THE BROWN MANUFACTURING COMPANY Incorporated under the Laws of the State of , with an Authorized Capital of $25,000 divided into One Thousand Shares of $25 each.
This entry would, of course, be made in the journal of the corporation.
The subscription to the stock should appear in the subscription book. We then make in the journal the following entry: Subscription account $25,000 To Capital stock $25,000 Representing the subscriptions to the capital stock of the Com pany, viz.: J. Smith 200 shares A. Brown 300 " P. Marks 250 " W. Freund 250 " 5. Necessity for accurate and complete records.— Our previous discussion of books of account has in dicated that they should give a complete record or history of every business transaction. These records should show not only the present condition, but also the past, and the factors which brought about this condition. The reader has noted that at the end of every year, or more frequently, the information con tained in our accounting records is summarized in the form of a balance sheet and an economic summary. He has noted also that since the records were incom plete, various adjustments had to be made before an accurate statement of conditions became possible.
If statements are prepared monthly, there is prob ably no necessity of making all the records on our books in order to bring them into agreement with the statements. At the end of each year, however, the books should be complete in themselves, showing all the adjustments which have been made as steps in the preparation of the financial statements.
Since business is operated for the benefit of its owners, all profits accrue to, and all losses are borne by, these owners. Therefore, those accounts which measure the profitableness of the business, the ac counts which indicate its progress, such as income, ex pense, profit and loss credits, profit and loss charges, are but divisions of the proprietor's account tem porarily separated to show the progress of and vari ous changes in the business. At stated intervals these
accounts are grouped ; first, to ascertain the amount of profit made by each division of the business; sec ond, to ascertain the total profit for the entire busi ness transferable to the owner.
6. The accounting The period for which these statements are made up is usually known as a fiscal or calendar period. The accounts are, as a rule, closed out yearly, and the year covered is known as the fiscal year. They begin with the date on which the business was started, and have no relation to the calendar year. To illustrate, a firm starting business on July 1 would have been operating for a fiscal year at the end of June 30, of the ensuing calendar year.
This division into regular periods of time makes possible a comparison of results from year to year. If one statement covered a period of eighteen months, and the next statement a period of twelve months, there would obviously be little advantage in compari son, and consequently little possibility of estimating the yearly progress of the business.
The month is the customary unit period in account ing records. Accountants now, however, to a greater extent recognize the value of making a four-week period the unit period rather than that of a month. They base this preference on the fact that the vary ing number of days in a month, makes accurate com parisons of the results of one month with those of an other month, impossible. When records are kept ac cording to four-week periods, and one period is com pared with any other, no variation due to differences in the number of days covered, enters into the compari son.
7. Monthly and yearly elosings.—The bookkeeper frequently speaks of "closing his books" at the end of each month, and to a certain extent he is correct. He closes them sufficiently to permit the preparation of the monthly statement. He makes certain adjust ments which ai•e apparent to him, but he does not change his books entirely in accordance with the state ments themselves.