dividends actually paid to the common shareholders; the percentage the gross profits for the same years bears to the sales, and also the percentage the net profits bears to such sales; the term for which money has been lent by bondholders or by other secured creditors, and if it matures within a fairly near period. It is of great importance that satisfactory arrangements be made for the renewal of such loans.

Recovery of Invested Capital.-The safety of the capital is, of course, of great importance. In all commercial concerns, capital, when once invested, can be recovered in one of two ways:

1. By what is commonly known as "winding-up" a concern-namely, a realization of the assets and liquidation of the liabilities, the balance representing, either for better or for worse, the capital originally invested in the concern.

2. By transfer, in which case the owner of the capital has to find a substitute, obtained in the case of a single owner by an absolute sale of the business as a going concern; in the case of a partnership, by finding one or more partners to take the place of the retiring partner; and in the case of a corporation by the sale of its shares.

In the first case, by a division of the assets into the groups suggested, an approximate idea may be formed as to whether they are not only sufficient to provide for the payment of the outside liabilities, but also whether there will remain, after so doing, enough to make good the capital of the owners. In the second case there will have to be considered: The nature of the business, the persons to whom the chance of acquiring such a business or a share therein might appeal, or the market price of the capital stock compared with that of other companies carrying on a similar business.

Conclusion. The accounts of a concern are intended to disclose its position as respects its owners and debtors and creditors.

Its relations to its debtors arise through the charges made to them for the sale of its products, or from debts of various kinds. Its liability to its creditors is created through the purchase from them of money, services, and materials required in the conduct of its business operations. No abstruse accounting theories are involved in either of these two relations, as their ascertainment is dependent only on the correct use of the proper means.

Not many years ago it was considered that if the results of the operations of a business and its financial position could be shown once a year, or at most at the end of semi-annual periods, a more frequent statement was not necessary. When business units were much smaller than at present, competition less keen, and the number of those interested in each enterprise fewer, such a practise was fairly satisfactory, although there were apt to be surprises in store when the results of the fiscal period were disclosed.

In the present era of huge enterprises, however, a year or even six months is too long to conduct a business without knowing definitely the result; therefore each month the management requires that statements be issued showing how the business stands, and what it has earned or lost. Hence have been introduced the monthly balance-sheet and profit and loss account, comparisons of which with the figures of preceding months will disclose the progress of the enterprise.

XIII
AUDITING

1. DEFINITION AND CLASSIFICATION

The Professional Auditor-Official Auditors-Staff Auditors Auditing Classified-1. Continuous and Completed Audits-2. Fraud Investigations—3. Examinations.

2. OBJECT AND ADVANTAGES

1. Detection of Fraud-2. Detection of Technical Errors-3. Detection of Errors of Principle-A Common Error-Sales and Expense Accounts-Inventories a Source of Error-Reserve Accounts-Secret Reserves-The Advantages of an Audit-1. Condition Accurately Shown-2. Bank Loans and Sale of Business3. Partnerships-4. Fire Loss-5. Bonding-6. Protection of Shareholders and the Public-7. Auditor's Liability-8. The Moral Aspect.

3. METHODS OF AUDITING

1. Checking and Footing-2. Inspection and Analysis-3. Verification and Testing-(a) Purchase Records-(b) Sales Records -(c) Cash Receipts-(d) Cash Payments-Vouching-Verification of Income-Proving the Balance-Sheet-Verification of Assets-Verification of Liabilities.

4. SCOPE OF AUDITING

Wholesale Merchants-Manufacturing

Traders-Retailers→→→ Contractors-Breweries-Hotels-Club Accounts-Theatre Accounts-Publishers-Mining-Banks-Executors' and Trustees' Accounts-Accounts of Public Institutions-Colleges and Schools -Building and Loan Associations-Public Service Corporations— Conclusion.