Form 22. Cross-Indexing in Posting
Explanatory Matter in the Ledger.—In posting personal accounts it is customary to show the terms of credit in the explanation column of the account. In this way the face of the account shows whether the customer pays promptly or not, and affords a basis for his credit rating.
Notes Payable and Notes Receivable accounts in the ledger should show essential data, such as due date, interest rate, etc. However, when a separate note or bill book is used, these data are given therein and may be omitted from the account in the ledger.
With all other accounts, except sometimes the Profit and Loss account, little or no explanatory matter is carried. However, when a posting is made that is at all unusual, it is well to enter explanatory matter in the ledger. From the business man’s point of view, the ledger is the most important book of account, and if its record can be so made as to require a minimum of reference to original books, it serves its purpose so much the better. Where possible, the Profit and Loss account should carry the names of the accounts closed into it; in fact all transfers, whether made on the face of the ledger or by journal entry, should carry the account title and the ledger folio to which and from which the item is transferred. It is a fundamental principle that every entry must be indexed in such a way as to render reference to it easy at any time.
CHAPTER XXV
THE TRIAL BALANCE AND
METHODS OF LOCATING ERRORS
The Trial Balance.—In [Chapter XIV] the trial balance was defined as a list of account totals, debit and credit, or account balances, debit or credit, for all the open accounts in the ledger. This list is set up in two columns, debit and credit, and if the original entries in the journals and the postings to the ledger have been done correctly, the totals of these two columns should be the same.
Neither method of showing the trial balance has any inherent advantage over the other. Some concerns desire the account totals to be shown in the trial balance, as that indicates to some extent the volume of business. This would be true of all accounts which had been opened during the current period. As to those carried over from a previous period little current information would be given. As a general thing, however, the status of customers’ accounts is better indicated when both total charges and total credits are shown. Where only the balance is shown, it does not provide any basis for determining whether that balance is normal for that particular account. In judging a request for a further extension of credit there is a rather close relationship between the volume of trade with a customer and the amount of his unsettled balance.
Sometimes, even the totals of accounts that balance are shown in the trial balance, thus giving the status of all accounts appearing in the ledger. Again, concerns desirous of knowing the net amount owing on customers’ accounts and the net amount owed on creditors’ claims, require balances of all personal accounts and cash, but debit and credit totals of all other accounts. No unalterable rule can be given. The manner of showing the accounts in the trial balance is governed by the way in which the trial balance is to be used and the purpose it is to serve. Manifestly, however, the trial balance cannot give information of every kind desired by a manager. As personal accounts are usually handled by canceling offsetting credits against corresponding debits and carrying only balances forward, the trial balance cannot well show at the same time both total transactions and outstanding balances. Only in small concerns could the trial balance give the information which in larger concerns would be gathered statistically and furnished in addition to the trial balance.
The tendency in modern accounting is to make the ledger record so detailed that all accounts are currently “uniphase,” i.e., have entries on but one side, and in connection with such accounts the two methods of entering them in the trial balance are identical, because the total of the one side of the account is at the same time the balance of the account. It must be observed that as a matter of course this modern tendency does not apply to personal accounts nor to adjustment and closing accounts.