10. Accounts peculiar to a corporation.—In the case of a corporation however, our task is not so sim ple. There the ownership is not shown by the original investment and subsequent changes, but by the cer tificates of stock which are outstanding.
Each share of stock is issued at a certain valuation called par value. Thus, a corporation organized to carry on a produce business may decide that it will start with a capital of $100,000 par value. It divides the capital into 1000 shares and sells them for $100 each. Each share, therefore, has a par value of $100 tho its subsequent sales value may range from one dollar to many hundreds of dollars.
The value of the proprietorship is naturally the excess of assets over liabilities. On account of legal requirement, this excess is split into two sections: (1) the par value of outstanding stock; (2) the difference between this and excess of assets. This latter section is termed surplus and constitutes the profits which have been earned but retained in the business instead of being paid out to stock owners. Hence we may find the following accounts in the books of a corpora tion: Capital stock which is the par value of stock issued to the first owners of the corporation.
Surplus which is the value of proprietorship in ex cess of the par value of the stock.
Deficit which is the excess of the par value over the proprietorship.
Dividends which are the accounts thru which profits are distributed to the owners.
11. Controlling accounts.—The discussion thus far has been confined to individual accounts only. We now come to an account which is "collective" in its nature. Briefly defined, a controlling account is one which shows the total debits or total credits existing in a group of individual accounts of like nature. Per haps this definition will become clearer after we ob serve the development of a controlling account.
Consider the merchant whose business grows until he has thousands of customers. His ledger is crowded with these accounts and when he draws off a test of debits and credits at the end of the month (his trial balance) the great number of accounts cause much labor, and, what is worse, probably many errors. If
this work could be sub-divided so that he could test a part of his ledger at one time, the chance of making errors would be less, and the opportunity for detecting them would be greater.
Moreover, the shopkeeper frequently wishes to know the total amount due to him from his customers. When no record of the total is kept, the customer's accounts must be added together each time this in formation is required. Probably the first practice was to keep a separate record of the total of these accounts, revising it at the end of every day. Even tually, however, an account was carried in the ledger showing the total balance in customers' accounts. The individual accounts were then transferred to an other ledger in order that they might not become con fused with the main accounts of the business. In this way the main or general ledger still expressed an equilibrium of debts and credits because the total of the accounts taken out was carried in the controlling account for those accounts. It still contained ac counts with all the activities, but presented some fea tures of them in condensed form.
A trial balance when controlling accounts are used becomes two separate operations : (1) a proof of the ledger by testing the equality of debits and credits in clusive of the balance in the controlling account; and (2) a test of the transferred accounts by proving that their total equals the balance in their controlling ac count.
12. Operation of a controlling account.—The use of a sales book or sales journal such as has been al ready described lends itself readily to the operation of a separate ledger for accounts receivable and, at the same time, provides an opportunity for keeping a permanent record of the totals of the accounts in the accounts-receivable ledger. For instance, all accounts with customers are transferred from one ledger to a separate ledger known as "customers' ledger" or "sub sidiary ledger." In order that the equilibrium of the other ledger (general ledger) may remain undisturbed one account termed "customers' controlling account" is substituted in it which will equal the total of all accounts transferred to the customers' ledger.