REQUIREMENTS OF A MANUFACTURING BUSINESS. 5

Profitable and unprofitable

without

contracts. There is always a danger, when only the general result of a business is branches. known, of departments or processes which are relatively unremunerative being unduly fostered, and of those which yield more than the average profit not being adequately attended to. Employers should not, as is too frequently the case, be entirely dependent upon the periodical profit and loss accounts for their knowledge as to the financial result of their transactions, but should at any time, and at any stage of manufacture, be able to ascertain, pro tanto, rapidly and reliably, the actual, and not merely the estimated, cost of production of any given article of their manufacture. Stock should They should also be able to determine, withbe knowable out the delay consequent on a survey or inventory, the quantity of stock and of raw material on hand, or of any particular item or part thereof. It would be discreditable to any cashier if his principal could not ascertain by a glance at the books the amount of cash in hand, but found it necessary to have the money counted; and there can be no reason why the same punctilious book-keeping should not be adopted in the case of goods. It is not too much to say that for a manufacturing or trading concern to be well organized, the storekeeper or warehouseman should be able to state, by referring to his Stores or Stock Ledgers, the actual quantities of any kind of material, or stock, on hand with the same facility and precision as the accountant can ascertain from the books the balance of cash at the bankers, or the amount of securities in the safe.

survey.

These are only a few of the questions which present themselves in a cursory consideration of the nature of

Prime cost

ation.

Factory Accounts. The subject of Prime and depreci- Cost admits of very varied treatment. When the indirect charges and depreciation are of a more or less fixed character, it is probably sufficient to know the cost of an article in wages and materials only, but if the indirect expenses and wear and tear of plant form a more direct element in the cost of production, it would be highly desirable to apportion such items among the various operations or departments. The allocation of indirect charges thus precharges. sents many interesting problems, whilst the numerous methods of "writing off," and of determining the proper incidence of items such as deterioration of plant, tools, buildings, deserve the serious attention of owners of property, and tax to no mean degree the abilities of accountants, and their power of obtaining an absolutely accurate statement of affairs.

Indirect

ness, &c.

For the above-mentioned purposes, among others, systematised factory books are essential. The advantage of such books, clearly representing the actual state of affairs, is particularly evident when a business is for Sale of busi. disposal; or is being converted from a private firm into a joint stock company; or when the whole or some part of the factory has been destroyed by fire and it is necessary to prepare a claim on insurance companies. Then it is that the figures in the commercial books require to be substantiated in detail. There is little doubt also that under a well-organized Moral effect system of Factory Accounts, each employé of proper ac- feels that he is contributing to the attainment employes. of accurate records of costs; and that it is necessary that his account of the time he spends, and the material he uses, should be adequate and precise.

counts upon

ASSIMILATION OF ACCOUNTS.

7

This begets general confidence in the manner in which the accounts are kept, and on occasion of strikes or reduction of wages, or resort to the sliding scale, employés have less hesitation in accepting the results shown by the books as correct and as based on fair principles.

books inadequate.

It will be seen, even from this superficial summary, that it is not feasible to record accurately, and with Ordinary requisite detail, in the ordinary commercial commercial books, all the numerous entries necessary for the proper registration of the operations of a large manufacturing establishment. It is moreover essential that factory books should have columns for the weight or measurement of materials and the number of articles, in addition to cash columns for values; and this, which is an indispensable condition in factory books, would not serve any useful or practical purpose in commercial books, but would on the contrary mar their utility. The insufficiency of the commercial books alone to represent the transactions is conspicuously evident in the case of undertakings of the magnitude of railway, gas, and water companies.

Assimilation

Factory books must not, however, be considered, as is generally the case, to be merely memoranda books, which are not necessarily required to balance. They should so assimilate to the books of the of all books. counting-house that the obvious advantage of having a balance-sheet made up from the General Ledger, embracing the balances of the ledgers and books kept in the stores and warehouses, is not sacrificed. No matter how far the subdivision of departments of an establishment be carried, or to whatever extent the principle of localising the book-keeping be

Specialisa

tent with concentra

tion.

Economy of clerical labour.

applied, the concentration of the accounts-the merging of the departmental books in the General tion consis- Ledger-should be kept constantly in view. There is not any special theoretical or practical difficulty in establishing a separate set of books for each and any of the departments, if it be not attempted to make the proper working of all dependent upon the proper working of each, or if no regard be had to the necessity of attaining the highest degree of efficiency and despatch with the minimum expense. On the other hand to devise upon sound principles, and to carry out efficiently and economically, a system of accounts which necessitates the whole of the departmental book-keeping in a large establishment being subsidiary to one centre, is a science as well as an art. That a system is not economical which is inefficient is but a truism, and although we appreciate the importance, and indeed the necessity, of minimising clerical labour, we feel there is no occasion to lay particular stress upon this consideration, as the tendency is to dispense with services which an adequate recognition of the value of sound book-keeping would probably show to be indispensable. Book-keepers and clerks being, unlike factory workpeople, only indirectly engaged in the production of wealth, are often regarded in comparison with them as "unproductive" workersusing the expression not invidiously, but in the sense in which economists employ it. Too generally the routine of the office is limited by the number of clerks from time to time engaged, instead of the system of accounts and routine best adapted for the business being determined on, and a staff employed proportionate to the work to be done. The wisdom of initiating by

ORDINARY COMMERCIAL BOOK-KEEPING.

9

the dismissal of one or more clerks the retrenchment which in times of depression may be called for, is not always apparent. The maintenance of a perfect organization may enable economies to be practised, in comparison with which the whole cost of the office staff is insignificant. It is well, therefore, to weigh carefully the pro et con before relaxing vigilance over expenditure and the salutary checks upon wastefulness and extravagance in manufacture which a good system of accounts affords. One of the disadvantages of insufficient records being kept is that book-keepers and clerks have often to spend much time in obtaining from foremen and workmen, after the event, information which should reach the counting-house in a regular and systematic manner. This is contrary to the principle that true economy is to be found in the specialization of labour, and in clerks devoting themselves to clerical and foremen and workmen to mechanical work.

Division of work.

books not

The task we have set ourselves is to explain the nature The scope of of factory books and the method of keeping this work. them, and to show the modus operandi whereby the subdivision and localization of the accounts may be made consistent with the system of book-keeping by Ordinary double-entry obtaining in the counting-house. commercial We do not propose to enter upon a detailed explained. explanation of the Ledger, Journal and Cash Book, and of the subsidiary books which constitute the system of commercial accounts. The numerous excellent treatises extant on general book-keeping render this needless, and we shall assume on the part of our readers that acquaintance with the elements of the subject which is essential to a proper understanding of factory and other accounts. For this reason chiefly we