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The Purchases Ledger. It is important that only accounts payable for purchases be recorded in this ledger. These accounts should represent trade creditors. Liabilities on account of accrued interest, taxes, wages, etc., should appear in the Balance Sheet as separate items and should not be included with accounts payable.

The Purchases Ledger Controlling Account. When a separate ledger is kept with accounts payable, a controlling account should be kept in the general ledger and the balance of the controlling account should show the same results as the total of the balances of accounts in the subsidiary ledger. The purpose of this controlling account is to make the general ledger self-balancing and to enable the general ledger bookkeeper to prepare a Trial Balance from the general ledger without the necessity of first ascertaining the balances of all the individual accounts payable. It also separates the work of the bookkeepers and by planning the work so that the individual ledger bookkeeper does not have access to the general ledger, it will constitute an internal check on his work.

To establish a subsidiary purchases ledger and a controlling account for same in the general ledger, assuming that the accounts with creditors have previously been kept in the general ledger, make a journal entry as follows:

Accounts with Creditors..
Purchases Ledger Controlling Acct..

To establish a subsidiary ledger for accounts

with creditors. See schedule following: Each creditor's account in the general ledger is debited with the amount shown in the schedule and should then balance. After posting the total amount of accounts payable to the credit of the controlling account, each individual account in the purchases ledger should be credited with the proper amount as shown in the schedule. After the entry has been properly posted, the balance of the controlling account will equal the total of the balances of the accounts in the purchases ledger.

After the purchases ledger has been opened and the accounts all transferred from the general ledger, these accounts will be debited and credited from the books of original entry in the usual manner. However, special columns will usually be created in the original books of account so that only the totals of these columns need be posted to the controlling account in the general ledger.

The Voucher System. One frequently hears of the voucher system of bookkeeping. As a matter of fact it is not a system of bookkeeping at all, but is a method of recording invoices representing all expenditures incurred, whether for material, labor, indirect expenses, selling expenses, administrative expenses, and even for additions to the plant, equipment, etc.




It is said to be a combination of the purchases book and the purchases ledger, but this is rather an exaggeration. It is true, however, that with the voucher system in use, it is customary to dispense with the purchases ledger. In fact, this is the means of its representing a considerable saving of time. There is also a saving in time in the distribution of the various charges to materials and expenses.

The Voucher Jacket. Every invoice received, after being approved for receipt of goods, prices, and extensions, might be marked with the names of the accounts to be charged and the amount chargeable to each. The invoice might also be given a number from the voucher register. It can readily be seen that to indicate all this information on the invoice itself would be anything but good practice. Therefore, it is customary to use a form especially prepared for this purpose. This form is called a voucher jacket or an accounts payable voucher. provides for recording the number of the voucher, name of the creditor, date, amount, and classification of the items listed in the invoice for which the form is made. There is also provision for information as to the date and method of payment. The names of the accounts most frequently affected are printed on the form so as to save time and facilitate proper classification.

The Voucher Register. This book contains columns for the voucher number, date of invoice, date and method of payment, vouchers payable credit, and a series of money columns for the various accounts to be debited. A sundry column is provided for unusual accounts. After the invoice is received and has been approved, it is placed in the voucher jacket or attached to the accounts payable voucher, often together with the purchase requisition, purchase order, and material received sheet and is then recorded in the voucher register and properly filed with the unpaid vouchers, usually under its due date. When the invoice becomes due it is removed from the file and after the check has been written, it is recorded on the voucher jacket or accounts payable voucher and then filed among the paid vouchers. Of course, a memorandum is made in the voucher register showing date and method of payment. This check is then recorded in the cash book where a special column for vouchers payable is provided for.

The Vouchers Payable Controlling Account. This account takes the place of the Purchases Ledger Controlling account and is in itself a controlling account for vouchers payable. This account is credited for the total of the vouchers payable column in the voucher register and is debited for the total of the vouchers payable column in the cash book. The balance of the account represents a current liability. When all invoices have been paid the account will balance. The balance of this account may be verified by preparing a list of the unpaid vouchers.

The advantages of this system have already been pointed out. No purchases or creditors' ledger is required. Most of the expense accounts need be posted but once a month and then the total only is posted from the voucher register. The voucher jacket may contain a complete history of the purchase transactions from the time the requisition is made until the check issued in payment therefor has been cancelled and returned from the bank.

On the other hand, the system has its disadvantages. Partial payments on invoices, that is, payments on account, are practically impossible. Furthermore, this system does not readily show the total present balance due a given creditor, neither does it show the total amount of business done with a creditor for a given period. Of course, ledger accounts with individual creditors might be kept in connection with the voucher system, but in this event the saving in time, for which the system is noted, would be lost. Under certain conditions the voucher system may be used advantageously, but under other conditions its use is often burdensome.*

Classification of Accounts Payable in Balance Sheet. The Federal Reserve Board requires that the accounts payable be divided and classified in the Balance Sheet under unsecured accounts as follows:

Accounts Payable for purchases (not yet due).... .XXXXX. XX
Accounts Payable for Purchases (past due). .XXXXX.XX
Accounts Payable to Stockholders, Officers, or

XXXXX. XX (See Model Balance Sheet for credit purposes, page 41,

Chapter Three.)

2. AUDITING THEORY. Quoting from the Federal Reserve Bulletin on Uniform Accounting:

Verifying Accounts Payable. “A list of balances due on open accounts must be prepared and carefully checked with the ledger accounts, care being taken to see that no open account on the ledger has been omitted from the list. It should be ascertained that the balances represent specific and recent items only. When any account does not appear regular, a statement should be obtained from the creditor. If there are many such accounts in dispute, and they amount to so large a sum as to

(*Note. In this discussion of the voucher method for handling invoices, there has been no attempt to explain the many variations of the systems that will be encountered in practice. It has not been considered necessary to illustrate the different forms and ruling of the books used as these are shown in any bookkeeping text that is at all up-to-date. We refer you to “20th Century Bookkeeping and Accounting," Part IV, for a complete discussion of all the principles involved and for illustrations of the voucher jacket, voucher check and vouchers payable book. Similar information should be obtainable from any standard text on bookkeeping and accounting.)

affect appreciably the total of current liabilities, the general causes for the disputes should be inquired into and note made of the matter for the consideration of the banker.

Voucher Systems. "In concerns with modern voucher systems accounts payable are easily verified, as all liabilities are then included in the books when incurred. Care should be taken, however, to see that all goods received on the last day of the fiscal period, as shown by the receiving records, and also all goods that were in transit and belonged to the concern on that date, are included as liabilities, and the corresponding assets included in the inventories. This test is necessary, as an increase in the accounts payable may have a very important bearing on the financial position of the concern if the cash on hand is small.

“Monthly expenses outstanding can usually be ascertained by a comparison of the expenses of the last month of the fiscal period with previous months, and those of the year with the previous year. The voucher record should, however, be examined for the months subsequent to the close of the fiscal year, in case any expenses included therein are applicable to the fiscal period under audit.

Detecting Unstated Liabilities. When a first-class voucher system is not in operation, the auditor must take additional precautions to satisfy himself that all liabilities are included in the accounts, among which may be mentioned:

“(1) Payments made in the months subsequent to the date of the fiscal period as shown by the cash book, which should be carefully scrutinized to see that none of them is applicable to the period under review.

"(2) The file of bills not vouchered or entered on the books should be examined to see that none of them belongs to the period under audit.

*"(3) A careful perusal of the minutes of a company may further assist the auditor in determining liabilities.

Purchase Contracts. "When a company has large purchase contracts in force for future deliveries they should be examined, for if the contract prices are greater than market prices, it might be necessary to set up a reserve for this loss. Any debit balance due to advance payments on such contracts or to any other cause should be shown on the Balance Sheet under a separate heading.

Consignment Purchases. "If the business under audit is one where there is any possibility of goods having been received on consignments, and part or all of such goods having been sold without a liability therefor having been shown in the books, the auditor must use all due diligence to cover the point fully. This may readily happen, as consignment accounts are usually treated as memoranda only.

“If inquiry develops the fact that goods have been received on consignment, all records in connection therewith should be called for. If the goods have all been sold, the consignor's account should show the full amount due, and if the debt is a current one, the amount will appear among accounts payable due to trade creditors. Where only part of the goods have been sold, the net proceeds due to the consignors should be shown on the Balance Sheet under the caption of 'Accounts payable consignors.'

Certificates. “As an additional precaution against the omission of liabilities, a certificate should be obtained from the proper officer or member of the concern stating that all outstanding liabilities for purchases and expenses have been included in the accounts of the period under review or of former periods. In many cases it is also advisable to obtain a certificate from the president stating that all liabilities for legal claims, infringements of patents, claims for damages, bank loans, etc., have been included, as he may be the only executive officer of the company to know the extent of such obligations."


Notes payable are usually classed as current liabilities in the Balance Sheet. Under this title will usually be included drafts, notes and trade acceptances. There need be no attempt to keep separate accounts with drafts and notes. To do so would only be a waste of time for the information given is of no practical value. Some bookkeepers still use the term "bills payable.". This matter was discussed on page 66 of Chapter Five, under the heading of "Terminology.'

Mr. Walton, in the November, 1919 number of The Journal of Accountancy, in writing upon this subject, says:

"The accounting profession has not differentiated as yet between notes payable and bills payable.

“In England and in continental Europe drafts or bills of exchange have been a more customary method of handling credit transactions than notes payable. In England, where most of our accounting terminology originated, bills of exchange were much more common than notes; therefore, they used the term bills payable and bills receivable, and whenever a few notes were given they were entered in the account with the bills.

In this country the custom has been exactly the reverse. We have been accustomed to giving notes rather than accepting bills of exchange; but we have used the English terminology of bills payable until recent times. Realizing that the term bills payable was not as appropriate in this country as in England, a movement has been on foot to change the terminology from bills payable to notes payable and this movement has met with considerable success so that the term notes payable rather than bills payable now frequently appears in Balance Sheets.

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