20 BULLETIN 225, U. S. DEPARTMENT OF AGRICULTURE. 



Interest and discount. — This account is debited with interest paid 

 on notes payable and credited with interest received on notes receiv- 

 able. It is debited with cash discounts allowed and credited with 

 cash discounts received. 



Reserve for depreciation. — Provision for setting up a reserve for 

 depreciation on buildings, office equipment, and fixtures is made 

 by charging the Profit and Loss account and crediting the proper 

 reserve accounts under the caption of "Reserve for Depreciation of 

 Buildings," etc. This is more fully explained in IT. S. Department 

 of Agriculture Bulletin No. 178, "Cooperative Organization Business 

 Methods." 



Reserve for had debts. — At the close of the year, a certain amount 

 is set aside out of the profits to cover the estimated loss on bad 

 accounts. The balances of the accounts found to be uncollectible 

 are then charged to this account. The credit balance on this account 

 measures the available amount reserved from profits to offset losses 

 from bad accounts and should not be shown on the balance sheet on the 

 credit side as a liability but should appear on the asset side as a 

 deduction from the total amount due from customers. 



Profit and loss. — This account is debited at the close of the year 

 with the balance of all expense accounts and other nominal accounts — 

 that is, accounts containing profit and loss elements — showing a 

 debit balance. It is credited with the gross profit from the trading 

 account and with the balances of any nominal accounts showing 

 credit balances. The credit balance resulting on this account rep- 

 resents the net profit from operations during the year and should be 

 transferred to the Surplus account. If a debit balance results, it is a 

 deficit and should be charged against the balance appearing on the 

 Surplus account. If no surplus has been created, the deficit should 

 be charged to Deficit account. 



Surplus. -^-This account is credited at the close of the year with 

 the net profit as shown by the Profit and Loss account. It is debited 

 with the amount of dividend declared, at which time the Dividend 

 account is credited. The credit balance of the account then repre- 

 sents the undivided profits. 



Dividend. — This account is credited when dividends are declared 

 by the board of directors and the Surplus account is debited. The 

 account is then debited with the total of the dividend paid. 



CLOSING THE BOOKS. 



An inventory of merchandise on hand is made at the end of the 

 year. This is a schedule or list of the goods on hand, with values 

 extended at cost prices. After all extensions have been made, these 

 are totaled. The extensions and additions should then be verified 

 so as to establish the accuracy of the work. If a Merchandise 



