Showmen's Trade Review (Oct-Dec 1939)

Page 12 SHOWMEN'S TRADE REVIEW October 7, 1939 All Expenses and Income Must Be Entered In Ledger By CHARLES HECHT. C.P.A. THE cash receipts and cash disbursements books, described in earher articles in this series, contain all of the information having to do with your business affairs. These books tell from week to week' the extent to which you are making a profit or sustaining a loss. It is customary to transfer the information from these two books into a third book known as a ledger. The purpose is to assemble the information therein, properly classified, to give a running story or picture of your business. Such a ledger may be either loose-leaf or bound. My preference is for a loose-leaf ledger, as this permits of arranging the individual accounts according to pre-arranged groupings and adding ledger sheets without disarranging such groupings. Where a bound ledger is used, the grouping arrangement can be obtained by setting aside a certain number of pages for each group of accounts. The number of income, expense, asset and liability accounts, which are to appear in a ledger, depends upon the amount of detail desired or required. Each ledger account has at least two money columns. The left-hand column is known as the "debit" or "charge" column. The right-hand column is known as the "credit" column. Entries made in the "debit" column indicate whether the account is an expense or an asset, while entries made in the credit column indicate whether the account is income or liability. The title of the account will serve to distinguish it as an expense or an asset account, an income or a liability account. Every exhibitor should understand the information contained in the accounts maintained in the ledger by frequent reference thereto. Running Story of Your Business The running story of your business is best obtained by having the following group of accounts in the order named: (a) Income Accounts, (b) Expense Accounts, (c) Asset Accounts, (d) Liability Accounts. (a) Income Accounts: The three chief sources of income should be set forth in three separate ledger accounts. The titles for these accounts follow: (1) Income from tickets sold for less than 40c each. (2) Income from tickets sold for more than 40c each. (3) Advertising and Concession Income. In this last account there would be entered the income from advertising and other forms of concessions. If it is desired to further separate this type of income, separaL>. ledger accounts may be opened for eacn type of income in this division. In a previous article explaining the cash receipts book, separate columns were suggested to record the income of each of these three groups. It is the total appearing in each of the designated columns in the cash book which woud be transferred at the end of the month into the credit column of the respective income accounts in the ledger. There are some enterprises which derive income from other than the above-described sources, the receipt of which income is entered in the cash receipts book, in the column called "Miscellaneous" or "Sundries." Where this occurs, separate ledger accounts should be opened for each class of income entered in this column; as, for example, rents, interest, dividends, expense refunds, cash refunds for films, etc. (b) Expense Accounts: The nine chief sources of expenses should be set forth in nine separate ledger accounts. The titles of these accounts follow: (1) Film (2) Payroll (3) Other expenses (4) Federal admission taxes (5) State admission taxes (6) Local admission taxes (7) Federal O.A.B. taxes (8) Federal unemployment insurance taxes (9) State unemployment insurance taxes In the article relating to the cash disbursement book, columns were provided for payments made for films, payroll, other expenses and taxes. The total of these columns at the end of the month is the amount which would be entered in the debit column of the respective expense accounts in the ledger. The column designated "taxes" should be analyzed to give the payments made for each of the tax accounts that are to be maintained in the ledger. This analysis should be summarized and the summary entered in the cash disbursement book be ED. NOTE: This is another in a series of articles by Mr. Hecht, dealing with practical theatre accounting. The author, who Is a well known accountant and consultant in New York recognizes that each theatre faces different problems in accounting. Mr. Hecht will be glad to answer any inquiries addressed to him in care of STR. low the total amount appearing in the tax column. There are other expenses which you may pay which do not fall within the above suggested classifications. Such amounts are entered in the "Miscellaneous" or "Sundries" column in the cash disbursements book. The entries from this column should be posted individually to the debit of specified expense accounts in the ledger which you may wish to keep for this purpose. There is a receipt column in the cash book in which is entered the amount of taxes withheld from employees. This is your liability to the Federal or State Governments and as such there should be a ledger account to record this liability. The title of this account may be "Tax Liability" account. The total amount appearing in the tax column in the cash receipts book should, at the end of the month, be entered in the credit column of the tax liability account in the ledger. You may have borrowed some money or you may have received a deposit for rent or you may have sold some furniture and collected therefor. Such items would appear on the receipts side of the cash book in the "Miscellaneous" or "Sundry" column. Each item so appearing should be entered in the credit column of a designated ledger account. There would be, for example, a loan account if you borrowed money. The title of the account could be "Loans Payable" or "Notes Payable." A ledger account would be opened if you had received a deposit, the idea being to have individual ledger accounts to identify those receipts which are not otherwise identified. "Capital" or "Capital Stock" Account: — An account will be opened for the money which you put into the business. If you are not a corporation, the title of the account would be "Capital." If you are a corporation, the title of the account would be "Capital Stock." Any money which you withdraw from the business other than salaries would be entered in the debit collumn of the capital account. If you are a corporation you cannot withdraw money from the business out of the capital except through the declaration and payment of dividends, and such disbursements must be entered in the debit column of the ledger account called "Dividends." There remains to be entered from the cash disbursements book into the individual ledger accounts disbursements appearing in the "Miscellaneous" or "Sundries" column of the cash disbursements book, other than the expenses already mentioned. For example, you may repay a loan, put up a deposit for rent of premises, or rental of equipment, you may loan someone some money; if a corporation, you may pay dividends. You would open individual accounts in the ledger and from the cash book post to the debit of these accounts, the payments so made; or an account might already have been provided. For example, if you borrowed money, the repayment of such borrowing would be debited to that account, the idea being that each account should tell its own story. Similarly, if you loaned some one some money and opened an account in that person's name, when the loan is collected you would enter it in this account in the credit column. Arrangement of Ledger The entries which we have described as coming from the "Miscellaneous" or "Sundries" column of the cash receipts and cash disbursements book create either asset or liability accounts. If asset accounts are created the ledger sheets will be placed in the third group, if liability accounts are created the ledger sheets will be placed in the fourth group. For convenience, the accounts in each group should be arranged alphabetically. This is much easier with a loose leaf book as I suggested. To complete the ledger accounts, a ledger account should be opened called "Cash." At the end of the month there will be entered in the debit column of this account the total cash received, being column eight of the cash receipts book, and there will be entered in the credit column the total cash disbursed as shown in column four of the cash disbursement book. This procedure results in your assembling in properly classified accounts all of the transactions of your business. In this one book, the "Ledger," you have the running story of your business. Taking a Trial Balance There now remains but one thing to do and that is to prove the mathematical correctness of the entries. This is done by footing separately the debit and credit column in each account, subtracting the smaller from the larger amount. If the debit column is larger than the credit column, the difference is a debit balance. If the credit column is greater than the debit column, the difference is a credit balance. The sum of all the debit balances should equal the sum of all the credit balances. This proves the mathematical accuracy of the entries made in the ledger accounts. These debit and credit balances are entered on a sheet of paper called the "Trial balance." This sheet should show the name of the account and have the left-hand column for debit balances and the right-hand column for credit balances. Such a trial balance is usually prepared at the end of each month. At the beginning of this article, I showed the four divisions of the ledger accounts. If this classification is maintained in entering the balances in the trial balance, the difference between the sum of the income accounts and the sum of the expense accounts will show whether you are making or losing money. The next article will deal with closing the books at the end of the business year.