Account No. 197-Revenue from Real Estate Debit this account with insurance, taxes, and depreciation on buildings acquired as an investment and not for plant purposes. Credit this account with rents received. The balance of the account will represent the net revenue from real estate owned. Closing Entry: At the close of the fiscal year transfer the balance of this account to profit and loss, 215, by journal entry. Account No. 198-Cafeteria Operation Cafeterias are often operated by canning companies for the convenience of the help. It is not the intention with most firms to make a profit out of such operations though at the close of the year there is usually a small balance on one side or the other. Some firms lease the cafeteria out under an agreement that prices shall be kept as low as possible and all profits realized are given to the lessor as his remuneration. This is probably the best method as it relieves the company of a very annoying task at a time when the rush of factory operations require the entire attention of the organization. When the cafeteria is operated under a contract it is usual for the company to supply all equipment, cutlery, dishes, gas, light, water, etc., and in this case there will be no operation account but where the company operates the cafeteria this account will be opened and Debited with all expenses incidental to its operation and Credited with the receipts derived therefrom. The balance will show either a loss or a gain and in the closing entry will be transferred to profit and loss, 215. Account No. 205—Unallowable and Non-Taxable Expense and Revenue This account is to take care of those items of expense that are unallowable as deductions in making up income tax statements and those items of income that are not subject to taxation. Debit this account with the balance of each of the following accounts: Account No. 206, interest on investment; account No. 207, contingent expense; account No. 208, life insurance premiums; account No. 209, income tax expense; and any other expense account such as donations to charitable organizations which is not an allowable deduction. Credit this account with the balance of each of the following: Account No. 210, revenue received on stocks and bonds, non-taxable; and any other account not listed here such as proceeds from life insurance policies, the revenue of which is not taxable. Closing Entry: The balance of this account will be a debit or a credit to profit and loss, 215. Note: Reserve accounts are not deductible expenses in making up income tax returns with the exception of the provision for bad debts which is at present deductible for a reasonable amount. Account No. 206-Interest on Investment Should interest on investment be included in manufacturing costs? This constitutes one of the most perplexing questions arising in the art of accounting. Many expert accountants do not favor its inclusion; it is not deductible for income tax purposes and the United States Government did not allow canners to include it in the cost of goods sold to the Army and Navy during the Great War. However, as invested capital is simply money borrowed from the stockholders and secured by the assets, if not otherwise incumbered, such loans deserve the same treatment as loans secured from any other source and are therefore entitled to the same rate of interest as is paid for money borrowed from a bank or elsewhere, so the account interest on investment will be included in this system. At the close of the fiscal year, compute the interest, at prevailing bank rate, on the following investment accounts after deducting the provisions for depreciation: Land and improvements to land, 24; buildings and improvements, 25; furniture and fixtures, 26; machinery and equipment, 27. Debit interest on investment, 206, and Credit reserve for interest on investment, 88, with the amount computed. Closing Entry: At the close of the fiscal year transfer, by journal entry, the balance of interest on investment account to unallowable and non-taxable expense and revenue, 205. Account No. 207-Contingent Expense Create this account as soon as an estimate has been made of the season's pack by figuring 5 cents per case on such pack to cover all contingent expenses such as uninsured losses by fire, uninsured accidents to employees, crop failures, excessive spoilage, overproduction, etc. Debit this account with the amount as computed and Credit reserve for contingent expense, 85. Closing Entry: At the close of the fiscal year transfer, by journal entry, the balance of this account to factory financial expense, 135. Note: Five cents per case is given merely as an illustration. Charge whatever amount is deemed sufficient. Contingent expense is not deductible for income tax purposes. Account No. 208-Life Insurance Premiums Debit this account with the net amount of the premium paid on policies carried on the lives of the officials of the company. This net amount represents the differences in the total premium paid and the increase in the cash surrender value as charged to account 5. Credit, cash, 2. Closing Entry: Transfer the balance of this account by journal entry, to unallowable and non-taxable expense and revenue, 205. Account No. 209-Income Tax Expense If the excess profits tax is revived by Congress the title of this account will be: Income and excess profits tax expense and the account will be divided into income tax expense and excess profits tax expense. (This also applies to the reserve account, 87.) Create this account at the close of the fiscal year as follows: After all necessary income and expense accounts have been balanced by transfer to profit and loss so as to show the total income subject to the income tax, compute from this amount the amount of taxes to be paid and Debit income tax expense, 209, with the amount of the income tax, Crediting reserve for income tax, 87. Closing Entry: At the close of the fiscal year transfer, by journal entry, the balance of this account to unallowable and non-taxable expense and revenue, 205. Account No. 210-Revenue Received on Stocks and Bonds Non-Taxable Credit this account with the dividends and interest on bonds, the revenue from which is non-taxable under the Federal income tax laws. Debit cash, 2. Closing Entry: At the close of the fiscal year, transfer, by journal entry, the balance of this account to unallowable and non-taxable expense and revenue, 205. Note: Dividends and interest received on all stocks and bonds that are non-taxable, whether purchased as an investment or for the creation of reserve funds will be credited to this account. This will eliminate all complications in making up reports for income tax purposes. Account No. 215-Profit and Loss Schedule 1-Direct Costs Debit profit and loss, 215. Credit each of the following accounts: Green produce purchased, 105. Freight on green produce, 106. Freight on empty lug boxes, in and out, 107. Seed furnished farmers, 109. Green produce, field expense, 110. Direct labor, 111. Cans used, 112, by sizes. Bottles and caps used, 113, by sizes. Lye used, 114. Condiments used, 115. Sugar 115A. Salt, 115B. Spices and vinegar, 115C. Etc., 115D. Labels used, 119. Paste used, 120. Boxes used, 121 by sizes. Nails, strapping and silicate used, 122. Post all the above entries, balance the profit and loss account and bring forward the balance as: "Total Direct Costs." Schedule 2-Manufacturing Costs Debit profit and loss, 215. Credit each of the following accounts: Factory financial expense, 135; Total of: Insurance expense, 136. Taxes, city, county and state, 137. Factory overhead expense, 140: Total of: Indirect labor, 141. Salary factory superintendent, 142. Bonuses to factory employees, 143. Rent of factory land and buildings, 144. Electric energy purchased, 145C. Power plant sundries, 145D. Buildings repairs and maintenance, 146. Machinery and equipment repairs and maintenance, 147. Factory sundry expense, 148A. Water purchased, 148B. Gas purchased, 148C. Portable equipment, repairs and maintenance, 148D. Cold storage expense, 148F. Motor vehicles, maintenance and operations, 149: Totals of: Repairs and maintenance, 149B. Insurance, 149C. Service and expense, 149D. Depreciation and expense, 149E. Royalties and rentals leased machines, 151. Depreciation and obsolescence expense, 152: Totals of: Improvements to land depreciation and obsolescence expense, 152A. Buildings depreciation expense, 152B. Machinery and equipment depreciation expense, 152C. Post all the above entries, balance the profit and loss account and bring forward the balance as: "Total Manufacturing Costs." Schedule 3-Administrative Costs Debit profit and loss account, 215; Credit each of the following ac counts: General overhead expense account, 160: Totals of: Administrative salaries, 161. Office salaries, 163. Telephone and telegraph, 164. Stationery, postage and expense, 165. Exchange and collections, 166. Credit information, 167. General expense, 168. Bad debts, 169. Bonuses to office employees, 170. Taxes, corporation and federal, 171: Totals of: State corporation license, 171A. State franchise, 171B. Federal capital stock, 171C. Revenue stamps, 171D. Post all the above entries, balance the profit and loss account and bring forward the balance of the account as: "Total Manufacturing and Administration Costs." Schedule 4-Warehousing and Selling Costs Debit profit and loss account, 215; Credit each of the following ac counts: Warehousing expense, 180: Totals of: Warehouse labor, 180A. Insurance on canned goods, 180B. Sundry warehouse expense, 180C. Brokerage and Commissions, 181. Discounts allowed, 182. Selling expense, 183: Totals of: Salesmen's salaries, 183A. Advertising and sales promotion, 183F. Sundry sales expense, 183H. Post all the above entries, balance profit and loss account and bring forward the balance as: "Total Cost to make and Sell." Schedule 5-To Arrive at Net Cost of Sales Debit profit and loss account, 215; Credit finished goods, 6; with the inventory value of finished goods at the beginning of the year. Debit profit and loss account, 215. Credit finished goods, 6; with the cost of all finished goods purchased during the year. Debit finished goods, 6; Credit profit and loss, 215; with the inventory value of finished goods at the close of the year. Post all the above entries, balance profit and loss account and bring forward the balance as: "Net Cost of Sales." Schedule 6-To Arrive at the Total Manufacturing Profit for the Year Debit canned goods sales, 191; Credit profit and loss, 215; with the balance of canned goods sales. Post all the above entries, balance profit and loss account and bring forward the balance as: "Total Manufacturing Profit for the Year." Schedule 7-To Arrive at Income Subject to Income Tax Debit discounts received, 195; Credit profit and loss, 215; with the balance of discounts received account. Debit revenue received on stocks and bonds, taxable, 196; Credit profit and loss, 215 with the balance of revenue received account. Debit revenue from real estate, 197; Credit profit and loss, 215; with the balance of revenue from real estate account. Debit or Credit cafeteria operation, 198; Credit or Debit profit and loss, 215; with the balance of cafeteria operation account. This balance will |