ANCIENT AND MODERN ACCOUNTING FOR PUBLIC UTILITIES
It is a great pleasure and signal honor to have the opportunity to address you this afternoon, for Dr. Bartow stated, that within his knowledge no Professional Accountant had ever addressed a meeting of this Association. The title “Ancient and Modern Accounting for Public Utilities” might presuppose starting with by-gone ages, but these words were selected because “ancient” books, forms and accounting records have but rceently been prescribed and insistted upon by a Public Utility Commission in one of the states of progressive and up-to-date U. S. A., which country should lead the world in everything. “Ancient” account keeping was “single entry”—a record on a stone, piece of bark, wood, etc. Occasionally now we hear single entry urged, when one playfully tells another to “put it on ice” when no intention of payment is indicated. Answering an oft repeated question, “single entry” means the recording of a charge or a credit in one place without a counter balancing credit or debit. This system permits of unlocated errors and provides no balancing of accounts to prove accuracy. When double entry was originated, a two column book called a Journal was used, so that the left column might contain the debits and the right column the credits. The Double Entry Ledger was also designed back in these ancient days. Both of these forms have almost entirely disappeared from Modern Account-keeping, but another state has prescribed and insistes on the use to-day and in future of those forms, which are almost identical with the books our great grandfathers purchased at the corner grocery. Does this not illustrate the danger in delay in making yourself heard before forms are prescribed, rather than be forced to use unsuitable forms or fight for the rights afterwards to use your own Modern accounting forms and specially designed records? Right here let it be known that the State Public Utilities Commission of Illinois has repeatedly expressed their policy as not to even recommend forms and systems. They will provide forms for annual reports and carefully written instructions covering the classifications of accounts and analysis of receipts and expenditures. Let us hope they will always adhere to that policy, which they will do if urged to do so by the Utilities of this state. The Interstate Commerce Commission has provided very complete instructions for many Utilities, but does not require the use of any particular forms for keeping the accounts. The single entry bookkeeping records on stone made by the ancient Babylonians and Egyptians remain to this day without record of payment. Later on wood, paper and other materials were used for keeping accounts and it is a thing to be wondered about how the ancients, especially the very rich ones, were able to keep their accounts, when in these modern days, frequently there is so much difficulty experienced in making books attest the historical facts of a business enterprise.
Among the books prescribed and insisted upon is an ancient ledger very similar to the one which might have been purchased at a general store 50 or 75 years ago. It is surprising to find this old-style ledger included in the recommendatoins of the Interstate Commerce Commission, but not prescribed by them. This old Ledger is a so-called double entry book—the debits being written down one side of the page, and the credits the other side. The result is that 40 per cent, of each page is blank paper, for the reason that almost all accounts are one-sided, containing a larger number of debits or credits. It is also very difficult to take off trial balances or to check old trial balances from such a ledger, and there is not room enough in the explanation column to state clearly the reason for the entry which should be done in every private ledger account. We have here a modern tabcut loose leaf, self-indexing Private Ledger. In the front of this ledger is a cash journal for entry of transactions of a private nature which should not be shown upon the general books of a corporation. They can in this way be kept entirely in the private ledger. Following this, are the regular ledger accounts, which are grouped into assets, liabilities, income, expense, and personal accounts. The accounts in this ledger are arranged so that all the assets will follow in proper sequence, as will also the liabilities, the income accounts and the expense accounts. This grouping of the accounts makes the trial balance as drawn directly from the ledger, a financial statement and an income profit and loss account, if the proper entries are made monthly in all of the ledger accounts. You will observe also that the ledger page has one date column, one long explanation column, one folio column, and finally, three columns for “Debits, Credits and Balance.” With this ledger no blank space appears even when the pages are filled, for each line is used. The balance, whether a debit or credit can be shown at the end of each month and after each entry if so desired. With this kind of a ledger, one could draw off a balance quickly at the end of any month, even years afterwards and the drawing off of the monthly balance and checking of the current records is very muoh easier than the ancient ledger described above. Attention is also called to the tabcut self-indexing feature of this modern ledger. With the ancient ledger, one must first hunt the ledger page of an account by looking in an index, and then leafing through the old-style book until the ledger page is found. With this modern ledger, should one desire an asset account, it is only necessary to lift the asset tab, place the thumb on the account wanted, because the name shows on the tab at the right hand side, and, with one turn of the hand, open the ledger at the account wanted. This tab-cut feature is of great convenience in a private ledger, even though the postings be comparatively few but, in a consumer’s ledger, the use of the tab-cut ledger leaves reduces the time of posting fully 60 per cent., and is therefore of a great economical value.
Next, look at the journal, which has been prescribed. It is surely an ancient form and quite unnecessary in modern bookkeeping. Here also are two ancient cash books prescribed—one a general cash book and the other a daily cash receipt book. Here also is another unnecessary book which is called the bank book balance. The four ancient books referred to can easily be supplanted by two modern books—one an income cash record and the other a bank check register in large utilities, while smaller utilities can use one book—a cash journal, to take the place of the four books referred to above. This, of course, means centralizing the bookkeeping records into one or two forms, reducing the clerical labor, and minimizing the possibility of making errors in one or more of the four books. The arrangement of columns of these modern books makes it entirely unnecessary to use the so-called journal, which has almost entirely disappeared from modern bookkeeping.
Attention is next called to an ancient voucher record, truly so-called because designed with the idea that there shall be a column for every desired classification of expense. Here is the voucher record which has been prescribed. The size of the larger leaves is 17 1/8X28 inches and the size of the shorter or inserted leaves is 17 1/8×26 3/4 inches. There are over 200 columns in this book. If the leaves were stretched out one after the other it would extend over eight feet. When opened upon the desk, the pages extend twice 28 inches or, leaving room for the binding edge, about four feet wide by a foot and a half up and down. Column number 1, superintendent would probably have but one entry a month and, yet in making an entry in that column, all of the rest of the lines over all of the pages would be blank and, of course, waste paper. Every distribution of expenditures required in this ancient voucher record has been provided for in this modern voucher record-expense journal, which, when open on the desk for use, only measures 28 inches wide by eleven and a half inches up and down. This small voucher record has been in use in several utilities and in mnay mercantile institutions for years and permits of almost unlimited analysis of expenses. This modern voucher record is not limited by the number of columns or the length of the pages, because modern accounting methods provides a chart distribution of expenses. In this way, the chart or account number is entered opposite each item as recorded in the proper column in the voucher record. Further elaboration of the expenses under any classification can be made by simply adding another sub-account number and labeling the charges as made. With the ancient voucher record, the accounts follow each other across the page. If one wants to know the cost of operation of the Steam Power Pumping Plant, one must add the several columns one to another, so also if one wishes the cost of Maintenance of the Power Plant or Operation or Maintenance of the Pumping Department or Engine Room or any other summary of the expenses, a summing up of these accounts must be made from this very large voucher record. In this modern voucher record expense journal, the footings of each of the columns gives the total expenses into the general classifications provided by the utility commission. The summaries of the subclassifications arc very quickly made at the end of each month, which amounts are carried into the monthly report or trial balance books. Furthermore, and of far greater importance, is the fact that this modern voucher record is also an expense journal. Instructions for its use require that all invoices or payments due for expenses or from material and supplies must he entered in the record each month before closing. After the entry of accounts payable records or vouchers for monies due to creditors and, including the monthly pay roll, necessary journal entries are made as shown in the voucher record. Here you will find the journal entries such as the following: A. debit to Steam Operation Account and a credit to Fuel Stock Account for the number of tons and value of coal consumed during the month. Another entry charges capital investment and credits stock accounts with the value of meters and materials used in setting the same, crediting properly to stock accounts. Likewise entries are made for services installed, for meters repaired and services repaired, for insurance expired or bond interest accrued and for the reserve depreciation when one can find out on what basis to calculate it. The use of the modern voucher record as an expense journal, makes it possible to get into one book every item of expense properly classified in the month when the expense was incurred, regardless of when paid. It requires only one posting of monthly totals to the general ledger account, and eliminates postings in expense accounts from cash books and the old style journal prescribed, but now considered obsolete. Time might profitably be spent in considering the old style voucher check, which is twice the size of a bank check, when a modern voucher check can be made to show with sufficient detail the items for which the payment is made and yet be no larger than the usual bank check or draft. We might also consider the very intricate method prescribed for keeping pay rolls and distributing wages to proper expense accounts. There are several forms of different sizes, while modern accounting requires only one pay roll and one weekly or semi-monthly time sheet or card for each employee. The latter are very simple, yet complete forms, which permit of minute analysis and strict adherence to the classifications described by any utilities commission.
* Abstract of paper read at meeting of Illinois Section of American Water Works Association, at Champaign-Urbana, Ill., March 9-11, 1915.
And finally let us consider the consumers’ ledger, both the old and new forms, for the major portion of the bookkeeping of a Water Utility consists of correctly recording the charges and collections for water sold to thousands of consumers. This means, in some cases, thousands of individual ledger sheets, or hundreds of pages on which several ledger accounts may be carried. We have here a very complete ledger form prescribed, but it is an ancient form, because it is not modern. It lacks the tab-cut self-indexing feature, which alone saves fully 60 per cent, of the time in making postings and in finding ledger accounts. This modern tab-cut self-indexing loose leaf ledger is designed to carry in one book all the Hat and meter consumers within the limits of the Ledger capacity. If the services are carried in numerical order, then the ledgers will be carried in the same order and the consecutive service number will be put upon the tab at the left side so that one may turn almost instantly to any service number, first finding the the larger index sheet and then any one of 27 accounts under each tab. It is recommended that white sheets be used for flat service and buff sheets for meter service, and that these be all filed together. Under this method, every service in every block of the city could be located in the ledger quickly. One could turn to Adams street and, following consecutively, find every service tap in the thirteen hundred block South Adams street. One would see that the first two were meter consumers, the next one was a flat consumer, the next three meter consumers, the next service tap was out of commission, and the next two flat consumers, etc. If one desires to carry the accounts in any special grouping, it is possible to do so with this modern self-indexing, tab-cut ledger and to find any one of the accounts in at least one-fourth the time that one could find it in the old style Boston ledger or the old style loose leaf ledger. Since most of the work is done in recording charges and collections, the use of this modern ledger will make a great saving in time of clerks, managers and superintendents where it is installed. One important modern method is the “Record of Cost Envelope” which is a cost ledger on the outside, and inside contains all the tickets for labor and material representing in detail all the items of cost of an extension of mains, installation of new machinery, etc., also the completed orders for installation of meters, services, etc. This is a very complete and valuable addition to the accounting records of any utility.
Utilities in Illinois.
As has been stated previously, the State Public Utilities Commission of Illinois has so far adopted the policy of non-interference with the forms and systems of bookkeeping in use, so long as the annual report can be made out correctly and completely. The utilities in this State will be permitted to make use of any ancient or modern bookkeeping methods, but it is quite probable that, should the Commission find out that the expense of account keeping in any utility is much larger than it should be, they would then insist on modernizing such accounting, for the reason that the unnecessary expense will be a charge against income to be paid out of money received from Water Consumers. Such has been clearly the position assumed in other states. It, therefore, follows that, if the Utilities of Illinois shall in future be allowed individual liberty as to account keeping, they must at least make use of the best modern accounting forms and records which they can secure or design and, thus, avoid citicism in their home cities and by Accountants for the Public Service Commission. The Utilities of this State are to be congratulated that they have such latitude. And finally, gentlemen, you may justly consider what has been accomplished by those public and private Accountants and Auditors who have been striving, and will in the years to come, strive to provide the owners and managers of Public Utilities complete and concise, yet thoroughly trustworthy records of all the operations and financial transactions of each enterprise. It is hoped that Professional Accountants, as well as the Professional Engineers, may be recognized for the services they have been rendering in making, not two grains of wheat to grow where one grew before—not two gallons of pure water delivered at the cost of one impure gallon, but who have been providing records of accounts so that one group of figures takes the place of many, so that one book of moderate, uniform size takes the place of several books of irregular sizes, and so that two books may contain all the important records of a very large Utility for two or several years. The saving of time and money in account keeping is of deep interest, but far greater is the value of a set of accounting records so complete that any necessary fact can be found quickly or any needed comparison can be made of one period with another, or one utility with another, without delay and in the full confidence that nothing has been omitted from the accounts of either period or utility. Then only can the engineers and managers draw the conclusions based on all the facts.