accounting methods of the City of New Bedford, Massachusetts, in the form of balance sheet which is now published monthly by the city auditor. This is the element of present day "conversion" which is most interesting to accountants and students of municipal affairs, and I will therefore elaborate it at some length. The actual processes of the new methods of accounting in New Bedford are as follows: The invoices received by the departments are verified and approved by the heads of those departments and sent to the city auditor prior to the tenth of the following month. These invoices are taken up by the city auditor, properly classified and distributed, passed upon by the various committees of the council and authorized for payment. The total audit for the month is credited by the auditor to an "audits payable" account in his general ledger and charged to the various departments. When the treasurer pays the amounts of these invoices on orders from the auditor his payments are set up on daily sheets, classified in columns by funds. At the end of the day these sheets are verified, totaled and approved, and duplicate sent to the city auditor who enters these payments to the debit of audits payable and to the credit of the treasurer. In the same way cash receipts which reach the treasurer's office are entered upon daily sheets, classified by funds in columns, and also classified by the various sources of receipts which are printed on the sheet at the left, each line representing one source. At the end of the day, verification having been made, the totals of the columns, each pertaining to one fund, are taken up on the city treasurer's books and a duplicate sheet is sent to the city auditor, where the items are taken up in the latter's books, not by funds, but by the sources of the receipts. In this way an exact verification of cash is kept between the city treasurer's office and the city auditor's office, although the classifications both of cash receipts and of cash disbursements are quite different in the two offices. In one case, the treasurer, these classifications are related only to funds, while in the other case, the auditor, the classification relates to sources of revenue and to purposes of expenditure. In both city treasurer's and city auditor's offices the items from the daily sheets are entered upon recapitulation sheets which cover all the working days of a month. Only the totals of these recapitulation sheets are journalized and entered in the ledgers at the end of the month. The new methods thus require a minimum of time in bookkeeping while providing also satisfactory means for constant verifications between the two offices. Analysis of The "monthly statement" of the city auditor of New Bedford, which is regularly printed and laid before the council, contains on its first page1 a trial balance consisting, first, of current assets and current liabilities and, second, of capital assets and liabilities. The current assets include taxes uncollected, other revenues uncollected, dues from the Commonwealth, cash in general fund and other funds, balances to be provided for from future issues of loans, etc. Balance Sheet The current liabilities include: Accounts payable, which consist of temporary tax loans, audits payable, payrolls payable, deposits, etc., balances of special funds, balances of non-revenue appropriations (from loans) balances of revenue appropriations (from revenue) and reserves against uncollectible taxes. Capital assets include: Ledger accounts of costs or assessors' estimates, of city properties, new constructions authorized by appropriations, but not yet provided for by actual issuance of loans, water works property, etc. Capital liabilities consist of loans and bonds outstanding, balances of trust funds which were used for general capital purposes and upon which interest is paid by the city annually, loans authorized by appropriation, but as yet unissued, and finally a general balancing account called "excess of public property." In the Census Bulletin "Statistics of Cities, 1906," published in 1908, on pages 27, 28 and 29, a modified form of the New Bedford balance sheet is given (Schedule II) with critical comment thereon from which I may quote as follows: Balance Sheet of New Bedford, Mass. A specimen of this last-mentioned form of balance sheet is here presented for the 'See Schedule 1 herewith. city of New Bedford, Mass. * From such a monthly statement for April 30, 1908, the Bureau of the New Bedford's Census has compiled a triple form of balance Balance Sheet sheet for the date mentioned. In arranging the balance sheet as indicated the Bureau has had the coöperation of Mr. Harvey S. Chase, under whose direction and supervision the city of New Bedford made during 1908 many important changes and improvements in its accounts and reports. * Current Liabilities of New Bedford. The foregoing balance sheet of New Bedford separates current debt liabilities into three general classes (1) those "authorized but unincurred," (2) those "incurred but not accrued," and (3) those "outstanding;" that is, "authorized and outstanding. The authorized but unincurred liabilities are divided into four general classes— those arising, respectively, from "general revenue appropriations," "special revenue appropriations," "trust appropriations,' and "appropriations for buildings and public improvements"the general character of which has already been set forth at length. In cities authorizing local improvements to be met from special assessments, and in those making much use of special assessments, a fifth subdivision of authorized but unincurred liabilities would be carried in the accounts, which might very properly be given the designation "special assessment appropriations." The current outstanding debt liabilities, or debts, are separated into two divisions- accounts payable" and "revenue bills payable." The first five items under the first head are in the nature of private or quasi-private trust liability balances, and the last one is on account of public trusts for a non-municipal use. The license fees due the commonwealth may be considered as similar in all respects to an account payable in a private business, or to a credit balance in a quasi-private trust account. The first two items under "revenue bills payable" are properly included under that general designation. The character of the amounts included in the city's monthly statement or "trial balance" under the designation "audits payable" is not fully known. So far as those amounts represent outstanding warrants, they are properly included under the head of "bills payable," but so far as they represent audits for which no financial warrants or bills have been issued, they are "accounts payable. Current Assets and Liabilities Current Assets of New Bedford. The current assets of New Bedford are separated in the balance sheet into three subdivisions—“assets authorized but not accrued," "assets accrued but not collected," and "cash," corresponding in a general way to the division of liabilities which would exist were "audits payable" made a class of liabilities by themselves. At the beginning of the fiscal year the first-mentioned subdivision of assets was the largest, the second containing only small amounts of uncollected revenues of prior years. With the levying of the general property tax the authorized revenues were credited and the accrued revenues debited with the "taxes of 1908." Later, by the collection of sundry revenues, the authorized revenues were credited with further amounts, and the only authorized revenues not accrued were the miscellaneous revenues expected during the year, but not collected prior to April 30. The other current assets "authorized but not accrued" consisted of the proceeds of loans provided for financing the public buildings and improvements authorized by appropriation acts. In cities making use of special assessments to meet current expenses or outlays, the division of the balance sheet here designated "revenues receivable" would include the amount of all special assessments levied but not collected, whether the same are due and payable in the current or in some future year. The accrued but not collected revenues shown as assets, if properly set forth in the accounts, should represent the amounts which will in all probability be received from their collection. Their aggregate debit entries should be balanced in part with offsets to allow for abatements and uncollectible taxes. If these offsets vary materially from the actual amount of accrued revenue that will not be collected, the balance sheet is not a true statement of conditions. The correctness of the sheet, and thus the administrative value of the summary, depends upon the good judgment and good faith employed in preparing estimates of uncollectible taxes as offsets to accrued revenues. The laws of Massachusetts permit cities such as New Bedford to use any money in the treasury for meeting any authorized expenditures. As a result, most cities in that state actually keep but one fund, and special and trust accounts are not kept with special and trust fund balances, but merely represent the debt liabilities which exist by reason of the special and trust accounts. New Bedford has merged the greater number of its funds into one, but still separates the cash of two trust funds from other cash. With other laws governing the action of its officials, the city would have to carry the balance of all moneys received for special and trust funds separate and distinct from the fund for general purposes. * Additional Division of Current Assets and Current Liabilities. In cities which by law are compelled to maintain funds for all special and trust accounts, the division of the balance sheet in which current assets and liabilities are presented may properly be subdivided rather than kept as a single account, as is presented for New Bedford. Gross and Net Fixed or Funded Debt. In recording or summarizing accounts with municipal indebtedness the accounts and The Funded summaries should be in a form which will make them of the greatest service, not only to the administrative officials of the city but to all others concerned in the municipal management, namely, the taxpayers and the purchasers of municipal securities. Municipal indebtedness is readily separable, as has already been pointed out, into two principal classes-current and funded or fixed. The current debts, as all other current liabilities, are best shown in the summary of current assets and liabilities in their relations to the resources by which they are to be met. The funded or fixed debts are best shown in a section by themselves in connection with an exhibit of the assets provided for meeting them. The section of the balance sheet arranged for this purpose should be made to include all data needed to show the relation of the funded or fixed debt, and of its several parts, to the limitations placed upon the municipal borrowing power. The fixed debt is separated in the balance sheet into four classes. The first of these is that of the indebtedness on account of the water-supply system. In Massachusetts, and in many other states, such debts are by law not included in the funded or fixed debts which affect the borrowing power of cities. The reason for this exclusion is that the water-supply systems are expected to be self-sustaining, and by their earning power to constitute an asset for meeting the debt incurred for their construction or acquisition. By this exemption the water-supply debt is constructively provided with a special asset equal to the excess of the water debt over the cash and investments of the water sinking fund. This practical recognition in the statutes of the earning power of the water-supply system is expressed in the accompanying balance sheet for New Bedford by making the water-supply system a constructive asset to the amount specified. This asset and the cash and investments of the water sinking fund balance the water debt. If there had been other fixed or funded debts subject to similar exemptions in the computation of net indebtedness, they would have been separated and shown in the same way in the same division of the balance sheet. In Massachusetts cities some five or six different classes of these exempted debts are met with, but so far as known only the one mentioned exists in New Bedford. * * * |