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Part 1

# Cyclopedia of Commerce, Accountancy, Business Administration, v. 02 (of 10) ### By American School of Correspondence

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[Illustration: BIRD'S─EYE VIEW OF THE BALDWIN LOCOMOTIVE WORKS, PHILADELPHIA, PENNA.]

Cyclopedia _of_ Commerce, Accountancy, Business Administration

VOLUME 2

_A General Reference Work on_

ACCOUNTING, AUDITING, BOOKKEEPING, COMMERCIAL LAW, BUSINESS MANAGEMENT, ADMINISTRATIVE AND INDUSTRIAL ORGANIZATION, BANKING, ADVERTISING, SELLING, OFFICE AND FACTORY RECORDS, COST KEEPING, SYSTEMATIZING, ETC.

_Prepared by a Corps of_

AUDITORS, ACCOUNTANTS, ATTORNEYS, AND SPECIALISTS IN BUSINESS METHODS AND MANAGEMENT

_Illustrated with Over Two Thousand Engravings_

TEN VOLUMES

CHICAGO AMERICAN TECHNICAL SOCIETY 1910

Authors and Collaborators

JAMES BRAY GRIFFITH, _Managing Editor_ Head. Dept. of Commerce, Accountancy, and Business Administration, American School of Correspondence.

ROBERT H. MONTGOMERY Of the Firm of Lybrand, Ross Bros. & Montgomery, Certified Public Accountants. Editor of the American Edition of Dicksee's _Auditing_. Formerly Lecturer on Auditing at the Evening School of Accounts and Finance of the University of Pennsylvania, and the School of Commerce, Accounts, and Finance of the New York University.

ARTHUR LOWES DICKINSON, F. C. A., C. P. A. Of the Firms of Jones, Caesar, Dickinson, Wilmot & Company, Certified Public Accountants, and Price, Waterhouse & Company, Chartered Accountants.

WILLIAM M. LYBRAND, C. P. A. Of the Firm of Lybrand, Ross Bros. & Montgomery, Certified Public Accountants.

F. H. MACPHERSON, C. A., C. P. A. Of the Firm of F. H. Macpherson & Co., Certified Public Accountants.

CHAS. A. SWEETLAND Consulting Public Accountant. Author of "Loose─Leaf Bookkeeping," and "Anti─Confusion Business Methods."

E. C. LANDIS Of the System Department, Burroughs Adding Machine Company.

HARRIS C. TROW, S. B. _Editor─in─Chief_, Textbook Department, American School of Correspondence.

CECIL B. SMEETON, F. I. A. Public Accountant and Auditor. President, Incorporated Accountants' Society of Illinois. Fellow, Institute of Accounts, New York.

JOHN A. CHAMBERLAIN, A. B., LL. B. Of the Cleveland Bar. Lecturer on Suretyship, Western Reserve Law School. Author of "Principles of Business Law."

HUGH WRIGHT Auditor, Westlake Construction Company.

GLENN M. HOBBS, Ph. D. Secretary, American School of Correspondence.

JESSIE M. SHEPHERD, A. B. Associate Editor, Textbook Department, American School of Correspondence.

GEORGE C. RUSSELL Systematizer. Formerly Manager, System Department, Elliott─Fisher Company.

OSCAR E. PERRIGO, M. E. Specialist in Industrial Organization. Author of "Machine─Shop Economics and Systems," etc.

DARWIN S. HATCH, B. S. Assistant Editor, Textbook Department, American School of Correspondence.

CHAS. E. HATHAWAY Cost Expert. Chief Accountant, Fore River Shipbuilding Co.

CHAS. WILBUR LEIGH, B. S. Associate Professor of Mathematics, Armour Institute of Technology.

L. W. LEWIS Advertising Manager, The McCaskey Register Co.

MARTIN W. RUSSELL Registrar and Treasurer, American School of Correspondence.

HALBERT P. GILLETTE, C. E. Managing Editor, _Engineering─Contracting_. Author of "Handbook of Cost Data for Contractors and Engineers."

R. T. MILLER, JR., A. M., LL. B. President, American School of Correspondence.

WILLIAM SCHUTTE Manager of Advertising, National Cash Register Co.

E. ST. ELMO LEWIS Advertising Manager, Burroughs Adding Machine Company. Author of "The Credit Man and His Work" and "Financial Advertising."

RICHARD T. DANA Consulting Engineer. Chief Engineer, Construction Service Co.

P. H. BOGARDUS Publicity Manager, American School of Correspondence.

WILLIAM G. NICHOLS General Manufacturing Agent for the China Mfg. Co., The Webster Mfg. Co., and the Pembroke Mills. Author of "Cost Finding" and "Cotton Mills."

C. H. HUNTER Advertising Manager, Elliott─Fisher Co.

FRANK C. MORSE Filing Expert. Secretary, Browne─Morse Co.

H. E. K'BERG Expert on Loose─Leaf Systems. Formerly Manager, Business Systems Department, Burroughs Adding Machine Co.

EDWARD B. WAITE Head, Instruction Department, American School of Correspondence.

Authorities Consulted

The editors have freely consulted the standard technical and business literature of America and Europe in the preparation of these volumes. They desire to express their indebtedness, particularly, to the following eminent authorities, whose well─known treatises should be in the library of everyone interested in modern business methods.

Grateful acknowledgment is made also of the valuable service rendered by the many manufacturers and specialists in office and factory methods, whose coöperation has made it possible to include in these volumes suitable illustrations of the latest equipment for office use; as well as those financial, mercantile, and manufacturing concerns who have supplied illustrations of offices, factories, shops, and buildings, typical of the commercial and industrial life of America.

JOSEPH HARDCASTLE, C. P. A. Formerly Professor of Principles and Practice of Accounts, School of Commerce, Accounts, and Finance, New York University. Author of "Accounts of Executors and Testamentary Trustees."

HORACE LUCIAN ARNOLD Specialist in Factory Organization and Accounting. Author of "The Complete Cost Keeper," and "Factory Manager and Accountant."

JOHN F. J. MULHALL, P. A. Specialist in Corporation Accounts. Author of "Quasi Public Corporation Accounting and Management."

SHERWIN CODY Advertising and Sales Specialist. Author of "How to Do Business by Letter," and "Art of Writing and Speaking the English Language."

FREDERICK TIPSON, C. P. A. Author of "Theory of Accounts."

CHARLES BUXTON GOING Managing Editor of _The Engineering Magazine_. Associate in Mechanical Engineering, Columbia University. Corresponding Member, Canadian Mining Institute.

F. E. WEBNER Public Accountant. Specialist in Factory Accounting. Contributor to The Engineering Press.

AMOS K. FISKE Associate Editor of the _New York Journal of Commerce_. Author of "The Modern Bank."

JOSEPH FRENCH JOHNSON Dean of the New York University School of Commerce, Accounts, and Finance. Editor, _The Journal of Accountancy_. Author of "Money, Exchange, and Banking."

M. U. OVERLAND Of the New York Bar. Author of "Classified Corporation Laws of All the States."

THOMAS CONYNGTON Of the New York Bar. Author of "Corporate Management," "Corporate Organization," "The Modern Corporation," and "Partnership Relations."

THEOPHILUS PARSONS, LL. D. Author of "The Laws of Business."

E. ST. ELMO LEWIS Advertising Manager, Burroughs Adding Machine Company. Formerly Manager of Publicity, National Cash Register Co. Author of "The Credit Man and His Work," and "Financial Advertising."

T. E. YOUNG, B. A., F. R. A. S. Ex─President of the Institute of Actuaries. Member of the Actuary Society of America. Author of "Insurance."

LAWRENCE R. DICKSEE, F. C. A. Professor of Accounting at the University of Birmingham. Author of "Advanced Accounting," "Auditing," "Bookkeeping for Company Secretary," etc.

FRANCIS W. PIXLEY Author of "Auditors, Their Duties and Responsibilities," and "Accountancy."

CHARLES U. CARPENTER General Manager, The Herring─Hall─Marvin Safe Co. Formerly General Manager, National Cash Register Co. Author of "Profit Making Management."

C. E. KNOEPPEL Specialist in Cost Analysis and Factory Betterment. Author of "Systematic Foundry Operation and Foundry Costing," "Maximum Production through Organization and Supervision," and other papers.

HARRINGTON EMERSON, M. A. Consulting Engineer. Director of Organization and Betterment Work on the Santa Fé System. Originator of the Emerson Efficiency System. Author of "Efficiency as a Basis for Operation and Wages."

ELMER H. BEACH Specialist in Accounting Methods. Editor, _Beach's Magazine of Business_. Founder of The Bookkeeper. Editor of _The American Business and Accounting Encyclopedia_.

J. J. RAHILL, C. P. A. Member, California Society of Public Accountants. Author of "Corporation Accounting and Corporation Law."

FRANK BROOKER, C. P. A. Ex─New York State Examiner of Certified Public Accountants. Ex─President, American Association of Public Accountants. Author of "American Accountants' Manual."

CLINTON E. WOODS, M. E. Specialist in Industrial Organization. Formerly Comptroller, Sears, Roebuck & Co. Author of "Organizing a Factory," and "Woods' Reports."

CHARLES E. SPRAGUE, C. P. A. President of the Union Dime Savings Bank, New York. Author of "The Accountancy of Investment," "Extended Bond Tables," and "Problems and Studies in the Accountancy of Investment."

CHARLES WALDO HASKINS, C. P. A., L. H. M. Author of "Business Education and Accountancy."

JOHN J. CRAWFORD Author of "Bank Directors, Their Powers, Duties, and Liabilities."

DR. F. A. CLEVELAND Of the Wharton School of Finance, University of Pennsylvania. Author of "Funds and Their Uses."

[Illustration]

Foreword

With the unprecedented increase in our commercial activities has come a demand for better business methods. Methods which were adequate for the business of a less active commercial era, have given way to systems and labor─saving ideas in keeping with the financial and industrial progress of the world.

Out of this progress has risen a new literature──the literature of business. But with the rapid advancement in the science of business, its literature can scarcely be said to have kept pace, at least, not to the same extent as in other sciences and professions. Much excellent material dealing with special phases of business activity has been prepared, but this is so scattered that the student desiring to acquire a comprehensive business library has found himself confronted by serious difficulties. He has been obliged, to a great extent, to make his selections blindly, resulting in many duplications of material without securing needed information on important phases of the subject.

In the belief that a demand exists for a library which shall embrace the best practice in all branches of business──from buying to selling, from simple bookkeeping to the administration of the financial affairs of a great corporation──these volumes have been prepared. Prepared primarily for use as instruction books for the American School of Correspondence, the material from which the Cyclopedia has been compiled embraces the latest ideas with explanations of the most approved methods of modern business.

Editors and writers have been selected because of their familiarity with, and experience in handling various subjects pertaining to Commerce, Accountancy, and Business Administration. Writers with practical business experience have received preference over those with theoretical training; practicability has been considered of greater importance than literary excellence.

In addition to covering the entire general field of business, this Cyclopedia contains much specialized information not heretofore published in any form. This specialization is particularly apparent in those sections which treat of accounting and methods of management for Department Stores, Contractors, Publishers and Printers, Insurance, and Real Estate. The value of this information will be recognized by every student of business.

The principal value which is claimed for this Cyclopedia is as a reference work, but, comprising as it does the material used by the School in its correspondence courses, it is offered with the confident expectation that it will prove of great value to the trained man who desires to become conversant with phases of business practice with which he is unfamiliar, and to those holding advanced clerical and managerial positions.

In conclusion, grateful acknowledgment is made to authors and collaborators, to whose hearty coöperation the excellence of this work is due.

Table of Contents

(For professional standing of authors, see list of Authors and Collaborators at front of volume.)

VOLUME II

PURCHASING AND STORES DEPARTMENT _By James B. Griffith_ Page 11

Lists of Dealers──Catalogue Filing and Indexing──Special Quotations──Department Routine──Requisitions──Purchase Orders── Receipts and Invoices──The Stores Department──Organization──Taking Inventory──Installing a Stores System──Record Files──Materials and Supplies──Parts and Finished Stores──Machinery and Equipment Records

RECORDS OF LABOR AND MANUFACTURING ORDERS _By James B. Griffith_ Page 65

Labor Records──Wage Systems──Day Wage──Piece Rates──Premium Systems──Efficiency Systems──Time─Keeping Systems──Time Clocks──Production Time Records──Time Cards──Mechanical Time Recorders──Piece─Work Records──Production Orders──Shop Orders──Order Register──Tracing the Order

GENERAL EXPENSE _By Chas. E. Hathaway_ Page 127

Expense Distribution──True Cost──Selling Expense──Methods of Distribution──The Man─Hour─Rate Method──The Machine─Hour─Rate Method──The Percentage Method──Productive and Non─Productive Labor──Expense and Production Cost Ledgers──Departmental Expenses──General Expense──How to Use Percentages──Operating Expense Statements──What the Statement Should Show──Comparative Figures──General Expense Statements──Charts

COST SUMMARIES _By James B. Griffith_ Page 165

Collecting Cost Data──Material Cost Records──Labor Cost──Job Cost──Comparative Cost Records──By─Products──Production Records──Controlling Accounts

MACHINE─SHOP MANAGEMENT _By Oscar E. Perrigo_ Page 193

Methods of Modern Manufacturing──Organization of Manufacturing Plant──Official Communications──Successful Management──Shop Methods and Records──The Employment Agency──Time Keeping──Time Cards──Paying Employes──Production Orders──Plant Orders──Storing and Issuing Stock and Materials

COST─ANALYSIS ENGINEERING _By R. T. Dana and H. P. Gillette_ Page 251

The Science of Management──Subdivision of Duties──Cost Getting──Punch─Cards──Cost Distribution──Process Cost Subdivision──Output──Checking up Charts──Cost Reduction──Bonus System──Labor Saving Devices──Chronological Charts

REVIEW QUESTIONS Page 319

INDEX Page 331

[Illustration: SHOP OFFICE, WESTERN ELECTRIC COMPANY, NEW YORK CITY]

PURCHASING AND STORES DEPARTMENT

PURCHASING DEPARTMENT

=1.= If the old axiom, "Goods well bought are half sold," holds true, the purchasing department may well be considered one of the most important in any business. In referring to the purchasing department we have in mind that department, or division of the business, whose duty it is to attend to the buying. In a large industrial enterprise this may mean a department headed by a purchasing agent with several assistants; in a department store, the buyers for the several departments; in a small retail business, the member of the firm who buys the goods. No matter whether the department be an extensive one, or one requiring but a part of the time of one man, the principle is the same.

Perhaps no other head of a department has greater need of complete information and systematic records of his department, than does the buyer. A man may have every qualification for a successful purchasing agent, but, unless he has the most detailed information to aid him in judging qualities and prices, his cannot be considered a successful department. On the other hand, many a man, with no other qualification than common sense, has built up a most successful purchasing department because his work was thoroughly systematized.

We will consider the purchasing department from two standpoints: The _information required_, and the _routine work_ to be performed. Under the first head the requirements may be stated as:

1. List of dealers.

2. Full information about lines carried by each dealer or manufacturer.

3. Records of special quotations.

4. Information about qualities supplied by various dealers, to be obtained from records of past purchases.

LIST OF DEALERS

=2.= The purchasing agent will have no difficulty in securing a list of dealers. Even a new business is usually well supplied with circulars, catalogues, and other information showing which dealers handle certain lines. The principal concern of the purchasing agent is to so record this information that it will be instantly available.

In some cases it is found necessary to make special lists of dealers, and these are usually made on cards. A card is used for each article or class of material that may be of interest, and the name of the class is written at the top of the card. Below this are listed the names and addresses of dealers and manufacturers supplying that particular class of material. Since in most concerns this information can be combined with the system of catalogue indexing, we do not show a special form for this record.

CATALOGUE FILING AND INDEXING

=3.= A purchasing agent must necessarily gather much of the information required in the operation of his department from catalogues supplied by manufacturers. These catalogues are his technical library, in many cases supplying the only available information relative to a particular class of goods. Needless to say, some method must be provided for carefully preserving these catalogues. They must be filed in such a manner that they can be located quickly.

While every office has plenty of opportunities to accumulate an oversupply of catalogues, resulting in a tendency to discard all except those in which the purchasing agent may be interested at the time, it is better to err on the side of a liberal supply. A catalogue that comes in to─day may be of no immediate value, but it may become useful a little later. It would be impracticable to keep every catalogue and circular that reaches the office, but, if it is from a new concern, or offers any new ideas, it should be kept, even though the subject is not of especial interest at the moment.

Many systems of catalogue filing have been devised, and there are almost as many styles of catalogue files on the market as there are manufacturers of such equipment. No one system or style of filing will answer the requirements in every concern. Each must build up a filing system that will conform to existing conditions.

Though a system of universal application cannot be laid down, some general suggestions may prove of value. No matter what the style of receptacle used, catalogues are filed according to one of two methods: The _alphabetical_, or the _numerical_. The alphabetical method consists in the arrangement of catalogues in bookcases or other suitable devices, according to the names of the publishers. For a small number of catalogues, this is a very satisfactory system, for the very reason that a purchasing agent soon becomes familiar with the catalogues of different manufacturers, recognizing them by their size, shape, or color.

A modification of the alphabetical system is one in which the catalogues are arranged alphabetically by classes; that is, the lines of goods in which the purchasing agent is interested are divided into specific classes. In each of these divisions, the catalogues of all manufacturers listing that class of goods are arranged in alphabetical order. This method is also very satisfactory for a limited number of catalogues.

For a large catalogue file the numerical system will prove the most satisfactory. By this system each catalogue is given a number which should be plainly shown on the back of the catalogue. All catalogues of a specific class are placed in one group, and a series of numbers is set aside for the group. To illustrate, we might have machinery catalogues, numbers 1 to 100. All machinery catalogues would then be given a number in that series. If the number be increased beyond 100, the numbering system would be repeated by using 1_a_, 2_a_, etc.

With the numerical system, the catalogues of each group must be arranged in exact numerical order, so that any catalogue may be instantly located.

=4. Files.= As has already been stated, the style of file, as well as the method of filing, or indexing, must conform to the conditions in each individual office. However, the experience of the past is the best guide for the future. As a general rule, sectional bookcases will be found the most satisfactory for catalogues in bound form, that is, those with substantial covers, and particularly those that will readily stand on edge. An advantage of the sectional bookcase is that all catalogues can plainly be seen, and even though a numerical system be used, a man soon learns to recognize catalogues of certain manufacturers without referring to any number or indexing system.

In every catalogue file will be found pamphlets, circulars, and price lists which are not easily cared for in bookcases. For these a section of a vertical file is recommended, and in many cases this file has been used successfully for filing all sorts of miscellaneous catalogues. It may be expanded to any capacity, and can be used with equal success for either the alphabetical or numerical system of indexing.

Which is the better depends upon the circumstances, but in nearly every case either the sectional bookcase or the vertical file, or perhaps a combination of the two, will be found most satisfactory.

=5. Catalogue Indexing.= The principal value of a file of catalogues lies in the index. A miscellaneous lot of catalogues is of very little value unless it be properly indexed. True, most catalogues contain an index, but this is not the sort of index required by the purchasing agent. He does not care for an itemized list of every article manufactured by John Jones & Co., but he does want an index that will show him where he can find descriptions and prices of machines of a certain class. A catalogue may list thousands of articles in which the purchasing agent has no interest, where it lists ten that are of use to him. These ten articles are the ones which should be shown in his index.

[Illustration: Fig. 1. Subject Card for Catalogue Index]

The principal index of the catalogue file is one arranged by subjects. A card used for this purpose is shown in Fig. 1. At the top of the card is listed the subject. Below this is given the names and addresses of all manufacturers supplying the goods listed. In the columns at the right are recorded the section number, catalogue number, and page. The section number refers to the section in the file where the catalogue will be found; the catalogue number to the catalogue itself; and the page to the number of the page in the catalogue. In making up such an index, it is unnecessary to include a long list of articles of no especial interest, but simply those which the concern is obliged to purchase. If an entirely new subject comes up, it can then be listed after suitable investigation.

These cards are filed alphabetically, according to the name of the subject. While in some large concerns a more elaborate file will be necessary, this index can usually be kept in a small card tray in a desk drawer.

[Illustration: Fig. 2. Title Card for Catalogue Index]

When the numerical system of filing is used, another index is necessary to locate the catalogues by name. In most cases our chief concern would be to locate the catalogue by subject, but there are times when it becomes necessary to locate a catalogue by name. To provide for this cross─index, the card shown in Fig. 2 is used. It will be noted that the arrangement of this card is just the opposite of the subject index, the name and address of the manufacturer being given at the top of the card together with the reference to the section and catalogue numbers. On the lower half of the card are listed the names of articles, made by that manufacturer, in which we are interested. This card is also filed alphabetically, but, of course, under the name of the manufacturer. When the number of cards is limited, both forms can be filed in the same index by using contrasting colors. For instance, a buff color might be used for the subject index, and salmon for the name index.

SPECIAL QUOTATIONS

=6.= Every purchasing agent receives, in addition to published price lists, many special quotations on material and supplies in which he is interested. Very frequently quotations are received at a time when he is not in the market for the particular material offered, but they are nevertheless of value for possible future use, and should be carefully preserved.

[Illustration: Fig. 3. Card Form for Special Quotations]

One method of handling special quotations is to set aside a special file, or a drawer, or a section of the regular file, to be used exclusively for quotations. The quotations, when such a file is used, are usually filed alphabetically according to the name of the material offered. This method of filing necessitates a cross─index to locate the letters by names of firms and is not entirely satisfactory, owing to the difficulty of locating the most advantageous quotations. There may be a dozen or more letters from different firms quoting prices on the same material, and, to find which is the lowest, all must be examined. Again, a firm will make quotations on several lines in the same letter, which necessitates copying a part of the items or reorganizing the filing system.

In a business receiving many such quotations, it is advisable to reserve a special file for them, but we recommend their being filed according to the names of firms. To provide an accessible record of special quotations, the use of a special form, either on cards or loose leaves, is recommended. While no form universally applicable can be devised, the several forms herein presented are very good examples of forms in use and offer some valuable points for study.

Fig. 3 is a conventional form. This is a card, at the top of which is provided space for recording the name of the article or class of material. Below this is a record of all quotations received, giving date, name of the firm from whom the quotation is received, and initials of the salesman making the quotation, when made in this manner. The columns following are for quantity, or size on which the quotation is based, the list price, discount, net, whether f. o. b. or delivered, and terms. The last two columns are for a record of orders placed.