Accounting theory and practice, Volume 1 (of 3)

by Roy B. Kester

The Boston, progressive, or tabular ledger, as it is variously called, makes provision for a horizontal progress of the account as to sequence of time; the title of the account is written at the left-hand margin, and one or more lines are allowed to each account according to the degree of its activity. The account title is written once at the left margin of the master or main sheet, and is sometimes repeated at the right margin if the sheet is very wide. The page is divided into columns for each day of the period. To effect this, short-margin insert sheets must be bound in to give the desired room for accommodating a whole period’s record. This style of ruling was formerly much used in banks where a daily balance for each depositor’s account was necessary. It is capable of adaptation to other uses, however. One form is shown, [Form 33].

Form 33. Boston Ledger Sometimes Used for Depositors

2. Bindings. Ledgers may be classified also as solid-bound, loose-leaf, and card, the titles being self-explanatory. One of the great advantages of the loose-leaf and card ledgers over the solid-bound ledger is their flexibility. They lend themselves easily to any desired grouping of the accounts; they may be numerically arranged where accounts are numbered instead of named; they may be arranged as to classes and each class made self-indexing; or a geographical grouping may be made. Another great advantage of this form of ledger is the ability to discard or file away in other binders all “dead” accounts, thus making for ease and facility in the use of the “live” ledger. Also it is possible for several clerks to work simultaneously, since the leaves or cards are removable and may be distributed among any number of clerks. There is always the danger, however, of failure to return a leaf or card, or of placing it out of regular order when returning it, or of destroying it, if it were desired fraudulently to do away with any particular account. The use of loose-leaf and card ledgers for personal accounts is pretty thoroughly established, notwithstanding the disadvantages just mentioned.

CHAPTER XXX
CONTROLLING ACCOUNTS

Introductory.—Reference to controlling accounts has been made several times in preceding chapters. It is purposed now to define them and explain their use. The separation of the various journals on the basis of an analysis of transactions frees the general journal of a vast mass of detail it formerly carried. This separation, however, in no way affects the underlying debit and credit scheme of the whole system. Each journal is an integral part of the whole; every entry therein has its equal debit and credit which are in due course posted to its proper account, thus maintaining the equilibrium of the ledger. The separation of the ledger into three or more special ledgers in the interest of economy of effort and ease of use has also been mentioned. Still, each of these special ledgers is an integral part of the whole ledger and the accounts in the special ledgers must be entered in the trial balance to secure proof of equilibrium.

The customers ledger is usually the most active of the various ledgers, i.e., more postings are made in it because the majority of business transactions involve dealings of various sorts with customers, and more accounts are required to keep the records with customers. It is usually, therefore, the largest part of the whole ledger, but its accounts are all of the same kind, viz., accounts receivable. When taking a trial balance, the total of the balances of the customers ledger accounts is usually set up under the title “Accounts Receivable,” leaving the details to a supplementary list or schedule.

Advantage of a Controlling Account.—The advantage of thus condensing the trial balance is apparent and suggests the desirability of obtaining the “accounts receivable” balance independently of the customers ledger. If this is done the bookkeeper in charge of the general ledger can not only draw up his trial balance without reference to the customers ledger, but has also the correct figure for the total of the account balances in the customers ledger. In other words, he has a figure which controls the customers ledger and which therefore furnishes him with a check on the accuracy of the ledger clerk or bookkeeper who keeps that ledger. The most convenient method of recording the accounts receivable figure is evidently by means of a formal account on the general ledger. When such an account is kept, the effect is to make it a summary account whose detail is carried in the customers ledger.

Controlling Account Necessitates Changed Idea of Ledger Equilibrium.—By having a customers controlling account (or “Accounts Receivable” as it is commonly called, though other terms are also used) in the general ledger, the customers ledger is no longer used as an integral part of the whole ledger and becomes a “subsidiary” ledger; that is, its function is reduced to that of a supporting schedule or list of detail for the summary controlling account. The equilibrium of the general ledger is now maintained by summary posting to the controlling accounts. Though the customers ledger has ceased to be a “ledger” in the proper sense of the term, it is still a vital part of the system, carrying as it does the detail of the summary controlling account. Moreover, it is linked up to the system by being provable against its summary account. Yet it should be borne in mind that its scheme of debit and credit is now an independent one and is not linked up to the debit and credit equilibrium of the general ledger; that is, the postings in the subsidiary ledger are merely memorandum entries of the detail posted in summary form to the general ledger. Thus the mathematical basis of the controlling account is simply that the whole is exactly equal to all its parts, the balance of the summary account being equal to the total of the balances of all the customers’ accounts of which it is the summary. To illustrate, if we have customers’ accounts whose balances are $1,000, $2,000, $3,000, $4,000, and $5,000 respectively, then the summary account must have a balance of $15,000.

Debits to the Controlling Account.—The principle and the purpose of the controlling account having now been explained, the next problem to consider is how best to gather the summary figures for its debits and credits. If every debit to a customer’s account must be posted also to the controlling account and every credit to a customer’s account must be shown as a credit in the controlling account the work involved would be almost doubled and little would be gained by thus duplicating the postings in another ledger. Therefore it is important to secure the figures for entry in the controlling accounts with the least effort, i.e., in the form of debit and credit summaries. Hence, to determine the sources of these debits and credits of the controlling account, analysis must be made of the sources of the debits and credits to the customers’ accounts.