This book bears the same relation to a bank's advances as the deposit ledger does to the deposits. The latter shows how much the bank owes each customer, and the former how much each customer owes the bank. The liability ledger never shows an account in credit and the deposit ledger should never show an account at debit.
There are many different kinds of liability ledgers in use, some very elaborate. The simpler forms are the more practical, the main object being to see at a glance how much of each kind of paper a customer has under discount, the names of security against each note, and the total amount of advances.
A simple form is given in Figure 24. This provides progressive balances for loans and trade bills, and space for particulars of securities, other names, etc. The total of the loan and trade bills at AAV time shows the amount of the customer's total direct liability to the bank. Frequently, however, a customer is an obligant either as maker or indorser on a note discounted for another customer, and it is important for the bank to know how much of such indirect liability is outstanding. This class of paper can be indicated by an entry in red ink, but is omitted, of course, from the balance, as it has been posted once to the account of the customer discounting it. In this way a note with half a dozen indorsers can be recorded against each account in red ink without affecting the ledger balance.
(Write surname first)
Credit authorized Communication No. Date
Trade bills $
When Discounted 191
Other Names, Residence, Etc.
Figure 24. Liability Ledger
Figure 25. Blue Book
Where accounts involve the discounting of a large amount of trade paper, small loose-leaf books are used, known as "Blue Books" (see Figure 25), one for each account, and by this means track is kept of the total amount due from each borrower's customers. When a blue book is used, the totals only, debit or credit, are entered in the liability ledger, no details being required. The resulting balance in the account, however, should agree with the total of the balances in the blue book. The total amount of trade bills in an account is not of great importance, provided all the paper represents goods sold and delivered to responsible purchasers. The total amount on any one name, however, is vitally important, and should not be allowed without special consideration to exceed five per cent of the total amount of trade bills.