Check (accounting)

“ Checks.—A check is a draft on a depositary bank. It is an individual’s order to his bank of deposit to pay a named or designated payee a certain sum of money. Two illustrations are given below, [Pg 182] somewhat different in form but identical in nature. In the first, likeness of the check to a draft is very evident.
Form 19. Forms of Checks
The certified check is usually an individual’s or firm’s check bearing the certification of the bank’s cashier that the check is good. ”

“ The corporation shall have an annual independent audit made of its financial statements by an independent public accountant in accordance with generally accepted auditing standards. `` (2) In conducting an audit under this subsection, the independent public accountant shall determine and report on whether the financial statements of the corporation (A) are presented fairly in accordance with generally accepted accounting principles, and (B) to the extent determined necessary by the Director, comply with any disclosure requirements imposed under subsection (k) (2) (B) . ”

“ The representative of the General Accounting Office shall have access to all books, accounts, records, reports, files, and all other papers, things, or property belonging to or in use by the Corporation pertaining to its financial transactions and necessary to facilitate the audit, and they shall be afforded full facilities for verifying transactions with the balances or securities held by depositories, fiscal agents, and custodians. All such books, accounts, records, reports, files, papers and property of the corporation shall remain in possession and custody of the Corporation. ”

“ The Auditor shall make an annual report on the regularity of the accounting operations and of the financial management of the various institutions. He shall make this report within six months following the end of the fiscal year to which the accounts pertain, and shall communicate it to the Commission of Presidents. ”

“ For purposes of management, which must control all the phases of business activity, a balance sheet is insufficient. A review of the factors producing results up to a given time must be had. Accordingly, the accounting department must supply not only information as to the present state of the assets and liabilities, but also information which indicates how the changes in assets and liabilities since the last fiscal period were brought about—what volume of transactions occurred, what expenditures of assets and energy were necessary to accomplish the results attained. ”

“ The Estimate for Doubtful Accounts.—At the close of a fiscal period, when an accurate statement of the financial condition of the business is to be drawn up, all assets must be very carefully valued. The bookkeeping procedure necessary to show the correct value of fixed assets subject to depreciation has been explained. The outstanding claims against customers also require evaluation. Every business man knows from past experience that he will be unable to collect all of his outstanding accounts. ”

“ As the size of the individual business has increased and the territory covered by its operations has widened and the period of time involved in its calculations has lengthened, the need of carefully kept records has become apparent. The growth of the corporate form of business organization, furthermore, has made it necessary to protect the interest of shareholders by complex systems of accounting, involving sufficient checks and balances and frequent audits. ”

“ The modern accountant must first know the kind of information that is desired and he then can classify the accounts so that the information may be obtained from the ledger or other records at any time, with the least possible effort. ”

“ It is stated by competent witnesses that a cash book, a journal, and a ledger are indispensable books of account for an efficient system of accounting, and that, in the smaller shops, even simpler entries showing merely the daily records of sales and record of purchases of merchandise would be sufficient. ”

“ For the report form, it may be said that this method follows the reasoning of the average business man, particularly the man unacquainted with accounts, who subtracts his liabilities from his assets to find how much his present net worth is. The account form rests on the fundamental desire, deep-rooted in the system of double-entry bookkeeping, to show the two sides in balance. ”

“ It is not intended by the foregoing statement to sanction any method of keeping the records in non-accord with fundamental rulings of the law, but only to state that, so long as substantial agreement is secured, accounting has served its intended purpose. Wherever any specific property is known to be subject to a lien, it is of value to the management for the accounts to reflect the fact. ”

“ Approved standard methods of accounting will ordinarily be regarded as clearly reflecting income. A method of accounting will not, however, be regarded as clearly reflecting income unless all items of gross income and all deductions are treated with reasonable consistency. See section 200 of the statute for definitions of 'paid,' 'paid or accrued,' and 'paid or incurred' * * * in any case in which it is necessary to use an inventory, no accounting in regard to purchases and sales will correctly reflect income except an accrual method. ”

“ An adroit system of accountability was established, by which no property return, abstract of issues, account current, or voucher, was understood to mean what it expressed upon its face, so that no accounting officer possessing a clew to the policy adopted could be deceived by the figures. ”

“ It would be disruptive of an orderly collection of the revenue to rule that the accounting must be done over again to reflect events occurring after the year for which the accounting is made, and would violate the spirit of the annual accounting system. ”

“ Even as a recording of current transactions, bookkeeping is hardly an exact science. As a representation of the condition and trend of a business, it uses symbols of certainty to express values that actually are in constant flux. It may be said that in commercial or investment banking or any business extending credit success depends on knowing what not to believe in accounting. ”

“ In determining the amount of earnings or profits (whether of the taxable year, or accumulated prior to March 1, 1913) due consideration must be given to the facts, and, while mere bookkeeping entries increasing or decreasing surplus will not be conclusive, the amount of the earnings or profits in any case will be dependent upon the method of accounting properly employed in computing net income. ”

“ This auditing of checks thus provides a positive check upon the amount of cash received by each individual cashier, furnishes an accurate account of the exact amount of business done by each department, and the total daily business done by the house, besides showing the exact amount of goods sold by each [Pg 59] individual salesperson, which may be made use of to estimate their value as compared with each other, and largely governs the individual wages paid. ”

“ With such information to point the way to economies in the future, instead of records that show us merely the amount of an expense already incurred, accounting takes its rightful place as one of the most important functions of a business enterprise. ”

“ Effort has been made to keep to a minimum the purely mechanical work of computation. While emphasis should be placed always on the principles involved, the need for accuracy should not be lost sight of; in its practice in business, accountancy requires accurate and, where possible, proven results.
Of the budget of stationery provided for this work, the loose-leaf supplies—statement, journal, and ledger paper—are for the first half-year’s work. The three-column paper is to be used for balance sheet and profit and loss statements, unless other directions are given for particular assignments. ”

“ If the enterprise is more complicated, it may be required to set up a number of separate accounts, or even a separate set of records, but the summary or clearing account for these will still exhibit costs set over against returns. If the partners are all in the same city and have access to the records, one set of accounts is all that is necessary. Where the partners are in different places, each should keep a record of all transactions as reported by the manager of the venture. ”

“ THE PHILOSOPHY OF DEBIT AND CREDIT
Double-Entry Bookkeeping.—Several systems or methods of keeping business records have at various times been in use. The method which at the present time is used by all businesses, excepting those of the simplest sort, is called “double-entry bookkeeping” and is the method which is being set forth here. It is based on the proprietorship equation expressed in the form: Assets = Liabilities + Proprietorship. It is possible to make a balance sheet if only asset and liability records are kept, because proprietorship is always the difference between them. ”

“ We also have another check in the triplicate copy of the credit slips that has been filed away.
Below is a graphic chart which shows how to handle this system of charge accounts. It shows how the various records experience a continuous process of summation until they finally reach the ledger and the customer’s bill, and how the accounts can be checked as we go along, thus avoiding errors. Solid lines show posting operations, broken lines show possible checking operations. ”

“ It should always be borne in mind that any satisfactory method of account-keeping must be adapted to individual conditions. If efficient results are expected, a business man should beware of ready-to-wear accounting systems. There are conditions in which the voucher system gives excellent results. ”

“ In all problems calling for financial statements, the trial balance should first be tested as to the equality of debits and credits. As stated above, the method of the work sheet is usually the best method for summarizing results, although sometimes skeleton ledger accounts will be found helpful in order to visualize the effect of entries and to trace their course through the accounts. Only painstaking work and the solution of many problems will produce facility and confidence in work of this kind. ”

“ Under a complete system of state regulation not only are the forms and standards of uniform accounting established, but a staff of expert examiners is created to determine by periodical investigation, whether or not these standards are lived up to. ”

“ Accounts are kept both with persons, as the accounts receivable and payable already mentioned, and with things, such as land, buildings, machinery, merchandise, cash, and the like. Some asset accounts and some accounts kept with persons are usually composed of both similar and dissimilar items. For example, the cash account is composed of both cash received and cash paid out items; the accounts receivable record both the items for which the person is in debt to the business and those which show the cancellation or settlement of the debt, in part or in full ”

“ Accounts which record income and expenses usually comprise only similar items, as where all sales of merchandise are recorded under one head or account and all purchases under another.
The Account Title.—The title given to an account is important. It should indicate clearly the content of the account. Accuracy is a basic necessity in accounting. ”

“ Nearly every business with a well-developed accounting system can, at any time, without the formal periodic inventory or closing of its books usual at the end of a fiscal year, determine approximately the amount of its current earnings, the amount accrued since the beginning of its fiscal year, and the part thereof undistributed. ”

“ Handling the Purchase Invoice.—When goods are bought the purchase invoice should be verified or audited. The method of audit depends upon the organization of the business. In a small business, if the invoice is received before arrival of the goods, it is usually held till their arrival and then checked against them as to quantities, quality, and price. The extensions and total are verified and entry made in the purchase journal, using the audited invoice as a basis. ”

“ A title which does not clearly and truthfully indicate the nature of the account, or one which is so chosen that under it may be recorded items of various and doubtful kinds, gives prima facie evidence of an imperfect knowledge of accounting principles or of a desire to hide data which will not bear close scrutiny. ”

“ That system of accounts which groups only one kind of data under each particular account title is better than a system which mixes its records by grouping dissimilar data under a single head. Yet, caution is always to be exercised against too great detail and an unnecessary multiplication of accounts. Oftentimes essential facts and forces of business activity are lost sight of in a maze of detail. ”

“ When a receiver in equity is appointed by the court, he is entrusted with property for a specific purpose and must render a full accounting of his stewardship. It becomes necessary, therefore, for him to keep full record of all his activities. In simple situations where his activities are not complex, the keeping of a record of cash receipts and disbursements is sometimes deemed all that is required. Usually, however, it is much better for the receiver to keep a complete set of books showing the detail of his operation of the business, thus enabling him to furnish any desired information. ”