Accounting theory and practice, Volume 2 (of 3) : a textbook for colleges and…
Chapter XXXVI, a cash discount is usually treated as a financial
998 words | Chapter 17
management item, though it is sometimes looked upon as a purchase
department item. The handling of the voucher register so as to record
properly the purchase discount will depend somewhat upon which theory
of cash discount is adhered to. It is customary to carry a Purchase
Discount column in the voucher register, although this is unnecessary
if one is carried in the cash book. Where both cash book and voucher
register are provided with discount columns, one is usually merely a
memorandum carried for the sake of easy reference.
As regards the amount at which the liability under Vouchers Payable is
carried on the books, we find two methods of making up the voucher and
entering it on the register. This is in turn closely related to the
financial policy as to the taking of discount. If it is an invariable
rule of policy always to maintain a sufficient cash balance to take
advantage of all discount offerings, there is nothing seriously wrong
with the practice of making up the voucher and entering it for the net
amount in the Vouchers Payable column; for if the policy is adhered
to, no understatement of liabilities will result. If the policy is not
strictly adhered to, constant adjustment will be necessary to make the
books reflect the true liability.
A voucher entered net should have the discount shown in the Discount
column and the gross amount in the distributive columns. Mathematical
proof of the voucher register is secured by checking the sum of
Vouchers Payable and Discount columns against the sum of the
distributive columns. Here it is best to treat the Purchase Discount
column total as an item to be posted, and the Discount column in the
cash book as a memo. As regards the income from purchase discount,
the effect of entering the voucher net is to bring onto the books the
purchase discount income as soon as the voucher is entered. Purchase
discount is not usually looked upon as earned until payment of the bill
is made and thus the right to the discount established. This method
then necessitates at the close of the fiscal period an adjustment of
the difference between the Discount columns in voucher register and
cash book, in order to defer to the next period the discount not yet
earned on all vouchers unpaid at the close of the period. This may
be accomplished by the usual method of deferring income, or by the
following entry, on the theory that it is better for Vouchers Payable
to carry the gross amount of liability, at the _end_ of the period, at
all events.
Purchase Discount $........
Vouchers Payable $........
The entry must, of course, be reversed immediately at the opening of
the new period—a procedure which makes this method of adjustment of
doubtful value.
If there is any failure to take the discount, after the voucher
has been entered net, it becomes necessary to make up and enter a
supplementary voucher for the discount, with cross-reference between
the original and the supplementary vouchers. The new voucher must
be distributed to Sundry column as a charge to Purchase Discount.
One of the few advantages of this method is that it makes possible
reconciliation with the bank account by checking the canceled checks
against the voucher register, which thus carries in its Vouchers
Payable column the exact amount of the check and its entries are in
the sequence of voucher numbers; whereas on the cash book voucher
number sequence cannot be followed. Accordingly it is unnecessary to
use treasurer’s numbers on the checks in order to secure sequence of
numbers in the cash book.
The customary method, and one which usually proves most satisfactory,
is to make up and enter the voucher for the gross amount, using the
Discount column in the voucher register merely as a memo or not at
all, posting the discounts, as earned, from the cash book and using a
separate series of treasurer’s numbers when the checks are entered on
the cash book.
Strict adherence to the theory of cash discount as a purchase
department item would require making and entering the voucher net and
distributing it net. The Discount column in the register might well be
changed to a “Neglected Purchase Discounts” column into which would be
distributed the supplementary voucher required when discounts are not
taken. Under this theory, also, the voucher may be made up and entered
gross, with the discount handled as a regular purchase discount item,
and the net amount distributed to the other columns. The student should
work out the manner of handling all the discount contingencies under
this method.
Modifications of System
A regular purchase ledger is sometimes used with the voucher system. In
such cases the voucher register becomes merely an analytic purchase
journal and much of the advantage of numbering every transaction is
lost. Accounts may also be set up merely as memos to indicate volume of
business. The voucher index, as explained above, accomplishes this in a
limited way.
A hybrid voucher system is sometimes met, a sort of half-hearted
affair, which gives good results but does away with the essential idea
of the voucher as being a receipted bill. Under it, a house voucher—so
called because it never leaves the house—is made up and used as the
basis of entry. The bill is paid by independent check, which when
canceled is filed with the voucher. In all respects, except that the
voucher is not sent with the check to be receipted, the system is
operated as a regular voucher system. An advantage claimed is that in
this way all information as to distribution of the charge or use of the
purchased materials or services is kept strictly within the business
itself. This is done at the sacrifice of securing a receipted bill.
Summary of Operation and Advantages
By way of summary, it may be stated that a fully efficient operation of
the voucher system is comprised under the following routine:
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