It has been shown in Section 144 that earned profits vary-directly with, and depend solely upon, the cash receipts. An analysis of the accounts of the concern for the previous year shows that the earned profits on contracts were taken as 45% of the cash receipts from those contracts.

The cash collections on contracts shown above are...................................................

$18,035.19

45% of this is...........................

$8,115.84

To this we add the earnings in "C"

$1,715.07

168.75

1,546.32

Making total earnings....................................

$9,662.16

The expenses per "B" are........

$7,880.12

47.55

7,832.57

Leaving net earnings for the month....................................

$1,829.59

In the above examples it will be noticed that taxes, insurance, and interest are included with the other expenses. In some instances, where these amounts can be definitely stated for the whole year, it is better to eliminate them from the current expense account, transferring them to Group A (General Accounts); and then, on Group K, deduct one-twelfth of the annual amount of each of these items. The wisdom of this course depends, of course, upon individual circumstances.