It is usually best to make the foreign customers ledger self-balancing. The Adjustment account necessary to effect this may, if desired, be kept in both foreign and home currency, thus showing on its face, by the balance of the home money columns, the agreement of the foreign ledger with its control account on the general ledger. If, instead of one fixed average rate of conversion, varying rates are used, the keeping of the Adjustment account in both currencies becomes imperative.
Where, in the case of foreign sales, the sales invoice and charge to the customer are made in home currency and payment of that amount in home currency is demanded, the problem of conversion, as explained above, is not encountered, foreign sales being recorded and handled in exactly the same way as home sales.
The Foreign Purchasing Agency
If the purchase is made in terms of foreign currency and settlement must be made in that currency, a procedure and system may be used exactly similar to that just explained for handling sales.
In both the sales and purchase record books, returns may be entered in the same record by using red ink, and deducting the red ink totals at the end of each page. This obviates the necessity of keeping subsidiary adjustment accounts in a separate book, and brings all information regarding the branch transactions in one compact record.
CHAPTER XXXII
SUSPENSE ACCOUNTS; NUMBERED ACCOUNTS;
ADJUSTMENT OF FIRE LOSSES
Suspense Accounts
Definition of Suspense Accounts—General Purpose
Any account which is used as a place of temporary record for items pending a determination of their final status or allocation may be called a suspense account. The definition points out the general purpose for which such accounts are opened. It frequently becomes necessary to record items on the books as soon as the transactions giving rise to them have taken place. At the time, the information needed to determine their final place of record may be lacking. Stock certificates may find their way into the secretary’s office with the name of the party to whom transferred omitted; cash may be received through the mails with the identity of the sender not disclosed; provision must be made for bad debts before it is known what accounts will prove uncollectible—these and similar items call for record before their final status is determinable.
When cash is either short or over, the Cash Short and Over account serves as a temporary adjustment account. Discrepancies between the book record and the physical inventory of cash due to various causes are temporarily thrown into this account until further information discloses the cause. When it becomes evident that such information cannot be secured, any balance is usually treated as a profit and loss item at the end of the fiscal period. Similarly, discrepancies between the bank’s cash record and that of the business may be thrown into an account called “Bank Adjustments” or some other similar title, to show the nature of the items there recorded. The Petty Cash account, between the periods of its adjustment by means of a replenishing check, is in the nature of a suspense account. Only when an analysis of the petty cash expenditures and the replenishing check are recorded on the books is Petty Cash an asset account. Failure to locate an error in the trial balance is sometimes recorded on the books through the medium of a Trial Balance Adjustment account so as not to carry the difference over into the trial balance of succeeding months. Where such an account is set up it is a suspense account pending the finding of the error.