CHAPTER LI. Balancing Methods

BALANCING METHODS

=The “Fool-Proof” Trial Balance.=—Double-entry bookkeeping is never satisfied with anything short of absolute proof of the mathematical accuracy of the work. Often such proof is very difficult to secure. There has not yet been devised—and in the nature of things, never will be—any so-called royal road to the trial balance. Yet one often sees claims put forth that there is no longer any need for trial balance troubles. The use of certain methods, which are disclosed only upon payment of fees in proportion to the advantages claimed for them, makes it possible, according to their devisers, to take a trial balance within an incredibly short time or to do away with trial balances altogether. As a matter of fact, satisfactory results can be obtained only by habits of accuracy and by proving the work done wherever possible. Some methods found useful in searching stubborn errors will be explained in this chapter.

=Ledger Analysis.=—By ledger analysis is meant an analysis of postings classified according to the books of original entry, i.e., on the basis of all journals whose record is transferred to the ledger. The process of making such an analysis is somewhat as follows: The ledger must be gone through carefully and for each account the last debit and credit figures which entered into the last correct trial balance must be marked distinctly so as not to be included in the analysis. If the analysis is for an interim period, the first debit and credit items belonging to the next period should be marked in a similar way, as shown in the illustration (Form 46). This must be done very carefully as the “date” is not always a safe guide. The use of subsidiary journals with one summary posting to offset many detailed contra postings and inaccurate dating of the summary posting, often make the “date” an uncertain guide. Care should therefore be exercised so that the points marked include a complete, i.e., a debit and credit, posting of every journal.

=Procedure of Analysis.=—The content of each account between the marked points is now analyzed according to the journals from which the postings have been made. Analysis paper, with debit and credit columns headed for each journal, may be used for this purpose. All debits in the account posted from the journal are entered in the debit journal column of the analysis sheet, all cash debits in the debit cash column, all sales journal debits in the debit sales journal column, etc. Similarly, the credit postings in the account are entered in the proper credit columns of the analysis sheet. Each item in the account should be checked or otherwise marked when transferred to the analysis sheet. Illustration of the analysis sheet is given in Form 47.

When the various accounts have thus been analyzed, there should remain no unchecked items in the period analyzed, unless there have been transfers between accounts made directly on the face of the ledger. If this has been the practice, an additional heading with debit and credit columns, entitled “Ledger Transfers,” should be set up on the analysis sheet. Every account in the ledger is analyzed in the same way.

=The Analysis Sheet.=—It will be noticed in Form 46 that only the period between the two diagonal marks \ and / is under analysis. Accounts which have been closed but are within the period under analysis must, of course, be included. When all accounts have been analyzed, the columns of the analysis sheet are footed. For each journal the footings of the debit and credit columns should be equal. A difference will indicate that there is an error in the postings from that particular journal. In this way the error is localized and only these postings need to be checked individually.

The cash book columns in the analysis sheet (Form 47) may need some explanation. If no Cash account is kept on the ledger, the balance of the cash book for the period will have to be entered on the analysis sheet before equality of the cash columns will be shown. With the exception of the items transferred to the analysis sheet from the Cash account—where a Cash account is carried in the ledger—all items in the cash debit column of the analysis sheet represent, in the cash book, credits to certain accounts, and those in its credit column represent debits to certain accounts. The entries to the cash analysis column from the ledger Cash account, showing on its debit cash receipts and on its credit cash disbursements, must bring about the equilibrium. The column total, however, will not represent cash receipts and cash disbursements respectively, but the total of each column will be the sum of both receipts and disbursements; whereas the totals of the other columns are equal to the totals of the corresponding journals for the period. This is brought about by the fact that the two cash columns on the analysis sheet really cover two independent journals, viz., the cash receipts and the cash disbursements journals.

Agreement between the debit and credit totals of corresponding columns is proof of equilibrium in the postings from that book; but unless these column totals also equal the total of the corresponding journal, there is evidence of the omission from the ledger, both on the debit and on the credit side, of items recorded in the journal. Thus the ledger analysis serves also as a check against omissions; but when used for that purpose, account must be taken of duplicate entries in the various journals, such as cash sales entered both in the cash and sales journals but posted only from one of them.

=Use of Ledger Analysis.=—All that is claimed for the ledger analysis is that it localizes the error, if it is an error in posting, and so makes the work of searching for it less haphazard and renders unnecessary a checking of all postings in the ledger. All the means previously explained should be exhausted before this method is used. If the previous trial balance, i.e., the one at the beginning of the analysis period, is correct and the ledger analysis shows no errors in posting, then certainly the trial balance for the end of the analysis period must balance. If not, the error is an error on the face of the ledger and its computations must be proved.

=The Slip or Reverse Posting System.=—As indicated before, it is better to post carefully and accurately in the first place than to hunt for errors afterwards. A method of proving daily postings known as the slip or reverse posting system is used with success in many places. Formal slips of any convenient width and length are provided, one for the debit and one for the credit of each book from which postings are made. The debit slips may be easily distinguished from the credit slips by the use of different colors. The debit slips are ruled only with money columns and each slip bears the title of its journal. Reverse posting is made on the slip from the items posted to the ledger. Thus, when posting the debits from the general journal, the general journal debit slip is carried conveniently on the right of the ledger and entry of each debit posting to the ledger is made from the ledger to the slip. When all journal debit postings have been made, the reverse posting slip is totaled and must agree with the total of the journal debit column for the items posted. Similarly, the journal credits are posted, reverse posted, and proved. The debit postings must equal the credit postings and thus proof is secured of the equilibrium of the ledger. Each journal is posted, reverse posted, and proved in a similar way. The bookkeeper is, in this way, sure of the correctness of his work day by day. Oftentimes monthly recapitulation of these reverse posting slips are made and preserved as part of the business records. It will be seen that this method is identical with the ledger analysis method explained above but applied at the time of making the posting instead of at the close of the period.

=Check Figures in Posting.=—The use of the check figures 9 and 11 in the verification of the arithmetic processes of addition, subtraction, multiplication, and division was referred to earlier. Other odd numbers, such as 13, 17, and 19, are less frequently employed. The number 11 gives perhaps the most satisfactory results from the standpoints of ease of application and accuracy of results. Its use in the verification of postings is somewhat as follows:

An additional column similar to the folio column should be provided in all the books for the check numbers. As an amount is posted to the ledger the bookkeeper should determine the check number from the item as it is written in the ledger—not from the journal item—and enter it in the check column in both ledger and journal. When postings from the journal are complete, the journal is totaled and the check figure for its sum found. If this agrees with the sum of the check figure column in the journal, posting is presumably correct. If the two items do not agree, the check number for each amount in the journal debit column should be proved. Inasmuch as the check number used was obtained from the ledger amount, a wrong check number for the journal amount would indicate a wrong posting which should now be turned to and corrected.

The check numbers in the ledger accounts are used only for verifying account totals and balances and may even be carried into the trial balance for proving it. Practice in the use of any check number soon develops accuracy and speed and makes the method easy of application and commendable wherever the work must be proved day by day as completed.

=Errors in Columnar Books and Controlling Accounts.=—These are frequent sources of trouble unless handled with care. In the chapter on columnar books, it was laid down as a basic principle that all items appearing in the general amount column should be entered in some analysis column, i.e., analysis columns should be provided for distribution of all items. This makes proof of distribution possible and establishes formal equilibrium of the book so that errors in posting are not so likely to occur.

Care must be exercised in posting the discount columns of the cash book to the proper sides of the respective accounts.

In the use of controlling accounts, where a special column is not provided, as for Accounts Receivable on the credit side of the cash book, posting of the item should be made both to the individual account and also to the controlling account.

=Trial Balance Adjustment Account.=—Where error creeps into the ledger and seems impossible of detection at a monthly trial balance period, the device of forcing a balance is sometimes used by setting up an account called “Trial Balance Adjustment,” “Error in Trial Balance,” or some other similar title. To this is charged or credited the amount of the difference in the trial balance. It is a temporary makeshift, a method of holding the item in suspense until the error is located. Needless to say, the inclusion of such an account does not improve the appearance of a trial balance, but may be countenanced as a temporary expedient.