The handling of the transactions under such a scheme of accounts is as follows: At the beginning of the administration the estate assets are debited to Inventory, and the total amount of them is credited to Estate Corpus. The amount of cash in the inventory is credited to Inventory and debited to Cash. Subsequent receipts of cash by the administrator are debited to Cash. If they are from the sale of assets included in the inventory they are credited to Inventory to the amount of the appraised value, any increase therein being credited to Gain. on Realization, or any loss thereon debited to Loss on Realization. Receipts from the sale of assets which, although they belonged to the decedent at the time of death, were for some reason not included in the inventory, are credited to Assets Not in Inventory. Receipts of income earned by the estate assets during administration are credited to Income. Payments of cash or distributions of assets made by the administrator are credited to Cash or Inventory. Payments made on account of debts existing at the time of the decedent's death are charged to Debts of Decedent. Payments of expenses which are deductions from the corpus of the estate are debited to Funeral and Administration Expenses. Payments of expenses which are to be deductions from the income are charged to Expense, Income. Losses of income from theft, etc., are debited to Loss on Income. Cash divided among the heirs-at-law is charged to Distribution of Cash if it is from corpus or to Distribution of Income if from income. Other assets divided (if from corpus, as is usually the case) are debited to Distribution of Assets Other Than Cash. If this is all done accurately the books are in shape for closing. § 577. Method of Closing When an accounting is to be made the books should be closed. (See Chapter LXXI.) In brief, the closing is effected by: 1. Crediting Estate Corpus and debiting the corpus gain 3. Debiting Income and crediting the income loss ac- § 578. Subdivision of the Inventory Account As one of the principal functions of a representative (see § 115) is to realize on the assets, the accounting scheme should be so arranged as to record the process and progress of realization. For this reason the cash is separated from the other assets and removed to a separate account, although it is at first included in the Inventory account. The two accounts "Cash" and "Inventory" represent the executor and all the others represent the estate.* 5 Some writers on this subject have recommended the further subdivision of the Inventory account into accounts with the various groupings used in the inventory (see § 281), but with the exception of cash, it is hard to see what good can result from this. A realization account can be kept without such subdivision. In commercial practice the various assets would of course be treated through separate accounts, but the purpose of commercial accounts is not the same as that of estate accounts, and the end for which the work of accounting is done should always be kept in mind. The law of no state requires such subdivision on the books, and it is not seen what labor is saved or what good is accomplished by this subdivision of the inventory beyond a separation of cash, since the form of the realization account required in no state makes necessary an accounting for the inventory by groups, whereas all states require an accounting for each item. This can more easily be kept through a work sheet which forms a subsidiary ledger to the Inventory account as a whole. (See § 585.) But if this subdividing is indulged in at all, it should be with reason and not by an arbitrary division of each group of inventoried assets into an account. If there were only three accounts receivable, one listed on the inventory under Accounts Receiv Sprague, The Philosophy of Accounts. Especially Baugh and Schmeisser in Theory and Practice of Estate Accounting. able, Sperate, one under Accounts Receivable, Doubtful, and one under Accounts Receivable, Desperate, it would be absurd to open a ledger account for each of these classifications. To make a reasonable subdivision the inventory must be analyzed and the assets divided into groups so that the accounts in which they are to be carried on the books will present a logical classification of the items without burdening any account and without making so fine a division that the books will be overburdened with accounts to which there will be but few entries. To give an exaggerated example, in the case of an estate not much of which was invested it would be entirely permissible to carry all the invested assets in an Estate Investments account; for another estate it might seem to be desirable to divide this account into Stocks and Bonds, and Real Estate Mortgages; in another estate it might seem wise further to divide the former of these into two accounts, one for stocks and one for bonds; in a third the latter of these two subgroups might be contained in three accounts called "Railway and Industrial Bonds," "Municipal Bonds," and "Liberty Loan Bonds." A sense of proportion must be applied in such matters if the bookkeeping is to be free from unnecessary labor. The accounts must be so chosen that there will be a balance between the work involved in obtaining detailed information from memorandum records or subsidiary ledgers on the one hand and the extra labor caused by increasing the number of general ledger accounts. Under this plan far more accounts are usually necessary for the administrator or executor than for the trustee, as the former usually has to realize on many assets, turning them into cash and perhaps investing this cash permanently, whereas the trustee has only such assets as are considered worth retaining as permanent investments. The administrator will, for example, have debts receivable which will ordinarily be closed out before the trustee takes hold. |