A SYSTEM OF ACCOUNTING FOR COTTON GINNERIES. 23 



Buildings (B2). 



Debit: 



Credit: 



1. With the cost of the buildings as 



1. 



With the total cost of any buildings 



shown by the balance sheet at the 





sold. 



time of opening the books. 



2. 



With the cost of parts of buildings 



2. With the cost of all new construc- 





destroyed or replaced. (Debit 



tions. 





Reserve for depreciation on build- 



3. With the cost of all additions or 





ings.) 



alterations when such cost in- 







creases the utility. 







4. With the cost of replacements in 







excess of the cost of the part re- 







placed. 







See Reserve for depreciation on buildings. 



As the land and buildings are frequently purchased at the same time, the purchase 

 price will include both assets. Care must be exercised that a proper division of these 

 assets is made, as depreciation is to be figured only upon the buildings. 



Machinery and Equipment (B3). 



Debit: 



With the original cost of the ma- 

 chinery and equipment as shown 

 by the balance sheet at the time 

 of opening the books. 



With the cost of subsequent pur- 

 chases of machinery and equip- 

 ment including freight or express 

 on same, installation, etc. 



With the cost of alterations and im- 

 provements increasing the effi- 

 ciency or the capacity of the 

 plant. 



Credit: 

 1. With the cost value of machinery or 

 equipment sold, discarded, or 

 destroyed, at which time debit 

 Cash account for the amount 

 realized, if any, and debit Re- 

 serve for depreciation on ma- 

 chinery and equipment for the 

 difference between the cost value 

 and the amount realized. 



The balance of this account represents the cost of machinery and equipment in use. 



This account should be charged with the costs of all items of machinery and equip- 

 ment which, under ordinary circumstances, will last three years or more, such as 

 engines, boilers, motors, etc. When any article which has been charged to this account 

 is to be replaced the asset account should be credited with the cost value placed on 

 this item at the time of opening the books or at the time of purchase. Example: A 

 piece of machinery costing $100 was replaced by a new one costing $150, cash being 

 paid for the new article, the following journal entry would be made: 



Debit. Credit. 



$100 Reserve for depreciation on machinery and equipment. 



Machinery and equipment $100 



(For discarded machine costing $100.) 

 150 Machinery and equipment. 



Bank account 150 



(For purchase of new machine.) 



To the invoice value of any machinery purchased should be added any expense 

 incurred, such as freight or installation charged. In case the amount set aside as 

 reserve for depreciation is not sufficient to cover the original cost of the item replaced, 

 the loss sustained should be charged to an account specifically captioned. 



