answered in the text are given to stimulate thought and to develop originality. The pupil should understand that in the study of advanced bookkeeping he is studying modern office methods and systems and the elementary principles of accounting. He should be encouraged to bring to class other forms and methods suitable for different kinds of business. The pupil should understand that although the principles of bookkeeping and accounting are well established, he must learn to apply them to different systems and to different businesses. The practice of reasoning out every transaction that is different and of analyzing the results of his work will help to give him the power to understand other systems and to adapt his knowledge to them. CHAPTER XXV CONTROLLING ACCOUNTS AND COLUMNAR BOOKS In any business of considerable size with numerous customers and creditors, the taking of a trial balance is a difficult task if the accounts are all kept in one ledger. To make the work of the bookkeeper easier and to give more classified information, three ledgers are used instead of one and columnar cash books and journals are used. The use of columnar books is largely a result of the use of three separate ledgers but is also the result of a desire to post fewer items and to post more in total. The three ledgers used are the general ledger, the sales ledger, and the purchase ledger. The General Ledger. The general ledger contains accounts with the proprietors, both capital and personal, all other real accounts except customers' and creditors' accounts, all mixed accounts, and all nominal accounts. The customers' accounts are represented in total by the Accounts Receivable account and the creditors' accounts are represented in total by the Accounts Payable account. The Sales Ledger. The sales ledger contains all the accounts with customers whether the account is opened with the customer or included under the C. O. D. account. The Purchase Ledger. The purchase ledger contains all accounts with creditors for goods bought. Advantages of Three Ledgers. The principal advantages of the use of three ledgers are as follows: 1. It makes it possible to prove up each ledger and ascertain its correctness separately. 2. The work of posting, checking, and proving the posting may be divided up. 3. The proprietor can quickly find out from the Accounts Receivable account at the end of each month how much customers owe him in total. He can find out from the Accounts Payable account how much the business owes creditors in total. 4. Loose-leaf ledgers may be used for both customers' and creditors' accounts. This is a decided advantage because as soon as an account becomes inactive and is closed, the sheet on which the account is kept may be removed from the sales ledger or the purchase ledger and put into a transfer binder. Accounts Receivable Account. In order to prove the sales ledger it is necessary to keep, in the general ledger, an account to which the totals of the different items that have been posted to the customers' accounts must be posted. This account is called Accounts Receivable. It is called a controlling account because it controls or proves the sales ledger. Accounts Payable Account. In order to prove the purchase ledger, it is necessary to keep, in the general ledger, an account to which the totals of the different items that have been posted to the creditors' accounts must be posted. This account to which totals are posted is the Accounts Payable account. It controls or proves the purchase ledger. In order to post totals to these controlling accounts in the general ledger, it is necessary to keep special columns in the journal and in the cash book for sales ledger and purchase ledger accounts. It is also necessary to post the other books of entry in a different way. Books of Entry. The books of entry most commonly used with the three ledgers are the purchase book or the invoice book, the sales book, the four-column journal, and the columnar cash book. The purchase book will be used instead of the invoice book. The Purchase Book. The purchase book will be used in the same way that it has been for all purchases of merchandise and for all memorandums of payments on these purchases. All accounts of creditors will be opened up in the purchase ledger. The entries must be posted daily to the credit of the respective personal accounts in the purchase ledger. At the end of the month, the total purchases must be posted to the debit of Purchases, as heretofore, and to the credit of Accounts Payable. The posting of the total to Accounts Payable credit is necessary in order to prove up the purchase ledger with its controlling account, Accounts Payable. This total credit in the general ledger takes the place of the items that have been posted to the credit of the respective creditors' accounts in the purchase ledger. The Sales Book. The sales book for the first set in Part III will not be a bound book, but will be made up of the order blanks placed in a binder and totaled on a special sheet. will be explained in the next chapter. The method of doing this The Cash Book. On the Cash Receipts side, columns are kept for the amounts of accounts that are to be posted to the general ledger, for those that are to be posted to the sales ledger, and columns for Sales Discount and for Cash Dr. In the General column is placed any amount that is to be posted to the general ledger. In the Accounts Receivable column is placed any amount that is to be posted to a customer's account in the sales ledger. If cash is received for a customer's account less discount, the amount of the account before the discount is deducted is placed in the Accounts Receivable column, the discount is placed in the Sales Discount column, and the cash received, in the Cash Dr. column. Monthly, the total of the Accounts Receivable column is posted to the credit of the Accounts Receivable account in the general ledger to represent the various items that have been posted to customers' accounts in the sales ledger. Sales Discount must be debited monthly for the total of the Sales Discount column. The principle is the same as in previous sets but it is considered advisable at this point to open up separate discount accounts for sales and for purchases. On the Cash Payments side, columns are kept for the amounts of accounts that are to be posted to the general ledger, for those that are to be posted to the purchase ledger, for Purchases Discount, and for Cash Cr. Two columns are kept for general ledger accounts, the General and the Expense. All amounts that are to be posted to accounts in the general ledger, except Expense, are placed in the General column. All Expense items are placed in the Expense column and posted monthly only. Check, in the folio column, all items entered in the Expense column. In the Accounts Payable column is placed any amount that is to be posted to the debit of an account in the purchase ledger. The payment of an account less discount is entered on the same principle as the entry for the receipt of cash for an account less discount. Monthly, the total of the Accounts Payable column is posted to the debit of the Accounts Payable account in the general ledger to represent the various items that have been posted to the debit of creditors' accounts in the purchase ledger. Purchases Discount must be credited monthly for the total of the Purchases Discount column. In closing the cash book, the sum of the first two columns on the Cash Receipts side must be proved with the sum of the last two columns, and the accounts affected shown. On the Cash Payments, the sum of the first three columns must be proved with the sum of the last two columns, and the accounts affected must be shown. The cash book must then be balanced by using the amount of the Cash Dr. and Cash Cr. columns only. To prove cash, at any time, take the difference between these two columns. The cash book illustrated is shown without the pages in the folio column. These should be inserted as each item is posted. The Journal. Separate columns must be kept in the journal for each ledger to which items will be debited or credited. On the debit side, there must be columns for the general ledger and for the purchase ledger. No debit column for the sales ledger is necessary as the business does not give notes or drafts to customers on account, hence there will ordinarily be no debits to the sales ledger from the journal. On the credit side, there must be columns for the general ledger and for the sales ledger. No credit column for the purchase ledger is necessary. (See illustration on page 216) It is necessary to post the totals of the Accounts Payable and Accounts Receivable columns only as the items in the General columns, both debit and credit, have been posted to the general ledger daily. CASH RECEIPTS, OCTOBER 19 |