Music Trade Review

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18
THE MUSIC TRADE REVIEW, JUNE, 1H1
ness and the office. Salaries are self-explanatory, however, the services
of the sole proprietor in executive capacity should be charged to Salaries
in Administrative expense, therefore, the salary of a sole proprietor or
corporate owner whose activities are divided between selling and ad-
ministration should be charged proportionately.
For minimizing clerical effort, taxes would be said to be all inclusive,
and would include those taxes that are to be borne by the business that
represent taxes on salaries paid, even though such salaries have been
charged to other types of departmental operations.
All taxes, such as capital stock tax, franchise tax, license, etc. should
be charged to administrative expense taxes. The only item of taxes
which might be charged to another category would be taxes on real
estate, which should be charged to occupancy expense.
Other items indicated as administrative expenses are self-explanatory.
SERVICE
SERVICE. The items comprising the elements of expense under Ser-
vice department are self-explanatory. Inasmuch as the service department
creates income from services rendered, and inasmuch as the services
rendered by the Service department are two-fold, that is, that it renders
service to customers as well as service to the store operation by the con-
stant conditioning and maintenance of salable merchandise, the Ser-
vice department should be placed in such position as to consider that
the gross profit arising from services rendered to customers for which a
charge is made to customers will be sufficient to offset the expenses in-
curred in the maintenance of salable merchandise within the store in
a salable condition.
above, are indicated as account 13. The amount so charged to these de-
partments will be credited to occupancy expense under account 15,
representing income from rent.
If a portion of the building is sub-let, or, if owned and a portion of
the building is rented to other tenants, the rent so received should like-
wise be credited to income from rent, account 15. In either event, it
must be recognized that the expenses incident to the occupancy of a prop-
ery for the purpose of operating a business that was organized for profit,
should be self-sufficient and not represent a loss. Therefore occupancy ex-
pense, like service, should at least break even, and the rent so charged to
the selling and administrative expense should be sufficient to offset all
occupancy expenses. If there is an income from sub-let space, the occu-
pancy account should, n all probability, reflect a small net income to the
business.
The suggestion above, with respect to allocating a rental charge to
the sales and administrative departments with due credit to occupancy
expense, is optional. It might be that some operators would prefer not to
effect a distribution of rent as an item of expense of the selling and ad-
ministrative departments of the business, therefore occupancy expense
as such would be an item of expense in a greater amount than shown on
the statement of profit and loss in subsequent paragraphs hereof. Corre-
spondingly, selling and administrative expense would be slightly lower.
SUMMARIZATION OF ACCOUNTS
At the close of the period after all transactions have been recorded
in the three books of original entry, and these entries posted to the
ledger, a trial balance of the ledger should be taken. If all entries have
WOKK SHEET
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Work Sheet Applying to Paragraph on Summarization of Accounts
Therefore, it is proposed that the Service department be expected to
operate at an even break or a very minor loss. In order to recognize this
condition, income from services rendered to customers for which charges
have been made to customers, is proposed to be credited to the items of
expense that comprise the Service department and the net result of the
operations of the Service department thus shown.
This is one department that management of stores definitely watch and
over which control should be exercised, so that the gross profit from
services rendered, premised on a 50 r /c gross profit margin would cause
the department to be self-sufficient or self-sustaining.
OCCUPANCY
OCCUPANCY. The individual items of expense comprising this classi-
fication are self explanatory. This classification of expense is established
premised upon either the rental of the building occupied by the store,
or by the ownership of the location which houses the store. In event
of rental of the building, all expenses incident thereto, including rents
paid, should be charged to occupancy expense.
If the building is owned by the business, all expenses incident to
the ownership should be charged to the various classifications of expense
listed under occupancy. Premised upon either rental or ownership, it
is proposed that the proportion of rent that would ordinarily apply to the
sales rooms, as well as the office, should be charged to selling expense
or administratvie expense, which, according to the chart of accounts
been properly made and the total of the debits is in balance with the
total of the credits, the various accounts and their balances are then
listed, after which they are divided into two groups, or balance sheet
items and profit and loss items.
The analysis of any business is always made from two major state-
ments, the balance sheet and the profit and loss statement, or state-
ment of income and expenses. These statements are merely the various
accounts indicated above, arranged in such a manner as will clearly
indicate the results of the operation for the period and the statement of
condition after such operations.
As Exhibit C attached hereto, a work sheet is submitted covering the
summarization of accounts of a business whose volume of business was
$72,000.00 for the period. The figures contained in this work sheet are
hypothetical, however. Exhibit C is presented as a mere indication of
the procedure in the development of a work sheet for purposes of sum-
marizing the accounts disclosing the result of operation for the period
and the condition of the business at the close of the period.
To be continued in the July Issue at which time hypothetical profit
and loss statement will be published based upon work sheet.