taking no light task. A managing committee, in which each of the important bodies and cities actively interested in the work should have representation would have to be created. This committee would have to hold meetings with more or less frequency, perform a large amount of work in the way of prosecuting studies, assembling documents, comparing methods, drafting reports, forms and regulations, etc. It would be very desirable that it should be in a position to employ specialists and experts from time to time as one branch of municipal administration after another is taken up for consideration and report. The expenses incurred by the members of the committee in attending the meetings of that body should be met as well as those for clerical assistance and supplies. If the work is properly done a very considerable sum of money, running into the thousands of dollars, will be required. In view of the readiness with which publicspirited persons have responded in the financing of the work of Bureaus of Municipal Research and other similar undertakings there ought not, however, to be much trouble in meeting this requirement. As long as tangible results of value can be definitely promised and exhibited the money for continuing the work will be forthcoming. It may seem that I have wandered rather far afield in broaching and devoting so much attention to this subject. In point of fact, however, I am doubly justified in doing so, first because no proper correlation of financial and physical statistics can be had until in some way the cities have radically improved their present methods of administration and record keeping and, secondly, because in the same way the Bureau of the Census can only hope to improve to any great extent its present reports on statistics of cities by having the cities themselves improve their methods of bookkeeping and administration, and reduce them as far as possible to a common basis. Budgets and Balance Sheets. The Practical Application of Sound Accounting Principles and Methods to Municipal Book-Keeping By HARVEY S. CHASE, Certified Public Accountant, Boston, Mass. If we look through the proceedings of the League for the past ten years, we shall find many papers and discussions upon questions related to municipal accounting. If these Historic are noted carefully from year to year, it will be found that there has been a steady progression from the original and somewhat crude classification, which appears in the earlier volumes, down through the development of the past ten or twelve years, until we have to-day the standardized classifications which are applied throughout the country by the United States Census Bureau. These standards have been adopted, so far as the laws permit, by the various States which have uniform municipal accounting bureaus; these States being Ohio, Massachusetts, New York, Indiana, and various others. I bring to your attention a well-thumbed copy of the City Auditor's report for the year 1900 of the City of Newton, Mass., in which appeared for the first time in this country a "uniform" classification of municipal accounts. This document is now historic and in it is given full recognition of the National Municipal League's efforts to establish a standard, to which all the cities of the country could conform ultimately. These efforts were then being put forth by the League's committee upon "Uniform Municipal Reports and Accounts." Continuing our examination of the League's proceedings, it will be noted further that most, if not all, of the papers heretofore given before the League on this subject have been devoted to the classification of appropriations and sub-appropriations authorizing municipal expenditure. I wish in the present paper to go a considerable step beyond these questions, and point out what seems to me, after long experience in municipalities in various parts of the country, to be a fundamental necessity in the installation of sound accounting systems in our municipalities, including both cities and towns. This essential feature which I wish to bring to your attention to-day is a counterpart of what is fundamental in all classes of commercial accounting, although the aim of and therefore the requirements upon commercial accounting systems differ in important particulars from those of municipal accounting. These differences have been enlarged upon many times by city comptrollers and others, and I will not attempt to emphasize them here. On the contrary, I desire in this paper to emphasize the likeness, in certain fundamental aims, of both municipal and commercial systems of accounting. You are familiar with the primary distinctions of commercial accounts, "capital" and "revenue"; that is to say, the distinctions between those classes of accounts which have to do with "assets and liabilities" and those classes of accounts which have to do with "income and outgo." The one represents properties, actual cash, and securities belonging to the organization, together with the debts owed by the organization, as well as its capital stock liabilities. The other relates to earnings which have come in during a certain period or have accrued during that period, together with expenses which have been paid out during that period or have been incurred during the same period. It has been said frequently by persons actually engaged in governmental accounting that the likeness which I am Capital and deavoring to demonstrate to you does not exist. In fact, to quote the words in a recent address by a certified public accountant familiar with ordinary methods of governmental accounting, such a relationship ought not to be considered at all! This gentleman said, "the considerations of capital' and 'revenue' which characterize the accounts of all private undertakings are conspicuously absent in the accounts of cities, and in fact in all public accounts, and accordingly neither the 'balance sheet' as commercially understood nor its inseparable companion, the 'profit and loss account, finds any place in the reports of public finances." I wish to make immediate and emphatic objection to this state 66 ment. My experience among cities both large and small and in various parts of the United States during the last fifteen years has led me to certain conclusions from which I find myself unable to escape, and one of these conclusions bears very closely upon this matter of capital" and "revenue" in municipal accounts. In fact, it appears to me that we do have, and must necessarily have, in city affairs the same distinction in classes. of accounts which are represented by the titles "capital" and "revenue" in commercial affairs. It will be found impractical to install sound accounting methods in municipalities, in my opinion, unless these distinctions are recognized, whatever be the titles given to these different classes of accounts. The word capital" is not a satisfactory term to apply to municipal accounts. For this reason I have coined and used the word "nonrevenue." The term "revenue," however, and revenue account," used in very much the same sense as a profit and loss account is used in commercial affairs, is one of the most essential features of a proper installation of sound methods of accounting in cities. Of this I am fully convinced, and for this reason: As the authority I have quoted says, "The question of 'gain' or profit' finds no proper place in municipal accounts." This is true but the question of surplus or deficiency of revenue is an exceedingly important item in such accounts. This question, Whether or not the revenue pertaining to the fiscal period is in excess of the expenditure which that revenue is supposed to meet, is one of the fundamental questions which a proper system of accounts in a municipality should exhibit, and should exhibit so clearly as to be without question. The corollary of this statement is evident. If the current revenue has not provided for the current running expenses of the city, then borrowed money must be used to supply this deficiency, and such borrowed money can be liquidated only out of future revenues. Thereby such deficiencies of the present become unwarrantable burdens upon the taxpayers of the future. Surplus or I have examined city after city in which, owing to the crude methods of accounting in vogue, the municipal officers year after year permitted the expenditures to exceed the revenues available, and thereby municipal debts have piled up. These debts, being complicated by and mixed with other debts which have been issued for public improvements and similar purposes, have been almost inextricably confused in the accounts, and it has been beyond the capacity of the officers to determine whether, or by how much, the city was running behindhand annually. In fact, as may be readily imagined, a considerable number of municipal office-holders do not sincerely desire that the public shall know how much to the bad their expenditure is carrying the city. They prefer that the finances of the city should run along as best they may until their own terms of office have expired. "After us, the deluge," is too frequently the motto of political office-holders. Even if these officials are honest, and do desire to exhibit the actual conditions to the public, they find themselves handicapped by unsound methods of accounting based on mere cash accounts, which, under provisions of law, are the prevailing methods of accounting in municipalities to-day. With laws and legal requirements we must of course comply, but, wherever these requirements are not in accord with sound accounting principles, it is evident to us, as professional accountants, that in due time these laws must be changed. We should look at these matters from a point of view which will give us a broad survey of the whole field of municipal necessities. Laws are by no means perfect, and they are especially deficient along accounting lines for the reason that, in general, laws are drawn and are amended by members of the legal profession who, as a rule, have little knowledge of and less patience with accounting requirements. We cannot avoid recognizing the fact that, as accountants, we must insist, always, of course, with tact and patience, and must continuously insist that the statutes shall recognize accounting requirements and that from time to time they must be changed by amendment and repeal until sound accounting principles shall be matters of law as well as matters of necessary business procedure. My experience in city after city has led me step by step to conclusions which I am endeavoring to place before you to-day, and, in order that we may start properly and that you may get a correct understanding as to what I mean by "revenue' accounts |