This shows a debit to the Purchases account for the total amount of the purchases, a credit to Accounts Payable for the liability to creditors, and to Cash for the amount paid on cash purchases. The cash item is not posted. The Accounts Payable column total on the credit side of the journal, and the separate items from the cash receipts journal, furnish the other credits to the Accounts Payable account in the general ledger.

The debits come from the Accounts Payable columns in the cash disbursements journal and in the general journal, and the summaries for the notes payable and purchases returns journals.

Basic Principle as to Postings to Controlling Accounts.—In the handling of controlling accounts, the one fundamental requirement is to make sure that every entry in books of original entry which affects any account in the subsidiary ledger is reflected in the postings to the controlling account in the general ledger. This principle resolves itself into the mathematical axiom stated above that a whole is equal to all—not just some—of its parts. Only thus can a true control be established.

Making the Subsidiary Ledger Self-Balancing.—Through the use of the two controlling accounts explained above, the trial balance is relieved of a large number of accounts, and the general ledger is made independent of the subsidiary ledgers. On the other hand, the subsidiary ledgers are dependent for their proof on the controlling account balances in the general ledger. In an effort to make every ledger “self-balancing,” a further refinement of the controlling account idea is frequently incorporated in each subsidiary ledger. It is accomplished in the following manner: An exact duplicate of the controlling account on the general ledger is set up in the subsidiary ledger, with this difference, that the sides of the account are reversed so that the subsidiary ledger account has for its debits the credits of the general ledger account, and for its credits the debits of the general ledger account.

Take the Accounts Receivable controlling account for illustration. On the general ledger its balance is of course a debit balance representing the total outstanding accounts due from customers. Similarly, the schedule or list of customers’ accounts taken from the sales ledger will represent debit balances whose total is the same as the controlling account balance. If, then, the controlling account itself is placed on the customers ledger as an additional account, the sides being reversed, the balance of this one account will be a credit equal to the total debit balance of all the other accounts in the customers ledger. Therefore, if the customers ledger is correct, its own balance will be offset exactly by the credit balance of the one additional account, and the ledger then is said to be self-balancing. There is no theory or principle of debit and credit involved in this; the device is simply introduced in order that the ledger may provide an internal proof of its correctness. The title of the balancing account on the subsidiary ledger is “Adjustment” or “Balance” and has no significance other than that mentioned. In a similar manner any subsidiary ledger may be made self-balancing.

CHAPTER XXXI
HANDLING CONTROLLING ACCOUNTS

[Chapter XXX] concerned itself with the statement and explanation of the principles on which the controlling account rests, the manner of its construction, its advantages, and with the changed application of the fundamental scheme of debit and credit under a system of records operating controlling accounts. The present chapter will be devoted to a consideration of the problems met with in the practical operation of these accounts.

Introduction of the Controlling Account.—Upon the installation of a new system or set of books, the controlling account feature may be incorporated from the start. The new system must provide for the separation from the general ledger, of the ledgers over which control is to be established. The method of securing controlling totals for posting to the general ledger controlling accounts was indicated in the preceding chapter.

Where it is desired to introduce controlling accounts into a system which has not formerly used them, certain adjustments must be made, i.e., the accounts to be controlled must be segregated and controlling account columns must be provided for in the books of original entry. With the transfer of these accounts to a separate ledger, together with the introduction of the controlling accounts into the general ledger, the equilibrium of that ledger is maintained. The opening entry in the newly established controlling account is of course the sum of the balances of the transferred accounts.