General Ledger

Ardsley Financial assigns each general ledger bookkeeping account to a named associated person who controls entries into it, with a supervisor reviewing the account periodically. One review turns up an item that has aged and is uncertain as to resolution. What does the general ledger rule require be done with it?

1. A.Written off to the firm's error account at the close of the month so that the ledger balances.Wrong. Clearing a balance is not resolving it, and an error account exists for trade errors rather than for unexplained ledger items.
2. B.Netted against offsetting items in the same account so that the account reconciles.Wrong. Netting hides two unexplained items behind a single balance and leaves neither of them researched.
3. C.Promptly identified for research and possible transfer to a suspense account.Correct. This keeps the item visible and under investigation rather than retiring it with an entry that explains nothing.
4. D.Reported to the firm's designated examining authority before any internal research begins.Wrong. Escalation to a regulator is not the prescribed first step; the rule directs the firm to research the item itself.

Why: FINRA requires a member to designate an associated person responsible for each general ledger bookkeeping account, with that person controlling entries and keeping the account current and accurate, and a supervisor reviewing the account as often as its function requires. The purpose of that review is not merely to confirm that the account foots. Items that have become aged or uncertain as to resolution must be promptly identified for research and possible transfer to a suspense account, which keeps them on the books as open questions rather than letting a balancing entry retire them. A write-off or a netting entry would leave the ledger looking clean while destroying the information an auditor or examiner would need to trace what happened.

A trade is executed for a customer at Cobalt Point Securities. Which description of how that transaction moves through the firm's books is correct?

1. A.It is captured in the daily blotter, posted to the customer's account ledger and the stock record, and summarized into the general ledger.Correct. The blotter is the book of original entry and every downstream record is derived from it.
2. B.It is entered in the general ledger first, then broken out to the blotter and the customer ledger at month end.Wrong. This reverses the flow; the general ledger receives summarized totals rather than originating individual transactions.
3. C.It is recorded on the customer's account statement, from which the blotter and general ledger are derived.Wrong. A statement is a periodic output produced from the books and is never a source that feeds them.
4. D.It is recorded on the trade confirmation, which serves as the firm's book of original entry.Wrong. A confirmation is a customer-facing notice of a transaction, not the firm's internal accounting record of it.

Why: The recordkeeping rules require a broker-dealer to make and keep current blotters containing an itemized daily record of all purchases and sales of securities and all receipts and disbursements of cash. That daily record is the book of original entry: the transaction is captured there first, on trade date, and every other record in the firm is built from it. From the blotter the entry posts to the individual customer's account ledger and to the stock record showing the position and where it is held, and the day's activity is then summarized into the general ledger. Confirmations and customer statements sit at the end of that chain as outputs, never at the beginning as sources.