10. The following is a statement of everything inventoried at this time:

11. Make a statement of losses and gains and have it approved. Use the following form to find the gain on Merchandise Sales:

NOTE. The remainder of this statement is to be made like the one given on page 128.

* 12. Make a statement of resources and liabilities and have it approved.

The private accounts of the proprietors are included in this statement. If the debit of any private account is the larger, it shows a resource; if the credit is the larger, a liability.

*The second statement forms and the journal method of closing the ledger, as illustrated in Appendix G, may be used at the option of the instructor.

NOTE. Make a careful study of the following accounts before closing the general ledger.

The Net Purchases, $8000, are transferred to the Merchandise General account, and then the total purchases appear on the debit side of that account. Enter the inventory, $4500, record the Cost of Sales, $9500; transfer this last item to the Merchandise Sales account. The balance of this account now shows the Gain on Sales; record this amount and then transfer it to the Loss and Gain account.

13. Close the general ledger accounts. Carry each partner's share of the net gain or the net loss to his private account. These accounts should always be closed by Balance. The firm account contains but one item in this instance, therefore it should not be closed.

14. Draw a check in favor of the instructor for the credit balance of your firm at The Union Bank. Receive your monthly bank statement. 15. Hand in all books to the instructor for approval.

GENERAL REVIEW QUESTIONS

1. What new features were introduced in the cashbook for this set? 2. Explain the advantage of the special columns used in the journal. 3. Under what circumstances would it be advisable to open special columns for different departments of merchandise in the sales book? If these special columns were opened in the sales book, what necessary changes would be made in the invoice book? 4. What is a power of attorney? When must it be drawn up under seal? 5. Briefly outline what should be done by a bookkeeper on assuming charge of a set of books. 6. Give an example of a personal account, showing a loss. 7. Under what circumstances should a suspense account be opened? 8. To which of the two general classes of accounts does the suspense account belong? May it belong to either class? 9. What is meant by protest as applied to negotiable paper? When is it necessary? 10. State briefly the process of making a protest. 11. What is the general value of a protest? 12. What is a notice of protest? What items of information must it always give? Who serves such a notice? 13. Briefly outline some of the things that contribute to a good business letter. 14. State some of the essentials of a good letter soliciting trade. 15. State some of the things that should never be incorporated in a dunning letter. 16. State some of the things that help to make a strong dunning letter. 17. Explain how the personal accounts with partners are usually closed. 18. To which of the two general classes of accounts do each of the following belong : (a) the proprietors' private accounts; (b) the investment account or accounts of a business; (c) C.O.D. accounts? 19. Give an example of a cash account showing an overdraft.1 20. Name the two leading mercantile agencies of the United States. What is their principal business?

HOW TEMPORARY OVERDRAFTS ARE TREATED

1. The amount of the overdraft should be indicated in red ink in the check book. 2. If there is no cash in the safe, the amount of the overdraft should equal the excess of the cash credits over the cash debits in the cashbook.

3. If there is cash in the safe, the difference between the overdraft and the amount in the safe should equal the balance shown in the cashbook.

DEPRECIATION

The term depreciation, in bookkeeping, indicates a certain loss on property due to wearing out, deterioration, or disintegration. This loss applies to all forms of personal property, such as buildings, machinery, furniture and fixtures, such loss being due to the action of the elements, to wearing out by use, and to other causes which tend to lessen values.

When property is first bought or comes into the possession of the business its value as an asset is the cost price, but as time goes on this property

1 An overdraft is in reality a loan advanced by the bank. Not infrequently the depositor leaves some security with the bank as a pledge in case an overdraft occurs. Overdrafts are not of very frequent occurrence in actual business, and when they do occur they are but temporary balances which are generally made good as soon as they are discovered.

as a machine or a building becomes through use or exposure in need of repair, and this is true even though repairs may not yet be imperative. This fact indicates clearly that the value has lessened. To illustrate an automobile in regular use is constantly wearing out and its value decreasing, but it must necessarily be some time before the wearing out reaches such a stage that repairs are needed, or that some parts must be replaced. This decrease in the value of the machine is depreciation.

An ever-present question is how to show this depreciation in a way to approximate the loss without introducing difficult methods of bookkeeping. The importance of setting forth these facts depends somewhat on the kind of business under consideration, whether it is an individual proprietorship, or a partnership managed by the owners, or a corporation which must give extended information to many stockholders who have nothing to do with the direct management or control of the business, but to whom definite reports must be given.

A building in which a factory is situated is constantly wearing out, even though it may be repaired as often as repairs are needed. This lessening of the value is a cost of conducting the business and ought to go in with other losses in the financial showing. One of the simplest ways of showing that loss would be every year to calculate how much depreciation had gone on and charge that impairment to Loss and Gain and credit Property. For example: the property is a factory building listed on the balance sheet at $10,000; at the end of a year there is a 5% depreciation calculated; this 5%, $500, should be charged to Loss and Gain, with the explanation that it is the depreciation on the building, and the amount should be credited to the Building Account; at the beginning of the next financial period the building must appear on the balance sheet at a valuation of only $9500. If any additions or improvements had been made on the building, that would be a separate matter and should be treated separately, based upon the facts; the amount involved would be charged to Building Account and credited to Cash.

Many accountants, especially when the business is large and the property complicated, have devised various schemes for equalizing depreciation. For instance: charges are made every month to loss and gain for 1/12 of the estimated annual amount for impairments, to be credited to the building or other property account. For example, referring to the previous illustration, the $500 might appear as a liability under some such name as reserve for depreciation, indicating, for the purpose of bookkeeping, that the amount provided for depreciation on the liability side is to be subtracted from the original cost on the asset side, the difference being the true value.

The particular plan for showing the depreciation is secondary in importance to the fact that the property shown on the balance sheet should not be overvalued, under conditions that will tend to deceive those who examine it. It will be sufficient if the amount of the property to be written off is actually taken from the property account.

What has been said about depreciation for buildings may be applied to all other property which tends to wear out, to waste, or to become less valuable as time passes on. Nothing, in short, should be carried at its full value when such value has been materially lessened.

EXERCISE 64

A WRITTEN REVIEW

The following review exercises are suggested:

1. A, B, and C are partners, with investments of $6000, $4000, and $2000 respectively. After paying A a salary of $750, which was charged to expense, the net profit for the year is $2466.24. During the year A withdrew $750, in addition to his salary, B $600, and C $450.

Required: the net gain of each, on the basis of the original investment; the present worth of each.

2. D, E, and F invested equal amounts, and agreed to share all results equally. When the firm dissolved, the resources amounted to $9768.45, and the liabilities to $11,268.45. The net loss was $9000.

Required: the net insolvency of the business; each partner's invest

ment.

3. A and B engaged in business as partners, investing $8000 and $4000 respectively. They agreed to share all gains or losses in proportion to the investment. At dissolution the following were the resources and liabilities:

Of the Accounts Receivable 10% cannot be collected.

If the partnership lasted 1 yr., and A drew out $500, and B drew out $300, what is the interest of each partner at closing?