Unit of account

“ In an action brought to recover a balance due upon a mutual, open and current account, where there have been reciprocal demands, the cause of action shall be deemed to have accrued from the time of the last item of the account proved on either side, but when more than one year shall have intervened between any of a series of items, they are not to be deemed such an account. ”

“ In like manner the Reserve for Doubtful Accounts is a suspense account because at the close of the fiscal period it becomes necessary to make an estimate of the probable amount of uncollectible items in order to appraise correctly the value of outstanding claims against customers. ”

“ But from the day in which the comptabilist system becomes legal to the exclusion of the monetary system, from the moment in which each individual has his personal account introduced into the registers of the accountant-general, his transactional life is henceforth, and for ever, represented on the one side by the mortgages and guarantees that he furnishes in order to obtain comptabilist unities, on the other hand by the balances of his account books that the accountant enters successively and indefinitely to his account. ”

“ The principle of the account-book consists naturally in the book forming a real account with debit and credit—like all accounts in ordinary book keeping,—in which is inscribed in a way which would be regarded as valid, having legal force the sums corresponding to the transactions effected either by being written out at full length, with the signature, or by marking in figures, and indicating at the same time the personality of the party making the transaction, or by means of stamps as we have just seen, or finally by some other way. ”

“ 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. ”

“ Since the closing of the books contemplates the drawing up of financial statements and since all record-keeping must have in view from the very beginning a proper classification of accounts giving the desired information to be reflected finally in the statements, it seems best at this point to consider some phases of account classification before proceeding with a detailed explanation of the method used in adjusting and closing the books. ”

“ However, the student should always supply mentally the contra of each entry shown in the group reference account. For the sake of clarity, the personal pronouns “we” and “us” will be used instead of the impersonal name.
Accounts with Cash and Notes Receivable.—Entries to the Cash and Notes Receivable accounts are comparatively simple and are shown in the following schedule:
Transactions with cash are self-explanatory. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ An account title is often used in one business to include items not mentioned under that title in another business. One finds also terms and titles peculiar to particular businesses. However, there is a tendency towards a standardization of the terms used in balance sheets. It is the purpose here to present and explain those which are common to practically all businesses. These include the asset titles Cash, Notes Receivable, Accounts Receivable, Merchandise, Investments, Deferred Charges or Expense Assets, Furniture and Fixtures, Delivery Equipment, Buildings, and Land. ”

“ The governing principle here is that only current items can be included in this group of assets when shown on the balance sheet. In accounting, as in economics, there is no distinctive scientific terminology. The economist makes use, for the most part, of every-day words and phrases. These are often open to misunderstanding and are sometimes capable of being used even for wilful misrepresentation. Recognition of this fact has made necessary a more careful definition of some terms. In the language of the street, almost any claim against outsiders may be spoken of as an “account receivable.” ”

“ There is always a question as to the real value of the accounts outstanding, a doubt as to the advisability of including the total balances in a statement of assets. A live account—one on which payments are being made regularly—is legitimately considered as good an asset as any other account receivable, but the value of the delinquent account—when payments are past due—is questionable, and if included in a balance sheet, the nature of the asset should be clearly stated. ”

“ In accounting for land as a fixed asset used in the conduct of a business, one or more accounts may be carried as seems best. If the land is in several different plots, perhaps widely separated and each plot held with other groups of assets and under varying conditions as to taxes and other obligations, some plots being subject to mortgages and others not so subject, separate accounts with each plot would be desirable. Otherwise, usually the one account will suffice. ”

“ Then do you say it is the case that the money is entered in the man's account whenever he has an account with you?-If the man to whom the money was to be paid had an account, it might probably be put to that account ”

“ 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 ”

“ When one person acts for another in money{119} matters, a statement, called an account current, should be sent at regular intervals—say once a half year or once every twelve months—showing the transactions. ”

“ A balance sheet is not an account, nor is it the statement of an account. It is simply a statement of assets, liabilities, and proprietorship, arranged in whatever form best suits the purpose. Where set up in parallel columns, it is frequently called the account form; when shown vertically on the page, assets followed by liabilities and the difference indicated as net worth, it is called the report form. A balance sheet therefore being only a statement cannot properly be said to have either a debit or a credit side. ”

“ With each report of the auditor is a 'statement of differences,' purporting to show in what particulars the amount stated by the auditor differs from that rendered by the collector. It begins by setting down 'the balance due the United States per his account ending' at such date, and this balance is increased by the addition of such sums as the collector has taken credit for, but which the auditor has refused to allow. ”

“ That, in 1911, more than one in every ten persons in the United States—counting all men, women and children—possessed a bank account, the total amount of these accounts being no less than $4,212,584,000. ”

“ A nominal account is a record of transactions having to do with profit and loss; a record of a particular class of expenditures from which no direct returns are expected; [71] any impersonal account which does not come under the classification of real or representative accounts.
Example—
We buy coal to be used in heating our building. The coal is not to be resold, but its use is necessary; it is one of the expenses of conducting the business, and we charge the amount to an expense account. Expense is a nominal account kept for the purpose of showing the total expenses of the business. ”

“ These transcripts are intended to be statements made up by the accounting officers of the Treasury Department from the quarterly accounts rendered by the officer with whom the account is kept, after an examination and adjustment of such quarterly accounts, and the allowance or disallowance of the several items contained therein. ”

“ The balance of the Personal account is closed into the Capital account, the credit balance of which then represents the net worth of the business at the end of this period and at the commencement of the next.
The Profit and Loss Account.—In posting the closing journal entries to the Profit and Loss account in the ledger, usually only the group totals as indicated by the entry will appear. In small concerns where expenses and income are not classified in much detail, the individual items composing the group total are often shown. ”

“ A principal may have constant dealings with his agent or representative, making periodical payments on account or making remittances to be used as needed by the agent. The agent may make purchases for the account of his principal, paying the bill out of his own funds. He may use in his own transactions any surplus funds of the principal in his possession. An account showing transactions of these various kinds is an account current. The customers’ accounts in brokerage houses and the accounts between banks—banks and their correspondents—are other examples of accounts current. ”

“ Sir: To preclude any possible misunderstanding hereafter as to the character of the drawing account opened in your name, I am instructed by the Governors to communicate to you in writing that, in conformity with the rule of the Bank, the account is considered a personal one; that the Governors have admitted the words appended to your name merely as an honorary designation; and the bank take no cognizance of, or responsibility with reference to the real ownership, or intended application of the sums deposited to the credit of the account. ”

“ 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. ”

“ At the beginning of a business enterprise the accounts in the ledger will be an opening balance sheet of the business. Day by day by day as transactions take place, there will be a constant change in the values of the assets, liabilities, and the proprietorship account which will thus express the changing financial condition of the business. Some assets will be increased while others will be decreased; liabilities will also change; and with these changes there will be brought about a change in proprietorship—an increase or a decrease. ”

“ As the degree of analysis increased, the futility of such a procedure became apparent and now posting to the ledger accounts is made directly from column totals as shown in the illustration. The Sundry Charges column is posted in [Pg 37] detail to the named accounts as indicated. Proof of distribution should always be secured by checking the total of the distributive column totals against the total of the Vouchers Payable column. In posting, the total of the Voucher Payable column is credited to its account, while the totals of the distributive columns are debited to their respective accounts. ”

“ It is better in the beginning to balance the account at least once a week, for then inaccuracies can be more easily traced. The secret of success is to put down at the time of the transaction what has been received and spent. When the account has been balanced, a second step is much more interesting. ”

“ There is an account in our committee and consultation proceedings, as large as a general return, with as many columns, specifying the sums of money received, and to be received, by whom, and to whom, and on whose houses drawn; in short, the Directors, when they first see these papers, will imagine it to be an account of increase of revenues. If you can get John Walsh into a humour of entertaining you upon these matters, he is qualified to do it better than any man in England. ”

“ A factor must account to his principal for money collected, less his commission and expenses. He is not obliged to keep such money separate from his own, but he must keep accurate account of same, and remit promptly when it is due, according to custom or special contact. ”

“ This first step being taken, you open what is called a current or drawing account; that is to say, an account into which you can pay money whenever it suits you, and from which you can draw money at any time by means of orders, or cheques, as they are called. In a current account in a good bank money is kept safely—which is a great matter—and at the same time you can make use of it as readily as if it were lying in your pocket. ”

“ In an action, counter claim or set-off, founded upon an account, promissory note, bill of exchange, or other instrument, for the unconditional payment of money only, it shall be sufficient for the party to give a copy of the account or instrument, with all credits and indorsements thereon, and to state that there is due to him on such account or instrument, from the adverse party, a specified sum, which he claims with interest. ”