The general ledger account in the private ledger is a controlling account which agrees with the private ledger account in the general ledger. Only entries affecting general ledger accounts are posted to this account. Entries involving changes in private ledger accounts only, are made in the private journal direct.
Some concerns keep the controlling accounts with the sales and purchase ledgers in the private ledger. At the end of the month, total debits and credits to accounts in these ledgers are entered in the private journal. These totals are obtained from the general cash book, sales book, purchase book, and any other books from which postings are regularly made.
Fig. 22. Cash Book with Columns for Private Ledger Accounts
When a private ledger is kept, it precludes the possibility of forced balances in the general ledger trial balance, since the balances of the private ledger accounts must agree with the private ledger controlling account in the general ledger, and if sales and purchase ledger controlling accounts are kept in the private ledger, these must balance with the personal accounts in those ledgers. The use of a private ledger not only acts as a check on trial balance errors, but simplifies the trial balance by making possible a proof of ledgers in sections.
Fig. 22 is an illustration of a cash book with columns for the private ledger account.
21. Manufacturing Accounts in the Private Ledger. Not infrequently, manufacturers find it advisable to keep private certain details which affect costs, or even all knowledge of the exact cost of their manufactured product. This may be done by keeping certain manufacturing controlling accounts in the private ledger.
In determining the cost of manufacture of any class of goods, three elements enter into the computation; material, labor, and expense. To determine the cost of the first two items is comparatively simple, requiring only an efficient system of records in the factory. But to determine the amount of expense of all classes, included in the cost of a given article, job, or operation, is more difficult.
A system of records that will show the exact cost of such items as power, heat, or taxes properly chargeable to an individual job or operation is obviously impossible, and it has been found necessary to apportion these, and all similar items of expense, on a percentage basis. Usually this percentage is based on some element of cost which can be determined with accuracy.