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controlling authority in the port becomes of chief importance. So great are the monopoly advantages offered in ownership of the port facilities that it is not safe to trust the sole authority to any one individual interest. Still to preserve the advantage which private interest brings to the administration, these undertakings should be well represented. Perhaps no scheme of control will ever be devised whereby all parties concerned in the port shall receive just that amount of consideration which each one believes himself entitled to, but equally certain is it that the public will be better served when a port is advancing with the needs of the nation's trade and industrial development, than if it is held in check through private or municipal cupidity. To reduce the friction and the costs that prevail at the port terminals is one of the great problems confronting the world of transportation to-day and if it is to be settled soon it must be done by those whose interests lie not only in the port alone, but whose larger dealings with the producer and consumer compel a due consideration to be given to the development of the port and its docks.

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The Philosophy of Accounts.
By CHARLES EZRA SPRAGUE,* A. M., Ph. D., C. P. A.,
Author of The Accountancy of Investment" and "Extended

Bond Tables."
CHAPTER XXI.

FIDUCIARY ACCOUNTS. 354. In the foregoing chapters, the accountancy was that of proprietorship, either sole or joint. The accounts were of two classes, constantly offsetting each other: accounts representing the proprietor in his relations with the outside world, and accounts representing things owned by him and persons in relation with him.

355. There is another class of accounts in which this idea of proprietorship is nearly or entirely absent, and its place is taken by responsibility or accountability. It always arises from delegated authority, the affairs being placed under the control of some person as representativ of the actual owner whose object in keeping accounts is to prove that he has faithfully administered them.

356. The one who administers affairs which are not his own is variously named according to the nature of his functions or the source of his appointment. The trustee conducts the affairs of a cestui-que-trust or beneficiary; the administrator, or (if appointed by will) the executor, manages the estate of the decedent, who is either intestate or a testator; the guardian has charge of the affairs of a ward; the committee in lunacy, of those of an incompetent; the comptroller of a city, its financial affairs; a receiver is appointed for a bankrupt; an assignee for an insolvent; the treasurer of a society or hospital or college accounts for its property, and its revenue and disbursements; a private person may confide his affairs to an agent, attorney in fact, bailiff or steward. These terms are not uniformly used, there being many local variations. In all these cases the legal ownership is in the trustee, but the equitable ownership in those whom he represents.

*Copyright, 1907, by Charles E. Sprague.

357. The essence of fiduciary accounting is the ascertaining to what extent the person holding these delegated powers has fulfilled his duties and to what extent he is still accountable. He is charged with all property coming under his control, and he is discharged by any lawful disposal of it for the good of the estate.

358. An estate account shows the extent of the accountability with which he is burdened at any time and this is a credit account corresponding to the proprietary account in commercial bookkeeping. It is not necessarily a measure of the wealth of the real proprietor but only of that which has come into the hands of the administrator of the trust and has not been duly disposed of.

359. What would be assets of the proprietor are charges against the administrator; but he may sometimes incur liabilities for which the estate is holden and if he satisfies these, or those to which the estate was subject, he is entitled to discharge thereby.

360. The functions of a fiduciary (by which term I describe generically any of the above representativs) may be considered under five heads :

1. Liquidation, or the reduction to a distributable form of the assets, and payments of the liabilities.

2. Collection of income.

3. Distribution of principal or income, or both, to whom it may concern.

4. Reinvestment.

5. Business management. The executor or administrator is primarily a liquidator. His duty is to convert the assets into cash, to extinguish the liabilities, and to distribute the estate, performing the first and third functions. Incidentally, he performs the second in the meantime. With the fourth and fifth he is not ordinarily concerned. The testator, however, may have directed in his will that the estate be not all distributed forthwith, but certain property or certain sums are to be retained by a trustee who is frequently the same person as the executor. The trustee has as his duties the second and third functions, often the fourth.

361. When the fifth function is predominant, the accounts are indistinguishable from those of proprietary concerns; the struggle is for the attainment of wealth by the use of capital and the fiduciary departs from his proper functions as liquidator, collector, and distributor. The “estate" then stands in the light of the capitalist and the fiduciary idea is eclipst. But as we recede from this to the original idea of a trust, the point of view is changed and the equation becomes : What I am charged with = what I can show as discharged

+ the net estate for which I am accountable. 362. The transactions of a fiduciary are analogous to those of a proprietary concern, but lookt at inversely. The ego is not the estate, but the trustee. The two correlativ sets of accounts spoken of in Article 354 exist, but it is the debits of the trustee against the credits of the estate, instead of the debits of the outsiders against the credits of the proprietor. Yet if we take a transaction and analyze it after the manner of Chapter IV, we find that it falls into the same debits and credits whether the equation of proprietorship or that of accountability be followed. An increase of assets or an increast charge by reason of these assets are one and the same things as recorded. It is not necessary therefore to burden the mind with any new rules for the record of transactions.

363. In strictly fiduciary accounting the economic accounts are minimized and there is no economic summary, as that is a creature of business management. There is usually, for legal reasons, a very severe division between the principal of the estate and its income, and the latter is not thrown periodically into the former, but held in a separate credit balance, there being in this event two accounts: The Estate of

, Principal." The Estate of

Income." 364. Instead of a balance sheet, the fiduciary presents a report or accounting to the authority which conferred his powers upon him and this is by the custom of the courts composed in the form of “the trustee in account with the estate ” and not the converse, the fiduciary stating first the sums with which he is chargeable and then what he claims in the way of discharge. Excellent models of such statements of account are given in Hardcastle on The Accounts of Executors, etc., and more recently by John R. Loomis in THE JOURNAL OF ACCOUNTANCY, January, 1907.

365. A fact which will strike the commercial bookkeeper upon examining an executor's account is that the inventory with which it begins is an inventory of assets only, no reference being made to indebtedness even if shown on the books of the decedent, and

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no deduction being made for them. Debts only appear thru their payment.

366. The account may be best made up from the estate account by reversal; that is, the fiduciary charges himself for amounts credited the estate and vice versa; this being preferable to making up the statement from the other accounts because mere permutations would have to be eliminated. The accounts should be kept with constant reference to the statement to be made to the court; and it is very desirable that each schedule should be represented by an account in the books of the fiduciary; the name of the schedule may form part of its title; as for example:

SCHEDULE A.

INCREASE ON APPRAISED VALUE. Any asset being sold at an increast price, and the account representing it having been credited by cash received, the excess would be charged to the asset-account and credited (not directly to the estate but) to Schedule A account. At the time of accounting Schedule A would be closed into estate account in one sum.

367. It may be useful to illustrate the transformation of an estate account into an accounting by an executor, who substitutes charges against himself for credits to the estate and vice versa. It is supposed that accounts have been opened as follows:

1. Estate of D. C. Dent.
2. Inventory.
3. Schedule A; increase on appraised value.
4. Schedule B; assets not in inventory.
5. Schedule C; income.
6. Schedule D; decrease on appraised value.
7. Schedule E; funeral charges and testamentary expenses.
8. Schedule F; debts and claims.
9. Schedule G; payments to widow.
10. Schedule H; expenses of administration.

II. Cash.
The accounts begin with the one entry:

Inventory/Estate. As the cash balance is included in the inventory, and as it is necessary to record the process of liquidation the cash balance must be transferred to a separate account:

Cash/Inventory. The two accounts cash " and "inventory” represent the executor and all the others represent the estate.

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