It is to be noted that in certain cases it is not neces sary, according to law, to keep the investments of the different productive investments separate. Some times it is allowable to provide for the productive in vestments a consolidated investment account which shall take the place of the individual investment ac counts that are a part of the method suggested above. The income from the consolidated investments should be apportioned to the income accounts of the various funds on some equitable basis, usually according to the ratio of the principal of the individual funds to the total invested principal.
In regard to keeping the accounts of a hospital, or other similar institutions, it is also important to note the fact that certain funds are legal trusts and must be invested in securities that are legal investments for trust funds, under the laws of the particular jurisdic tion involved.
7. Joint ventures.—Because the joint venture is al ways of short duration, and because its operations are restricted, it is not generally necessary, in the conduct of such an enterprise, to keep a separate set of books for such ventures. The accounts may be conveniently kept according to the method explained in a later chap ter. If, however, it is decided to keep separate ac counts, the proprietary accounts may be managed as they in the case of a partnership.
8. Associations and societies.—The income of an association or a society consists principally of the dues and fees. Against these will be charged the expenses of the association, and the balance that remains in the current dues account at the end of any period will be transferred to an appropriately ear-marked surplus or reserve account. In other cases, the dues account may be transferred to the credit of a revenue-and expenditure account, and the expenses of the period will be charged against this account. The balance of the revenue-and-expenditure account may be trans ferred to surplus or to a special reserve account, which should in some way be distinguished from the other accounts. It is better to call the surplus account of an organization that is not conducted for profit, "Capital Surplus," in order to differentiate it from the profit-and-loss surplus of corporations. The sur plus of associations is sometimes in part restricted. Life memberships, for example, usually form a part of the restricted surplus, because the money paid in is generally credited to a special account and the in come of the .funds only is used for the general busi ness of the organization.
9. Proprietary accounts of stock corporations.— The capital-stock account in a corporation represents the original contribution of the members. It may be increased or decreased only by means of the method that the law provides. The profits from operation are carried to a surplus or undivided profits account, out of which the distribution of profits, in the form of dividends, is made. If, instead of a profit being made, a loss is sustained, the amount of the loss is charged to a deficit account. When a corporation is organized with a capital stock that has a stated par value, the deficit account cannot be charged against the capital account. In such a case a situation arises which seems to involve a contradiction—that of in cluding a deficit among the assets in a balance sheet. In order that the deficit may in no way be mistaken for an asset, the deficit account should be very care fully marked as such.
10. Capital stock with no par value.—The laws of some states permit the organization of a corporation that has capital stock with no par value. In the case of such a concern, certificates are made out which represent fractional shares of the total capital of the organization, but which bear no statement as to the par value of these shares. Thus, if A pays into the company $1000 and receives in exchange 12 shares of stock out of a total issue of 1000 shares, his certificate will state that he has a share of the capital of the company. Any assets acquired by the concern will be placed upon the ledger at the value decided upon by the board of directors, and the capital account will be credited with this value. The stock certificate book and the stock ledger will reveal the number of shares issued in exchange for the assets.
If this method of operating the capital account is used, assuming that the organization has not begun operations, the capital account represents the total of the contributions made by the members, and the book value of the stock will be the par value of the shares. This book value may be found by dividing the amount standing to the credit of the capital ac count by the number of shares issued and outstand ing. There is no necessity for maintaining a surplus or an undivided profits account, since the surplus from current operations will be transferred directly to the credit of the capital account. In a like man ner a deficit from operations will be debited to the capital account.