Accounting ledger

“ As already stated, the system of double-entry bookkeeping is based on the proprietorship equation. An equation is an expressed equality. The ledger kept by double-entry bookkeeping always maintains this equality. The sum total of the entries on the left side of all the accounts must equal the sum total of the entries on the right side of the accounts. The way in which the ledger becomes an expanded or detailed balance sheet was explained fully in the previous chapter. ”

“ One of the great advantages of the loose-leaf and card ledgers over the solid-bound ledger is their flexibility. They lend themselves easily to any desired grouping of the accounts; they may be numerically arranged where accounts are numbered instead of named; they may be arranged as to classes and each class made self-indexing; or a geographical grouping may be made. Another great advantage of this form of ledger is the ability to discard or file away in other binders all “dead” accounts, thus making for ease and facility in the use of the “live” ledger. ”

“ Inasmuch as the single-entry ledger does not show the profit or loss, the manner of handling the proprietor’s account at closing is somewhat different. The profit, as determined by the method shown a little later, may be brought directly and without journal entry from the statement of profit and loss into the proprietor’s capital account so that this account will show the true net worth of the business as at that time. The personal account is simply ruled off after its figures have been used in determining profit. ”

“ At the beginning of a business enterprise the accounts in the ledger will be an opening balance sheet of the business. Day by day by day as transactions take place, there will be a constant change in the values of the assets, liabilities, and the proprietorship account which will thus express the changing financial condition of the business. Some assets will be increased while others will be decreased; liabilities will also change; and with these changes there will be brought about a change in proprietorship—an increase or a decrease. ”

“ 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 record in each journal shows the individual vendor’s account, but at posting time no vendor account is set up in the ledger, neither the credit to the vendor’s account shown in the purchase journal nor its offsetting debit shown in the cash disbursements journal being posted. ”

“ It is stated by competent witnesses that a cash book, a journal, and a ledger are indispensable books of account for an efficient system of accounting, and that, in the smaller shops, even simpler entries showing merely the daily records of sales and record of purchases of merchandise would be sufficient. ”

“ In all problems calling for financial statements, the trial balance should first be tested as to the equality of debits and credits. As stated above, the method of the work sheet is usually the best method for summarizing results, although sometimes skeleton ledger accounts will be found helpful in order to visualize the effect of entries and to trace their course through the accounts. Only painstaking work and the solution of many problems will produce facility and confidence in work of this kind. ”

“ If the investments are so numerous as to require a subsidiary ledger for their record, where with each kind of bond accounts will be kept with its par, discount or premium, and interest, there is no objection to handling the controlling account on the general ledger by making the discount or premium adjustment directly to the bond account. ”

“ In large corporations, where oftentimes the policy of securing bids on all purchases is followed, resulting in a constant changing of firms from whom purchases are made and no regularly established trade with any of them, the burden of handling the creditors ledger becomes an increasingly heavy one with little or no gain in desirable information furnished by it. ”

“ Special conditions sometimes arise which make it seem advisable to keep ledger accounts with all firms from whom the business is making purchases. A case in point is a business, lacking capital to pay all bills promptly, necessitating payments on account, or by note, instead of payments covering certain invoices in full. ”

“ And yet, what would become of us if these cares absorbed us entirely? if, mere accountants, we should wish to measure our effort by the money it brings, do nothing that does not end in a receipt, and consider as things worthless or pains lost whatever cannot be drawn up in figures on the pages of a ledger? ”

“ All who receive must be debited; all who give must be credited.
No cancel is ever made. If cash received be afterwards repaid, the sum paid is not struck off the receipts (or debtor-side of the cash account) , but a discharge, or credit, is written on the expenditure (or credit) side. [Pg 183]
The book in which the accounts are kept is called a ledger. It has double columns, or else the debtor-side is on one page, and the creditor side on the opposite, of each account. The debtor-side is always the left. Other books are used, but they are only to help in keeping the ledger correct. ”

“ They represent the merchant: their interests are his interests; he is solvent upon the excess of their credits over their debits, insolvent upon the excess of their debits over their credits. It is exactly the reverse in all the other accounts. If a malicious person were to get at the ledger, and put on a cipher to the pounds in various items, with a view of making the concern appear worse than it really is, he would make his alterations on the debtor sides of the stock and profit-and-loss accounts, and on the creditor sides of all the others. ”

“ It will be observed, therefore, that in order to complete the record of the transactions by double-entry, it has become necessary to introduce into the ledger a third class of accounts, known as impersonal or nominal accounts. These accounts record the transferences of money, or of money’s worth, which, so far from representing a mere reshuffling of assets and liabilities, involve an increase in or a reduction of the amount invested in the business, i.e. a profit or a loss. Transactions representing profits are recorded upon the Cr. ”

“ In determining the amount of earnings or profits (whether of the taxable year, or accumulated prior to March 1, 1913) due consideration must be given to the facts, and, while mere bookkeeping entries increasing or decreasing surplus will not be conclusive, the amount of the earnings or profits in any case will be dependent upon the method of accounting properly employed in computing net income. ”

“ I explained to him that my partner Nisbet had been educated and trained in that very house of Page, Bacon & Co.; that we kept our books exactly as they did; that every day the ledger was written up, so that from it one could see exactly how much actual money was due the depositors and certificates; and then by counting the money in the vault, estimating the bullion on hand, which, though not actual money, could easily be converted into coin, and supplementing these amounts by "bills receivable," they ought to arrive at an approximate-result. ”

“ The fixed assets of the business are constantly depreciating in value; merchandise tends to become out of date, shopworn, stale, or soiled; some merchandise has been sold, while some is still on hand; some of the accounts receivable may prove uncollectible, and some of the notes receivable may be dishonored. Also, at the end of the period liabilities such as taxes, salaries, rent, and the like may have been incurred, but because there is no creditor’s invoice or other business paper as evidence of such liability they are not usually entered on the books until payment is made. ”

“ It is sometimes maintained that inasmuch as cash is a realized asset it [Pg 644] has no place in the realization and liquidation statement. Accordingly, under that theory the cash appears only in the trustee’s cash account. There is a good reason, however, for the insistence of some that the realization and liquidation statement should show all the assets taken over by the trustee or receiver and a full accounting for them. ”

“ It would be disruptive of an orderly collection of the revenue to rule that the accounting must be done over again to reflect events occurring after the year for which the accounting is made, and would violate the spirit of the annual accounting system. ”

“ On the other hand, General Stores also makes it clear that even though there may be no public debt materially and directly affected, Chapter X is still the appropriate proceeding where the debtor has widespread public stockholders and the protections of the public and private interests involved afforded by Chapter X are required because, for example, there is evidence of management misdeeds for which an accounting might be made, there is a need for new management, or the financial condition of the debtor requires more than a simple composition of its unsecured debts. ”

“ Upon the complete depreciation of the asset, the book value not having been written down in the meantime because no depreciation has been booked for it, the asset must be charged against the reserve, thereby mutually extinguishing each other. No principles of accounting are necessarily violated. ”

“ But this amount cannot be determined and its distribution effected without resort to the procedures traditionally employed by equity upon a bill for an accounting and for the distribution of a fund brought into its custody. No stockholder is liable for more than his proportion of the debts not exceeding the par value of his stock. His proportion can be ascertained only upon an accounting of the debts and of the stock and a pro rata distribution of the liability among the shareholders and of the proceeds of recovery among the creditors. ”

“ For purposes of management, which must control all the phases of business activity, a balance sheet is insufficient. A review of the factors producing results up to a given time must be had. Accordingly, the accounting department must supply not only information as to the present state of the assets and liabilities, but also information which indicates how the changes in assets and liabilities since the last fiscal period were brought about—what volume of transactions occurred, what expenditures of assets and energy were necessary to accomplish the results attained. ”