It is customary to have one account termed "private ledger controlling account" to which will be charged or credited all the entries which affect private ledger accounts.
The private books will be a ledger and a journal. At various times, usually at the end of each month, the official operating the private books will record in his private journal all entries found in the private ledger controlling account. He will transfer these to the accounts in his private ledger.
Suppose that there is a credit of $100 cash to the personal account of John Smith, Manager. The en try for this on the general books would be a credit to the private ledger controlling account and a charge to cash. In the private journal this entry would be a credit to John Smith's account. As the private books are operated by double entry some charge must be made to offset this credit. Since the entry came from the general ledger we may set up an account• with that ledger and make our charge to it. Thus the "general ledger" account in the private ledger is the com plement of the "private ledger" account in the general ledger. If the private ledger controlling account in the general books had a credit balance, the general ledger account in the private books would have a debit balance corresponding in amount and vice versa.
16. Control of private ledger.—The means of con trolling the accounts in the private ledger differ some what from the control exercised over accounts in the customer's ledger previously illustrated. The private ledger is a complete ledger in which the debits equal the credits. This equilibrium of debits and credits is made possible by the use of the general ledger ac count, so that to prove the accuracy of the postings to the private ledger, it is first ascertained whether the balance in the general ledger account equals the bal ance in the private ledger controlling account in the main ledger. Then the equilibrium of the private ledger is tested by proving that the total debits equal the total credits—i.e., by taking a trial balance of the
private ledger.
17. Installation of controlling accounts.—When it becomes necessary to transfer accounts from the main ledger, and to supplement them by one controlling ac count, it will be done in the form of a journal entry. The following example illustrates the transfer of a series of customer's accounts from a general ledger to a subsidiary ledger: In making this transfer the rule must not be violated that no postings should be made to the subsidiary ac counts that are not made to the controlling account. Consequently, this entry should be posted in the gen eral ledger as a charge to the controlling account and as a credit to the individual accounts in the gen eral ledger. The individual accounts would be re opened in the subsidiary ledger by posting to each ac count individually, the amounts which were charged to the controlling account. It should be noted that the credits to the individual account in the ledger in which they were closed out must not be confused with any entries to be made to the individual accounts in the subsidiary ledger.
18. Advantages of controlling accounts.—Among the advantages of controlling accounts are the follow ing: (1) they offer a means of obtaining full data at any time regarding the total as well as the details of any particular class of accounts; (2) they save time in proving the accuracy of the general ledger or of the subsidiary ledgers; (3) they afford opportuni ties for obtaining various forms of classified informa tion, such as territorial distribution of customers; (4) they reduce accounting expenses by permitting the use of cheaper labor on the detail work of posting to the subsidiary accounts; (5) they provide secrecy whenever desired; and (6) they enable the manage ment to control departmental and branch activities and check them up without keeping all the details of their operation at hand.