the names, kind of employment, time worked, rate, total pay, deductions and net amount due. Unless the distribution of charges to the various accounts is made in a separate statement, each pay-roll sheet may conveniently bear its own distribution on the back. The lines may be numbered the same on front and back. The reverse side is provided with a number of columns for distribution to the several accounts; when these are finally summarized, the total charge to each account is secured, and the grand total balances with the amount of the pay-roll.

A journal entry charging the accounts included in the pay-roll summary, designates a liability by crediting an account called Pay-rolls or Labor Payable. When check is drawn for the total roll and payments are made, the liability ceases to exist and the ledger account is debited with the amount.

In addition to the Labor Payable account a ledger account is frequently opened to take care of the unclaimed wages, which are transferred to hold over or special rolls and held for a long period, awaiting claimants.

When construction work is under way, timekeepers are frequently employed. Foremen are usually kept quite busy at these times, without having the additional burden of timekeeping. The timekeeper can look after a large number of men, and disputes are not so likely to arise if the men feel that their time is being carefully kept by a man employed solely for that purpose. Timekeepers should, of course, be trustworthy men. Unless it is absolutely unavoidable, the payment of employes should not be entrusted to the men who keep the time. While collusion may not be thought of in one case out of a great many, the absence of opportunity for manipulation is a "consummation devoutly to be wished " by the railway auditor.

A careful examination of the pay-roll sheets is made in the office of the auditor. Calculations are verified by the use of wage tables and calculating machines, and every endeavor is exerted to prevent errors. The number of men employed is carefully checked with previous rolls in order to prevent the inclusion of straw" men or "dummies." Rates of pay are likewise compared with preceding ones, and the changes ncted are checked against the letters of authority that have been received.

The letter of authority for changes in the pay-roll is used to notify the auditor of the differences to be expected. Separate spaces are provided for noting the changes in the rates paid, and of increases or decreases in the number of men employed. Comparison is made with previous pay-roll, increases or decreases being shown, the sheet is signed by the department chief and probably approved by the operating executive.

The form of check or pay-roll draft used is largely a matter of individual taste. Sometimes it is drawn payable to the bearer, while again it may be payable to order. In the latter event the endorsement of the payee, on the check, constitutes a receipt which is additional to the signature on the pay-roll. The check is usually printed on a high grade of paper, that has a "safety" texture, preventing easy erasure. In order that the check can not be forged by photography, a tinted device or monogram may be engraved upon a separate plate, in the manner prescribed for stock certificates by some stock exchanges. To prevent "raising" a limit is sometimes printed upon the check, specifying the highest amount for which the check can be drawn. Sometimes, also, a clause requiring that the check shall be presented for payment within a certain period is added, so that the number of checks outstanding may be reduced.

Employes discharged are usually given "time orders" in order that they will not be required to wait until the regular pay-day, but can secure their money at once. These are sometimes paid with a special form of check and handled on separate pay-rolls. When checks are sent to the employes discharged it is not considered advisable to send the pay-roll sheets for signature, and a printed letter, with space for receipt, is sent, requesting that signature be attached and the sheet returned. These receipts and similar ones used in cases wherein the employes on one pay-roll sheet are widely scattered, are placed with the signed rolls, completing the file of "vouchers" for pay-roll disbursements.

CHAPTER XIX.

INTEREST, TAXES AND DIVIDENDS.

The operating expenses of an electric railway are paid, to a considerable extent, out of its current revenues, month by month. The pay-roll has usually been paid by the middle of the following month, and a large portion of the other expense is by that time, vouchered and taken into account.

The interest, dividends, taxes and other fixed charges are paid at less frequent intervals, which necessitates adjusting book entries. Monthly or yearly statements of the income account are not complete until the amount of fixed charges that have accrued for the period have been included.

Interest is ordinarily of two kinds, that on funded debt and floating debt. The evidence of these debts frequently consists of bonds, the interest on which is payable semi-annually, and notes given for money borrowed, and supplies, equipment, or other values received.

The interest on funded debt that has accrued during the period is shown as a deduction from income in the published statements. A journal entry is made monthly for all the fixed charges affecting income account, which have accrued during the month, the liability accounts being credited with the amounts of these accruals.

Interest on floating debt that has been incurred in connection with operation is deducted from income, but the interest on advancements for construction purposes, is separately treated. The A. S. & I. Ry. A. A. classification provides that interest incurred in financing construction, as well as discount on bonds. sold, shall be considered items of construction cost.

Taxes are also included in the monthly deductions from income, and as they usually vary from year to year, and are paid some time after they accrue, it is necessary to estimate as nearly as possible the amount accrued each month, and to make adjustments when the exact figures are known.

In time past there has been considerable diversity of opinion

among accountants, regarding the disposition of the item of taxes in preparing railway financial statements. All agreed that taxes should be charged against income during the year for which they were assessed, regardless of the dates when paid, but there was not the same unanimity as to whether taxes should be included in operating expenses or grouped with bond interest and other fixed charges.

The latter method is more widely used, and in a published analysis of the Southern Railway's report for the year 1906, a writer comments as follows: The company lumps operating expenses and taxes together the reason for this is not known. In some cases, like that of the Illinois Central, whose taxes consist of a seven per cent. tax on its gross earnings, these taxes might be considered as analogous to an operating expense. Usually, however, they are considered like interest on the funded debt, a fixed charge."

The Standard form of Report for Electric Railways, which was approved by the Street Railway Accountants Assn. of America, at Detroit in 1902 and adopted as standard by the National Association of Railroad Commissioners at Portland, Maine, in 1903, groups taxes with other fixed charges that are deducted from income.

In the system of accounting prescribed by the Interstate Commerce Commission, taxes of every description are segregated from operating expenses. The only charges in the nature of taxes included in operating expenses are assessments for highways, sidewalks, sewers and the like which are carried to the appropriate accounts in operating expenses, construction or betterments as the case may require. Upon the other hand a prominent American firm of accountants recommended the inclusion of taxes in railway operating expenses and made the following explanation in support of their action.

"Taxes should be considered as a separate expense account under the heading of general expenses and not as a fixed charge. A fixed charge is properly a guaranteed return on invested capital, being specifically represented (1) by interest on mortgage bonds, and (2) by guaranteed interest return on any other class of interest-bearing securities, said interest return being always in the nature of a fixed or guaranteed percentage, such as interest on debentures or interest on certain classes of preferred stock."

Taxes may be separated, for the purpose of this discussion, into two general classes. The first of these shall be termed, for convenience, " property" tax, consisting of taxes upon all kinds of property owned, such as real estate, track, rolling stock, cash, securities, etc. Broadly speaking, the tax assessed upon property owned is not affected by the fluctuations in the volume of traffic, or in other words, by the earnings of the property. In this respect it may be likened to the interest on funded debt, which remains constant, regardless of the fact that many trains be discontinued or rates reduced, and earnings thus show wide variations. It may happen, however, that a changed rate or assessment may cause a large difference in the amount of tax for the year.

Operating expenses in detail, and the relation of their total to the operating revenue of property are sometimes considered an indication of relative operating efficiency; if operating expenses are cumbered with taxes, efficiency is apt to be misjudged to some extent when totals are considered without reference to details.

An accountant meets this theory with the objection that taxes can be influenced by the operating management in many cases. He cites the following example. The railway company rents, at Smithtown, a station building and grounds, valued at $5000, for $40 a month, which is charged to operating expenses. The management decides to buy the property, does so, eliminates the rental payment, and henceforth pays a property tax of $100 a year, which is grouped with other fixed charges as a deduction from income, when, as he states, it should be properly considered a part of the operating expenses.

The example he cites may be used to illustrate another phase of the same subject. The company under consideration builds. and buys station buildings at many other places besides Smithtown, and in securing funds for the purpose, puts out an issue of bonds whose interest is thereafter a fixed charge of the company. The increased bond interest lessens operating expenses (station rentals) as does the ownership of other property, but the interest on funded debt is not in any sense considered as operating expenses.

The second kind of tax is that which is assessed upon earnings or volume of traffic. This is not affected by the method that