Table of Contents
The observations here presented are not those of an expert accountant, but of one who, while he has seen considerable service in the accounting departments of large companies, has spent more time in engineering and operating.
This paper is intended to cover, in a measure, mine accounting for small mines, as distinguished from the elaborate systems, requiring many persons in the accounting department. I shall attempt to outline a system embracing the essentials of accounting, and simple enough in form to permit one or two persons to carry it on from month to month, in sufficient detail to be able to tell quickly the grade of ore, the prices received for metals, costs per ton for mining and milling, costs per foot for development, upward or downward tendencies in costs, ore settled or in transit, cash on hand, stocks of supplies on hand, efficiency of labor, etc.
As in all accounting, there are two main divisions: that of revenue received for what is sold, and that of disbursements made for what is bought, so in mine accounting we have to consider chiefly the income derived from sales of ore or concentrates, and the expenses incurred in producing the said ore or concentrates in a marketable condition.
The revenue of a mining company from the sale of ore or concentrates comes in the form of remittances, accompanied by settlement sheets made out by the buyer of the mine product, such as a smelting company. It is the duty of the mine accountant (or the person to whom this is assigned in connection with other work) to check these settlement sheets, against both the mine weights and assays, and the schedules of prices arranged between the mine and the smelter. As a rule, quotations for silver, lead, zinc, copper and other metals enter into the settlements, and require checking, as do also bills of lading. Each step of the arithmetical calculation is also checked.
The essential figures from these sheets are entered in an Ore Record, in columns headed “Wet Tons,” “Moisture Per Cent,” “Moisture Tons,” “Dry Tons,” “Assays per Ton,” “Prices per Ton,” “Contents of Metals” (in ounces and pounds), “Gross Value,” “Smelter Freight and Treatment,” “Net Value,” and possibly others, the entries being segregated by lots, and classes of ore. Stocks on hand unsettled and in transit at the end of the month are added to the settlement figures, mine assays and estimates being used to arrive at an approximate value, and from these totals are deducted similar estimates of ore unsettled and in transit at the beginning of the month. The result is the month’s production, and its net value is posted to the Ledger, to the credit of ore account and the debit of the smelting company, or to the debit of head office, in case the smelter makes it’s payments to such an office, on which the mine draws for funds, as required to pay operating expenses.
Secondary records in the form of a shipment book, files of bills of lading, assay certificates, etc., may be kept as the accountant finds most convenient, and according to the local conditions and circumstances of the property. Their purpose is primarily to facilitate the checking of the settlements and to aid in an accurate estimate of the amount, grade and value of ore awaiting settlement.
“Miscellaneous income” is a term which will apply to all other revenue, whether from the rent of houses owned by the mining company, or the profit on the company store or boarding house, or interest, or exchange, or dividends, or the sale of junk, tailings, etc. These are usually cash items, and are taken care of in the Cash and Voucher Record, which will now be considered.
The Cash and Voucher Record, as a single book, preferably loose-leaf, has met with general approval in recent years as a combination of cashbook, journal, and voucher register, and is the only record at the bookkeeper’s desk from which posting is done to the ledger. It is compact, convenient, and desirable, serving the purpose of gathering numerous items into their proper sections at original entry, and requiring that they balance before they are used in further calculations. This book may have columns for cash, bank accounts, operating accounts, and various non-operating ledger accounts. It seems scarcely necessary to do more than sketch the use of this record, since its cash columns correspond exactly to those of a cashbook, and journal entries are made in it double, as in a journal, the only difference being that the amounts are listed in columns so that they are easier to refer to and total. Only totals are posted to the ledger, so that posting is a short and simple matter. This is done but once a month, after closing the month’s operating accounts, and the purpose is to prove the balance between assets and liabilities.
Next to profits, the figures of greatest interest to a mine operator are doubtless the operating costs. The two, profits and costs, may almost be said to be complementary, and many mine operators do not doubt that if they hammer down their costs, their profits will go up. But it is capable of demonstration that an additional expenditure per ton may, under certain conditions, increase the grade of smelting ore or mill feed to a point where profits will be increased by more than the extra outlay.
For the measurement of efficiencies and the planning of improvements, a study of costs is necessary. The record of these, as often kept, not only has no statistical value, but may even be misleading, so that when work is based upon the data they furnish an expected saving will show up as a loss instead. This is particularly true of development work. Sinking a shaft, for instance, is an operation into which many factors enter to determine the true cost per foot of depth. Some of these factors, often not considered at all when a contract is let, are: The cost of air from compressor; the proportion of hoisting, pumping and timbering expense; labor and fuel for sharpening steel; repair parts and time spent in repairing machines.
An accounting system, to have value for the mine owner, should be arranged so that the important figures for use in estimating the cost of a certain operation, such as the above, can be taken off without undue waste of time, and also so that the upward or downward trend of the costs per ton in any or all departments can be seen at a glance. Practically, each mine needs to have its accounting method, almost as much as its plan of development, adjusted to its circumstances.
In this connection, I propose to discuss briefly two or three systems of classification of operating costs, evolved by large companies with whose methods I am more or less familiar, and to point out their adaptability in a measure to the requirements of smaller companies, whose office staffs consist of fewer persons, and whose need for detail, beyond the necessary working figures, is smaller.
In the first place, the distinction is drawn between direct and indirect operating costs, direct costs being, as the term indicates, those incurred for actual handling of ore, and indirect those necessitated by the operation of mining in general.
One of the largest operating companies has the following accounts for its smaller properties:
- Direct.—(a) Development; (b) Ore Breaking and Sloping; (c) Timbering; (d) Tramming; (e) Hoisting; (f) Sorting, Weighing and Loading; (g) Draining.
- Indirect,—(h) Branch Office; (i) Salaries; (j) General and New York Expense; (k) Insurance; (l) Taxes; (m) Laboratory; (n) Marketing; (o) Transportation.
At larger and more complicated properties, the expenses are distributed on this outline, with certain modifications and amplifications. Ore Breaking and Stoping may have subdivisions as follows: Drill Steel; Machine Drills, Repairs and Maintenance; Mining Tools; Explosives; Lighting; and Pipe Lines and Tracks (Pipe lines for air and ventilation, and Track for tramming in stopes). Timbering may have subdivisions such as: Tools; Stulls, Lagging, etc.; and Miscellaneous. Tramming, which, as an account, includes only tramming on levels, may be sub-divided as follows: Track and Fittings; Car and Motor Repairs and Maintenance; Animals and Feed; and Miscellaneous. Hoisting, which includes tramming from shaft-collar through an adit in the case of an interior shaft, may be divided into: (a) Shaft. Equipment Repairs and Maintenance; Shaft Repairs and Maintenance; and Miscellaneous. (b) Adit. Track and Fittings; Car and Motor Repairs and Maintenance; Animals and Feed; and Miscellaneous.
For a concern operating a mill, the number of accounts is increased by the addition of Sampling, Mill Experimental Work, and Milling. Only the last-named requires a further subdivision in order to give more definite information as to the work and the efficiency of the various departments and machines. A good arrangement of such subdivided accounts has been found to be: 1. Crusher Supplies; 2. Roll Supplies; 3. Huntington-Mill Supplies; 4. Hardinge- and Tube-Mill Supplies; 5. Elevator Supplies; 6. Trommel Supplies; 7. Jig, Table and Vanner Supplies; 8. Pump Supplies; 9. General Mill Labor; 10. Loading Concentrates; 11. Labor for Repairs and Maintenance.
“General Expense,” if care is not exerted, may become a dumping place for items which ought properly to be distributed to accounts to which they pertain. The heading “Miscellaneous” is practically taboo, except as the designation of a department in which details are shown. Two or three large companies known to me, and probably many others, group all indirect charges under the head of “general” expenses, included in which is a subheading of “general” or “miscellaneous” expenses. For checking up the latter, a memorandum sheet is carried in the Distribution Book, on which spaces are provided for as many as 25 or 30 different items, among them office supplies, subscriptions, postage stamps, revenue stamps, janitor and cleaning, office fuel and heating, office lights and water, engineering instruments, blue-printing supplies, telephones, telegrams, traveling expenses, etc.
One well-known company keeps tally of these elusive items by providing for many of them among the indirect charges. Its list of indirect accounts contains 23 items: Salaries; Mine Foremen and Bosses; Storekeepers and Timekeepers; Watchmen; Stable; Office Supplies; Rent; Telephone and Telegraph; Traveling; Lighting; Engineering and Surveying; Document Stamps; Employees Living Quarters; Hospital Contribution and Expense; Fire Insurance; Employees’ Liability Insurance; Legal Expenses; Taxes; New York Office; Accident Expenses; Securing Labor; Strike Expense; and Miscellaneous.
It is thus seen that there is considerable opportunity for meeting individual requirements in the naming and arranging of accounts. There is no hard and fast rule in these matters; and the preceding examples are presented merely as having been tried by experience, and having, under certain conditions, given satisfaction.
Vouchers and Entries
The actual procedure in accounting for expense items comprises the following steps: (1) Making the voucher; (2) entry in cash-voucher record; (3) entry in distribution book; and (4) summary on cost sheet or monthly report.
The first step consists of writing the check for the net amount due on an invoice, using preferably a voucher-check form, on the reverse side of which is written sufficient detail to identify the transaction, together with the distribution of the amount of the check to various accounts.
In the second step, the total of the amount charged to the operating accounts is debited in a column with the title “ Operating,” and the amount of the check is credited in the proper bank column.
For the third step, a book with numbered columns is required, each number designating a certain account and applying only to that account. The individual figures making up the total operating charge on each voucher are entered, voucher by voucher, in the proper columns, each voucher occupying a line, and each line checking across to a total operating column, of which the total should agree with the total operating column in the cash-voucher record.
For the fourth step, the cost sheet summary, it has been found to be a good method to letter the totals of the operating accounts on tracings ruled in columns, each column representing a month. The account numbers and names can be lettered on the horizontal lines, and additional lines may be devoted to such items as “tons mined,” “tons sorted,” “tons milled,” etc., and the results of dividing these tonnages into the various totals of expense, i.e. the costs per ton, may be also noted. Prints from these tracings make neat monthly reports, very convenient for comparison since the figures for any item of expense, tonnage or cost per ton are shown side by side on the same line, from month to month throughout the year.
A comprehensive survey of operations is completed by making up a financial statement, by adding the totals of income (separating the amounts according to the classes of ore sold, if desired) and deducting the operating expenses therefrom. This is made up and entered as a voucher also, the balance being charged into profit and loss account.
Distribution of Power, Etc.
It may have been noticed that no reference has been made to power, or to mechanical or electrical time and supplies. This has purposely been deferred until the last, and will now be considered as illustrating the idea of redistribution. Following out this idea, all charges to these departments are divided at the end of the month according to the purpose for which the electric current or supplies were used, or the work done. For example, charges for current are pro-rated, according to kilowatt-hours or horsepower, to mine compressors, pumps, locomotives, hoist motors, framing-shed motors, sorting-plant motors, mill motors for driving various machines, etc. In a similar way, mechanics’ and electricians’ time may be redistributed by the use of cards specifying hours worked on this or that job, and repair parts used on the same. Thus proper charges may be made against the various motors, engines, and machines, cars, track, trolleys, lights—against any part of the plant, in fact, for the benefit of which this diverse work may be done. No hair-splitting is necessary or at all desirable. Each man can make out his own card in a few minutes at the end of each shift, and there is no reason why a high-priced shop-foreman should devote any time to doing the work of a cheaper clerk.
An adaptation of redistribution, making it much simpler and at the same time giving accurate statistics as to power costs for milling, for example, is to have a power-plant account from which mill-power costs and others, depending on local conditions, are redistributed, leaving a net amount as having been expended for mine power.
Purchases and Inventories
Two other matters, Which are closely related, naturally come under the control of the mine accountant, and call for brief reference. I refer to the ordering of supplies, and the keeping of stock and taking of inventories.
As to the first, the management often wishes to take charge of the actual placing of orders; but in many concerns the routine orders are usually handled by the accounting office, which takes care regularly of the checking of prices and the extensions on invoices. All this work is often delegated, in large companies, to a purchasing department, independent of the accounting department.
A lengthy paper might be written concerning the second subject alone. The main idea as regards stocks of supplies is to account for everything purchased, and charge it out as it is used. Two methods are in vogue, and both work well if a diligent and conscientious man is in charge of supplies; conversely, both work miserably if careless or slipshod methods are allowed.
According to one method, everything is charged to stock account when purchased, and is entered in a stock ledger immediately on its delivery at the plant. When an article is issued for use, a requisition is required, specifying the account for which it is to be used, that account being then charged and stock account being credited. The stock ledger is thus a perpetual inventory, which requires checking by actual inventory only once or twice a year.
The other method of keeping stock provides that the greater portion of purchases are charged directly to the account for the use of which they are intended, thus obviating the use of a stock ledger. Exception is made, however, in many cases, such as explosives, candles, timber, drill steel, tools, feed, hoists and parts, pumps and parts, crushers, rolls, vanners, jigs, elevators, etc., and their parts. In order to get at the true consumption in such cases, monthly inventories of these large items must be taken, the difference between stocks on hand at the first and last of a month, plus the purchases, representing the value of supplies used.
It should be borne in mind, in deciding for one or the other of these methods, that the fluctuation in costs from month to month, using the first method, is slight, because the charges for supplies in a given month are made up from the requisitions of supplies actually used out of stock during that month. Under the second method, on the other hand, the charges for supplies may vary considerably, depending, as they do, directly on the invoices which are paid during the month. The first method permits paying invoices at any time without throwing the cost averages out of joint, whereas by the second method invoices must be paid just as the material is used, and, furthermore, the books covering a month’s business must be held open until the invoices representing that month’s business are received and paid.
In adopting a system of accounting, a thorough study should be made of the conditions at the mine where it is to be installed, bearing in mind also the needs and desires of the management and the stockholders in the matter of reports. Once a system has been adopted, it should be adhered to religiously, and the seeming advantages of some different system should be well considered and tried out before any change is made.