example, another road may show the same gross earnings as given in the foregoing figures, but because of its location the operating expenses may be ten per cent. higher, with a corresponding decrease in net earnings.

There are so many factors, such as the state of efficiency in which the road is maintained, the rentals of tracks, terminals and buildings not owned, and other conditions which influence net results, that judgment can not be rendered offhand. In order to fully understand the results shown and to make intelligent comparisons, a knowledge must be had of each road's strategic position, the condition of its property and the nature of the country traversed. In addition, the detail figures of which the income account and the balance sheet are made up, should be carefully studied.

The accountant is required to use great care in order that the figures presented may be truly indicative of actual results. during the period under consideration.

Revenue or Earnings bears some relation to Cash Receipts, but the distinction between them is always to be kept in mind. If it were possible to make statements of earnings by copying the cash book entries, the auditor's work would be simplified, but there are various reasons why this is impossible.

If the conditions were such that no tickets were sold, no credit extended and no payments received in advance, the cash receipts might be synonymous with earnings; usually numerous entries are required to reconcile the cash with actual earnings.

The item of passenger earnings is made up, in large part, of cash and tickets collected by conductors. Some railways do. not credit the cash received from the sale of any ticket, to earnings, until the ticket has actually been lifted by the conductor. As tickets are sold, the proceeds are credited to liability accounts having titles descriptive of the classes of tickets sold. When tickets are turned in by conductors, the values are computed, and journal entries are made, charging the ticket liability accounts, and crediting passenger earnings with the amounts. The balances in the ticket accounts show the amount of liability for outstanding tickets.

While this is theoretically correct, there are practical reasons why the plan is not always used. There is a vast amount of labor involved in the computation of values, particularly if the

line sells many thousands of different kinds of tickets each day. The bulk of ordinary single-trip and round-trip tickets are used so soon that they may be considered earned when sold the overlapping of one day's sales being offset by the previous day's sales earned.

The mileage and coupon books are usually taken into earnings only as the coupons are lifted by conductors. The books are sold for cash and frequently used during a period of several months, so that there is always a considerable liability for unused coupons. The coupons are valued as lifted, and the amount included in passenger earnings.

It is the custom of electric railways to prepare daily comparative statements of earnings, in order that managers and others may keep constantly informed of the volume of traffic.

This makes it necessary to do considerable work in the way of prorating interline earnings, and the computation of freight and express earnings.

The daily reports of sales that are made by agents, are used in prorating earnings over divisions and lines. If agents are instructed to make reports weekly or monthly only, there must be a daily statement in some form, of the total sales. This may be a brief memorandum of the items which make up the amount of cash remitted; all agents can not be entrusted to make the proper divisions of revenue, however.

If daily reports are received, the auditor makes divisions of revenue to the various lines and divisions. If the road is a large one, selling tickets good for transportation over several of its divisions, it will be necessary to prorate the amounts of inter-division tickets sold, upon a mileage or arbitrary basis. Interline tariffs show the amount of revenue due each road interested in this class of earnings, and after the agents' daily reports have been verified, the totals are prorated and the amount earned by the home line is carried into earnings.

The baggage earnings are usually included in the agents' reports of ticket sales or cash remittances. Interline collections are handled in a manner similar to ticket sales.

The amount earned upon interline tickets sold by foreignlines, routed over the home line, is computed by ascertaining the value of coupons lifted by conductors. These coupons of interline tickets are received daily in the auditor's office. The

reports of sales made by foreign lines are usually made but once a month and received some time after the close of the month. It is therefore impracticable to depend upon the reports for the daily computations of earnings. The same thing is usually true of interline baggage received from foreign lines, prepaid.

Freight and express earnings are compiled from the copies of way-bills that are received in the auditor's office, from station agents. Those that are purely "local," confined to one division, are quickly footed and the entire amount is taken into the earnings of that division.

The way-bills that cover freight moving on several divisions are grouped according to the division of revenue that is used. It is frequently the case that the same percentages are used for several different stations, and considerable labor is saved by gathering all the bills of one percentage in a group.

Interline freight earnings must of necessity be computed in a different manner. If the foreign line does not furnish an abstract or copy of all way-bills forwarded, the home agents should be instructed to furnish the auditor with a daily report or copy of all foreign way-bills received. This is necessary in order that the daily statements of earnings will include the proper proportion of revenue-on all interline shipments handled. The interline way-bills forwarded are reported daily, also, by the home agents, or copies are sent to the auditor along with the copies of ordinary local way-billing. The amount of earnings is then ascertained by reference to the interline tariffs in effect. The miscellaneous earnings, such as power sales, transportation of mail, advertising, etc., require a special method of treatment. If considered advisable, a prorata proportion of arbitrary monthly charges may be included in the daily statement of earnings. If power is sold upon the basis of consumption as recorded by meter, the charge will not be known in time to include it in the daily earnings statement. It may, therefore, be found necessary to omit this class of earnings from the statement, which will still be sufficiently complete to serve its purpose. The chartered car earnings may advantageously be shown separately in the daily statements; these earnings fluctuate so that the comparison may be misunderstood if the reasons for variations are not explained.

Certain classes of Operating Expenses are quite sensitive to variations in the volume of traffic, while others are in the nature of "fixed charges," little affected by changes in the schedule or the density of traffic.

The use of the voucher system is an aid to the proper distribution of charges. Bills are vouchered as of the month in which the material is used or the service rendered, regardless of the time that they are paid; as vouchers are drawn, the operating expense accounts are charged.

There are always some payments for material not used or service not rendered during the current month. Such are the bills for material placed in the storeroom stock, fuel, insurance, etc. In order that the correct proportions may be included in monthly statements, charges to operating expenses are made through intermediate accounts. Supplies are charged to stores accounts as received, and monthly reports are made up by storekeepers, showing the amounts chargeable to operating expenses and other accounts for material used. Insurance premiums paid in advance are considered as assets, and reduced by the monthly charges to operating expenses. The charges such as taxes, bond interest and the like, which are paid after they have accrued for several months, are taken into account by journal entries charging the rateable proportion against each month's operation.

CHAPTER V.

AUDITING CONDUCTORS' COLLECTIONS.

Many and varied are the devices used by railroad managers to increase the percentage that passenger receipts bears to "fares collected," or fares of passengers carried.

In the old days of single-truck, "bobtail" cars hauled by horses and mules, it was customary to have a fare box fastened in the front of the car, in sight of the driver, who was master of all he surveyed, as far as that car was concerned. There were tubes running along the inside walls of the car and as the passengers' nickels were deposited therein, they rolled merrily into the fare box under the eagle eye of the driver. The driver made change for passengers, but further than that he handled. none of the company's money.

Since that time numerous systems of collecting and registering fares have been put into operation.

The subway and elevated roads require passengers to pay before entering the cars, by using gates and ticket sellers and choppers, but this system can not be used to advantage by surface roads whose passengers board the cars at street crossings, stations and flag stops, indiscriminately.

An effort to secure somewhat similar results has been made by the street railway of Montreal, Canada, which was the first to use the so-called pay-as-you-enter car. This is a car having a large rear platform, capable of accommodating twenty-five or thirty persons at one time. The platform is divided by a railing which leads to two separate doors, one opening inward only and the other outward only. A conductor stands by the door of ingress, and demands the fare of each passenger before the car is entered. In this way he has no excuse for missing fares, and is also at his place to prevent accidents to persons getting on and off the car. Passengers may leave by the front door, which opens when a lever is thrown by the motorman.

For about twenty-five years the street railways of Toronto, Canada, have required conductors to collect fares with a port