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Section 31.01-1 Classification of companies. (a) For the purpose of this system of accounts, telephone companies are divided into two classes as follows:

Class A. Companies having average annual operating revenues exceeding $100,000.

Class B. Companies having average annual operating revenues exceeding $50,000, but not more than $100,000.

(b) Class A companies shall keep all the accounts of this system

of accounts, which are applicable to their affairs.

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§§ 31.608, 31.609 follow § 31.612 in order to permit the grouping together of all maintenance expense accounts without changing long-established account numbers.

Engineering expense.

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(c) Class B companies shall keep all the accounts of this system of accounts, which are applicable to their affairs, except that their accounts for operating revenues and operating expenses may be kept under the accounts of the condensed classification provided for herein.* [See the tables preceding §§ 31.500, 31.602: 1]

NOTE: In order that frequent changes may be avoided, companies operating established telephone plants shall adopt the scheme of accounts indicated by the average of their annual revenues for 3 years immediately preceding the effective date of this order. If at the close of any calendar year the average of the annual revenues for the 3 latest years is greater than the amount applicable to the class in which the company has been accounting, the higher scheme of accounts shall be adopted. New companies shall estimate the amount of their annual revenues and adopt the scheme of accounts appropriate for the amount of such estimated

revenues.

*§§ 31.01-1 to 31.707, inclusive, issued under the authority contained in sec. 220 (a), 48 Stat. 1078; 47 U.S.C. 220 (a).

+In 88 31.01-1 to 31.1-17, inclusive, the numbers to the right of the dash (except that a colon has been substituted in § 31.1-16:1 for the decimal point used in the original instruction number) correspond with the respective instruction numbers in Uniform system of accounts for (Class A and Class B) telephone companies, Federal Communications Commission, effective Jan. 1, 1937 (Orders 7-C, 7-D). Cross references to accounts are made by citing the account number, e. g., account 323, instead of the corresponding section number (§ 31.323).

31.01-2 Records. (a) The company's records shall be kept with sufficient particularity to show fully the facts pertaining to all entries in these accounts. Where the full information is not recorded in the general books the entries therein shall be supported by other records in which the full details shall be shown and the general book entries shall contain sufficient reference to the detail records to permit ready identification. The detail records shall be filed in such manner as to be readily accessible for examination by representatives of this Commission.

(b) Attention is directed to the following extract from section 220 of the Communications Act of 1934 (48 Stat. 1078; 47 U.S.C. 220):

(e) Any person who shall willfully make any false entry in the accounts of any book of accounts or in any record or memoranda kept by any such carrier, or who shall willfully destroy, mutilate, alter, or by any other means or device falsify any such account, record, or memoranda, or who shall willfully neglect or fail to make full, true, and correct entries in such accounts, records, or memoranda of all facts and transactions appertaining to the business of the carrier, shall be deemed guilty of a misdemeanor, and shall be subject, upon conviction, to a fine of not less than $1,000 nor more than $5,000 or imprisonment for a term of not less than one year nor more than three years, or both such fine and imprisonment: Provided, That the Commission may in its discretion issue orders specifying such operating, accounting, or financial papers, records, books, blanks, or documents which may, after a reasonable time, be destroyed, and prescribing the length of time such books, papers, or documents shall be preserved.

CROSS REFERENCE: For regulations governing the periods for which records are to be retained, see Part 42.

(c) All charges to the accounts prescribed in this classification for telephone plant, income, operating revenues, and operating expenses shall be just and reasonable and any payments by the company in excess of such just and reasonable charges shall be included in Account 323, "Miscellaneous income charges."

(d) Accounts which are clearly summaries of other accounts or subaccounts provided for herein are not required to be kept in the

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company's books. All accounts kept shall conform in numbers and titles to those prescribed herein, except that:

(1) Companies may subdivide any of the accounts, provided such subdivisions do not impair the integrity of the accounts prescribed. The titles of all such subdivisions or subaccounts shall refer by number or title to the accounts of which they are subdivisions, and this Commission shall be notified of the nature and purpose of such subdivisions. When subaccounts are thus kept, it is not required that the main accounts of which they are subdivisions shall also be kept in the company's books.

(2) Clearing accounts, in addition to those prescribed herein, may be kept when necessary in making the proper distribution of items to the appropriate primary accounts, provided, that within 30 days. of the opening of such accounts, this Commission shall be notified of the nature and purpose thereof.

(3) Temporary or experimental accounts may be kept in addition to the accounts prescribed herein, for the purpose of developing the efficiency of operations, etc., provided such accounts do not impair the integrity of any accounts prescribed herein, and provided further that within 30 days of the opening of such accounts, this Commission shall be notified of the nature and purpose thereof.

(e) As of the effective date of this system of accounts, the several accounts prescribed herein shall be opened by transferring thereto the balances carried in the accounts previously maintained by the company. Copies of the journal entries recorded to effect these transfers shall be filed with this Commission. The company is authorized to make such subdivisions, reclassifications, or consolidations of such balances as are necessary to meet the requirements of this system of accounts.**

31.01-3 Definitions. When used in this system of accounts:

(a) "Accounts" or "These accounts" means the accounts of this system of accounts.

(b) "Actually issued," as applied to securities issued or assumed by the company, means those which have been sold to bona fide purchasers for a valuable consideration (including those issued in exchange for other securities or other property) under the condition that the purchasers secured them free from all control by the issuing company, also securities issued as dividends on stock.

(c) "Actually outstanding," as applied to securities, means those which have been actually issued and are neither retired nor held by or for the company.

(d) "Affiliated companies" means companies that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, the accounting company.

(e) "Book amount," as applied to capital stock, means the par value of stock having a par value, and the amount duly authorized for inclusion in Account 150, "Capital stock," for stock having no par value.

(f) "Book cost" means the amount at which property is recorded in these accounts, without deduction of related reserves.

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**For statutory and source citations, see note to § 31.01-1.

(g) "Book liability" means the amount at which securities issued or assumed by the company and other liability items are recorded in these accounts.

(h) "Company" or "The company," when not otherwise indicated in the context, means the accounting company.

(i) "Control" (including the terms "controlling," "controlled by," and "under common control with") means the possession, directly or indirectly of the power to direct or cause the direction of the management and policies of a company, whether such power is exercised through one or more intermediary companies, or alone, or in conjunction with, or pursuant to an agreement with, one or more other companies, and whether such power is established through a majority or minority ownership or voting of securities, common directors, officers, or stockholders, voting trusts, holding trusts, affiliated companies, contract, or any other direct or indirect means.

(j) "Cost," except as applied to telephone plant, franchises, patent rights, and right-of-way, means the amount of money actually paid (or the current money value of any consideration other than money exchanged) for property or services. (Note also paragraph (x) of this section.)

(k) "Cost of removal" means the cost of demolishing, dismantling, removing, tearing down, or otherwise disposing of telephone plant and recovering the salvage, including the cost of transportation and handling incident thereto.

(1) "Debt expense" means all expenses in connection with the issuance and sale of evidences of debt, such as fees for drafting mortgages and trust deeds; fees and taxes for issuing or recording evidences of debt; cost of engraving and printing bonds, certificates of indebtedness, and other commercial paper; fees paid trustees; specific costs of obtaining governmental authority; fees for legal services; fees and commissions paid underwriters, brokers, and salesmen; fees and expenses of listing on exchanges, and other like costs. (Note also § 31.113 (b).).

(m) "Depreciation," as applied to depreciable telephone plant, means the loss in service value (note paragraph (dd) of this section) not restored by current maintenance, incurred in connection with the consumption or prospective retirement of telephone plant in the course of service from causes which are known to be in current operation, against which the company is not protected by insurance, and the effect of which can be forecast with a reasonable approach to accuracy. Among the causes to be given consideration are wear and tear, decay, action of the elements, inadequacy, obsolescence, changes in the art, changes in demand and requirements of public authorities.

(n) "Discount," as applied to securities issued or assumed by the company, means the excess of the book or face amount (note paragraphs (f) and (o) of this section) of the securities plus interest or dividends accrued at the date of the sale over the current money value of the consideration received at their sale.

(o) "Face amount" means the amount or value of bonds, mortgages, and other evidences of debt set forth in the documents themselves.

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(p) "Group plan," as applied to depreciation accounting, means the plan under which depreciation charges are accrued upon the basis of the original cost (note paragraph (x) of this section) of all property included in each depreciable plant account, using the average service life thereof properly weighted, and upon the retirement of any depreciable property its full service value is charged to the depreciation reserve whether or not the particular item has attained the average service life.

(q) "Investment advances" means advances, represented by notes or by book accounts only, with respect to which it is mutually agreed or intended between the creditor and the debtor that they shall be settled by the issuance of capital stock or funded debt or shall not be subject to current cash settlement.

(r) "Minor items," as applied to depreciable telephone plant, means any part or element which is not designated as a unit of property in § 32.1.

(s) "Miscellaneous physical property" means all physical property owned by the company, other than telephone property the investment in which is includible in Accounts 100: 1, "Telephone plant in service," 100: 2, "Telephone plant under construction," 100: 3, "Property held for future telephone use," and 100: 4, "Telephone plant acquisition adjustment."

(t) "Net salvage value" means the salvage value (note paragraph (bb) of this section) of the property retired after deducting the cost of removal.

(u) "Nominally issued," as applied to securities, means those which have been signed, certified, or otherwise executed and placed with the proper officer for sale, or pledged or otherwise placed in some special fund of the company, but which have not been sold.

(v) "Nominally outstanding," as applied to securities, means those which after being actually issued have been reacquired by or for the company under such circumstances as require them to be considered as held alive and not retired.

(w) "Nonaffiliated companies" means all companies other than those defined as affiliated in paragraph (d) of this section.

(x) "Original cost" or "Cost," as applied to telephone plant, franchises, patent rights, and right-of-way, means the actual money cost of (or the current money value of any consideration other than money exchanged for) property at the time when it was first dedicated to the public use, whether by the accounting company or by predecessors.

NOTE: For the application of this definition to property acquired from predecessors see § 31.2-21. (Note also paragraph (j) of this section.)

(y) "Plant retired" means plant which has been removed, sold, abandoned, destroyed, or otherwise withdrawn from telephone service.

(z) "Premium," as applied to securities issued or assumed by the company, means the excess of the current money value of the consideration received at their sale over the sum of their book or face amount (note paragraphs (e) and (o) of this section) and interest or dividends accrued at the date of the sale.

(aa) "Replacing" and "replacement," when not otherwise indicated in the context, mean the construction or installation of telephone

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