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HANDBOOK

OF



RAILKOAD EXPENSES



BY
J. SHIRLEY EATON

Formerly Statistician, Lehigh Valley Railroad

AUTHOR

" Railroad Operations : How to Know Them "
" Education for Efficiency in Railroad /Service "







McGRAW-HILL BOOK COMPANY
239 WEST 39TH STREET, NEW YORK
6 BOUVERIE STREET, LONDON E. C.
1913



Ea



COPYRIGHT, 1913, BY
J. SHIRLEY EATON



THE SCIENTIFIC PRESS

ROBERT DRUMMOND AND COMPANY

BROOKLYN, N. Y.



PREFACE.

IN these days of the efficiency engineer, the arithmetic of a
business has been given new emphasis. The practical man finds
his ^figures" indispensable; the financier, the publicist and the
legislator must study their problems in numerical aggregates. To
set out the complex processes of a large business in accounting
and statistical totals that shall state the essential facts in logical
order is no simple matter. The transportation industry, be-
cause it was the first to reach large proportions and because
its conditions of operation were everywhere very similar,
offered a first field for elaborate accounting and statistical analy-
sis. The structure of this analysis is not accidental but is the
product of long experience and careful thought. The act of 1906,
which endowed the Interstate Commerce Commission with ex-
traordinary powers, included a drastic provision for publicity.
Wisely drawing upon usage and all sources of information the
Commission has now set its seal to a system of accounting and
statistics by which the facts of the transportation business of
the country are set forth. Such a scheme of analysis of neces-
sity discloses the anatomy of the railroad structure and the phys-
iology of its operations in a fundamentally philosophical way.
To the student of the railroad business it is indispensable as a
chart that identifies and relates each of the complex processes.
Its use is not limited to the accounting staff ; every employee, re-
gardless of his department, should be familiarized with the whole
scale of operations of which his special duties are but a part.
Nor should the scheme of accounting provided by the Interstate
Commerce Commission be dismissed by the public generally as
highly technical matter, interesting only to those engaged in

259690



iv PREFACE

the routine of the railroad business, for the principles here set
up reach to wide economic and social consequences: Whether
a given expenditure shall.be capitalized or charged to expenses,
interests the public quite as much as the stockholder; whether
a depreciation charge shall be written off of asset values periodi-
cally or whether the depreciation shall be ignored can even make
the difference between national prosperity or bankruptcy in the
long run. The scheme of railroad accounting and statistics has
broken the way into the field of intelligent, discriminating dis-
cussion of great public questions resting upon economic founda-
tions instead of leaving such questions to determination by mere
prejudice and opinion. The Interstate Commerce Commission
has arrived at the stage of an economic court, presaged in legis-
lative inquiries and public agitation with increasing insistence
within the last few years. The terms of its reasoning, which are
the basis of its adjudications, are, as we have said, the classifica-
tions of capital, of revenue and expenses which the statistical
bureau has evolved. It is intended to comprehend in these clas-
sifications all the economic forces which have play in the trans-
portation field. Some day there will be a definition of cost and
of value of transportation which shall be built upon the social
considerations involved, so as to stimulate the useful competi-
tions, pooling the accidental factors not within the individual
control and eliminating the anti-social competitions that make
for destructiveness. Some day the efficiencies involved, indi-
vidual and social, will be discussed with a precision and finality
that shall deserve to be designated by that much abused word
" scientific."

In this conception of the significance and consequence of the
" Classification of Railroad Expenses," the present volume has
been undertaken. The intention has been to make this compila-
tion a handbook that would be reasonably complete for all the
purposes of the operating officer or for the railroad statistician



PREFACE v

and financier. The analysis made by the writer is intended to
supersede a somewhat similar treatment of the " Classification "
published about twelve years ago in the book, now out of print,
entitled " Kailroad Operations How to Know Them." The
more theoretical part of the writer's earlier book, not included
here, it is hoped to revise and republish later, together with new
material. For this handbook, all existing indexes of expenses
have been freely drawn upon, and, notably, acknowledgment is
made of that admirable index in use upon the New York Central
& Hudson River Railroad, compiled under the immediate direc-
tion of W. A. Cormier, now Auditor of the Boston & Albany
Railroad. Abridged versions have been made of some of the texts
of the Interstate Commerce Commission here reprinted, as it was
found impracticable to print them all in full. The Classification
of Operating Expenses, however, appears unabridged and with
the Commission's later corrections incorporated in the text.

The criticisms of the Interstate Commerce Commission classi-
fication have been made in the spirit suggested by Mr. H. G.
Wells, who entertainingly proposes that men of varying opinions
should collaborate in the presentation of their views. " I hope,"
he remarks, " that some publisher, sooner or later, will do some-
thing of this kind, and will give us not only the text of an
author's work, but a series of footnotes and appendices by repu-
table antagonists . . . People would write twice as clearly with
that possible second edition (with footnotes by X and Y) in view.
. . . Like the tomato and the cucumber, every book would carry
its antidote wrapped about it." That the same process should be
extended and applied to his own commentary is the hope of the
present writer, who has become increasingly convinced during
the progress of his work that no painstaking care can prevent
errors from appearing in the treatment of a subject which has
already enlisted the best efforts of a highly trained and intelli-
gent body of men.






TABLE OF CONTENTS

CHAPTER I



PAGE



ERRATA

Page 39, line 7, should be corrected to read "has written into
reserves each year the amount of the "

Page 176, line 22, " train work " should read " team work "



MIRE OF -UyUlFMENT ZJ.

INTEREST 22

APPLICATION OF PRINCIPLES IN INCOME ACCOUNT AND GLASSIFICA-

TION OF EXPENSES 22

GENERAL CONSIDERATIONS 23

Authority , 23

Keeping of Accounts and Statistics 24

Capital 24

Depreciation 26

Reserves 28

Secret Reserves 28

Maintaining Types of Operation 29

Expense Account Not to be Used for Suspense Items 30

Reasonable Accuracy 30

Apportionment ., 30

Clearing Accounts 31

The Time Factor in the Accounts and Statistics 32

Use Served the Basis of Expense Classification 35

Joint Facilities 36

Physical Valuation of Railroads 38



TABLE OF CONTENTS

CHAPTEE I

PAGE

THE CAPITAL AND INCOME ACCOUNTS 1-40

Capital 3

Income Account 5

OPERATING EECEIPTS AND DISBURSEMENTS : Intake and Outgo 7

Intake, Bevenue, Defined 11

Deductions from Kevenue 11

Intake, Income, Defined 14

Outgo, Expenses and Charges, Defined 15

Outgo, Expenses 18

Deductions from Expenses 19

Outgo, Expenses Outside Operations 19

Deductions from Gross Corporate Income (Charges) 20

EENTS 20

HIRE OF EQUIPMENT 21

INTEREST 22

APPLICATION OF PRINCIPLES IN INCOME ACCOUNT AND CLASSIFICA-
TION OF EXPENSES 22

GENERAL CONSIDERATIONS 23

Authority 23

Keeping of Accounts and Statistics 24

Capital 24

Depreciation 26

Eeserves 28

Secret Eeserves 28

Maintaining Types of Operation 29

Expense Account Not to be Used for Suspense Items 30

Eeasonable Accuracy 30

Apportionment ., 30

Clearing Accounts 31

The Time Factor in the Accounts and Statistics 32

Use Served the Basis of Expense Classification 35

Joint Facilities 36

Physical Valuation of Eailroads 38



viii TABLE OF CONTENTS

CHAPTER II

PAGE

MAINTENANCE OF WAY AND STRUCTURES 41-85

MAINTENANCE GENERAL 41

1 Superintendence 44

2 Ballast 46

3 Ties 49

4 Bails 53

5 Other Track Material 55

6 Roadway and Track . . 56

7 Bemoval of Snow, Sand and Ice 60

8 Tunnels 61

9 Bridges, Trestles and Culverts 62

10 Over and Under Grade Crossings 65

11 Grade Crossings, Fences, Cattle Guards and Signs 66

12 Snow and Sand Fences and Snowsheds 68

13 Signals and Interlocking Plants 68

14 Telegraph and Telephone Lines 70

15 Electric Power Transmission 72

16 Buildings, Fixtures and Grounds 73

17 Docks and Wharves 77

18 Roadway Tools and Supplies 79

19 Injuries to Persons 81

20 Stationery and Printing 83

21 Other Expenses 84

22-23 Maintaining Joint Tracks, Yards and other Facilities,

Dr. and Cr 84

CHAPTER III

MAINTENANCE OF EQUIPMENT 86-120

REPAIRS, RENEWALS AND DEPRECIATION GENERAL 86

24 Superintendence 89

25 Steam Locomotives Repairs 92

26 Steam Locomotives Renewals 95

27 Steam Locomotives -Depreciation 96

28-29-30 Electric Locomotives Repairs, Renewals, Deprecia-
tion 96

PASSENGER TRAIN CARS MAINTENANCE GENERAL 97

31 Passenger Train Cars Repairs 99



TABLE OF CONTENTS ix

PAGE

32 Passenger Train Cars Renewals 102

33 Passenger Train Cars Depreciation "... 102

34 Freight Train Cars Repairs 103

35 Freight Train Cars Renewals 105

36 Freight Train Cars Depreciation , 105

37 Electric Equipment of Cars Repairs 105

38 Electric Equipment of Cars Renewals 106

39 Electric Equipment of Cars Depreciation 106

40 Floating Equipment Repairs 106

BARGES, CAR FLOATS AND CANAL BOATS 107

41 Floating Equipment Renewals 108

42 Floating Equipment Depreciation ., 108

WORK EQUIPMENT GENERAL 109

43 Work Equipment Repairs '. Ill

44 Work Equipment Renewals 112

45 Work Equipment Depreciation 112

SHOP MACHINERY AND TOOLS GENERAL 112

46 Shop Machinery and Tools Repairs and Renewals 114

POWER PLANT EQUIPMENT GENERAL 114

47 Power Plant Equipment 115

48 Injuries to Persons 115

49 Stationery and Printing 117

50 Other Expenses 117

CLEARING ACCOUNT SHOP EXPENSES 118

MAINTENANCE OF JOINT EQUIPMENT AT TERMINALS GENERAL 119

51-52 Maintaining Joint Equipment at Terminals Dr. and Cr. 120



CHAPTER IV

TRAFFIC EXPENSES 121-128

TRAFFIC EXPENSES GENERAL 121

53 Superintendence 121

54 Outside Agencies 123

55 Advertising 124

56 Traffic Associations 125

57 Fast Freight Lines 126

58 Industrial and Immigration Bureaus 127

59 Stationery and Printing 127

60 Other Expenses 128



x TABLE OF CONTENTS

CHAPTER V

PAGE

TRANSPORTATION 129-192

TRANSPORTATION GENERAL 129

61 Superintendence 13 1

62 Dispatching Trains 133

63 Station Employees 134

64 Weighing and Car Service Associations 135

65 Coal and Ore Docks 136

66 Station Supplies and Expenses 137

YARD SERVICE GENERAL 139

67 Yardmasters and Their Clerks 141

68 Yard Conductors and Brakemen 142

69 Yard Switch and Signal Tenders 142

70 Yard Supplies and Expenses 143

71 Yard Enginemen 144

72 Enginehouse Expenses Yard 145

73 Fuel for Yard Locomotives 147

74 Water for Yard Locomotives 147

75 Lubricants for Yard Locomotives 149

76 Other Supplies for Yard Locomotives 149

77-78 Operating Joint Yards and Terminals Dr. and Cr 150

TRAIN MOVEMENT GENERAL 151

79 Motormen 152

80 Road Enginemen 152

81 Enginehouse Expenses Road 153

82 Fuel for Road Locomotives 155

83 Water for Road Locomotives , 156

84 Lubricants for Road Locomotives 156

85 Other Supplies for Road Locomotives 157

86 Operating Power Plants 159

87 Purchased Power 161

88 Road Trainmen 161

89 Train Supplies and Expenses 163

90 Interlockers and Block and Other Signals 166

91 Crossing Flagmen and Gatemen 167

92 Draw-Bridge Operation 168

93 Clearing Wrecks 168

94 Telegraph and Telephone Operation 170

95 Operating Floating Equipment 171



TABLE OF CONTENTS xi

PAGE

96 Express Service 175

97 Stationery and Printing 176

98 Other Expenses 178

Loss, DAMAGE AND INJURYT GENERAL 180

99 Loss and Damage Freight 183

100 Loss and Damage Baggage 184

101 Damage to Property 185

102 Damage to Stock on Eight of Way 186

103 Injury to Persons 187

104-105 Operating Joint Tracks and Facilities Dr. and Cr. . . 191



CHAPTER VI

GENERAL EXPENSES 193-204

106 Salaries and Expenses General Officers 194

107 Salaries and Expenses of Clerks and Attendants 195

108 General Office Supplies and Expenses 196

109 Law Expenses 197

110 Insurance 198

111 Relief Department Expenses 200

112 Pensions 200

113 Stationery and Printing 201

114 Other Expenses 203

115-116 General Administration Joint Tracks, Yards and

Terminals, Dr. and Cr 203



CHAPTER VII
OUTSIDE OPERATIONS 205-209

CHAPTER VIII
ADDITIONS AND BETTERMENTS . . . 210-220



xii TABLE OF CONTENTS



INTEESTATE COMMERCE COMMISSION TEXTS REPRINTED
AND ABRIDGED

PAGE

FORM OF INCOME AND PROFIT AND Loss STATEMENT FOR STEAM

ROADS 221-241

CLASSIFICATION OF OPERATING REVENUES 242-249

TEXT OF CLASSIFICATION OF OPERATING EXPENSES 250-315

CLASSIFICATION OF OUTSIDE OPERATIONS 316-334

CLASSIFICATION OF EXPENDITURES FOR ADDITIONS AND BETTERMENTS 335-358

CLASSIFICATION OF EXPENDITURES FOR ROAD AND EQUIPMENT 359-376

FORM OF GENERAL BALANCE SHEET STATEMENT 377-397

CLASSIFICATION OF LOCOMOTIVE MILES, CAR MILES, TRAIN MILES. . 398-405

INDEX . . 407-559



RAILROAD EXPENSES



CHAPTER I

The present form of accounting and accounting statistics
rendered by the railroads to the Interstate Commerce Com-
mission, is the product of many years of experience and
of most careful study. The problem has been to set out
in analytical exhibits the complex processes of a great
business. The whole railroad operation must be considered
as a vast play of causes and effects; the cause is the effort
or money spent, and the result is the revenue produced. To
identify and properly to set each cause or group of causes
against its effect in order to locate and weigh its particular con-
tribution, requires intimate knowledge of all the processes. The
statistical tables in their order and relation set out the whole
philosophy of operations.

THE CAPITAL AND INCOME ACCOUNTS.

Any business reduces in essence to three terms outgo,
intake, profit. Outgo is the cause applied; intake is the effect
realized; profit is the net effect sought. If all business were
mere transaction or simple processes of making and selling a
product at a profit, without use of tools or plant, our conception
would involve no complications beyond these fundamental terms.



2 U'AILU'OAl) EXPENSES

But business such as a railroad involves the use of a plant.
Part of our outgo is for the creation of the plant, which is, as
it were, an intermediate stage to. the product, a stage which
must be set up and maintained. It cannot be instantly con-
verted into cash but comes back in the form of increments of
value produced, called net revenue (the excess of revenue over
current expense). Enormous values are thus held in permanent
suspense, as it were, in the form of capital expenditure which
can never again be converted into liquid values except in the
form of the annual increment of profit. The cycle from outgo,
through intake, to net intake, develops, in this way, into a very
long and complex one. When the amounts involved grow to be
so enormous, and when the return is so far removed and is con-
ditioned on the efficiency of so many intricate processes it
becomes very vital to understand and define the expenditures
which fall into this class of suspended values or investment
called Capital. They must be sharply defined from that form
of outgo called Expenses.

Capital expenditure, as distinguished from expenses, * is
primarily for the creation of a physical plant or tool to be main-
tained at a physical efficiency. This idea is further expanded
to include the notion of maintaining an original capital value
on the books at an economic efficiency, that is, an income pro-
ducing efficiency. From this, it is but a stage to pass over to the
conception of a valuation set up as capital which may or may
not be directly embodied in any physical plant, but represents
the capitalized equivalent of an established earning power. The
expense of maintaining the intangible as well as the physical
capital at its original productivity is a part of the current cost
of producing earnings, and is sharply distinct from the original
expenditure itself, which produced a value to be maintained at
its fixed figure as a permanent investment, (except as it is
deliberately destroyed or added to) representing a fixed relation
to current income.



THE CAPITAL AND INCOME ACCOUNTS 3

So we see that capital expenditure, as distinguished from
expenses, is at last an arbitrary conception. It begins with the
idea that certain expenditures have an efficiency that reaches
over many earning periods extending indefinitely into the
future. But nothing physical would last so long, and its earn-
ing power might even have less permanence. To meet this con-
dition we arbitrarily designate certain expenditures whose
effect indefinitely outlasts the immediate earning period as " cap-
ital," and then in the same arbitrary way, through all subsequent
vicissitudes, we hold them to their first value, by maintenance,
renewal and depreciation charges which are borne by current
expenses.

The I. C. C. provides, three general groups of capital
expenditure :

(1) Road (37 primary accounts).

(2) Equipment (6 primary accounts).

(3) General Expenses (6 primary accounts.)

It is recognized that a railroad property is constantly chang-
ing in form and value, so that the device of the Additions and
Betterments account has been provided, through which to make
the adjustments to capital account as they occur, to tabulate
them in a memorandum classification and to throw them over to
the final classification of Expenditures for Road and Equipment,
on the completion of the 3 r ear or of the job.

Capital. Capital account is simply an inventory, at a val-
uation, of the physical property and intangible assets. The
theory of capital, as we have seen, is that it is an invest-
ment, an outlay once and for all time of a specific amount for
a definite physical property (or an exactly defined intangible
property), and it is essential to its nature that this relation
between the thing or the designation and the value be not
disturbed. In the processes of deterioration and the play of
the forces that determine values, this relation from the first



4 RAILROAD EXPENSES

instant is exposed to change. It is the function of expense to
maintain this relation by absorbing in itself the costs of the
physical maintenance or the losses by obsolescence, or declines in
value through other causes.

In aggregates of value so vast, resting on economic conditions
so complex, there must naturally be large play, up and down.
In this relation of assumed value to actual value no absolute and
finally reliable rule is at hand for exactly offsetting the processes
of change as tjiey occur. The result of all this is that the values
of capital and other large asset accounts at any one time are at
best but an approximation, and at times these values must be
restated by making large additions to or deductions from first
figures. The scheme of accounts contemplates this. It provides
that such adjustments may be made through Profit and Loss
because the conditions that give rise to the adjustments are
not closely related to the operations of any one year, and it
leaves these general adjustments to the discretion of the railroad
management, provided only that they shall be " satisfactorily
tested by an authoritative or approved inventory of the prop-
erty" (Case 498).

In addition to the adjustments of capital due to reinventory-
ing the property, there are miscellaneous adjustments of cap-
ital and asset accounts by specific individual instances such as:
disposition of belated back bills (Cases 379, 437, 457), long
standing bad accounts (Cases 588, 589), unclaimed wages (Case
457), premium on redeemed bonds (Case 576), corrections of
old accounting errors -(Case 582), deficiencies in insurance or
replacement funds (Case 621), expense of abandoned construc-
tion (Cases 519, 524), accumulations of old scrap (Case 514),
appreciation of special parcels of realty (Case 585), or of
securities (Case 596), abandonment of obsolescent property
(Cases 549, 552).

These adjustments are all effected through Profit and Loss
account. The charges to Profit and Loss to dispose of back bills



THE CAPITAL AND INCOME ACCOUNTS 5

of previous years (when so large as to impair comparisons), or to
correct large errors in the accounting of previous years, or to
dispose of the cost of abandoned property require the specific
authorization of the Commission. The charges to effect the other
adjustments belong to the current order of business and are left
to the discretion of the individual carrier.

Income Account. Eliminating from consideration " Ex-
penditures" which create permanent values that are set up in
capital account on the books, and also eliminating from our
thought the intake of cash by sale of assets we will hold our
attention severely to the current processes of outgo and intake
which constitute the current operations of a railroad.

The railroad is built to make money: All its multifarious
phases and detail of operation must be justified at last by the
test of contributing to the net income of the property. The
final point where these contributions, great and small, at last
are registered is the Profit and Loss account. But the idea of
current productivity of invested capital renders necessary a
statement of the results of operation by time periods at least
once a year. For this purpose there is devised an annual profit
and loss account called the Income account. The form of the
Income account is given below:

INCOME ACCOUNT.*

OPERATING INCOME:
Kail Operations:

Operating Revenues.
Operating Expenses.

NET OPERATING REVENUE (OR DEFICIT).
Outside Operations:
Revenues.
Expenses.

* For exact revised form of Income and Profit and Loss Statement, see
I. C. C. text of statement, p. 221 of this book.



6 RAILROAD EXPENSES

NET REVENUE (OR DEFICIT).
NET RAILWAY OPERATING REVENUE (OR DEFICIT)
Railway Tax Accruals.

RAILWAY OPERATING INCOME (OR Loss).
OTHER INCOME:

Income from Lease of Road.
Other Rents Credits:

(a) Hire of Equipment Balance.
(&) Joint Facilities,
(c) Miscellaneous Rents.

Net Profit from Miscellaneous Physical Property.
Separately Operated Properties Profit.
Dividend Income.
Income from Funded Securities.
Income from Unfunded Securities and Accounts.
Income from Sinking and Other Reserve Funds.
Release of Premiums on Funded Debt.
Contributions from Other Companies.
Miscellaneous Income.

TOTAL OTHER INCOME.
GROSS INCOME (OR Loss).
DEDUCTIONS FROM GROSS INCOME:

Deductions for Lease of Other Roads.
Other Rents Debits :

(a) Hire of Equipment Balance.
(&) Joint Facilities,
(c) Miscellaneous Rents.
Miscellaneous Rent Deductions.
Miscellaneous Tax Accruals.
Net Loss on Miscellaneous Physical Property.
Separately Operated Properties Loss.
Interest Deductions for Funded Debt.
Interest Deductions for Unfunded Debt.



THE CAPITAL AND INCOME ACCOUNTS 7

Amortization of Discount on Funded Debt.
Transfer of Income to Other Companies.
Miscellaneous Deductions.

TOTAL DEDUCTIONS.

NET INCOME (OR Loss).
DISPOSITION OF NET INCOME:

Appropriations of Income to Sinking and Other Reserve

Funds.

Dividend Appropriations of Income.

Appropriations of Income for Additions and Betterments.
Appropriations of Income for New Lines and Extensions.
Stock Discount Extinguished through Income.
Miscellaneous Appropriations of Income.

INCOME BALANCE TRANSFERRED TO CREDIT (OR DEBIT)
OF PROFIT AND Loss.

Into this Income account pour all the causes and effects
which belong to the period which it covers,* and only their final
net effect is later carried over into the general Profit and Loss
account.

Operating Receipts and Disbursements: Intake and
Outgo. A few simple principles run through the intricate mass.
The railroad in order to take in money must first put out money.
The outgo offsets the intake as cause offsets effect. Between the
general intake and the opposing general outgo, intervene the



Online LibraryJames Shirley EatonHandbook of railroad expenses → online text (page 1 of 52)