would have a
balance of 300 shares of U. S. Steel which we had sold over
that which we had bought, so the Blotter would show a balance
to deliver of 300 shares. Should the conditions have been
reversed and we had bought 400 shares of U. S. Steekand sold
only 100 shares, then our balance to receive would have been
300 shares.



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§33 ACCOUNTING METHODS 21

Having balanced the stock, the seventh step is to carry the
balances to deliver to the Receive side of the Blotter, and the
balances to receive to the Deliver side ; then, using the closing
price or the Clearing House price per share, make the exten-
sion to the amount columns, on the Receive and the Deliver
sides, and extend the total of these to the Total Amount
colimms on either side of the blotter.

The eighth step is to total the amount columns and the
total-amount columns on both the Receive and the Deliver
sides, and compare the results ; that is, the total of the amount
column on the Receive side should be compared with the
total of the amount column on the Deliver side and the differ-
ence between these two totals should exactly equal the dif-
ference between the totals of- the Total Amount columns of
either side.

Should the cash totals on the Deliver side be greater than
the cash totals on the Receive side, then we know that a profit
has been made ; that is, the excess of value received for securi-
ties sold is greater than that paid for securities bought. There-
fore, since the Clearing House will make the adjustments for
us during the operation of its system of clearing, we have a
Clearing Hotise balance coming to us ; so we note that and sub-
mit a draft on the Manhattan Company for this profit. This
amount is entered on the Receive side as Clearing House draft
in both the Amount and Total Amount columns. This having
been done, the Receive and the Deliver sides of the Blotter are
in balance completely.

Should the cash total of the Receive side be greater than that
of the Deliver side, then a loss has been sustained, so then we
would make note of the amount and submit to the Clearing
House a check payable to the Manhattan Company. This
would be noted on the deliver side of the Blotter as Check to
balance', as in Fig. 5. Then the sheet should be completely in
balance.

All this having been done, the final operation is to enter all
Balances in Stock, whether to receive or to deliver, along with
the cash balances, whether check or draft, in the Ex-Clearing
House Blotter in the manner already explained.



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22 STOCK-BROKERAGE § 33

At this point it may be well to state that the sheet as sub-
mitted to the Clearing House for the New York Stock
Exchange is an exact cppy of the Clearing House Blotter when
it has been completely balanced.

23. Balancing: the , Ex-Clearing House Blotter.

Having learned how to balance the Clearing House Blotter, as
already explained, it will be quite simple to balance the
Ex-Clearing House Blotter. The procedure is as follows :

1. Treat the tax and commission columns as you did in bal-
ancing the Clearing House Blotter, by totaling the two columns
and carrying the totals to the Total Amount column on the
Deliver side, crediting Commissions account with the total com-
mission, and the Transfer Tax and the Federal Tax accounts
with the respective taxes collected and paid to the Federal and
State governments as shown by the total of the tax column.

2. Foot the Total Amount columns on the Receive and the
Deliver sides.

3. Deduct the Receive footing from the Deliver footing,
and the result will be representative of the balance carried in
the bank accounts. This balance is proved by comparison with
the balances in the check books. Why the Receive footing Is
deducted from the Deliver footing will be clear if we recall
the rule as to why all sales and cash received are recorded on
the Deliver side.

4. Carry the balance just obtained to the Receive side and
break it up into the several balances carried in the several
banks, if there be more than one bank account. In other words,
charge each bank with the balance on deposit.



HEVENUE TAX REGISTER

24. Function. — The Revenue Tax Register is used to
record all sales or transfers of stock, and the payment of stamp
tax thereon, as provided under the amendment to the New
York State law, which became operative June 30, 1905, and
which provides for a tax of 2 cents per share, of $100 par
value stock, on all stock transferred or sold.



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§ 33 ACCOUNTING METHODS 23

This record provides for the recording of the date of sale
or transfer ; name of stock ; the number of shares sold or trans-
ferred ; par value of each share of stock ; the name of the pur-
chaser or the transferee ; the number of stamps used, together
w'ith the face value of each stamp ; also a column for entering
the total value of all stamps affixed.

25. Importance. — Along with the fact that this record
is required by law, it is of great importance in alleviating the
tendency of employes to steal revenue stamps, for, by means of
the data provided, it is an easy matter to check up the New
York State Tax account.

26. Methods of Checking:. — To check up the tax
account, all that is necessary is to foot the value column, and
add the amount of stamps on hand> which is found by inven-
tory; the resulting figure should equal the amount on hand
at the beginning of the period, as shown in the New York
Tax Account in the General Ledger.

At the present time the Federal Government has a tax whicfi
is also collected on all stock sold or transferred. For this, a
separate tax register is kept. This record is an exact duplicate
of the one already described. This Federal Tax rate is the
same as that charged by New York State. To check up on the
Federal Tax account, the manner of procedure is the same as
described above, with the exception that the Federal Stamp
Account is the name of the account in the General Ledger.

27. Rates Charged. — Under the New York State law,
and also the Federal law, the following rates are charged on all
sales or transferring of stock.

New York State rate :

Stock with par value of $100, stamp tax is $2.00 per 100 shares
Stock with par value of $ 50, stamp tax is $1.00 per 100 shares
Stock with par value of $ 25, stamp tax is $ .50 per 100 shares
Stock with par value of $ 10, stamp tax is $ .20 per 100 shares
Stocks with no par value, the stamp tax is $2.00 per 100 shares
Federal rate : .
Stock with par value of $100 or less, tax is $2.00 per 100 shares
Stock with par value of over $100, tax is 2 per cent, of the cash
' involved



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24



STOCK-BROKERAGE



§33




28. Example of Use.

Remembering the fact that the
taxes payable to the Federal
government and to the New
York State government are
alike, to explain the manner of
using one tax register will ex-
plain the other. The form of
the New York State Revenue
Tax Register is shown in Fig. 7.
The data for the entries are ob-
tained from the Deliver side of
the Blotters. Reference to the
Clearing House Blotter, shows
that on July 1 Mr. Fordham
sold 200 shares of Rubber; so
the state tax paid was $4, and
stamps for that amount were
used. This sale, therefore, is
recorded in the Tax Register
with the data required, as
shown in Fig. 7. To pay the
New York State tax, there
would be required two $2
stamps to be affixed to the stock
certificate. It will be noticed
that only half of the amount
registered in the Tax column of
the Blotter is recorded; the
other "half is recorded in the
Federal Tax Register.

In the Ex-Clearing House
Blotter is a tax item of $4.40
which is divided in the same
way, one-half being recorded
in the New York State Tax
Register and the other half in
the Federal Tax Register.



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, 33 ACCOUNTING METHODS 25



CUSTOMERS* LEDGER

29. Use. — ^In order to record completely the transactions
of his customers, it is necessary for the broker to segregate all
the individual transactions entered into in the execution of a
customer's order to buy or sell securities. For this purpose
the ledger known as the Customers' Ledger is used; in it all
the transactions executed under a certain customer's name are
recorded in the account bearing the name of that customer.

This ledger may truly be considered as a part of the General
Ledger, for there is no controlling account for the Customers'
Ledger appearing in the General Ledger.

Since this ledger is a part of the General Ledger, it naturally
follows that, in order to have a true expression of the business
conditions as shown by the Balance Sheet, it will be necessary
to see that the balances appearing in the Customers* Ledger
also appear on the Balance Sheet.

30. Facts Recorded. — On the debit side are recorded:
L All purchases of securities for thq owner of the account ;

these entries are posted from the Blotter, and in the Ledger are
shown the date of purchase, the number of shares and kind of
stock, the market price paid, also the total amount paid for the
stock, which includes the market price plus the commission
charge.

2. All cash withdrawn by the customer whose account it is.

3. All interest charges.

On the credit side are recorded :

1. AIL sales of securities for the owner of the account;
these entries are posted from the Deliver side of the Blotter,
and show the date of sale, the number of shares and kind of
stock sold, the market price received for the stock on the
market, and the total amount received by the customer after the
broker has deducted his commission charge and the tax charge.

2. All margin deposits made by the customer.

3. All short sales.

4. A41 interest allowed on margins deposited on short sales.
The usual rate of interest allowed on margins is 2 per cent.



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20 STOCK-BROKERAGE §33

The broker may also divide equally with his customer the
interest that comes to him as a result of his customer's short
sale. Thus, if a broker borrows stock tO make a delivery on
his customer's short sale, he must give that broker from whom



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