5 Accounting Systems After studying this chapter you

5 Accounting Systems

After studying this chapter, you should be able to: 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: 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 ecommerce.

5 -1 Objective 1 Define an accounting system and describe its implementation.

Accounting Systems Growth Process 5 -1 5

Three Step Process as a Business Grows and Changes Step 1: Analysis § Identify the needs of those who use the business’s financial information. § Determine how the system should provide this information. 5 -1

5 -1 Step 2: Design § The system is designed so that it meets the users’ needs. Step 3: Implementation § The system is implemented and used.

Feedback 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 -1

Internal Controls 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 -1

Processing Methods Processing methods are the means by which the system collects, summarizes, and reports accounting information. These methods may be either manual or computerized. 5 -1

5 -2 Objective 2 Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals.

5 -2 A large number of individual accounts with a common characteristic can be grouped together in a separate ledger called a subsidiary ledger.

5 -2 The primary ledger, which contains all of the balance sheet and income statement accounts, is called a general ledger.

5 -2 Each subsidiary ledger is represented in the general ledger by a summarizing account, called a controlling account.

5 -2 The individual customers’ accounts are arranged in alphabetical order in a subsidiary ledger called the accounts receivable subsidiary ledger or customers ledger.

5 -2 The individual creditors’ accounts are arranged in alphabetical order in a subsidiary ledger called the accounts payable subsidiary ledger, or creditors ledger.

5 -2 General Ledger and Subsidiary Ledgers General Ledger Cash 11 Accounts Receivable Subsidiary Ledger Accts. Rec. 12 Customer Accounts A B C Supplies 14 Accounts Payable Subsidiary Ledger Accts. Pay. 21 Creditor Accounts A B C D D 17

5 -2 Special Journals SELLING Providing services on account recorded in Revenue journal Receipt of cash from any source recorded in Cash receipts journal 18

5 -2 Special Journals BUYING Purchase of items on account recorded in Purchases journal Payment of cash for any purpose recorded in Cash payments journal 19

Special Journals 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. 5 -2

5 -2 The revenue journal is used for recording fees earned on account. Cash fees earned would be recorded in the cash receipts journal.

5 -2 Posting the Revenue Journal Page 35 Revenue Journal Date Invoice No. 2008 1 Mar. 2 615 2 6 616 3 18 617 4 27 618 Account Debited Accessories by Claire Rap. Zone Web Cantina Accessories by Claire Post Ref. Accts. Rec. – Debit Fees Earned – Credit 2 2 0 0 00 1 1 7 5 0 00 2 2 6 5 0 00 3 3 0 00 4 5 5 6 6 22

5 -2 Page 35 Revenue Journal Date Invoice No. 2008 1 Mar. 2 615 2 6 616 3 18 617 4 27 618 5 6 Post Ref. Account Debited Accts. Rec. – Debit Fees Earned – Credit 2 2 0 0 00 1 1 7 5 0 00 2 Accessories by Claire Rap. Zone 2 6 5 0 00 3 3 0 00 4 Web Cantina Accessories by Claire Accounts Receivable Subsidiary Ledger Accessories by Claire Date 2008 Mar. 2 Item P. R. R 35 Debit 2, 200 Credit Balance 5 6 2, 200 23

5 -2 Page 35 Revenue Journal Date Invoice No. 2008 1 Mar. 2 615 2 6 616 3 18 617 4 27 618 5 6 Post Ref. Account Debited Accts. Rec. – Debit Fees Earned – Credit 2 2 0 0 00 1 1 7 5 0 00 2 Accessories by Claire Rap. Zone 2 6 5 0 00 3 3 0 00 4 Web Cantina Accessories by Claire Accounts Receivable Subsidiary Ledger Accessories by Claire Date 2008 Mar. 2 Item P. R. R 35 Debit 2, 200 Credit Balance 5 6 2, 200 24

5 -2 Page 35 Revenue Journal Date Invoice No. 2008 1 Mar. 2 615 2 6 616 3 18 617 4 27 618 Account Debited Accessories by Claire Rap. Zone Web Cantina Accessories by Claire Post Ref. Accts. Rec. – Debit Fees Earned – Credit 2 2 0 0 00 1 1 7 5 0 00 2 2 6 5 0 00 3 3 0 00 4 5 5 6 6 25

5 -2 Exhibit 2 Revenue Journal Page 35 Revenue Journal Date Invoice No. 2008 1 Mar. 2 615 2 6 616 3 18 617 4 27 618 5 6 31 Account Debited Accessories by Claire Rap. Zone Web Cantina Accessories by Claire Post Ref. Accts. Rec. – Debit Fees Earned – Credit 2 2 0 0 00 1 1 7 5 0 00 2 2 6 5 0 00 3 3 0 00 4 9 6 0 0 00 5 6 26

5 -2 The debit total is posted from the revenue journal to Accounts Receivable in the general ledger. ACCOUNT Accounts Receivable Date 2008 Mar. 1 31 Item Post. Ref. Account No. 12 Balance Dr. Balance Cr. Dr. Cr. 3 400 00 R 35 9 600 00 Revenue Journal, page 35 13 000 00 27

5 -2 Page 35 Revenue Journal Date Invoice No. 2008 1 Mar. 2 615 2 6 616 3 18 617 4 27 618 5 Account Debited Post Ref. Accts. Rec. – Debit Fees Earned – Credit Accessories by Claire Rap. Zone Web Cantina Accessories by Claire 31 2 2 0 0 00 1 1 7 5 0 00 2 2 6 5 0 00 3 3 0 00 4 9 6 0 0 00 6 (12) Indicates a debit posting of $9, 600 to Accounts Receivable (General Ledger Account 12) 5 6 28

5 -2 The credit total is posted from the revenue journal to Fees Earned in the general ledger. ACCOUNT Fees Earned Date Item Account No. 41 Post. Ref. Balance Dr. Cr. 2008 Mar. 31 R 35 Revenue Journal, page 35 9 600 00 29

5 -2 Page 35 Revenue Journal Date Invoice No. 2008 1 Mar. 2 615 2 6 616 3 18 617 4 27 618 5 6 31 Account Debited Accessories by Claire Rap. Zone Web Cantina Accessories by Claire Post Ref. Accts. Rec. – Debit Fees Earned – Credit 2 2 0 0 00 1 1 7 5 0 00 2 2 6 5 0 00 3 3 0 00 4 9 6 0 0 00 5 (12) (41) 6 Indicates a credit posting of $9, 600 to Fees Earned (General Ledger Account 41) 30

5 -2 Example Exercise 5 -1 The following revenue transactions occurred during December: Dec. 5 Invoice No. 302 to Butler Company for services provided on account, $5, 000. Dec. 9 Invoice No. 303 to Jo. Jo Enterprises for services provided on account, $2, 100. Dec. 15 Invoice No. 304 to Double D, Inc. for services provided on account, $3, 250. Record these transactions in a revenue journal as illustrated in Exhibit 2. 31

5 -2 Follow My Example 5 -1 Page Revenue Journal Invoice No. Date 1 Dec. 2 3 Account Debited 5 302 Butler Company 9 303 Jo. Jo Enterprises 15 304 Double D Inc. Post Ref. Accts. Rec. – Debit Fees Earned – Credit 5 0 00 1 2 1 0 0 00 2 4 3 2 5 0 00 3 4 5 5 6 6 For Practice: PE 5 -1 A, PE 5 -1 B 32

Cash Receipts Journal 5 -2 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. 33

5 -2 Cash Receipts Journal and Postings CASH RECEIPTS JOURNAL Date Page 14 Other Post Accounts Ref. Cr. Account Credited 2008 42 Mar. 1 Rent Revenue Accounts Receivable Cr. 400 Cash Dr. 400 19 Web Cantina 28 Accessories by Claire 30 Rap. Zone 3, 400 2, 200 1, 750 GENERAL LEDGER ACCOUNT Rent Revenue Date 2008 Mar. 1 Item P. R. CR 14 Debit Acct. No. 42 Credit 400 Cr. Bal. 400 34

5 -2 CASH RECEIPTS JOURNAL Date Page 14 Other Post Accounts Ref. Cr. Account Credited 2008 42 Mar. 1 Rent Revenue Accounts Receivable Cr. Cash Dr. 400 19 Web Cantina 28 Accessories by Claire 30 Rap. Zone 3, 400 2, 200 1, 750 Accounts Receivable Subsidiary Ledger Web Cantina Date Item P. R. Debit Credit 2008 Mar. 1 Bal. R 35 2, 650 CR 14 19 Balance 3, 40018 6, 050 3, 400 2, 650 35

5 -2 After all journalizing and posting for the month to individual accounts is complete, the columns are totaled.

5 -2 Posted Cash Receipts Journal CASH RECEIPTS JOURNAL Date 2008 Mar. 1 19 28 30 Account Credited Rent Revenue Web Cantina Accessories by Claire Rap. Zone Page 14 Other Post Accounts Ref. Cr. 42 Accounts Receivable Cr. Cash Dr. 400 3, 400 2, 200 1, 750 7, 350 400 3, 400 2, 200 1, 750 7, 750 ( ) (12) (11) 400 A checkmark indicates that the items in this column are posted individually. 37

5 -2 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.

5 -2 Accounts Receivable—(Controlling) Balance, March 1, 2008 $3, 400 Total debits (from revenue journal) 9, 600 Total credits (from cash receipts journal) (7, 350) Balance, March 31, 2008 $5, 650 Net. Solutions Customer Balance Summary Report, March 31, 2008 Accessories By Claire Rap. Zone Web Cantina Total accounts receivable $3, 000 0 2, 650 $5, 650 39

5 -2 Example Exercise 5 -2 The debits and credits from two transactions are presented in the following customer account: NAME Sweet Tooth Confections ADDRESS Date 1212 Lombard St. Item July 1 Bal. 7 Inv. 35 31 Inv. 31 P. R. R 12 CR 4 Dr. Cr. Balance 122 625 711 589 86 Describe each transaction and the source of each posting. 40

5 -2 Follow My Example 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. For Practice: PE 5 -2 A, PE 5 -2 B 41

5 -2 The purchases journal is designed for recording all purchases on account. 42

5 -2 Journalizing in the Purchases Journal Date 2008 Mar. 3 7 12 19 27 Account Credited Howard Supplies Donnelly Supplies Jewett Business Sys. Donnelly Supplies Howard Supplies PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Ref. Cr. Dr. 600 420 2, 800 1, 450 960 Page 11 Post Ref. Amount 600 420 Off. Equip. 2, 800 1, 450 960 43

5 -2 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.

5 -2 Date 2008 Mar. 3 7 12 19 27 Account Credited Howard Supplies Donnelly Supplies Jewett Business Sys. Donnelly Supplies Howard Supplies PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Ref. Cr. Dr. 600 420 2, 800 1, 450 960 Page 11 Post Ref. Amount 600 420 Off. Equip. 2, 800 1, 450 960 45

5 -2 Posting the Purchases Journal Date 2008 Mar. 3 7 12 19 27 Account Credited PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Ref. Cr. Dr. Howard Supplies 600 Donnelly Supplies 420 Jewett Business Sys. 2, 800 Donnelly Supplies 1, 450 Howard Supplies. Accounts Payable 960 Page 11 Post Ref. Amount 600 420 Off. Equip. 1, 450 960 Subsidiary 2, 800 Ledger Howard Supplies Date 2008 Mar 3 Item P. R. P 11 Dr. Cr. 600 Balance 600 46

5 -2 Date 2008 Mar. 3 7 12 19 27 Account Credited Howard Supplies Donnelly Supplies Jewett Business Sys. Donnelly Supplies Howard Supplies PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Ref. Cr. Dr. 600 420 2, 800 1, 450 960 Page 11 Post Ref. Amount 600 420 Off. Equip. 18 2, 800 1, 450 960 Office Equipment (Account 18 in the general ledger) is debited for $2, 800. 47

5 -2 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.

5 -2 Date 2008 Mar. 3 7 12 19 27 31 PURCHASES JOURNAL Accts. Other Post Payable Supplies Account Credited Ref. Cr. Dr. Howard Supplies Donnelly Supplies Jewett Business Sys. Donnelly Supplies Howard Supplies 600 420 2, 800 1, 450 960 6, 230 ( 21) Page 11 Post Ref. Amount 600 420 Off. Equip. 18 1, 450 960 3, 430 ( ) 2, 800 ( ) GENERAL LEDGER ACCOUNT Accounts Payable Date Item P. R. Debit Credit No. 21 Balance 2008 Mar. 1 Bal 31 P 11 1, 230 6, 230 7, 460 49

5 -2 Date 2008 Mar. 3 7 12 19 27 31 PURCHASES JOURNAL Accts. Other Post Payable Supplies Account Credited Ref. Cr. Dr. Howard Supplies Donnelly Supplies Jewett Business Sys. Donnelly Supplies Howard Supplies 600 420 2, 800 1, 450 960 6, 230 ( 21) Page 11 Post Ref. Amount 600 420 Off. Equip. 18 1, 450 960 3, 430 ( 14 ) 2, 800 ( ) GENERAL LEDGER ACCOUNT Supplies Date Item P. R. No. 14 Debit Credit Balance 2008 Mar. 1 Bal 31 P 11 2, 500 3, 430 5, 930 50

5 -2 Example Exercise 5 -3 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. 51

5 -2 Follow My Example 5 -3 Date Oct. 11 19 24 Account Credited General Supplies Hubble Supplies Office Warehouse PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Ref. Cr. Dr. 235 110 850 Off. Equip. For Practice: PE 5 -3 A, PE 5 -3 B Post Ref. 18 Amount 850 52

Cash Payments Journal All transactions involving a credit to Cash are recorded in the cash payments journal. 5 -2

5 -2 CASH PAYMENTS JOURNAL Date 2008 Mar. 2 Ck. No. 150 Account Debited Rent Expense Other Accounts Post Accounts Payable Ref. Dr. 1, 600 PAGE 7 Cash Cr 1, 600 On March 2, issued Check 150 for rent of $1, 600. 54

5 -2 CASH PAYMENTS JOURNAL Date 2008 Mar. 2 15 Ck. No. 150 151 Account Debited Rent Expense Grayco Supplies PAGE 7 Other Accounts Post Accounts Payable Ref. Dr. 1, 600 1, 230 Cash Cr 1, 600 1, 230 On March 15, issued Check 151 to Grayco Supplies on account, $1, 230. 55

5 -2 Let’s post to the accounts payable subsidiary ledger at this time to keep the creditors’ account current.

5 -2 CASH PAYMENTS JOURNAL Date 2008 Mar. 2 15 Ck. No. Account Debited PAGE 7 Other Accounts Post Accounts Payable Ref. Dr. 150 Rent Expense 151 Grayco Supplies Cash Cr 1, 600 1, 230 Accounts Payable Subsidiary Ledger Grayco Supplies Date 2008 Mar. 3 15 1, 230 Item P. R. Dr. CP 7 1, 230 Cr. Balance Bal. --- 57

5 -2 CASH PAYMENTS JOURNAL Date 2008 Mar. 2 15 21 22 30 31 Ck. No. 150 151 152 153 154 155 Account Debited PAGE 7 Other Accounts Post Accounts Payable Ref. Dr. Rent Expense Grayco Supplies Jewett Business Sys. Donnelly Supplies Utilities Expense Howard Supplies 1, 600 1, 230 2, 800 420 1, 050 600 Cash Cr 1, 600 1, 230 2, 800 420 1, 050 600 Journalize the remainder of March’s cash disbursements. 58

5 -2 CASH PAYMENTS JOURNAL Date 2008 Mar. 2 15 21 22 30 31 Ck. No. Account Debited 150 151 152 153 154 155 Rent Expense Grayco Supplies Jewett Business Sys. Donnelly Supplies Utilities Expense Howard Supplies PAGE 7 Other Accounts Post Accounts Payable Ref. Dr. 1, 600 1, 230 2, 800 420 1, 050 600 Cash Cr 1, 600 1, 230 2, 800 420 1, 050 600 Journalized remainder of Post tothe individual March’s cash disbursements. creditor’s accounts. 5921

5 -2 CASH PAYMENTS JOURNAL Date 2008 Mar. 2 15 21 22 30 31 31 Ck. No. Account Debited 150 151 152 153 154 155 Rent Expense Grayco Supplies Jewett Business Sys. Donnelly Supplies Utilities Expense Howard Supplies PAGE 7 Other Accounts Post Accounts Payable Ref. Dr. 1, 600 1, 230 2, 800 420 1, 050 2, 650 600 5, 050 The journal is ruled, summed, and verified for equality of debits and the “Cash Cr. ” column. Cash Cr 1, 600 1, 230 2, 800 420 1, 050 600 7, 700 60

5 -2 CASH PAYMENTS JOURNAL Date Ck. No. Account Debited PAGE 7 Other Accounts Post Accounts Payable Ref. Dr. 2008 52 Mar. 2 150 Rent Expense 15 151 Grayco Supplies 21 152 Jewett Business Sys. 22 153 Donnelly Supplies 30 154 Utilities Expense 54 31 155 Howard Supplies 31 in the “Other Accounts Dr. ” Items column are posted. Then the totals for “Accounts Payable Dr. ” and “Cash Cr. ” are posted. 1, 600 1, 230 2, 800 420 1, 050 2, 650 ( ) 600 5, 050 (21) Cash Cr 1, 600 1, 230 2, 800 420 1, 050 600 7, 700 (11) 61

5 -2 Accounts Payable Control and Subsidiary Ledger Accounts Payable— (Control) Balance, March 1, 2008 Total credits (from purchases journal) Total debits (from cash payments journal) Balance, March 31, 2008 $1, 230 6, 230 (5, 050) $2, 410 Net. Solutions Supplier Balance Summary Report March 31, 2008 Donnelly Supplies Grayco Supplies Howard Supplies Jewett Business Systems Total $1, 450 0 960 0 $2, 410 62

5 -2 Example Exercise 5 -4 The debits and credits from two transactions are presented in the following creditor’s (supplier’s) account: NAME Lassiter Services, Inc. ADDRESS Date Aug. 1 12 22 301 St. Bonaventure Ave. Item P. R. Bal. Bill 101 CP 36 Bill 106 P 16 Dr. Cr. 200 140 Balance 320 120 260 Describe each transaction and the source of each posting. 63

5 -2 Follow My Example 5 -4 Aug. 12 Paid $200 to Lassiter Services, Inc. on account (Bill 101). Amount posted from page CP 36 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 P 16 of the purchases journal. For Practice: PE 5 -4 A, PE 5 -4 B 64

5 -3 Objective 3 Describe and give examples of additional subsidiary ledgers and modified special journals.

Modified Special Journals A business may modify its special journals by adding one or more columns for recording transactions that occur frequently. 5 -3

5 -3 On November 2, Net. Solutions issued Invoice No. 842 to Litten Company for $4, 770, which included sales taxes of $270.

5 -3 Modified Revenue Journal Page 40 Revenue Journal Date 2008 Nov. 2 Invoice No. 842 Account Debited Litten Co. PR Accts. Rec. Fees Earned Sales Tax. Pay Dr. Cr. 4 770 00 4 500 00 270 00 68

5 -3 Page 40 Revenue Journal Date 2008 Nov. 2 Invoice No. 842 Account Debited Litten Co. PR Accts. Rec. Fees Earned Sales Tax. Pay Dr. Cr. 4 770 00 4 500 00 270 00 $4, 770 is debited to Litten Co. in the accounts payable subsidiary ledger 69

5 -3 Page 40 Revenue Journal Date 2008 Nov. 2 Invoice No. 842 Account Debited Litten Co. PR Accts. Rec. Fees Earned Sales Tax. Pay Dr. Cr. 4 770 00 4 500 00 270 00 A checkmark indicates that the amount has been posted. 70

5 -3 On November 3, issued Invoice No. 843 to Kaufman Supply Company for $1, 166, which included sales taxes of $66.

5 -3 Page 40 Revenue Journal Date 2008 Nov. 2 3 Invoice No. 842 843 Account Debited PR Litten Co. Kaufmann Supply Accts. Rec. Fees Earned Sales Tax. Pay Dr. Cr. 4 770 00 1 166 00 4 500 00 1 100 00 270 00 66 00 72

5 -3 Example Exercise 5 -5 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 for services provided on account, $900, plus sales tax. Record these transactions in a revenue journal as illustrated in the previous section. 73

5 -3 Follow My Example 5 -5 Revenue Journal Invoice No. Date Aug. 3 19 Account Debited PR Accts. Rec. Fees Earned Sales Tax. Pay Dr. Cr. 58 Helena Company 59 K-Jam Enterprises For Practice: PE 5 -5 A, PE 5 -5 B 1 498 00 963 00 1 400 00 98 00 63 00 74

5 -4 Objective 4 Apply computerized accounting to the revenue and collection cycle.

5 -4 Database A database collects, stores, and organizes information in a retrievable format.

5 -4 77

5 -4 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.

5 -5 Objective 5 Describe the basic features of e-commerce.

5 -5 e-Commerce Using the Internet to perform business transactions is termed e-commerce.

5 -5 B 2 C When transactions are between a company and a consumer, it is termed B 2 C (business-toconsumer) e-commerce.

5 -5 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)