or nominal assets. Four classes of such charges may be met with in the accounts of water-supply systems-terminable water rights, terminable franchise rights, depreciation, and bad debts, which have been charged as expense but not recorded by credit entries in asset accounts.

56. Revenue discounts for customers within city.-Accounts 561 to 569 are provided for enterprises which prepare their bills for water service with an allowance for discounts for prompt payment. Enterprises having regulations for collecting additional amounts called penalties, or interest on bills not paid promptly, will have no use for these accounts. The accounts should be credited each

month with all amounts that are allowable as discounts on bills rendered and credited (1) with all amounts allowed as discounts and (2) all discounts forfeited. The credits and debits here mentioned should be balanced by credits and debits in accounts 241 to 249.

57. Revenue discounts for customers outside city.-Neither this account nor any subgeneral account thereunder will be required by enterprises furnishing no water to customers outside the limits of a single municipality. Enterprises furnishing water to private customers outside city may use general account 57 and subgeneral accounts 571 to 579, to be kept substantially the same as accounts 56 and 561 to 569.

Any exaggeration or omission in the amounts reported under any one of these heads gives rise to a counter error under one of the other two. Thus, if the amount of the liabilities be correctly stated, an exaggerated or defective statement of the value of the assets gives rise to a correspondingly exaggerated or defective statement of the proprietary interests, and hence vitiates the summary as a statement of financial condition. The same is true of any other error affecting the amounts reported under any two or all three of the heads included in the balance sheet. This is true whether a balance sheet is presented in the most condensed form, as above, or is extended to either of the two forms following, or is given in great detail as is done by the largest corporations. A condensed balance sheet with a few details may be presented for the smaller enterprises under corporate management by the use of the following form:

and proprietary interests are recorded on the books of the concern and it is desirable to state the amount and character of the items included under the heads mentioned, the balance sheet may be prepared as a double section sheet, the first containing an exhibit of the actual and the second of the nominal assets, liabilities, and proprietary interests. This method is adopted by the following suggested form for a balance sheet, which calls for more details than either of the two previously given, but which-as compared with the more elaborate sheets of large corporations-must be called a condensed form. The form presented is arranged for a private corporate enterprise. To adapt this form to the requirements of a municipally operated enterprise, the headings should be changed as already indicated in the case of the second form above presented. In addition, a governmental enterprise must include in the second section, that for nominal assets, etc., spaces for "authorized provisions for governmental appropriations" and "governmental appropriation liabilities." A balance sheet such as is here outlined will show at a glance, and without the need of any computation, the amount of actual wealth, tangible and intangible, invested in the enterprise, and the amount of the wealth that represents the capital of creditors, and that belonging to the stockholders or other proprietors knowledge which is greatly desired by the average business man, but which he can secure from most balance sheet statements only after considerable computation and with much labor.

TENTATIVE CONDENSED BALANCE SHEET FOR WATER-SUPPLY ENTERPRISES.

Reserved surplus. Unreserved surplus..

In the case of a municipal enterprise the term "proprietary interests" should be substituted for the phrase "corporate capital," and the subheads under the designation mentioned should be "reserved proprietary interests" and "unreserved proprietary interests." The governmental account for "unreserved proprietary interests," like that for "unreserved surplus" in the case of the private corporation, is the balancing account whose credit balance calls for the record of an amount on the right-hand side of the balance sheet after the subhead mentioned, and whose debit balance calls for the record of an amount on the left-hand side of the balance sheet after the subhead "deficit."

A balance sheet prepared in accordance with either form presented above is an accurate statement of financial condition, pro- | vided the amounts to be entered under each head have been correctly reported. It will not, however, be a correct statement if it includes nominal as well as actual assets, liabilities, and proprietary | interests, or confounds any of the liabilities with or includes them among the proprietary interests under the designation "liabilities." If, however, such nominal assets, liabilities, and proprietary interests are stocks and bonds issued by the corporation or the city operating the enterprise, and such stocks or bonds are held by the enterprise as investments, or if other nominal assets, liabilities,

A. ACCOUNTS FOR WATER-SERVICE REVENUES.

6. Water-service revenues.

61. Metered rates for private customers within city.

611. Metered residence rates.

612. Metered commercial rates.

613. Metered industrial rates.

614. Metered rates for churches and charities.

62. Unmetered rates for private customers within city.

621. Unmetered residence rates.

622. Unmetered commercial rates.

623. Unmetered industrial rates.

624. Unmetered rates for churches and charities.

625. Unmetered rates for miscellaneous water service.

63. Metered rates for private customers outside city (see instructions).

64. Unmetered rates for private customers outside city (see instructions).

65. Rates for municipal and private water-supply enterprises. 66. Revenues for municipal water service.

661. Rates for fire departments.

662. Rates for sewer flushing.

663. Rates for street sprinkling and washing.

664. Rates for public schools.

665. Rates for all other public buildings.

666. Rates for public parks, fountains, and troughs.
667. Rates for miscellaneous municipal water service.
67. Rates for sundry municipalities (see instructions).
68. Water for purposes of enterprise.

681. Water for purification purposes.
682. Water for pumping purposes.
683. Water for plant fire protection.

684. Water for miscellaneous uses and purposes.
B. ACCOUNTS FOR MISCELLANEOUS REVENUES.

7. Miscellaneous revenues.

71. Revenues from accessory enterprises.

711. Revenues from compensated plumbing work.
712. Rents from rental property.

713. Rents from meters, meter boxes, and vaults.
714. Revenues from forest lands.

715. Revenues from sundry accessory enterprises.

72. Revenues of funds with investments.

721. Revenues from sinking funds.

722 to 724. Revenues of other funds with investments.

DIVISION II.—-ACCOUNTS FOR DEPARTMENTAL EXPENSES.

82. Operating expenses of collection system.
821. Expenses of sources of water.
822. Expenses of intakes and aqueducts.

83. Operating expenses of purification system.
831. Sedimentation.

832. Coagulation.

833. Softening and iron removal.

834. Roughing filtration.

835. Slow sand filtration.

836. Mechanical filtration.

837. Ozonization and aeration.

838. Copper sulphate and other chemical treatment. 839. Clear water basins.

84. Operating expenses of pumping system.

841. Operating expenses for steam pumping.

842. Operating expenses for hydraulic pumping.

843. Operating expenses for electric power pumping.

844. Operating expenses for other power pumping.

85. Operating expenses of distribution system.

851. Expenses for operating transmission and distribution storage properties.

852. Expenses for operating distribution properties. 86. Departmental expenses for repairs.

861. Expenses for repairs at sources of water supply.
862. Expenses for repairs at intakes and aqueducts.
863. Expenses for repairs of purification system.

864. Expenses for repairs of pumping system.

865. Expenses for repairs of transmission and distribution storage properties.

866. Expenses for repairs of distribution properties.

87. Departmental expenses for amortization and depreciation. 871. Expenses for amortization and depreciation at sources of water supply.

872. Expenses for amortization and depreciation of intakes and aqueducts.

873. Expenses for amortization and depreciation of purification system.

874. Expenses for amortization and depreciation of pumping system.

875. Expenses for amortization and depreciation of transmission and distribution storage properties.

876. Expenses for amortization and depreciation of distribution properties.

DIVISION III. CLEARING ACCOUNTS FOR SPECIFIED EXPENSES.

80. Undistributed expenses of water service.

801. Shop expenses.

802. Stable and team expenses.

803 to 809. Other clearing accounts for expenses.

D. ACCOUNTS FOR EXPENSES OTHER THAN WATER SERVICE.

9. Expenses other than for water service.

DIVISION I.—ACCOUNTS FOR MISCELLANEOUS EXPENSES.

91. Expenses of accessory enterprises.

911. Expenses for compensated plumbing work.

912. Expenses for rental property.

913. Expenses for meters, meter boxes, and vaults rented

to consumers.

914. Expenses of forest lands.

915. Expenses of miscellaneous accessory enterprises.

92. Expenses of funds with investments.

921. Expenses of sinking funds.

922 to 924. Expenses of other funds with investments.

General instructions.-Public service and kindred enterprises employing a double-entry system of accounts of several orders, such as is here presented in outline, should credit revenues in the lowest order of revenue accounts and balance such credits by debits in the asset accounts of the same order (general accounts 24 to 27, or the subgeneral, primary, or subprimary accounts subordinate to the general accounts referred to). Thus, if an enterprise employs all of the five orders of accounts of which specific mention is made, the credits and debits referred to will be recorded in subprimary accounts. When only four orders of accounts are utilized, the primary accounts will be used as the accounts of original credit and debit entries; and when only three orders of accounts are employed, the subgeneral accounts will be the accounts of original credit and debit entries. The instructions here given presuppose the use of three orders of accounts. If a larger or smaller number is utilized the instructions should be modified in such a way as to take account of the change in the number of orders. All of the instructions here presented for revenue accounts should be considered in connection with the instructions previously given on page 527 for subgeneral asset accounts subordinate to the general accounts 24 to 27.

The accounts for revenues are arranged in two divisions--those for water-service revenues and those for miscellaneous revenues. The subgeneral accounts whose account or designation numbers have 6 as their initial digit are provided for original credit entries for water-service revenues, and those having 7 for their initial digit are designed for similarly recording miscellaneous revenues. 6. Water-service revenues.-For accounting purposes, explained on a later page under "rules for computing water rates," the revenues from water service are divided into nine principal groups, to each of which is assigned a general account.

61 and 62. Rates for private consumers within city.—In entering the amount of revenue credits for water furnished private consumers within the city in subgeneral accounts 611 to 614 and 621 to 625, those credits should be arranged in two principal classes and nine subclasses or groups. The two principal classes are those for metered and unmetered rates, and the subclasses or groups are those designated by the titles to the accounts referred to. In entering the revenue credits in these nine accounts, the following general instructions should be observed:

Include under residence rates all revenues from water furnished to private dwelling houses containing either one or two families, for household purposes and for barns and lawns.

Under commercial rates include all revenues from water furnished to houses occupied by three or more private families, whether such houses are designated as apartment houses or tenement houses, or are referred to under other names, and whether the water is charged to the separate families or to the house as a whole. Include in the same group all revenues on account of water furnished hotels, boarding houses, office buildings, stores, saloons, combination of stores or saloons with residences (flats), livery barns, warehouses, and buildings housing a private family and utilized also for any of the purposes here referred to.

Include under industrial rates all revenues derived from water furnished to breweries, bottling works, laundries, and manufacturing establishments of every class.

Include under rates for churches and private charities the value of water furnished free and for compensation to the institutions mentioned, and also the value of that furnished to schools and colleges under such corporate management as places their property on the same basis with respect to taxation as is the property of churches, private charities, hospitals, etc. The value of water for hospitals and schools under the control of the city should be recorded in the general and subgeneral accounts "rates for municipal water service." When water is furnished to a church and parsonage, and no separation of the service is made in the bill, the whole amount should be recorded in the account "rates for churches and charities."

Include under rates for miscellaneous water service all revenues accruing from water furnished to builders or streetpaving contractors, to circuses, and to others using water for limited periods of time without permanent service connections. 63 and 64. Rates for private consumers outside city.-Watersupply enterprises furnishing water to customers residing outside the city limits should credit the subgeneral accounts 631 to 634 and 641 to 645 with the amount of water bills for private consumers outside the city, observing for such bills the general instructions given above for the bills of private consumers residing within the city. Enterprises which furnish water only to customers residing within the city will have no use for general accounts 63 and 64 and the subgeneral accounts subordinate thereto.

65. Rates for municipal and private water-supply enterprises.— The subgeneral accounts subordinate to account 65 should be credited and account 264 debited with the amount of revenues accruing to the enterprise during the fiscal year for water furnished other water-supply enterprises, whether operated by a municipality or by a private corporation.

66. Revenues for municipal water service. Subgeneral accounts 661 to 667 should be credited with the value of water furnished by the enterprise to the municipality which operates it, or from which-if a private enterprise-it holds its franchise to do business. The water here referred to is that furnished the city, or its quasi independent divisions, for the various purposes specified in accounts 661 to 667. If a private enterprise furnishes water to two cities or municipalities, separate and additional accounts should be kept for the second city, and for that purpose general account 67 and subgeneral accounts 671 to 677 may be used. For a third city or municipality accounts 69 and 691 to 697 may be used. In all the cases mentioned the accounts for the several municipalities should be designated with the names of the cities or towns.

68. Water for purposes of enterprise.-Accounts 681 to 684 should be credited with the value of water consumed for purification and other purposes. The amounts credited to the various accounts referred to should be debited to the accounts recording expenses for the purposes for which the water was used. Rules for computing water rates. All water-supply enterprises have rules for computing the rates for water furnished to private consumers, while but few privately owned and proportionately fewer municipally operated enterprises have rules for computing the

rates for water furnished the city. The rules followed by the great majority of enterprises in computing their rates for private consumers are more or less arbitrary, and the rates of private companies for water furnished the city are generally established by a contract between the company and the city which confounds and combines in an inextricable manner the payment of money by the city to the companies for water services with the grant of an operating franchise to the company and the consideration to be paid by the company for such grant. The situation here referred to arose in large part from the fact that when the first water-supply enterprises began operation, no one connected with city governments or with the companies was in possession of the data on which to base equitable rates for private or municipal water service. With the passage of years and the growth in experience on the part of the enterprises this situation is changing; the different water-supply enterprises are collecting data, and the subject of rate making is each year receiving greater attention on the part of all concerned. The basis of rates and the method of computing them are now under discussion at nearly every convention of waterworks associations in the United States, and as a result it is hoped, as well as believed, that before many years the whole subject will be lifted out of the field of arbitrary and unintelligent action and proper consideration given to the three factors of equitable and profitable rates— those which accountants and rate makers speak of as "demand cost," "customers' cost," and "consumption cost." Without a knowledge of these different factors many enterprises provide water to certain customers for less than the cost of the same, and charge others much more than is required or can be justified by any code of fair and equitable dealing. In framing rates for water service, recognition should be taken of the fact that the proper charge for water can not be uniform for all cities, but must vary with the conditions under which the water is obtained and furnished.

Water rates for private consumers.—Before a municipally operated enterprise can frame an equitable system of rates for private consumers or for the municipality, it must arrange its revenue and other accounts on a basis which recognizes the three cost factors mentioned. This fact has been kept in mind in arranging the revenue accounts herewith submitted, which are for residence, commercial, and industrial rates, rates for churches and private charities, and miscellaneous rates. If the charges for water service can be separated into other classes that will more fully take account of the three cost factors to be included in the framing of rates, this classification should be made the basis of the system of uniform accounts to be used by all water-supply enterprises.

Water rates for municipal services.--Taking account of the three factors of cost to be considered in establishing water rates, the Bureau of the Census suggests the following specific rules for computing the value of the water furnished to the city by private and public enterprises:

The charge for water utilized by fire departments should be based upon two factors—(1) the rates charged private consumers for like amounts of water, and (2) an allowance for interest on the cost of fire hydrants, fire service connections, other special fire service equipment or facilities, and mains of extra size for meeting the demands of the fire departments. In addition, the charge should include an allowance for depreciation on the equipment here mentioned and the cost of repairs thereon.

When the water-supply enterprise provides water for watering troughs, fountains, and other kindred fixtures, and the fixtures do not belong to the enterprise, the rate for the service should be computed on the same basis as for water provided private customers. Where the fixtures mentioned constitute parts of the assets of the enterprise, the rate for the service should include in addition to the foregoing an allowance for interest, depreciation, and repairs, such allowance to be computed on the same basis as that described in the last paragraph. The same general principle should be followed in framing rates such as those included under the titles of the accounts 662 to 665 and 667.

When privately owned water-supply enterprises, operating under franchise or other contract, receive from cities as compensation for municipal water service amounts less than called for by the rates computed upon an equitable basis as described above, the difference between the equitable and actual rates is a part of the current costs of franchise privileges, and should be so charged in accounts as directed in the instructions for accounts 261 to 263. On the other hand, when cities pay the specified enterprises more for the water service than is called for by the same rules, the excess payment is an extortion, and good business management on the part of the city calls for a readjustment of rates. Until such readjustment, the enterprise must treat the contract rates as the only amount to be recorded in accounts 661 to 674, or in the corresponding asset accounts 261 to 263.

In this connection attention is called to the fact that the average city pays for the water service secured by it from private corporations an amount which approximates 40 cents per capita of population. Under such circumstances, when the amount recorded by municipal accounts as the value of services rendered to the city exceeds 50 cents per capita of the city's population, such recorded value will probably be found excessive when tested by the principles above set forth, and when the amount is much less than 30 cents per capita, the payment and allowance are probably too small, conditions which in the one case call for a readjustment, and in the other for a credit to account 961, as the annual cost of franchise privileges.

The value of water used by the enterprise for purification, pumping, and other purposes should be charged as expenses in accounts 831 to 844, and credited as revenue in accounts 681 to 684. The charges should be made on the basis of the cost of water per 1,000 gallons, ascertained by dividing the total operating expenses of the enterprise by the number of gallons of water whose consumption is accounted for.

7. Miscellaneous revenues.-The general accounts 71 to 73 are provided for summing up the miscellaneous revenues which are debited to the subgeneral accounts included under the accounts mentioned. The revenues to be recorded in these accounts are those described in the paragraphs which follow:

71. Revenues from accessory enterprises.-This account is provided for summing up the subgeneral accounts 711 to 715.

711. Revenues from compensated plumbing work.-This account should be credited with the value of all plumbing work performed by the enterprise either for the municipality or for private individuals and corporations, including the value of materials furnished, such as meters, meter boxes and vaults, service pipes, etc.

712. Rents from rental property.-This account should be credited with all amounts accruing as rents receivable from real property held and used mainly for the revenues to be derived therefrom. Amounts accruing from rents of real property incidental to its use for the general purposes of the enterprise are to be recorded in account 733, "sundry rents receivable."

713. Rents from meters, meter boxes, and vaults.—This account should be credited with all revenues accruing from the use, by private parties and by municipalities, of the appliances mentioned in the title of the account which are owned by the enterprise and for the use of which a rental charge is collected.

714. Revenues from forest lands.-This account should be credited with the amount received from the sales of forest produets and from the right to cut such products from the land belonging to the enterprise.

715. Revenues from sundry accessory enterprises.—This account should be credited with all amounts accruing from the sale of products or as charges for services by accessory enterprises other than those specifically mentioned in accounts 711 to 714. If the revenues of only one such enterprise are recorded in this account, the name of the account should be changed and the

account should be given a designation descriptive of its character. If, however, the revenues of more than one such enterprise are to be thus recorded, a subordinate or primary account should be assigned to each accessory enterprise, which should be given a name descriptive of its character.

72. Revenues of funds with investments.-This general account is provided for summing up all subgeneral revenue accounts of funds with investments, of which the most important are those of sinking and depreciation funds. A separate subgeneral account should be kept with each fund with investments, and each account given a specific number and designation.

73. Sundry revenues.-In account 731 should be entered all amounts placed to the credit of the enterprise and to that of the water fund on account of interest on the cash balance of the enterprise and of the water fund. In the case of municipally operated enterprises, if a city includes the interest on deposits to the credit of the water-supply enterprise with the revenue receipts of the general treasury, there should be recorded in the same account an amount equal to that proportion of the total city receipts from interest on deposits which the average deposit to the credit of the enterprise constitutes of the total city deposits. The amount last described should be balanced by a debit entry in the account 283, "current transactions with city." Care should be taken not to include under account 731 any interest on sinking or other reserved fund deposits, nor under accounts 721 to 724 any interest on deposits other than those belonging to the funds specifically mentioned.

Account 732 is provided for recording the interest charged against the accessory enterprises for the use of the capital of the water-supply enterprises (see instructions for accounts 911 to 915 for methods of computing these interest charges). In the account for "sundry rents receivable" should be recorded all rents accruing incidental to the use of the property of the enterprise which is used principally for purposes of the enterprise.

Similar rents from property acquired or held principally for rental purposes are to be recorded in account 712.

Revenues accruing in the form of charges for sundry services or from the sale of sundry objects incidental to the operation of the water-supply enterprise are to be recorded in accounts 734 and 735, respectively. In account 746, "receipts from permits," are to be recorded all amounts charged to plumbers and customers for permits issued for making connections with the water system. The account "gains from bond transactions" in the case of private water-supply enterprises should each year be credited and the account "unamortized premiums on debt outstanding" should be debited with an amount proportionate to the life of the securities issued on which the premiums were received. In the case of municipally operated enterprises, premiums on bond issues may be treated the same as described above for private enterprises, or all the premiums received may be charged to this account in the year when received.

Account 737, "sundry gains," should be credited with all gains other than those which by instructions here given should be credited to other accounts. All credits in this account should be accompanied with memoranda fully descriptive of the source from which derived. Among the amounts which should thus be credited to "sundry gains" are the following:

(1) Inventory adjustments.—At least once a year an inventory of materials and supplies should be taken and the difference between the ledger and inventory balances should be credited to account 737 if the same is a gain, and debited to account 934, "sundry losses," if the same is a loss, provided the gain or loss can not be assigned to other accounts.

(2) Discounts on materials and supplies.-When discounts on materials and supplies consumed in operation are received by reason of prompt payment of bills, account 737 should be credited with the gain unless such discounts can be apportioned to particular bills.

General instructions.-The accounts with expenses are arranged in two principal divisions—those with "water-service expenses" and those with "expenses other than for water service." Accounts of the first division are indicated by account numbers whose first digit is 8, and those of the second division by account numbers whose first digit is 9.

For enterprises employing three orders of expense accountsthose here called summary, general, and subgeneral-all costs and losses constituting expenses should be recorded by debit entries in the appropriate subgeneral expense accounts.

When the expenses represent the costs of services or materials utilized or consumed in operation, the debit entries of the expense accounts should be balanced with credit entries in some current asset account such as cash, or by similar entries in a liability account such as that with notes and bills payable. When the expenses entered by debit entries as above described represent a loss, the debit entries in the expense account should be balanced by credit entries in the subgeneral account with the asset whose shrinkage in value gives rise to loss. Thus, when cash is lost by a bank failure or official defalcation, "cash" (account 211 or 212) should be credited by "sundry losses" (account 934). In like manner, when an impounding dam or reservoir is destroyed, the asset account 132 should be credited with the loss recorded in the expense account 871. In both cases the logical order of accounting is to ascertain the losses suffered and record the same in the asset account by a credit entry and debit this amount to the appropriate expense account.

When the credit entries for losses in subgeneral asset accounts are not balanced by debit entries in expense account, they are balanced by debit entries in the nominal asset account 292. In like manner, when losses have been debited to expense but not

credited by the asset account affected, they must be credited to the nominal proprietary interest account 55, or to some subgeneral account subordinate thereto.

An apparent exception in accounting to the rules set forth in the preceding paragraph is to be noted in what are generally called "losses "-those which represent the results of casualties to the property or person of others for which the enterprise is responsible. These "losses" are not losses of the assets of the enterprise, but are "costs" chargeable against revenues, and hence follow the rule given above for "costs" in recording expenses in accounts.

The costs last mentioned, and the current losses by depreciation and other causes, can seldom be exactly stated at the time when, or during the fiscal year in which, they occur. Their amounts can be charged as expenses as here directed only in the form of estimates. Such estimates should be made with the greatest care, and the losses actually suffered through any cause, as depreciation, should never be confounded with or mixed up with provisions for future losses. The first is an expense, and should be made a deduction from revenue to ascertain the income and profit of a fiscal year; the other is an "appropriation of surplus" and is never a "charge" or "deduction" from revenue. The failure to recognize this fact leads, as may be witnessed by the account of many enterprises, to credit balances called "reserves" or "surplus reserves," which are in part credit offsets to the debit balances of asset accounts and in part actual reserves of surplus.

81. General expenses.-This general account is provided for summing up the accounts which record the water-service expenses that relate to the business as a whole. The expenses mentioned are recorded in eight subgeneral accounts for which specific instructions are given, as follows: