Chapter XXX concerned itself with the statement and explanation of

the principles on which the controlling account rests, the manner of its construction, its advantages, and with the changed application of the fundamental scheme of debit and credit under a system of records operating controlling accounts. The present chapter will be devoted to a consideration of the problems met with in the practical operation of these accounts.

=Introduction of the Controlling Account.=--Upon the installation of a new system or set of books, the controlling account feature may be incorporated from the start. The new system must provide for the separation from the general ledger, of the ledgers over which control is to be established. The method of securing controlling totals for posting to the general ledger controlling accounts was indicated in the preceding chapter.

Where it is desired to introduce controlling accounts into a system which has not formerly used them, certain adjustments must be made, i.e., the accounts to be controlled must be segregated and controlling account columns must be provided for in the books of original entry. With the transfer of these accounts to a separate ledger, together with the introduction of the controlling accounts into the general ledger, the equilibrium of that ledger is maintained. The opening entry in the newly established controlling account is of course the sum of the balances of the transferred accounts.

If it is desired to establish the new controlling account by journal entry, that entry would appear somewhat as shown on page 279, Form 34, with suitable explanation added. All these items should be posted to the general ledger as shown by the entry, and in addition the detailed items should be posted as debits to the accounts in the customers ledger. The effect of these postings would be, first, to close the individual customers’ accounts formerly carried in the general ledger and open up in their stead the controlling account; and second, to set up on the subsidiary ledger the detail of the customers’ accounts.

=Recording Withdrawals of Stock-in-Trade.=--The original basis for separating the main journal into its subsidiary parts was the analysis of transactions by kinds, such as sales, purchases, cash, etc. The sales journal was presumed to contain only sales of stock-in-trade. Departure from this principle was advisable in the case of goods drawn at cost, for use in the business or by the proprietor or for other purposes. This is done because withdrawals of stock-in-trade, at whatever price and for whatever purpose, can be recorded more conveniently in the sales journal than elsewhere.

It is theoretically incorrect, however, to enter such items in the Sales account because withdrawals at cost do not represent actual sales, and for this reason they should be regarded as deductions from purchases or from inventory. The only proper place for their record, under this view, is the general journal, entry in which would have to be by detailed debit and credit for each item. However, because this requires much more work than entry in the sales journal, this last method is more commonly employed. Usually the volume of such transactions is not large and would not seriously vitiate the use of the Sales account as the basis for estimating percentages of cost of goods sold, gross profit, selling expenses, etc. Moreover, as the total amount of these withdrawals is often fairly constant as between periods their record in the sales journal is countenanced.

=The Problem of the Sales Journal Summary.=--When withdrawals from stock at cost price are recorded in the sales journal, a new problem arises in summarizing the sales journal when operating under a controlling account system. The customers or sales ledger is usually limited absolutely to customers’ accounts. Accounts with the proprietors, and with all other titles under which withdrawals for other purposes may be recorded, are almost invariably carried in the general ledger. Therefore, while most of the items entered in the sales journal are posted to the customers ledger, these withdrawal items must be posted in detail to the general ledger. Thus the total of the sales journal does not represent the correct debit to accounts receivable in the general ledger. Evidently an analysis of the content of the sales journal must be made in order to obtain the correct controlling figure.

Such analysis may be made in several ways. Where possible, three columns in addition to the departmental columns should be used. The column titles would be “Sales Ledger,” “Cash,” and “Sundry.” The sum of these three would give the total to check against the total of the other distributive columns, but only the “Sales Ledger” total would be posted to Accounts Receivable, and the individual items in that column would be posted to the customers’ accounts in the sales ledger. The items in Sundry column would be posted to their named accounts in the general ledger. This method secures an automatic separation of the controlling account total from other items, and should be used where possible.

If the number of these extraneous items is too small to warrant the use of a separate column, they may be recorded in the Sales Ledger column and indicated by means of an “❌” or some other mark. At summary time, the sales journal must be looked over and these items picked out. Subtraction of their sum from the Sales Ledger column total would give the correct controlling account posting.

Still another method requires a correcting general journal entry at the time the sales journal entry is made. Under this method these special items are included in the Sales Ledger column, thereby causing an overcharge to Accounts Receivable. The correcting general journal entry must therefore credit Accounts Receivable by the amount of the overcharge for each item. For instance, if stock has been drawn by the proprietor, the general journal entry at the time the sales journal entry is made would be:

Proprietor, Personal Accounts Receivable