accounting systems

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Accounting Accounting SystemsSystems

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1. Define an accounting system and describe its implementation.

2. Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals.

After studying this chapter, you should be able to:

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3. Describe and give examples of additional subsidiary ledgers and modified special journals.

4. Apply computerized accounting to the revenue and collection cycle.

5. Describe the basic features of e-commerce.

After studying this chapter, you should be able to:

4

Define an accounting system and describe its

implementation.

Objective 1Objective 1Objective 1Objective 1

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5-1Accounting Systems Growth Process

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Identify the needs of those who use the business’s financial information.

Determine how the system should provide this information.

Step 1: Analysis

Three Step Process as a Business Grows and Changes

5-1

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The system is designed so that it meets the users’ needs.

Step 2: Design

The system is implemented and used.

Step 3: Implementation

5-1

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Once a system has been implemented, feedback, or input from the users of the information

can be used to analyze and improve the system.

5-1Feedback

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Internal controls are policies and procedures that protect

assets from misuse, ensure that business information is

accurate, and ensure that laws and regulations are being

followed.

5-1Internal Controls

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Processing methods are the means by which the system collects, summarizes, and

reports accounting information. These methods may be either

manual or computerized.

5-1Processing Methods

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Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and

special journals.


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A large number of individual accounts with a common

characteristic can be grouped together in a separate ledger called

a subsidiary ledger.

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The primary ledger, which contains all of the balance

sheet and income statement accounts, is called a

general ledger.

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Each subsidiary ledger is represented in the general ledger by a summarizing

account, called a controlling account.

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The individual customers’ accounts are arranged in

alphabetical order in a subsidiary ledger called the accounts

receivable subsidiary ledger or customers ledger.

5-2

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The individual creditors’ accounts are arranged in alphabetical order in a

subsidiary ledger called the accounts payable

subsidiary ledger, or creditors ledger.

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Cash 11

Accts. Pay. 21

General Ledger

Accts. Rec. 12

Supplies 14

Accounts ReceivableSubsidiary Ledger

A B C D

Customer Accounts

Accounts PayableSubsidiary Ledger

A B C D

Creditor Accounts

General Ledger and Subsidiary Ledgers 5-2

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SELLING SELLING

Providing services on account

Revenue journalRevenue journalrecorded inrecorded in

Receipt of cash from any source

Cash receipts journalCash receipts journalrecorded inrecorded in

Special Journals 5-2

1919

BUYING BUYING

Purchase of items on account

Purchases journalPurchases journalrecorded inrecorded in

Payment of cash for any purpose

Cash payments journalCash payments journalrecorded inrecorded in

5-2Special Journals

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The all-purpose two-column journal, called the general journal or simply the journal can be used for entries that do not fit into any

of the special journals.

Special Journals 5-2

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The revenue journal is used for recording fees earned on account. Cash fees earned would be recorded

in the cash receipts journal.

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Posting the Revenue Journal

Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit

Page 35

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6 616 RapZone 1 7 5 0 00

18 617 Web Cantina 2 6 5 0 00

27 618 Accessories by Claire 3 0 0 0 00

2008

Mar. 2 615 Accessories by Claire 2 2 0 0 00

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Page 35

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6 616 RapZone 1 7 5 0 00

18 617 Web Cantina 2 6 5 0 00


2008


Accounts Receivable Subsidiary Ledger

Date Item P.R. Debit Credit Balance

Accessories by Claire

Mar. 2 R35 2,200 2,2002008

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Page 35

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6 616 RapZone 1 7 5 0 00

18 617 Web Cantina 2 6 5 0 00


2008




Accessories by Claire

Mar. 2 R35 2,200 2,2002008

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Page 35

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6 616 RapZone 1 7 5 0 00

18 617 Web Cantina 2 6 5 0 00


2008


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Page 35

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6 616 RapZone 1 7 5 0 00

18 617 Web Cantina 2 6 5 0 00


2008


31 9 6 0 0 00

5-2Exhibit 2 Revenue Journal

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ACCOUNT Accounts Receivable Account No. 12

Balance

Dr. Cr.Date Dr. Cr.ItemPost. Ref.

2008Mar. 1 Balance 3 400 00

31 9 600 00 13 000 00 R35

The debit total is posted from the revenue journal to Accounts

Receivable in the general ledger.

Revenue Journal, page 35

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Page 35

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6 616 RapZone 1 7 5 0 00

18 617 Web Cantina 2 6 5 0 00


2008


31 9 6 0 0 00

(12)

Indicates a debit posting of $9,600 to Accounts Receivable (General Ledger Account 12)

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2929

ACCOUNT Fees Earned Account No. 41

BalanceDate Dr. Cr.Item

Post. Ref.

2008Mar. 31 9 600 00 R35

The credit total is posted from the revenue journal to Fees Earned in

the general ledger.

Revenue Journal, page 35

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9 600 00

Dr. Cr.

3030


Page 35

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6 616 RapZone 1 7 5 0 00

18 617 Web Cantina 2 6 5 0 00


2008


31 9 6 0 0 00

(12)

Indicates a credit posting of $9,600 to Fees Earned (General Ledger Account 41)

(41)

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Example Exercise 5-1

The following revenue transactions occurred during December:

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Record these transactions in a revenue journal as illustrated in Exhibit 2.

5-2

Dec. 5 Invoice No. 302 to Butler Company for services provided on account, $5,000.

Dec. 9 Invoice No. 303 to JoJo Enterprises for services provided on account, $2,100.

Dec. 15 Invoice No. 304 to Double D, Inc. for services provided on account, $3,250.

32For Practice: PE 5-1A, PE 5-1B 32

Follow My Example 5-1

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9 303 JoJo Enterprises 2 1 0 0 00

15 304 Double D Inc. 3 2 5 0 00

Dec. 5 302 Butler Company 5 0 0 0 00

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All transactions that involve the receipt of cash are recorded in a

cash receipts journal.

Every entry recorded in the cash receipts journal will involve a debit

to the “Cash Dr.” column.

5-2Cash Receipts Journal

3434

Mar. 1 Rent Revenue 400 400

CASH RECEIPTS JOURNALOther Accounts

Post Accounts Receivable CashDate Account Credited Ref. Cr. Cr. Dr.

Page 14

2008

19 Web Cantina 3,400 3,400

28 Accessories by Claire 2,200 2,200

30 RapZone 1,750 1,750

Date Item P.R. Debit Credit Cr. Bal.

ACCOUNT Rent Revenue Acct. No. 42

Mar. 1 400 4002008

GENERAL LEDGER

42

CR14

Cash Receipts Journal and Postings 5-2

3535


Web Cantina

Mar. 1 Bal. 3,40018 R35 2,650 6,050

2008

3,400 2,650

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Page 14

2008

19 Web Cantina 3,400 3,400


30 RapZone 1,750 1,750


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CR14

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After all journalizing and posting for the month to

individual accounts is complete, the columns are totaled.

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Page 14

2008

19 Web Cantina 3,400 3,400


30 RapZone 1,750 1,750

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400 7,350 7,750

( ) (12) (11)

Posted Cash Receipts Journal 5-2

A checkmark indicates that the items in this column are posted individually.

A checkmark indicates that the items in this column are posted individually.

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After posting, the total amount of the accounts in the accounts receivable subsidiary ledger should match the

balance in the general ledger’s Accounts Receivable account.

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Accounts Receivable—(Controlling)

Balance, March 1, 2008 $3,400Total debits (from revenue journal) 9,600Total credits (from cash receipts journal) (7,350)Balance, March 31, 2008 $5,650

NetSolutionsCustomer Balance Summary Report, March 31, 2008Accessories By Claire $3,000RapZone 0Web Cantina 2,650Total accounts receivable $5,650

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The debits and credits from two transactions are presented in the following customer account:

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Describe each transaction and the source of each posting.

NAME Sweet Tooth ConfectionsADDRESS 1212 Lombard St.

July 1 Bal. 6257 Inv. 35 R12 86 711

31 Inv. 31 CR4 122 589

Date Item P.R. Dr. Cr. Balance

5-2



July 7 Provided $86 services on account to Sweet Tooth Confections, itemized on invoice 35. Amount posted from page 12 of the revenue journal.

July 31 Cash of $122 was collected from Sweet Tooth Confections (invoice 31). Amount posted from page 4 of the cash receipts journal.

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The purchases journal is designed for recording all

purchases on account.

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Accts. OtherPost Payable Supplies Accounts Post

Date Account Credited Ref. Cr. Dr. Dr. Ref. Amount

PURCHASES JOURNAL Page 11

Journalizing in the Purchases Journal

2008

Mar. 3 Howard Supplies 600 600 7 Donnelly Supplies 420 420

12 Jewett Business Sys. 2,800 Off. Equip. 2,80019 Donnelly Supplies 1,450 1,45027 Howard Supplies 960 960

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Note that the March 12 purchase of office equipment for $2,800 is recorded as a debit in the “Other

Accounts Dr.” column. Also note that the account title is written in

for proper posting.

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2008



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4646




2008



Posting the Purchases Journal


Mar 3 600 6002008

Accounts Payable Subsidiary Ledger

Howard Supplies

5-2

P11

4747




2008


12 Jewett Business Sys. 2,800 Off. Equip. 18 2,80019 Donnelly Supplies 1,450 1,45027 Howard Supplies 960 960

5-2

Office Equipment (Account 18 in the general ledger) is debited for $2,800.

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At the end of March, all columns are totaled and equality of debits and credits is verified.

Then the total amount in the “Accounts Payable Cr.” and “Supplies Dr.” columns are

posted. Because Office Equipment was posted earlier, the $2,800 total is not posted.

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7 Donnelly Supplies 420 420 12 Jewett Business Sys. 2,800 Off. Equip. 18 2,80019 Donnelly Supplies 1,450 1,45027 Howard Supplies 960 96031 6,230 3,430 2,800

( ) ( ) ( )




2008

Mar. 3 Howard Supplies 600 600

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ACCOUNT Accounts Payable No. 21

GENERAL LEDGER


Mar. 1 Bal 1,2306,230 7,46031 P11

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2008

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7 Donnelly Supplies 420 420 12 Jewett Business Sys. 2,800 Off. Equip. 18 2,80019 Donnelly Supplies 1,450 1,45027 Howard Supplies 960 96031 6,230 3,430 2,800

( ) ( ) ( )


2008

Mar. 3 Howard Supplies 600 600

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ACCOUNT Supplies No. 14

GENERAL LEDGER


Mar. 1 Bal 2,5003,430 5,93031 P11

14

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502008

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The following purchase transactions occurred during October for Helping Hand Cleaners:

Oct. 11 Purchased cleaning supplies for $235, on account, from General Supplies.

19 Purchased cleaning supplies for $110, on account, from Hubble Supplies.

24 Purchased office equipment for $850, on account,from Office Warehouse.

Record these transactions in a purchases journal as illustrated at the top of Exhibit 5.

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PURCHASES JOURNAL

For Practice: PE 5-3A, PE 5-3B 52


5-2


Date Account Credited Ref. Cr. Dr. Dr. Ref. AmountOct. 11 General Supplies 235 235

19 Hubble Supplies 110 110 24 Office Warehouse 850 Off. Equip. 18 850

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All transactions involving a credit to Cash are recorded in the cash payments journal.

5-2Cash Payments Journal

5454

CASH PAYMENTS JOURNAL

Other AccountsCk. Post Accounts Payable Cash

Date No. Account Debited Ref. Dr. Dr. Cr

PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600

On March 2, issued Check 150 for rent of $1,600.

5-2

5555




PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600

On March 15, issued Check 151 to Grayco Supplies on account, $1,230.

15 151 Grayco Supplies 1,230 1,230

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Let’s post to the accounts payable subsidiary ledger at

this time to keep the creditors’ account current.

5-2

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PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600

15 151 Grayco Supplies 1,230 1,230

Accounts Payable Subsidiary LedgerGrayco Supplies

Mar. 3 Bal. 1,230


1,230 --- 15 CP7

5-2

2008

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PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600

15 151 Grayco Supplies 1,230 1,23021 152 Jewett Business Sys. 2,800 2,80022 153 Donnelly Supplies 420 42030 154 Utilities Expense 1,050 1,05031 155 Howard Supplies 600 600

Journalize the remainder of March’s cash disbursements.

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PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600


Journalized the remainder of March’s cash disbursements.

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PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600


Post to individual creditor’s accounts.

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PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600





PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600


The journal is ruled, summed, and verified for equality of debits and the “Cash Cr.” column.

The journal is ruled, summed, and verified for equality of debits and the “Cash Cr.” column.

31 2,650 5,050 7,700

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PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600





PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600


31 2,650 5,050 7,700Items in the “Other Accounts Dr.”

column are posted. Then the totals for “Accounts Payable Dr.” and

“Cash Cr.” are posted.

Items in the “Other Accounts Dr.” column are posted. Then the totals

for “Accounts Payable Dr.” and “Cash Cr.” are posted.

(21) (11)( )

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Accounts Payable Control and Subsidiary Ledger

Accounts Payable— (Control)

Balance, March 1, 2008 $1,230Total credits (from purchases journal) 6,230Total debits (from cash payments journal) (5,050)Balance, March 31, 2008 $2,410

NetSolutionsSupplier Balance Summary Report

March 31, 2008Donnelly Supplies $1,450Grayco Supplies 0Howard Supplies 960Jewett Business Systems 0Total $2,410

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The debits and credits from two transactions are presented in the following creditor’s (supplier’s) account:

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Describe each transaction and the source of each posting.

NAME Lassiter Services, Inc.ADDRESS 301 St. Bonaventure Ave.

Aug. 1 Bal. 32012 Bill 101 CP36 200 12022 Bill 106 P16 140 260


5-2



Aug. 12 Paid $200 to Lassiter Services, Inc. on account (Bill 101). Amount posted from page CP36 of the cash payments journal.

Aug. 22 Purchased $140 of services on account from Lassiter Services, Inc. itemized on Bill 106. Amount posted from page P16 of the purchases journal.

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Describe and give examples of additional subsidiary ledgers and

modified special journals.


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A business may modify its special journals by adding one or more

columns for recording transactions that occur frequently.

5-3Modified Special Journals

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On November 2, NetSolutions issued Invoice No. 842 to Litten Company for $4,770, which included

sales taxes of $270.

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5-3Modified Revenue Journal

Revenue Journal Page 40

Nov. 2 842 Litten Co. 4 770 00 4 500 00 270 002008

Invoice Accts. Rec. Fees Earned Sales Tax. PayDate No. Account Debited PR Dr. Cr. Cr.

6969

Revenue JournalInvoice Accts. Rec. Fees Earned Sales Tax. Pay

Date No. Account Debited PR Dr. Cr. Cr.

Page 40

Nov. 2 842 Litten Co. 4 770 00 4 500 00 270 002008

5-3

$4,770 is debited to Litten Co. in the accounts

payable subsidiary ledger

$4,770 is debited to Litten Co. in the accounts

payable subsidiary ledger

7070


Nov. 2 842 Litten Co. 4 770 00 4 500 00 270 002008

5-3

A checkmark indicates that the amount has

been posted.

A checkmark indicates that the amount has

been posted.


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On November 3, issued Invoice No. 843 to Kaufman Supply Company for $1,166, which included sales taxes of $66.

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5-3


Nov. 2 842 Litten Co. 4 770 00 4 500 00 270 002008

3 843 Kaufmann Supply 1 166 00 1 100 00 66 00

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The state of Tennessee has a 7% sales tax. Volunteer Services, Inc., a Tennessee company, had two revenue transactions as follows:Aug. 3 Issued Invoice No. 58 to Helena Company for

services provided on account, $1,400, plus sales tax.

19 Issued Invoice No. 59 to K-Jam Enterprises forservices provided on account, $900, plus sales tax.

Record these transactions in a revenue journal as illustrated in the previous section.

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5-3

Revenue Journal

Aug. 3 58 Helena Company 1 498 00 1 400 00 98 0019 59 K-Jam Enterprises 963 00 900 00 63 00


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Apply computerized accounting to the revenue

and collection cycle.


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A database collects, stores, and organizes

information in a retrievable format.

5-4Database

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At any time, managers may request reports from the software.

1) The customer balance summary.

2) The fees earned by customer detail.

3) The cash receipts.

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Describe the basic features of e-commerce.


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Using the Internet to perform business

transactions is termed e-commerce.

5-5e-Commerce

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When transactions are between a company and a consumer, it is termed B2C (business-to-

consumer) e-commerce.

5-5B2C

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Three more advanced areas where the Internet is being used for business purposes are: Supply chain management (SCM) Consumer relationship management

(CRM) Product life-cycle management

(PLM)

5-5

accounting systems

Documents

creditors ledger

customers ledger

12supplies14general

separate ledger

primary ledger

manual accounting system

subsidiary ledgers5

designthe system