It will be observed that by this means the desired end will be attained with ease, for ledgers may be balanced independent ly of each other, trade ledgers may be proved separately from other ledgers, and at more frequent intervals if desirable, while the general trial balance is not kept waiting for detailed results.
The expert bookkeeper will doubtless appreciate the point that, by treat ing the adjustment accounts as an integral part of the bookkeeping, the details contained in the various personal ledgers may be treated as merely memoranda. The general trial balance can, therefore, be settled without waiting for the proof of each ledger : it is important to bear in mind, how ever, that the balances of the adjustment accounts require to be verified by the agreement of the various departmental ledgers before they can be accepted as facts.
It is held in some quarters that the adjustment accounts kept in the departmental ledgers are redundant, as the one which will necessarily be kept in the principal ledger will serve all useful purposes ; it should be borne in mind, however, that the two adjustment accounts serve as a useful check upon each other, and that without them, the departmental ledgers cannot be balanced until the principal ledger itsejf has been written up to date, aed balanced, which would often prove most inconvenient in practice.
Transfers are a particular source of annoyance in sectional balancing., and although the use of the journal in modern commercial businesses is usually reduced to a minimum, some expedient of this kind will be found invaluak where sectional balancing is adopted. Transfers within the confines of a particular ledger do not occasion much trouble, though they should, strictly, be properly recorded ; but all other transfers should be collected in some convenient form, so that the totals passing on each side may be available for the adjustment accounts. If the system is rigorously followed, the extent to which journals will be of service may be gathered from the fact that, where several sales ledgers are kept, one journal will be required having columns on each side relating to the number of sold ledgers in existence for transfers from one sales ledger to another. Similarly with regard to bought ledgers. Then where contra accounts occur, there will be transfers from bought to sold sales ledgers and vice versa.
The particular advantages of sectional balancing may be briefly expressed in the following manner : 1. Ledgers may be balanced independently, each at any desired time.
2. Any errors in books may be localised either to a particular ledger, or to the side of a particular ledger.
3. The total amount due from customers, or to creditors, may be kno';n without the trouble of extracting the balances in ledgers.
4. The division of labour may be carried to an extent which would be impracticable where sectional balancing is not adopted.
5. The system of internal check can be evolved in a very satisfactory manner, especially where separate books are kept relating to each ledger.
6. Each ledger cleric may be made responsible for his own work.
Two other systems of what may be called sectional balancing may be appropriately mentioned here, the one is the subject of an interesting volume by Sir John Craggs, F.C.A., and the other has for its advocate Mr. G. P.
Norton, F.C.A. In the former system items which are posted to the ledger from a subsidiary book are simultaneously entered by the caller in a rough analysis book, called a slip book, so that the totals of the various columns show the extent to which items from each of the subsidiary books have been charged in each separate ledger. These totals may be built up into state ments on the same lines as the adjustment account already described, and will to a large extent serve the same purpose. Indeed, they may be said to take the place of analytical columns, or separate books, which would be pro vided in a proper system. Their use is almost identical with the adjustment account, and should be easily understood by comparison therewith. It is claimed for this system that alteration of figures is prevented, and that no extra time is needed in order to perform the work, for while the ledger keeper is finding the folio of an account, the clerk who is calling from the subsidiary book enters the amount on the slip. It should be noted that this system is intended to run concurrently with the actual posting of the ledgers, or (preferably) with the checking thereof; it will be found most useful when the allocation of distinct books of first entry to each separate ledger presents insuperable difficulties in practice.
Under Mr. Norton's system, it is premised that every business transaction should be—(1) entered in a book of entry ; (2) posted to the ledger ; and in order to ascertain if the sum of the entries agrees with the sum of the post ings, the entries are abstracted from the books of entry into a test journal, vu.
while the postings to the ledgers are abstracted therefrom into a balance book. In order to narrow down the probability of error, each of the abstrac tions is classified according to the number of ledgers in use. By this means the sum of the entries may be agreed with the sum of the postings, either as regards each ledger, the whole of the ledgers, or in respect of either debit or credit side of any ledger, or set of ledgers. The heading of the balance book is as in Form B. (p. 223). The test journal form is as set out on the opposite page.
Apparently this system is only intended to be applied qfter the books have been closed for a particular period.
It is not unusual where an error, which does not dissolve readily, exists in a trial balance, for the ledgers to be analysed into their constituent parts; or, in other words, for the subsidiary books to be constructed by working back from the ledgers, and proved by comparison with the books from which the original entries were made. This process is tedious in its application, and is by no means an unfailing remedy, for it only serves to show whether a mistake of posting has been made, and, if so, from which book of first entry. With a proper system of organisation it should be quite unnecessary, for the balancing of a set of books ought always to he systematically tested at regular, fixed intervals of short duration.
LAwitExcu R. DICKSEF., M. F.C.A. Sometime PrqPssor of Accounting, University of Birminyham.