The film daily year book of motion pictures (1928)

Theater and Circuit Accountancy By MAX SCHLESINGER, C. P. A. ^ — MANY OF the problems presenting themselves in connection with the operation of a theater accounting system are common to independently-owned theaters and chain units and a majority of the points discussed below apply equally to both. The author of this article — an authority on theater and circuit accountancy — sets forth a standard system of operating a house from a bookkeeping viewpoint. The First Problem THE first problem that comes to the attention of the auditor of a circuit is the verification of box-office receipts. I don't however intend to discuss this feature in full. The register machine is used most uniformly in every house and a daily tabulated report giving the starting and finishing numbers of each priced ticket series is prepared by the cashier at the end of the day. As a rule, the auditing department has little to do with the balancing of cash receipts. Various measures are being taken by managers to ascertain that the cash receipts are all that should be and that no manipulation by dishonest employes is carried on. Periodic tests are made to check the accuracy of the cashier and constant watch is kept to see that no tickets have been withheld by the doorman and sold again. This work, of course, should be done by someone who is especially adapted for it. The auditor cannot do more than offer suggestions as to how this periodic checking and watching should be done. Picture theaters are operated by one of the two following plans: (a) The theater that is operated under a leasehold for a period of years; (b) The theater that is operated in fee simple and usually in conjunction with some real estate proposition. The bookkeeping for both classes is comparatively simple. Books are usually kept on a basis of cash receipts and disbursements. When preparing financial statements, it is important that all the books be written up-to-date and that all expenses pertaining to the operations for the period for which the statements are rendered are on the books. There are usually a number of charges which carry over from one period to the other, and they can briefly be enumerated as follows : 1. Pictures: In most cases, played and not paid for; in some cases, paid for and not yet played: 2. Advertising Paper: Paper paid for is sometimes carried over on pictures to be played at some future date: 3. Prepaid Expenses : Such as unexpired insurance, unexpired licenses, portion of dues in Chambers of Commerce, inventory of supplies on hand. The auditor should ascertain all these items and should classify them according to the status as to whether they are assets or liabilities. It may happen that salaries have not been paid at the close of the period which is rather a rare occurrence as in almost all better class houses, the pay day is usually made to coincide with the last day of the accounting period. Depreciation and Interest Many of the problems presenting themselves in connection with the operation of the theater are common to both classes of theaters, and some of the remarks that I am going to make in connection with accounting for theaters apply equally to both. 1. Depreciation of Fixtures and Equipment: Under fixtures and equipment would come items like chairs, organ, carpets, booth equipment, electric signs, etc. The rate of depreciation on each class of equipment would naturally vary. However, one couldn't go wrong if a standard rate of 10% on all fixtures and equipment were taken. A better way might be to take 10% on bigger and more permanent items like chairs and machinery, and 20% on such items as carpets, frames and small articles. 2. Depreciation on Building : Theaters included under Class (b) should figure depreciation on building from 2J4% to 5% per annum, depending upon the type of the building. No depreciation is made on land. 3. Insurance: Cost of insurance should be spread over the life of the policies. It is important to ascertain that the following risks are covered : fire, plate glass, compensation, property damaged, accidents in and out of the theater, accidents of employes, film insurance and possibly rent insurance wherever the theater is operated in conjunction with a real estate proposition. 4. Taxes: Federal taxes and admission where the price is over fifty cents, taxes on real estate which might be either prepaid or due ; Federal and State income taxes should be thoroughly looked into as they are usually chargeable to the surplus or income for the period and may amount to considerable sums. Lately a number of theater owners have organized separate corporations for the purpose of holding title to the real estate thus affecting a saving of State income taxes of about 4^2 per cent, and the amount of profits that is allotted to it by the operating company is in lieu of rent. 5. Interest on Mortgages: The auditor should calculate amount of interest due on each class of mortgage, or as the case might be, interest might be prepaid for a certain period and the amount prepaid should be taken into the assets. 6. Premiums Paid on Raising Mortgages or Selling Bonds : The amortization of the premiums paid on raising mortgages or selling bonds present, sometimes, peculiar problems. The usual method followed by most circuits, is, of course, to spread the premium over the life of the mortgage. This is not correct in cases where payments are made periodically or where bonds are retired annually, by allotment. Where equal payments are made periodically, the scientific way is to spread the premium over the equated or average time the mortgage or bond is to run. Mortgages In allocating payments on mortgages, the method advocated is best demonstrated by the following example : Let us assume that there is a mortgage of $100,000 for a period of ten years, to be amortized annually by $10,000. The mortgage carries an interest rate of 6 per cent per annum and a discount of $10,000 was charged by the mortgagee. The usual method in vogue is to reduce the discount by $1,000 per annum. Inasmuch however, as the amount of the mortgage is on a declining scale, it is evident that this uniform amount of $1,000 per annum is not correct, and I therefore suggest the following method : The number of payments amortizing the mortgage completely is ten ; the average time, therefore, would be found by adding the first number of the series which is one, and the last number of the series which is ten, or the sum of 11, and divide them by two. The average time thus arrived at is five and a half years. Dividing the 729