CHAPTER LXVII ACCOUNTS REQUIRED FOR ADMINISTRATORS § 570. All Accounts Should Be Based on Final Accounting The accounts adopted for probate work are different from those in use in general mercantile bookkeeping, but they are easily understood and much less complicated. The accounts which are to be kept on the books of an estate should be chosen with the final accounting always in mind. They should be selected so that the schedules required to be filed with the court may be prepared with the least effort in collecting figures from various sources. It may be interpolated here that if commercial books were kept more with the idea that the securing of information from them is the real end and the keeping of the books only the means to that end, we should have less red tape and more understanding of the vital part the accountant should play in the business organization, with a resulting greater willingness to furnish him with adequate tools and sufficient help. Any scheme of accounts should be so planned as to yield most easily the information which is desired. Knowing exactly what will be required from a set of estate books, an account may be devoted to each of these items. It is very desirable that each schedule should be represented by an account in the books of the fiduciary; the name of the schedule may form part of its title.' § 571. Information Needed for Final Accounting An examination of the summary at the beginning of Form 26 will show the information which will usually be required in Sprague, The Philosophy of Accounts. the final accounting of an administrator. Separating corpus from income, this information may be summarized as follows: As to corpus : I. The amount of the inventory as appraised. 2. Assets discovered after the filing of the inventory. 3. Gain from realizing on the inventory. 4. Loss from realizing on the inventory. 5. Assets not realized upon. 6. Funeral and administration expenses paid. 7. Payments on debts of decedent. 8. Distribution of cash, 9. Distribution of assets other than cash. 10. Balance of corpus cash on hand. As to income: I. Income received. 2. Losses of income. 3. Expenses paid against income. 4. Distribution of income. 5. Balance of income cash on hand. § 572. Separation of Corpus from Income Advisable Since in the case of an intestate a trust cannot be created except by the operation of dower or curtesy rights, the separation of corpus from income might seem unnecessary. This separation is, however, always wise for two reasons: (1) the inheritance tax laws apply only against the corpus, and (2) the administrator should be in a position to show easily what gains and losses have occurred as a result of his management and what are due to improper appraising. § 573. Other Accounts Needed It has been said that one account should be maintained for each classification which will be needed for the final accounting, except when one is by nature the residue or balance left in another, as in the case of Assets Not Realized Upon, which is the closing balance of the amount of the inventory as appraised. This number of accounts does not, however, quite exhaust the necessities. The list above seems to include assets and liabilities, income and expense. But in double-entry bookkeeping there is another group, the net worth or proprietorship accounts, i.e., Capital, Capital Investment, Capital Stock, Surplus, etc., as may be required under varying circumstances. The place of this group in the scheme of estate accounts is taken by an account known as "Estate Corpus" during executorship or administratorship and "Estate Principal" during trusteeship.2 Whenever the books are closed, the balance of this account is the amount of the corpus of the estate in accordance with the various valuations used. Like proprietorship accounts it is necessarily a credit account, showing the extent of the accountability of the fiduciary. The term "Cash account," as is used in this chapter, is generic. In practice it is found best to have a separate account for each "active" bank account, i.e., for each bank account which is to be used for current depositing and checking purposes. Inactive bank accounts, such as savings accounts, may, if desired, be totalled together in one ledger account. Emphasis has been placed on the separation of corpus and income, but further than this, because the preparation of income tax returns requires an analysis of the income, the books must show the source from which it is derived, not, for this purpose, by personal accounts, but in a way that will indicate the nature of the transaction from which it results. In the same way, for income tax purposes the expenses must be analyzed in order that in the returns the schedules accounting for the deductions from gross income may properly be filled out. 2 This distinction between the use of the two names of the account is not rigidly followed, many authorities seeming to use the names interchangeably. This information in the ordinary estate can easily be secured by going through the Income account at the end of the year and ascertaining how much of the income was received from rent, how much from interest, etc., and by analyzing the Funeral and Administration Expenses account to show how much was spent for repairs, how much for office supplies, how much for attorney's fees, etc. In a large estate where the transactions are numerous, it will be found much easier to open separate accounts for all the items of most frequent occurrence instead of lumping all income into one Income account and all expense into the Funeral and Administration Expenses account. § 574. Liabilities A fact which will strike the commercial bookkeeper upon examining an executor's account is that the inventory upon which it begins is an inventory of assets only, no reference being made to indebtedness even if shown on the books of the decedent, and no deduction being made for them. Debts only appear thru their payment. This is a very important distinction. Where in commercial practice it is considered essential to enter liabilities as they are incurred, in probate practice the account known as "Debts of Decedent" is debited as payments are made in full or on account, no counter-entry being made until the Debts of Decedent account is closed at the time of rendering an accounting. The theory upon which this procedure is based is that the books of the estate represent the liability of the personal representative rather than the net worth of the estate, and that the representative is liable to the proper persons, not for the net value of the estate, but for the amount of the assets which have been turned over to him. The only variation from this feature is in the entry on the books of real estate which does 8 Sprague, The Philosophy of Accounts. not come into the hands of the executor, but passes immediately to the legatees or heirs-at-law. (See § 615.) The Federal Income Tax Law requires that mortgaged and pledged property be inventoried at its gross value and that the amount of the liability thereon be shown separately as a deduction. For this reason it has been recommended (see § 342) that the inventory which is made for all purposes include the real estate at its gross value, the mortgage indebtedness being considered a debt of the decedent. This is important for the further reason that the representative is entitled to his commission on the gross as well as the net value. § 575. Uses of Accounts The following synopsis presents the uses of the accounts: Debited With CASH Cash included in inventory and all All disbursements. Credited With receipts. CORPUS GROUP INVENTORY Appraised value of corpus of Appraised value of each inven |