The Washington herald. [volume] (Washington, D.C.) 1906-1939, 1909-01-03
New P. c. S. Bookkeeping
May Bring Good Results.
TO END DECENTRALIZATION
New York Public Service Commits
sion Devises Plan TO Root Out the
Abuses Found In Investigation of
Traction COmpanies-Aimed ut Con-
ceaIed Management OF Accounts.

ary l, has been made public
This system, designed TO prevent over
capitalization. the diversion OF money to
improper uses and other corporation book
keeping abuses Of the type disclosed by
the commissions investigation OF the trac-
ton companies is regarded By the COM
missioners as one OF the most important
steps toward the protection Of the gen
eral public ever taken by that body.
Among the important provisions OF this
order are that nothing but actual cash
invested shall be charged 70 capital ac-
count; that franchises shall not be treated
as capital except for the actual cost OF
/ acquiring them. and shall be kept il a
separate franchise account" 10 which
shah be charged only the money paid to
the State or any subdivision thereof for
the franchise; that a complete system OF
amortization shall be maintained, 70 in
clude the annual charging OF Of enough
money for depreciation OF plant and
equipment, and the distribution Of dis
count. underwriting expenses and similar
items through a series OF years instead OF
charging Of the total amount IN one year
i III y LLCI Lle AFeEleE CCCAL4Sl-
Result of a Years study.
The provisions Of this order are the re
I suit OF a years study BY COMMITTEES Of
/ the commission Of which Commissioner
l Maltbie was chairman Conferences with
commissioners OF other states having
similar Jurisdiction and with the Inter
state Commerce Commission were held.
and there were many hearings at which
( proposed provisions were submitted Tor
I the criticism Of expert accountants and
I bookkeeping experts from the corpora
lions affected
/ Then Commissioner AIaItbIe made an ex-
hausJive report 10 the commission. setting
forth the nature 81 the uniform system
which the committee recommended and
F the objects expected % De accomplished
T by t. On this the formal order 20 the
various companies was based.
/ The greater part Of this was pioneer
work. as the public service commission
I law wss the first one il the country 20
make compulsory the adoption OF a uni
1 form system OF accounting by traction
and lighting companies. The Interstate
Z Commerce Commission prescribed a sys-
4 TEN Of accounting for the railroads under
its jurisdiction. and this. with some modi-
/ fcauons has been adopted by both public
I service commissions as 70 steam railroads.
stops Bookkeeping JuEElery.
/ Commissioner 8IaIth,e. n his report 70
the commission. points out that the sec
tons OF the order governing capital &C
count and franchise account mean that
each charge 70 the important capital ac-
count. hitherto susceptible ~ much book
/ keeping Jugg.ery. shah represent 100 cents
4 on each dollar in money actually spent
in creating the property Of the corpora
/ ton. He says
when Si51 par value Of stocks or bonds
( are exchanged for So worth Of materials
( or machinery. there IS obviously no pro-
priety I'm charging capital account with
500 90 De carried as a permanent asset
/ The same holds true when the corpora
ton sells securities at q discount or pays
a commission 90 bankers for floating a
. loan-the asset 70 be capitalized is not
the 500 par value IF the paper. but the
80 or 81 received in actual cash.
This system % accounting requires
every entry iE capital or other account
10 represent actual cash or cash value.
and this iuSureS that money spent. not
securities issued shall measure the cost
Of the investment OF course. provision
has been made for the charging 20 capital
Of legitimate OrEaDIzaf-rG costs, such as
fees for incorporate. counsel fees. and
expenses for preparing and distributing
prOspectuses, likewise for engineering eX-
penses. legal charges. taxes. interest. IN
juries. and damages during construction.
But there IS 70 De no padding or imitation
beyond reasonable cost
Suspense Account Important.
The establishment OF c suspense account
for discount. brokers' fees, and the ike
also is regarded as an important advance
step in corporation accounting. II, for
instance. a company issues bonds and the
cost Of floating them is 5000. 600. only the
amount OF cash actually received from
the bond issue can be charged TO the CAPT
tai account. the 81. 10000 being charged 70
the suspense account and distributed over
the period Of years for which the bonds
were issued. the expenses Of the issue
thus being anlortzed at maturity Of the
bond issue.
Somewhat similar provision IS made for
depreciation Of plant and equipment
After ascertaining the life term Of service
Of the fixed capital. the corpora tons
must include in each years operating ex-
penses an amount sufficient 10 replace
that part Of the productive plant worn
out in the year.
The statement Of expenses thus must
include an amount for the practical amor
Jization OF tie cost Of the plant and
equipment. based on the best judgment
OF those operating the concern. Each cor
pOratiOn must file with the commission a
set Of the rules according to which the
amount thus to be set aside is computed.
together with a sworn statement Of facts
and expert opinion and estimates on
which the rules are based.
Basic Purposes of System.
Commissioner Maltbie summarizes the
basic purposes of the new system Of &c
counting as follows:
/. To establish uniformity among all
corporations Of the same class, such as
street railways, electric railroads, gas un-
dertakings. and electricity supply under
takings A separate classification was
prepared for ras corporations and a third
FOR corporations supplying electricity for
light. heat. and power, but not operating
street railways or railroads. To adjust
the system TO large and small corpora
tons the order divides them into three
Classes Glass A those having q gross
revenue in excess Of $4,000; class s. be-
tween $4,000 and SlOQO0 and class c,
less than Sl90.009
2. To establish systems OF accounts
which viii show clearly and accurately
the specific source Of all income and the
purpose Of every expenditure.
3 To state the fundamental principle
according to which accounts shall be
kept. so IS to prevent the charging Of
items 10 wrong accounts This problem
would be relatively simple il all moneys
expended within a fiscal year were for
labor or material which were fully utilized
or consumed during that year, and which