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23. "Property retired," as applied to Class A. Natural gas companies gas plant, means property which has having annual gas operating revenues been removed, sold, abandoned, de of $2,500,000 or more. stroyed, or which for any cause has Class B. Natural gas companies been withdrawn from service.

having annual gas operating revenues 24. “Replacing” or “replacement," of $1,000,000 or more but less than when not otherwise indicated in the $2,500,000. context, means the construction or in Class C. Natural gas companies stallation of gas plant in place of prop

having annual gas operating revenues erty retired, together with the remov of $150,000 or more but less than al of the property retired.

$1,000,000. 25. “Retained earnings" (formerly

Class D. Natural gas companies earned surplus) means the accumulat

having annual gas operating revenues ed net income of the utility less distri

of $25,000 or more but less than bution to stockholders and transfers

$150,000. to other capital accounts.

B. This system of accounts applies to 26. “Retirement units” means those

Class C and Class D utilities. The items of gas plant which, when retired,

system of accounts applicable to Class

A and Class B utilities is issued sepawith or without replacement, are accounted for by crediting the book cost

rately. thereof to the gas plant account in

C. The class to which any utility bewhich included.

longs shall originally be determined by 27. "Salvage value" means the

the average of its annual gas operating

revenues for the last three consecutive amount received for property retired,

years. Subsequent changes in classifiless any expenses incurred in connec

cation shall be made when the annual tion with the sale or in preparing the

gas operating revenues for each of the property for sale; or, if retained, the

three immediately preceding years amount at which the material recover shall exceed the upper limit, or be less able is chargeable to materials and

than the lower limit, of the annual gas supplies, or other appropriate account. operating revenues of the classifica

28. "Service life" means the time be tion previously applicable to the utiltween the date gas plant is includible ity. in gas plant in service, or gas plant D. Any utility may, at its option, leased to others, and the date of its re adopt the system of accounts pretirement. If depreciation is accounted scribed by the Commission for any for on a production basis rather than larger class of utilities. on a time basis, then service life 2. Records. should be measured in terms of the A. Each utility shall keep its books appropriate unit of production.

of account, and all other books, rec29. “Service value" means the differ ords, and memoranda which support ence between original cost and net sal the entries in such books of account so vage value of gas plant.

as to be able to furnish readily full in30. “Utility," as used herein and formation as to any item included in when not otherwise indicated in the any account. Each entry shall be supcontext, means any natural gas com

ported by such detailed information as pany to which this system of accounts

will permit ready identification, analyis applicable.

sis, and verification of all facts relevant thereto.

B. The books and records referred to General Instructions

herein include not only accounting

records in a limited technical sense, 1. Classification of Utilities.

but all other records, such as minute A. For the purpose of applying sys books, stock books, reports, corretems of accounts prescribed by the spondence, memoranda, etc., which Commission, natural gas companies may be useful in developing the histoare divided into four classes, as fol ry of or facts regarding any transaclows:

tion.

C. No utility shall destroy any such original entry, such reference to the books or records unless the destruc prescribed account numbers may be tion thereof is permitted by rules and omitted from the various sources of regulations of the Commission.

original entry. Moreover, each utility D. In addition to prescribed ac using different account numbers for counts, clearing accounts, temporary its own purposes shall keep readily or experimental accounts, and subdivi available a list of such account numsions of any account, may be kept, pro bers which it uses and a reconciliation vided the integrity of the prescribed of such account numbers with the acaccounts is not impaired.

count numbers provided herein. It is E. All amounts included in the ac intended that the utility's records counts prescribed herein for gas plant shall be so kept as to permit ready and operating expenses shall be just analysis by prescribed accounts (by and reasonable and any payments or direct reference to sources of original accruals by the utility in excess of just entry to the extent practicable) and to and reasonable charges shall be in permit preparation of financial and cluded in account 426.5, Other Deduc operating statements directly from tions.

such records at the end of each acF. The arrangement or sequence of counting period according to the prethe accounts prescribed herein shall scribed accounts. not be controlling as to the arrange 4. Accounting Period. ment or sequence in report forms

Each utility shall keep its books on a which may be prescribed by the Com monthly basis so that for each acmission.

counting period all transactions appli3. Numbering System.

cable thereto, as nearly as may be asA. The account numbering plan used

certained, shall be entered in the herein consists of a system of three

books of the utility. Each utility shall digit whole numbers as follows:

close its books at the end of each cal100-199 Assets and other debits.

endar year unless otherwise author200-299 Liabilities and other credits.

ized by the Commission. 300-399 Plant accounts.

5. Submittal of Questions. 400-432, 434-435 Income accounts.

To maintain uniformity of account433, 436-439 Retained earnings accounts.

ing, utilities shall submit questions of 480-499 Revenue accounts. 700-799 Production, transmission and dis

doubtful interpretation to the Comtribution expenses.

mission for consideration and decision. 900-949 Customer accounts, customer serv 6. Item Lists.

ice and informational, sales, and general Lists of "items" appearing in the and administrative expenses.

texts of the accounts or elsewhere B. In certain instances, numbers herein are for the purpose of more have been skipped in order to allow clearly indicating the application of for possible later expansion or to the prescribed accounting. The lists permit better coordination with the are intended to be representative, but numbering system for other utility de not exhaustive. The appearance of an partments.

item in a list warrants the inclusion of C. The numbers prefixed to account the item in the account mentioned titles are to be considered as part of only when the text of the account also the titles. Each utility, however, may indicates inclusion inasmuch as the adopt for its own purposes a different same item frequently appears in more system of account numbers (See also than one list. The proper entry in general instruction 2D) provided that each instance must be determined by the numbers herein prescribed shall

the texts of the accounts. appear in the descriptive headings of 7. Accounting To Be on Accrual the ledger accounts and in the various Basis. sources of original entry; however, if a A. The utility is required to keep its utility uses a different group of ac accounts on the accrual basis. This recount numbers and it is not practica- quires the inclusion in its accounts of ble to show the prescribed account all known transactions of appreciable numbers in the various sources of amount which affect the accounts. If

bills covering such transactions have not been received or rendered, the amounts shall be estimated and appropriate adjustments made when the bills are received.

B. When payments are made in advance for items such as insurance, rents, taxes, or interest, the amount applicable to future periods shall be charged to account 165, Prepayments, and spread over the periods to which applicable by credits to account 165, and charges to the accounts appropriate for the expenditure.

8. Extraordinary Items.

It is the intent that net income shall reflect all items of profit and loss during the period with the exception of prior period adjustments as described in paragraph 9 and long-term debt as described in paragraph 15 below. Those items related to the effects of events and transactions which have occurred during the current period and which are not typical or customary business activities of the company shall be considered extraordinary items. Accordingly, they will be events and transactions of significant effect which would not be expected to recur frequently and which would not be considered as recurring factors in any evaluation of the ordinary operating processes of business. (In determining significance, items of a similar nature should be considered in the aggregate. Dissimilar items should be considered individually; however, if they are few in number, they may be considered in aggregate.) To be considered as extraordinary under the above guidelines, an item should be more than approximately 5 percent of income, computed before extraordinary items. Commission approval must be obtained to treat an item of less than 5 percent, as extraordinary. (See accounts 434, Extraordinary income and 435, Extraordinary deductions.)

9. Prior Period Items.

A. As a general rule, items relating tc transactions which occurred prior to the current calendar year but were not recorded in the books of account shall be included in the same accounts in which they would have been recorded had the item been recorded in the proper period. Such items relate to

events or transactions which occurred in a prior period or periods, the accounting effects of which could not be determined with reasonable assurance at the time, usually because of major uncertainty then existing. When the amount of a prior period item is relatively so large its inclusion for a single month would distort the accounts for that month, the amount may be distributed in equal amounts to the accounts for the current and remaining months of the calendar year. However, if the amount of any prior period item is so large that the company believes its inclusion in the income statement would seriously distort the net income for the year, the company may request Commission approval to record the amount in account 439, Adjustments to Retained Earnings. Such a request must be accompanied by adequate justification.

B. Treatment as prior period adjustments should not be applied to the normal, recurring corrections and adjustments which are the natural result of the use of estimates inherent in the accounting process. For example, changes in the estimated remaining lives of fixed assets affect the computed amounts of depreciation, but these changes should be considered prospective in nature and not prior period adjustments. Similarly relatively insignificant adjustments of provisions for liabilities (including income taxes) made in prior periods should be considered recurring items to be reflected in operations of the current period. Some uncertainties, for example those relating to the realization of assets (collectibility of accounts receivable, ultimate recovery of deferred costs or realizability of inventories or other assets), would not qualify for prior period adjustment treatment, since economic events subsequent to the date of the financial statements must of necessity enter into the elimination of any previously existing uncertainty. Therefore, the effects of such matters are considered to be elements in the determination of net income for the period in which the uncertainty is eliminated. (See account 439.)

10. Distribution of Pay and Expenses of Employees.

C. No utility shall destroy any such books or records unless the destruction thereof is permitted by rules and regulations of the Commission.

D. In addition to prescribed accounts, clearing accounts, temporary or experimental accounts, and subdivisions of any account, may be kept, provided the integrity of the prescribed accounts is not impaired.

E. All amounts included in the accounts prescribed herein for gas plant and operating expenses shall be just and reasonable and any payments or accruals by the utility in excess of just and reasonable charges shall be included in account 426.5, Other Deductions.

F. The arrangement or sequence of the accounts prescribed herein shall not be controlling as to the arrangement or sequence in report forms which may be prescribed by the Commission.

3. Numbering System.

A. The account numbering plan used herein consists of a system of threedigit whole numbers as follows: 100-199 Assets and other debits. 200-299 Liabilities and other credits. 300-399 Plant accounts. 400-432, 434-435 Income accounts. 433, 436-439 Retained earnings accounts. 480-499 Revenue accounts. 700-799 Production, transmission and dis

tribution expenses. 900-949 Customer accounts, customer sery.

ice and informational, sales, and general and administrative expenses. B. In certain instances, numbers have been skipped in order to allow for possible later expansion or to permit better coordination with the numbering system for other utility departments.

C. The numbers prefixed to account titles are to be considered as part of the titles. Each utility, however, may adopt for its own purposes a different system of account numbers (See also general instruction 2D) provided that the numbers herein prescribed shall appear in the descriptive headings of the ledger accounts and in the various sources of original entry; however, if a utility uses a different group of account numbers and it is not practicable to show the prescribed account numbers in the various sources of

original entry, such reference to the prescribed account numbers may be omitted from the various sources of original entry. Moreover, each utility using different account numbers for its own purposes shall keep readily available a list of such account numbers which it uses and a reconciliation of such account numbers with the account numbers provided herein. It is intended that the utility's records shall be so kept as to permit ready analysis by prescribed accounts (by direct reference to sources of original entry to the extent practicable) and to permit preparation of financial and operating statements directly from such records at the end of each accounting period according to the prescribed accounts.

4. Accounting Period.

Each utility shall keep its books on a monthly basis so that for each accounting period all transactions applicable thereto, as nearly as may be ascertained, shall be entered in the books of the utility. Each utility shall close its books at the end of each calendar year unless otherwise author. ized by the Commission. 5. Submittal of Questions.

To maintain uniformity of accounting, utilities shall submit questions of doubtful interpretation to the Commission for consideration and decision.

6. Item Lists.

Lists of "items" appearing in the texts of the accounts or elsewhere herein are for the purpose of more clearly indicating the application of the prescribed accounting. The lists are intended to be representative, but not exhaustive. The appearance of an item in a list warrants the inclusion of the item in the account mentioned only when the text of the account also indicates inclusion inasmuch as the same item frequently appears in more than one list. The proper entry in each instance must be determined by the texts of the accounts.

7. Accounting To Be on Accrual Basis.

A. The utility is required to keep its accounts on the accrual basis. This requires the inclusion in its accounts of all known transactions of appreciable amount which affect the accounts. If

bills covering such transactions have events or transactions which occurred not been received or rendered, the in a prior period or periods, the acamounts shall be estimated and appro- counting effects of which could not be priate adjustments made when the determined with reasonable assurance bills are received.

at the time, usually because of major B. When payments are made in ad uncertainty then existing. When the vance for items such as insurance, amount of a prior period item is relarents, taxes, or interest, the amount tively so large its inclusion for a single applicable to future periods shall be month would distort the accounts for charged to account 165, Prepayments, that month, the amount may be disand spread over the periods to which tributed in equal amounts to the acapplicable by credits to account 165, counts for the current and remaining and charges to the accounts appropri months of the calendar year. However, ate for the expenditure.

if the amount of any prior period item 8. Extraordinary Items.

is so large that the company believes It is the intent that net income shall its inclusion in the income statement reflect all items of profit and loss would seriously distort the net income during the period with the exception for the year, the company may reof prior period adjustments as de quest Commission approval to record scribed in paragraph 9 and long-term the amount in account 439, Adjustdebt as described in paragraph 15 ments to Retained Earnings. Such a below. Those items related to the ef. request must be accompanied by adefects of events and transactions which quate justification. have occurred during the current B. Treatment as prior period adjustperiod and which are not typical or ments should not be applied to the customary business activities of the normal, recurring corrections and adcompany shall be considered extraor- justments which are the natural result dinary items. Accordingly, they will be of the use of estimates inherent in the events and transactions of significant accounting process. For example, effect which would not be expected to changes in the estimated remaining recur frequently and which would not lives of fixed assets affect the computbe considered as recurring factors in ed amounts of depreciation, but these any evaluation of the ordinary operat changes should be considered prospecing processes of business. (In deter- tive in nature and not prior period admining significance, items of a similar justments. Similarly relatively insignature should be considered in the ag- nificant adjustments of provisions for gregate. Dissimilar items should be liabilities (including income taxes) considered individually; however, if made in prior periods should be conthey are few in number, they may be sidered recurring items to be reflected considered in aggregate.) To be consid- in operations of the current period. ered as extraordinary under the above Some uncertainties, for example those guidelines, an item should be more relating to the realization of assets than approximately 5 percent of (collectibility of accounts receivable, income, computed before extraordi- ultimate recovery of deferred costs or nary items. Commission approval must realizability of inventories or other be obtained to treat an item of less assets), would not qualify for prior than 5 percent, as extraordinary. (See period adjustment treatment, since accounts 434, Extraordinary income economic events subsequent to the and 435, Extraordinary deductions.) date of the financial statements must 9. Prior Period Items.

of necessity enter into the elimination A. As a general rule, items relating of any previously existing uncertainty. tc transactions which occurred prior Therefore, the effects of such matters to the current calendar year but were are considered to be elements in the not recorded in the books of account determination of net income for the shall be included in the same accounts period in which the uncertainty is in which they would have been record- eliminated. (See account 439.) ed had the item been recorded in the 10. Distribution of Pay and Expenses proper period. Such items relate to of Employees.

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