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X-32.
F E D E R A L
R E S E R V E
B O A R D
Washington} March S j 1917*
#
A
T E N T A T I V E
P R O P O S A L
Submitted by
THE
FEDERAL
RESERVE
BOARD
For the Consideration
of
Banks,, Bankers and Banking Associations;
of
Merchants, Manufacturers and Associations of Manufacturers;
and of
Auditors, Accountants and Associations of Accountants.
Through the courtesy of the Federal Trade Commission the
Federal Reserve Board has been enabled to take advantage of a large
amount of information and data which the Trade Commission acquired in
connection with the study of the statements made by merchants, manu
facturers, etc., as showing the condition of their business.
Because
this matter was clearly of importance to banks and bankers, and
especially to the Federal reserve banks who might be asked to redis
count commercial paper based on borrowers' statements, the Federal
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Reserve Board has taken a.n active interest in the consideration of
the suggestions which have developed as a result of the Trade Coa
mission's investigation, and now submits in the form of a tentative
statement
certain proposals in regard to suggested standard forms
of statements for merchants and manufacturers.
The problem naturally sub-divides itself into two parts:
•
(1)
The improvement in standardization of the
forms of statements.
(2)
The adoption of methods which will insure
greater care in compiling.the statements
and the proper verification thereof.
In recent years bankers through their associations and other
wise have made rapid progress in the direction of more uniform and
complete forms of statements.
Much has also been accomplished
in the improvement of the quality of the statements rendered and
in securing statements.which do not depend for their accuracy on
the borrowers' statement alone but are verified to a greater or
less extent fey independent scrutiny and audit.
The advantage
of a statement Certified by trustworthy public accountants over
an unverified statement is evident.
At the present time, how
ever, there is no uniformity as to the extent of verification in
the case Of statements put forward as having been verified.
The federal Trade Commission in the course of its investi
gation of business conditions has been strongly impressed with
the lack of uniformity and has enlisted the aid of the American
Institute .Of Accountants with a View to remedying the condition,
ft has found that verified statements may be divided broadly
into -
(a) Those in which the certificate is based on an
examination of the books without personal supervi
sion of inventories and independent appraisal of
all assets with the aid of technical appraisers
and
(b) Statements verified with the personal super
vision of inventories and independent appraisal
of all assets.
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The value of the two classes of audits and their relation
to each other depends to a great extent upon the character and
magnitude of the business involved.
In some cased method (b) has advantages over method (a).
In other cases, notably those of large companies in which per
sonal supervision of inventories is arduous and perhaps imprac
ticable and the value of an independent appraisal of assets is
liable to be considerably exaggerated, the reverse may be true.
That is to say, a verification based upon the books themselves
without an appraisal may be and often is the safer method of
procedure.
It is highly desirable gradually to educate the
business world to the great importance of a complete form of
audit statement, although any plan for immediate adoption intended
to produce practical results must recognize that under present
practice probably more than ninety per cent of the statements
certified by public accountants are what are called balance sheet
audits, such as are described in paragraph (a) above referred to.
As a first step toward the standardization of balance sheet
audits and to insure greater care in Compiling and verifying
statements the Federal Trade Commission requested the American
Institute of Accountants to prepare a memorandum on balance sheet
audits*
This memorandum was duly prepared and approved by the
Council of the Institute representing accountants in all sections
of the country.
After approval by the Federal Trade Commission the memo
randum, was placed before the Federal Reserve Board for consider
ation*
The Federal Reserve Board, after conferences with repre
sentatives of the Federal Trade Commission and the American In
stitute of Accountants, and a careful consideration of the memo
randum in question* has accepted the memorandum, given it a pro
visional or tentative endorsement, and submitted it to the banks,
bankers and banking associations throughout the country for their
consideration and criticism.
The recommendations in the memorandum apply primarily to
what are known as balance sheet audits.
This is an initial
step which may easily be succeeded by future developments tend
ing still further to establish uniformity and covering more fully
the field of financial statements.
S 1 4 6
-4-
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GENERAL INSTRUCTIONS FOR A BALANCE SHEET AUDIT OF
A MANUFACTURING OR A MERCHANDISING CONCERN.
The scope of a balance sheet audit for a fiscal year
or other operating period of an industrial or mercantile
corporation or finn comprises a verification of the assets
and liabilities, a general examination of the profit and
loss account, and, incidental thereto, ar examination of
the essential features of the accounting.
Trial balances of the general ledger, both at the
beginning and end of the period under review, should be
prepared in comparative form and checked with the ledger.
The items in the trial balances should be traced into the
balance sheets before the assets and liabilities are veri
fied, to prove, among other things, that no ’'contra" asset
or liability has been omitted from the accounts, that the
assets and liabilities have been grouped in the same manner
at the beginning and end of the period, and also that the
balance sheets are in accordance with the books. The dis
position of any general ledger assets and liabilities that
may have been scrapped, sold, written off, or liquidated
during the period, ur.der review should be traced and noted
in the working papers. Furthermore, a general scrutiny of
the general ledger should be made to see thatthe accounts,
if any, that have been opened and closed during the year
have no bearing on the company's financial position at the
close of the fiscal period.
The auditor should obtain a copy each of the balance
sheet at the beginning and the end of the priod to be
audited, and should make a comparison between them, so that
a comprehensive view may be had by him of the changes in the
figures during the period under review, A statement of the
disposition of the profits should then be prepared from this
comparative balance sheet as a further aid in impressing the
meaning of the figures upon the mind of the auditor.
The verification of assets and liabilities for conven
ience will be considered in the order in which the items ap
pear in the form of balance sheet attached hereto. This form
of statement has been determined by the desire to meet as
nearly as possible the requirements and practice of Federal
reserve banks.
SPECIFIC INSTRUCTIONS AND SUGGESTIONS RELATING TO
THE SEPARATE HEADINGS.
CASH.
The cash on h=nd preferably should be counted after bank*
ing hours on the last day of the fiscal period to be covered
by the audit, and the amount thereof, together with the cash
stated to be in bank, reconciled with that shown by the cash
book. The cash, bills receivable, and investments must be ex
amined on the same day, so as to make it impossible for a
treasurer to make up a shortage in one asset by withdrawing
negotiable funds temporarily from another.
In counting the cash on hand the auditor must see that
all customers * checks produced to him as part of the cash
balance have been duly entered in the cashbook prior to the
close of the period and should note the dates and descriptions
of such checks, and also the dates and descriptions of all
advances made from cash and not recorded on the books. Ad
vances to employees should be strictly investigated, and if
any are secured by personal checks the auditor should see that
the checks are certified by the bank on which they are drawn
before the close of the audit.
Certificates must be obtained, as of the evening of the
closing date, from the banks in which cash is deposited, by,
or mailed directly to, the auditor himself. The balances as
shown by the certificates must be reconciled with those shown
on either the cashbook, the checkbook stubs; or bank registers,
taking into consideration outstanding checks.
In verifying the outstanding checks there is only one
safe and saitsfactcry method of proving their accuracy, and
that is to compare che credit side of the cashbook from the
last day of the fiscal period backward,, item by item, with
the checks returned from the bank for such period as may be
necessary to account for all current outstandings. Any old
checks not yet cashed by banks should be made the subject of
special inquiry. When this work is completed, a list of the
outstanding checks so ascertained should be prepared, showing
the dates of the checks and compared with the actual checks
returned from the bank at a later date, and any not so returned
should be specially investigated. Special care is necessary to
see that no checks for cash purposes are drawn at the close of
the period and entered in the next period.
Where the currency and bank transactions are kept together
in the cashbook and the auditor does not count the cash until a
date subsequent to the close of the fiscal year, he must, in
addition to verifying the bank balances as of the close of the
year, verify them as of the date of the count of cash. This
is absolutely essential when it is considered that, although
the cash on hand, which forms only part of the balance, at the
date of the count is correct, it does not follow that the to
tal cash is correct.
When receipts are shown in the cash book as being deposit
ed in bank on the last day of the fiscal period, but axe includ
ed in the reconciliation statement on account of their not being
paid into the bank until the next day, the auditor must obtain
letters from the banks acknowledging such deposits.
The deposits jkfeown in the pass books should be checked
in detail for the last two or three days of the fiscal period
from the books to prove that they were composed of bona fide
checks, and that no check drawn by the company was deposited
in a bank without being credited to fhe bank on which it was
drawn prior to the close of the fiscal period.
So that the auditor may satisfy hriself that deposits
are promptly made in bank each day, and that the same checks
are paid into bank as are received, it is advisable to call
for a number of deposit slips and compare them with the
receipts as shown by the cashbook for the days in which the
deposits are made. To make such verification absolute the
deposit slips should be obtained from the banks.
When the practice of a company is to pay all of its cash
receipts into bank, they should be compared and reconciled with
the total deposits, as shown by the bank books, and similarly
the disbursements should be reconciled with the total checks
drawn.
Outstanding checks not examined at a previous audit on
account of not having been returned by the banks must be called
for and traced into the cashbvok at the beginning of the cur
rent audit.
NOTES
RECEIVABLE.
A list of notes receivable outstanding at the end of the
fiscal period should be prepared showing the dates the notes
are made, the customers' names, the date due, the amounts of
J
X-32
the notes elnd the interest, if any, contained in the motes.
If discounted the name of the discounting bank should be not
ed and Verification obtained from the bank.
The outstanding notes must be carefully examined with
the notes-receivable book, and with the list prepared by or
produced to the auditor, the due dates and the dates of making
the notes being carefully checked, and when notes have been
renewed the original dates should be recorded. When notes
have been paid since the close of the fiscal year, the cash
should be traced into the books of the company, and when they
are in the hands of attorneys or bankers for collection, cer
tificates should be obtained from the depositaries.
When notes receivable are discounted by banks the com
pany has a liability therefor which should appear on the bal
ance sheet. Lists of discounted notes not matured at the date
of the audit should be obtained from the banks as verification,
and their totals entered under 20a if the cash therefor is
shown as an asset.
’
The Value of collateral, if any, held for notes should
be ascertained, as it frequently happens that the notes are
worth no more than the collateral.
Notes due by officials and employees must always be stat
ed separately from customers’ notes, as must also notes re
ceived for other than trade transactions,.
Notes due from affiliated concerns must not be included
as customers’ notes, even though received as a result of
trading transactions. Affiliated companies’ notes should be
shown as a separate item of current assets or as other assets
as the circumstances warrant. They may be fairly included in
current assets if the debtor company has ample margin of quick
assets over its liabilities, including such notes.
*
The term "Quick Assets" is used here in the sense in
which it is used by Federal reserve practice. "Current As
sets" is used to comprise these assets and other assets which
though current are excluded in determining the eligibility of
the paper for Federal reserve purposes.
Optional - The best verification of notes receivable is
an acknowledgment by the party named in each note as the payor
on the due date, that the note is a bona fide obligation.
Therefore, if tide permits, and the client does not object,
it is advisable to obtain such written confirmation for each
note. The auditor should personally mail the letters, in
closing stamped envelope for reply addressed direct to him
self.
ACCOUNTS
RECEIVABLE.
The bookkeepers of the accounts-receivable ledgers should
be asked to draw off lists of the open balances at the end of
the fiscal period, and distributions of the total columns should
be shown on the lists according to the age of the accounts, e.g.,
not yet due, less than 30 days past due, more than 30 days past
due. The accounts paid since the close of the fiscal period
should be noted in the lists before taking up the matter of
past due accounts with the credit department, as payment is
the best proof that an account was good at the date of the audit.
The totals of the lists of outstanding accounts should
agree with the controlling account, in the general ledger4 if
separate ledgers are kept. When credit balances appear on
customers' accounts they should be shown on the balance sheet
as a separate item and not deducted from the total of debit
balances; 4nd debit balances on the accounts-payable ledgers
should be treated in the same manner.
The lists must be footed and compared in detail with the
customers' accounts in the ledgers.
The composition of outstanding balances should always be
examined, as it frequently happens that while a customer may
be making regular payments on his account; old items are being
carried forward which have been in dispute for a considerable
period of time. Such items and accounts which are past due
should be taken up with the credit department or some respon
sible officer and the correspondence with the customers examined,
so that the auditor may form an opinion of the worth of the ac
counts and satisfy himself that the reserve for bad and doubtful
accounts set up by the company is sufficient.
Trade discounts (and also so-called cash discounts, if ex
ceeding 1$) and freights allowed by the company should be in
quired into, and if they have been included in the accounts
receivable a reserve therefor should be set up in the balance
sheet. Also inquiries should be made regarding customers'
X-32
V
-9claims for reductions in prices and for rebates and allow
ances on account of defective materials, so that it may be
seen that a sufficient reserve has been established therefor,
Inquiry must be made as to whether any of the accounts
receivable have been hypothecated or assigned, and the sum
total of accounts so listed entered under (20b).
The auditor should satisfy himself that the bad debts
written off have been duly authorized by responsible offi
cials .
Accounts due from directors, officers, and employees
must be stated in the balance sheet separately and not in
cluded as trade accounts. This applies also to deposits as
security, guaranties, and other extraordinary items not con
nected with sales.
Accounts due from affiliated concerns must not be includ
ed as customers' accounts, even though arising as a result of
trading transactions. Affiliated companies' accounts should
be shown as a separate item of "Current Assets" or as "Other
Assets", as th9 circumstances warrant. They may be fairly in
cluded as "Current Assets" if the debtor company has ample
margin of quick assets over its liabilities, including such
accounts.
Optional - The best verification of an open balance is a
confirmation by the customer; therefore, if time permits and
the client does not object, it is advisable to circularize
the customers. The auditor should personally see the circulars
mailed after comparing them vith the lists of outstanding ac
counts. The envelopes for replies sent with the circular's
should be addressed direct to the auditor.
In large concerns the system of accounting is generally
so arranged that it would be almost impossible for accounts
to be paid and not correctly credited on the accounts-receiv
able ledgers, but in small concerns, with imperfect systems,
such occurrences are quite possible, so much so, in fact,
that it is generally admitted that the risk of errors and,
omissions decreases in direct proportion to an increase in
bookkeeping.
2±&2
x-32*
SECURITIES
Under this caption must be listed securities in which
surplus funds of the company or firm have been temporarily
invested and which are considered as available as "quick
assets," i. e., can be turned into money in time of need.
Where stocks or bonds represent control or a material in
terest in other enterprises, the ownership of which carries
more or less value to the holder outside of the return threron they should be considered as fixed assets.
A list of investments should be prepared showing The dates of purchases.
Descriptions of the investments.
Par value of the investments.
The denomination of the shares.
The number o£ shares or bonds owned.
The total capital stock of the various companies.
The amounts paid for the investments.
The interest and dividends received.
The market values of the investments.
The surplus or deficit shown by the balance,
sheets of the companies where no market
quotations are available.
If hypothecated, with whom and for what purpose.: •
This list must be compared with the ledger accounts
concerned and the total of amounts paid according to the
list must agree with the balance of the investment account
or accounts.
The securities must be examined by the auditor in person
or he must secure confirmation of their existence from those
who hold them as collateral.
Those in possession of the com
pany must be counted and examined as soon as possible after
the audit starts, and all of them must be submitted to him at
one time.
It is much more satisfactory to see the actual
securities than to verify cash receipts and other evidences
therefor after the audit has progressed some time.
Certificates out for transfer must be verified by cor
respondence.
Where the market values of securities are less than the
book values, save where the variation is so small as to be
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vy
*
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trifling, a reserve for loss in value on the "balance sheet
date must "be set up.
Care must be taken to see that the certificates are made
out in favor of the company, or that they are indorsed or
accompanied by powers of attorney when they are in the names
of individuals*
Coupons on bonds must be examined to see that they are
intact subsequent to the latest interest payment date.
The investment schedule must show that the total interest
and dividends receivable by the company has been duly accounted
for; the income from the investments shown in the profit and
loss account must be in accord with this schedule.
When market quotations can not be obtained for invest
ments, the balance sheets of the companies in which investments
are held must be examined so that the auditor may form an idea
of their value.
In verifying purchases of stock exchange securities the
brokers’ advices must in all cases be examined in connection
with the verification of the purchase price.
Investments in deeds and mortgages must be supported by
both the mortgages and insurance policies, and, furthermore, it
must be shown that all assessed taxes on the property have been
duly paid, that the mortgages have been properly recorded and
that the insurance policies are correctly made out to the com
pany.
If any of the securities have been hypothecated the fact
and amount (book value) must be stated under 20d of the balance
sheet.
*
INVENTORIES.
Under this caption must be included only stocks of goods
owned and tinder control of the owner. Stocks are often hy
pothecated and if this is the case, the fact should be stated
on the balance sheet.
Inasmuch as the accuracy of the profit and loss account
is absolutely dependent upon the accuracy of the inventories
of merchandise at the beginning and end of the period vender
review, this part of the verification should receive special
attention.
When a balance sheet audit is being made for the
first time, the inventory at the beginning of the period should
receive as much attention as that at the end, and the auditor
should take every precaution to satisfy himself that both in
ventories were taken on the same basis.
An acceptable program of audit for inventories is as
follows:
(1) Secure the original stock sheets if they are in
existence and Carefully test the typewritten copies with them
and with tickets, cards, or other memoranda that show the
original counti
(2) See that the sheets are certified to or initialed
by the persons who took the stock, made the calculations and
footings, and fixed the prices, and satisfy yourself that they
are dependable and responsible persons.
Obtain a clear and
detailed statement in writing as to the method followed in
taking stock and pricing itj also a certificate from a respon
sible head as to the accuracy of the inventory as a whole.
(3 ) A thorough test of the accuracy of the footings and
extensions should be made, especially of all large items.
(U) The inventories should be compared with the stores
ledger, work in progress ledgers and finished product records
and stock records as to quantities, prices, and values, and
any material discrepancy should be thoroughly traced.
(5) Where stock records are kept and no physical in
ventory is taken at the time of the audit, ascertain when
the last physical inventory m s taken and compare it with
the book records.
If no recent comparison is possible,
select a few book items of importance and personally compare
with the actual stock on hand.
(6) Where no stock records are kept, a physical in
ventory should be taken preferably under the general direction
of the auditor. After the inventory is completed, he should
apply the same tests to verify its accuracy as if the inventory
had been taken before his arrival upon the scene.
(7) When the cost system of a company does not form a
part of the financial accounting scheme there is always a
chance that orders might he completed and hilled hut not taken
out of the work in progress records.
Especially is this the
case when reliance is placed on such records to the extent
that a physical inventory is not taken at the end of the period
to verify the information shown therein.
In these cases the
sales for the month preceding the close of the fiscal period
should he carefully compared with the orders in progress as shown
hy the inventory, to see that nothing that has been shipped is
included in the» inventory in error. Cost systems which are not
co-ordinated with the financial accounts are unreliable and
frequently misleading. Special attention should be called to
every case in which the cost system is not adequately checked hy
the results of the financial accounting.
(8 ) Ascertain that purchase invoices for all stock
included in the inventory have been entered on the hooks. Look
for post-dated invoices and give special attention to goods
in transit*
(9) See that nothing is included in the inventory which
is not owned but is on consignment from others.
If goods
consigned to others are included, see that cost prices are
placed thereon, less a proper allowance for los$, damage, or
expenses of possible subsequent return*
This does not in
clude goods at branches, as the valuing of such stocks will
be governed by the same principles as apply at the head office.
(10) Ascertain that nothing is included which has been
sold and billed, and is simply awaiting shipment.
(11) If duties, freight, insurance, and other direct
charges have been added, test them to ascertain that no
error has been made.
Duties and freight are legitimate
additions to the cost price of goods, but no other items should
be added except under unusual circumstances.
(12) As a check against obsolete or damaged stock being
carried in the inventory at an excessive valuation, the de
tailed records for stores, supplies, work in progress, fin
ished products, and purchased stock in trade, should be ex
amined and a list prepared of inactive stock accounts, which
should be discussed with the company's officials &nd satis
factory explanations obtained.
(13 ) The auditor should satisfy himself that inventories
^ 1 5 6
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are stated at cost or market prices, whichever are the lower
at the date of the balance sheet*
No inventory must he passed
which has been marked up to market prices and a profit assumed
that is not and may never be realized.
If the market is higher
than cost it is permissible to state that fact in a footnote
on the balance sheet.
(lU) It may be found that inventories are valued at the
average prices of raw materials and supplies on hand at the end
of the period.
In such cases the averages should be compared with the latest invoices in order to verify the fact that
they are not in excess of the latest prices, and also with the
trade papers, when market prices are used* to see that they are
not in excess of market values.
(15) Make an independent inspection of the inventory
^sheets to determine whether or not the quantities are reason
able, and whether they accord in particular instances with the
average consumption and average purchases over a fixed period.
Abnormally, large quantities of stock on hand may be the legit
imate result of shrewd foresight in buying in a low market,
but may , on the other handj arise from serious errors in stock
taking.
(16) Always attempt to check the totals by the ’'Gross
profit test" and compare the percentage of gross profit shown
with that of previous years t in a business where the aVerdge
gross profit remains fairly constant this test is a dependable
one, because, if the rate of gross profit is apparently not
maintained and the discrepancy can not be satisfactorily ac
counted for by a rise or fall in the cost of production or -of
the selling price, the difference will..usually be due to errors
in stock-taking.
(17) In verifying the prices at which the work in progress
is included in the inventory, a general examination and test
of the cost system in force is the best means of doing this
work satisfactorily.
In a good cost system little diffi
culty. will be found with the distribution of the raw materials,
stores, and pay roll, but the distribution of factory overhead
cost is one that should receive careful consideration, the
main points to be kept in view being:
(a)
That no selling expenses, interest charges, or ad
ministrative expenses are included in the factory overhead cost.
yis
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(b)
That the factor}' overhead cost is distributed over
the various departments, shops, and commodities on a fair and
equitable basis.
(18) No profit should be included in the price of finished
products or stock in trade.
The price lists should be examined
to see that the cost prices of stock are below the selling prices
after allowing for trade discounts, and if they are not a re
serve should be set up on the balance sheet for this loss.
If
the company takes immediate steps to increase the selling price,
however, the amount of this reserve may be limited to the loss
on goods which may have been sold since the close of the period
to the date of the discover}’'.
(19) In the case of companies manufacturing large contracts
it is frequently found necessary to make partial shipments
thereof.
The question then arises as to whether it is per
missible to include the profits on these partial shipments in
the profit and loss account.
As a matter of fact, it is
evident that the actual cost can not be known until the order
is completed. It may be estimated that a profit will ulti
mately be made, yet unforeseen conditions, such as strikes,
delays in receiving material, etc., may arise to increase the
estimated cost.
It is better not to include the profits on
partial shipments, but information of this character which may
have its influence in the decision of the banker upon a pro
posed loan may properly be laid before him.
Of course, an
„ exception should be made in cases where the profit on the
partial shipments largely exceeds the selling price of the
balance of the order.
(20) The selling prices for contract work in progress
should be ascertained from the contracts, and where it is . ••
apparent that there will be a loss on the completed con
tract a due proportion of the estimated loss should be
charged to the period under audit by setting up a reserve
for losses on contracts in progress.
(21) If a company has discontinued the manufacture of
any of its products during the year, the inventory of such
products should be carefully scrutinized and, if unsalable,
the amount should be written off.
(22) The inventory should be scrutinized to see that no
machinery or other material that has been charged to plant
2 1 5 8
X-32.
V
or property account is included therein.
(23 )
Partial deliveries received on account of purchase
contracts for material, etc., should he verified by certi
ficates from the contractors, both as to quantities and
prices.
(2U) Advance payments on account of purchase contracts
for future deliveries should never appear in an inventory,
but be shown on the balance sheet under a separate heading.
(25 ) Trade discounts should be deducted from inventory
prices, but it is not customary to deduct cash discounts.
However, this may be done when it is the trade practice so
to do.
{26 ) While the inventory is being verified, the auditor
should ascertain the aggregate sales for the last year.
If
the turnover has not been rapid, it may be due to a poor stock
of goods.
Some business men dislike to sell below cost and
would rather accumulate a big stock of old goods than dispose
of the old and unseasonable stock at a sacrifice. The usual
outcome is that the stock becomes unwieldy and funds are
lacking to purchase new goods.
The inventory and the gross
sales may, therefore, have a direct connection.
♦ 1
(27 ) It may be well to reiterate that interest, selling
expenses,* and administrative expenses form no part of the
cost of production, and therefore should not be included in
the inventory in any shape.
COST OF FIXED PROPERTY
In preparing the leading schedules for the accounts
grouped under this heading, such as real estate, buildings,
plant, machinery, etc., the balances at the beginning of the
period, the additions or deductions to the accounts during
the year, and the balances at the end of the period must be
shown.
The total of the balances at the beginning of the period
must agree with the cost of property figures given in the
balance sheet at that date, and the balances at the end of the
period., with the amount shown in the balance sheet that is being
audited.
The charges entering into the additions must be veri
fied in detail and in this connection the following notes are
of value:
(1) Authorizations for the expenditure made during the
year should be examined, and where the costs of the additions
have overrun the sums authorized inquiries should be made in
regard thereto.- The authorizations should show the accounts
to which the expenditures are chargeable, the amounts thereof,
the approvals of the comptroller and manager, and descriptions
of the jobs.
When the authorizations are not specific as to
the work done the actual additions should, if possible, be in
spected.
(2) The auditor should satisfy himself before approving
additions that they were made with the object of increasing
the earning capacity of the plant, and that they are not of
the nature of either renewals or improvements, and in/this
connection changes in the production and capacity of the plant
should receive consideration.
(3 ) To verify the pay roll and store and supply charges
to jobs, one or two pay roll distribution reports should be
examined in detail, and also one or two storehouse reports.
In cases where large purchases have been made from outside
parties for capital construction work the vouchers therefor
should he examined and the usual precautions taken to see
that they are prbperly dpproved for the receipt of materials,
prices, etc.
(h)
For purchases of real estate the title d6eds should
be examined together with the vouchers, and it should be seen
that the deeds have been properly recorded.
(5)
While it may be considered permissible to make a
charge for factory overhead cost to additions to property
such as, ~e. g., time of superintendent and his clerical force
employed on construction work, etc., it can not be deemed
conservative business practice, inasmuch as the probabilities
are that the overhead charges of a plant will not be decreased
to any extent even though additions are not under way, and,
therefore, the absorption of part of these charges when addi
tions are in progress has the effect of reducing the operating
costs as compared with months in which no construction work
is under way.
O
X-32.
'V
- 18 -
(6) Construction work in progress at the end of the fiscal
period should be shown in the balance sheet under the heading
of fixed assets and not as part of the inventories.
This is
important to bear in mind because construction work is not an
asset that can be quickly turned into money, while everything in
the inventory is supposed to be realizable in cash within a
reasonably short time.
(7) The auditor should inquire as to whether any installments
are due on account of construction work in progress which is being
carried on by outside parties; and if so, the liabilities for these
installments should be included in the balance sheet, as they may
have a direct bearing on the amount of available cash on hand.
(8) When a company uses leasehold properties the leases
should be examined and notes made of the periods covered, So that
it may be seen that improvements, etc-, on such properties are
witten off over the periods covered by the leases.
(9 ) The auditor should satisfy himself that the.reserves for
depreciation of buildings, machinery, equipment, etc., are ade
quate to reflect the deterioration in the value of the fixed prop
erties,
If in his epinion the reserves shown on the balance
sheet are insufficient he should call attention to the matter
in his certificate.
(10) Care should be taken to ensure that property destroyed
by fire or otherwise prematurely put out of service is correctly
treated in the books. Any portion of the original charge for
such property which is not recoverable through insurance, as
salvage or otherwise and has not been provided for by the depre
ciation scheme, should be written off.
It is to be observed that the foregoing notes are to be applied
only to cost of properties incurred during the period under audit.
In addition, information may usefully be obtained on broader lines
in regard to the composition of the real estate, building and
machinery accounts, and showing what principal property is repre
sented thereby and how the accounts have been built up from year
to year for a reasonable time past, if not from the inception #f
the business.
The information derived therefrom is valuable only
in indicating the progressive policy of the concern, the extent to
which it reinvests undivided surplus in its plant, etc. Beyond
these facts the banker who is asked for ordinary discounts or
short-term loans is not interested; he looks more to the quick
aasets for his security.
2.
X-32
-1 9 -
Optional - When the loan is greater than the quick as
sets seem to justify the auditor should suggest a reliable
verification of the cost of property prior to the period und^r audit. Such action may become necessary even to the ex
tent of calling for an appraisement by disinterested outside
experts;
DEFERRED CHARGES TO OPERATIONS.
Under this heading in the balance sheet are grouped
such items as unexpired insurance, bond discounts appli
cable to a future period, prepaid royalties, experimental,
charges, etc. After the clerical accuracy of the deferred
charges has been verified the auditor should satisfy himself
tljat they are properly carried forward to future operations.
Wherever possible, documentary proof must be produced
in support of the items carried forward, as, for example,
with unexpired insurance the policies must be examined to
verify the dates of (aspiration, the amounts covered, and the
proportion of the premiums carried forward; with royalties
the agreements must be examined; with experimental charges the
vouchers and particulars of the work done must be looked into,
etc.
The examination of the deferred charges will usually
furnish the auditor with valuable information in regard to
the accounts of the company, as, e. g.,:
(1) The verification of experimental charges carried
forward will generally furnish information as to the pro
duction and future policy of the company.
(2) Royalty vouchers will generally furnish a check
on the production of mines.
(3) An examination of the insurance policies will show
if the properties are mortgaged or covered by lien, and thus
be an additional verification of the liability for mortgages
on real estate, buildings, etc., shown in the balance sheet.
(4) The assets covered by insurance will be ascertained
and, if any omissions are discovered, they should be mentioned.
61 -
£'*W.
X-32
- 2 0
NOTES AND BILLS PAYABLE.
Under this caption appear notes payable and drafts ac
cepted. Schedules should be prepared under the subcaptions,
and in columns headed Date.of making the notes or drafts.
Due dates.
Names of creditors.
Collateral hypothecated.
Additional indorsers.
Interest accrued to date of audit.
Notations of renewals (as information of this
nature furnishes a guide to the state of
the concern's credit).
The schedule must be compared with the notes-payable
book and the total, of the aggregate must agree with the bal
ance of the ledger account of notes payable.
Statements must be obtained from all banks and brokers
with whom the concern does business showing all notes and
drafts discounted or sold by them for the benefit of the
concern. These statements when received must be checked
against the loans shown on the concern's books and approved
in the minutes of a company.
Inasmuch as a note is a negotiable instrument, Care
must be taken to see that all of those recorded as paid
during the year under audit have been properly discharged,
and the canceled notes are the best evidence of this fact.
Careful attention should be given to the collateral
deposited for loans and statements as to the existence of
such collateral should be obtained from the holders thereof.
Such hypothecation of any of the concern's assets should be
accounted for on the balance sheet.
When practicable the auditor might suggest to the client
the advisability of drawing notes payable on blanks bound in
a book, like a check book, with a stub for each blank - the
blank and the stub to bear identical numbers. The officer,
or officers, signing the notes could, in such case, initial
the stub as a certificate to the amounts, payees and terms
of the notes issued. If this were done, the auditing of bills
payable would be greatly facilitated.
A
X-32
-21-
ACCOUNTS
PAYABLE.
A list of balances due on open accounts must be prepared
and carefully checked with the ledger accounts, dare being
taken to see that no open account on the ledger has been omit
ted from the list* It should be ascertained that the balances
represent specific and recent items only* When any account
does not appear regular a statement from the creditor should
be obtained. If there are many such accounts in dispute, and
they amount to so large a sum as to affect appreciably the
total of current liabilities, the general causes for the dis
putes should be inquired into and note made of the matter for
the consideration of the banker.
In concerns with modern voucher systems accounts pay
able are easily verified, as'all liabilities are then in
cluded in the books When incurred. Care should be taken, however> to see that all goods received on the last day of the
fiscal period, as shown by the receiving records, and also
all goods that were in transit and belonged to the concern
on that date, are included as liabilities, and Lhe correspond
ing assets included in the inventories. This test is neces
sary as an increase in the accounts payable may have a very
important bearing on the financial position of the concern if
the cash on hand is small.
Monthly expenses outstanding can usually be ascertained
by a comparison of the expenses of the last month of the fis
cal period with previous months, and those of the year with
the previous year. The voucher record should, however, be
examined for the months subsequent to the close of the fiscal
year, in case any expenses included therein are applicable to
the fiscal period under audit.
When a first-class voucher system is not in operation
the auditor must take additional precautions to satisfy himself
that all liabilities are included in the accounts, among which
may be mentioned:
(1) Payments made in the months subsequent to the date
of the fiscal period as shown by the cashbook, which should be
carefully scrutinized to see that none of them is applicable
to the period under review,
(2) The file of bills not vouchered or entered on the
books should be examined to see that none of them belongs to
the period under audit.
!C
'J
’
»*
W
X-32
-2 2 -
(3)
A careful perusal of the minutes of a company may
further assist the auditor in determining liabilities.
When a company has large purchase contracts in force
for future deliveries they should be examined, as, if the
contract prices are greater than market prices, it might
be necessary to set up a reserve for this loss. Any debit
balance due to advance payments on such contracts or to any
other cause should be shown on the balance sheet under a sep
arate heading.
If the business under audit is one where there is any
possibility of goods having been received on consignments,
and part or all of such goods having been sold without a
liability therefor having been shown in the books, the audi
tor must use all due diligence to cover the point fully. This
may readily happen, as consignment accounts are usually treat
ed as memoranda only.
If inquiry develops the fact that goods have been re
ceived on consignment, all records in connection therewith,
should be called for. If the goods have all been sold, the
consignor's account should show the full amount due, and if
the debt is a current one, the amount will appear among ac
counts payable due to trade creditors. Where only part of
the goods have been sold, the net proceeds due to the con
signors should be shown on the balance sheet under the cap
tion of "Accounts payable consignors."
As an additional precaution against the omission of lia
bilities a certificate should be obtained from the proper of
ficer or member of the concern stating that all outstanding
liabilities for purchases and expenses have been included in
the accounts of the period under review or of former periods.
In many cases it is also advisable to obtain a certificate
from the president stating that all liabilities for legal
claims, infringements of patents, claims for damages, bank
loans, etc., have been included, as he may be the only exe
cutive officer of the company to know the extent .of such ob
ligations.
CONTINGENT
LIABILITIES.
It is not enough that a balance sheet shows what must
be paid; it should set forth with as much particularity as
possible what may have
to be paid. It is the duty of an
X-32
-23-
auditor who makes a balance sheet audit to discover and re
port upon liabilities of every description, not only liquidat
ed debts but possible debts. The following are the usual
forms under which contingent liabilities will be found:
Indorsements - Inquiry of the officers or partners of
the concern should be made as to whether any indorsement of
outside paper has been made and as to any security received
to protect the concern. Such inquiry should be particularly
strict if it is known that any of the officers or partners
are interested in other enterprises. Similar action should
be taken in the matter of Guaranties.
Unfulfilled contracts - Contracts to accept the deliv
ery of goods contracted for before the date of the balance
sheet may call for the payment of large sums of money within
a short time. In the case of raw materials for a manufacturer
this might be a perfectly legitimate reason for seeking a tem
porary loan pending production and sale, but for a merchant
whose balance sheet shows a large stock of goods on hand it
might indicate a real liability impending with assets of a
doubtful character to offset it. In every audit, therefore,
the auditor should call for copies of all orders for future
delivery, and if such orders call tor stock in excess of the
current and reasonable prospective demand, mention should be
made on the balance sheet and a report submitted, the details
depending on the circumstances of each particular case.
Items other than those arising from the specific hypothe
cation of current assets to be listed under item 20 should ap
pear as a footnote on the liability side of the balance sheet,
the total amounts being stated for each subheading and such
additional report made as will convey clear information to the
banker.
ACCRUED
LIABILITIES.
Under this caption are grouped such items as interest,
taxes, wages, etc., which have accrued to the end of the
period under audit but are not due and payable till a later
date. The verification of such items can be accurately made
from the books and records.
Special attention may be direct
ed to the following:
.Dt
X--32
-2 4 -
Interest payable - Many of the liabilities which appear
on a balance sheet carry interests Such items as bonds and
notes payable are obvious, but the auditor should also con
sider the possibility of accounts also bearing .interest, as
enough book accounts, when past due, do bear interest to war*
rant inquiry being made. Loan accounts of partners and of
ficers of corporations almost invariably bear interest; also
judgments, Overdue taxes, and other liens.
Taxes - The amount of accrued State and local taxes can
be ascertained from an examination of the latest tax receipts>
though in some cases, as the period for which the taxes are
paid is not shown on the face of the receipt, it may be nec
essary to make inquiries of the proper taxing authorities as
to the period covered.
Under the Federal income tax law a tax of 2 per cent
is imposed upon the net profits of a corporation, which must
be paid even if the corporation is dissolved before the end
of the year during which the tax is imposed. As the tax is
specifically based upon the net profits of a particular
period, although payable some months thereafter, the tax ac
crues throughout the specified period, and if a net profit
is disclosed upon the closing of the books at any date dur
ing the year, a reserve of 2 per cent must be shown on the
balance sheet as an accrued tax.
Wages - Where the date of the balance sheet does not
coincide with ■the date to which the last pay roll of the
period under audit has been calculated, the amount accrued
to the date of the balance sheet must be ascertained and en
tered as a liability, unless such amount is trifling. It
will suffice to take the proportion of a full week's pay
roll (six days) without reference to possible daily variations.
Water rates. etc. - Where bills for such expenses as
water, gas, etc., are not rendered monthly, the auditor must
enter the accrual of the proper proportion since the last
bill as a liability.
Traveling expenses and commissions - It is important
to note whether the accounts of all traveling salesmen have
been received and entered before the books are closed. The
auditor should secure a list, and if any report was not so
entered, provision should be made for it unless the amount
is likely to be trifling.
I
V >
X-32
-25 r
Apple provision should bs made for all comnissions
eventually payable on sales which have been billed to cus
tomers. As commissions are frequently not payable to
salesmen until the sales have been collected from the cus
tomers, accrued comnissions are often omitted from the
books. As they must, however, be paid out of the proceeds
of the sales on which the full profit has already been
taken into the accounts, they should be set up as an ac
crued liability.
Legal Expense - All concerns have more or less liti
gation. Before the books are closed the lawyers should be
requested to send in a bill to date. If one is not found,
the auditor should ascertain the amount, if any, probably
due and set it up as an accrued liability.
Damages - If the concern is insured against liability
for damages to employees or the public a proportion of the
premiums paid in advance for the unexpired time covered by
the insurance will appear in Deferred Charges. But there
may be claims or suits for other damages not covered by
insurance and where the auditor finds any evidence which
leads him to suspect there may be liability of this nature
he should insist upon being informed of all the facts. He
can then form an opinion as to the amount that should be
set up as an accrued liability, or if the outcome is uncer
tain as a reserve against possible loss.
BONDED AND MORTGAGE DEBT.
A copy of the mortgages must be examined and the terms
thereof noted. The amount of bonds registered, issued, and
in treasury, rate of interest, and duration of the bonds,
should be shown on the face of the balance sheet. A certi
ficate should be obtained from the trust company certifying
the amount of bonds outstanding, etc., as verification of the
liability stated in the balance sheet. The interest on the
bonds outstanding, shown in the balance sheet, should be
calculated and reconciled with the interest on bonds, as
shown in the profit and loss account.
Sinking-fund provisions in mortgages should be care
fully noted and care should be taken to see that they are
provided for in the accounts of the company, and any default
noted in the balance sheet.
&
X-32
-*26t
Bonds redeemed during the period or previously should
be examined to see that they have been properly canceled,
or, if they have been destroyed, a cremation certificate
should be bbtained from the trustees.Mortgages sometimes stipulate that the current assets
must be maintained at a Certain amount in excess of the cur
rent liabilities* and the auditor must give due considera
tion to such matters and any other stipulation in regard to
the accounts, or any audit thereof, that may be referred to
in the trust deed, and see that they have been cotoplied- with.
Mortgages - As a mortgage derives its chief value from
the fact that upon registry it becomes a lien, the auditor
should verify the existence of such an obligation by inspect
ing the public records, not only with hefSrehoe to Such as
may be found on the company's books but also any that may
still appear on the public records as unsatisfied. If the
auditor lacks the necessary facilities for making a search
it will be worth his while to arrange with a local lawyer
or title company whereby, for a small fee, any mortgages
or judgments entered against the concern under audit will
be reported to him.
In any event the auditor must verify the amount as re
corded in the account, the rate, the due date, and the
property covered thereby.
It should be borne in mind that a payment on account
of a mortgage must be recorded or the entire amount will
remain as an encumbrance on the property. Therefore, if
payments on account appear, the auditor should ascertain
if they have been so recorded; if not the fact should be
noted on the balance sheet.
Judgments - The same procedure should be followed in
verifying judgments as in verifying mortgages. As many
business men consider that the entry of an invoice is an
admission of liability, and will not permit the entry of
a claim which they propose to fight, it is sometimes dif
ficult for an auditor to find any evidence of such liens.
Even admitting the fact they may still refuse to allow
the judgpient to be entered on the books as a liability
in which case it is proper for the auditor to include it
as a footnote on the balance sheet as a contingent liabil
ity.
Unpaid interest - When considering the matter of liens
it should be noted that interest unpaid is a lien as well as
unpaid principle, so where the auditor finds evidence of in
terest on liens being in default, he should add -it io the
principal in each case.
CAPITAL
STOCK.
As a rule trust companies are the transfer agents for
the capital stock of large corporations, and for verificai
tion purposes it is sufficient to obtain letters from them
certifying to the capital stock outstanding.
Where companies issue their own stock, the stock registers
and stock certificate books should be examined and compared
with the lists of outstanding stockholders.
On the balance sheet each class, if more than one, of
stock must be stated, giving amount authorized, issued, and
in treasury, if any.
In the case of companies with cumulative
preferred stocks outstanding a note must be made in the balance
sheet of the dividends accrued but not yet declared.
If stock has been sold on the instalment plan, the auditor
should ascertain that the calls have been promptly met and
whether any are in arrears.
If special terms have been ex
tended to any stockholder, approval of the board of directors
is necessary and the minutes should be examined accordingly.
If any stock has been sold during the period under audit,
the auditor should verify the proceeds of the sales.
S UR P L U S
The auditor should give consideration to the surplus at
the beginning of the period.
This item represents the accumu
lated profits prior to the beginning of the fiscal period under
review, and should be compared with the surplus shown on the
balance sheet of the -previous year, and with the ledger account,
to see that it corresponds, and if it does not, a reconciliation
statement should be prepared giving full details of the differences.
PROFIT AND LOSS ACCOUNT
The auditor should obtain the profit and loss statement for
three years, at least, including the period under audit, and
after verifying them by comparison with the ledger account, pre
pare a statement in comparative form.
This comparison will
furnish valuable information to the banker as to the past pro
gress of the concern under audit.
V ii
x. x?
28 -
A satisfactory form of profit and loss account is annexed here
to, hut any other form giving substantially similar information is
acceptable.
While it would be impracticable in an ordinary balance sheet
audit, and, at the same time, somewhat useless to mate a detailed
check of all the transactions entering into the composition of the
profit and loss account, there are certain main principles to be
kept in view which are briefly outlined below:
S A L E S
Whenever it is possible the quantities sold should be recon
ciled with the inventory on hand at the beginning of the period,
plus the production, or purchases, during the period, less the in
ventory on hand at end of the period.
Where a good cost and accounting system is in force the sales
records will very probably be in good shape, but nevertheless, the
auditor should satisfy himself from the shipping records that the
sales books were closed on the last day of the fiscal year, and
that no goods shipped after that date are included in the transac
tions.
When an audit is being made for the first time the auditor
should satisfy himself that the sales at the beginning of the
period were recorded in accordance with the dates of shipments.
Such verifications can be made conveniently by a direct compari
son of the shipping memoranda with the invoices billed.
Allowances to customers for trade discounts, outward freights,
reductions in prices, etc., should be deducted from the sales in
the profit and loss account, as the amount of net sales is the
only figure of interest to the bankers.
The future bookings at the close of the fiscal year should be
looked into, as a comparison of orders on hand with corresponding
periods of other years furnishes the bankers .with an idea of the
concern's business outlook.
COST 07 SALES
The inventory at the beginning of the period, plus purchases
during the period, less inventory at the end of period, gives the
cost of sales.
In a manufacturing concern the factory cost of
production takes the place of purchases.
These items will have
.1
x~
- 29 -
already been verified in auditing the balance sheet, but nevertheless
care should be taken to see that this heading has not been made a
dumping ground for changes which would be more properly embraced
under the heading of special charges. The composition of the items
entering into the cost of sales should be traced in totals into the
cost ledgers of accounts.
GROSS PROFIT ON SALES
This is obtained by deducting the cost of sales from the
net sales.
The ratio of gross profits to net sales should be
calculated and compared.
SELLING. GENERAL AND ADMINISTRATIVE EXPENSES.
Under these general headings should be set down the expenses
itemized to correspond with the titles of the ledger accounts kept
in each division.
In checking the totals of each account with the
statement for the period under audit, special attention to credits
in these accounts should be given to see that none have been made
for the sale of capital assets and for other items which should not
appear in expense accounts.
The percentages of the totals of
each division and of the aggregate total to net sales should be
calculated for each year for comparison.
NET PROFIT ON SALES
This is obtained by deducting the aggregate total of the
selling, general and administrative expenses from the gross
profit on sales, and shows the net earnings of the concern on
its real business.
Ratio to sales should be calculated for each
year for comparison.
OTHER INCOME
Under this heading is embraced any income that may be de
rived from sources outside of sales, such as income from invest
ments, interest, discounts, etc.
Schedules should be prepared
of each item, and the auditor should satisfy himself of their
accuracy and of the propriety of including them as income.
DEDUCTIONS FROM INCOME
Under this heading are grouped such items as interest on
bonded debt, interest on notes payable, etc.
The same pro
cedure of verification as in the case of other income should
be followed.
NET INCOME —
PROFIT AND LOSS
Adding other income to gross income and deducting deduc
tions from income gives the net income or profit and loss for
the period, which is the amount that should be carried to the
surplus account.
SURPLUS ADDITIONS AND DEDUCTIONS
Items of unusual or extraordinary profit which do not be
long strictly to the period under audit, or can not be said to
be the legitimate result of the ordinary transactions of the con
cern, should be entered here and verified with the surplus account.
Similarly deductions should be treated.
Also dividends declared
should be entered in the surplus account and as an item under
this caption, inasmuch as it is the usual custom to declare divi
dends "from net earnings and surplus."
After adding special
credits to and deducting special charges from the net income we
hate the total profit and loss for the whole period from all
sources which added tp the surplus balance at the beginning of
the period gives us the surplus at the end of the period, which
should agree with the surplus as stated on the balance sheet.
G E N E R A L
These instructions cover audits of small or medium sized
concerns.
In large concerns having, for instance, tens of
thousands of accounts or notes receivable, the detail procedure
suggested would be impracticable and internal'check should make
it unnecessary.
In such cases only tests can be made, but the
auditor must always be prepared to justify his departure from a
complete program by showing that the purposes sought to be ac
complished thereby have been adequately effected by his work.
Any extensive clerical work,
of notes receivable, etc., should
staff, so as to avoid unnecessary
staff in merely clerical work and
such as preparations of lists
be performed by the client's
employment of professional
consequent undue expense.
FORM OF CERTIFICATE
The balance sheet and certificate should he connected with
the accounts in such a way as to ensure that they shall he used
only conjointly.
This rule applies also to any report or memo
randum containing any reservations as to the auditor's responsibi
lity; any qualification as to the accounts, or any reference to
facts materially affecting the financial position of the concern.
The certificate should he as short and concise as possible,
consistent with a correct statement of the facts, and if quali
fications are necessary the auditor must state them in a clear
and concise manner.
If the auditor is satisfied that his audit has been com
plete and conforms to the general instructions of the Federal
Reserve Board, and that the balance sheet and profit and loss
.-statement are correct, or that any minor qualifications are fully
covered by the footnotes on the balance sheet, the following
form is propers
I have audited the accounts of Blank & Co.
for the period f r o m .................. . . to
• .................... and
I certify that the above balance sheet and
statement of profit and loss in my opinion set
forth the financial condition of the firm at
........ ................and the results of its
operations for the period.
(Signed)
A.
B.
C.
2174
0
X-32a.
FORM FOR PROFIT AMD LOSS ACCOUNT
Comparative statement of profit and loss for three years ending........ 1$
Year
1 9 »*
Gross sales.......... .
... ...
Less outward freight., allowances and
returns. . . . . . . . . . . . ... . . .
•*
ending
19 • •
$ .......
....... .... ..... »'*______
Inventory beginning of year........ . . .
Purchases, net . ............ .
.. . , .
Less inventory end of year.. . . . . . . .
Cost of sales. . . . . . . .
.. .
Selling expenses (itemized to correspond
with ledger accounts kept) .......... .
Total selling expense..........
General expenses (itemized to correspond
with ledger accounts kept) . . . . . . .
Total general expense. . . . . .
Administrative expenses (itemized to cor
respond with ledger accounts kept) . . ,
Total administrative expense . .
Total expenses. . .
Net profit on sales
Other income:
Income from investments ........
Interest on notes receivable, etc.
Gross income............ .
Deductions from income:
..Interest on bonded debt........
Interest on notes payable. . . .
Total deductions. . . . . .
Net income - profit and loss.............
Add special credits to profit and loss . .
Deduct special charges to profit and loss.
Profit and loss for period.
Surplus beginning of period........ ..
Dividends paid
Surplus ending of period . . . . . . .
19 • •
$
Net sales................ . . .
Gross profit on sales.
-
.......
.......
........
.......
.
..... .
.......
....... •
.......
»«»<«.
•
■
' X-32-b
F O R M
OF
B A L
l g.
s o n
,
' ASSETS:
L I A B I L I T I E S :
Cash:
la ,
lb ,
ills, notes, and accounts payable:
Cash on hand
currency and coin
Cash in bank......... ............
•Unsecured b ills and notes ~
.3».
4.
Notes and accounts receivable
~1T
Notes receivable of"customsrs on hand.
(not past due) ................
5,
Notes receivable discounted or sold
with indorsement or guaranty,
7,
Accounts .receivable, customers (not
past due)
.... .......... . .
9,
Notes receivable, customers, past due
•(cash value, $ ..... ...........
11,
Accounts receivable, customers, past due
(cash value, $....,,) ..........
,
10
1
i-.S'ecured liabilities, ~
•20a, Notes receivable discounted or sold with indorsement or guaranty ( c o n t r a ) .
;i20b< • Customers* .accounts discounted or assigned
-• '
'(contr.a)
.... ...................... . .
-20c. . Obligations secured-by liens on inventories
|, 20d, . Obligations secured by (.securities deposited
. •• as c o l l a t e r a l , :........ .
Inventories:
17,
Raw material on hand...........
19.
Goods in process(................
21.
Uncompleted contracts...... .
Less payments on account thereof
23,
'i2.
Acceptances made for merchandise or raw
......
, material purchased......... .
Notes given for merchandise or raw
material purchased............ ......
Notes given to banks for money borrowed
Notes- sold through brokers, , ...........
Notes given for machinery, additions to
plant, etc..,........... ............
Notes due to stockholders, officers, or
e m p l o y e e s ................ ..
I' nsecured accounts ~ ;■
||; 44..
Accounts payable for purchases (not yet due) ..... .
16,
Accounts payable-for'purchases (past due)...
,18.
Accounts payable to stockholders, officers,
..
or employees
.......................
Less;
13.
Provisions forbad debts...,..... . ....
15,
Provisions for discounts, freights
allowances, etc..,.,............ ....
22.'
Finished goods on hand....,....
Accrued liabilities (interest,taxes,wages,etc.
Ether current liabilities (describe fully):
Other quick assets■ (describe fully):
Total'Current liabilities
|iyed .liabilities:,
,
|y" 2'4i" Mortgage, on plant (duo date
'26,' ^Mortgage on other real estate (due date,;.)
I-.../28U
Chattel mortgage on machinery or equipment
'
, (due date.,.... .,)
...... ,.
Jv -BO, •- Bonded debt (due date,,,...) ......... ,, .,.
Total quick assets (Excluding all investments)
Securities:
25. ' Securities readily marketable.and salable
without impairing the business,....-....
27.
Notes.given by-officers, stockholders or
. employees ..............................
29..
Accounts due from officers, stockholders
or employees ....... ....... ...........
.•3.2,
Other‘fixed liabilities -(describe fully):
Total
Total current assets
Fixed assets: - ,
31, .
!
.
. .....
■;.
Land used for p l a n t ....... .......... .......
. 33,
Build.ings used for plant.......... ...... . ...........
35, ,1 Machinery ...... ........ ................. .....
37,
Tools and. plant- equipment,.,........ .... .
39 ,
Patterns and drawings .................. .
41.
Off ice furniture'and fixtures................
43.
Other fixed assets, if any (describe fully) ..........
♦ * « « « • * * « » » 1 V « * t
Less:
45.
* • ' l* • i * * * * * • * • » * * * * * ' « • * * • *
r
■
Reserves for depreciation..........■......
% , . » -I—
i-L-i-
.......
Total fixed assets..,, .......................
Deferred charges:
47.
Prepaid expenses, interest, insurance, taxes, etc.
Other assets (49).... ;... ............ .......... .......
Total assets1.; ... i............ .
,..Q
; X-32-’b ,.(&
et Worth:
if
; .
.‘
.’
K ’/.-. v
;
Liabilities
1
a corporation (a) Preferred’stock .(lass' .stocks in-treassnu r y ......................
(b) Common shock (Less stock in treasury)
(c) Surplus and undivided prof its
.
(d) Book value of good will,,
(e) Deficit..... 1...........
...... .
~. , . , ■■
j. .,36, ' If an individual or partnership (a)
,Capital................ .........
(b) Undistributed profits or deficit.,1..
Total
@FedFRASER