MERCHANDISE.-The Inventory is first to be entered on the credit side of this account, that it may be added to the sales. (This is equivalent to deducting it from the debit or cost side.) Proceed as follows: On the credit side of the account enter the Inventory. Write in red ink, Mar. 15, Inventory, 332. Then to close the account, on the smaller side-which is the debit-enter the difference between the sides, that is the Gain. Write in red ink, Mar. 15, Gain, 262. Next rule and foot the account. (See Merchandise account closed and ruled on page 38.)

In ruling an account, draw the red line directly on the blue line. In the double ruling, draw the lines as close as possible and not have them run together. Rule on the same line on both sides of the account, even if there be a larger number of entries upon one side than on the other.

The two entries just made have put the Ledger out of balance, and, to restore the balance, entries for like amounts must be made on the opposite sides, as follows: First, transfer the Inventory below the ruling on the debit side. Write in black ink, Mar. 15, Inventory, 332. Next transfer the Gain to the credit side of the Loss & Gain account. Write in black ink, Mar. 15, Mdse., 262 (enter in page column the page of Mdse. account.) By these two entries we have not only placed the Ledger again in balance, but we have caused the Loss & Gain account to show, as it should, on the credit side, the gain produced by an account (Mdse.) which has been closed.

EXPENSE. To close this account, on the smaller side-which is the credit-enter the loss. Write in red ink, Mar. 15, Loss, 18.50. (Enter page of Loss & Gain account.) Next, rule the account. (See Model.) Transfer the Loss to the debit side of Loss & Gain account. Write in black ink, Mar. 15, Expense, 18.50. (Enter page of Expense account.)

Loss & GAIN. Having closed all the accounts which show Losses and Gains into the Loss & Gain account, you will now proceed to close this account. On the smaller side, which is the debit, enter the difference between the sides, that is the Net Gain. Write in red ink, Mar. 15, Wm. Wood (the page) 243.50. Next rule and foot the account. Transfer the Net Gain to the credit side of Wm. Wood's account. Write in black ink, Mar. 15, Net Gain (the page) 243.50.

WM. WOOD'S ACCOUNT.-The Net Gain having been carried to it, this account now contains the Present Capital, and that it may be shown in a single amount, you will close the account. Proceed as follows: On the smaller side, which is the debit, enter the difference between the sides, that is the Present Capital. Write in red ink, Mar. 15, Present Capital, 5168.50. Next, rule and foot the account. Transfer the Present Capital to the opposite side (credit side) below the ruling. Write in black ink, Mar. 15, Present Capital, 5168.50. This completes the work of closing the accounts which contained the Losses and Gains growing out of the preceding business, and the Net Gain-the difference between the Losses shown on the debit side and the Gains shown on the credit side of the Loss & Gain accounthas been entered in the Proprietor's account, causing it to show the Present Capital. It is evident that the Proprietor's account will continue to show its true relation to the business— that is, the Present Capital, or exact difference between the Resources and Liabilities-only until such time as a Gain or Loss has been produced in the course of trade; because such Gain or Loss is not immediately entered in the Proprietor's account, but it is permitted to remain in the account producing it until a general closing of the accounts showing gains or losses is made, such as has just been explained and illustrated.

Submit your Model Balance Sheet and Model Ledger, just closed, for inspection and criticism.

NOTE.-In case your work in closing the Model Ledger is not up to the standard, your teacher will require you to make an Inventory of Resources and Liabilities and a Balance Sheet for the set given under Second Posting Exercise on page 8, after which you will close the Ledger and submit your work for approval. The Inventory of Merchandise consists of the following: 217 yds. Broadcloth @ 4.25; 125 yds. Fancy Cass. @ 2.55; 120 yds. Black Cass. @ 2.40.

Directions for Taking Merchandise Inventory. You will now proceed to take an Inventory of the goods on hand (in Store Room) preparatory to making your regular Balance sheet for Mr. Hammond's business. The current cost prices of your commodities are as follows: Apples $1.50, Potatoes 204, Barley 254, Rye 284, Corn 304, Oats 244, Flour $3.75, Wheat 654. Do the work on a journal sheet before copying into your regular Journal, and submit it, together with the representative merchandise, to your teacher. After your work is approved, copy it into your Journal. Refer to the Merchandise Inventory for the Model Set while doing this work.

Directions for Taking Inventory of Resources and Liabilities. Having ascertained the value of the Merchandise on hand, the remainder of the Resources and Liabilities you will determine from your books or from the Trial Balance. Make the Inventory of Resources and Liabilities, using the one given for the Model Set as a guide. The difference between the Resources and Liabilities will give you Mr. Hammond's worth or capital. Subtracting his Capital on commencing from the Present Capital gives the Gain. To ascertain the sources of Losses and Gains, you will make a Balance Sheet. Before doing so, present your Inventory for approval.

Directions for Making Balance Sheet. Head a blank Balance Sheet as follows: "C. W. Hammond's Balance Sheet, Jan. 31, 189-." 2. Copy the Trial Balance on the Balance Sheet, following the directions given for the Model Balance Sheet. (Keep Model Balance Sheet before you while doing this work.) 3. Extend the balance of Cash to the Resource column. Why? 4. Enter the Inventory of Merchandise in the Resource column in red ink. Ascertain the Gain by subtracting the debit balance from the value of the merchandise on hand. Why is this amount a Gain? 5. Extend the total of Expense account to the Loss column. Why? 6. Extend the credit balances of the following accounts to the Liability column: Redfield & Son, Thos. J. Johnston & Co., Kaufman, Straus & Co., Bills Payable, A. Paul, Jr., Barlow, Henderson Co. Why are these accounts extended to the Liability column? 7. Extend the debit balances of the following accounts to the Resource column: A. P. Batson, Bills Receivable, Frey & Thomas, H. B. Philips & Co., Harry Powell. Why are these balances extended to the Resource column? 8. Rule and foot all six of the columns as shown in the Model. 9. Subtract the Loss from the Gain to find the Net Gain and extend it into the Loss column in red ink, referring to the Model to make sure that you are arranging your work properly. 10. To the Net Credit or Capital on commencing of Mr. Hammond's account add the Net Gain and extend the amount, which is his Present Capital, to the Liability column. Present your Balance Sheet for approval.

Directions for Closing Accounts Showing Losses and Gains. Open an account with Loss & Gain on page 5 of your Ledger.

MERCHANDISE ACCOUNT.-1. Enter the Merchandise Inventory as shown by the Inventory in the Balance Sheet on the credit side of the Merchandise account in red ink, following the directions as given for closing the Model Ledger. (See page 37.) 2. On the debit side enter in red ink the Gain, which is the difference between the sides including the Inventory, writing it as follows: "Jan. 31, Gain, 5," and the amount. 3. As the sides of the account are now equal, rule and foot same properly. (See Mdse. Acct., page 38.) 4. Transfer the Inventory in black ink to the debit side below the ruling. 5. Transfer the Gain to the credit side of Loss & Gain account; writing in black ink, "Jan. 31, Mdse., 3," and enter the amount in the money column.

EXPENSE ACCOUNT.-1. On the smaller side write in red ink, "Jan. 31, Loss, 5," and the amount which is required to balance the account, which is a Loss. 2. Rule the account as shown on page 38. 3. Transfer in black ink the Loss to the debit side of the Loss & Gain account as follows: "Jan. 31, Expense, 4, 177.00."

Loss & GAIN ACCOUNT.-1. On the smaller side enter the difference between the sides in red ink, writing, "Jan. 31, C. W. Hammond, 1," and the amount. 2. Rule and foot the account, referring to the Loss & Gain account on page 38. 3. Transfer in black ink the Net Gain to the credit side of C. W. Hammond's account, writing "Jan. 31, Net Gain, 5,” and. the amount.

C. W. HAMMOND'S ACCOUNT.-1. On the debit side write in red ink, "Jan. 31, Present Capital," and the amount. 2. Rule and foot the account. 3. Bring down the Present Capital in black ink to the credit side below the ruling.

Having finished closing the accounts that show Losses and Gains, check their balances as shown in the Ledger with those shown in the Resource and Liability columns of the Balance Sheet to see that you have made no errors in closing.

Present all your books for inspection.

While your teacher is examining your books prepare yourself for an examination upon the leading principles involved in the work of the foregoing pages. The following questions will aid you materially in this.

QUESTIONS FOR REVIEW.-What is bookkeeping? What is the object in keeping books? What is double entry bookkeeping? Define the Day Book-Journal. The Ledger. What is a debit? A Credit? What is an account? What is Journalizing? Posting? Give the general rules or principles for debiting and crediting. What is the object in taking a Trial Balance? Why is it a good plan to check over your postings before taking a Trial Balance? Why is it a better plan to take a Trial Balance, using the balances instead of the footings? In case your balance would not prove when you used the balances, would you try to get it by using the footings? Give your reasons for your answer. What is a Balance Sheet? What is the object of making a Balance Sheet? What is a Merchandise Inventory? How is the Merchandise Inventory ascertained? What is an Inventory of Resources and Liabilities? What does the difference between the total Resources and Liabilities show? When does an account show a Loss? A Gain? A Resource? A Liability? How is the Net Gain found? When would there be a Net Loss? How is the Present Capital determined? What is the next step after the Present Capital has been found? Why are the Loss and the Gain accounts in the Ledger closed? Into what account are they closed? Into what account is Loss & Gain account closed? Review all the questions given under the accounts previously presented.

FEBRUARY 1, 189-.

Continuation of Mr. Hammond's business. The amount of business transacted, the profits arising therefrom, and the success of the business generally, has induced Mr. Hammond to employ Mr. Frank Winter as salesman and receiving clerk, leaving you to devote your entire time to the books and office work. Mr. Winter will attend to the shipping and the receiving of all goods, O. K. bills, and sell to customers who buy at retail. Mr. Hammond, as heretofore, will attend to the soliciting of orders, make the purchases, and attend to the financial matters pertaining to the business. Mr. Winter will take charge of the stock as shown by your Inventory, and you will have nothing whatever to do with the handling of goods. Never enter an order or bill unless it has been O. K.'d either by Mr. Hammond or Mr. Winter.

The Cash Book is now introduced as the first of labor-saving books. It is generally considered a subdivision of the Day Book, and takes the place of the Cash account in the Ledger. All cash entries are to be recorded in this book and posted directly to the Ledger without being carried to the Journal. (See pages 42 and 43.)

The Method. Whenever cash is received, the amount is entered on the left or debit side (page) of the Cash Book, with the title of the account to be credited in posting, and an appropriate explanation. Whenever cash is paid out, the amount is entered on the right or credit side (page) of the Cash Book, with the title of the account to be debited in posting, and an appropriate explanation. The difference between the sides of the Cash Book should exhibit, at any time, the cash on hand. In business it is customary to prove cash every day; i. e., ascertain whether the cash on hand agrees with the balance as shown by the Cash Book. The Cash Book is ruled daily, weekly, or monthly, usually the latter. The Cash Book is a great convenience in proving cash, as proving it when the cash entries are made in the Journal could be accomplished only with difficulty, because it would be necessary to collect the debit items and the credit items before their difference could be ascertained.

Model Cash Book. Carefully study the Model Cash Book illustrated on pages 42 and 43, make a transcript of it, and post same to a Ledger, on a sheet of ledger paper, referring to Ledger on pages 42 and 43, after which take a Trial Balance to test the correctness of the posting. You will observe that the items appearing on the debit side of the Cash Book are posted to the credit of the ledger accounts; also, that the items appearing on the credit side of the Cash Book are posted to the debit side of the Ledger. Excepting the amounts, the transactions recorded in the Model Cash Book are identical with the cash transactions recorded in the Day Book-Journal for January. Compare the Model Cash Book with the cash transactions recorded in the Day Book-Journal to learn why the cash book items are posted to the opposite sides of the ledger accounts. As no account of Cash is kept in the Ledger, the Cash Book, in which all receipts and payments of cash are recorded, is to be considered as the Cash account in the Ledger, and in taking a Trial Balance start by bringing the receipts and payments of Cash, or the balance on hand, to the Trial Balance, just as you would were the account kept in the Ledger. Then proceed as previously instructed with all other accounts in the Ledger. The Ledger of itself will not balance when it does not contain the Cash account, so always get the balance on hand from the Cash Book, which, as before stated, takes the place of the Cash account in the Ledger. Submit your work to the teacher. (Continued on page 44.)