14 BULLETIN 118^ U. S. DEPARTMEiSTT OF AGRICULTURE, 



This item therefore appears on the bahmce sheet as foUows : ■ 



Macliiuery .$5,00<J 



Less reserve for depreciation of machinery 500 



4,500 



The bookkeeper should, howe>'er, keep in mind in tins connection 

 the importance of distinguishing- between repairs and improvements. 



An iTnprovement signifies that which adds value to the property. 

 This addition may, but does not necessarily, increase the earning 

 power of the property. 



Repairs involve such expenditures as are necessary to keep tlie 

 property to Avhich they are applied in its original condition or ap- 

 23earance. 



If -ATXj additions or improvements are made, th.Qj are chargeable 

 to the asset account affected. For instance, if a machine costing 

 $1,000 is replaced hj another costing $1,500, the machinery account 

 should be debited with the cost of the new machine and an entry 

 should be made crediting " machinery " account and charging " re- 

 serve for depreciation " with cost of old machine. 



Eepairs are chargeable against earnings. Thus, the first painting 

 of a building is considered cost, while a subsequent one is simply for 

 the purpose of maintaining it, and is chargeable to repairs. 



The following yearly rates of depreciation can be used in the 

 above method of reducing the balance of the asset : 



Per cent. 



Brick and reinforced buildings 2| 



Frame buildings well constructed 5 ' 



Office equipment and fixtures 10 



Engines 7 to 12 



Boilers 10 



SMftings. pulleys, and hangings 5 to 8 



Machinery 7 to 10 



Tools 25 



Tools should be limited on the books to half of their estimated life. 



By making the proper charges each year for depreciation, as out- 

 lined above, the true value of the assets is not only shown, but pro- 

 vision is made for the replacement of these assets, which is essential 

 in such organizations as creameries, cheese factories, canneries, cot- 

 ton gins, packing houses, etc., where a considerable amount of the 

 assets are subject to wear and tear. 



DIVIDENDS. 



The generally accepted definition of a dividend is a sum set aside 

 by formal action of the board of directors out of profits available, to 

 be divided among the stockholders and members. The method of 

 distribution will depend of course entirely upon the plan of organi- 



