It has been held by some that the title of this group should be made broader, and called administrative and general expense. It has seemed to the author that this is entirely unnecessary, because of the fact that any item of expense, general in its nature, is, of necessity, a matter of administration, since it does not apply specifically to the manufacture nor to the sale of the goods, but rather to the administration of the business. It is, therefore, thought that administrative expense is sufficiently broad.
With regard to the above items, it may be said that in certain large organizations the internal scheme of functional administration throws a peculiar light upon them. Such an organization may have an internal division of administration corresponding to the offices of the president and vice-president, comptroller or auditor, secretary, treasurer, general solicitor, etc. The accounting department will naturally be presided over by the comptroller or auditor. The cashier will naturally be subsidiary to the treasurer. Under such an arrangement the administrative expense may, with respect to each department, be divided on the original records into salaries and expenses. It is not uncommon to find separate pay-rolls for the various offices above mentioned. It is, however, uncommon to find expenses so treated. As a rule, office expenses originate on the general books rather than with the various offices, and are charged direct to the general administrative office expense account in the general ledger. The salaries, likewise, while they may be kept on separate pay-rolls for the purpose of classifying them, with regard to the various offices, are usually charged collectively to the salaries account in the general ledger. While it may be desirable, in some cases, as a matter of cost, concerning the running of the various offices, to distribute salaries and expenses, such distribution should be made a matter of subsidiary treatment, and should not be taken cognizance of on the general books.
It is evident that many of the items appearing in this group will be subject to accrual. It is doubtful, however, if many concerns give attention to this matter in closing. This is probably due to the fact that the amounts involved are usually small and unimportant, and it is not considered worth while to bother with them. The most striking exception to this general statement is probably salaries of officers and clerks. This is due to the fact that the salary-roll may, at times, be of considerable size and the salaries paid weekly. It is not so apt to be the case in the case of salaries of officers as in salaries of clerks. Salaries i of officers are, as a rule, paid by the month, while salaries of clerks are apt to be paid weekly. Where the clerks’ roll is of sufficient size, and the end of the month happens to fall on Thursday or Friday, it might be worth while to accrue the salaries for the period intervening between the end of the month and the previous Saturday.
Separate accounts should be maintained in the general ledger for salaries of officers and salaries of clerks. This is objected to at times by the officers, who do not wish to see the disparity in amounts which may result from an overloaded salary-roll for officers. It is well, however, to bear in mind that financial statements are sometimes required for presentation to stockholders, and such division facilitates the preparation of a comprehensive statement in this respect. Stockholders may be especially interested in seeing the relation which salaries of officers bear to salaries of clerks, even though the officers are not interested in this information.
Directors’ fees, while of the same general nature as salaries, should be kept separate. Fees are paid to directors for services in attending directors’ meetings. The directors, as representatives of the stockholders, may, through their attendance at the meetings, assist in the formulation of the company’s policies. While they receive compensation for these services, the compensation is based upon attendance at meetings, and is slightly different from a salary which is paid for regular and continuous service.
Printing and stationery, as well as the other items appearing in this group, such as postage, telephone and telegraph, permit of little discussion at this time. Printing and stationery, like postage, may be a direct charge to the expense account, in accordance with its consumption, or as a balance remaining in the account after inventory for these items has been deducted and set up as an asset. Telephone bills are usually rendered for the month, in advance, and, of course, should not be accrued. It will rarely occur that they have been paid in advance. What usually happens, however, is that telephone bills for a given month in advance will contain also the calls of the preceding month in excess of the number stipulated in the contract, and any long-distance charges. While these latter items are technically a liability at the end of the preceding month, they are usually so small in amount as to not warrant any attempt to provide for their accrual.
There may be times when it becomes necessary to draw the line between periods with precision, and at such times it may be necessary to charge excess calls and long-distance charges to the preceding month, in which they belong. Telegraph bills are usually rendered after the month in which the service has been rendered, and, if precision is to be maintained, will have to be provided for through accrual at the end of the month.
Traveling expenses of officers and clerks are to be distinguished from traveling expenses of salesmen. The latter is, of course, chargeable to the appropriate account in the sellingexpense group. The importance of making this distinction will be evident when it is observed that the traveling of officers may, at times, be somewhat heavy, and unless this distinction were made the salesmen’s expenses would be unduly laden. This transgression might be especially apparent where a concern maintains a staff of traveling auditors. It is quite probable that the traffic department of a railroad would object to being charged with the expenses of the company’s traveling auditors.
Legal expenses may be the expenses of conducting a legal department, retainers paid to counsel, or charges for legal services occurring irregularly. In connection with the last item it may be remarked that under certain circumstances, where retainers are of sufficient size, they may be taken into consideration in closing the books, and the unearned proportion set up as a deferred charge to expense.
Miscellaneous office expenses will include such items as sundry office supplies, maintenance of office equipment, and dinners for clerks working evenings. It is, of course, probably true that the overtime, if any, paid to such men should be charged to the salary account, and there is no reason, as a matter of exactness, perhaps, why dinner money should not also be charged to the salary account. It is thought to be the general custom, however, to charge this latter item to the office expenses.
Having exhausted by classification the majority of items which appear ordinarily in the administrative-expense group, there are still certain expenses which have not been included, and which, in the opinion of the author, should appear in this group. Such items are usually referred to as general expenses, and seem to be the principal reason advanced by parties who so contend for making the general title of this group “administrative and general expenses.” The particular items in mind are those, such as donations, gratuities to employees, bonuses at Christmas time, and miscellaneous gratuities to outsiders whereby the commercial comfort and work of the company is facilitated. Gratuities to employees may be dismissed with a word, namely, that such expenses are equivalent to an addition to the salary or wage of the employee. It would seem that there should be no reason for excluding, or considering separately, bonuses and gratuities to outsiders, since administrative expense is intended to cover not only the direct administrative expenses but the expenses of the administration. It is true that they might be somewhat general in their nature, and not possible of inclusion in the classification thus far presented. They are, however, expenses which are considered necessary to the welfare of the company, and, on account of being incurred by administrative officers for the benefit of the company, may be logically included as administrative expenses. A donation to a fire department by a concern having a plant located in New Jersey, or a donation to a local Y. M. C. A., would seem not to be without the scope of argument in favor of treating such items as administrative expenses, since on the one hand the company may expect to receive indirect benefit from its contribution to the fire department, and, in the same way, indirect benefit through its employees from its contribution to the Y. M. C. A. A donation to charity seems to be the item on which most of the argument against the inclusion of such general items in administrative expense rests. It is claimed that no benefit, direct or indirect, accrues to the company from such a donation. This, however, seems small ground for argument, since it must be admitted, it seems, that the company would not make such donation except it expected to be held somewhat in esteem through its general interest in the affairs of the community, for which reason such an expense would seem to be pertinent to the administration of the company’s affairs.
The items comprising this group, which constitute the fourth section of the income statement, and which appear below in tabular form, will, in closing the books, be closed out to the group account administrative expense:
Salaries of officers $10,000.00
Salaries of clerks 5,000.00
Directors’ fees 200.00
Printing and stationery 400.00
Telephone and telegraph 200.00
Traveling of officers and clerks 500.00
Legal expenses 2,000.00
Miscellaneous office expenses 250.00
General expenses 150.00
Total administrative expense $19,000.00
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