Are the books right?

The idea

Books are right when every piece is linked to the next: every posting to a document, every document to a balanced set of postings. If five link rules hold, every report is right by construction. Then three outside checks confirm it.

The five link rules

1. Every posting points to one account and one source document. No orphan lines.
2. Every posted document has a balanced set of live postings. Debits equal credits, document by document.
3. Each document class gets only its kind of postings. A quotation has none; a challan moves only stock; a receipt moves only money; an invoice moves both (chapter 1.2).
4. Edits replace, never patch. The old set is superseded and kept in history (chapter 1.14).
5. No posting without a document, and no posted document without postings.

These are the rules a good accounting system enforces, and the first thing a reviewer checks.

Three outside checks

Link rules prove the books agree with themselves. These checks prove they agree with the world:

• Trial balance — the scale is level (chapter 1.8).
• Bank reconciliation — our cash and bank ledgers match the bank statement; every difference is explained (chapter 1.11).
• Party confirmations — customers and suppliers agree with the balance we show for them.

At the counter

A quick monthly routine for a stockist:

1. Look for documents without postings and postings without documents. There should be none.
2. Confirm the trial balance is level.
3. Match the bank statement line by line.
4. Send the top retailers and the company their statements and ask them to confirm.

Common mistake

Skipping the link rules because the trial balance is level. A missing bill or a bill posted without its GST line can leave the scale perfectly level.

Where you'll use this

In Part 3, the company's account statement and your books must agree before claims can be settled. Party confirmation with the company is where unsettled claims and short-received credit notes are found.

Check yourself

1. Which link rule does a sales bill with no postings break?
2. Name the three outside checks.
3. Can the trial balance be level while a bill is missing from the books?

Answers

1. Rule 5 — no posted document without postings (and rule 2, a balanced set).
2. Trial balance, bank reconciliation, party confirmations.
3. Yes. A missing bill leaves out both sides, so the totals still agree.