Adjusting Differences

When the first system is followed the branches adjust with each other the differences shown in their balances on any given day. This adjustment of the balances is quite an important operation. The necessity for it arises in the following manner: The general ledger of "A" branch on a given date will show a balance at debit of "B" branch of, say, $42,765.18. On the same date the general ledger at "B" branch will show, perhaps, $38,423.09 at credit of "A" branch. The adjustment consists in reconciling these two apparently contrary amounts. The difference happens because entries made at one branch have not been responded to by the other. For example, if the date taken be October 15th, it will, perhaps, be found that "A" has drawn several drafts on "B" during the 13th, 14th, and 15th October, crediting "B" with the amounts as the drafts were drawn and issued; but as they had not been presented at "B's" counter for payment, up to the evening of the 15th, "B" had not yet, on that date, debited them to "A." Similarly, "A" may have forwarded to "B" at debit, on the couple of days immediately preceding the 15th, a number of remittances, sight drafts, or cheques, which "B" has not yet credited, not having effected collection. Such items as these are called outstandings. Those described would be outstanding entries of "A" branch.

In the adjustment between the two branches account would also have to be taken of "B's" outstandings. To enable the officers of the two branches to discover their outstandings "A" would have to send "B" statements containing all the entries affecting "B" that had originated in "A" branch during the period since the last adjustment, and all the entries affecting "B" that had been made at "A" branch in response to entries by "B." Likewise, "B" would have to send similar statements to "A." Thus, both can discover what entries have not been responded to. When all the outstandings of both are taken into account, the balances as shown by each branch should then agree; their accounts would be adjusted.

The Head Office System

Tinder the other system, the adjustment is done at the head office. Each branch sends to head office, as often as head office requires, the two sets of statements, one containing the entries originating at the branch; the other containing the entries made in response to entries of other branches. The adjustments are all made on the basis of the balance due to or by "head office." At the branch, no account is kept of the balance due to or by any other branch. The accounts with other branches are all contained in the single net item: "Balance due to (or due by) head office." And in the balance sheets each branch shows that one balance.

The adjustment of the branch accounts at head office is a delicate and complicated operation, requiring close and accurate attention and much patience. The adjustment is not between branch and branch, but between branch and head office. In head office, a branch ledger is kept, showing the net balance due to or due by head office for each branch.

The posting in the account of each branch in the branch ledger is done from the branch statements containing the original entries. The statements containing the responding entries are used to tick off the others and to discover which are outstanding. Thus it happens, on a given date, that the branch balance sheet shows, say, $72,615.40 at debit of head office. On the same date, the branch ledger at head office will, perhaps, show $74,760.21 at credit of that branch. The difference is accounted for in the outstandings.

Statements required from the branches in connection with the accounts with branches may be made out by any officer whom the accountant happens to designate. In their preparation, faithfulness in transcribing the items, neatness and clearness in writing and figuring are the qualities chiefly required.