The accounts of the New Zealand Railways for the year ended 31st March, 1926, as published in the Annual Railway Statement are of special interest in that they set out the results of the first year's working under the financial reorganisation operating from 1st April, 1925.

It is very gratifying to note that after paying interest charges amounting to £1,913,311, providing fully for depreciation and transferring £58,000 to the Betterment Fund there was a net surplus for the year of £21,023.

It is proposed in this article to outline the the Accounting system and to give some details showing the method under which the many hundreds of thousands of financial transactions which are concentrated in the final figures are collected in the Chief Accountant's office, Wellington.

The accounts which are framed on commercial lines may be classified into seven general groups as follows:—

• (1) Capital Expenditure.

• (2) Betterments Expenditure.

• (3) Operating Expenditure.

• (4) Indirect or Suspense Expenditure.

• (5) Recoverable Expenditure.

• (6) Reserve and Equalisation Funds.

• (7) Balance Sheet Accounts (Assets and liabilities).

• (8) Revenue.

In dealing first with expenditure it is necessary to state that it is comprised of:—(a) Salaries and wages. (b) Stores and materials. (c) miscellaneous charges. These items will later be followed from their origin to the final accounts.

Capital Expenditure.

Capital expenditure on open lines is kept distinct from that on unopened lines. The construction of new lines is carried out by the Public Works Department out of moneys provided in the Public Works Fund and such expenditure is not brought into the railway accounts until the lines are handed over for working. Additions and improvements to open lines are carried out by the Railway Department out of moneys provided in the Public Works Fund or under the provisions of the Railway Improvement Authorisation Act.

Betterments Expenditure.

Expenditure on minor improvements to existing assets is charged to the Betterments Fund, which is built up by appropriations from net revenue.

Operating Expenditure.

Operating expenditure is divided under the following headings each of which is represented by a control account:—(1) Maintenance of Way and Works. (2) Maintenance of Signals. (3) Maintenance of Rolling Stock. (4) Locomotive Transportation. (5) Traffic transportation. (6) Head Office and General Charges.

For purposes of showing details of expenditure-each of the operating expense headings is subdivided into primary accounts. For example: the expenditure under Traffic Transportation is classified under the following primary accounts.

Superintendence:

General; District.

Station Expenses:

Supervision; Platform; Signalling; Shunting; Goods shed and yard; Wharves; Fuel and water; other miscellaneous expenses; Stationery.

Train Expenses:

Running; Cleaning; Sleeping cars.

Miscellaneous:

Claims; Compensation; other traffic expenses.

The other control accounts are similarly subdivided by primary accounts to give suitable detailed information of the expenditure.

In order to keep the operating expenditure accounts pure, all subsidiary services are kept separate. These services are:—(1) Lake Wakatipu Steamers. (2) Refreshment Services. (3) Advertising Services. (4) Dwellings. (5) Refreshment Rooms, Bookstalls, etc., occupied by private lessees and Refreshment Service.

The accounts of each of these subsidiary services are kept on commercial lines. Interest, insurance and depreciation charges are debited in the accounts, and income and expenditure accounts are prepared four-weekly.

Indirect or Suspense Expenditure.

The principal item under this heading is stores. All stores and materials are under the control of the Stores Branch. No debits are made in the expenditure accounts for stores and materials until the actual goods are issued out of stores stocks, i.e., all stores purchased are debited to an Indirect or Suspense account and all issues are credited to this account. The debit balance is represented by actual stock on hand. Stores Branch expenses are distributed by means of a percentage commission on all stores issued. This ensures that the accounts record the correct cost of all stores and materials used.

Workshops expenditure also comes under this heading. The whole expenditure incurred in the workshops is debited to a shops clearing account which is credited with the value of the output.

Overhead charges including interest on the capital cost of shops and plant, depreciation and insurance, are distributed over the output by means of a percentage commission.

Recoverable Expenditure.

These accounts record the expenditure and receipts in respect of work carried out for other Government Departments and private parties, such as repairing privately owned locomotives and rolling stock, provision and maintenance of private sidings, etc.

Renewals and Equalisation Funds.

To make provision for the depreciation and renewal of the assets and also for the equalising of expenditure arising out of slips, floods and accidents, special reserve funds have been created.

“Step Ladder”

Working Expenditure and Revenue Account

Four Weeks Ended 21st August, 1926

Working expense accounts are debited each four-weekly period with amounts to cover these charges and the funds are credited. Renewal work or other expenditure for which these special provisions have been made is not charged to operating expenses but to the appropriate fund.

The operating expenditure accounts for each four-weekly period thus include proper provision for the depreciation and renewal of assets, etc., irrespective of the amount that is actually expended on renewal work.

As a result of the new policy distortions in the expenditure figures are avoided and substantial funds are now being built up for the specific purpose mentioned.

Fire Insurance Fund.

The Railway Department now carries its own fire insurance risks. All assets liable to destruction by fire come under the provision of the Fund.

As with the Depreciation and Equalisation funds operating expense accounts are debited each period with the premiums and the Fire Insurance Fund credited. Fire losses, the upkeep of Railway Fire Brigades, and fire appliances are charged to the Fund.

Workers' Compensation Fund.

To cover payments under The Workers' Compensation Act all wages expenditure is loaded with a percentage which varies in the different branches in relation to the nature of the work. The total amount of the loading is credited to the Workers' Compensation Fund, from which all compensation payments are made.

Assets and Liabilities.

These accounts record the fixed assets on which the capital of £47,608,676 has been spent, also the stocks of stores, Debtors and Creditors, Investments, Cash in hand, and Cash in the Working Railways Account.

Revenue.

The revenue is divided under main headings of operating, miscellaneous and subsidiary services. Operating revenue is further subdivided, to show revenue from passengers, ordinary and season tickets, parcels, luggage, mails, goods and demurrage, labour, etc. Miscellaneous revenue is also subdivided to show detailed information. The revenue from each subsidiary service is kept separate in the accounts.

Salaries and Wages.

A very considerable portion of the expenditure comes under the heading of salaries and wages, the actual amount for the year ended 31st March last being £4,610,662 or 60 per cent. of the total expenditure.

The method of dealing with wages expenditure is as under:—

Wages sheets are compiled by District Engineers, Stationmasters, Locomotive Foremen, Workshops Managers, etc., from time records. The compilations are carefully checked and the total expenditure appropriated to the various accounts provided for in the expenditure classification.

The amounts of money required at each banking station to meet wages payment is telegraphed to the Chief Accountant, who makes the necessary arrangements for credits with the bank.

Stationmasters, or other officers appointed for the purpose, are authorised to draw these amounts by cheque to meet wages payments. The receipted pay sheets are subsequently forwarded to the Chief Accountant to support the credit arranged with the bank. With each fortnight's pay sheets a wages schedule is prepared by certifying officers and a wages summary showing the wages expenditure classified to primary accounts is submitted four-weekly. These summaries form the journal from which entries are made to the primary accounts in the expenditure ledgers.

The total debits to each control account are also extracted and entered into the classified expenditure journal for posting to the control ledger, but whilst the primary account is necessarily kept for each separate district and section, the control ledger accounts apply to the whole system. By this means the control accounts form an effective check on the totals of the primary accounts in the expenditure ledgers without the necessity of keeping detailed information in the control ledger.

Stores.

Stores required for use are obtained by means of a requisition on the Stores Branch. The requisition form must be signed by an authorised officer, and must give the number of the account to which the charges are to be debited.

Each four weekly period the Stores Branch prepares summarised stores debit sheets showing total charge to each primary account. These summarised sheets form the journal for posting to the expenditure ledgers.

The total debit for each control account is also extracted and entered in the classified expenditure journal for posting to the control ledger. Here again the control account entries provide an effective check on the stores debits in the expenditure ledgers without burdening the control ledger with unnecessary detail.

The total stores issues for year ended March 31st, 1926, amounted to £2,327,126, or 30 per cent. of the total expenditure.

Miscellaneous Charges.

Miscellaneous charges consist mainly of voucher payments for water, light, personal expenses and small sundry items of expenditure. Each certifying officer schedules all vouchers passed to the Chief Accountant weekly and also submits a summary at the end of each fourweekly period of voucher schedules showing the total debit to each primary account. The same procedure is followed as that outlined for wages schedule summaries. The importance of avoiding any unnecessary duplication or repetition of entries in books where the original entries could be used for posting purposes was kept constantly in mind in framing the present system.

Special Charges.

To provide a posting medium for Renewals, Insurance, and Equalisation Fund contributions, a special columnar journal which shows the debit for each primary account in respect of each class of asset with further subdivisions for each distriet or shops debit is used.

Working Railways Account.

The Working Railways Account within the Public Account is so far as the Railways Department is concerned a bank account, into which all receipts are paid and from which all disbursements including interest on capital are made. The balance in this account is watched closely from day to day and full advantage is taken of the authority given under the legislation passed in 1925, for the investment of surplus funds in the Working Railways account. The Balance Sheet as at 31st March, 1926, shows that £175,000 was so invested at that date.

This concludes a brief summary of the expenditure of the accounting system. The Traffic Transportation portion of the “step-ladder” statement showing the method of presenting the final figures each four weekly period is reproduced in this issue. The complete “step-ladder” shows details of expenditure under each main heading, and is compiled for each section as well as for the whole system.

It is proposed to deal with the revenue side of the Accounting System in a later issue.

New Social Hall

The Railway Board has decided to erect a Social Hall at Taumarunui for the convenience of members of the Service. The hall will be available for meetings, educational classes, and social gatherings.

The need for something of the kind has been felt for many years, and in May last representative railwaymen interviewed the Prime Minister on the matter.

Letters of thanks have now been received from Mr. R. C. Dobble, Local Secretary of the New Zealand Locomotive Enginedrivers, Firemen and Cleaners' Association, and Railway Social Club expressing their appreciation.

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Understanding is the first great need in all human relations.—Ibsen.