The entry of expense invoices in the above manner secures an immediate record of all liabilities as incurred and therefore makes the books show at all times the true state of affairs as regards liabilities. The method, however, necessitates a little more work in making the record, and for this reason many concerns do not enter expenses until paid, making the debit to them through the cash book. In this latter case all unpaid expense bills should be kept in an expense file for reference when information as to the unrecorded liabilities is desired.
Note Journals.—As explained previously, note journals are sometimes used instead of the general journal for the record of note transactions, where these are sufficiently numerous. Provision is sometimes made for securing a proper analysis in order to distinguish between notes from customers and notes from other sources. It will be seen later that such an analysis is necessary when controlling accounts are operated.
Analysis in the Cash Book.—The cash journals may be ruled to furnish any desired analysis, showing on the debit side (i.e., the cash receipts journal) the sources of receipts, and on the credit side the objects of expenditure. As the sources of cash receipts are usually more limited than the objects of expenditures, they do not require so much analysis. The analysis may be very detailed, the only limit to the number of columns being the width of the page. A minute analysis of expenditures, however, is usually made, not in the cash journal, but in the purchase or voucher record, which thus relieves the cash book of a mass of detail.
The chief advantage of using additional columns in books of original entry lies in the fact that time and labor are saved in posting. The column total is posted in one item, whereas each of the numerous items composing it would have to be posted separately to the account named in the column heading if no analytical column were provided. Hence it would be a waste of space to provide separate columns for items which recur so infrequently as to make their summarization unnecessary. Care should be taken to avoid needless columnization.
It is customary to have the following columns on the debit side of the cash book: General or Sundry, Accounts Receivable, Sales Discount, and Net Cash or Bank; on the credit side: General or Sundry, Accounts Payable, Purchases Discount, and Net Cash or Bank. ([See page 282 for illustration].) The proof of the distribution is secured by checking the sum of the net cash and discount columns against the sum of the totals of the other columns. In both receipts and disbursements journals every item must appear in the respective Net Cash columns, and from these distribution is made to the other columns. For example, in the cash receipts journal, receipts from customers are distributed into the Accounts Receivable column for the gross amount of each item, and into Sales Discount for the discount, if any is taken. All other items are carried into the General or Sundry column. Where several sales ledgers are kept, additional columns may be provided so that instead of having one accounts receivable column, there are columns for each ledger. Similar treatment is given to the disbursements.
Analysis in the General Journal.—Where the general journal is used for returned goods, allowances, and other adjustments with customers and creditors, use is made of analytic columns with these captions for both the debit and credit: Accounts Receivable, Accounts Payable, and General. Here, however, there is no column in which to enter all items for distribution to the other columns. If a customer’s or a creditor’s account is affected, entry is made in that column in the first place. All other entries are in the General column. ([See page 281] for illustration.)
With regard to analysis columns in the general journal, some accountants maintain, with good reason, that if the number of transactions of a particular kind is sufficiently large to justify their segregation in a separate column, this in itself would be ample justification for the use of a separate journal to record these items. Whenever the analysis of recurring transactions in the general journal is facilitated by the use of separate columns, the advisability of opening a new journal for the record of such items as appear in the general journal most frequently should be considered.
Subdivision of the Ledgers.—The next step in the subdivision of the records is made in the ledgers. The general or impersonal accounts of the business are of a more permanent character than the accounts with persons—customers and creditors. Consequently, when once it is determined under what account titles information is desired and those accounts are set up, there is usually little need to change their titles. Personal accounts, however, are constantly changing as some customers are lost and new ones are added, and also because creditors change with purchases in new markets. Hence, when a business outgrows its small beginnings, it is customary to keep these changing accounts in separate books. The basis for the first subdivision of the ledgers, therefore, is the separation of the accounts into personal and impersonal. The accounts with customers are carried in a separate ledger called variously the sales, customers, or accounts receivable ledger, and those with creditors in a ledger called purchase, creditors, or accounts payable ledger. All other accounts are kept in the main ledger known as the general ledger. One advantage of this subdivision is that several bookkeepers can work on the various ledgers at the same time.
A further subdivision of the customers ledger is frequently made into “city” and “country,” the former containing the accounts with customers located within the city where the business is situated, and the latter the out-of-the-city accounts. Other subdivisions may be made on an alphabetical basis, i.e., customers ledger No. 1, containing all accounts from A to G; customers ledger No. 2, H to M, etc. Sometimes the concern’s sales territory is divided into arbitrary districts and the ledgers are subdivided to correspond with such districts.
