This group of accounts refers to a tract which was handled under a selling contract. The entire tract consisted of 240 lots, to be sold at prices shown in a schedule attached to the original agreement. The concern had the exclusive sale, was to pay all expenses attached to the selling, and was allowed to retain all profits made above the schedule prcies.

The tract lay in a town several hundred miles from the home office and the subdivision was therefore managed through a local office, where detailed accounts of the contracts and sales were well and accurately kept. Until a few months before the date of this trial balance, no sub-ledgers for these contracts had been kept in the main office; and upon the auditors' comparing the balance of outstanding contracts, as shown on the general ledger, with a special report from the sub-office, it was found that the general ledger balance was some $10,000 in excess of the sub-ledger balance in the branch office. When the matter was investigated, it was found that a number of reports had failed to reach the bookkeeper, and had therefore not been placed upon the general ledger.

For several years past, the auditors had recommended that a duplicate sub-ledger be kept in the main office, and that weekly detailed reports be rendered from the branch office to keep up this duplicate set of books, which could then be compared periodically with the branch office books and the accuracy of both insured. When this serious discrepancy was discovered, the concern agreed to adopt their auditors' suggestions, and since that time, such troubles have not appeared. Upon closing the books it was necessary to make the following journal entry:

Parkville Purchase................................


Parkville Gains..............................


To Parkville Contracts..................


" Parkville Profits......................


This brought the balances of the outstanding contracts down to $8,837.05. An analysis showed the original amount of these contracts to have been $20,320, while the original profit had been $10,495. The unearned profits were therefore $4,564.18, which was slightly more than the amount left in the Profits account. The difference of $1.87 was then charged against the Profit and Loss account.

It will be noted that the Purchase account is here a credit account and represents a liability contingent upon the completion of the contracts by the purchasers.