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 U. S. Department 
of Agriculture Bulletin No. 178, " Cooperative Organization Business 
Methods." 
Reserve for bad 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. 
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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 
