the business for which they are devised and installed. The most common type is that employed by corporate and individual enterprises which are conducted primarily for profit or gain, and whose accounts are records of the rights or interests, liabilities, gains, and losses of the proprietors; while the other type of accounts is employed by corporations and individuals. engaged in administering the affairs of others and not of themselves. Accounts of the first type are called by Mr. Charles E. Sprague, in "The Philosophy of Accounts," proprietorship accounts; and those of the second, fiduciary accounts. The business of many individuals and corporations includes transactions for the benefit of the proprietor and for the benefit of others. In such cases, the principal accounts are always proprietorship accounts, while the others are in reality fiduciary in character.

All departmental accounts of governments are fiduciary in character and constitute the best examples of fiduciary accounts to be met with either in governmental or in private business. They show on one side the amounts of money or credit placed at the disposal of the department, bureau, or office, and on the other (1) the expenditures made; (2) the reservations of the appropriations for contracts, market orders, or other purposes; and (3) the free or unencumbered balances of the appropriations.

The general fiscal officers of our American states and municipalities are required to keep fiduciary accounts with appropriations. In addition, they must keep accounts with other financial data relating to revenues, the receipt and payment of cash, public properties, and indebtedness. The general accounts of most cities with their appropriations are not combined with, nor even closely associated with, the accounts last mentioned, although in the accounting systems of a few cities the two classes of accounts are combined under appropriate controlling accounts. The general appropriation accounts of the cities of the former class are duplicates of the departmental accounts, and, like them, are models of fiduciary accounting. Of the cities which combine the two classes of accounts the greater number employ fiduciary accounts of a type that originated in the earlier stages of governmental business. A smaller number employ fiduciary accounts so arranged as to make them of greater administrative value, and a few are installing proprietorship accounts. Experience will be required to determine the relative administrative value of the different systems of accounts mentioned.

Differences in general governmental accounts. In addition to the differences above mentioned, the general accounts of American cities vary greatly in character, in methods, and in the bookkeeping devices employed, of which but few are to any extent common to the different cities, and fewer still are universally used in private business. In some cities, the only books of gen

eral accounts are those of the treasurer; in others, additional general accounts are kept by the comptroller or by whatever other officer exercises the duties of a comptroller or auditor. In the great majority of the cities of the latter class, the books of the comptroller are in some of their essentials the same as those of the treasurer, and include accounts with the treasurer, which are a check upon his transactions. The accounts of both officers have one feature in common with the accounts of private enterprises, in that they always record the flow of cash into and out from the treasury. Moreover, they record this information by methods that are primarily devised to show whether any of the money received is lost or is applied to purposes other than those contemplated by the legislative bodies authorizing its collection and expenditure.

The fundamental differences in the general accounts of American cities have the same origin as the corresponding differences in the accounts of private enterprises, in that they arise from the varying uses to which the accounts are applied in the administration of business. At first governmental as well as private accounts were largely records of debts-the amounts owed to a government or private proprietor and the amounts owed by it or by him. The accounts were kept for the administrative purpose of assisting in collecting all amounts due and of meeting all obligations when the same matured. A step forward was taken in private business when accounts were arranged, kept, and summarized in such a way that in addition to providing the information already obtained from the earlier records they embodied all the fundamental requirements of modern accounting for proprietorship by disclosing the condition of business at specified times, and the gains and losses for specified periods. Similar progress was made in accounting for constitutional governments when their general financial records were so arranged that, in addition to recording all the data included in the earlier accounts, they introduced all the requisites of correct fiduciary accounting by exhibiting the cash and other resources available for expenditure at any given time, and the fidelity with which expenditures have been made in conformity with the terms of appropriation acts.

Modern administrative uses of accounts. Within the last fifty years accounting has become in most countries a distinct profession, and accounts are now applied as administrative aids both to private and to governmental business in ways never dreamed of by former generations. The earlier accounts, to which attention has been called, have not been neglected or displaced, but have assumed their position in more comprehensive schemes introduced by the most progressive private and public administrators.

The modern innovations in accounts are those which provide for the classification and analysis of financial data and their arrangement in statistical

forms so as to show, in private business, when and how money is gained and when and how it is lost; and to disclose and measure in governmental business the relative efficiency and economy of every branch of service. In private business, an analysis of revenue is made in order to determine the adequacy of rates for various services and commodities, and every factor of business administration is brought under accounting control by means of what the business world now knows as "cost accounting." cost accounting." It is by such methods that the leaders in modern private business have made accounts and accounting of supreme administrative assistance in avoiding bad and securing good financial results. Their accounts are the ideal ones of the business world, and demonstrate the great part that accounting records can play in securing success and avoiding failure. In like manner, a few governmental officials have introduced general and departmental accounts which accomplish for nations, states, and municipalities what the analytical and statistical accounts above described accomplish for private enterprises. Their accounts are so arranged as to provide adequate accounting control over revenue, to aid in preventing waste or loss thereof in collection, and to apply the principles of private cost accounting for the purpose of testing the efficiency and economy of all branches of governmental service.

In passing, it should be said that only a limited number of private concerns have developed and applied accounts of the largest possible administrative value, and in like manner only a few governments and governmental officials have shown themselves fully awake to the value of accounts as aids to good government. Hence there are great differences in the administrative uses to which governmental accounts are applied, and, as an inevitable result, great differences in the economy and efficiency of local governments. This condition will continue until, with other changes and reforms, the general and departmental accounts of all cities are so arranged as to measure and test the efficiency of governmental administration, as well as the fiduciary responsibility or accountability of municipal officers. To attain fully the results here mentioned, the accounts of different governments of the same class as those of states, counties, cities, and towns-must be arranged on such bases as will readily permit the experience of each to be compared with that of all the others.

New systems of American governmental accounts.-A considerable number of American cities, actuated by a desire to make their financial records of as much administrative assistance as are those of the most progressive private enterprises, have within the last ten years introduced new systems of general accounts. The great majority of these systems can best be described as experimental or tentative, since they are being applied to a field hitherto undeveloped by ac

countants. There is no uniformity in the systems thus introduced, and their value must be measured by standards other than those of uniformity and the possibility of comparing the expenses and outlays of one city with those of others. The experience of the several cities introducing these new accounts has, however, on the whole, been fruitful of much good, and out of it no doubt will soon be evolved systems of accounts which will give to governmental officials and the public interested in governmental affairs the same aid that the most successful business man secures from the accounts of his private business.

The general accounts thus far introduced may be said to be of two distinct types: One in which the principal or controlling accounts, in addition to those with appropriations, are those with cash receipts and payments, here spoken of as accounts based on cash transactions; and the other, in which they are accounts with amounts accruing, as revenue or otherwise, to the benefit of the city, and with the accruing expenditures of the city, here referred to as accounts based on accruals. Accounts of the former type are the more numerous. That fact, and the further fact that the older forms of general accounts, still in use by the majority of cities, are of the same type, compels the Bureau of the Census to arrange its statistics upon the basis of cash receipts and payments.

Comparable statistics, how secured.-A limited number of cities employing the older forms of general accounts, and some of those which have installed improved accounts of the type first mentioned abovethat is, accounts based on cash transactions-prepare exhibits of receipts and payments in such a manner as to permit comparisons of their costs of government with those of other cities. These cities make use of accounting for the purpose of measuring the efficiency and economy of administration to a larger extent than do any others. The financial statistics contained in this report are arranged on a basis which, in its essentials, is identical with that employed by such cities. So far as these statistics realize the object for which they are prepared-the object set forth in the opening paragraph of this introduction-they become of assistance in providing accounting tests and measures of the efficiency of the administration of American cities. They secure this result by employing accounting devices which have been introduced by many municipal fiscal officers, and which consist of more or less detailed exhibits of receipts classified by source and of warrant payments classified by object. The classification of these receipts and payments into real or actual, and nominal, and the subdivision of real or actual receipts or payments into those which are and those which are not available for meeting the costs of government, furnish an approximate statement of the cost of operating the government of a city and of maintaining its several functions; and if all the bills

are presented when due and are settled at once by the issue of warrants to be paid in the immediate future, such a classification also shows the relation between warrant expenditures and receipts.

In some cities, however, large numbers of warrants, or orders having the authority of warrants, are paid in a year subsequent to that of issue. In such cities, the problem of securing from the books of the treasurer or comptroller a statement of the cost of governmental operation and maintenance and of expenditures for the acquisition or construction of permanent properties is more difficult. Under such conditions the classified exhibit of the treasurer's transactions may show for one year no payments for the support of a certain function, as the police or the schools; while for the next year it may show disbursements twice as great as the actual cost of maintenance. In such cities, the aggregate of warrants drawn in settlement of claims more nearly represents the cost of governmental operation and maintenance and the expenditures for permanent properties than does the aggregate of warrants paid. Yet a tabulation of warrants drawn, combined with a statement of receipts, does not furnish a complete exhibit of the financial transactions of a given year, for the reason that it does not include a statement of the warrants or bills payable drawn in previous years but liquidated during the current year. Hence, from the standpoint of governmental accounting, such a presentation is as imperfect as would be a trader's accounts from which were omitted outstanding liabilities for merchandise purchased. To make an approximately complete exhibit, for a given fiscal year, of the financial transactions of cities of the class referred to in this paragraph, not only must the comptroller's record of warrants drawn during the year be presented, but also the treasurer's statement of warrants paid or liquidated during the year must differentiate the amounts paid on warrants outstanding at the beginning of the year from the payments made on those drawn during the year. On this basis the Census statistics of payments and receipts of cities are compiled.

Need for uniformity in city accounts and reports. The compilation of comparable financial statistics of cities is at the present time attended with many difficulties and large expense, owing to differences in the accounting systems and methods of the various cities. The movement toward the uniform classification of payments and receipts inaugurated by the National Municipal League gives promise of a reduction of these difficulties and of the accompanying expense. The publication of the Census reports presenting the financial statistics of cities has given the movement a great impetus, but the publication of these reports will not alone suffice to render easy of attainment comparable financial statistics of cities. Before that end can be secured, accountants and governmental officials must

reach some common understanding as to the fundamental principles of governmental business and accounting, as accountants have already done with reference to the fundamental principles of commercial accounting. That result can be secured only as the outcome of study and intelligent discussion of these principles.

Need for correct methods of conducting municipal business.-Uniform accounts and reports, if secured as outlined above, will be of great assistance in compiling comparable statistics that will measure the relative economy and efficiency of city governments. Such accounts and reports alone will not, however, provide the data for the desired statistics. Before such statistics can be compiled, city governments must not only establish uniform accounts and make uniform reports, but they must also adopt correct and uniform methods of transacting their financial business. Mention has been made of the difference between exhibits of governmental expenditures based respectively upon warrants or orders issued and upon warrants or orders paid; that difference is material, but as a factor in modifying the comparability of the statistics obtained for the different cities it is eliminated by the method adopted by the Bureau of the Census and already described. The same can not be said concerning an inaccuracy that arises in the Census exhibit for cities with certain faulty business methods, and with no proper business system of auditing bills or issuing warrants. In some of these cities, bills are in reality audited by approval of the city council, some being audited promptly when presented, while others are not approved until a considerable length of time thereafter. Similar variations in the time elapsing between the presentation and the audit of claims occur in other cities having auditors or comptrollers with nominal powers of adjusting all claims. In neither case are warrants or audited bills for a given period true exhibits of the costs of government for that period, so that whether exhibits of governmental expenditures are based upon warrants issued, as are those now compiled by the Bureau of the Census, or upon audited bills, the statistics for such cities will fail to be comparable with those for other cities which have adopted correct business methods. This condition of affairs will continue until cities are compelled by state lawif they will not do so by their own initiative-to employ business methods of auditing bills when due, and to pay those bills promptly by the issue of warrants on the treasury. Such an improved method of conducting the finances of cities would accomplish two very important results-it would render possible the compilation of statistics which would measure the relative efficiency and economy of municipal administration, and at the same time eliminate one of the most potent single factors in governmental graft and dishonesty.

having a money value in its possession or control or at its disposal. The term is employed with the significance stated in fiduciary accounting as well as in accounting for proprietorship.

Economists, in speaking of wealth used for productive purposes, or of the wealth represented by the assets recorded in the proprietorship accounts of gainful enterprises, always use the word "capital." The same word is sometimes employed as an accounting term in referring to the wealth last mentioned, but should never be used in referring to the wealth in the control or custody of an individual, corporation, or government as trustee.

Classification of assets. In accounts, assets are always represented by debit entries and balances. Some of the debit entries and balances in the asset accounts of corporations and governments represent wealth actually in their possession or control, or at their disposal; and others represent the claims of one division or branch of the business or service upon another, or are in other ways offsets to the credit balances of liability, capital stock, surplus, revenue accumulation, or other accounts, being amounts recorded in so-called asset accounts to assist in securing accounting control over governmental appropriations or for other purposes. The amounts represented by the first class of entries are here called actual assets to distinguish them from those represented by the second class, which are here called nominal assets. Nominal assets which consist of wealth not now in the possession or control or at the disposal of an individual, firm, corporation, or government, but which under certain conditions may come into such possession or control, or be placed at such disposal, are generally called contingent assets.

When classified according to their relation to the principal purposes of the business in which they are used, the actual assets of private enterprises, governmental departments, and governments are given the specific designations of current, invested, and fixed assets.

The current assets of a governmental department, bureau, or office are the amounts of money which by the terms of appropriation acts or ordinances it is authorized to expend; while the current assets of a government are the resources or wealth which have been acquired or provided for meeting the cost of those materials and services which constitute its current expenses, interest, outlays, and investments, and for meeting all other claims of creditors and trust beneficiaries that mature or become due during any given fiscal period. The current assets of government include cash, materials and supplies, authorized but uncollected revenues, prepayments, advances, and accounts and bills receivable. The accounts of most governments with their current assets include considerable amounts of nominal assets in the form of

uncollectible revenues not properly written off. All other amounts recorded in such accounts representing actual wealth in their possession or control constitute their "current assets."

Invested assets, or investments, are those resources or forms of wealth which have been acquired and are held by private enterprises and by governments for purposes other than those for which they were organized and are maintained. Among the many purposes for which investments may be acquired and held are those of securing an income from their use, of deriving gain from their rise in value, of avoiding losses that otherwise would be suffered, and of securing other business advantages that may seem possible through their acquisition and possession. The principal nominal invested assets recorded in American governmental accounts are the debt obligations of the government held by its sinking funds and other funds with investments. All investments other than the securities above mentioned are "actual investments" or "actual invested assets."

Funds is a common designation of the invested and current assets of governments. They are the amounts of money or other forms of wealth devoted to or available for specified purposes. Governmental funds are of three classes-general, special, and trust.

A general fund is one that is not specifically limited as to the source from which its stock of wealth or resources is derived, nor as to the object for which that stock may be disbursed. It is a fund that includes money or other forms of wealth which is derived from many sources and which is to be expended for many objects.

A special fund is one whose assets or resources are derived from a specified source or are to be applied to a designated object.

A trust fund in private business and accounts is a fund the legal title of which is vested in a trustee who holds it subject to the rights of others to enjoy certain benefits arising therefrom. In governmental business and accounts, where all funds may be considered as "trust funds," as above defined, a trust fund is a "special fund" whose assets consist of wealth held for nongovernmental uses, or wealth obtained by donations or grants for specified governmental uses.

To constitute a governmental special or trust fund, the resources or assets belonging thereto must be separated from the body of other assets or resources, and accounts must be kept showing all facts relating to the acquisition, present status, and disposition of such resources. Governmental assets separated from other assets and held for specified purposes in such manner as to constitute a special or trust fund, are said to be "reserved," and are therefore called reserved assets or asset reserves, and the funds are frequently spoken of as "reserve funds."

Accounts with general, special, and trust funds are