Let us consider the methods by which such results may be obtained. It will be seen that all general expenses are included under Group B. The figures are actual and require no explanation. They include current expenses in connection with subdivisions, e.g., Parkville expenses; while those expenses pertaining to improving and developing specific tracts are included in Group D (Real Estate), and regarded as an increase of investment. It is evident that discretion must be used in such classification. The value of these monthly estimates must, in fact, depend largely on the judgment of those who prepare them. They are not intended for publication, nor even for the stockholders, but are prepared for the personal guidance of the executive officers. Conservative lines should therefore be followed in their construction, or otherwise, they may, instead of guiding, actually mislead and deceive. Probably the best results can be obtained if these statements are prepared by the auditor of the concern, whose training and independent viewpoint give him the advantage over the bookkeeper for work of this kind.

Having ascertained the monthly expenses, how are the profits to be determined ?

Group C gives the definite earnings which appear on the face of the ledger and which require no further calculation. Other profits consist of a certain proportion of the cash collected from time sales of all classes, and the determination of these profits calls for the exercise of judgment and for some calculation.

It has been shown in Section 144 that the amount of the profit earned depends solely upon the amount of cash collected. This amount can be determined from the ledger or the columnar cash book. The figures of Group J (Section 270) give these receipts for the month covered by the example.

Group K (Section271) is framed on the experience of a number of years, during which it has been found that 46% of the cash collections on time sales consist of earned profits. This percentage will, of course, vary with each business, and will reach as high as 46% only when a large proportion of the sales consists of development properties. In order to be quite on the safe side, only 45% of the cash receipts shown in Group J is taken, and with this figure Group K gives very closely the actual profit earned in the month. If the special ledger (Form 11, Section 20, or Form 15, Section 23) is used, this figure, instead of being estimated, will be determined accurately.

In Group I are shown all sales made during the month, with the gains thereon. This is not used in ascertaining earned profits, but is useful as showing the business done; e.g., a comparison of the net amount of new sales with the cash collections in Group J will show whether the business is growing or diminishing; while a comparison of these figures month by month shows whether or not a satisfactory standard is being maintained.

There are two other methods of calculating the proportion of cash receipts representing earned profits, as follows:

1. A comparison of the amount of outstanding contracts of. any one class with the gains thereon will show the ratio between collections and earned profits. For example:

Eureka Gardens Contracts

=

$2,460

" " Gains

=

$1,330

The fraction 1,330 X 100 / 2,460 represents the number of cents

2,460 in each dollar collected, which is earned profit.

The collections on each subdivision may, if desired, be treated in this way, in which event Group F could be made to include a column showing the ratio applicable in each case; and the earned profits and their total could be substituted for figure $8,115.84 in Group K (Section 271).

In the case of profits from general contracts and from mortgages receivable, the profits as a whole are fairly uniform from year to year; and as the general Gain on Sales account is composed of gains from these two sources, very close figures can be obtained by a method similar to that described above.

2. In the event that the subdivision sub-ledger of Form 15 (Section23) is kept, no calculation is necessary beyond mere addition or subtraction; for if the totals of the "Reserve Realized" columns be taken off on an adding machine at the end of each month, the difference between the totals for any two months gives at once the amount of profits earned or realized.