Form 4. Transfer of Account to New Page
Form 5. Personal and Notes Payable Accounts
A convenient method of showing clearly the taking of discounts, without the need of calculating the time between dates of charge and payment, is to enter the discount in small ink figures above the net amount received. When two partial payments are made, as on October 1 and 15, to settle the charge of September 20, and there are no other credits intervening, the two credits, with the total in small figures, may be ruled off against the single charge. At the time the trial balance is taken—in the illustration on August 31, September 30, and October 31—the balance of the account is calculated and shown in pencil on its proper side, debit or credit, just to the left of the reference column on the line of the last entry on that side.
Sometimes, when payments are made out of order or on account and it is desired to show to what particular charges they apply, an index number or letter showing the cross-reference is used, as shown in the Notes Payable account. As notes are issued by the business, they may be numbered, and when it pays a particular note, the entry should show the number of that note.
These remarks apply also to notes receivable. If full payment is received on each note as it comes due, the entry may be made on the same line on which the note was first recorded. This may result in the entries to the account appearing out of chronological order, but it assists in an easy determination of the outstanding notes. Numbering, or preferably lettering, the entries in an account may be applied with advantage also to the entries in personal accounts, as it aids in locating unpaid items, especially where payments cannot be recorded in the order in which the items to be settled have been entered.
The method of ruling and thus canceling items as explained above, is usually limited to notes and accounts receivable and payable, that is, to the accounts on which particular payments are received or made and the balance of which it is desirable to ascertain at frequent intervals. On the other hand, it is advisable that the method of showing periodic balances, by means of small pencil figures for use in the trial balance, be applied to all accounts.
CHAPTER XV
PERIODIC ADJUSTMENTS AND
SUMMARIZATION
Why Current Records of the Ledger Need Adjustment.—At the end of the fiscal period the ledger does not present a true record of financial condition. The fixed assets of the business are constantly depreciating in value; merchandise tends to become out of date, shopworn, stale, or soiled; some merchandise has been sold, while some is still on hand; some of the accounts receivable may prove uncollectible, and some of the notes receivable may be dishonored. Also, at the end of the period liabilities such as taxes, salaries, rent, and the like may have been incurred, but because there is no creditor’s invoice or other business paper as evidence of such liability they are not usually entered on the books until payment is made.
Again, it may be that the services paid for during this period, as shown by the various expense accounts, have not been entirely used, as where a supply of coal for heating purposes remains on hand, or when, as in the case of insurance bought for a given period of time, a part of the protection period extends beyond the close of the current fiscal period. In these and similar cases, the items must be separated into their two component elements, one part belonging to the current period, and the other part to a later period. The part of the expense to be deferred and used up in a later period represents an asset at the close of the current period and must therefore appear on the balance sheet under the heading of “Deferred Charges.”