In order to facilitate the work of the auditor in obtaining the amount of the gain on sales which may be carried to Profit and Loss each year, the following plan has been worked out and has been used in practice for the last six or seven years. Analysis paper is taken, and the various columns used are about as follows:

1. Mortgage Number, or Contract Number.

2. Name of Purchaser.

3. Original Amount of Gain.

4. A fraction made up as follows: The denominator is the total amount of the original sale; the numerator is the amount by which the balance has been reduced since the last examination.

5. Amount of Gain Realized, i.e., the amount of the dollars and cents, obtained by multiplying the original gain by the fraction in the preceding column.

6. The Amount of Gain Unrealized at Close of Year obtained by subtracting column 5 from column 3.

The Gain on Sales account in the general ledger is taken and the details of each item found therein are entered in columns 1 and 2. Column 3 is then added, and the total should, of course, agree with the total credits of the Gain account in the ledger.

The contract and mortgage ledgers are then taken and each sale is examined and the fraction appearing in column

4 is determined. It must be noted in this connection that the numerator of the fraction does not necessarily agree with the total amount of payments, for if items for taxes, insurance, interest, or any other expense have been charged to an account, the debt is, of course, reduced by the amount of payments less such charges. As has been said in Section 175, it is this reduction, and not the amount of the total payments, which gives us the proportion which we are entitled to carry to Profit and Loss.

The most convenient practice is to make up as many such sheets as are necessary, to add each sheet independently, proving columns 3, 5, and 6 against each other, and adding a summary sheet on which the totals of all these sheets appear and which gives the totals to be carried to Profit and Loss. If the sheets of one year are kept, they form a basis of the statement for the following year; and in the second and succeeding years columns 1, 2, and 3 are used without rewriting. Reference to them in following years is simplified if, as each item is paid, it is ruled out across the entire page in colored ink.

If additional columns 7 and 8 are employed, the fraction representing the amount earned for the second year may be inserted in column 7, and in column 8 the same item in dollars and cents.

Although the description of this method may seem long, in practice it will be found that the fractions can be very quickly determined and the entire sheet completed with comparatively little labor.

One special use of these sheets is to provide the bookkeeper or auditor with the amount of profit left as unearned by any one contract should such contract be cancelled; and it saves considerable confusion, when drawing the journal entry covering such cancellations, if reference is made to these sheets and the exact amount of unearned profit ascertained. It has been found that bookkeepers are usually disposed to write off the amount originally credited, which, of course, necessitates correcting entries and tends to obscure an account.