Accounting theory and practice, Volume 2 (of 3) : a textbook for colleges and…

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: