New-York tribune., 1908-12-26
CHECK ONCORPORAT[ONS
NEW P. S. C. BOOKKEEPING.
To Pre0ent OUercapitalization, Di-
Uerion Of Money and Other Abuses.

Details OF the new system Of accounting for the
traction companies and the gas and electric COM
panies, which by order Of the Public Service Com
mission must be put into effect by the companies
under its Jurisdiction January I, were made
public yesterday This system, designed TO prevent
overcapitalization, the diversion Of money to i'm
proper uses and other corporation bookkeeping
abuses Il the type disclosed by the commissions
investigation of the traction companies. is regarded
by the commissioners as one the most important
steps toward the protection Of the general public
ever taken by that body.
Among the important provisions Of this order
that nothing but actual cash invested shall be
charged capital account; that franchises snau
be treated capital except for the actual COST
Of acquiring them and shall be kept in a separate
franchise account to which shan be Charged
only the money paid to the state any sub
division thereof for the franchise: that complete
system of amortization shall be maintained, I'd IN
clude the annual charging off OF enough money Tor
depreciation of plant and equipment. and the c1s-
tribuuion of discount, underwriting expenses ssd
similar items through series OF years instead OF
charging the total amount in one year IN which
the expense occurred
The provisions Of this order are the result OF a
years study by committee OF the commission OF
which Commissioner MaItbie was chairman -oh-
ferences with commissions Of other states having
similar jurisdiction and with the Interstate COM
merce Commission held, and there we're
many hearings which proposed provisions Nere
submitted for the criticism Of expert accountants
and bookkeeping experts from the corporations
affected Then Commissioner AalLDS AAA'2O~ Ga
exhaustive report to the commission setting Iorth
the nature of the Uniform system which the com
mittee recommended and the objects expected 70 "a
accomplished by 1t. on this the formal order TO
the various companies based The greater
part Of this was pioneer work, the Public SER
Commission law the first one IN the couA-
Try TO make compulsory the adoption OF UNIFORM
system Of accounting by traction and lighting COM
panies. The Interstate Commerce COMMISSION pre-
scribed q system Of accounting for the ral4roa0s
under its Jurisdiction, and this, with some Hool-
hcations. has been adopted by both PUBLIC service
commissions TO steam railroads
STOPS BOOKKEEPING JUGGLERY.
Commissioner MaItbie in his report TO the com-
mission points that the sections Of the order
governing capital account and franchise account
mean that each charge 10 the important ca'!'a-
account hitherto susceptible Of much bookkeeplHs
iugglery shall represent 100 cents on elch ooL-AE
money actually spent IN creating Tue pIOpe41' u
the corporation He says:
When 800 value OF stocks or 90 0on1s 1s are e1
Changed tor 80 "CtL % n " S srg-ag cs5itai
account with SIV0 10 be carried as a 2efrlALs=lt 2e=
The same holds true when me COZ pOIS-I1oH a
sens seSLte ] e 95r aoa1inS a loanEtHe asset 10 be
sion 70 bankers -oL me- ~ the Daper
but the S95 Sg7 received IN actual cash -
IN caIiIsI or other account to represent actual
cash or cash yaIue, ana ftS % easIre the cost
Of the Investment OF course, provision has oeeIl
nrgaization costs suc6 as fees for incorporation,
counsel fees and expenses for preparing ana I q-s
expenses. legal charges taxes inteTes ,nJ-.rlss
to be no padding or imitation beyond reasonable
cost.
The esta bIishrnent OF suspense account for dis
count hroke~s Fes= and the Ike also IS regarded
as an trr-1-t7n+ zdvance step IN corporation ac-
counting r. fo- instance, company issues bonds
and the cost ~ aoa-ng them IS s10OOO00, only the
amount OF ca=i- z--uaIy received from the bond
issue can BE- cuarzed to the capital account. the
& 200 OG0 beirE -Aarged the suspense account
and distribute over the period of years for which
the bonds were issued. the expenses Of the issue
thus being a1nortized maturity Of the bond is
SIG.
somewhat similar provision is made 1or depre-
citation Of plant and equipment After ascertalnlng
the life term OF service Of the hxed capital the
corporations must include IN each years operating
exDenses an amount sufficient to replace that part
Of the productive plant worn out IN the year Inc
statement OF expenses thus must lhc40oe an
amount for the practical amortization OF the COST
n the nIart and equipment. based on the best
Judgment Of those operating the concern Eaeh |
corporation must file with the commission q sci
Of the rules according to which the amount thus
10 be set aside is computed together with sUorn
statement Of facts and expert opinion and estl-
mates on which the rules are based
BASIC PURPOSES OF NEW SYSTEM.
Commissioner Maltbie summarizes the basic pur-
noses Of the new system OF accounting as follows
To establish uniformity among all corpora
tons Of the class, such as street raw 4is
siee5FJo i TaTIa7 sS Sep1e assifcati0n was
prepared for gas corporations ana q L..i0 - 70, 95
PpCsSs To adjust the system TO large and small
cCTTorati0ns the order divides them into three
classes: Class A those having gross revenue "a
excess OF 10000; Class 3, between &o'oO) ana
S006G0 and Class c, less than SVtUJo ,,, ~,
To establish systems OF aecouaIS "G soG1r "tt Of
all income and the purpose or ever
10 which accounts shall be kept. SO as TO prevent