An important thing in classifying operating expenses is to separate cost of maintenance from other outlays.

Money expended upon buildings, bridges, machinery, road bed, track, and similar purposes, adds directly to the value of a property by prolonging its usefulness or adding thereto, while cost of fuel and lubricants, or money paid on account of transportation expenses, contributes nothing whatever of a material character to a plant.

The government standard classification of operating expenses generally recognizes this necessary and important distinction.*

A division of operating expenses formed to exhibit the maximum amount of information is particular to take cognizance of distinctions of this nature. They are vital.

Operating expenses may be divided almost beyond belief. In determining details we should endeavor to arrange outlays under such headings as are most convenient and desirable for illustration and comparison. Only a few general accounts are essential for publication. It is important to

*For particulars of this classification, see Disbursements of Railways." This classification in the United States is the outgrowth of joint efforts on the part of accounting officers of railroads and the officers of the general government and of the various states. It is, in many respects, an admirable exhibit, and is being quite generally adopted by the railroad companies. It will repay study to those interested in such matters. These I respectfully beg to refer to the book, "Disbursements of Railways," noticed above.

Such as "Cost of Maintenance," "Cost of Conducting Traffic," "General Expenses," and so on.

the owners of properties that statistics should be restricted to those things that are valuable to owners and managers.

It does not matter so much what a classification may be, as that it is observed continuously, so that comparisons of particular expenditures for different periods and lines may be accurate. To insure this, the constituent elements of accounts must be so particularized as to leave nothing to the discretion of the distributing clerk.

There are many things connected with the exhibits of a railway that the merely curious esteem important, but that serve only to eat up revenues that should be divided among owners or expended for renewals and betterments. For this reason only practical railroad men should be trusted with the duty of formulating statistics; great preparation is not necessary. If the established tables are found to be insufficient at any time, additional information may be compiled as needed. Sufficient for the day is the evil thereof.

In examining exhibits we consider them relatively. If the exhibit is for a month we compare the results with the month corresponding in the preceding year, or such other month as fancy or our judgment dictates.

We pursue the same course with quarterly, semi-annual and yearly exhibits. In this way we secure a valuable basis for pursuing our investigations.

In all cases, before a management can be commended for reductions in cost of operating,

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it must show whether the saving is brought about by reduction in cost of conducting transportation, or in expenditures for renewals and repairs. If in the former, it is gratifying; if in the latter, the examiner desires to know whether the reduction is simply an expense deferred, or whether it is brought about by the use of better or cheaper appliances, or more correct methods. of business.

The most elaborate division of expenses possible possesses in itself little value. The grouping of particular items under different headings affords, at best, but a hint. Such information must be aggregated and compared for a great number of years, and must be considered also in detail in the light of actual occurrences, such as amount and nature of traffic, prices, season, etc. Before the examiner can judge of the operations of a company for a particular year he must possess the details of which the different headings are made up, and collateral facts incident thereto. Really, it is only when he has examined a property and analyzed its disbursements, item by item, that he can pass judgment.

A general examination of the items that make up the expense account of a road will, in many cases, prove delusive. This is especially so when the expense extends over a short period only. A few salient features in every exhibit appeal stoutly to the eye, and through the eye, unconsciously, to the judgment. The exhibits of railway companies, like those of great banking houses and

governmental institutions, examined superficially, are like unto a broad landscape, over which trees are scattered. The trees give the scene expression, simplify its perspective, and heighten its effect on the beholder. Nothing could be more charming than such a view. When, however, we come to go over the ground, inch by inch, and examine it in detail, we will quite likely discover sunken basins and impassable ditches and much inconvertible and worthless land, not perceptible from a superficial view.

Particulars of cost of operating vary greatly from year to year from natural and unavoidable causes: these must be taken into account in forming judgment. Speaking generally, the condition of railroads fluctuates widely between the maximum and minimum of efficiency. A year (or more likely a few years) of prosperity enables the managers to put a property in a high state of efficiency. This period is followed by its natural counterpart, a time of depression and decay, when business slackens and the earnings of properties fall off. To tide over this period successfully is the test of management.

CHAPTER XX.

VALUE OF DIVISIONS OF EARNINGS AS BETWEEN PORTIONS OF A LINE.

Only ordinary intelligence and honesty are required to arrive at the net earnings of a railroad company; so much money has been earned, so much has been expended. These facts are shown by the returns. When we seek, however, to discover the constituent elements of the general heads and assign them a given place, that moment our labor ceases to be conclusive. The accepted classification of earnings, for instance, while supposed to be devoid of all ambiguity, is not so in fact, as there are sources of revenue that it is not possible to assign with accuracy to any particular class. This is also true of ex

penses.

Exhibits are correct in the main as regards classification, but not to the extent it could be desired.

The standard classification of railway earnings, freight, passenger, express, mail and miscellaneous, is sufficiently full, but in assigning particular classes of earnings local customs prevail. Thus, in the United States, express earnings cover only the amount received from the express companies, under their contracts with the railroads.