Accounting theory and practice, Volume 1 (of 3)

by Roy B. Kester

2. Another method makes use of a perforated invoice book with a columnized interleaf solid-bound between the perforated invoice sheets. The sales invoice is written on one of the perforated sheets and a carbon underneath gives a duplicate on the interleaf, the latter constituting the formal sales record. The advantages and objections are practically the same as for the impression book method.

3. Another method is to make a separate carbon copy of each invoice and use the duplicate as the source of entry in the sales journal. The journal entry gives only the file number of the duplicate invoice so that in case of need the duplicate can easily be referred to. Such a sales journal may, of course, contain analytical columns with any desired heads.

4. Still another method uses the duplicate invoice for posting to the customer’s account, after which it is filed in binders. The latter are usually provided with recapitulation sheets which show the totals and analysis for each day, week, or month as the case may be. Just as above, the invoice file provides the detail in support of the ledger account and the recapitulation sheets constitute the journal from which credits to the various sales accounts are made. Either one of these last two methods eliminates most of the objections and embraces most of the advantages of the other methods mentioned above.

Where several sales ledgers are used, the sales journal is sometimes subdivided on the same basis as an aid in posting and for the purpose of securing controlling figures as explained in following chapters.

The Sales Returns and Allowances Journal.—The use of any special form of sales journal, particularly if it provides for an analysis of the sales, requires a similar record of sales returns and allowances. Either a separate book, similar in form to the sales journal, may be employed for recording these items or the pages in the back of the sales journal may be used instead.

Development of the Purchase Journal.—The development of the purchase records from the old-time scrapbook for invoices to the modern analytic voucher record resembles the development of the sales journal. The old-fashioned invoice book was usually a big, loose-bound, coarse paper volume in which were pasted the invoices for goods bought. An extension column was provided for the amount of the invoice, and the total of this gave the purchases for a given period. The use of columns for various classes of purchases provided the required analysis, but, as it was a cumbersome, nondescript record, it was bound to give place to something better—the formal purchase journal or register of today.

The purchase journal or register consists of a bound or a loose-leaf book ruled to suit individual needs and purposes. Where sales are analyzed by classes, an exactly similar analysis of purchases must be made in order to secure a gross profit figure for each class. Therefore its form follows very closely that of the sales journal. Entries are made in the purchase journal of the name of the creditor, the amount of his invoice, and the number of the file where the invoice can be found in case of need.

Where a separate purchasing department is maintained, the duplicate purchase orders, corrected if necessary to correspond with the purchase invoice received, may be used as the basis of the purchase journal. In this case recapitulation sheets are inserted just as with the sales journal. The handling of purchases is simplified by the fact that as a rule they are much smaller in number than sales. The same general considerations apply to the handling of returned purchases as to returned sales.

Handling Expenses through the Purchase Journal.—It is the practice of some concerns to treat expenses such as labor, rent, salaries, supplies, etc., as purchase transactions. Under this method, instead of postponing the entry until the item is paid, it is made at the time of securing the service or supplies. The basis for the entry may be either: (1) the bill or purchase invoice; (2) a formal purchase memo or voucher made out for each transaction; or (3) the fact that the expense has been incurred may suffice for the entry on the books with no formal paper to vouch for it. The use of such formal papers as the basis for entry is known as the voucher record system. The details of this system are fully explained in the second volume. Discussion is here limited to a brief outline of the method and of the advantages of its use.

When expense invoices are entered and analyzed in the voucher record form of purchase journal, their posting requires debits to the various expense accounts and credits to the individual creditors’ accounts in the ledger. If the ledger contains only a controlling account, this account must be credited with the total of the expense and other purchases, while the individual accounts in the creditors subsidiary ledger must be credited with the details which make up the total. When the bill is paid, entry in the cash book will not be, as usual, to the debit of the expense account in the general ledger, but to the debit of the creditor’s account in the subsidiary ledger. The reason for this procedure will be made clear in the discussion of controlling accounts to follow.