Gathering the Threads.---The questions arising out of the proper treatment of sales, purchases, cash receipts and payments, &c., having now been touched upon, the next important matter in the general accounting procedure is the gathering up of the ends of the threads, so that the trader may have, as it were, the reins of the Insiness in his own hands. The first step toward this end is naturally a complete and accurate stocktaking.
Many traders are very prone to think that stocktaking is a periodical nuisance, and that actually it is not of any great value. They walk round their establishment, and imagine that they can on their shirt-cuff, so to speak, jot down sufficient data to enable them to arrive at what they call an "estimate" of the stock.
In almost any business this particular method would be decidedly un safe, and, with regard to the general necessity of a proper stocktaking, the retailer should not need to be told that, without this inventory, any figures which he may extract from his hooks would be not only incomplete, but decidedly misleading. If the actual stocktaking is therefore an absolute necessity, it follows that it must be properly and accurately taken.
There should be no estimate made where actual figures can be obtained, and although it may be in some concerns that the stocktaking period is one of trial and inconvenience, the end justifies the means. All weights should be carefully recorded, and small articles counted, the prices being of course entered at cost or market value, whichever is the lower. This is necessary in order to avoid anticipation of profits, for it will readily be recognised, no doubt, that if the stock is taken at selling price, when the goods are actually sold in the succeeding period there will be no profit thereon, because it has already been taken into accoont at a previous date. If the actual taking of the stock is likely to extend over many days, some record should be made of the sales which take place, and the goods which are received, during the progress of the inventory, and an adjustment made accordingly. For instance, take the case of a trader who is closing down his books on March 31 ; he commences to take stock on the 28th of that month, and finishes it, say, on April 4. On the 29th March certain goods are sold from a room or department, the contents of which have already been recorded in the Mock book, and on the 2nd April goods are received and placed in another room or department, the stock in which is not recorded until April 3. In this instance, the cost price of the goods sold on March 29 must be deducted from the stock book, as also in the case of the goods received into stock on April 2. Great care should
be taken that no goods are included in the stocktaking unless the invoice relating thereto has been received, and has been passed to the credit of the supplier's account, otherwise the trader will find himself recording the asset without making a corresponding provision for the liability, thus making a false profit to the extent of the value of the particular goods. In order to watch this matter as carefully as is necessary recourse should be had to the goods-received book mentioned above, and in those cases where the lines are left blank, or the corners are uncut, showing that no invoice has been received, application should be made to the suppliers at once before the figures are finally put together. It is necessary, of course, that any outstanding liabilities which may not be the subject of invoices, such as rent, rates, taxes, gas, water, electric light, &c., should be accounted for. In addition to these, payments may have been made under expense headings which have not fully at the date of the balancing period. For instance, insurance is always payable in advance, and if a balancing period supervenes before the premium has expired the unearned portion should be carried forward to the next period's account. The following form will show the method of reserving for rent, and will serve as an illustration of the principles involved : Fox m F.
The item standing to the credit of the lower portion of the account will appear in the balance sheet as a liability, while top half of the account will, as indicated, be carried to the debit of profit and loss With regard to unexpired premiums, these will be brought down on the debit side of the insurance account, and call, of course, appear in the balance sheet as an asset, together with any other items of a similar nature, under the general heading of "Sundry Apportionments." Having thus ascertained that all liabilities have been brought into the account, the balances of the various ledgers should be struck and carried to a schedule, the balance of cash on hand and at bank being of course included. If the posting has been accurately made, the two sets of balances, debit and credit, will be found to agree. This statement is called a trial balance, and from it an allocation is made as between profit and loss account and balance sheet, all revenue items going to the former, and all items in the nature of assets and liabilities to the latter. The form of these statements may be gathered from a perusal of the article on PROFIT.