(92) Rinders, T., Reserve (Cr. $525.33)

These accounts are opened in connection with the Prospect Park property, accounts Nos. 84 to 87. As stated, Mr. Rinders is to be credited with one-third of the profits as the concern makes them. It is shown above that the average selling price was $157 and yielded an average gross profit of $94. The form of journal entry bringing sales of this property on the books, is as follows:

Prospect Park Contracts.....................

$157.00

To Prospect Park Purchase.................

$63.00

Gains..................

62.67

" Rinders, T., Reserve..........................

31.33

It will be seen that, by opening this Rinders' reserve account, there is shown a liability of the concern for the portion of the profits due him. Such entries had been made in the past, and at the last closing of the books one-third of the profits earned had been debited to this account, leaving $525.33 still unearned. There is now charged to this account the amount already shown as Rinders' share of the unearned profits ($293.71), which is brought in by the following entry:

Prospect Park Gains....................

$293.71

To Rinders, T...........................

$293.71

For amount of unearned profits to date.

This entry will change the balance of account No. 91 into a credit account of $13.71, which is carried into "Accounts Payable" column.

The principle of the above account is simple: The reserve account is credited with one-third of the profits as each sale is made, and is debited with the same proportion of the profits as they are earned. The balance, therefore, shows a liability to Mr. Rinders which is contingent upon the contracts being carried out. As these profits are realized, Rinders' personal account is credited with "Profits Earned" and debited with the sundry cash advances made to him from time to time; the balance thus shows the cash due or excess payment made him. If instead of merely an interest in the profits, Rinders had also had an interest in the title of the land, the procedure would have been somewhat different; e.g., if "Real Estate" showed the full value of the lot, it would be necessary to open another credit account for Rinders as owner, crediting him with his interest, and entries regarding the profits would probably be similar to those indicated above.