The books to be kept will consist of an ordinary journal, columnar cash book, petty cash book (which will be a memorandum book only, not a post ing medium), invoice register, sales book and pay roll summary as books. of preparatory entry, and a general ledger, stock ledger, accounts receivable ledger, accounts payable ledger, stores ledger and fin ished goods ledger, as books of subsequent entry. Of these ledgers only the general ledger and accounts re ceivable ledger will be shown.
The following accounts will be kept in the general ledger: Let us consider the transactions and operations for the month of July. Purchases, sales, cash payments, cash receipts and other operations come along from day to day in any order. To save space and energy, however, we shall deal separately with all purchases, then all sales, and so on.
4. The purchase register.—Consider the following transaction: July 6 Invoice dated June 2 for 800 gallons of oil, price 510, on 60 days' time subject to a discount of 2 per cent for cash in ten days; freight payable $24.16, arrives from the Independent Oil Company.
In this connection the reader will note that we have treated cash discounts offered as a deduction in the cost of the goods purchased and the freight payable as an increase in the cost of these goods. This is done to illustrate this method of treating discounts and to show the actual cost of the goods under the theory discussed in Chapter X.
Analyzing the transaction we see that the net cash cost of the oil, including the freight (but not including any allowance for buying and receiving expenses, which, to prevent the illustration from becoming too complex, we shall ignore) is $424. The general ledger account which includes oil is "stores," and the amount payable on the invoice is $408 if we take the 60 days' time, tho we have a counter right to $8.16 for discount if we pay in the ten days. In addition we find that the amount owed the transportation company is $24.16.
Accordingly we enter this invoice (numbered "1") in the invoice register as shown, debiting stores ledger account "oil" and general ledger account "stores" $424, debiting "discount (offered) on purchases" $8.16, crediting "freight payable" $24.16 and credit ing general ledger account "accounts payable" and specifically the "Independent Oil Company" $408. Here the general ledger accounts, "stores" and "ac counts payable" are controlling accounts.
It will not be necessary to analyze each other pur chase at length. To save space we may tabulate the remaining purchases on page 334, from which table the reader himself may analyze the transactions and compare them with the entries shown in the invoice register.
Practically the only variation from the above de scribed method of entering purchases occurs in con nection with items 13 and 19. Here the vendors have prepaid the freight charges and added them to the invoices. The amounts entered in the "amount-pay able" column therefore include the prepaid freight. The discounts, however, are still based on the amount of the invoice before the freight charges were added.
5. Analysis of sales and deliveries are given in tabular form on page 337.
In the first sale, the invoice value of 160,000 lbs. of iron castings at 3.45˘ is $5,520. But this is a 30 day valuation that includes an allowance for interest and credit insurance. We offer a discount of 1 per cent for cash in ten days or $55.20, leaving $5,464.80 as the cash sales value of the iron castings of the sales book (page 338) . This we enter in the "sales iron cast ings" column. In like manner the 30 day invoice value of 3,000 lbs. of brass castings is $625.80, which after taking off $6.26 for discount leaves $619.54, to be entered in the "sales brass castings" column. The entire invoice value of $6,145.80 is entered in the "amount receivable" column as a debit to the Toro Motor Company and the entire discount is en tered in the discount column as a credit to cash dis count offered on sales. Each of the other sales is treated in like manner.
6. Analysis of payroll.—Next we consider the pay roll. Space limitations forbid us to deal with job tickets and the actual weekly payroll. Therefore we substitute a payroll summary (page 340), in which the wage and salary costs are classified with respect to the connections in which the work was done.
7. Petty cash.—The payments from the cash drawer at the office are handled under the imprest cash system. The petty cashier starts the month with $100; he is permitted to receive no money from any source except the treasurer, who, when the cashier has satisfactorily accounted for his $100 at the end of the month, will give him a check to cover exactly his disbursements and restore his fund to $100.