dies to capital account. Such items as these are nearly always chargeable to cost of production. Even in the case of new items the expense in such cases is incurred for the purpose of enabling a special piece of work to be done, and this expense, therefore, is part of the cost of that particular work.

In the boot and shoe industry a peculiar situation exists. Manufacturers charge the cost of lasts—the life of which is relatively short-to expense 'and write off the amount the first year. This is a very conservative practice and more than makes allowance for the depreciation in the value of the lasts. According to the experience of a large shoe company, making more than $4,000,000 worth of shoes per year, the life of a last is about four years, except in the case of the extreme style of lasts which are used only one or two years.

Other manufacturers take the ground that they have no depreciation to charge off because their property has gone up in value. This, too, is an error. Depreciation is not offset by appreciation. It takes place all the time and consists of the wearing out of physical assets. Appreciation, on the contrary, is an increase in the market value which may not exist when an effort is made to dispose of the property. Any attempt to recognize appreciation on the books simply means writing up profits not resulting from normal business operations.

Depreciation due to obsolescence of equipment is also an important item of cost to be provided for.

New inventions or new processes may at almost any time render a large part of existing plants in an industry useless. The manufacturer who ignores these improvements cannot compete with the manufacturer who by adopting them decreases his costs and improves the quality of his goods. In some industries provision should also be made for loss from accidents to machinery which happen with more or less regularity.

In the cement industry obsolescence is an important factor. The progress of the industry is so rapid that frequently machines have to be thrown out and new ones installed. Provision must be made for this in figuring cost. For example, a 60-foot kiln is used by an American cement manufacturer, and was stated by him to be a perfectly good kiln but to be entirely out of date on account of the fact that kilns are now built 200 feet long and rotary in type. He regarded his kiln as hopelessly out of date.

In the leather belting industry, where there are very few changes from year to year, and where the machinery and product are both staple, obsolescence is scarcely to be considered at all, but depreciation should be charged off and has been charged off by the larger concerns. A life of twenty years is given to many machines, while more complicated ones are figured at ten or perhaps fifteen years. One manufacturer, producing about one and a half million dollars' worth of leather belting per year, esti

mates the life of each machine separately and charges off every three months for depreciation.

The scrap value of machinery has not been allowed for at all by many of the larger manufacturers. It has, of course, a certain value as junk after it has ceased to serve its purpose in the factory or mill. Not to allow for it is to err on the side of conservatism.

Depletion has to be taken into account in some industries. For example, the deposits of cementmaking material are gradually being exhausted, although this is a very slow process. A manufacturer in this and similar industries should allow not only for depreciation and obsolescence, but also for depletion.

The depreciation of merchandise is another very important thing to be considered. It is nearly always necessary to reduce the selling price to close out the last of a line of goods. If a merchant buys 100 dozen shirts at $12, intending to sell them at $1.50 each, he knows that about twenty dozen will have to be sold at prices ranging from $1.25 to $1 or possibly even less. If he does not provide for depreciation his books will show that he is making 33 per cent. on his business, until he has actually sold the entire line when the truth will appear. Merchants should also make an allowance for depreciation of their equipment.

Making provision for depreciation is not spending money. It is simply charging the purchaser for the

use of equipment and machinery as a legitimate part of the cost of production and putting the amount received in a drawer separate from profits. Not the manufacturer but the customer should bear this expense, and in the long run it is to his interest to do so. Finally, it must be said plainly that if proper provision is not made for depreciation true profits cannot be shown and the inevitable result will be that another supposedly successful concern has been added to our already long list of failures.

An example will serve to make clear the dangers of the lack of adequate accounting methods. We may take two manufacturers named Jones and Brown. They are in the same line of business and bank with the same banker. Jones keeps an accurate cost accounting system, charging off liberally for depreciation on his buildings and machinery. He charges his jigs, tools, dies, and patterns against the cost of production every month, or at least every quarter. His His overhead is distributed fairly; he quotes a fair price on his product and his customers recognize that they are getting value received. He has a large bank account and is considered a conservative and substantial business man. Brown, his competitor, on the contrary does not keep a cost accounting system; does not charge off for depreciation except a small amount at the end of each year. Brown claims that his buildings and machinery are as good as they were ten years ago. He charges his jigs, tools, dies, and patterns to capital account and

considers them valuable assets. He figures that he has been quite liberal when charging off 10 per cent. depreciation on these items at the end of the year. He knows the total amount of the sales of all the products he manufactures, but he has not the facts to show the net sales of each product. He is a heavy borrower at the bank and the banker is probably loaning him money that Jones, his competitor, has on deposit. This furnishes Brown working capital, to do what? To continue to run his business in a slip-shod, slovenly manner, to cut prices and ruin the industry in which they are both engaged.

It is a fact well understood among business men that the general demoralization in a large number of industries has been caused by firms that cut prices not knowing what their goods actually cost to manufacture; with them also the cost of selling, which is equally important, is almost lost sight of. Manufacturers who are cutting prices right and left, irrespective of their cost, are not honest with their customers, stockholders, or competitors.

If the small manufacturer or merchant, who to-day is refused credit by the wholesaler or manufacturer of raw materials, could present a sound statement of his assets and liabilities in a simple way, he would have no trouble in obtaining twice the credit, which means that he could expand his business.

Credit forms should be more generally used and sent direct to the firms from which the purchases are made. We have too much secrecy about our finan