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368. The executor then performs the following functions, and records them by the respectiv formulas: Realization of assets in inventory:
SCHEDULE E, F, G, or H/Cash.
369. At the time of balancing, all the other accounts are closed into the estate account. It would be advisable to carry in the balances of Cash and Inventory in red ink, as they are the only balances which are to be carried forward to the next accounting.
The arrangement of schedules is here precisely the same as that employed by Mr. Loomis in the paper cited in Art. 364. I have not constituted an account for Schedule J being "items in inventory uncollected,” for the reason that I think these are better obtainable from the inventory account itself.
The following would be the same account translated into the form of a surrogate's account, following the summary given by Mr. Loomis:
I charge myself
I credit myself
with amount of schedule D
I 200 8,300 2,400 2,150 6,000
Leaving a balance of..
By comparing this with Figure 55 it will be seen that the charges of the accounting are made up from the credit of the Estate account and the credits of the accounting from the debit side of the Estate account.
370. It is not necessary to go as far into the details of fiduciary bookkeeping as we have with that of proprietary bookkeeping, since most of the mechanism of the latter is applicable to the former, and those details are derivable from the excellent treatises of Hardcastle and Gottsberger.
371. It may be remarkt that the accounts of a savings bank (of the Eastern or mutual type) while usually treated on the proprietary basis are strictly speaking fiduciary. The legal corporation is the board of trustees, yet they have no equitable interest in the assets; they merely administer a trust. The depositor is merely a creditor to the amount of his cash deposits and such interest or dividends as have been allotted him by the board; he has no legal title to the surplus, but has an equitable title, with his fellow depositors, to it. The surplus is a trust fund, for the benefit of the depositors at the time being, but not divisible except upon liquidation.
372. The failure to distinguish between proprietary and fiduciary accounts has led to some errors; such as the creation of a fictitious intermediary “The Business” referred to in Article 133
[The original plan of this work contemplated that the twenty-one chapters which relate to ACCOUNTS IN GENERAL should constitute Part I., and should be followed by Part II., on Accounts IN PARTICULAR, in which should be taken up all the principal forms of account with various suggestions as to handling them. I found, however, that the task would reach encyclopedic proportions if I treated each type of account with the degree of thoroness which has been given to Cost Accounts by several authors, and to Investment Accounts in my work on “The Accountancy of Investment.” I have therefore contented myself with an Appendix containing some monographs on a few very essential accounts.)
THE CASH ACCOUNT. 373. Cash " taken as a concrete noun signifies in accounts that which is received and paid in settlement; the medium of liquidation. This is a somewhat imperfect definition of something which varies in the extent of its meaning. Some would restrict the term to the meaning of “money” alone, but even then it is difficult to fix the limitations of money itself. Shall we confine it to full legal-tender specie, or shall we include bank notes and treasury notes, which are really certificates of indebtedness? We find that those who endeavor to narrow the field of cash down to that which can be handled are inconsistent in so doing. They will consider the check of another as cash altho it merely conveys the power to receive an amount from some bank, not even constituting an assignment of the amount; while on the other hand amounts due us by a bank which need no act to make them ours are excluded. The best usage, I think, recognizes as the subject of the cash account everything which can according to business custom, be used without question to extinguish liabilities or to acquire assets; in short, to carry out contracts. Whatever is acceptable on either side as the fulfilment of a contract calling for dollars (or pounds, francs, marks, etc.) is in a business sense "cash." In its potentialities it is the most versatil of assets, for it is the only one which has at command every existent form whatever of property or service.
374. The cash is usually separated into two parts; Cash on "hand, and Cash on deposit. The former is sometimes called office cash and the latter subdivision is frequently styled: Balance in Bank, or (in England) Cash at the Banker's. The latter phrase 'has been recently criticized by eminent British authority for fear lest it should be thought that it indicated the presence at the bank of sufficient coin or other tangible money specifically segregated and belonging to the account. But these fears are groundless; no one would make such a foolish mistake.
375. In modern times, cash " on hand" or in physical possession is overshadowed by bank-cash, so that the payment of cash calls up the idea of writing checks rather than that of counting out money. The latter process is used only for the very insignificant dealings, and is sometimes designated as “ Petty Cash.”
376. There is a sense in which the “ Petty Cash ” account is sometimes kept which I cannot help considering as improper and dangerous. It is when the money transferred to petty cash is considered as expended, as far as the regular books are concerned; petty cash becoming a sort of economic account, equivalent to " minor expenses." There is supposed to be a book in which the keeper of the petty cash records the expenditures, but as he calls for round sums whenever his appropriation is nearly exhausted there is nothing in the system which makes a verification of his record compulsory. A much better plan, the imprest system, will be explained hereafter.
377. There is almost invariably a book called the Cash Book which contains in detail all the transactions affecting the cash, sometimes with other information. The relation of this book to the ledger is subject to the following variations:
1. There is a cash account in the ledger, practically a summary of the cash book in weekly or monthly aggregates derived either from the journal or from the totals of the cash book.
2. The cash book is itself the cash account just as if it were a part of the ledger placed for convenience in a separate binding
378. The scope of the cash-book as to containing more or less branches of the cash gives rise to other variations.
I. The balance of the cash-book may be considered as consisting of cash on hand, alone. All bank transactions are treated separately thru a bank account or accounts.
A. Deposits are usually treated as received into the officecash and then paid over to the bank, even when they consist of items which must eventually be deposited.
B. Checks are treated in one of two ways.
Bi. They are entered on both sides, as if the money were drawn from the bank and then paid over; or
B2. They may appear in the bank account only, debited to the payee and credited to the bank.
II. The balance of the cash book may be considered as embracing both cash on hand and that on deposit. No distinction is made in the money-columns between sums paid by check and those paid from cash on hand; nor between receipts remaining on hand and those deposited in bank, altho such distinction may easily be indicated in the text. At each occasion of balancing the cash, however, the components must be separately stated: so much in bank, so much on hand, total so much.
III. By double columns on each side the cash on hand and that in bank are kept in the same book and yet distinct. Crossentries affecting both columns represent transfers between the bank and the office. This would appear from the text-books to be the favorit method in Great Britain.
IV. By the imprest system all transactions are forced ultimately to pass thru the bank. The imprest is a fixt sum, usually an even amount, which is held in the office for the payment of petty purchases. There may be several imprests in the hands of various subordinates. When any payment is made from the imprest-cash, the bill, receipt or voucher is counted temporarily as cash on hand thus keeping the balance intact. If the imprest consists of $100, this may be $77 of it in payments made and receipted for and $23 in actual money. But from time to time the imprest must be replenished and always from the bank, a check being drawn for the entire $77 exactly and entered to the debit of the appropriate accounts; the check is casht and the proceeds placed in the imprest. By making all other payments by check and by depositing all cash received, without exception, the cash transactions are faithfully represented by the bank account, and the cash balance at any time is the bank-balance plus the fixt imprest. In this way the cash account is checkt from an independent source, the books of the bank.
379. The bank account to which the cash account is now reduced is sometimes kept in the ledger, but the most detailed account is always contained in what is known as the “stub ” of the check-book. And there is no reason why, if this stub-account is carefully kept, it should not supersede the bank account altogether.
380. Instead of a wide stub from which the checks are torn, an interleaved check book may be used, a leaf of checks between two pages which contain the account of checks and deposits. In keeping this account, the totals should be carried forward from page to page, not balanced at the foot of the page as is frequently done where the contents of the check-book are to be transcribed into a cash-book.
381. The cash account is thus superseded by the check-book record, which would have to be kept anyhow, and the procedure is greatly simplified. The old way was to copy the contents of the check-book, together with the transactions of the office-cash