Accounting theory and practice, Volume 1 (of 3)

by Roy B. Kester

Form 46. Account Marked for Analysis

Procedure of Analysis.—The content of each account between the marked points is now analyzed according to the journals from which the postings have been made. Analysis paper, with debit and credit columns headed for each journal, may be used for this purpose. All debits in the account posted from the journal are entered in the debit journal column of the analysis sheet, all cash debits in the debit cash column, all sales journal debits in the debit sales journal column, etc. Similarly, the credit postings in the account are entered in the proper credit columns of the analysis sheet. Each item in the account should be checked or otherwise marked when transferred to the analysis sheet. Illustration of the analysis sheet is given in [Form 47].

When the various accounts have thus been analyzed, there should remain no unchecked items in the period analyzed, unless there have been transfers between accounts made directly on the face of the ledger. If this has been the practice, an additional heading with debit and credit columns, entitled “Ledger Transfers,” should be set up on the analysis sheet. Every account in the ledger is analyzed in the same way.

The Analysis Sheet.—It will be noticed in [Form 46] that only the period between the two diagonal marks \ and / is under analysis. Accounts which have been closed but are within the period under analysis must, of course, be included. When all accounts have been analyzed, the columns of the analysis sheet are footed. For each journal the footings of the debit and credit columns should be equal. A difference will indicate that there is an error in the postings from that particular journal. In this way the error is localized and only these postings need to be checked individually.

The cash book columns in the analysis sheet ([Form 47]) may need some explanation. If no Cash account is kept on the ledger, the balance of the cash book for the period will have to be entered on the analysis sheet before equality of the cash columns will be shown. With the exception of the items transferred to the analysis sheet from the Cash account—where a Cash account is carried in the ledger—all items in the cash debit column of the analysis sheet represent, in the cash book, credits to certain accounts, and those in its credit column represent debits to certain accounts. The entries to the cash analysis column from the ledger Cash account, showing on its debit cash receipts and on its credit cash disbursements, must bring about the equilibrium. The column total, however, will not represent cash receipts and cash disbursements respectively, but the total of each column will be the sum of both receipts and disbursements; whereas the totals of the other columns are equal to the totals of the corresponding journals for the period. This is brought about by the fact that the two cash columns on the analysis sheet really cover two independent journals, viz., the cash receipts and the cash disbursements journals.

Form 47. Ledger Analysis Sheet

Agreement between the debit and credit totals of corresponding columns is proof of equilibrium in the postings from that book; but unless these column totals also equal the total of the corresponding journal, there is evidence of the omission from the ledger, both on the debit and on the credit side, of items recorded in the journal. Thus the ledger analysis serves also as a check against omissions; but when used for that purpose, account must be taken of duplicate entries in the various journals, such as cash sales entered both in the cash and sales journals but posted only from one of them.

Use of Ledger Analysis.—All that is claimed for the ledger analysis is that it localizes the error, if it is an error in posting, and so makes the work of searching for it less haphazard and renders unnecessary a checking of all postings in the ledger. All the means previously explained should be exhausted before this method is used. If the previous trial balance, i.e., the one at the beginning of the analysis period, is correct and the ledger analysis shows no errors in posting, then certainly the trial balance for the end of the analysis period must balance. If not, the error is an error on the face of the ledger and its computations must be proved.

The Slip or Reverse Posting System.—As indicated before, it is better to post carefully and accurately in the first place than to hunt for errors afterwards. A method of proving daily postings known as the slip or reverse posting system is used with success in many places. Formal slips of any convenient width and length are provided, one for the debit and one for the credit of each book from which postings are made. The debit slips may be easily distinguished from the credit slips by the use of different colors. The debit slips are ruled only with money columns and each slip bears the title of its journal. Reverse posting is made on the slip from the items posted to the ledger. Thus, when posting the debits from the general journal, the general journal debit slip is carried conveniently on the right of the ledger and entry of each debit posting to the ledger is made from the ledger to the slip. When all journal debit postings have been made, the reverse posting slip is totaled and must agree with the total of the journal debit column for the items posted. Similarly, the journal credits are posted, reverse posted, and proved. The debit postings must equal the credit postings and thus proof is secured of the equilibrium of the ledger. Each journal is posted, reverse posted, and proved in a similar way. The bookkeeper is, in this way, sure of the correctness of his work day by day. Oftentimes monthly recapitulation of these reverse posting slips are made and preserved as part of the business records. It will be seen that this method is identical with the ledger analysis method explained above but applied at the time of making the posting instead of at the close of the period.