2 The statements should be prepared in a formal and dignified style, with careful attention to punctuation, capitalization, ruling, indentations, the use of the dollar sign in connection with the first amount in a tabulation, if placed outside a ruled money column, etc. The words "Deduct," "Less," and "Add," and any phrase used as a sub-heading, as "Cost of Goods Sold," should be followed by a colon.

3 The individual personal accounts are not listed in the Balance Sheet as they are in the trial balance. Instead, accounts with debtors are added and shown among the assets as Accounts Receivable; accounts with creditors are added and shown among the liabilities as Accounts Payable.

4 Assets are usually listed in a balance sheet for a mercantile business in the order of their ready conversion into cash, the usual order of arrangement being as shown in the model given. Liabilities are shown in the order in which provision would need to be made for their payment.

5 In case customers have returned goods, it would in most cases be well to show total sales, the credit footing of the Sales account, in the Profit and Loss Statement, and show the returns, the total of the debits to Sales, as a deduction therefrom, the remainder being designated as "net sales." This would also apply to returns and allowances on goods purchased by the business.

6 The Balance Sheet is so named because it gives expression to the equation existing between the various members in accounts kept by double entry, such equation being expressed as follows: Assets Liabilities + Proprietorship;

=

The clerical accuracy of the Balance Sheet is therefore proved if the total assets in the first section equal the total liabilities plus net worth in the second section.

The model Balance Sheet given is prepared in "statement form," assets being shown first, followed by the liabilities and net worth. While this arrangement is more convenient in case

the statement is short and simple, in practice the "account form " is usually more satisfactory. In the latter form, the assets are shown on the left side of a double page and the liabilities and net worth on the right-hand page, the title being written across the center of the double page. The balancing feature of the statement is then clearly brought out. The "statement form " of the Profit and Loss Statement is to be recommended.

CLOSING THE LEDGER

Following the preparation of the financial statements, the next work to be performed by the bookkeeper is the closing of the ledger. This is the process of closing into a Profit and Loss account all accounts which show a profit or a loss. During the period these accounts have served to provide a classification of profits, losses, and expenses, so that they may be assembled at the end of the period, to show the net profit or loss for the period. It is then necessary to close such accounts so that they may again be used during the succeeding period to show the profits and expenses pertaining to this period as entirely distinct from those of the preceding period. The most satisfactory method of closing the ledger is to make closing entries in the journal which result in balancing the accounts showing profits and losses, and to transfer the

profit or loss to a Profit and Loss account, which account is thereby made to show a summary of all profits and losses. The net profit or loss is in turn closed into the proprietor's account, in the case of a business conducted by an individual; or into the Surplus account, if the business is conducted by a corporation.

The form of closing entries, with their appropriate explanations, is illustrated on page 54. The entries are given as they would apply to the business illustrated by the model financial statements submitted above.

It will be observed that by the second closing entry a balance remains in the Purchases account equal to the inventory of unsold merchandise. When the account is later balanced, this inventory is carried down on the debit side of the account under the beginning date of the new period. See illustration on page 55.

Another method is to open an Inventory account. When this is done, an additional entry would be made, debiting Inventory and crediting Purchases with the cost of goods on