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Cash Book. –
THE essential characteristics which this book must possess are three. Firstly, it must differentiate absolutely between the cash received and paid on behalf of each name, in order that his share of the total cash balance may be seen at a glance at any time. Secondly, the form must afford ample facility for recording the adjustment of the discount payable. Thirdly, it must register all the transactions with the bankers.
The form shown on the preceding page will be found to meet these requirements. The Discount and Cash columns are differentiated under each name, in order that the items therein may be posted to their corresponding columns in the Brokers' Ledger; but it will be observed that there are Discount columns on both debit and credit sides of this book, although the only discount which an underwriter has to deal with is discount payable by him. Of course this could always be adjusted on the debit side in the usual manner, and the Discount columns on the credit side eliminated. But it is found more convenient in practice to keep the connected items of Cash and Discount together; and as it frequently happens under certain circumstances, an example of which is instanced below, that discount has to be allowed, even when cash is payable by the underwriter, owing to the before-mentioned fact that this discount is calculated on the amount of the premiums, and not on the amount of the cash, the advisability of Discount columns on the
credit side becomes evident. The following instance, which exhibits the broker's account in the Ledger, will explain the meaning :
In this case, both the cash appearing on the debit side and the discount on the credit will have been posted from the credit side of the Cash Book.
There will naturally be fewer entries in the Discount columns on the credit side of the Cash Book, and, being synonymous with those on the debit from a double-entry point of view, their totals will be transferred each month to the latter, and the combined amounts posted to the Discount Account in the Private Ledger.
It is essential that all cash received should be paid into the bank, and that all payments should be made by cheque; the Bank columns will then form a copy of, and check on, the Pass Book, and the balance thereof at any time should equal the combined balances on the Cash columns allotted to the respective names.
This book contains an account with each broker with whom business is transacted. As will be seen from the accompanying form, it is ruled with columns varying according to the number
of the names written for, two columns being allotted to each name. The entries on the debit side are posted from the Premium, Salvage, and Cash Books; those on the credit from the Claim, Reinsurance, and Cash Books.
It is quite as essential to show in each account the monthly totals of the Premiums, Salvages, Claims, and Re-insurances appertaining to it as it is in the subsidiary books themselves, and for this purpose it is necessary to use the two columns mentioned above, the first containing details, and the second monthly totals of the same. In order to facilitate the execution of an internal check, which will be found fully explained in a subsequent chapter, on the audit, it is advisable that the salvages and re-insurances should be posted in red ink.
Where the volume of business is very large, it is convenient to keep a Total Brokers' Ledger in conjunction with the ordinary Brokers' Ledger. Only one column is allotted to each name in this Total Ledger, and the items of Cash and Discount are posted direct to it, the monthly totals of the other transactions being transferred from the subsidiary Ledger. This Total Ledger will be ruled off at the end of each month, and the balances, if any, brought down.
This is a very important book, for it contains the whole of the Impersonal Accounts, from which are compiled the Underwriting Accounts and Balance Sheet. The following is a list of the accounts which will usually be contained herein: :
Discount Reserve Account.
Bad Debts Account.
Agent's Personal Account.
General Reserve Account.
The ruling of this Ledger is similar to that of the Brokers' Ledger, two columns-a Detail and a Total-being provided for each name on either side. Accordingly it will be unnecessary to open more than one Capital or Drawing Account, as by means of the separate columns the position of each name can be shown clearly.
The Dividend Account will contain the income received in respect of investments transferred at the close of each year from the separate accounts in the Investment Ledger.
The Premium Account will be credited with the monthly totals from the Premium Books. It will only be necessary to keep one Premium Account, being for the current year, any additional premiums affecting past years which may be received being passed through the Salvage Book, as has already been explained. There must, however, be three separate accounts for Salvage, Claims, and Re-insurances respectively, appertaining in each case to the three years necessarily remaining open, which will contain the monthly totals posted from the corresponding subsidiary books.