Evolution of Analytical Journals.—Though the only books absolutely necessary for an accounting record under the double-entry method are the journal and the ledger, even the small business finds some subdivision of the journals advantageous, and so makes use of sales, purchases, and cash receipts and cash disbursements journals. As a business grows and its transactions increase in volume and complexity, further subdivision is needed. When the scope of its organization becomes too great for a personal oversight, a method or system must be devised for keeping the proprietor or manager in close touch with the various departments and lines of business endeavor. This is accomplished by means of reports from the accounting department, which exists largely for the purpose of furnishing this kind of information.

Principle to be Followed in Securing Analysis.—In an earlier chapter it was laid down as a fundamental principle that the information desired by the management should be furnished from analytical records made at the time of original entry, rather than by analyzing a composite record at the time the information is wanted. Such analytical records make possible a quicker and more up-to-date report to the management, and they save labor in securing the information by making the analysis at the time of record when all the facts related to it are readily available.

Types of Sales Journals and Methods of Handling.—The first step in the analysis of business transactions is the subdivision of the general journal into separate journals, and this analysis is carried still further by the use of columnar journal records. Reference has already been made, in Chapter XVIII, to the use of additional columns in the sales and purchase journals. Here a brief sketch will be given of the methods of recording sales in various kinds of sales journals.

1. The earliest type of sales journal, not often used today, consisted of a letter impression book containing the press copy of invoices sent to customers, with columns for the extension of the amounts and sometimes with additional columns for purposes of analysis. Such a journal has the advantage that the original entry is an exact copy of the invoice. Oftentimes, however, the impression is poor and nearly or quite illegible; it takes much room; the detail shown is not often used; and it increases the work of making and handling the record.

2. Another method makes use of a perforated invoice book with a columnized interleaf solid-bound between the perforated invoice sheets. The sales invoice is written on one of the perforated sheets and a carbon underneath gives a duplicate on the interleaf, the latter constituting the formal sales record. The advantages and objections are practically the same as for the impression book method.

3. Another method is to make a separate carbon copy of each invoice and use the duplicate as the source of entry in the sales journal. The journal entry gives only the file number of the duplicate invoice so that in case of need the duplicate can easily be referred to. Such a sales journal may, of course, contain analytical columns with any desired heads.

4. Still another method uses the duplicate invoice for posting to the customer’s account, after which it is filed in binders. The latter are usually provided with recapitulation sheets which show the totals and analysis for each day, week, or month as the case may be. Just as above, the invoice file provides the detail in support of the ledger account and the recapitulation sheets constitute the journal from which credits to the various sales accounts are made. Either one of these last two methods eliminates most of the objections and embraces most of the advantages of the other methods mentioned above.

Where several sales ledgers are used, the sales journal is sometimes subdivided on the same basis as an aid in posting and for the purpose of securing controlling figures as explained in following chapters.

The Sales Returns and Allowances Journal.—The use of any special form of sales journal, particularly if it provides for an analysis of the sales, requires a similar record of sales returns and allowances. Either a separate book, similar in form to the sales journal, may be employed for recording these items or the pages in the back of the sales journal may be used instead.

Development of the Purchase Journal.—The development of the purchase records from the old-time scrapbook for invoices to the modern analytic voucher record resembles the development of the sales journal. The old-fashioned invoice book was usually a big, loose-bound, coarse paper volume in which were pasted the invoices for goods bought. An extension column was provided for the amount of the invoice, and the total of this gave the purchases for a given period. The use of columns for various classes of purchases provided the required analysis, but, as it was a cumbersome, nondescript record, it was bound to give place to something better—the formal purchase journal or register of today.

The purchase journal or register consists of a bound or a loose-leaf book ruled to suit individual needs and purposes. Where sales are analyzed by classes, an exactly similar analysis of purchases must be made in order to secure a gross profit figure for each class. Therefore its form follows very closely that of the sales journal. Entries are made in the purchase journal of the name of the creditor, the amount of his invoice, and the number of the file where the invoice can be found in case of need.

Where a separate purchasing department is maintained, the duplicate purchase orders, corrected if necessary to correspond with the purchase invoice received, may be used as the basis of the purchase journal. In this case recapitulation sheets are inserted just as with the sales journal. The handling of purchases is simplified by the fact that as a rule they are much smaller in number than sales. The same general considerations apply to the handling of returned purchases as to returned sales.

Handling Expenses through the Purchase Journal.—It is the practice of some concerns to treat expenses such as labor, rent, salaries, supplies, etc., as purchase transactions. Under this method, instead of postponing the entry until the item is paid, it is made at the time of securing the service or supplies. The basis for the entry may be either: (1) the bill or purchase invoice; (2) a formal purchase memo or voucher made out for each transaction; or (3) the fact that the expense has been incurred may suffice for the entry on the books with no formal paper to vouch for it. The use of such formal papers as the basis for entry is known as the voucher record system. The details of this system are fully explained in the second volume. Discussion is here limited to a brief outline of the method and of the advantages of its use.

When expense invoices are entered and analyzed in the voucher record form of purchase journal, their posting requires debits to the various expense accounts and credits to the individual creditors’ accounts in the ledger. If the ledger contains only a controlling account, this account must be credited with the total of the expense and other purchases, while the individual accounts in the creditors subsidiary ledger must be credited with the details which make up the total. When the bill is paid, entry in the cash book will not be, as usual, to the debit of the expense account in the general ledger, but to the debit of the creditor’s account in the subsidiary ledger. The reason for this procedure will be made clear in the discussion of controlling accounts to follow.

The entry of expense invoices in the above manner secures an immediate record of all liabilities as incurred and therefore makes the books show at all times the true state of affairs as regards liabilities. The method, however, necessitates a little more work in making the record, and for this reason many concerns do not enter expenses until paid, making the debit to them through the cash book. In this latter case all unpaid expense bills should be kept in an expense file for reference when information as to the unrecorded liabilities is desired.

Note Journals.—As explained previously, note journals are sometimes used instead of the general journal for the record of note transactions, where these are sufficiently numerous. Provision is sometimes made for securing a proper analysis in order to distinguish between notes from customers and notes from other sources. It will be seen later that such an analysis is necessary when controlling accounts are operated.

Analysis in the Cash Book.—The cash journals may be ruled to furnish any desired analysis, showing on the debit side (i.e., the cash receipts journal) the sources of receipts, and on the credit side the objects of expenditure. As the sources of cash receipts are usually more limited than the objects of expenditures, they do not require so much analysis. The analysis may be very detailed, the only limit to the number of columns being the width of the page. A minute analysis of expenditures, however, is usually made, not in the cash journal, but in the purchase or voucher record, which thus relieves the cash book of a mass of detail.

The chief advantage of using additional columns in books of original entry lies in the fact that time and labor are saved in posting. The column total is posted in one item, whereas each of the numerous items composing it would have to be posted separately to the account named in the column heading if no analytical column were provided. Hence it would be a waste of space to provide separate columns for items which recur so infrequently as to make their summarization unnecessary. Care should be taken to avoid needless columnization.

It is customary to have the following columns on the debit side of the cash book: General or Sundry, Accounts Receivable, Sales Discount, and Net Cash or Bank; on the credit side: General or Sundry, Accounts Payable, Purchases Discount, and Net Cash or Bank. (See page 282 for illustration.) The proof of the distribution is secured by checking the sum of the net cash and discount columns against the sum of the totals of the other columns. In both receipts and disbursements journals every item must appear in the respective Net Cash columns, and from these distribution is made to the other columns. For example, in the cash receipts journal, receipts from customers are distributed into the Accounts Receivable column for the gross amount of each item, and into Sales Discount for the discount, if any is taken. All other items are carried into the General or Sundry column. Where several sales ledgers are kept, additional columns may be provided so that instead of having one accounts receivable column, there are columns for each ledger. Similar treatment is given to the disbursements.

Analysis in the General Journal.—Where the general journal is used for returned goods, allowances, and other adjustments with customers and creditors, use is made of analytic columns with these captions for both the debit and credit: Accounts Receivable, Accounts Payable, and General. Here, however, there is no column in which to enter all items for distribution to the other columns. If a customer’s or a creditor’s account is affected, entry is made in that column in the first place. All other entries are in the General column. (See page 281 for illustration.)

With regard to analysis columns in the general journal, some accountants maintain, with good reason, that if the number of transactions of a particular kind is sufficiently large to justify their segregation in a separate column, this in itself would be ample justification for the use of a separate journal to record these items. Whenever the analysis of recurring transactions in the general journal is facilitated by the use of separate columns, the advisability of opening a new journal for the record of such items as appear in the general journal most frequently should be considered.

Subdivision of the Ledgers.—The next step in the subdivision of the records is made in the ledgers. The general or impersonal accounts of the business are of a more permanent character than the accounts with persons—customers and creditors. Consequently, when once it is determined under what account titles information is desired and those accounts are set up, there is usually little need to change their titles. Personal accounts, however, are constantly changing as some customers are lost and new ones are added, and also because creditors change with purchases in new markets. Hence, when a business outgrows its small beginnings, it is customary to keep these changing accounts in separate books. The basis for the first subdivision of the ledgers, therefore, is the separation of the accounts into personal and impersonal. The accounts with customers are carried in a separate ledger called variously the sales, customers, or accounts receivable ledger, and those with creditors in a ledger called purchase, creditors, or accounts payable ledger. All other accounts are kept in the main ledger known as the general ledger. One advantage of this subdivision is that several bookkeepers can work on the various ledgers at the same time.

A further subdivision of the customers ledger is frequently made into “city” and “country,” the former containing the accounts with customers located within the city where the business is situated, and the latter the out-of-the-city accounts. Other subdivisions may be made on an alphabetical basis, i.e., customers ledger No. 1, containing all accounts from A to G; customers ledger No. 2, H to M, etc. Sometimes the concern’s sales territory is divided into arbitrary districts and the ledgers are subdivided to correspond with such districts.

Kinds of Ledgers.—There are several kinds of ledgers, which may be classified (1) as to their rulings, and (2) as to their bindings.

1. Rulings. As to their rulings, ledgers are either standard, balance, or progressive. The standard ruling has two duplicate parts, a debit and a credit, and is usually divided in the center of the page, one money column appearing at the extreme right of each part, although sometimes the arrangement is symmetrical with both debit and credit money columns at the center, and the date columns at either side of the page. (See Forms 29 and 30.)

The balance ruling is a three or four-column ledger with the money columns either at the center or at the right-hand margin, or at both the center and the right-hand margin. The extra columns are for the account balances. If the balance is usually either a debit or a credit, only one balance column would be necessary; where it is apt to be a debit at one time and a credit at another, a debit balance column and a credit balance column are advantageous. The balance ruling is used particularly with personal accounts where there is need for an up-to-date balance. Where this kind of ledger is used, entry of new debits or credits should always be on the next blank line as shown in the balance column, so as to allow the extension of the new balance opposite the last entry even though this should leave blank several of the preceding lines on the debit and credit sides. Typical forms of some of these are shown in Forms 31 and 32.

The Boston, progressive, or tabular ledger, as it is variously called, makes provision for a horizontal progress of the account as to sequence of time; the title of the account is written at the left-hand margin, and one or more lines are allowed to each account according to the degree of its activity. The account title is written once at the left margin of the master or main sheet, and is sometimes repeated at the right margin if the sheet is very wide. The page is divided into columns for each day of the period. To effect this, short-margin insert sheets must be bound in to give the desired room for accommodating a whole period’s record. This style of ruling was formerly much used in banks where a daily balance for each depositor’s account was necessary. It is capable of adaptation to other uses, however. One form is shown, Form 33.

2. Bindings. Ledgers may be classified also as solid-bound, loose-leaf, and card, the titles being self-explanatory. 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. Also it is possible for several clerks to work simultaneously, since the leaves or cards are removable and may be distributed among any number of clerks. There is always the danger, however, of failure to return a leaf or card, or of placing it out of regular order when returning it, or of destroying it, if it were desired fraudulently to do away with any particular account. The use of loose-leaf and card ledgers for personal accounts is pretty thoroughly established, notwithstanding the disadvantages just mentioned.