The Speakeasy was called "The Split," and it was buried somewhere in the bowels of Wall Street.

"Wall Street," declared a magazine article in that smoldering summer of 1927, "is the one spot in which the New Nakedness seems most appropriate... Where men's simple passions have the lowest boiling point; where the lust for possession is most frankly, brazenly revealed and indeed dominates the whole diurnal round--in such a place there is a high appropriateness in the fact that the priestesses in the temple of Mammon, though their service be no more than file clerk or stenographer, should be thus Dionysiac in apparelling themselves for their daily tasks."

"Put it up!" shouted the dapper young man through the haze of smoke and the din of voices.

Diane Mills shook her head. She was tired. The performance had gone well at the theater that night, but the last thing she wanted to do after a show was to begin stretching all over again.

"C'mon, put it up!" said the man again, quieter this time, smiling. "That's the way it's done these days. A Martini in one hand, and one foot up on the brass rail. My name's Mat. What's yours?" From another room drifted in the strains of "I Want To Be Loved By You."

She sipped the last of her drink, tossed seventy-five cents on the counter, glanced at the bartender and said, "Another one, please, Pete."

Diane Mills was a flapper. She was tall and striking and successful and she knew it. She wore her hair short and her fringed skirt just barely longer; her hose was turned down, and her knees were powdered; her bright red sweater made her face flash with a powerful glow.

She liked him immediately, because he was young and brazen and intelligent and good-looking -- just like her. She reached in her purse for a cigarette. The boa that hung from her graceful neck brushed noiselessly against the brass rail.

"Look," she said. "My name's Diane. I don't want to talk to you now. I've got business to talk with my friend Pete, here. If, however, I feel like making your acquaintance in a little while, I'll come and find you. Just tell me where you'll be." She raised the cigarette to her lips and he lit it for her, striking the match while holding the matchbox, all with one hand. She'd not seen that before, and smiled.

"I like a man who knows how to make a spark," she said.

"It's my specialty," said Mat, holding up the matchbook. It's from the Hotel Como in Hot Springs. Do you know it?"

She shook her head.

"Well I'm going to regale you with stories about it, as soon as you find me hidden away in a deep dark corner. When you're ready." He made his way past a cheerful but rather drunk young lady who, dressed in colors that screamed at each other like tomcats, sprawled across the laps of three perfect strangers and began an ear-piercing caterwauling.

Diane cupped her ears toward the bartender. "All right Pete. I'm listening."

He took out a napkin with some numbers on it. "Diane, I'm getting old, and I've made a good living from this place. I own it, and I'm proud of it. But my ticker can't stand the stress. I want to get out while I'm ahead. This is a game for a young man -- or woman. It's a crackerjack living, and a crackerjack opportunity, and that's why I want you to have first crack at it. "Look," he said, smoothing out the paper.

Expenses (weekly)

     $100 to Lou Sordi, for protection.
      $50 to Sergeant O'Reilly to look the other way
      $10 to the landlord for rent
      $40 for liquor and supplies
      $100 to the waitresses

"Now, I take in $500 a week," he went on. "That's $500 coming in, and $300 going out. And what's more, there are no taxes."

The motley-clad drunk who'd been making all the hullaballoo in the corner careened suddenly into Diane.

"Don't do it, shweetheart," she breathed. "He's left something out. What he's left out is his own salary."

"I don't take a salary," he shot back.

"But you take money out of the business," said the lush. "You don't call it a salary, but it's money being taken out of the business. And if this shweet girl takes over the place, she’s either going to have to quit her dance career to become a bartender, or she’s going to have to hire someone."

"There is no way on God's green earth that I am quitting my dance career," said Diane. "I'm with the Ziegfeld Follies!"

Pete turned a bright scarlet, but said nothing, because he knew the lush, whoever she was, was right.

Which aspects of the company's financial statements were here being misstated?

1) Cost of goods sold

2) Revenues

3) Investment income

4) Accounts payable

Enter your selection in the field to the lower right, and get immediate feedback on the answer!

The answer is 1) Cost of goods sold.

Cost of goods sold, or cost of sales, is the cost of materials, and of preparing goods for sale, during a given accounting period. It's the subject which we will be exploring all this week.

In general, cost of goods sold applies most directly to the thing you're selling. If you're selling liquor, then the salaries of the waitresses, and the cost of the liquor itself, have everything to do with selling liquor. The protection money, the police bribes, and other expenses that support the business as a whole, are counted in. the bartender was technically right in saying that he didn't take a salary. As the owner, though, he was paying himself dividends. Dividends are not expenses -- they're paid out of earnings -- so he didn't have to list them as expenses. Net income in this crackerjack little business was improperly overstated, since there was no accounting for a head bartender's salary. Since Diane had no intention of quitting her dance job, she would indeed have to hire someone. She'd then be paying an additional salary. In other words, there would be less earnings from the business which would be available to pay Diane dividends. On the basis of accounting for costs properly, the business was looking a lot less attractive.

"Thank you, Ma'am" said Diane to the listing lovely who, leaning right and fighting the floor, staggered off toward the powder room.

"Diane?" implored Pete, but it was too late. She turned her back on him, once and for all.

She peered toward the darkness in the corner, where she knew the handsome stranger awaited. Not seeing him, she was momentarily disoriented, and wondered if he might have left. Then, from the depths of the bleak stone stairwell, she saw the faint glow of candlelight. She went toward it.

Tomorrow: The Roaring 20s, Episode II
The Mysterious Stranger

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