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Introduction
Executive Overview
The documents which accompany
this overview consist of the
American Booksellers Association
Standard Chart of Acounts for
Booksellers and Associated Front Matter. This voluntary standard was
developed by ABA's Industry Standardization Committee and approved by the
ABA Board of Directors.
The Standard Chart of Accounts was developed to help provide booksellers
with better information on which to base management decisions as well as to
facilitate tax preparation. It seeks to provide improved information internally
from a firm's own accounting reports. Externally, it aims to facilitate
comparisons with industry averages and performance measures compiled
from data collected for ABACUS, ABA's annual financial survey of member
bookstores.
The Standard Chart of Accounts was developed with an eye to trying to
meet the needs of a diverse membership, which has led to a fairly detailed
and complex chart. It is anticipated that each business implementing the
Standard Chart of Accounts will choose to use only those accounts relevant to
its particular needs, rather than all accounts presented. On the other hand,
some businesses may instead elect to add accounts not in the Standard
Chart.
Implementation Guidelines
The bookseller/owner will consult with her/his accountant to determine which
accounts and what level(s) of detail to use. A simplified chart of the accounts
actually being used should be prepared for the bookkeeper, who will be
making the decisions as to which account a given revenue or expenditure
should be posted to. The chart should have just two columns--one with
account numbers and the other with account titles. Postings should be made
only to the lowest level sub-accounts, with the basic accounts serving only as
summaries of the sub-accounts listed below them.
A portion of a sample page is shown at right. This shows a section of the
expense accounts for a particular bookselling business. This company keeps
accounts for telephone expenses and supplies and breaks its advertising
accounts down into detailed sub-accounts.
If a simplified chart such as this, including all accounts being used, is made
available to the person doing the bookkeeping "on the front line," it should be
possible to ensure that the data are collected and summarized as desired for
a variety of purposes.
THE ABA STANDARD CHART OF
ACCOUNTS
Front Matter
Reasons for Development of a Standard Chart of
Accounts
As the bookselling environment becomes ever more competitive and the
margins, both of profit and for error, continue to narrow, it becomes ever more
important that booksellers be able to make sound management decisions so
that their stores remain viable and profitable. Sound management decisions in
turn require sound information on which to base them. One primary source of
such information is the business's financial reports, in which most of the
myriad transactions which occur every day in the business can be reduced to
the common denominator of money and therefore be mathematically
manipulated, contrasted and compared. A wise manager will want not only to
compare her business's current financial results with both its projected and its
past results but also with the results of other comparable businesses.
To provide booksellers with financial results of comparable bookselling
operations, the American Booksellers Association has been tracking and
publishing the financial results of contributing member businesses in its
annual ABACUS survey since 1985. ABACUS results are currently based on
the responses received from approximately 200 responding businesses out of
about 2000 surveyed.
While the results of those responses have proved extremely valuable to
booksellers who compare their own results to those of comparable stores in
the survey, two problems have come to light concerning the usefulness of
ABACUS. First, some booksellers have commented that their accounts are
not structured in the same way as the results in ABACUS are structured. In
part this disparity has probably arisen because the charts of accounts of most
booksellers are devised by their stores' accountants, who, in many cases,
have seemed to develop charts of accounts with an eye more to the
preparation of tax documents than towards business decision making. The
non-compatibility of account structures has not only made it difficult for
booksellers to compare their results with those published in ABACUS, but it
has also made it difficult for them to report their results to ABACUS.
This has led to the second problem, namely that the number of booksellers
reporting to ABACUS (approximately 10% of those surveyed) is still relatively
low in comparison to the total of about 4300 ABA member businesses.
Because of the relatively small number of respondents, it is difficult to draw
conclusions from ABACUS results which are statistically significant. This has
led to some apparent inconsistencies such as one year's results showing that
those stores which made relatively more use of part-time workers were more
profitable while the next year's results indicated just the opposite.
Responding to suggestions made by member businesses, the American
Booksellers Association Industry Standardization Committee was charged
with developing a standardized chart of accounts for booksellers which would
make reporting to and comparison with ABACUS easier without making tax
return preparation more difficult. The Industry Standardization Committee
appointed a subcommittee of booksellers with accounting background and
accountants with bookselling background to approach this task, the results of
which are presented here.
Clearly, in a trade association with more than 4300 member businesses
ranging in size from single stores doing less than $125,000 in business to
multi-million dollar chains, the accounting requirements will vary greatly.
Some bookstores will have computer systems or delivery vehicles to account
for, some will not. Some booksellers will have to pay local income taxes,
others won't. Some will sponsor retirement plans and offer employees health
insurance, others will offer few benefits. To come up with a single chart of
accounts which would include all accounts required to satisfy the
requirements of every member business would produce a large, unwieldy
document which would contain far more accounts than any individual member
business might use. Such a chart, if too big to be useful, would be unlikely to
be used by many member stores, thus rendering its development a useless
exercise.
Thus the standard chart of accounts, as presented, seeks to strike a
balance between excessive complexity and excessive simplicity. It contains all
the accounts necessary to be able to report the business' results to and
compare them with ABACUS. It also contains the accounts necessary to deal
with federal and most state and local tax issues. The chart also contains some
accounts which some businesses will not find useful or applicable and which,
in consultation with their accountants, they may decide not to include in their
own charts of accounts. As a business grows, however, it may decide to add
accounts from the standard chart of accounts for which it previously felt no
need. Other businesses may feel the need for accounts not included in this
chart. They should feel free to add them within the basic structure presented
here.
As with other book industry standards, compliance with this standard is
completely voluntary. The Industry Standardization Committee, however,
feels that adopting this standard chart of accounts can provide significant
benefits to all booksellers by making the recording and reporting of their
financial results more comparable with those of their colleagues, thus
providing a sounder foundation of information on which to base management
decisions.
Basic Structure of the Standard Chart of Accounts
The chart is structured hierarchically, with all the accounts listed below and to
the right of a given account title adding together to make the total of that given
account. Thus the totals in detailed sub-accounts 111100 (General Checking
Account) through 111900 (Petty Cash), when added together, equal the total
in account 111000 (Cash in Bank and On Hand). Accounts with numbers in
brackets such as <121900> (Accounts Receivable Trade - Allowance for Bad
Debt) are contra accounts whose totals are, in essence, subtracted from
those of the other accounts in its group.
There are two types of account titles in boxes. The first of these is the basic
headings one might find in a set of financial reports. With the exception of
Other expenses (820000), their account numbers all end in five zeros. They
represent the general structure of the standard chart of accounts and its
numbering scheme [These headings are Assets (100000), Liabilities
(200000), Equity or Net worth (300000), Sales (400000), Cost of Goods Sold
(500000), Operating Expenses (600000 - 700000), Other Income (800000),
Other Expenses (820000) and Income Tax (900000).]
The second type of account title shown in boxes is the Basic Account such as
Cash (110000), Accounts Receivable (120000) or Occupancy Expense
(610000). It is generally expected that each of these Basic Accounts will have
a number of sub-accounts under it, either what the chart titles "Standard SubAccounts" or "Detailed Sub-Accounts". In such cases, postings should be
made only to the lowest level sub-accounts, with the basic accounts serving
only as summaries of the sub-accounts listed below them for the purpose of
constructing financial reports. In some cases a business may not see fit to use
sub-accounts under some Basic Accounts, especially in the expense section.
In those cases, postings would be made to the basic account number (e.g. A
store may not be computerized and thus might not have any network charges
to belong to America On Line or Compuserve. It may not have a fax machine,
and it may not wish to break its phone bills down between long distance and
local calls. In such a case, it might well post all its telephone expenses to the
Basic Account 630000 - Telephone and Other Communications.
Aside from the basic headings and basic accounts shown in boxes, there is a
third type of summary shown in the standard chart of accounts. These
summaries are the sorts of totals which are shown on financial reports and
are also required by ABACUS. An example is shown in bold face on page 2 CURRENT ASSETS (C+D+E+F). Current Assets is the sum of Basic
Accounts 110000 - Cash through 150000 - Prepaid Expenses and Deposits.
The (C+D+E+F) refers to the letters shown on the chart under the heading
"ABACUS LINE" which indicate on which line of the ABACUS survey the
totals from an account or group of accounts should be listed. Similar totals
listed throughout the chart are "Fixed and Other Assets", "Total Assets", Total
Current Liabilities", "Total Long-Term Liabilities", "Total Liabilities", "Total
Owner's Equity/New Worth", "Total Liabilities and Equity/Net Worth", "Total
Net Sales", "Cost of Goods Sold", 'Gross Margin", "Total Operating
Expenses", "Operating Income", "Net Income Before Taxes" and "Net
Income". These totals or summaries are not properly accounts and have no
account numbers per se. They are only included to attempt to make the
relationship between the chart of accounts and the standard financial
statements more clear.
To make reporting to ABACUS easier, the right hand column of the chart
shows the appropriate ABACUS line or letter number on which the total for
that account should be reported. In those instances where not all subaccounts listed under a Basic Account title are reported on the same line in
ABACUS, a hyphen, rather than an ABACUS line number, is shown in the
right hand column.
Comments on Individual Accounts
Balance Sheet Accounts:

Assets (1000000) include all those things of value the business owns and has
acquired for a price which it will use to generate its sales and revenues:
o Cash (110000) lists a number of detailed sub-accounts which, as noted
above, may not be applicable for all stores. For example, some stores
may keep separate checking accounts for payroll costs, for operating
costs and for Single Title Order Plan costs, as is shown by the
examples here. Those stores who have only a single checking account
would have only one detailed sub-account, entitled "Checking
Account", for the funds in that checking account. The use of the other
detailed sub-accounts is to be viewed similarly.
o Accounts Receivable (120000) show amounts owed to the business by
others. It is divided into five sub-accounts:
 Accounts Receivable - Trade (121000) for amounts due from
persons or organizations to which the business has sold on
account, offering credit on its own to those customers.
 In Transit from Credit Card Processors (122000). Sales
made on credit cards other than the store's own, such as Master
Card or bank debit cards, are not in most cases immediately
credited to a store's bank account. When there is a such a delay
from the time the record of a credit card transaction is
transmitted to the credit card company until the time when the
funds become available in the store's bank account, these funds
are "in transit", and they should be shown in this account.
 Publisher/Vendor Advertising Allowances Receivable
(123000) represents funds due but not yet received from
publishers or other vendors for co-operative advertising
allowances, retail display allowances, etc.
 Loans Receivable (124000) are funds loaned by the business,
either to employees or others, and not yet paid back.
 A/R Miscellaneous (129000) represents other accounts due the
business from others but not included in any of the four
previous accounts.
o Inventory (140000) is divided essentially the same way sales are
broken down (to facilitate reporting to ABACUS, calculating ABA
dues, and reporting other sales breakdowns sought from time to time
by other participants in the book industry). That breakdown will be
commented upon further under the discussion of Sales (400000).
o Prepaid Expenses, Deposits and Other Current Assets (150000)
include:
 Prepaid Expenses (151000) for payments made prior to the
period which the payments cover (e.g. paying September's rent
by August 31).
 Deposits (152000) represent amounts required by such firms as
a utility company before they will provide service.

Other (153000) - any other current assets not shown elsewhere
above.
The accounts listed above, 110000 through 150000, comprise those assets
referred to as Current Assets, namely cash or other assets expected to be
converted into cash orconsumed during the year following the date of the
balance sheet on which their total is shown. They will provide the primary
source of funds used to pay off Current Liabilities (see below), which are due
within the same time period.
o
o
o
o
Land & Building (160000) includes both land and buildings actually
owned by the business, improvements made to both as well as
"Leasehold Improvements" made by a business to property which it
rents from a different owner.
Furniture, Fixtures & Equipment (170000) has Data Processing
Equipment and Data Processing Software broken out from other
furniture, fixtures and equipment for consistency with Data Processing
Expenses (required by ABACUS), because these are often covered
separately on insurance policies, requiring separate total values from
other furniture, fixtures and equipment, and because computer
hardware and software are depreciated differently.
Accumulated Depreciation (180000) is also broken out for
consistency with the breakouts of depreciation expenses under
Operating Expenses, which are so broken out for ABACUS reporting
and tax purposes.
Other Assets (190000) includes various intangible assets as well as the
cash surrender value of life insurance policies which the business may
own on its key employees.
Accounts 160000 through 190000 comprise Fixed and other Assets, which
are not expected to be consumed or converted to cash in the coming year.

Liabilities (200000) are amounts which the business owes to others who have
provided funds to the business with which to acquire assets. They represent
the value of the claims of outsiders against the assets of the business.
Liabilities consist of:
o Accounts Payable (210000) which is comprised of three sub-accounts:
 Accounts Payable - Merchandise (211000) - Amounts due to
creditors who have sold goods to the business which the
business has sold or will sell to its customers.
 Accounts Payable - Operating (212000) - Amounts due to
others who have provided the business with other goods or
services on credit (e.g. the electric company or a supplier of
bags),

o
o
Customer Credits (213000 - amounts the business owes
customers for such items as issued but not yet redeemed credit
memos or gift certificates.
Accrued Expenses (220000) are amounts which have been recorded
as expenses for the period being reported on but which have not yet
actually been paid out. They include such items as payroll and taxes.
Current Notes Payable (230000) consists of short-term loans (due in
one year or less) and those amounts of any long-term loans falling due
within the next year.
Accounts 210000 through 230000 comprise Current Liabilities, amounts the
business expects to have to pay its creditors within the twelve-month period
following the date of the balance sheet on which their total is shown.
o
Long-term Liabilities (240000) are amounts which the business owes,
generally loans, with a repayment period of more than one year, which
are not expected to be repaid within the next twelve months.
 Long Term Obligations (241000) represent most of such long
term loans due others.
 Mortgage Note Payable (242000) on land and buildings which
the business owns has been broken out from other long term
obligations.
It should be noted that there are two accounts, both entitled "Current Portion of Long
Term Debt", account 239000 under Current Notes Payable and account 249000, a
contra account, under Long Term Notes Payable. The same amount is shown in both
these accounts, but this usage allows the full amount due on any long-term notes to be
shown under Long-term Notes Payable rather than showing only that portion due after
the end of the current year.
o

Total Liabilities is the sum of all liabilities, both current and long
term, owed by the business to its creditors.
Equity or Net Worth (300000) represents those funds supplied to the
business by its owner(s) with which it has acquired assets, and, therefore, the
owner's claim against the assets of the business. Appropriate accounts for the
four types of business organization (sole proprietorship, partnership,
corporation and subchapter S corporation) are all shown here. The business
owner should choose and post to that group appropriate for his/her type of
business.
The Equity/Net Worth accounts include not only amounts invested by the
owner(s) but also any profits earned (less any dividends or draws against
profit) or losses sustained by the business. ABACUS asks its respondents to
include dividends or draw not only as a part of total equity shown on line P,
but also as part of owner's wage expense shown on line 4a.
Total Liabilities and Equity/Net Worth represent the claims of all parties
against the assets of the business and must equal the total of the assets
themselves. Because the claims of owners are subordinate to those of
creditors, any loss sustained by the business decreases the amount in the
equity account and thus the owner's claims, while profits earned and retained
in the business do just the opposite. These two groups of accounts, asset
accounts and liability plus equity accounts, represent the two sides or halves
of the financial report called the Statement of Financial Position. Because
these two sides must equal or balance each other, the report on which all the
above accounts are reported is also called the Balance Sheet.
Income Statement Accounts:

Sales (400000) represent the total revenues earned by the business in the
course of its normal operations. For most book retail businesses, such
revenues are earned by the sale of books and related products. The
categorization of sales shown here reflects reporting requirements of
ABACUS [which asks for sales breakdowns for books, magazines, other
sidelines, textbooks, and used books, and which has begun to ask for separate
sales reporting on new media books (The subcommittee which has prepared
the standard chart of accounts takes "new media (books)" to mean both new
media products which have actual bound book counterparts and new media
products with book-like content. The content of "new media (other)" products
would include games and other un-book-like material)], It also takes into
consideration the requirements of ABA dues calculations and other surveys in
which booksellers are often asked to take part. Booksellers who are
computerized may be able to generate re- ports on sales of these and other
categories without actually creating individual accounts for each of them,
obviating the need for this much detail on sales in the chart of accounts itself,
but it was felt that it was preferable to include all these categories and
accounts, especially for stores who do not have all the options which
computerization makes available.
o Discounts On Sales (<410000>), which reduce the amount of revenue
earned, are shown here as a contra account to the sales accounts.
Total Net Sales (the net of accounts 401000 through 410900) are reported
on line 1 of the ABACUS survey.

Cost of Goods Sold (500000) consists of:
o Merchandise Purchases (501000 through 509200) of goods for sale
during the period covered by the income statement.
o Freight In (510000) on those purchases.
o
o
o
o
o
o
Prompt Payment Discounts (<511000>) earned, which reduce the
amount paid for the inventory.
Returns Expenses (512000), including returns penalties and freight
out on returns.
Returns to Vendors (<513000>) of merchandise for credit.
Inventory Shrinkage (514000) due to theft, unexplained losses,
accounting errors, etc.
Write Downs Below Cost (515000) where merchandise is marked
down to a retail price lower than its original cost.
Inventory Adjustment (519000), the difference between total
inventory at cost at the beginning of the period and at the end of the
period.
Total Cost of Goods Sold, the net of accounts 501000 through 519000, is
reported on line 2 of ABACUS. The returns rate, the total of returns (accounts
513100 through 513900) divided by the total of purchases (accounts 501000
through 509000), is also reported on line 26. Shrinkage, the total inventory
written off due to theft, unexplained disappearance, breakage, etc., is reported
on line 27.
For the sake of consistency, the same sub-accounts for Sales and Inventory are here used for Cost of
Goods Sold. The committee realizes that this results in a very complex structure which would require
time-consuming breaking out of product information from invoices for incoming good and expects
many stores to opt for less detailed Cost of Goods Sold sub-accounts or for none at all. However, at a
time when rapid advances are being made in Electronic Data Transmission, it is possible that electronic
invoicing may be available from many vendors in the not too distant future. It is conceivable that such
an electronic invoice could be run through a sub-routine in the receiving business's computer which
would compare each invoice line with the store's inventory records and classification scheme and
produce an invoice for posting which would include broken out costs information similar to that
envisioned by the sub'accounts shown on the standard chart of accounts. This would enable the
owner/manager to do detailed cost/profit analyses by product type and make informed decisions on
possible restructuring of the store's inventory mix.
Gross Margin (sometimes termed Gross Profit) is calculated by subtracting
Cost of Goods Sold from Total Net Sales. It is reported on line 3 of the
ABACUS survey. For the business to be successful, gross margin (or gross
profit) needs to be large enough to cover all the business's other expenses.

Operating Expenses (600000-700000) include all those expenses incurred in
the normal operations of the business. They are broken out into a number of
groupings of related expenses. In the standard chart of accounts, they are
ordered not alphabetically but roughly in order of size and importance, with
the largest, payroll, listed first.
o Payroll Expense (600000) includes actual wages, benefits such as
insurance and retirement benefits, as well as data processing expense
for payroll (this expense is most likely to be isolated from other data
processing expenses when payroll processing is outsourced to a payroll
o
o
service). ABACUS asks that "any money, goods or services taken out
of the store for the use of the owner" be reported (on line 4a)
separately from employees' compensation, taxes and benefits. Owners'
sick pay and vacation pay are thus included on line 4a. Compensation
(including sick pay and vacation pay) and social security and payroll
taxes for employees are reported on line 4b. Benefits for both owners
and employees are reported on line 4c. (For tax reporting purposes,
premiums paid on behalf of owners or shareholding officers for
disability or life insurance are broken out separately). Payroll
processing expense is reported on line 4d.
Occupancy Cost (610000) includes rent expenses, utility expenses,
and other costs such as janitorial services and customer parking
subsidies. These are reported on line 5 of ABACUS, which asks for
other expenses (insurance on and depreciation of owned buildings and
improvements, real estate taxes and repair and maintenance) to be
reported on line 5 as well. These expenses, however are grouped under
other account headings with similar expenses not pertaining to
occupancy, but with references back to ABACUS line 5.
Advertising and Promotion (620000) is broken out into:
 Advertising (621000) in the various media,
 Catalog/Newsletter (622000), including production and
distribution costs of a business's own catalog and/or newsletter,
 Store Events (623000), including costs for author and other
promotional events,
 Joint Advertising (624000) which the business may do with
other tenants in the same development, with other franchise
owners, or with other members of a trade or business
association.
 Other Advertising and Promotion (625000), including any
such expenses not readily classifiable into one of the previous
four accounts, and
 Publisher/Vendor Advertising Allowances (<626000>), a
contra account to include various advertising and promotional
allowances due from publishers or other vendors to offset the
business's advertising costs.
The sum of all advertising expenses is reported on ABACUS line 6.
o
Telephone and Other Communications (630000) includes:
 Telephone Company Charges (631000) with separate
breakouts possible for local, long distance and fax line charges
if the business has a separate long distance carrier and has a
dedicated fax line, and
 Network Charges (632000), which would include usage costs
for such internet services as America On Line or Compuserv.
The total of these telephone and communications charges are reported
on ABACUS line 7.
o
o
o
o
Professional Services (640000) such as legal, accounting and
inventory taking, are reported on ABACUS line 8, while
Stationery & Supplies (650000) are reported on ABACUS line 9 with
the exception of Janitorial Supplies (654000), which ABACUS treats
as part of Occupancy Expenses and which therefore should be reported
on ABACUS line 5.
Data Processing Expense (660000), reported on ABACUS line 10, is
divided into sub-accounts for:
 Data Processing Supplies (661000),
 Data Processing and Software Rental (662000),
 Outside Computer Services (663000), including any thirdparty systems vendors costs (other than repair and
maintenance) from such vendors as IBID or WordStock, and
 Other Data Processing Costs (669000).
Depreciation Expense (670000) is broken out into a number of sub
accounts which are reported in different sections of ABACUS.
 Depreciation - Building (671000)
 Depreciation - Land Improvements (672000), and
 Depreciation - Building Improvements (673000) all consist
of depreciation expenses on company-owned real estate and are
therefore to be reported on ABACUS line 5 as part of
Occupancy Expense.
 Depreciation - Leasehold Improvements (674000) is reported
on ABACUS line 11
 Depreciation - Furniture, Fixtures and Equipment (675000)
is broken out further into detailed sub-accounts reported in
different places on ABACUS:
 Depreciation - Furniture, Fixtures and Equipment
(675100), showing depreciation on furniture, fixtures
and equipment other than vehicles or data processing
equipment and software, is reported on line 11, as is
 Depreciation - Vehicles (675400).
 Depreciation - Data Processing Equipment (675200)
and
 Depreciation - Data Processing Software (675300)
(each depreciated over a different time period), are both
reported to ABACUS as part of Data Processing
Expenses on line 10.
The next four basic accounts are fairly straightforward categorizations.
o
o
Travel & Entertainment (680000), reported on ABACUS line 12, has
separate sub-accounts based, in part, on deductibility for tax purposes.
Insurance (690000) has four sub-accounts, reported on ABACUS line
13 with the exception of Real Estate Insurance (692000), on companyowned real estate, which is reported on line 5 with other occupancy
expenses.
o
o
o
o
Credit Card and Other Service Charges (700000) are broken out
into:
 Credit Card Service Charges (701000) reported on ABACUS
line 14 and
 Bank Service Charges (702000), (on checking accounts, etc.)
reported to ABACUS as part of Office Expenses on line 16
along with
 Other Service Charges (709000).
Dues and Subscriptions (710000), ABACUS line 15, is broken out
between actual dues expenses and subscription expenses, which are
further broken out between professional publications such as
Publishers Weekly, Bound Reference Tools such as Publishers Trade
List Annual and Electronic Reference Tools such as Books In Print
Plus.
Office Expense (720000) is a somewhat nebulous category, described
in ABACUS as office expenses not included in lines 4 through 15. It is
reported on ABACUS line 16 along with
Postage and Shipping Expense (730000), which, includes:
 Customer Package Charges (731100) for customers
purchases being shipped less
 Postage and Handling Fees Received (<731200>) from those
customers and also
 Other Postage Expense (739000) (not including postage on
promotional or advertising pieces, which are reported with
advertising as account 622200).
(ABACUS prefers that transportation charges for both incoming good and returns to
vendors be included in the calculation of cost of goods sold. However, it does permit
an alternate treatment of these expenses by including either or both in with the
shipping expenses posted to the 730000 Postage and Shipping account group).
o
o
o
Taxes (740000) includes business taxes other than income taxes paid
to the federal government, state and local authorities. Taxes on real
estate the company owns are reported on ABACUS line 5 as part of
occupancy expenses. Real estate taxes passed on from landlords to
renters are normally included as part of the rent bill and therefore
already included under occupancy expenses. Other taxes within the
750000 account series are reported on line 17.
Education (750000), like Travel and Entertainment, has several subaccounts based, in part on their deductibility for tax purposes.
Equipment Rent (760000) is broken down between:
 Office Equipment Rent (761000), which is reported on
ABACUS line 16 with other office and postage expenses, and
 Store Equipment Rent (762000) (e.g. Anti-theft equipment)
and
 Other Equipment Rent (769000), (e.g. a fork-lift in a
receiving warehouse), The latter two are to be reported on line
18 with other "miscellaneous" operating expenses.
o
o
Repairs and Maintenance (770000), includes:
 Repairs & Maintenance - Building Equipment (771000) for
repairs and maintenance to buildings owned by the company
which are reported on ABACUS line 5 as occupancy expenses,
 Repairs & Maintenance - Data Processing Equipment
(773000) is reported on line 10 as a data processing expense.
 Repairs & Maintenance - Furniture, Fixtures & Equipment
(772000),
 Repairs & Maintenance - Vehicle (774000), and
 Repairs & Maintenance - Other (779000) are all reported on
ABACUS line 18.
Other Operating Expenses (780000) are also reported on line 18.
The sum of all operating expenses (accounts 600000 through 790000) is
listed on ABACUS line 19 as Total Operating Expenses. When these are
subtracted from Gross Margin, the result, reported on line 20, is Operating
Income, the profit earned from normal business operations.
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Other Income (800000), ABACUS line 21, consists of income earned
from activities other than the normal ongoing operations of the
business. It is divided on the chart between other business income not
directly related to the operations of the business, such as rental income
earned from sub-leasing unused space or profits from a bookstore cafe,
and income from non-trade sources such as interest or profit from the
sale of the company's fixed assets.
Other Expense (820000) consist of expenses such as interest, losses
not covered by insurance, or losses on the sale of fixed assets.
Mortgage interest expenses are to be reported as an occupancy expense
on ABACUS line 5, while other "Other Expense" accounts are
reported on line 22. Interest paid on obligations other than mortgages is
to be reported on line 24 of ABACUS as debt expense as well as on
line 22 with Other Expenses.
When Other Income is added to Operating Income and Other Expenses are
subtracted from it, the result is Net Income Before Taxes. This is the lowest
level of profit reported on ABACUS (line 23). While ABACUS does not ask for
reporting of various income taxes paid by booksellers, they are required for a
business's financial statements and are shown on the chart under Income Tax
(900000). When these taxes are subtracted from Net Income Before Taxes,
the final result is Net Income (sometimes also titled "Net Profit After Taxes").
Key Performance Measures
The sub-committee which developed the standard chart of accounts was also
asked to describe how to calculate a number of performance measures which
booksellers would do well to apply to their financial statements in order to
better evaluate their financial condition. ABACUS has in recent years begun
tracking these performance measures, which go beyond the gross and net
profit measures appearing on businesses' financial statements. These other
measures, which focus on certain aspects of the business and how they
contribute to the business' success (or lack of it) are the result of comparisons
performed on the totals of certain accounts. They can be broken down into
three groups: income statement analyses, balance sheet analyses, and
analyses which combine data from both reports.
Income Statement Analyses
The most common income statement analyses have already been mentioned
above, namely the calculation of gross margin and net profit in dollars. By
dividing each of these two figures (and by dividing cost of goods sold and
individual expense lines) by net sales, the results can be expressed as
percentages of sales, which facilitate comparison both with the results of
different years for the same business and with the results of other businesses.
The Margin of Safety:
Another analysis used by ABACUS and involving numbers from the income
statement is the Margin of Safety. This measure is essentially a type of break-even
analysis which calculates the percent decrease in sales a company could suffer before
it began to operate unprofitably. It assumes all expenses are fixed and also assumes
that, in essence, the owner would continue work without compensation in the event of
decreased sales. To compute the Margin of Safety, one subtracts owner's
compensation from Total Operating Expenses, divides the result by the Gross
Margin (in dollars), and subtracts the result from 1. For the fiscal year 1993, the
average for all businesses reporting to ABACUS was @ 20%, with the group of
businesses defined as unprofitable reporting an average of @ 5% and the group
defined as highly profitable averaging 33%.
Balance Sheet Analyses
The two most common balance sheet analyses look at the ratios of debt to different
parts of the balance sheet:
Current Ratio:
The idea underlying the Current Ratio is that the business needs to have funds
available to meet its current obligations, namely its Current Liabilities, those which
will have to be paid within one year. The source for those funds is the business's
Current Assets, those which are either cash or are expected to be converted into cash
within one year. By dividing Total Current Assets by Total Current Liabilities,
one can determine how many times the Current Assets will go to cover Current
Liabilities. A standard rule of thumb is that the current ratio should be at least two to
one, two dollars in Current Assets for every dollar of Current Liabilities.
Businesses reporting to ABACUS have current ratios averaging closer to three to one.
Total Debt to Total Assets:
This second balance sheet ratio measures the relationship between debt, the total of
funds supplied by creditors, and Total Assets, the source of which is debt and owners'
equity combined. This ratio is calculated by dividing Total Liabilities by Total
Assets. The debt of ABACUS respondents on average is about 50% of total assets
(meaning that creditors and owners have each provided about half the business'
assets). There is significant variability in these ratios, however, with newer businesses
and unprofitable businesses carrying more debt (a high of approximately 70%) and
more profitable businesses carrying less (approximately 40%). If a bookseller is
carrying a much higher than normal percentage of debt, his ability to borrow further
when the need arises may be compromised. If he is carrying much lower debt than
normal, he may be bypassing the opportunity to expand sales and earnings profitably
(if he is able to earn more on borrowed funds than he has to pay in interest on them).
Combined Income Statement / Balance Sheet
Analyses
The analyses which mix figures from the income statement and the balance sheet
generally compare either sales or profit dollars to a specific section of the balance
sheet. Turnover analyses indicate how efficiently a given grouping of assets is used to
generate sales.
Inventory Turnover:
ABACUS has for years tracked Inventory Turnover, the number of times the
business's inventory is sold through and replenished to produce the sales of a given
period, computed by dividing Total Net Sales by the average inventory carried
during the period being reported on which was required to generate those sales. (This
analysis must be performed using either both inventory and sales at list or both
inventory and sales at cost (i.e. cost of goods sold). Over the years, the average
Inventory Turnover reported in ABACUS has improved (to an average of 3.5 turns
per year in fiscal 1993), indicating that booksellers have realized that they can
generate the same sales with fewer dollars tied up on their shelves in the form of
books, freeing up more cash for other uses.
Total Asset Turnover:
A second turnover figure reported on by ABACUS is Total Asset Turnover,
which measures how efficiently assets as a whole are being used to generate
sales. It is computed by dividing Total Net Sales by Total Assets. Since
inventory comprises by far the largest portion of most bookstores' assets, it is
not surprising that Total Asset Turnover is not much lower than Inventory
Turnover, with the average being about 2.8 turns per year.
Gross Margin Return on Inventory:
Another inventory measure reported by ABACUS is Gross Margin Return on
Inventory (GMROI), which looks at the profitability of inventory in addition to
the efficiency of its use. Gross Margin Return on Inventory is calculated by
dividing Gross Margin in dollars (rather than Total Net Sales) by average
inventory. For businesses reporting to ABACUS, the average GMROI for
fiscal 1993 was 1.68, or $1.68 in profit for every dollar invested in inventory.
Profitability Ratios
Total Return on Assets:
The first of these profitability ratios, Total Return on Assets, is calculated by adding
debt expenses (interest expenses but not principle payments) back into Net Income
Before Taxes, dividing the total by Total Assets and expressing the result as a
percentage. The 1993 ABACUS average was 6.9%, meaning that, on average, for
every dollar invested in a business's assets, $0.069 of profits were earned. This
number can be compared to the cost of borrowing to see whether a greater percentage
return is being earned on assets than the percentage of interest being paid, either on
borrowed funds or on funds about to be borrowed.If Total Return on Assets is not
higher than the interest rate, the business is paying more to borrow funds than it is
earning on those funds, thus losing money, and borrowing is not a good idea. The
situation is the same if the anticipated return on the use of funds about to be borrowed
does not exceed the interest rate the business will have to pay on them.
Return on Net Worth:
The second profitability ratio is Return on Net Worth, calculated by dividing Net
Income Before Taxes by Total Owners' Equity / Net Worth. The average Return
on Net Worth reported to ABACUS for fiscal year 1993 was almost 11%, with a wide
range running from actual losses for the unprofitable group of businesses to over 40%
for the profitable group. This return percentage can be compared to the return which
could be earned by the owner if he/she were to invest their money not in the bookstore
but in a risk-free vehicle such as treasury bills or an FDIC insured bank account.
Since the risk of loss is considerably higher when investing in a business, the return
earned should also be considerably higher for it to be economically justified. (This
analysis does not, however, take into account "emotional returns".)
Bankruptcy Warning
The Z Score:
The final performance measure reported on by ABACUS, the Z-score, was new in the
1995 report of fiscal 1993 results. This score is actually a group of ratios calculated,
weighted differently and then combined to produce a single figure which is used as a
predictor of the likelihood of bankruptcy. The first of these scores, a measure of
liquidity termed X1, is calculated by dividing working capital (Total Current Assets
less Total Current Liabilities) by Total Assets and then multiplying the result by a
weighting factor of 6.56. The second score, X2, a measure of cumulative profitability,
divides Retained Earnings by Total Assets and multiplies the result by 3.26. The
third score, X3, a measure of current profitability, divides net income before interest
and taxes by Total Assets and multiplies the result by 6.72. The last score, X4, a
measure of financial leverage, divides Total Owners' Equity / Net Worth, by Total
Liabilities, and multiplies the result by 1.05. The four weighted X-scores are added
together to produce the final Z-score. The higher this total score is, the less likelihood
there is that the company faces bankruptcy. If the Z-score is greater than 2.6. the
company is probably safe. If the Z-score is less than 1.1, the firm is near or in
bankruptcy already. A Z-score between 1.1 and 2.6 indicates potential trouble.
By computing the performance measures listed above for one's own
business and comparing them with average results reported by similar
businesses in ABACUS, an owner may gain a better understanding of and a
better handle on various aspects of his/her operation and thus increase
his/her chances of success.