Most business men borrowing regularly from banks do so on what are called lines of credit, or credits; that is, they arrange with their respective banks to take paper up to a certain maximum amount. For example, if a manufacturer arranges for a credit of $20,000, that means that the bank will discount for him all the acceptable paper he can lodge, providing the amount held at any one time does not exceed $20,000.

The credits granted to the respective customers are authorized by the head office. In considering whether they will grant them or not, the executive officers are influenced more or less by the representations and recommendations of the managers of the branches at which the requests or applications originate.

It is important that die bank officers be able to tell at any time what amount of bills the bank has under discount for each one of its customers; in other words, to tell what his "liability" is. That is done by means of the "liability" or "credit ledger."

The Posting

This book is kept by a senior officer, sometimes by the manager himself, but it can fittingly be described here in connection with the discounting department. Accounts are opened for all the regular discounting customers; occasional or "petty" discounts are put in a place by themselves. Each customer's account is debited every day he discounts with the bills he puts in, and credited with the bills matured and paid. The posting is done from the bills themselves, or from the discount register, in the case of debits, and from the discount diary in the case of credits.

What The Ledger Shows

His account should also show whether he has any paper in past due bills. The bills discounted by the customer are entered in his account separately in their alphabetical order. Two balances are shown, one for his loans and the other for his trade bills. In entering each loan bill the name of the endorser, or particulars of the security, must be set down, and the amount of the bill; in entering trade bills the promissors' names and the amount of each bill are the essentials.

In both cases it is advisable to have the book designed so that the respective due dates also can be given. When the book is posted up to date, the total of the two balances-loan bills and trade bills-represents the customer's direct liability to the bank. In his account there will also be a memo, of the amount of his indirect liability, if he has any. Indirect liability in this sense means the amount of his paper held by the bank, discounted for the account of some other customer.

This indirect liability does not show in his balance, and it does not, generally, form a part of his line of credit. The total of the balances shown in the liability ledger, regular and petty accounts, should agree with the total of the loans and discounts as shown by the general ledger.

A properly arranged liability ledger will show the manager at a glance, when he refers to a particular customer's account, how much of each kind of paper that customer has under discount in the bank, the names or security against which the discounts were made; also, it should show him how near maturity are all of the bills.

As already implied, the liability ledger is balanced with the general ledger. The purpose of the book being merely to show the liability of the several customers to the bank, it is not necessary to balance to a cent. As a matter of fact, it is found convenient to ignore the cents and to enter dollars only in the accounts.

The curator appointed by the Canadian Bankers' Association to superintend the liquidation of the Bank of Yarmouth, which failed in the spring of 1905, mentioned, as an illustration of the bad management that wrecked the concern, that no liability ledger was kept. In consequence the officials had no regular record of the indebtedness of the bank's customers. To try to run a bank without a liability ledger would be something like trying to navigate a ship without taking the regular reckonings as to its position or whereabouts.