John Richard Edwards Trevor Boyns
and
Malcolm Anderson CARDIFF BUSINESS SCHOOL

BRITISH COST ACCOUNTING DEVELOPMENT: CONTINUITY AND CHANGE

Abstract: This paper uses the archival records of three entities succes-sively carrying on coal and ironmaking activities at Staveley between 1838-1900, together with the findings from earlier research, to explore the costing information generated over the period 1690-1900. We find a system of cost accounting, broadly defined, in operation throughout the period, a large measure of continuity concerning its basic features, and innovations made from time to time presumably designed to improve its usefulness. The paper uses the results of this and earlier research to explore the nature of accounting change and draws attention to possible differences in the path of development between countries. Further, we assess the significance of our findings for present ideas concerning the development of cost accounting systems in Britain and the U.S., and argue for a broader view to be taken by researchers into the nature of management accounting’s development.

A previous article [Edwards and Boyns, 1992] examined the accounting records of two vertically-integrated charcoal iron-making enterprizes operating as partnerships in the Sheffield area between 1690-1783.’ The main findings were that their accounting systems, each based on double entry bookkeeping, involved complete integration of the cost and financial records, the identification of unit costs for raw material inputs, the use of accounting prices to record the movement of goods between locations in order to measure departmental results, and the calculation of input-output yield statistics for raw materials and intermediary products.

‘These were The Duke of Norfolk’s Works in south Yorkshire and the Derbyshire and Nottingham Company located around Staveley, north Derbyshire.

Submitted June 1994
Revised May 1995
Accepted August 1995

The present paper uses the findings from this earlier re-search together with the archival records of three entities2 (two sole traders and a quoted public company) subsequently carry-ing on coal and ironmaking activities at Staveley, in succession, during the period 1838-1900 for the following purposes:

* to contrast the nature of cost accounting developments in Britain and the U.S.;
* to argue for a broader view to be taken of the development of managerial accounting than is implicit in the debate concern ing the significance of events at the Springfield Armory;
* to outline and analyze the costing system in use at Staveley between 1838-1900; and
* to assess the likely relevance of the data generated for the purposes of planning, measurement and control.

INDUSTRIAL ACCOUNTING DEVELOPMENTS IN THE U.S. AND BRITAIN

There is a growing literature on the development of cost accounting and a keen interest in the extent to which failure to respond to changing circumstances during the twentieth century has caused it to lose its relevance [Johnson and Kaplan, 1987]. A feature of this literature is the debate concerning the way in which our knowledge of earlier developments can help to explain the nature and purpose of cost accounting and the process of evolution into its present day form.

Much of the literature used as the basis for generalizing earlier developments in English-speaking countries, post-1800, deals with the activities of nineteenth century U.S. companies [Johnson, 1972; Chandler, 1977, 1990; Johnson and Kaplan, 1987; Hoskin and Macve, 1988, 1994; Tyson, 1990, 1992, 1993]. Particular importance is ascribed to events at the Springfield Armory. According to Chandler [1977, p. 72], “before the mid-1830s the only industrial enterprises in the United States to have an internal sub-division as extensive as that of Adam Smith’s famous pin factory were a small number of gun making establishments.” Features of the most successful of these, the Springfield Armory, were that it had a workforce of 250 men and was, for decades, the largest metal working establishment in the country. Chandler therefore sees it as perfectly natural for “techniques of modern factory management” to appear first in this “important prototype of the modern factory” [Ibid., pp. 72-3].

If we accept Chandler’s view that the scope and scale of business activity is likely to have implications for the design and development of the management information system, we might expect to find differences between the U.S. and British experi-ences. Of particular relevance is the fact that factory develop-ment had begun somewhat earlier in Britain. Proto-industrial-ization during the seventeenth and early eighteenth centuries had seen the emergence of the proto-factory,3 involving a significant investment in tools and implements and a labor force assembled to perform specialist functions under supervision [Flinn, 1962; Marshall, 1980, chapter 6; Mepham, 1988, pp. 57-8].

The pace of industrialization picked up in Britain during the second half of the eighteenth century with the textile, especially cotton but also woolen, and iron industries coming to the fore. By 1812, in the neighborhood of Birmingham alone, there were 10 iron works, each of which cost over £50,000 to establish and typically engaged between 300-500 workmen apart from the colliers [Ashton, quoted in Edwards, 1937, p. 193]. An example of an organization growing rapidly during the first half of the nineteenth century, under the leadership of Sir John Guest, was the Dowlais Iron Company which employed 5,192 people in 1842. In the same year, it was described as “the first [iron works] in the world,”4 but it is not necessary to go beyond the locality of south Wales for other examples of substantial British Companies at this early date.

3 The first factory proper is generally considered to be John Lombe’s silk-throwing mill near Derby in 1717. It was 500 feet long and, with five or six stories resembled “a huge barracks . .. with its automatic tools, its continuous and unlimited production and the narrowly specialised functions of its [300] operatives” [Mantoux, 1928, p. 199],
4Letter from S. W. Roberts of Philadelphia to Thomas Evans, the overseas agent of Dowlais. Glamorgan Record Office, Dowlais main series letter book 1842 (2) f. 368.

5The Plymouth Iron Company employed 3,900, Tredegar 2,757, Rhymney 2,494, Penydarren 2,071 and Blaenavon 1,971, while Cyfarthfa employed 2,000 at the forges alone [Royal Commission on Childrens’ Employment in Mines and Manufactories, 1842, Report of Rhys William Jones, Appendix, Part 2, p. 594]. The Report of the Commissioners for the State of the Population in the Mining Districts, 1846, puts employment at Dowlais at c. 6,000 and at Rhymney c. 4,000, of which 1,600 were employed in the mines. It is also stated that 1,700 were employed at Dowlais in the mines, but it is not clear whether this is part of the 6,000.

Given Chandler’s [1977, 1990] assessment of the impact of the large-scale business enterprize on cost accounting develop-ments, it would be surprising if progress in this direction had not been made early on by companies at the forefront of Britain’s Industrial Revolution. Indeed, research has been undertaken which suggests that important costing developments did in fact occur in Britain both prior to and during the Industrial Revolution [McKendrick, 1970; Stone, 1973; Jones, 1985; Fleischman and Parker, 1990, 1991, 1992; Fleischman, Parker and Vamplew, 1991; Edwards and Newell, 1991; Edwards and Boyns, 1992]. Moreover, refinements of accounting technique, of fundamental importance in terms of departmental profit and performance measurement occurred in relatively small iron making establishments [Edwards and Boyns, 1992].

This paper will present further evidence both explicit and suggestive of the fact that this material was used for manage-ment purposes [see also Boyns and Edwards, 1995].

DEVELOPMENT OF MANAGEMENT ACCOUNTING — SOME SUGGESTIONS

It has been persuasively argued that Johnson and Kaplan’s analysis of the development of management accounting in Rel-evance Lost [1987] has “placed accounting history centre-stage not only in the research agenda, but also for practical business management” [p. 36], The result has been an upsurge of publications in this area and an intense and sometimes heated debate [Tyson, 1992; Fleischman, Kalbers and Parker, 1992; Miller and Napier, 1993; Hoskin and Macve, 1994; Tyson, 1995] between Foucauldians, Marxists and economic rationalists concerning the respective merits of different approaches to accounting history [Napier, 1989; Miller, Hopper and Laughlin 1991]. Calls have been made for recognition of possible merit in more than one approach towards analysing accounting’s past [Fleischman, Kalbers and Parker, 1992], and the late eighteenth century accounting practices of Boulton & Watt have been the subject of re-interpretation as the result of collaborative research between Foucauldians and an economic rationalist [Fleischman, Hoskin and Macve, 1995].

Recent years have also seen an interesting debate in the accounting history literature concerning the “genesis of man-agerialism” [Hoskin and Macve, 1994]. According to Chandler, the necessary administrative co-ordination of emerging large-scale companies during the nineteenth century was facilitated by the adoption of bookkeeping procedures based on “standard double-entry accounts” [Chandler, 1977, pp. 73-4]. The Springfield Armory case is cited as an exemplar, with events during the stewardship of Colonel Roswell Lee (1815-33) seen to have been of crucial importance.

Historians of a Foucauldian persuasion [Hoskin and Macve, 1988] have challenged Chandler’s “demand – response” explanation for the development of managerialism during the 1830s and 1840s. They agree that events at the U.S. Springfield Armory in the first half of the nineteenth century saw accounting play a full part in the development of “managerialism,” but see a disciplinary power-knowledge framework as responsible for observed changes. In the opinion of Hoskin and Macve, identified events, which include the “West Point connection,” conspired to produce “crucial discontinuities from previous accounting and management practices” [Hoskin and Macve, 1988, p. 38]. The major step forward comprised a new accountability based on “a full accounting for labour productivity” [Hoskin and Macve, 1988, p. 38; see also Chandler, 1977, pp. 72-5]. In a later paper, Hoskin and Macve [1994] have demonstrated conclusively the fact that Springfield’s accounting system under Lee was based on the stewardship-oriented charge/discharge accounting rather than, as Chandler believed, the potentially more commercially-oriented double entry bookkeeping [1994, pp. 18-22], and have further argued that it was “a revolutionary time-and-motion study undertaken in 1831 which exposed the previously-hidden problem of slack, and thus made it possible to engineer the subsequent cost and productivity transformations” [1994, p. 6]. The time and motion study is thought to have been the “brainchild” of Lieutenant Daniel Tyler, a West point graduate who joined Springfield in 1831.

The Hoskin and Macve thesis has been challenged by Tyson [1990, 1992, 1993]. Tyson re-examined the Springfield archive and concluded that there was, potentially, a managerial accounting system in place prior to Tyler joining the Armory, and that subsequent changes in the use of this accounting system can better be explained in terms of a range of identified economic and social factors. Tyson’s findings have been stoutly resisted by Hoskin and Macve [1994] who re-assert their earlier conclusions.

This debate is of relevance to our study for reasons which include assertions made by Foucauldians concerning the nature and purpose of costing systems uncovered by other academic researchers. Earlier costing developments in U.S. textile mills are down-played due to their perceived inability to establish ef-fective accountability in respect of workers and production [Hoskin and Macve, 1988, pp. 70-1]. More importantly, for our purposes, while Foucaudians have noted the introduction of cost accounting techniques in British companies before and during the Industrial Revolution [McKendrick, 1970; Jones, 1985; Edwards, 1989; Edwards and Newell, 1991; Fleischman and Parker, 1990, 1991], the significance of these findings6 has been questioned [Hoskin and Macve, 1988, 1992] on the grounds that they provide evidence of cost finding but not cost control.

We use the findings from recent research into the Staveley archives together with our investigation of its predecessor com-panies [Edwards and Boyns, 1992] to question this conclusion. We think that progress in management accounting history re-search needs to pay more attention to two factors, of which the second is given particular emphasis in this paper. First, there is a need to consider the possible significance of differences in environmental circumstances between countries. For example, it is plausible to argue that a country with a long industrial history and steady rate of economic development in circumstances where labor was relatively plentiful (e.g., Britain between the seventeenth and nineteenth centuries) is likely to exhibit significant differences in the development of its technologies, including accounting, compared with a country which started much later but then industrialized more rapidly against a background of labor shortages (e.g., the U.S.).

Second, while we share with Hoskin, Macve and Tyson a concern with the development of accounting as a tool for man-agement, we argue that it is a mistake to focus overmuch on “using accounting information to exert human accountability, e.g., by eradicating slack and increasing work efficiency” [Hoskin and Macve, 1994, p. 7, emphasis added]. The material presented and commented on in the remainder of this paper contains little or no evidence of an accounting system being used principally as a means of surveillance of the workforce. However, we argue that a broader view needs to be taken of the possible nature and role of accounting systems both within and between countries. That is, we suggest that management was concerned to make the best use of available resources within certain constraints, of which one may have been a recognition
“Also, in the U.S. context, Porter, 1980.

of the need to maintain harmonious management/worker rela-tions in a period when the “governable person” [Miller and O’Leary, 1987] had not yet been created, at least in the private sector. We therefore take the view that it is unduly restrictive to equate the development of managerial accounting with the growth of scientific management, which is seen to have its origins at West Point and to have been popularized by Frederick Taylor in the late nineteenth century. Rather, we take as a reference point the definition of management accounting which appeared in the report prepared by the team which visited the U.S.A. in 1950 under the auspices of the then recently established Anglo-American Council on Productivity. It is the first such definition of which we are aware that has appeared in the British accounting literature.

Management accountancy is the presentation of ac-counting information in such a way as to assist man-agement in the creation of policy and in the day-to-day operation of an undertaking (1950., p. viii).

We recognize that we focus on a term “management accounting” which was not even used in the nineteenth century, but we do not see this as a problem.7 Our sole purpose is to discover whether the system we have researched meets the basic criterion subsequently articulated as justifying that designation.

In the next two sections, we present our analysis of the system of accounting used at Staveley between 1838-1900. In the final section, we emphasize the gradual evolution, over two centuries, of an accounting system which (our investigations of archives elsewhere suggest9) had many features in common with that in widespread use among iron, steel and coal companies in the late nineteenth century. Also, we make a tentative assessment, based on the limited explicit evidence available, of the extent to which this system can be regarded as serving manage-

7 See Miller and Napier [1993] for a different view
8 In this context, we note a broad similarity between the 1950 definition and
those used by today’s management accounting textbooks.

‘Bolckow, Vaughan and Company Ltd, Cleveland (British Steel, North Eastern Regional Records Centre); Consett Iron Company Ltd, Durham (British Steel, North Eastern Regional Records Centre); Dowlais Iron Company, Glamorgan (Glamorgan Record Office); Pearson and Knowles Coal and Tron Company Ltd, Lancashire (British Steel, North Western Regional Records Centre); Shelton Iron, Steel and Coal Company Ltd, Staffordshire (British Steel, North Western Regional Records Centre); and South Durham Steel and Iron Company Ltd, Durham (British Steel, North Eastern Regional Records Centre).

ment’s informational requirements. We acknowledge the lack of surviving evidence to demonstrate the precise use made of this accounting information and refer to the contemporary literature for illumination on this matter. In the final section we also com-ment further on the process of accounting change in different countries and argue for a broad view of management accounting to be taken by researchers into its history.

THE INTEGRATED ACCOUNTING SYSTEM
1838-41: Staveley Works — George Barrow, Sole Proprietor

In 1783, at the end of a 21-year lease, the tenancy of Joseph Clay (managing clerk of The Duke of Norfolk’s Works and the Derbyshire and Nottingham Company) was not renewed and the two partnerships were dissolved. Staveley was then leased to Walter Mather who belonged to a group of capitalists that also controlled foundries and mills in south Derbyshire. In the endeavor to improve profitability, the furnace was re-built to enable the use of coke instead of charcoal as its main fuel [Hopkinson, 1957, p. 117]. Following Mather’s death in 1796, Staveley was bequeathed to his sons-in-law, William Ward and Edward Richard Lowe, though the latter died in 1800 and his widow continued in partnership with Ward.

In 1805, Lowe’s widow married George H. Barrow, a Southwell solicitor, who initially took little interest in Staveley. Bad management and a run of losses from circa 1810 encour-aged Barrow to become more involved and, in 1815, he took over the ground leases and assumed sole responsibility for the works. George continued to run the business until 1841, by which time backward integration had secured supplies of ironstone and coal from local pits and collieries.

The single accounting record which appears to have survived from George’s proprietorship is the double entry-based private ledger for 1838-41 [D3808]. Nevertheless, the wealth of physical and financial information it contains enables us to con-struct a fairly clear picture of the nature of business operations at this time, the flow of goods between operating departments and stock, and the way in which costs and profits were measured [Figure 1].

Edwards, Boyns and Anderson: British Cost Accounting Development
FIGURE 1
Staveley Works, departments and cost/revenue flows,
1838-41

Ironstone pits(l)
Collieries (1)
Tronstone stock(2)
Limestone stock (2)
Coke ovens (2)

Furnaces (1)
Pig iron stock (2)
Foundry (1)
Castings stock (2)*
Customer

* Small amounts of castings were supplied and recharged to other departments in the form of items such as rails, wagon wheels, punches, plates, pram wheels, point plates, pipes, pulley wheels, washers, drum wheels and doors.
> Transfers at cost
> Transfers at an accounting price
(1) Separate columns in these ledger accounts list physical quantities trans
ferred to the next stage of operations.
(2) Separate columns in these ledger accounts list physical quantities for both
inflows and outflows.
Source: Private ledger of Staveley Works, 1838-41.

The main operating departments (each of which was allo-cated a separate ledger account) consisted of three collieries, an unspecified number of ironstone pits and coke ovens, two fur-naces and a foundry. There were also separate ledger accounts for stocks of limestone (purchased externally and subsequently transferred to the furnaces), ironstone (obtained from the pits and used in the furnaces), pig iron (produced by the furnaces and transferred to the foundry or sold) and castings (produced in the foundry for subsequent sale). Coal was transferred from the collieries to the coke ovens, furnaces, foundry and customers.

The unbroken arrows in Figure 1 indicate transfers to cus-tomers at selling price and to other operating departments at accounting prices, subject to periodic adjustment, which were usually below market price. The outcome was an accounting system which produced profit or loss measures for each of the operating departments which interfaced either partly (collieries producing coal and furnaces producing pig iron) or wholly (foundry producing castings) with the market. The costs incurred by the ironstone pits were re-charged monthly to the ironstone stock account, while the cost of coal transferred to the coke ovens was, in turn, re-charged monthly to the furnaces accounts and the foundry account based on their respective usage. The ironstone stock and limestone stock were each recharged to the furnaces at accounting prices, again subject to periodic adjustment. In these cases, however, it seems that the transfer prices were designed to recover the cost with any under or over-recovery, so far as we can judge, affecting the valuation of closing stock which was inserted as the balancing figure.

Each of the ledger accounts contains figures for physical inputs [Figure 1, notes 1 and 2], while each of the stock accounts also contains figures for physical outputs [Figure 1, note 2]. The reconciliation of physical quantities helped to prove the completeness of the record,10 identified deficiencies which could be judged acceptable or otherwise, and provided the data which

10 The exception is in the case of the coke ovens where the actual coke produced weighed substantially less than the coal consumed. For example, the charge to the furnaces for November 1848 shows that 549 tons 19 cwls of coal produced 329 tons 19 cwts 1 quarter of coke. These figures are closely in line with the expected input-output ratio of 60% [Gibson, 1922, p. 77], and we speculate that the numbers generated by the accounting system were compared with this kind of yardstick.

we imagine were used to calculate yields.11 The continuity in the accounting system over time is worth noting. Between 1690-1783, the outputs of operating departments which interfaced partly with the market were also valued at accounting prices (at that time closer to market price than seems to have been the case between 1838-41), while other transfers, such as ironstone (purchased) and charcoal (produced), were made at cost [Edwards and Boyns, 1992, pp. 160-3]. Table I12 lists departmental results achieved at the main profit centers, together with those of the farm, brickyard, lime kiln, and on the meat account.

TABLE 1
Balances of profit and (loss) extracted from private ledger 1838-41.
Apri.11838/ April 1839/ April 1840/ April 1841/ March 1839 March 1840 March 1841 December 1841
£ £ £ £
Pig iron 4,893.9.8 3,669.15.5 3,888.5.9 643.11.2
Castings 3,368. 7.10 2,676. 9. 1 454.16. 8 (50. 5. 8)
Collieries
Hollingwood 1,676.1. 8 1,577.19. 1 836. 5. 1 62.17. 3
Norbriggs 10.10.10 (206. 2. 4) * *
Staveiey 751.13. 4 550.12. 5 (121. 8.11) (139. 3. 1)
Norbriggs New (146. 1. 5) (173.19.11) 196.18. 6
Other
Farm (138.19. 4) (131. 4. 6) (181. 5. 4)
Meat account 122. 4. 3 (10. 8. 3) *
Brickyard ** 20.19. 0 * *
Limekiln ** 43.12. 0
* Ledger accounts not written up for these years. ** Ledger accounts not balanced this year
Source: Private ledger, 1838-41 [D3808].

“We have evidence to show that they were made in earlier times at Staveiey [Edwards and Boyns, 1992, pp. 166-7] and also later (see below).
12 The contents of Table 1 reflect the fact that not all the ledger accounts were written up and/or balanced between 1838-41, with the situation worsening towards the end of George’s proprietorship. Elsewhere in the ledger we find material amounts of expenditure on fixed assets recorded in accounts which were not balanced until the ledger was closed. For example, there is a Staveiey New Colliery Account and a New Furnace Account which, respectively, show accumulated debit balances of £1,729. 17. 7 and £1,068. 16. 8. [D38O8, Private Ledger, 1838-41], These omissions are suggestive of the fact that neither a trial balance was extracted nor final accounts prepared for the years 1838-41.

We can therefore conclude that the ledger provided a fully integrated13 record of financial and costing information. At Staveley, the recognition of differential roles for cost and financial records was yet to arrive. The system of double entry bookkeeping had been modified and extended to meet changing business requirements, and we can conclude that the ledger remained the center-piece of the accounting system that could be directly consulted for both the financial and physical data required to inform assessments of the firm’s profits, performance and financial position.

1841-63: Staveley Works — Richard Barrow, Sole Proprietor

Following a successful re-negotiation of the lease14 in 1841, George transferred control of the Staveley Works to his younger brother, Richard, who had been a “successful merchant in the China trade [and] who made a second career in coal and iron, using his mercantile fortune to exploit the potential of railway development” [Chapman, 1985, p. 123].
For this period the series of private ledgers are supported by journals and cash books. There is also a Capital Account Book, 1841-65 and a Balance Sheet Book, 1841-63 [D38O8] which contain final accounts and related working papers. The system of double entry bookkeeping appears to have been the same as before; certainly the private ledgers were maintained on broadly the same basis. However, modifications and improvements were made from time to time in the system of record keeping. Also, for this period, there has survived data generated outside the ledger suitable for the purpose of assessing performance.

1841 innovations: Following the change in ownership, certain alterations were immediately made to the system of record keeping, principal among which was that limestone stock15 and the ironstone pits each became profit centers [D3808, Private Led-

13 Much of the discussion of the integration of cost and financial accounting systems, beginning in the 1890s [e.g., Mann, 1891, pp. 631-2], focuses on the need to reconcile, periodically, separate systems, or to ensure their correspondence through the use of control accounts. The Staveley archive draws our attention to the possibility that, in certain industries at least, a single set of books was initially used to meet differential information requirements.

14 The property belonged to the Duke of Devonshire.
15 It is possible that the balancing amounts (credit and debit) were under or over-recoveries of cost rather than profits or losses, but this seems unlikely in view of the magnitudes of the amounts involved.

ger, 1841-47]. A further refinement to departmental profit mea-surement resulted from the decision to re-charge the furnace and credit the foundry “for blast,” with the amount put at £100 for 1844.

The survival of journals for the period post-1841 enables us to examine more carefully the transfer prices used at Staveley.16 For example:

* Coal: Journal entries for November 1848 [D3808, Journal, 1847-49, fo. 121] show that credit sales and “ready money” sales of hard coal were each made at 6s. for larger quantities
and 7s. lor smaller quantities. This type of coal was recharged to the “railway sales account” (a new profit center17) and the furnaces at 5s. Soft coal was charged to the railway
sales account and the foundry at 4s., and this amount also obtained for cash and credit sales, although 5s. was received for one small quantity of credit sales. Cobbles were charged at
4s. to the new furnace and the railway sales account, but produced 5s. from cash and credit sales. Slack was charged at Is. to the new and old furnaces, but realized 2s. in cash and
credit sales.

* Pig iron stock: Journal entries for January 1848 [D3808, Journal, 1847-49, fo. 36] show pig iron stock charged to the foundry at £4 per ton while fetching £5. 15. 0 per ton in the market. In April 1849 [fos. 166 & 171], the transfer price was £3. 10. 0 at a time when the Barrow could get £5. 10. 0 for sales to customers.

We can therefore see that the transfer prices for coal and iron were, at this stage, significantly below market price. It therefore remains a matter of conjecture whether this discount was designed to reflect the fact that a company (buying in bulk) could purchase coal and iron at much less than it could sell them, or whether management made a conscious decision to

16 An examination of the accounting records of ten coal, iron and steel producers in the late nineteenth century has shown them all to employ systems of transfer pricing though with considerable variety in the methods used to make the calculations. It does not seem to have been a matter which received much attention in the early literature, and the first publication we are aware of which deals specifically with this topic is Brady [1930],

17 We surmise that this term describes coal transferred to customers by rail rather than used at the works or sold locally. This profit center was discontinued in the 1860s when the entire coal profits came to be reported under the names of the separate collieries.

subsidize furnace production (where coal was the major input), foundry production (coal and pig iron) and railway sales (coal).

1847 innovations: The first set of final accounts for the new firm was made up to June 30, 1847 [D3808, Balance Sheet Book, 1841-63] six years after the commencement of Richard Barrow’s stewardship. The accounts comprise a balance sheet setting out the financial position at that date and a “Statement of Profit and Loss” covering each of the six years since formation. The first balance sheet shows Richard Barrow’s capital investment at £116,297. The profit and loss account was produced in what was at this time a familiar format in the iron industry. It lists profits or losses arising at each profit center which included, for 1847, five collieries, several ironstone pits, several coke ovens, two foundries; two furnaces, the farm, a brickyard and railway coal sales. The final accounts did not reveal the calculation (costs and revenues) of departmental profits and losses and it was therefore necessary to refer to the ledger for this information.

An interesting feature of these accounts is the computation of charges for depreciation and imputed interest on the capital invested in fixed assets used by each profit center.18 These were then deducted from the balances for each profit center (profit or loss) extracted from the ledger, and the outcome was a series of departmental results which take account of both the decline in value of fixed assets and the opportunity cost to Barrow of in-vesting in the Staveley enterprize.19 The depreciation rates range from 5%-10% on individual assets, which is probably explicable in terms of differential estimates of useful life. The imputed rates of interest varied from 3.5%-5%. These were roughly in line with central government interest rates20 though we are unable to explain why different rates were used for different assets.

18 The detailed calculations were set out in the working papers under the heading “Statement of Capital, Interest and Depreciation Accounts” [D3808, Balance Sheet Book, 1841-63].
19The inclusion of an interest charge when appraising capital investment proposals was quite common at this time but the imputation of interest in post-fact accounts was rare [Edwards, 1989, p. 312],

20The yield on government consolidated stock was 3.4% in 1847 and the bank rate 5% at the end of the year.

21 The credit entries for accumulated profit, accumulated depreciation and interest charged to date were, in the balance sheet, added to the figure for Barrow’s original capital investment. Also noteworthy is the use of the term “realised” profit for the purpose of describing the figure for profit transferred 1856 innovations: The business was expanded to a significant extent during the 1850s as a result of opening up the Speedwell and Springwell Collieries. The surviving records show that a number of important changes were made at this stage to the accounting system.

Using the accounts for 1860 for illustration purposes [D3808, Balance Sheet Book, 1841-63], we find that the main profit centers consisted of two ironstone pits, three collieries, the pig iron department, the castings department, and the rail-way coal sales [Table 2]. The entire output of the two ironstone pits, 26,745 tons, was consumed in the production of pig iron. The total output of the three collieries amounted to 298,816 tons, of which 29,763 tons was consumed in pig iron production and 4,089 tons by the castings department. The balance was available for sale. The entire output of the pig iron department, 12,118 tons, was transferred to the castings department.
TABLE 2 Output, costs, revenues and profits, year to June 30 1860

Operating Output < Per Ton Statistics >
Departments Cost Receipts Profit Estab- Net
lishment Profit
Coal tons s. d s. d s. d d s. d
Victoria 119,708 4s. 5>/4 5S.11V2 ls.6’/4 8’/4 10
Speedwell 68,391 5s. 7’A 5s. 53/4 (V/i) 8!/4 (9%)
Springwell 110.717 3s.lO’/4 5s. 5% ls.7 8!/4 10%
298.816
Ironstone
Staveley 15,778 13s.4%
Hady 10.967 15s.9V2
26.745
Pig Iron 12,118 64s.7’/4 62s 2s.7’/< Castings 16,118 99s.5% 123s.ll!/2 24s.5% 4s.O 20s.5% Railway Coal Sales 337.140 8'/; Notes: 'Prolit' figure is equivalent to contribution. For 'railway coal sales', only figures for total output and net profit per ton are given. Source: Balance Sheet Book, 1841-63 [D38O8]. annually to the balance sheet, while a memorandum entry at the fool of ihe general profit and loss account adds back the charges for interest and depreciation to "realised" profit to give a figure captioned "total" profit. 16 The Accounting Historians Journal, December 1995 In 1860, the accounting prices used to track transfers of goods between departments were as follows: the pig iron department was charged at the rate of 6s per ton for hard coal and 5s per ton for cobbles, while the castings department was charged at 5s per ton for coal, presumably of a different type from that used in the iron department. The entire output of the pig iron department was priced at 62s per ton, which we know was the prevailing market price as the castings account shows that an additional 5,120 tons of iron were purchased from outside at this figure. The figure for revenue in the colliery accounts is described as "sales and consumption," indicating the dual destination of the coal for use within the company and transfer to the "railway coal sales" account. Coke was charged to the castings department at 21s per ton, which may have been the average cost of production in view of the very small balances transferred from the coke account to the general profit and loss account at the end of the accounting period. The post-1856 accounting system so far described was much the same as its predecessor except that the transfer prices were closer to market than had been the case between 1838-47. It also contains four important innovations. The first concerns the treatment of joint costs. A number of entries for overheads, which had previously been debited to the general profit and loss account for the entire business and not traced to individual profit centers, were now entered on a separate schedule headed "Establishment Charges."22 Table 3 shows that the establishment charges (which cover some overheads of a general character as well as those clearly associated with production) were then allocated between the "proportion for collieries" and "proportion for castings" (foundries); i. e., nothing was charged to the ironstone pits whose entire output, at this time, was transferred to the pig iron department (furnaces) or to the pig iron department whose entire output was transferred to the castings department (foundries) [see Table 2]. The method of apportionment between collieries and castings is not clear and varies from 3.5:1 to 5.6:1 for individual items. 22 Interestingly, some of these entries previously appeared in the profit and loss account as credit as well as debit entries, indicating that at least some of the activities measured were treated as profit centers themselves, with production profit centers re-charged for the services they received. TABLE 4 Cost of getting coal Half year ending June 1856 Staveley Hollingwood Victoria Springwell tons tons tons tons 44846 31586 9918 26973 Wages, viz Bank Carpenters, smiths etc VA l'/4 2% 2% Carters, labourers 1/2 11/4 % 23/4 Enginemen, firemen 1/2 % 2'/4 3/4 Hanging on, bank & weighing 31/4 31/2 4 3 Leading & stacking 21/2 8V4 51/2 1/01/4 7 1/4% 8'/2 1/51/4 Underground Getting, including head in stalls 2/1 2/5V2 3/- 2/01/! Putting - - - 5'/4 Heading 1 43/4 - 7% Horsekeepers & horse drivers li/4 11/4 2% 3'/4 Engine plane 2 31/4 - - Switchkeepers & incline VA 2l/2 5 W4 Ventilators, airways furnace etc 1 23/4 4V2 2V* New roads, airways 1 8% - 6 Road repairs, road & nightmen VA 31/2 8'/4 6V2 Overmen, foremen & deputies '/> 2/10-‘/4 1 4/9/4 1 4/91/4 VA 4/111/4
Total wages 3/7 5/9’/2 6/ Vh 6/4V2
Materials & Wages, viz
Pit waggons & repairs 2i/4 21/4 2i/4 2’/4
Pit timber VA 21/2 81/4 5
Metal punchions % 2’/4 – PA
Stat. eng: & pump
repairs: & pumps 2 2 2 2
Stores, oil, ropes
nails, candles etc 2’/2 7 4% 51/!
Pit horses & horsekeeping 2’A 5’/4 8% 6V2
Pit rails l/4 3