porary" revenues. The statutes of many American states recognize the principles underlying the classification and terminology employed by Professors Adams and Ely by calling short term loans "anticipatory loans," "anticipatory tax loans," "anticipatory revenue loans," "anticipatory warrants," etc. Receipts from revenues should, as a rule, be arranged in the same classes and under the same designations as the revenues from which they are obtained; and receipts from loans and other credit transactions should be classified according to the nature of the instruments evidencing indebtedness, or of the credit transactions giving rise thereto. The actual payments of cities other than those for meeting governmental costs are amounts of money, or other wealth expressed in terms of money, paid by them to the public, which do not lessen the amount of resources available for meeting the costs of the gov ernment. The actual receipts of cities other than those for meeting governmental costs are those which do not add to the resources available for meeting the costs of government. These payments and receipts are of three distinct classes, called by the Bureau of the Census counterbalancing payments and receipts, payments for and receipts from investments, and payments and receipts as agent or trustee. Counterbalancing payments and receipts of a nation, state, or municipality are amounts paid to and received from the same individual, or paid and received for the same object. They are of four distinct classes: (1) Payments and receipts in error, balanced by receipts and payments for the correction of error; (2) payments and receipts for accrued interest on bonds and on securities purchased by invested funds, balanced by later receipts and payments of the government or of the funds originally paying or receiving; (3) receipts from debt obligations issued and assumed, balanced by amounts paid for the redemption or liquidation of indebtedness during the same fiscal period; and (4) payments for outlays, balanced by receipts from sales of real property, and receipts from insurance companies on account of losses by fire. Amounts paid and received in correction of error are given the specific designation of refunds. Investment payments of a nation, state, or municipality are the payments for the purchase of securities and other investments by its invested funds, such as those designated sinking, public trust, and investment funds; and its investment receipts are the amounts received by its government from the sale of securities or other properties belonging to the same funds. Trust and agency payments and receipts of a nation, state, or municipality are amounts of money which its government disburses and receives for the government of another civil division, or disburses and receives as a quasi trustee for private individuals, or for public trusts for nongovernmental uses. Nominal payments and receipts.-The nominal payments and receipts of a government are amounts of money, or money's worth, which one of its divisions, branches, offices, or accounts pays and another receives, but which do not lessen or add to the total cash. in the possession or control of the government. Nominal payments and receipts are by the comptroller of New York city called inter se transactions; by the Bureau of the Census they are most frequently called transfer payments and receipts, or simply transfers. Nominal payments and receipts of governments, when classified according to the character of the transactions involved in a transfer, are designated as "general transfer payments and receipts," "service transfer payments and receipts," "interest transfer payments. and receipts," "investment transfer payments and receipts," and "accounting transfer payments and receipts;" and when classified with reference to the divisions, departments, or offices between which the transfer is made, as "major" and "minor" transfer payments and receipts. General transfer payments and receipts are amounts of money, materials, or credits set over by accounts or delivered from one division, fund, enterprise, office, class of assets or liabilities, object of expenditure, or source of revenue to another. Service transfer payments and receipts are public utilities furnished by a governmental enterprise; or the service performed by one governmental division, enterprise, or office; or through one governmental fund, object of expenditure, or source of revenue, for another governmental division, fund, enterprise, office, object of expenditure, or source of revenue. Interest transfer payments and receipts are amounts paid to a governmental fund or received by it from a division of a government as interest on governmental securities or debt obligations held by the fund. Investment transfer payments and receipts are amounts of securities or other investments paid or delivered by one fund and received by another fund, or amounts of governmental obligations delivered by a division of a government to a fund, or received by it for a fund, and the receipt or delivery of cash in return therefor. Accounting transfer payments and receipts are amounts of money, or money's worth, which are set over by credit and debit entries from one class of accounts to another, as from an asset to a revenue account, or from an expense to a liability account. Major transfer payments and receipts are amounts of money, or its equivalent, transferred by one independent division or fund of a government to another. Minor transfer payments and receipts are amounts of money, or other wealth expressed in terms of money, paid by one office to another, or set over in the accounts of a division of a government from one object of expenditure, or source of revenue, to another. Ordinary and extraordinary payments and receipts.— | which enable it to do what a private corporation A classification and terminology that have been in use longer than any of those above mentioned are those that separate governmental payments and receipts into two groups, called respectively ordinary and extraordinary. This classification and terminology originated in governmental finance and grew out of a policy once observed by all nations, states, and municipalities in meeting the costs of their governments. This policy has now been abandoned by the greater number of nations, states, and municipalities, and in governmental accounting the names ordinary and extraordinary represent survivals from past methods without administrative or other significance at the present time, although they have been adopted and are generally used in private corporation accounting with their earlier significance in governmental administration. To understand the earlier governmental use of these words in the classification and terminology of payments and receipts, it is necessary to consider their present administrative use in the field of modern corporation accounting. One of the objects of private accounting for proprietorship is to ascertain for each fiscal year the outcome or results of business operations expressed in terms of profit and loss. Another object is to equalize dividends from year to year. To assist in the accomplishment of these two results, all regularly occurring expenses and all other small expenses are each year charged against or deducted from revenue before dividends are declared. The amounts thus charged are called ordinary expenses, or expenses that ordinarily occur. When, however, exceptionally large costs or losses occur, such costs or losses are called extraordinary, and are distributed as revenue charges or deductions over a series of years, so that they may not disturb the regularity of dividends. Two methods are employed for accomplishing these results. One is to provide for extraordinary costs and losses in advance by setting aside reserves from surplus for the exigencies that involve these expenditures; and the other is to charge them temporarily to a suspense account, and later, when it may be found most advantageous from an administrative point of view, to charge them to revenue. Modern governments, unlike private corporations, can seldom accumulate large and effective reserve funds for meeting extraordinary governmental costs. But few American cities hold funds of this character, and they are principally for insurance purposes, and the only funds of the kind that are now held by national governments are those included in "war chests" or hoards of the precious metals to meet the possible exigencies of war. At the present time, therefore, the average nation, state, or municipality employs but one method for meeting extraordinary or abnormal costs and losses, and that is by loans accomplishes through a suspense account or reserve fund. These loans permit the government to distribute the burden of the extraordinary costs and losses upon the taxpayers over a series of years, in the same way that the amounts charged or held in suspense are deducted with regularity from revenues by the private corporation. The extraordinary governmental costs to be thus distributed are those which, like the expenses of war, or costs of a city hall, occur but seldom, and may well be distributed through a series of years; while the ordinary governmental costs are those which regularly occur, and which should therefore, like the regularly recurring expenses and interest charges of a private corporation, be met every year from revenue. The application of the principles embodied in this administrative policy makes the costs of a village schoolhouse extraordinary, since they occur only once in twenty or fifty years; while similar costs for schoolhouses in cities needing ten new schoolhouses each year would be ordinary, because recurring in the same way that the ordinary expenses of a private business recur. Few American governments employ the words ordinary and extraordinary in the manner described, which corresponds to the use of the word in private business and accounts, and is identical with the earlier governmental usage which gives rise to the admirable method here referred to as adopted in private accounting. If any large number of governments so employed these words, the classification would admirably serve statistical purposes and would be of large administrative value for governments. Unfortunately the average American city, as the average European government, has departed widely from the earlier administrative policy followed in financing costs and losses, and of the cities using the terms "ordinary" and "extraordinary" no two assign them the same significance. As a result, no comparative statistical compilation can be based upon local classifications of payments and receipts as ordinary and extraordinary. By reason of this fact, the Bureau of the Census makes no attempt to employ the words in its terminology of payments and receipts, or to predicate any of its classifications upon the usage with which these words are employed by any given city. ACCOUNTING SUMMARIES. Importance of accounting summaries.-In both governmental and private business, accounts are made of administrative assistance mainly through the instrumentality of summaries, or condensed statements of the facts recorded in or derived from accounts. Without such summaries it is impossible for an administrative officer or other person to gather from his accounts any comprehensive knowledge of his business. The number as well as the character of the summaries that are employed by any enterprise or government determines the extent to which accounts are made of assistance in its administration. The summaries employed in accounting are readily separable into two groups, here spoken of as general or principal, and departmental, functional, or subordinate, according to whether they relate to a business in its entirety or to the various subdivisions thereof. Consideration is first given to the summaries employed in the accounts of private business. Summaries in accounts for proprietorship.-Private undertakings conducted for gain, as has been pointed out, make use of proprietorship accounts. To be of administrative assistance, they must disclose the property rights of the owners, and exhibit the relation of those rights to the assets or possessions of the undertaking, and to the claims of creditors and trust beneficiaries thereupon. They must also disclose the effect or result of current financial transactions upon the property rights of the owners. The accomplishment of these ends in accounting for proprietorship requires two principal summaries-one a statement of business condition and the other of business results. The statement of business condition is most commonly called, in the case of a solvent concern, a balance sheet, and in the case of an insolvent one, a statement of affairs. The summary of results is called a profit and loss account or statement, or a revenue and expense summary, or is given some other descriptive designation, depending somewhat upon the nature of the business. These summaries assume many forms, depending to a large extent upon the magnitude and character of the data to be summarized, and upon the facts or details it is desired to present. With all details eliminated, the form assumed by the balance sheet of an enterprise for gain is as follows: Assets. Liabilities. Proprietary interests. at the beginning and those at the close of the period for which the summary of results is prepared, plus or minus the changes made therein during that period. The proper administration by a city of a public or municipal service enterprise, such as a water-supply system or an electric light and power station, can be secured only by adopting substantially the same business methods as are used by private owners of similar concerns. The employment of these methods in their entirety involves also a similar manner of keeping accounts, in order that the effect or results of the operation of the enterprise upon the city, either in increasing its net expenses or in providing revenues from the enterprise for other municipal purposes, may be shown. The accounts of such municipal enterprises, therefore, must be proprietorship accounts, and the summary statements called for must be similar to those described in the preceding paragraph. Summaries such as those described above are all that are employed by enterprises for gain whose only use of accounts is to disclose the amount of assets, liabilities, and proprietary interests, and to measure the profit and loss for given fiscal periods. Such enterprises, though many in number, are with the passage of years coming to represent a constantly decreasing proportion of the total; while an ever-increasing number, whether publicly or privately owned, are striving to arrange their accounts and provide summaries thereof in such a way as to enable the accountants and administrative officers to demonstrate when and how gains are realized or losses suffered, and also to measure the amount of such gains and losses. To accomplish these results, the accounts of this class of enterprises are divided and subdivided so as to record separately the revenues obtained from every source, the costs of every functional activity, and the value of the property employed in connection with each activity. Further, these various divisions and subdivisions of accounts are summarized in accounts especially arranged therefor, which are given many specific designations, but are referred to in a general way as "controlling accounts," and which are in fact accounting summaries subordinate to the principal or general summaries described in the preceding paragraph. The number and character of these controlling accounts will depend upon the nature of the business in which they are employed and the simplicity or complexity, or the varying number of the accounts utilized for administrative purposes. Summaries in private fiduciary accounting.-Neither the balance sheet nor the profit and loss account above described is of importance in the accounts of trustees or agents, except where the agency or trusteeship involves primarily the care of productive properties or enterprises, and the trustee is required to show how much the owners have gained or lost by his management of the property or enterprise. In the case of productive properties, the business is conducted by the agent or trustee solely with reference to the property rights of the owners, and hence his accounts are proprietorship accounts. But when the agent or trustee is intrusted with the expenditure of money or the disposal of or acquisition of property in specified ways, the accounting summaries must reflect the nature of the agency or trust, and the extent to which the duties and obligations under the same have been fulfilled. The summary of such accounts approximates in form the profit and loss statement rather than the balance sheet of an enterprise for gain. The essential entries in such a summary are as follows: Amount received in trust, or trust to be discharged.... Amount paid in trust, or trust discharged...... Amount on hand, or trust not yet discharged.......... When an individual holds a fiduciary position, such as that of executor of an estate from which an income or revenue is derived, he generally accounts separately for the principal and income, and each summary embodies the essential fact called for by the condensed statement or scheme of reporting given above. Summaries of fiduciary accounts exhibit the extent to which special fiduciary obligations have been met or discharged. They do not provide the data for measuring the efficiency of an agent or trustee. To accomplish such a result, the summaries described must be accompanied with supplementary exhibits, generally called by accountants "schedules," which must present all the data necessary for the purpose mentioned. Such exhibits, which may be given any form that will best present the facts needed for demonstrating the efficiency of an agent or trustee, bear the same relation to the principal or general summary above described that the controlling accounts of various orders do to the general summaries of the enterprise conducted. Summaries of governmental business. As the accounts of a commission merchant differ from those of a manufacturing or transportation company, and as the accounts of all three differ from those kept by the executor of an estate, so governmental accountsthough embodying the same fundamental principles as the accounts of the classes mentioned-differ from these accounts. In like manner, governmental summaries must differ from those employed by all other classes of business, whether involving the idea of proprietorship or that of responsibility. In each case, the summaries, to be significant, must present data that are of administrative importance, and in forms that throw light upon administrative problems. These problems of governmental business are greater in number and more complex in character than those of any private business, and for that reason governmental financial data require for their proper presentation in summary form either the use of a larger number of simple statements or summaries, or the employ ment of very complex statements. Consideration is first given to some of the simple summaries of governmental business. 1. Summaries of governmental expenditures.-No accounts of nations, states, and municipalities having responsible representative governments are of greater administrative importance than the accounts which summarize expenditures and show their relations to appropriations. Such accounting summaries measure the fidelity with which the executive officers have complied with the instructions given them by the legislative branches of the government. All cities in the United States with proper accounting systems prepare monthly and annual summaries of this character. These summaries are prepared not only by the responsible heads of the several administrative departments, but also by the general fiscal officers of the cities the comptroller or auditor, and the treasurer. The departmental and general summaries of expenditures should be arranged so as to present the following facts: (1) The balance brought forward from the appropriations of preceding years formally reappropriated for the current year; (2) the annual appropriation or appropriations included in the budget; (3) the appropriations made after the preparation of the budget or in addition thereto; (4) the total appropriations; (5) the matured bills, paid or payable, for costs of government; (6) the unexpended or free balance; and (7) the amount of this balance at the close of the year which under the terms of the appropriation acts is available for the succeeding fiscal period. Very many American cities prepare monthly and annual summaries that include the greater portion of the data mentioned in the foregoing descriptive statement; such summaries, if statements of facts, are exhibits which show how far the executive officers of governments have complied with the instructions given them by the legislative branch of the government. But they do not provide any data or means of measuring the economy or efficiency of governmental administration any more than the simplest form of a profit and loss account presents data showing when and how profits are made and losses sustained. Governmental accounting summaries, to be of as much administrative assistance as the best accounts for proprietorship, must provide the means for measuring the economy and efficiency of every branch of service and the work of every administrative office or officer. This can be done by methods that are substantially the same as those utilized by private enterprises for gain for disclosing when and how gains are made and losses sustained. The expenditures must be classified, according to character, into those for expenses, interest, and outlays. They must further be divided and arranged in accounts which will show the costs of government for each and every branch of service or class of outlays. The accounts in which these expendi tures are reported should be arranged, however, in a number of general and subgeneral groups according to the functional activity which they represent, in the same way as the asset and expense accounts of private gainful enterprises, and the accounts of each group should be summarized in controlling accounts of such orders as may be found most convenient, according to the size of the city and the volume of its business activities. To make these accounts of the largest practical administrative assistance, and true measures of governmental efficiency and economy, governmental budgets should be prepared along lines that will permit the accounts with expenditures as above described to be fully articulated with the accounts with appropriations. Laws should be provided and strictly enforced to compel all bills for expenses to be presented and audited before the close of the year, and all accounts with outlays to be so kept as to show approximately the value of the work performed upon all public properties and improvements. With these and kindred regulations in force, requiring governmental business to be transacted by business-like methods, governmental accounts and summaries of expenditures and appropriations will not only provide measures of the fidelity with which executive officers have complied with the instructions of the legislative branch, but will become the basis of measuring the economy and efficiency of every branch of governmental service. The end here described, however, can not be fully attained until the accounts of governmental expenditures are so arranged on common or uniform lines as to provide the means of ready comparisons of the expenses of each city with those of its neighbors of the same size and operating under similar conditions. A number of American cities keep accounts with appropriations and expenditures in detail, as described above. In addition, they prepare monthly and yearly summaries of their appropriations and expenditures, which are at once exhibits of fiduciary accountability and measures of executive efficiency and economy. Such detailed summaries provide the information under the eight heads stated above not only for the city as a whole, but also for each object of expenditure or appropriation. They further show the amount transferred from one appropriation to another. Of the cities providing exhibits of expenditures and appropriations arranged on standard functional lines, mention may here be made of Cambridge, Mass. The monthly statements of that city, arranged on the basis here described, have the great merit of being understood by the average city official and taxpayer, and of presenting facts relating to the subject in a form that shows their legal and administrative relations and provides a basis for testing the economy and efficiency of administration. 90196-10-3 2. Summaries of governmental receipts.-The expenditures of responsible, representative governments must always conform to conditions stated in appropriation acts, and in well-governed states and municipalities appropriations are always based upon estimates of receipts. To disclose the wisdom of the legislative branch of the government and its advisers in making appropriations, and to make past estimates of governmental receipts an aid in the preparation of future estimates, nations, states, and municipalities should prepare monthly and yearly summaries of estimated and realized receipts, classified in detail according to source of receipt. To make these summaries of the greatest value, they should be prepared on standard lines which call for the arrangement of receipts in groups, according to the character of the revenue and the other sources from which or through which money is obtained. This standard grouping of receipts must be based upon a classification devised by the leading economists and students of governmental finance throughout the world. There is already a general agreement among these economists and students, which is in substance reflected in the classification of governmental revenue receipts made use of by the Bureau of the Census in this publication, and presented in previous pages. In form, the city of Cambridge, Mass., presents a most comprehensive and intelligible statement of the estimated and realized receipts corresponding to the exhibits of appropriations and expenditures previously referred to. Hitherto the controlling accounts with receipts kept by the great majority of American governments have been records of the amounts of cash passing into the treasury, substantially as has been described in preceding paragraphs. Such accounts are measures of the good judgment of the governmental officials in making advance estimates of governmental receipts. They provide, however, no measure or test of the efficiency of executive officers in collecting the amounts that should be received by the treasury. To provide the means of testing that efficiency, accounts must be kept and detailed summaries prepared such as are provided by the controlling accounts of a private business, showing for each source of revenue the amounts that ought to be received and the amounts that actually are received. To this end, accounts should be kept with "revenue" as well as with "receipts" by methods approximating those employed by the most progressive private enterprises for gain. Monthly and yearly comparisons in detail of the revenue debits and revenue receipts, with explanations of the reason for all variations, will, for states and communities with good revenue laws, provide the data for demonstrating the efficiency or inefficiency of fiscal officers, and for other states and communities will demonstrate the need of better systems of revenue laws. |