4. The general journal for various adjustments and also for the purpose of recording notes and returned sales where special journals are not kept for these transactions.
Accordingly, analytic columns for accounts receivable are provided in the cash receipts journal and the general journal. The totals of their columns are posted to the credit of Accounts Receivable, and the detailed amounts to the credit of the various customers’ accounts. The credit postings from these sources to the customers ledger accounts and to the general ledger Accounts Receivable account are therefore the same so far as totals are concerned. The sales returns journal is summarized at posting time by means of an entry similar to that in the sales journal, as follows:
- Sales Returns
- Accounts Receivable
In this case the credit posting to the Accounts Receivable account is equal to the detailed credits to customers’ accounts.
Similarly, a summary entry for the notes receivable journal secures a controlling figure for Accounts Receivable. If the notes are all received from customers to apply on their accounts, the summary entry is:
- Notes Receivable
- Accounts Receivable
the amount being the total of that journal.
In this way the total of all debits and of all credits to the individual customers’ accounts is represented by the summary items entered in the general ledger controlling account, Accounts Receivable. Consequently, the balance of this single account is equal to the balance of the customers ledger. For the trial balance, therefore, one account takes the place of hundreds or even thousands of customers’ individual accounts. As a result of this, much time is saved and the possibility of error on the general ledger is greatly reduced.
Proving the Customers Ledger.—The use of a controlling account in the general ledger, however, does not eliminate the necessity of proving the accuracy of the customers ledger. It merely makes it possible to take a trial balance without bringing the numerous customers’ accounts into it. It is just as much a part of the proof of the work to make a list of customers’ accounts balances and check it against the balance of the Accounts Receivable general ledger account, as it is to prove the general ledger by means of a trial balance. If there is a discrepancy between the subsidiary ledger and its controlling account on the general ledger that discrepancy does not necessarily prevent a trial balance of the general ledger, but it does show error in the work which must be searched out and corrected.
Accounts Payable Account.—A similar arrangement will make possible a controlling account on the general ledger for the creditors or purchases ledger. This account is variously termed Accounts Payable, Purchase Ledger, Creditors, or Trade Creditors account. Its mechanism is the same as for Accounts Receivable. Analysis of credit postings to creditors’ accounts shows the purchase journal as their main source. Other credits come through the general journal and a very few through the cash receipts journal. The summary entry for the purchase journal is: