Balancing The Ledger

The regular balance days of the branch may come twice or four times a month. On each one of them a balance of the ledger is to be struck. Before proceeding to it, the ledger-keeper makes certain that all his entries up to the evening of balance day are received and entered. Then, after the ledger is called off, he takes it, and going through every account from A to Z, takes the balances into his balance book. As he goes along he makes a careful record of the outstanding cheques (accepted and entered in the accounts, but not yet paid by the bank). These he readily discerns by reason of their not being initialled. The list of balances is then added.

The total of the outstanding cheques is added to the total of the credit balances. The result represents the amount of deposits in his ledger. The total of the debit balances or overdrafts represents the amount of loans made in that form by the branch. To find out if his balance is correct he must refer to the general ledger. In one of its accounts each day are posted the totals of the deposits and cheques in current accounts as shown in the cash book. On a slip of paper the ledger-keeper takes the grand total of his credit balances and outstanding cheques, and deducts from it the amount of his debit balances. The difference should agree with the balance of "current accounts" shown in the general ledger. If it does not agree, on the general ledger being balanced or proved correct, the deposit ledger balance is said to be "out."

When The Ledger Causes Trouble

It is a heavy task sometimes to find a refractory deposit ledger balance. A very large number of entries have passed through, any one of which may be the erratic one. It might be in the posting, or in the extension of the balances; it might have been missed in the calling off; it is just possible that the previous balance may have been false, in which case the whole work back of it till a true balance was found will have to be gone over. The long, weary hunts for balances are decidedly wearing. Generally it is a matter of working late at night, and it is not always easy to rid the mind of the worrying problem sufficiently to get a proper rest after abandoning the search and going to bed.

Interest On Overdrafts

It falls to the ledger-keeper to calculate the interest on overdrafts. As already explained, overdrafts represent loans or advances made to the customers, and they have to pay interest for them. The bank does not like so much to make loans in this way as it does by means of regularly discounted bills and notes. One reason for the dislike of overdrafts is because they are created sometimes without previous arrangement, perhaps without security being lodged. A cheque is presented for which there are not sufficient funds. To refuse it injures the drawer's credit and probably results in losing his account. To pay it creates an overdraft. Another reason why overdrafts are not favored is because they are not so profitable. If a note is discounted part of the proceeds will likely lie at the borrower's credit in current account, for a time at any rate; and he thus pays interest on a larger sum than he actually receives. If he borrows on overdraft he pays interest for the exact amount of the bank's money which he uses.

So the bank may follow a policy of discouraging overdrafts through charging an interest rate one per cent higher than the rate at which it will discount bills.

On ascertaining the rate to be charged each of his overdrawn accounts, at the end of the month, the ledger-keeper goes through each one, picks out all the days at the close of which an overdraft is shown, and reduces the whole to the basis of an advance for one day in the manner shown in the following illustration:Suppose an account shows, during the course of the month, overdraft-

The overdraft interest is arrived at through taking $4,306 for one day at the rate agreed upon. A debit is put through the customer's account and the amount is credited to interest or discount account.