Liabilities: Capital liabilities. Funded debt and mortgages on real property. Current liabilities. Accrued liabilities. The accounts affecting income are not shown separately, but the net result appears as a debit or credit item. Frequently the current year's income result is shown separated from the balance derived from previous year's operation, commonly known as the Profit and Loss (or surplus) account. As each year is closed, the resulting balance of Income Account is transferred to the profit and loss account which thus becomes a condensed summary of the income account for a period of years. The balance sheet's value is enhanced if it is made up in comparative form, the increases or decreases over previous periods indicating to the management the changes of values as they occur. In order that the balance sheet may be a true statement of conditions, there must be a continual weeding out process for separating the "sheep from the goats." The accounts receivable must be examined periodically, for the purpose of closing out accounts not collectable. Investments, prepaid accounts, and suspense accounts are some of the others that require careful attention, in order that fictitious figures may not creep into the balance sheet. The general ledger, while it is complete in itself, does not contain all the detail accounts pertaining to operation of the railway. The total of the balances in each group of the inferior accounts appear as a controlling account in the general ledger, the separate accounts being carried in subsidiary ledgers. A subsidiary ledger may be used for each class of accounts. For example, one ledger may contain the Accounts Receivable, others Operating Expenses, Construction and Equipment, Suspense Accounts, and so on. The postings to these subsidiary ledgers are made daily, from the various posting mediums, and entries are posted to the general ledger accounts at longer intervals. Thus, if we have a column on the debit side of the cash-book, headed accounts receivable, the credits to the various accounts in the accounts receivable ledger will be posted daily; at the end of the month or other period, the total of the cash-book column is entered in the general ledger account accounts receivable." A similar plan is followed in posting from disbursement vouchers and collection vouchers which are previously entered in books designated, respectively, as disbursement voucher register and collection voucher register. Collection vouchers are not always used by electric railways, but quite an advantage is secured by their adoption. The collection voucher is but another name for an audited bill against some individual or company for services rendered or material furnished by the railway. An ordinary bill-head is printed, with space at the bottom for approval of officials, and for the treasurer's receipt when paid. These vouchers are numbered consecutively as entered in the register, which is a book ruled with columns for the classes of accounts credited with the amounts charged through the vouchers. For example, John Smith may be charged a certain sum for power furnished, or The Northside Railway for a half dozen poles. The latter item would probably be credited to an account not included in one of the groups ordinarily credited through collection vouchers. One or more columns of the register take care of these sundry credits. When collection vouchers are used, it is not necessary to make journal entries for transactions of this kind, which is a point in their favor. The uses of the principal books of account that are mentioned in the foregoing paragraphs will be better understood by reference to the following arrangement: Subsidiary General Contain detail, posted from Journal vouchers Collection vouchers Disbursement vouchers Cash-book, etc. Contains columnar-totals and sundry unat tached entries, posted from etc. Postings to the numerous accounts carried in the Operating Expense Ledger and other subsidiary ledgers are made from vouchers and from the daily entries in the cash-book. periodical intervals, usually at the end of the month, the totals of the columns in cash book and voucher registers are posted directly to the general ledger accounts. Unattached items entered in the "sundries" columns are posted to the general ledger separately as they appear. If a journal book or a summarizing sheet is not used for grouping journal voucher items in columnar fashion, it will be necessary to make postings twice from the journal vouchers containing entries affecting subsidiary ledgers. After postings have been made, the total debits and credits posted to the accounts in a subsidiary ledger during the month or other period under consideration, should equal the total amount that has been posted to the controlling account in the general ledger. Thus, the total postings to the accounts in the operating expenses ledger during a month should equal the amount posted to the controlling account "Operating Expenses" in the general ledger during the same period. There are other ledgers and posting mediums used as the circumstances may require, but the same general practice is followed, of having the general ledger contain the controlling accounts, confining the detail to other books. Mileage records, car-hour records, tonnage records, earnings records, agents' ledgers and conductors' ledgers, all have their proper places in the scheme of electric railway accounting and the compilation of statistics. The uses of some of them will be explained in other chapters. CHAPTER IV. THE INCOME ACCOUNT. The most important part of a railway financial report is the income account. If it is presented in detail, accompanied by a balance-sheet that reflects conditions as they actually exist, interested investors and stockholders can keep in close touch with the operation of the road, although they may never see the physical property. In making public reports, railways observe a certain amount of uniformity, which is of valuable assistance to persons who wish to compare the operations of different properties. The steam railways follow a form which has been prescribed by the Interstate Commerce Commission after consultation with experienced railway accountants, many of whom are associated under the title "American Association of Railway Accounting Officers." The electric railways have used to a a large extent the standard form of report formulated and recommended by the American Street and Interurban Railway Accountants' Association, successor to the Street Railway Accountants' Association of America. The income account, as stated in published reports, starts with the gross earnings, or "operating revenue," classified in detail. From the gross earnings is deducted the total operating expenses, also classified under several headings. Other items are added and deducted until the net income (or deficit) is indicated for the period under consideration. If dividends are declared, the amount is separately shown as an additional deduction. Sometimes other amounts, covering appropriations or expenditures for improvements to property, are deducted before the final surplus is shown. The following income account of an imaginary electric railway illustrates one form in which figures appear in monthly statements. The details of earnings and expenses are shown in statements that are supplemental to the general report of totals. The figures are valued chiefly for comparison with previous ones; in order to enhance their value, the reports of operation usually include statements of results during like periods in former years. Monthly statements are prepared with four parallel columns of figures. The first two columns are used for showing the result of operation during the current month and the same month of the preceding year. The third and fourth columns are employed for the purpose of comparing the expired portion of the current fiscal year with the similar period of the previous year. In the foregoing statement of the income account it will be noted that the first three items are those which show the result of operation of the physical railroad property, apart from any transactions that may have resulted from the policy of the corporation in the conduct of its financial and other interests. not directly connected with the operation of the railroad. One of the chief advantages derived from this method of grouping the figures, is the exhibition of operating efficiency. The operating staff is judged to a certain extent by the figures shown in these first items. While this is true, the statement should be qualified. For |