HF UC-NRLF $B 37 '^'^D THROUGH LIBRARY OF THE University of California. Class Digitized by the Internet Archive in 2007 with funding from IVIicrosoft Corporation http://www.archive.org/details/adjustmentsthrouOOfreerich Adjustments tlirougli Klimination includlne a. detailed explanation of l^hy Trial Balance Totals Vary, By Conciultins Accountant and A-uditor Pablished by C. E. FREEMAN 816 SUte Life Building Indianapolis, Indiana H^Ta^ CJOPT^IQBT 1811 BT O. E. FREEMAN The forms be- Brratai. given in Art. 97 shouhl s'/ D / C / D/ D / ^ / or etc /C , jD / D ti) / c c The last worrl in first line of foot note below Art. ISl should be Ac- count instead of Accrued. PREFACE. While It has been said that "there is nothing new under the .sun/' the author presents this manual with the sincere belief that such an application of the principles involved has never before been made, except in his own work. His claim of originality in the combination of principles in that which follows is based on the fact that during a continuous and varied experience of thirty-four years as Book-keeper, Teacher of Book-keeping, Secretary of a Commercial College, Public Accountant and Auditor, and general investigator of accounts and matters pertaining thereto, combined with an extensive reading of accountancy literature, he has never known the following methods to have been used or referred to. He therefore believes this treatise will be of interest to any whose vocation requires a thorough understanding of the principles of double entry, and that in so far as it is here- in advocated it will prove to be of practical benefit to any book-keeper who may become familiar with the system ex- plained. 224469 INTRODUCTORY. 1. In order that a Trial Balance may furnish in the most comprehensive form such information as it necessarily con- tains, the Baiance of Balances, as so distinguished from a Balance of Totals, has become the one in most common use, and it is this particular form that is incorporated as an im- portant part of the system hereinafter explained. 2. As a means of proof, the Balance of Balances has been combined in that which follows with the principles that ap- ply to the elimination of all entries which have no influence in changing the totals of such Trial Balances, while the com- bination referred to has been amplified in such a manner that to a certain degree it will simplify the location of er- rors through an additional elimination of all entries which may be known to be correct, when an examination becomes necessary to adjust discrepancies. 3. The references kerein made to (a) the Balance of Balances, and more especially to (b) the Balance of Totals and (c) the totals of a Trial Balance, should not be con- fused. To avoid any possible misunderstanding regarding the use of these terms let it be understood that — (a) a Baiance of Balances is that form of a Trial Bal- ance wherein only the excess of the debit or credit column of each ledger account is shown ; while — (b) a Balance of Totals is that form of Trial Balance which contains the totals of both debit and credit columns as they appear in the open ledger accounts ; and — (c) the references made to Ti'ial Balance Totals, or the totals of a balance, indicate especially the final cor- responding and balancing debit and credit totals of a Trial Balance, which might be in the form of a Balance of Balances, or a Balance of Totals. 4. It is presumed that the reader has a general knowl- edge oi Double Entry book-keeping, including many of the principles that are herein mentioned ; but in order to avoid the omission of any essential link from the explanatory chain, it has been deemed an important feature that due at- tention should be given to certain fundamental facts di- rectly connected with the subject and necessarily submit- ted in review. 5. It is therefore offered as axiomatic — (A) That the balancing totals of any one Trial Balance cannot be ex- pected to exactly correspond in amount with the balancing totals of any other Trial Balance taken from the same ledger at a different date. (B) That it usually occurs that the Trial Balance totals gradually increase from month to month until such time as the accounts are systematically closed. These axioms, while mentioned as peculiarities of a Bal- ance of Balances, will apply as well to a Balance of Totals.* 6. Other established principles, quite as simple as the foregoing and presumably as well understood by the reader, are also referred to in the following pages in order that they may be subsequently combined in such a manner as to ac- complish the desired result. 7. While the facts referred to in Art. 5 (A and B) are but simple propositions, it may not be so generally known that there is a possibility of the balancing totals in a Bal- ance of Balances being exactly the same in anwunt as such totals in one or more similar forms of trial balances taken from the same ledger at different dates, and, furthermore, that the amount of such totals in one Trial Balance may be •Beyond this point all references herein made to a Trial Bal- amee are especially intended to indicate a Balance of Balances as defined in Art 3- (a). even less than those of the Trial Balance wliich next pre- ceded it. Such, however, is the case, although the possi- bilities of such occurrences in actual practice may be said to be very remote. 8. Through an understanding of the principles herein- after illustrated, such facts as those referred to will become apparent ; but in order to inteUigently explain them and the principles that govern and apply to ^'Adjustments through Elimination/' the preceding brief acknowledgment of the possibilities of equality and variation to which the totals of Trial Balances of different dates are subject, has been considered a necessary preliminary, and it is quite as im- portant that the reader should first understand "Why Trial Balance Totals Vary." SECTION I. Why Trial Balance Totals Vary. 9. Regardless of the variety and number of posting me- diums, or books of original entry, that are employed in any business as being particularly adapted to the needs and re- quirements of any individual double-entry system, the fun- damental principles of double-entry book-keeping which re- quire a continuous equilibrium in the aggregate amount of debit and credit items, may always be exemplified in every particular through journal entr)' forms. 10. An explanation of this division of the subject is therefore simplified by introducing only the Journal in con- nection with the Ledger and Trial Balance. Other varia- tions are considered in subsequent pages. 11. Simple though it may appear, the fact should be noted that every open ledger account must represent either an excess of debits, or an excess of credits, or, in other words, a debit or a credit balance. 12. Another simple fact worthy of notice is, that every posting made to an open account will result in either in- creasing or decreasing a debit or a credit balance. 13. It not infrequently occurs, however, that postings are made which do not aflfect a prior individual balance in an open account, as in cases where a debit or a credit bal- ance is created through the opening of a new account; or through similar conditions when reopening an old account that was previously closed. 14. Under such conditions and in either case referred to in Art. 13, while there would be no prior individual bal- ance affected, the aggregate debit (or credit) balances in the ledger would be increased. 15» Another possible variation that should be taken into consideration is the occasional posting of an amount to an open account which overbalances the difference that ex- isted between its total debits and total credits before the posting was made, i. e., by posting a greater amount than its prior balance and thus creating a credit balance where a debit balance was previously shown; or vice versa. 16. To fully cover the requirements of the following system, such overbalancing entries as those mentioned in Art. 15 should be theoretically considered as consisting of two parts ; one of which, by exactly equaling, would serve to cancel the prior balance of the account and thus decrease the aggregate of either the debit or the credit balances, while the other part, representing the excess over and above the amount of the prior balance, would create a new, and contra, credit or debit balance in the amount of such ex- cess, through which its effect on the aggregate amount of such contra balances in the entire ledger would be similar to that produced through a posting which served to open a new account. 17. The separate consideration beyond this point of the effect of overbalancing entries, entries that open new ac- counts and postings made to accounts containing prior un- settled items, may be avoided by recognizing the fact that when the aggregate amount of either debit or credit bal- ances in the ledger is considered, the creation of a new bal- ance (either through the opening of a new account or by the surplus of an overbalancing entry) has a similar effect on said aggregate amount as that produced by posting an item to that side of an open account in which an excess of debits or credits existed before the posting was made. IS. With this understanding (Art. 17) an explanation of the manner in which individual balances are increased or decreased may be simplified by considering open accounts only, as below : 19. 1 — When the balance of an open account is an ex- cess of debits, it would be — (A) — increased by a debit posting; or (B) — decreased by a credit posting. 2 — When the balance of an open account is an ex- cess of credits, it would be — (A) — decreased by a debit posting: or (B)-^ncreased by a credit posting. We thus obtain the symbols 1-A. 1-B. 2- A and 2-B for subsequent use and reference. 20. Simply to illustrate the statements made in Art. 17, it ma\- be noted that any entry which serves to open a new account will, if it "he a debit, correspond with condition 1-A, as it will increase the aggregate amount of debit balances; while if it be a credit it will correspond with condition 2-B, as it will thus increase the aggregate amoimt of credit bal- ances. Any entry which overbalances a ledger account will, in the amount of the prior balance that is cancelled thereby, either decrease the debit balances as in 1-B, or decrease the credit balances as in 2-A, as the case may be ; while the sur- plus, or that part of such entr\' in excess of said prior bal- ance, will have the same effect as would an entry which served to open a new account, as previously explained. 21. Through a varied inspection of the symbols — 1-A, 2-A, 1-B, 2-B — with changes in the phraseology applied to their definitions, while retaining the same meaning for each, it is hoped that further explanations may be simplified. 22. Let these symbols, therefore, be next defined in the following- manner : 1-A — To increase a debit balance a debit posting must be made. 1-B — To decrease a d'ebit balance a credit posting must be made. 2-A — To decrease a credit balance a debit posting must be made. 2-B — To increase a credit balance a credit posting must be made. 23. In other words, tire increase or decrease of account balances is occasioned by original entries, which, in the ledger accounts — 1-A — Debit a debit balance.* 1-B — Credit a debit balance. 2-A — Debit a credit balance. 2-B — Credit a credit balance.* 24. The facts above symbolized as l-x\, 1-B, 2-A and 2-B embody all conditions of debit and credit as they relate to causes through original entries when considered in rela- tion to th^ir effects on the balances of ledger accounts. 25. As for every debit there must be an equal credit, we must consider the foregoing symbols in pairs, to repre- sent the simplest form of journal entry, wherein there is only one debit and one credit item ; which is sufficient for present consideration. •Let it be remembered that in so far as results are concerned, to debit a debit balance (1-A) is equivalent to the creation of a new debit balance and that to credit a credit balance (2-B) is equivalent to the creation of a new credit balance in both indi- vidual accounts and aggregate balances, and also that (Art. 17) the creation of balances through the opening of new accounts Is equivalent to that portion of an overbalancing entrv which ex- ceeds the balance cancelled thereby. 26. Referring now "to combinations — the mathematical definition of which is 'the different collections that may be formed out of a given number of things, taken a less number at a time, without regard to the order in which they are arranged" — let it be noted that thfere are six com- binations of two each, and six only ,that can be formed from four different things. 27. The six combinations of two each that can be formed from the four symbols in Art. 23 are ^s follows : (1)....1-A, 1-B (4)....2-A, 1-Bi (2)....1-A, 2-A (5)....2-B, 1-B (3)....1-A, 2-B (6).... 2-A, 2-B 28. Before proceeding it may be well to have an under- standing of the significance of the characters of which the symbols now under consideration are composed, which has resulted from the manner in which they were first intro- duced and by bearing the following in mind, avoid as much as possible the rrecessity of subsequent reference to Art. 19, 22 and 23. The characters referred to (as component parts of the symbols in question) have the following meaning assigned to them : viz : 1, indicates a debit balance. 2, indicates a credit balance. A, indicates a debit posting. B, indicates a credit posting. 29. As each of the symbols has thus been assigned a definite meaning, said meaning has been in no way changed bv their position as first or second terms in the combinations shown in Art. 27. 30. By considering the definite meaning assigned to each of said symbols, it will be noticed that were the com- binations separately applied to the terms of a journal entry (of two items only) they could not all comply with that principle of double-entry which dernands an Equality of debits and credits. Of these combinations those which would conflict wtih double-entry principles are the ones referred to as — (2)....1-A, 2-A and (5)....2-B, 1-B, for the reason that to simply — Debit a debit balance (as in 1-A) — and — Debit a credit balance (as in 2-A) in the same original entry, would not furnish a balancing credit: while to simply — Credit a credit balance (as in 2-B) — and — Credit a debit balance (as in 1-B) in the same original entry, would not furnish a balancing debit. 31. For the reasons stated in Art. 30, such forms of orig- inal entries as 1-A, 2-A (combination 2) and 2-B, 1-B (com- bination 5), when considered alone as given, would be in- complete, and therefore could not correctly occur in double- entry work. They are only introduced to serve their pur- pose in explaining the principles evolved, and no other fea- ture of importance is attached to them. 32. By thus eliminating combinations 2 and 5, the orig- inal number is reduced to four, viz: 1, 3, 4 and 6. which are the only ones that can possibly occur in the same original entry (consisting of one debit and one credit item), when correctly made, and, as so applied ,may be further illustrated through the following journal entry forms. 33. Having arrived at a point where it is possible to ex- plain the effect which various entries have on the Trial Bal- ance totals, such an explanation is included in the analysis appended to each of the following entries. 34. Entry No. 1. (1-A)— Debit* a debit balance.t (1-B) — Credit* a debit balance.f This entry, by debiting an account which had a prior debit balance (1-A) and crediting an account which had a prior debit balance (1-B), would increase the fonner and decrease the latter (both accounts having had a prior debit balance) in a similar amount, and would consequently have no effect whatever on the aggregate amount of debit bal- ances in the ledger when taken as a whole. 35. Entry No. 2. (1-A)— Debit* a debit balance.t (2-B) — Credit a credit balance.f This entry, by debiting an account which had a prior debit balance (1-A) and crediting an account which had a prior credit balance (2-B), would increase both the debit and credit balances of the accounts affected, and would con- sequently INCREASE the aggregate amount of both debit and credit balances in the ledger when taken as a whole. 36. Entry No. 3. (2-A) — Debit* a credit balance.t (1-B) — Credit* a debit balance.f This entr>', by debiting an account which had a prior credit balance (2-A) and crediting an account which had a prior debit balance (1-B), would decrease both the credit and debit balances of the accounts affected and would con- sequently DECREASE the aggregate amount of both debit and credit balances in the ledger when taken as a whole. 37. Entry No. 4. (2-A) — Debit'^' a credit balance.t (2-B) — Credit* a credit balance. f This entry, by debiting an account which had a prior credit balance (2-A) and crediting an account which had a prior credit balance (2-B), would decrease the former and increase the latter (both accounts having had a credit bal- ance) in a similar amount, and would consequently have no effect whatever on the aggregate amount of credit balances in the ledger when taken as a whole. . 38. A simple, yet practical, demonstration of the prin- ciples previously mentioned may be found in the "Illus- trative Example" (Section III), which illustrates the appli- cation of "Adjustments through Elimination," and in which the conditions treated through the entries and accounts there given are shown to correspond with those hereinbe- fore submitted, while all similar features throughout this treatise are given the same symbols as a means of reference. 39. The important features which have been developed through the analysis of the foregoing entries are — 1st. — That such entries as those numbered 1 and 4 would neither increase nor decrease the aggregate amount of debit and credit balances in the ledger accounts, and therefore would have no effect whatever on the totals of the preceding Trial Balance. 2d. — That such entries as that numbered 2 would increase the aggregate amount of both the debit and the credit balances in the ledger accounts, and therefore would increase the totals of the preceding Trial Bal- ance. tThese titles, "Debit balance" and "Credit balance," refer espe- ciaUy to the condition of the accounts affected, before the postings are made. ♦These titles, "Debit" and "Credit," refer especially to the debit and credit items of an original entry. 3d. — That such entries as that numbered 3 would decrease the aggregate amount of both the debit and the credit balances in the ledger accounts, and there- fore would decrease the totals of the preceding Trial Balance. 40. As the object of this division of the subject is to ex- plain ''Why Trial Balance Totals Vary," it is evident that the particular entries which cause such variations are the only ones to be determined, and for this reason such entries as those numbered 1 and 4, which embody the combinations (1) 1-A, 1-B and (6) 2-A, 2-B, respectively, require no further consideration except for identification, as they can "have no influence in changing the totals of a Trial Balance. 41. With such entries as 1 and 4 eliminated, we have left only entries numbered 2 and 3, representing combina- tions (3) 1-A, 2-B and (4) 2-A, 1-B. Such entries as the latter (2 and 3), when appearing in the records, will in- crease or decrease respectively the preceding Trial Balance totals in the manner explained. 42. Through an understanding of the foregoing princi- ples and the various applications that are herein made of them, we are enabled to definitely determine and select from any set of books which are kept in accordance with the prin- ciples of Double Entry, and regardless of the nature of the business, such entries as will result in varying the amount of the Trial Balance totals. 43. Therefore, it only remains to formulate a systematic plan through which a practical application of such knowl- edge may be m.ade to conform with the work in hand as a means of proof, and as an aid in the location of errors. SECTION II. Adjustments through Elimination. 44. Before proceeding with this division of the subject it may be well to repeat that all symbols which have been previously adopted herein to indicate any special features correspond with those which are hereinafter used in con- nection with features of a similar nature. Some of these symbols will be found repeated a number of times and un- less the reasons for the variation of Trial Balance totals are fully understood it would be advisable in studying the sub- ject to refer to the features previously mentioned simul- taneously with those of a like nature which follow. Plan of Operation. 45. It has been demonstrated herein that the combina- tions (3 and 4) represented by entries numbered 2 and 3 when considered separately and alone, are the only ones that can possibly affect the balancing totals of a Balance of Balances, and it is therefore necessary to adopt some plan whereby all other entries may be systematically elim- inated. This may be accomplished in the following manner. 46. When posting an amount to a ledger account notice particularly whether the account balance before such post- ing is made is an excess of debits or an excess of credits, i. e., whether a debit or a credit balance did then exist. 47. In a ledger where a balance column is used in all of the accounts and the new balances extended as each post- ing- is made, the information referred to in Art. 46 would be obtainable at a glance. Wkere balance columns are not provided, pencil totals under every posting would indicate quite as readily the condition of the balance. 48. Having determined the condition referred to, some provision must be made for recording the facts. To do this, adopt such distinguishing forms for the posting checks as will, when written opposite an item in an original entry and after the item is posted, indicate plainly not only that it has been posted, but also whether the balance of the account affected was an excess of debits or an excess of credits be- fore the posting was made. 49. The posting checks may be of any form that the Book-keeper may decide to use ; but the nearer they are re- lated through their generally accepted meaning to the par- ticular use that is made of them, the less liability there will be — especially while learning — of inadvertently writing the wrong check mark. After one becomes familiar with the system, any arbitrary characters that can be quickly writ- ten could be adopted and made quite as intelligible. 50. For the purpose of this explanation the letters D and C are used for posting checks; D to indicate a prior debit balance, and C to indicate a prior credit balance as having existed in the ledger accounts to — but not including — ^the items so checked. In other words, if before an item is posted a debit balance existed in the account to which such item is transferred, check that item in the original en- try and after the posting is made, with the letter D, and similarly, if the balance was a credit, check the item posted with the letter C. 51. It may be well to interpolate at this point as a gen- eral proposition, that when a bound ledger is used a great saving of time and labor may be accomplished through the use of posting checks, instead of writing the ledger page only as each item is posted to indicate that such posting has been made. It is always a better way, as a posting prelimiHary, to take the ledger index and page all items in the original entries simply for reference purposes. After the items are paged, lay the index aside and check ( v^) each item as it is 'posted. If the plan herein described is made use of the check will, of course, be a D or C. This obviates the ne- cessity of referring to the index every time a posting is made. 52. WTiether loose leaf or bound books are used, some method of indicating which items have been posted is re- quired, consequently the posting check feature of the system herein explained will not occasion any additional work, especially if combined with the time-saving method of pag- ing all of the items before commencing to post. 53. After the postings are completed and the items checked (D and C) the books of original entry would be in shape to furnish at a glance the following necessary in- formation, viz: 54. D opposite a debit item (1-A) ) — and — >■ in the same entry D opposite a credit item (1-B) ) would show that it was similar to the entry herein nunp- hered 1, wherein — a debit balance had been debited (1-A) and a debiJt balance had been credited (1-B). Entries so checked would have no effect on the Trial Bal- ance Totals. 55. D opposite a debit item (1-A) | — ^and — >- in the same entry C opposite a credit item (2-B) ) would show that it was similar to the entry herein num- bered 2, wherein a debit balance had been debited (1-A) and a credit balance had been credited (2-B.) Entries so checked would increase the Trial Balance Totals. 56. C opposite a debit item (2-A) — and — J- in the same entry D opposite a credit item 2-A) ) (l-B) ) -would show that it was similar to the entry herein num- bered 3, wherein — a credit balance had been debited (2-A) and a debit balance had been credited (l-B). Entries so checked would decrease the Trial Balance To- tals. 57. C opposite a debit item (2-A) | — and — > in the same entry C opposite a credit item (2-B) ) would show that it was similar to the entry herein num- bered 4, wherein — a credit balance had been debited (2-A) and a credit balance had been credited (2-B). Entries so checked would have no effect on the Trial Bal- ance Totals. 58. It has been shown, however, that entries numbered 1 and 4 need not be considered, as they have no influence on the Trial Balance totals; while every entry that is made which corresponds with those herein numbered 2 and 3 will change the aggregate debit and credit balances of the ledger accounts in the amount which each of such debit and credit items represents. 59. When all amounts in any stated period, which the foregoing method has demonstrated as being the cause of variations in the Trial Balance totals, are properly com- bined with the totals of the Trial Balance as at the com- mencement of said period, the amount of the balancing totals of the next succeeding Trial Balance may be definitely determined. 60. Let the important features, therefore, of entries numbered 2 and 3, be emphasized through the following repetition of facts in a slightly varied form. 61. Entry No. 2. $5.0e — (Checked D.) Debiting a debit balance as in 1-A, — and — (Checked C.) Crediting a credit balance as in 2-B— $5.00 would serve to increase the Trial Balance totals in the amount of its corresponding debit and credit items as illus- trated below: Account A. Prior balance $10.00 Posting 1-A 5.00 Account B. Prior balance $20.00 Posting 2-B 5.00 It will be noticed that the posting (1-A) to account A has increased a debit balance in that account and that the posting (2-B) to account B has increased a credit balance as explained in all references to entry No. 2. 62. Entry No. 3. $15.00 — (Checked C.) Debiting a credit balance as in 2-A, — and — (Checked D.) Crediting a debit balance as in 1-B — $15.00 would serve to decrease the Trial Balance totals in the amount of its corresponding debit and credit items as illus- trated below : Account C. Posting 2-A 15.0011 ^^^^ balance 30.00 Account D. Prior balance 40.00 j| Posting 1-B 15.00 It will be noticed that the posting (2-A) to account C has decreased a credit balctnce in that account and that the post- ing (1-B) to account D has decreased a debit balance as explained in all references to entry No. 3. 63. Having acquired an understanding of the foregoing principles, prepare a loose Proof Sh^ct (or use a book) with two money columns and write at the top of one of the columns the word Increase and at the top of the other column the word Decrease.^ 64. After completing the postings for a page or a day's work as explained, examine the posting checks carefully and selecting such entries as are checked •Loose sheets ruled with ten, or even more, money columns are probably the best to use for this purpose, with the columns headed lacreaae and D«cre«jie, in pairs. 65. D. opposite the debit item ) — and — > in the same entry C. opposite the credit item ) write the amount in the column headed Increase. (Entry- No. 2, 1-A, 2-B.) 66. In a similar manner and at the same time, select such entries as are checked C. opposite the debit item ) and >• iri the same entry D. opposite the credit item ) and write the amount in the column headed Decrease^ (Entry No. 3, 2-A, 1-B.) 67. By thus selecting only such entries as those which are properly checked D. C. or C. D., all others would be eliminated. 68. When the Proof Sheet is completed to the point where the succeeding Trial Balance is to be taken, the Proof Sheet columns should be made to show the separate totals of all items of Increase and Decrease as therein recorded. 69. To the balancing totals of the next preceding Trial Balance, add the total of the Increase column and from the amount so obtained deduct the total of the Decrease column, when the remainder will represent what the amount of the balancing debit and credit totals of the next suc- ceeding, or current Trial Balance should be. 70. The * same result as that indicated in Art. 69 may also be shown by adding or deducting the excess of the increase or decrease column (respectively) to or from the totals of the preceding Trial Balance. 71. By thus being able to determine what the balancing totals of any Trial Balance should be, it may be seen at a glance after the (then) current Trial Balance is taken, whether either one or both totals of its debit and credit columns are right or wrong and if an apparent error makes it necessary to review the work, the search for discrepan- cies among either the debit or credit items (whichever is known to cover an error) may be discontinued as soon as the records are adjusted to the correct amounts. 12. As one of the f>ossibilities of the system herein described, it may be suggested that if every book of original entry which is used as a posting medium should be provided with two extra money columns to be used especially for the items of increase and decrease as they may develop, instead of using a separate Proof Sheet or book for a similar pur- pose, the monthly totals of such special columns could then be posted to a special account in the ledger that would serve as a continuous controlling account for the Trial Balances. By this plan each item of increase or decrease would appear in direct connection with the original entry by being written on a line opposite the entry which caused the variation. 7Z. In offices where only one ledger is in use, the plan of using a controlling account, referred to in Art. 72, would serve to govern the ledger as a whole ; while in offices where a general ledger contains a controlling account for each of the other ledgers in use by what has been termed the "Sectionalized Account System," and in which there is no controlling account for the general ledger, the general ledger itself could be controlled through the plan herein explained. 74. It should be noted that in all applications that have been so far made of the principles involved, consideration has been given to entries consisting of one debit and one credit item only, as indicated in Art. 25. The possibility, however, of several debit, or several credit items appear- ing in one or both sides of an original entry makes a special and separate treatment of this class of entries necessary in so far as the items of which they are composed are affected by the conditions indicated by the posting checks. These features, together with the distinguishing difference between simple and compound entries, are explained in Sections III and IV, which follow. SECTION III. Illustrative Example. 75. In order that all possible variations that have so far been mentioned may be illustrated, the following example is made to include all of such entries as those numbered 1, 2, 3 and 4, and as the elements of which this system is com- posed are equally effective in their influence on personal and impersonal accounts, the accounts in the following ex- ample are designated by numbers instead of names. 76. Let it be supposed that the balances of the ledger accounts appear in a Trial Balance as shown below: Trial Balance, No. 1. (As at beginning of month.) Account No. Account No. Account No. Account No. Account No. Account No. Account No. Account No. 8 Trial balance totals % 4001001 200 00 $ 550 650 i 800 00 11 600 00 11 350 \ 450 $2,000 00 $2,000 00 00 00 00 00 77 . Let the next supposition be that the subsequent rec- ords are such as those which follow, and as we know that all of the elements of double-entry bookkeeping may be ex- emplified through journal entry forms, the introduction of classified posting mediums is considered as an unnecessary complication at this point for which reason they are herein- after given independent treatment. The journal entry form of original entries is, therefore, continued. Journal Entries. 7%. The letters shown at the left of the following items (D. and C.) represent the required posting checks which are hereinbefore explained. The symbols in parentheses at the right are for reference. 79. By examining the accounts hereinafter given and noticing the condition of their balances before the following items were posted (and at the same time considering Arts. 48 and 50 relating to the D. and C. checks), it should be understood why each posting check in the following entries is used as shown. All items in the entries that follow, which influence the Trial Balance totals, are shown in the illus- trated Proof Sheet. (Art. 89.) 80. Entry No. 1. D. Account No. 1, 25.00 (1-A) D. To Account No. 6, 25.00 (1-B) This entry by debiting an account with a prior debit balance and crediting an account with a prior debit balamce, has no effect on the aggregate balances of accounts 1 and 6 and therefore need not be considered in the Proof Sheet. 81. Entry No. 2. D. Account No. 2, 50.00 (1-A) C. To Account No. 7, 50.00 (2-B) This entry by debiting an account with a prior debit bal- ance and crediting an account with a prior credit balance, increases both the debit and credit balances of Accounts 2 and 7, respectively. It therefore serves to increase the totals of the preceding Trial Balance and consequently is entered as $50.00 in the increase column of the Proof Sheet. 52. Entry No. 3. C. Account No. 3, 400.00 (2-A) D. To Account No. 5, 400.00 (1-B) This entry by debiting an account with a prior credit balance and crediting an account with a prior debit bcdance, DECREASES both the credit and debit balances of Accounts 3 and 5, respectively. It therefore serves to decrease the totals of the preceding Trial Balance and consequently is entered as $400.00 in the decrease column of the Proof Sheet. 53. Entry No. 4. C ^Account No. 4, 100.00 (2-A) C To Account No. 8, 100.00 (2-B) Tliis entry by debiting an account with a prior credit bcU- ance and crediting an account with a prior credit balmice, has no effect on the aggregate balances of accounts 4 and 8 and therefore need not be considered in the Proof Sheet. 84. The opening balances shown in the foregoing Trial Balance No. 1 (Art. 76), together with the subsequent entries numbered 1, 2, 3 and 4, are now combined in the following accounts in order to show how said accounts would appear after all postings had been made. 85. Account No. 1. Balance 400.00 I Entry No. 1 25.00 |( Account No. 2. Balance 200.00 Entry No. 2 50.00 Account No. 3. Entry No. 3 400.00 II Balance Account No. 4. 550.00 Entry No. 4 100.00 II Balance Account No. 5. 650.00 Balance 800.00 II Entry No. 3 Account No. 6. 400.00 Balance 600.00 Entry No. 1 Account No. 7. 25.00 Balance Entry No. 2 Account No. 8. 350.00 50.00 Balance .^ 450.00 Entry No. 4 100.00 86. A Trial Balance taken from the foregoing accounts in their present condition would appear as below: Trial Balance No. 2. (As at close of month.) Account No. Account No. Account No. Account No. Account No. Account No. Account No. Account No. Trial Balance Totals 425 00 250 00 150 550 400 00 575 00 400 550 1,650 00 1,650 00 00 00 00 87. It will be noticed that the corresponding totals of Trial Balance No. 2 as at the close of the month (1,650.00 — 1.650.00) are less than the corresponding totals of Trial Balance Xo. 1 (Art. 76) as at the beginning of the month (2,000.00 — 2,000.00) which is purposely so arranged to il- lustrate the possibility of such totals decreasing in amount as referred to in Art. 7. It therefore follows that if they can so decrease, there is a remote possibility that under cer- tain conditions they might be exactly the same. 88. The Proof Sheet. To utilize the proof, the check marks shown in connection with each entry must be carefully examined and only such amounts as are found to be checked — C against a debit item and V in the same entry D. against a credit item which would indicate a decrease i" D. against a debit item "fe — and — y in the same entry C. against a credit item ) which would indicate an in4:rease, are to be transferred to the Proof Sheet. The only entries so checked in this example are those numbered 2 and 3. The remarks under each of the entries explain how they should be treated and on completion of the Proof Sheet from the records here given, it would appear as below > 89. Proof Sheet No. 1. Increase. 1 Decrease. Entry No. 2 (D. C). 50.00 Balance; or exc^s of decrease column — 350.00 Entry No. 3 (C D.)_400.00 400.00 400.00 The entry numbers and posting checks shown in the above Proof Sheet would of course be omitted in actual practice; although it might be thought advisable to use page numbers for reference. Application of Proof. 90. The balancing totals of Trial Balance No. 1, as at beginning of the month were $2,000.00 From the above deduct the excess of the decrease column shown in Proof Sheet No. 1 350.00 And the difference resulting is the same as the balancing totals of Trial Balance No. 2, as at close of month $1,650.00 Had the total of the increase column exceeded the total of the decrease column, it would have been necessary to add such excess to the totals of the preceding Trial Balance. 91. In the foregoing example the work has been proven through the use of only two of the eight amounts that have been posted ; or in other words just 75 per cent, of the postings have been eliminated. The author has applied the system in question to regular work where 85 per cent, of the items posted were eliminated and only 15 per cent, required to be shown in the Proof Sheet. 92. If after Trial Balance No. 2 was taken, either the debit or the credit total should have been shown by the application of the Proof Sheet balance to be incorrect, the search for discrepancies would be made through an exam- ination of that particular side of the records (debit or credit) which was shown to vary from the proven amount. All other entries would thus be eliminated from the search for errors. SECTION IV. Simple and Compound Entries. 93. To this point and as previously mentioned, only such entries have been introduced as consist of two items (one debit and one credit) but as other combinations of items as well as of the principles involved, and of a more com- plicated nature are possible, such features will next receive attention. 94. The system herein outlined, recognizes only two classes of original entries and would be so applied regard- less of whether the books of record comprised only one Ledger and one Journal : or comprehended the most exten- sive classification through niunerous specialized books of columnar records for the inceptive entries. 95. The two classes of entries referred to are herein denominated as Simple Entries and Compound Entries ; but as the peculiarities and treatment of Simple Entries have been quite thoroughly illustrated in connection with entries of two items only (one debit and one credit) the first of the following definitions is only given to differentiate the two forms. 96. A Simple Entry is one in which the same letter (or character) — C. or D. is required as the j>osting check for all debit items and the same letter, C. or D. for all credit items that may be included in the same entry. It may therefore have one only, or any number of items in one or both sides ; but the posting checks for all debit items would be the same and the posting checks for all credit items the same. The following check marks — only — will illustrate what are here treated as Simple Entries, viz: or etc A Compound Entry is one in which both the letters (or characters) — C. and D. are required as posting checks for either the debit or the credit items only, or for both ; and may also include one or more overbalancing items. (Art. 15.) This may be illustrated by using the posting checks only as below : or, etc. D (The check marks above shown as D f and "J C. refer to overbalancing entries which are explained in Art. 107 and 108.) 98. The foregoing definitions and illustrations of Simple and Compound Entries make no distinction between original entries which have only one debit and one credit item, and those which include more than one item in either one or both sides, as the number of items in an entry does not constitute the distinguishing feature of the two classes of entries referred to; this being governed entirely by the combination of conditions represented by the required post- ing checks and whether one only or both (C. and D) appear opposite the items of either debit or credit. 99. Simple entries consisting of more than two items should be treated the same as those having only one debit and one credit as hereinbefore explained ; but the elimina- tion of Compound Entries which have no effect on the aggregate ledger balances or Trial Balance totals may be accomplished through a proper app^lication of the follow- ing: 100. General Rule, (For Compound Entries only.) Find the excess of either the debit or credit total of all items in the same entry which bear the same posting checks, when — j with an excess of debits ( ( will indicate a decrease All items checked C. -{ — but — I J with an excess of credits i will indicate an increase — and — with an excess of debits will indicate an increase All items checked D. -( — but — with an excess of credits will indicate a decrease -\ and after determining the facts indicated, write the amount of said excess in either the increase or decrease colurnn of the Proof Sheet as the conditions may require. 101. As the difference between the debit and credit total of all items checked C. and that of all items checked D. in any one Compound Entry will always correspond in amount, it is only necessary to consider the items which bear either one of said posting checks when applying the foregoing rule. 102. To illustrate the principles that apply to Compound Entries, the following Entries numbered 5, 6 and 7 are sub- mitted as supplementary to those given in Art. 80, 81, S2 and 83. As in the preceding entries the letters at the left represent the posting checks, while the symbols at the right are for reference only, in the entries given below: 103. Entry No. 5. C. Account No. 3, 25.00 D. Account No. 2, 75.00 C. Account No. 7, 150.00 C. To Account No. 4, D. To Account No. 1, D. To Account No. 6, To determine from such entries as this whether they result in decreasing or increasing the previous Trial Bal- ance totals and in what amount, we can apply the rule given in Art. 100 either to all items checked C. or to all items checked D. and arrive at the same conclusion as stated in Art. 101. In applying the rule to the items checked C. we have — In debits, 25.00+150.00=175.00 In credits, only 60.00 (2-A) (1-A) (2-A) 60.00 (2-B) 81.00 (1-B) 109.00 (1-B) Excess of debit items checked C. — 115.00 which shows that this entry, when the C. checks are considered, is gov- erned by that clause of the General Rule which says that "all items checked C. with an excess of debits will indicate a decrease:' This entr}' therefore decreases the aggregate amount of opposing ledger balances and likewise serves to decrease the preceding Trial Balance totals in the amount of $115.00. 104. To illustrate the fact that a corresponding result would have been obtained through a consideration of the D. checks, the following application of the rule is made. In credits, 81.00+109.00=190.00 In debits, only 75.00 Excess of credit items checked D. — 11 5.00 which shows that the same entry, when the D. checks are considered, is governed by that clause of the General Rule which says that "all items checked D. with an excess of credits will indi- cate a decrease." Therefore, the application of the rule to the items checked D. furnishes a similar result by showing that a decrease of $115.00 in the amount of opposing ledger balances, and likewise in the preceding Trial Balance totals, would result from the entry under consideration. 105. For the reasons stated, when analyzing a compound entry, the particular items which are checked with that let- ter which appears the fewest number of times in such entry, are the only ones that need to be considered, and many times it will be found that one item only will indicate at a glance just how the entry should be treated. (Art. 106.) 106. Entry No. 6. C. Account No. 8, 437.00 (2-A) D. Account No. 6, 508.00 (1-A) C.^ To Account No. 3, 403.00 (2-B) C. To Account No. 7, 490.00 (2-B) C. To Account No. 4, 52.00 (2-B) In this entry it is evident at a glance that as all posting checks are the same (C.) with the exception of the one' debit item checked D. — which latter is all that makes of it a Compound Entry — the amount of this one item ($508.00) with a D. check, must equal the difference between the total of the debit and the total of the credit items which are checked C. Consequently, as the amount of all debits in the entry equals the amount of all credit items, the item of $508.00 in itself alone must here represent the excess of debit items checked D. and likewise is the excess of credit items with a C check ; either of which references to said excess indicates an increase of $508.00. If the D. checks are considered the excess is governed by that clause of the rule (Art. 100) which says that "all items checked D. with an excess of debits will indicate an increase'' ; while a consideration of the C. checks shows a similar condition as "all items checked C. with an excess of credits will indicate an increase." This entry therefore increases the aggregate amount of opposing ledger balances and likewise serves to increase the preceding Trial Balance totals in the amount of $508.00. 107. In the preceding explanation of ''Why- Trial Bal- ance Totals Vary" (Art. 15, 16) reference is made to oz'er^ balancing entries Avhich create in the accounts to which they are posted, a debit balance where a credit balance previously existed, or a credit balance where a debit balance was shown before. In such cases the influence of that portion of the item which exactly equals and serves to cancel the prior balance, should be shown in the original entry by there noting the amount of the balance that is cancelled with a C. or D, check attached to indicate the condition of said balance (debit or credit) before the posting was made, while the excess or overbalancing^ amount should be treated as creating a new (and contra) debit or credit balance and be properly noted and checked in a similar manner against the same item in the original entr\\ Such overbalancing items will thus require both the C. and D. posting checks, which will make a Compound Entry of any in which they may occur. Overbalancing entries are usually comparatively few ; but to illustrate the treatment they require Entry No. 7 is here introduced : 108. Entry No. 7. C. Account No. 4, 444.00 (2-A) I,._325.00 . _^^ ^^^^^^^^ ^^ 2^ ^^^ . (l-B) C— 119.00 ) ( (2-B) Considering the credit item in this entry, it may be noticed that Account No. 2 (Art. 110) had a debit balance of $325.00 directly before this credit of $444.00 was posted thereto, and therefore that the posting of this credit has served to overbalance the account. Theoretically then, and as previously explained, the credit of $444.00 should be con- sidered as consisting of two parts, one of which in the amount of $325.00 cancelled the prior balance of Account No. 2, while its other part in the amount of $119.00 vir- tually created a new (and contra) credit balance in the last named amount. It is therefore evident that in the credit of $444.00 there is $325.00 which has affected a debit balance (or, as in l-B, Art. 23, it has credited a debit balance) and therefore is checked with the letter D.; while $119.00 of said credit item has created a item credit balance which, as explained in Art. 17, is similar in its effect to that produced by cred- iting a credit balance (as in 2-B, Art. 23) and therefore requires a C. check. Here, as in Entry No. 6, there is but one amount shown with a D. check, and consequently the $325.00 so checked must be the difference between the debit item checked C. and the (part of) credit item checked C. In other words, we have here an excess of credit, with a D. check, and also an excess of debit with a C. check, which shows that this entry is governed either by that clause of the General Rule which states that "all items checked D. with an excess of credits will indicate a decrease/' or that clause which states that "all items checked C. with an excess of debits will indicate a decrease.'' Entry No. 7, therefore, serves to decrease the aggregate amount of opposing ledger balances and likewise decreases the preceding Trial Balance totals in the amount of $325.00. 109. To complete the illustration, the preceding eight accounts are here repeated in full with the subsequent post- ings from entries numbered 5, 6 and 7 included ; these forms being followed by Trial Balance No. 3 and Proof Sheet No. 2 : 110. Account No. 1. Balance 400.00 Entry No. 1 25.00 425 00 Entry No. 5. 81.00 Account No. 2. Balance 200.00 Entry No. 2 50.00 250 00 Entry No. 5 75.00 325 00 Entry No. 7 444.00 Account No. 3. Entry No. 3 Entry No. 5 .__ 400.00 .__ 25.00 425 00 ' Balance I Entry No. 6 i .__ 550.00 ___ 403.00 953 00 Account No. 4. Entry No. 4. Entry No. 7. 100.00 444.00 544 00 Balance 650 00 Entry No. 5 60.00 710 00 Entry No. 6 52.00 762 00 Account No. 5. Balance _ .__ 800.00 Entry No. 1 Account No. 6. 3___. .__ 400.00 Balance - 600.00 i Entry -No. 1___. 5-__. -_ 25.00 Entry No. 6___. ___ 508.00 1 1108 00 1 Entry No. .__ 109.00 134 00 Account No. 7. Entry No. 5__-. _-_ 150.00 i Balance _ Entry No. 2 .__ 350.00 .__ 50.00 400 00 Entry No. 6___. ._. 490.00 890 00 Account No. 8. Entry No. 6___ .„ 437.00 Balance _ Entry No. 4___ _-. 450.00 ._. 100.00 580 00 111. A Trial Balance from the foregoing Accounts is shown below as — Trial Bj^lance No. 3. Account No. 1- Accotint No. 2. Account No. 3. Account No. 4_ Account No. 5_ Account No. 6. Account No. 7. Account No. 8. Tri^l Balance Totals. 344 00 119 528 218 400 00 974 00 740 00 113 1,718 1,718 00 00 00 00 00 00 112. To illustrate the particular entries that have caused the variation between the balancing totals of Trial Balance No. 2 and Trial Balance No. 3, the following Proof Sheet (No. 2) is submitted. In this case it will be noticed that each one of the entries numbered 5, 6 and 7 influence the result, and the reasons for this are explained under the entries referred to, in Art. 103, 106 and 108. After being transferred to the Proof Sheet they would appear as below : 113. Proof Sheet No. 2. Increase. Decrease. Entry No. 6 508.00 Entry No. 5 115.00 ^ Entry No. 7 325.00 Balance, or excess of Increase col- umn 68.00 508.00 508.00 114. Application of Proof. The balancing totals of Trial Balance No. 2 (Art. 86), are 1,650.00 To the above add the excess of the Increase column as in Proof Sheet No. 2 (Art. 113)__ 68.00 and the resulting difference is the same as the balancing totals of Trial Balance No. 3 (Art. 111) $1,718.00 In this case the Trial Balance totals have been increased, but are proven to be correct as shown. SECTION V. Special Features. 115. It is not within the province of this treatise to explain more than its title page imphes, except in related subjects which its detailed consideration has suggested ; but in order that a universal application of the principles in- volved may be intelligently and correctly made, it becomes necessary to introduce a limited reference to certain forms and systems of record which have been designed to fulfill the requirements of modern accounting. The forms and systems referred to have superseded many antiquated methods ; but as they are too numerous to war- rant a more extensive treatment in these pages than is here- inafter accorded them, it is deemed sufficient to include all further explanations under the following titles : The Cash Book. 116. As there are offices wherein the large amount of funds to be accounted for has influenced the separation of this particular record into two books ; one for receipts and the other for payments, while in many instances numerous columns are utilized for the purpose of covering special requirements, it should be noted that the form which in- cludes all cash entries in one book and in two columns only, is the one here referred to. 117. To introduce any Cash Book forms at this poist other than that of the simplest construction would only serve to complicate the application of principles that is made and for the same reason the features of columnar records as variously applied to Cash Book rulings (as well as the application of columns to all other varieties of original entries) is reserved for special attention in the following pages. 118. It is doubtless well understood that all cash entries could be made in a journal in regular journal entry form and from there posted to a Cash Account in the ledger and still comply with the fundamental principles of double-entry book keeping, through which method all former applica- tions of the system herein outlined would correctly apply. For convenience and other important reasons, however, it has long been customary to keep a separate book especially for this account, in which the original entries are made, thus eliminating the necessity of posting the items to a ledger Cash Account. The special Cash Book^ therefore, is virtually the same as such a ledger account would be and as it is impossible for a business to expend a larger amount of funds than it receives, the balance of the Cash Book must invariably be an excess of debits. 119. For the reasons stated, whenever an entry is made on either side of a Cash Book it always affects, in one of its twofold influences, a debit balance; i. e., the permanent excess of the Cash Book debits ; while its opposing influence when the item is posted to the ledger, may aflFect either a debit or a credit balance in the account to which it is trans- ferred. 120. It therefore follows that in so far as the Cash Book is concerned, all entries made therein will affect a debit balance, which debit balance would exist before any of such entries are made and with reference to this influence on the Cash Account, entitle them all to be checked with the letter D. as explained in Art. 50. This feature should be understood, although the special check mark (D.) need not be made in connection with the Cash Book entries as they are all alike in this particular. 121. When a Cash Book entry for a receipt or payment is posted to a ledger account, it should then he checked with either the letter C. or the letter D. as the conditions may require, and to indicate whether the balance of the account to which it is posted was a debit or credit excess before the posting was made. 122. In selecting items from the Cash Book for entry in the Proof Sheet, it is only necessary to consider those which are checked with the letter C, regardless of whether the entry is found among the receipts or payments. 123. It should be understood, however, that all items of receipt checked C. must be entered in the increase col- umn and all items of payment checked C. must be entered in the decrease column of the Proof Sheet. The rule given in Art. 123 may be better understood through an inspection of the following illustrations, and reference to the articles there mentioned. As previously explained — Art. 119 — the D. checks in parentheses at the left of the following items, referring especially to the debit balance of the Cash Account, would not appear in connec- tion with the Cash Book entries, while the checks not in parentheses would be there written as the items were posted. 124. (D.)— Entry on Cash Book debit, (1-A) D. — When posted as a credit against a debit balance, (1-B) would be similar to Entry No. 1 Art. 34. See section 1 of Art. 39; also Art. 54 and Art. 80. For reasons stated, items checked D. on Cash Book debit are not considered. 125. (D.)— Entry on Cash Book debit, (1-A) C. — When posted as a credit against a credit balance, (2-B) would be similar to Entry N«. 2 Art. 35. See section 2 of Art. 39; also Art. 55, Art. 61 and Art. 81. For reasons stated, items checked C. on Cash Book debit would increase the Trial Balance totals. 126. (D.)— Entry on Cash Book credit, (1-B) C. — When posted as a debit against a credit balance, (2-A) would be similar to Entry No. 3, Art. 36. See section 3 of Art. 39; also Art. 56, Art. 62 and Art. 82. For reasons stated, items checked C. on Cash Book credit would decrease the Trial Balance totals. 127. The foregoing are the only possibilities in Cash Book entries that relate to the point in question. Elntry No. 4, Art. 37 (the only other form of entry not mentioned above in connection with the Cash Book) could not occur through a Cash Book entry, for the reason that both terms of this form of entry (2- A and 2-B) affect credit balances and the Cash Book balance is always a debit. Systems. 128. In the application of Adjust'inents Through Elimina- tion it is only necessary to recognize two general systems of record, distinguished by the following peculiarities: 129. In one of the systems referred to, only one ledger is employed to include all of the accounts of the business, both personal and impersonal, A. to Z., inclusive, and in which no provision is made to prove separately any par- ticular number, division or class of accounts. This plan may be, and sometimes is, extended by using two or even more ledgers in a similar manner, instead of one; each of the additional ledgers being simply a continuation of the alphabetical arrangement of accounts in the one which next preceded it. Such a system, whether consisting of one ledger or more, I will venture to designate as the Individualized Ac- count System (not knowing of any particular term in use for distinguishing this method from the Sectionalized Ac- count System — or what is commonly known as the Sec- tionalized Ledger Plan), inasmuch as by this system it is customary to shov/ all of the open accounts of the business individually in one general Trial Balance in order to prove the equilibrium of debits and credits. As thus distinguished from the Sectionalized Account System, it should be noted that the Individualized Account System is the one especially referred to in all previous references herein made to ledger accounts and to such a system all principles hereinbefore stated and as explained, will correctly apply. Such prin- ciples are equally applicable to that system which will next receive attention. 130. In some offices the accounts are so numerous that it would be impracticable to attempt to keep them all in one ledger, and the fact that certain important information cannot be so readily obtained with even two or more ledgers under the Individualized Account System as could be done through more elaborate plans, shows the inadequacy of such methods for meeting modern requirements. Another disadvantage of the Individualized Account System is the inability, through its limited possibilities, of proving the equilibrium of the ledger balances otherwise than through a consideration of all of the open accounts of the business indivxdnially listed in the same Trial Balance. By this plan no provision is made for localizing an error to any particu- lar division of the records-f 131. To overcome the difficulties above mentioned, and for other important reasons that need not be considered here, the Sectionalized Account System has been developed. By this plan it is customary to keep all of the impersonal accounts — and these only — in what is known as a General Ledger, with one or more separate ledgers to contain the personal accounts so classified that no accounts of a dissimi- lar nature will appear in any one of the auxiliary ledgers. The accounts are thus sectionalized, and in order that the General Ledger may contain a complete record as to condi- tions and results, each section (or separate auxiliary ledger) is represented in the General Ledger by a special account. These special accounts are debited and credited from the several books of original entry with the monthly totals of all items which are posted separately to the various accounts in the corresponding auxiliary ledgers, thus making the balance of any one of such special accounts in the General Ledger, exactly equal the total of all bal- ances contained in the corresponding auxiliary ledger, i. e., the excess of debit or credit balances in an auxiliary ledger under the system here referred to, should exactly equal the balance of the corresponding special or so-called con- trolling account in the General Ledger, and w^hen a trial balance is taken from the General Ledger, the balances of the separate controlling accounts will indicate what the total of all balances in the corresponding auxiliary ledger should be.* tThere is a method through which an Individualized Accruing' ^^4^*^*"%!^*^ Systenx may be sectionalized independent of the ledger or ledgers in use; but reference is here made to such plans when directly incorporated as a part of the ledger system. • This explanation is only given to avoid any possible misun- derstanding regarding the system here referred to; but other variations in the Sectionalized Account System are known to be possible. 132. Each auxiliary ledger would thus be provided with a governing or controlling account by which to verify the correctness of iits bala-nce; but there would he no similar method of determining whether the General Ledger Trial Balance was correct or not, and it is among the possibilities that even an equality in trial balance totals may cover one or more compensating errors in prior records. 133. In order then to furnish a controlling account for the General Ledger under the Sectionalized Ledger System, the system of Adjustments Through Elimination could be used by handling the increase or decrease amounts obtained from only a small proportion of the number of entries made, instead of all entries as in the other controlling accounts. Whether the totals of its Trial Balance corresponded or not, it would thus be possible to determine whether either one or both was right or wrong. 134. Adjustments Through Elinujiation are therefore recommended for use under the Sectionalized Account Sys- tem- in connection with the General Ledger only, and for this purpose the C. and D. checks (or others) would be noted only in connection with such items as appeared in the columns especially provided in the books of original entry for the General Ledger items, and for the totals of all other columns in the posting mediums through the plan herein- after explained. Columnar Records. 135. The principal advantages derived from double- entry records aside from the balancing feature of debits and credits are secured through a systematic classification of the items of which the records are composed. This classification may be accomplished in many diflferent ways ; but that system which reduces the duplication of the records to a minimum while furnishing all needed informa- tion and at the same time avoiding all unnecessary con- tingent complications, is the most desirable and economically efficient. When the books of original entry are supplied with a sufficient number of money columns (properly headed) to accomplish such a classification and provide a place for every possible variety of entry, the various items may be written in the particular column where they belong when they are first recorded. It is to books of this, or a similar nature, that reference is now made regardless of the purpose for which they are especially designed so long as their contents consist of items which find a final resting place in the ledger accounts and are thus controlled by the Trial Bal- ance. 136. To apply the principles of Adjustments Through Elimitiation to columnar records — as defined — it is only necessary to combine the totals or items which are posted to the General Ledger from such books of original entry, in a regular journal entry form with debits and credits equal, and then apply the rules hereinbefore given for the use of the C. and D. checks, when their influence on the Trial Balance totals may be readily determined. This method will apply to Cash Book, Journal, Sales Book, Pur- chase Register or any other form of columnar record that may be included in the foregoing definition. After once determining what posting checks apply to the totals of the various columns, they will continue to apply to said totals in each particular book unless some unusual conditions should arise, or some ledger account to which they are carried should be of a variable (debit and credit) nature. The General Rule in Art. 100 will apply to records of the kind here mentioned. C, C?. freeman, (Bonsulting -Accountant and Auditoi' 876 State Qife SBuU^ing %9ndianapolis J/nd, UNTN'ERSTTY OF CALIFORNIA LIBRAKY BERKELEY THIS BOOK I'S ^E ON THE LAST DATE STAMPED BELOW Books not returned on time are subject to a fine of 50c per volume after tlie third day overdue, increasing to $1 00 per volume after the sixth day. Books not in demand may be renewed if application is made before expiration of loan period. ^^:^-— — == FEB 17 1919 (^ rv2;1 '^PR 2 4 J953 50to-7,'1 ^ / A , — 224469