Two of the several general methods of computing costs are: (1) The Production Or der Method; and (2) the Process Method. In the Production Order Method an account is opened with each job in the cost ledger. Each job is given a number by which it is always blown. Every productive laborer reports the amount of time he spends on it. All material required is requisitioned from the stock room by this number. . Thus, the account of each job can be easily debited with the cost of direct labor and the cost of material and parts used. This gives the prime cost of the job and leaves the indirect expenses to be apportioned to it.
The apportionment of the indirect or over head expenses must of necessity be arbitrary. Many schemes have been suggested but it is impossible to find one that is generally agreed to be logically correct or uniformly accurate. Among the various methods used are: (a) The "man-rate) method, which divides up the indirect expenses in proportion to the direct wages paid for the productive labor; (b) the 'man-hour)) method, in which the division is according to the total number of hours of pro ductive labor; (c) the "mixed method,) which uses the cost of raw materials plus the cost of productive labor as the basis of division; (d) the "machine-hour)) method; and (e) the units of product .method. Having decided upon the most practical method of apportioning the manufacturing expenses, the proper amount is debited to each job and the factory cost of that job determined.
The Process Method of determining costs is used when the lots of material in the process of production follow one another in such a way that one lot cannot be distinguished from another. Each process is known by a name or number, as milling, rolling, annealing, dipping, etc., or, as operation No. 1, No. 2, No. 3, etc. The amount of time of productive labor spent on each process is reported and its cost debited to the account of that process. The cost of raw materials or finished parts used in each process is also debited to its account. The in direct expenses are apportioned by one of the methods described above to arrive at the total factory cost of the process.
Even if not required by law, it has become the custom for most large business firms to have an audit of their records made by outside accountants employed for the pur pose of carefully examining their books and certifying to their correctness. It is the duty of the auditor to check up all the entries of the bookkeepers and to compare their amounts with all the original documents and papers, such as checks, notes, bills, receipts, etc,, and to discover any errors of principle, of omission or fraud. The auditor's report consists of a profit and loss statement and a balance sheet, with necessary comments and suggestions for increase in efficiency and accuracy of record. In preparing the profit and loss statement the auditor endeavors to make certain that it con tains all of the expenses of the period, whether they have been paid or not; that charges prop erly made against income have not been made against capital; that all the profits earned are included; in short, that the statement is a true report of the income and expense of the period.
The balance sheet is the statement of the busi ness most often published and the auditor should be able to certify that the assets are not overstated; that proper allowance has been made for depreciation; that the liabilities are all included.
The auditor may be called in only at the end of a period to make a °complete audit, or he may be employed to make a °continuous') audit, that is, to check the bookkeeper's work during the period at frequent intervals, so that the statements may be prepared at the end without delay.
The practice of accounting was recognized as a profession in Great Britain long before it had attained the highly special ized character it possesses to-day. In 1854 the Society of Accountants in Edinburgh was in corporated by royal charter. Similar societies were established in Glasgow and Aberdeen in 1855 and 1867 and the Institute of Accountants in London in 1870. The New York State So ciety of Certified Public Accountants was the first to be organized in the United States. In 1896 the New York State legislature passed an act authorizing the State University to confer the degree of C.P.A. (Certified Public Ac countant) only on those passing an examina tion. Many other States have followed this lead. The various State and National societies with their official journals and publications pro mote the discussion and solution of new prob lems and methods of practice. During the past few years many colleges and universities, recognizing the importance of accounting and its direct relation to economics, have included its study in their curriculums and greatly de veloped its literature. Specialists have arisen in the field. Cost accountants and efficiency engineers devise ways and•means for cheaper production. System builders organise the ac counting of a firm so as to give most satis factory results. The general expert accountant acts as auditor and °business whose advice is sought whenever unusual conditions arise. See BOOKKEEPING.
Bibliography.— Bennett, R. J., 'Corporation Accounting> (New York 1917); Bentley, H. C., 'Science of Accounts' (ib. 1913); Church, A. H., 'Distribution of Expense Burden and Pro duction Factors;' Cole, W. H., 'Accounts: Their Construction and Interpretation' (New York 1915) ; Day, C. M., 'Accounting Prac tice' (ib. 1908) ; Dicksee, L. R., 'Depreciation, Reserves and Reserve Funds> (London 1903) ; Eggleston, D. C., 'Municipal Accounting' (New York 1914); Esquerre, P. J., 'Applied Theory of Accounts> (ib. 1914); Hatfield, H. R., 'Modern Accounting> (ib. 1916); Klein, J. J., 'Bookkeeping and Accounting' (ib. 1917); G., 'Accounting in Theory and Practice' (Edinburgh 1906); Montgomery, R. H., 'Auditing Theory and Practice> (New York 1917); 'Nicholson, J. L., 'Cost Account ing' (ib. 1916); Sprague, C. E., 'Philosophy of Accounts> (ib. 1908); Wildman, J. R., 'Principles of Accounting> (ib. 1913).