Accounting principles chapter 07

ILLUSTRATION 7-5 USE OF SPECIAL JOURNALS AND THE GENERAL JOURNAL Sales Journal Cash Receipts Journal Purchases Journal Cash Payments Journal General Journal including cash sales Used fo

Accounting Principles

Second Canadian Edition

Prepared by:

Carole Bowman, Sheridan College

Weygandt · Kieso · Kimmel ·

Trenholm

ACCOUNTING INFORMATION SYSTEMS

CHAPTER

7

 An accounting information system (AIS)

involves collecting and processing data and disseminating financial information to

Benefits of information must outweigh the cost

of providing it.

The accounting system must be

cost effective Benefits of information must outweigh the cost

of providing it.

PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM

It must be relevant!

It must

be reliable! It must be

accurate!

It must

be timely!

Balance Sheet Income Statement Other Financial Reports

PRINCIPLES OF AN EFFICIENT AND EFFECTIVE ACCOUNTING INFORMATION SYSTEM

Advances

Installing the system, training personnel, and making the system

operational

 A subsidiary ledger is a group of accounts with

a common characteristic, such as customer

accounts.

the recording process by freeing the general

ledger from details concerning individual

balances.

Accounts Receivable Ledger and the Accounts Payable Ledger

SUBSIDIARY LEDGERS

 The general ledger account that

summarizes subsidiary ledger data is

balance must equal the composite balance

ledger

CONTROL ACCOUNT

ILLUSTRATION 7-3

RELATIONSHIP OF GENERAL LEDGERS

AND SUBSIDIARY LEDGERS

Accounts receivable controls a subsidiary ledger

of many different customers.

Accounts receivable controls a subsidiary ledger

of many different customers.

Customer A

Customer

A Customer B

Customer B

Customer C

Customer C

Accounts payable controls a subsidiary ledger of many

Creditor

X Creditor Creditor Y Y Creditor Creditor Z Z

Advantages of using subsidiary ledgers are that they:

1 Show transactions affecting one customer or one creditor in a single account.

2 Free the general ledger of excessive details.

3 Help locate errors in individual accounts by

reducing the number of accounts combined in one ledger and by using controlling accounts.

4 Create a division of labour in posting by allowing one employee to post to the general ledger and a different employee to post to the

subsidiary ledger.

SUBSIDIARY LEDGERS

 Special journals are used to group similar types of transactions.

 If a transaction cannot be recorded in a

special journal, it is recorded in the

ILLUSTRATION 7-5

USE OF SPECIAL JOURNALS AND

THE GENERAL JOURNAL

Sales

Journal

Cash Receipts Journal

Purchases Journal

Cash Payments Journal

General Journal

(including cash sales)

Used for:

All purchases

of merchan- dise on account

Used for:

All cash paid (including cash purchases)

Used for:

Transactions that cannot

be entered

in a special journal, including correcting, adjusting, and closing entries

The types of special journals used depend largely on the types of transactions that occur frequently in a business enterprise.

The types of special journals used depend largely on the types of transactions that occur frequently in a business enterprise.

 Under a perpetual inventory system, one entry at selling price in the Sales

Journal results in a debit to Accounts Receivable and a credit to Sales Another entry at cost results in a debit to Cost of Goods Sold and a credit to

Merchandise Inventory.

 Postings are made monthly to the general ledger and daily to the accounts

receivable subsidiary ledger.

 Under a perpetual inventory system , one entry at selling price in the Sales

Journal results in a debit to Accounts Receivable and a credit to Sales Another entry at cost results in a debit to Cost of Goods Sold and a credit to

Merchandise Inventory.

 Postings are made monthly to the general ledger and daily to the accounts

receivable subsidiary ledger.

JOURNALIZING THE SALES JOURNAL –

PERPETUAL INVENTORY SYSTEM

Date Account Debited Invoice # Ref Accts Receivable Dr Sales Cr Merchandise Inventory Cr Cost of Goods Sold Dr May 3 Abbot Sisters 101 √ 10,600 6,360

balances equals the balance in the general ledger’s Accounts

Receivable control account.

To prove the accuracy of the ledgers it is necessary to determine whether the sum of the accounts receivable subsidiary ledger

balances equals the balance in the general ledger’s Accounts

Receivable control account.

General Ledger Accounts Receivable $90,230

Accounts Receivable Subsidiary Ledger

Abbot Sisters $26,000 Babson Co 25,920 Carson Bros 7,800

$90,230

CASH RECEIPTS JOURNAL

PERPETUAL SYSTEM

equal to the total of the credit columns for accounts

receivable, sales, inventory, and other accounts.

The debit columns for cash and cost of goods sold must be equal to the total of the credit columns for accounts

receivable, sales, inventory, and other accounts.

Date Accounts Credited Ref Cash

Dr

Accounts Receivable

 Column totals are posted at the end of each

month.

 The total of the Other Accounts column is not posted The individual amounts comprising the total are posted separately to the general ledger accounts specified in the Accounts Credited

column.

 The individual amounts in the Accounts

Receivable column are posted daily to the

subsidiary ledger account specified in the

Accounts Credited column.

CASH RECEIPTS JOURNAL

ILLUSTRATION 7-11 PROVING THE LEDGERS AFTER POSTING THE SALES AND THE CASH RECEIPTS JOURNALS

After the posting of the cash

receipts journal is completed,

it is necessary to prove the

ledgers The general ledger

totals are in agreement and

the sum of the subsidiary

ledger balances equals the

control account balance.

After the posting of the cash

receipts journal is completed,

it is necessary to prove the

ledgers The general ledger

totals are in agreement and

the sum of the subsidiary

ledger balances equals the

control account balance.

General Ledger Debits

Accounts Receivable 51,180 Cost of Goods Sold 65,120

$170,850

Credits Merchandise Inventory $ 65,120 Notes Payable 6,000

D A Karns, Capital 5,000 Sales 94,730

$170,850

PURCHASES JOURNAL PERPETUAL SYSTEM

Merchandise Inventory Dr

Date Account Credited Terms Ref Accounts Payable Cr

May 6 Jasper Manufacturing Inc n/20 11,000

10 Eaton and Howe Inc n/20 7,200

14 Fabor and Son n/20 6,900

19 Jasper Manufacturing Inc n/20 17,500

26 Fabor and Son n/20 8,700

29 Eaton and Howe Inc n/20 12,600

63,900

 In a perpetual system, each entry results in a debit to

Merchandise Inventory and a credit to Accounts Payable.

 Postings are made daily to the accounts payable subsidiary journal and monthly to the general ledger.

 In a perpetual system, each entry results in a debit to

Merchandise Inventory and a credit to Accounts Payable.

 Postings are made daily to the accounts payable subsidiary journal and monthly to the general ledger.

ILLUSTRATION 7-13 PROVING THE ACCURACY OF THE

ACCOUNTS PAYABLE SUBSIDIARY LEDGER

To prove the ledgers it is necessary to determine that the sum of the subsidiary ledger balances equals the balance in the control account.

To prove the ledgers it is necessary to determine that the sum of the subsidiary ledger balances equals the balance in the control account.

Accounts Payable Subsidiary Ledger

Eaton and Howe, Inc $19,800 Fabor and Son 15,600 Jasper Manufacturing Inc 28,500

General Ledger Merchandise Inventory $63,900

Accounts Payable $63,900

CASH PAYMENTS JOURNAL

PERPETUAL SYSTEM

 Journalizing procedures are similar to cash receipts journal

 Posting procedures are also like the cash receipts journal

 Journalizing procedures are similar to cash receipts journal

 Posting procedures are also like the cash receipts journal

Karns Wholesale SupplyCash Payments Journal

Date

Cheque

# Payee

Cash Cr

Merchandise Inventory Dr.

Accounts Payable

Dr Account Debited Ref

Other Accounts Dr May 3 101 Corporate General Ins 1,200 Prepaid insurance 130 1,200

3 102 Canpar 100 100

7 103 Zwicker 4,400 4,400

10 104 Jasper Manufaturing Inc 11,000 11,000 Jasper Manufaturing Inc.

19 105 Eaton & Howe, Inc 7,200 7,200 Eaton & Howe, Inc.

24 106 Fabor and Son 6,900 6,900 Fabor and Son

28 107 Jasper Manufaturing Inc 17,500 17,500 Jasper Manufaturing Inc.

31 108 D.A.Karns 500 D.A Karns, Drawings 306 500

48,800 4,500 42,600 1,700

To prove the ledgers it is necessary to determine that the sum of the subsidiary ledger balances equals the balance in the control account.

Accounts Payable

Subsidiary Ledger

Eaton and Howe, Inc $12,600

Fabor and Son 8,700

D A Karns, Capital 5,000

$127,030

 Only transactions that cannot be recorded

in a special journal are recorded in the

general journal.

subsidiary accounts:

accounts must be identified, and

(to the control account and subsidiary ledger).

EFFECTS ON GENERAL JOURNAL

ILLUSTRATION 7-17

JOURNALIZING AND POSTING THE

GENERAL JOURNAL

J1

Record goods returned.

General Journal

120 Date Ref Debit Credit Balance

2002 May 31 S1 62,190 (62,190)

201 Date Ref Debit Credit Balance

2002 May 31 P1 63,900 63,900

damages, caused by the use of these programs or from the use of the

information contained herein.