CHAPTER 5 ACCOUNTING SYSTEMS

Transcription

1 ACCOUNTING SYSTEMS DISCUSSION QUESTIONS 1. The individual accounts receivable ledger accounts provide business managers with information on the status of individual customer accounts, which is necessary for managing collections. Managers need to know which customers owe money, how much they owe, and how long the amount owed has been outstanding. 2. The major advantages of the use of special journals are substantial savings in record-keeping expenses and a reduction of record-keeping errors. 3. a. 400 b. None 4. a. 400 b a. Sometime following the end of the current month, one of two things may happen: (1) an overdue notice will be received from Kelly Co., and/or (2) a letter will be received from Kelley Co., informing the buyer of the overpayment. (It is also possible that the error will be discovered at the time of making payment if the original invoice is inspected at the time the check is being written.) b. The schedule of accounts payable would not agree with the balance of the accounts payable account. The error might also be discovered at the time the invoice is paid. c. The creditor will call the attention of the debtor to the unpaid balance of $800. d. The error will become evident during the verification process at the end of the month. The total debits in the purchases journal will be less than the total credits by $3, a. Purchases journal d. Cash payments journal b. Cash payments journal e. Cash payments journal c. Purchases journal 7. An electronic form is a software window that provides the inputs for a particular transaction. For example, a check form provides the inputs (payee, amount, date) for a cash payment transaction. An electronic invoice provides the inputs (customer, amount sold, item sold) for recording revenues earned on account. 8. Transactions are posted when they are entered into the computerized system. Thus, balances are updated continuously as transactions occur. 9. For automated systems that use electronic forms, the special journals are not used to record original transactions. Rather, electronic forms capture the original transaction detail from an invoice, for example, and automatically post the transaction details to the appropriate ledger accounts. 10. E-commerce can be used by a business to conduct transactions directly with customers. Thus, an order can be received directly from the customer s Internet input, and cash can be received from the credit card. Many times, the cash is received prior to actually shipping the product, resulting in a faster revenue/collection cycle. Reducing paperwork throughout the cycle also improves the efficiency of the process. For example, all of the accounting transactions can be fed automatically from the initial Internet-based inputs. 5-1

2 PE 5-1A PRACTICE EXERCISES REVENUE JOURNAL Invoice No. Account Debited Rec. Fees Earned Cr. Aug Carson Enterprises Co City Electric Inc Juniper Co. 185 PE 5-1B REVENUE JOURNAL Invoice No. Account Debited Rec. Fees Earned Cr. Apr Lemon Co. 1, Hitchcock Inc. 2, Fletcher Inc. 990 PE 5-2A Feb. 22. Collected cash of $120 from Horizon Entertainment (Invoice No. 422). Amount posted from Page 106 of the cash receipts journal. 27. Provided $170 of services on account to Horizon Entertainment, itemized on Invoice No Amount posted from Page 92 of the revenue journal. PE 5-2B Aug. 10. Provided $750 services on account to Moravian Products Inc., itemized on Invoice No Amount posted from Page 24 of the revenue journal. 17. Collected cash of $610 from Moravian Products Inc. (Invoice No. 106). Amount posted from Page 46 of the cash receipts journal. 5-2

3 PE 5-3A PURCHASES JOURNAL Account Credited Payable Cr. Office Supplies Other Amount Oct. 6 U-Save Supply Inc Zell Computer Inc. 2,100 Office Equipment 2, U-Save Supply Inc PE 5-3B PURCHASES JOURNAL Account Credited Payable Cr. Party Supplies Other Amount Mar. 11 Party Hearty Supplies Inc Fun 4 All Supplies Inc Office Space Inc. 2,480 Office Furniture 2,

4 PE 5-4A Nov. 11. Made purchases of $1,845 on account from Migrant Technology (Invoice No. 85). Amount posted from Page 8 of the purchases journal. 22. Paid $3,270 to Migrant Technology on account (Invoice No. 43). Amount posted from Page 46 of the cash payments journal. PE 5-4B Jan. 11. Paid $64 to Colonial Inc. on account (Invoice No. 122). Amount posted from Page 71 of the cash payments journal. 26. Made purchases of $72 on account from Colonial Inc. (Invoice No. 139). Amount posted from Page 55 of the purchases journal. PE 5-5A Horizontal analysis: Increase/(Decrease) 20Y5 20Y4 Amount Percent Retail $126,000 $120,000 $ 6, % Wholesale 150, ,000 (14,000) 8.5% Total revenues $276,000 $284,000 $ (8,000) 2.8% Vertical analysis: 20Y5 20Y4 Amount Percent Amount Percent Retail $126, % $120, % Wholesale 150, % 164, % Total revenues $276, % $284, % 5-4

5 PE 5-5B Horizontal analysis: Increase/(Decrease) 20Y3 20Y2 Amount Percent Camping $280,000 $240,000 $ 40, % Fishing 140, ,000 (20,000) 12.5% Total revenues $420,000 $400,000 $ 20, % Vertical analysis: 20Y3 20Y2 Amount Percent Amount Percent Camping $280, % $240, % Fishing 140, % 160, % Total revenues $420, % $400, % 5-5

6 EXERCISES Ex General ledger accounts: (e) 2. Subsidiary ledger accounts: (a), (b), (c), (d) Ex. 5-2 a., b., and c. Receivable May 1 Bal , Bal. 7,660 May 20 2,800 May 1 2, Bal. 2, Bal. 2,050 May May 1 Bal Bal , Bal. 1,830 d. Alpha GenCorp Masco Co. BOWMAN CLEANERS INC. Receivable Customer s May 31, 20Y3 Hazmat Safety Co. Tillman Inc. Alpha GenCorp $2,800 Hazmat Safety Co. 2,050 Masco Co. 980 Tillman Inc. 1,830 Total accounts receivable $7,

7 Ex. 5-3 a. Cash receipts journal f. Cash receipts journal b. General journal g. Cash receipts journal c. Revenue journal h. General journal (not a revenue transaction) d. Cash receipts journal i General journal e. Cash receipts journal j. Cash receipts journal Ex. 5-4 a. Cash payments journal g. General journal b. Purchases journal h. Cash payments journal c. Purchases journal i. General journal d. General journal j. Cash payments journal e. General journal k. Cash payments journal f. Purchases journal Ex. 5-5 Apr. 3. Provided service on account; posted from revenue journal Page Granted an invoice adjustment or corrected an error related to sale of April 3; posted from general journal Page 11. This does not represent a collection of cash, since the credit was not posted from the cash receipts journal. 24. Received cash for balance due; posted from cash receipts journal Page

8 Ex. 5-6 a. REVENUE JOURNAL Invoice No. Account Debited Rec. Fees Earned Cr. Oct Pryor Corp Armor Inc Pryor Corp Rose Co ,960 b. $1,960 $1,960 Debit to Receivable [from revenue journal column total in (a)]. Credit to Fees Earned [from revenue journal column total in (a)]. c. $205 ($0 + $595 + $205 $595) 5-8

9 Ex. 5-7 a. and b. Aladdin Co. Clearmark Co. July 1 Bal. 625 July 4 Bal. 1, , Bal. 1, Bal. 5,550 c. Life Star Inc. July 9 3, Bal. 3,410 Receivable Fees Earned July 1 Bal. 625 July 31 9, , Bal. 9, Bal. 10,535 d. SAPLING CONSULTING INC. Receivable Customer s July 31, 20Y2 Aladdin Co. Clearmark Co. Life Star Inc. Total accounts receivable $ 1,575 5,550 3,410 $10,535 The total in the schedule above agrees with the T account balance for the accounts receivable controlling account in part (c). e. A computerized system would likely use an electronic form specially designed for recording sales transactions, such as an electronic invoice form. The transaction details would be input into the form fields and submitted. Once submitted, the transaction would be saved and automatically posted as a debit to the individual customer account receivable and a credit to the revenue account. No control totals would be posted to a controlling account. 5-9

10 Ex. 5-8 POLARIS PRODUCTIONS INC. Receivable Customer s January 31, 20Y4 Amber Communications Inc. $3,650 Clear Pointe Studios Inc. 1,650 Echo Broadcasting Co. 2,980 Gold Coast Media Inc. 0 Total accounts receivable $8,280 Note: The balances are determined by adding the debits and subtracting the credits for each subsidiary receivable account. Receivable (Controlling), January 1, 20Y4 $ 3,790 Total debits (from revenue journal) 15,680 Total credits (from cash receipts journal) (11,190), January 31, 20Y4 $ 8,280 Ex. 5-9 REVENUE JOURNAL Page 8 Invoice Rec. No. Account Debited Fees Earned Cr. 20Y8 Mar Santorini Co Gabriel Co Yarnell Inc Electronic Central Inc ,165 Account Credited CASH RECEIPTS JOURNAL Fees Earned Cr. 20Y8 Mar. 4 CMI Inc. 19 Yarnell Inc. 28 Fees Earned Santorini Co. Accts. Rec. Cr Fees Earned ,665 Page 12 Cash ,

11 Ex a. REVENUE JOURNAL Page 19 Invoice No. Account Debited 20Y5 Oct Palace Corp Sunny Style Inc Amex Services Inc Wayfarer Co. 31 Rec. Fees Earned Cr. 2,890 1,940 2, ,700 CASH RECEIPTS JOURNAL Page 25 Account Credited Fees Earned Cr. Accts. Rec. Cr. Cash 20Y5 Oct. 5 Champion Co. 1,060 1, Wayfarer Co. 1,450 1, Palace Corp. 2,890 2, Fees Earned ,400 5,520 b. LASTING SUMMER INC. Receivable Customer s October 31, 20Y5 Amex Services Inc. $2,970 Sunny Style Inc. 1,940 Wayfarer Co. 900 Total accounts receivable $5,810 The total of the customer accounts on October 31, 20Y5, $5,810, equals the balance of the accounts receivable controlling account, shown as follows: Receivable Oct. 1 Bal. 2,510 Oct Bal. 8,700 5,810 5,

12 Ex (Concluded) c. The accounts receivable subsidiary ledger is needed to track customer services provided on account and customer collections. Without the subsidiary ledger, Lasting Summer Inc. would not know who owes how much for services rendered. Furthermore, without the subsidiary ledger, it would be impossible to manage collections from individual customers. Ex General ledger account: (g), (h), (i), (j), (k), (l) 2. Subsidiary ledger account: (a), (b), (c), (d), (e), (f) 3. No posting required: (m) Ex General ledger account: (b), (c), (e), (f), (h), (i), (k), (l) 2. Subsidiary ledger account: (a), (d), (g) 3. No posting required: (j) Ex June 6. Purchased services, supplies, equipment, or other commodities on account; posted from purchases journal Page Received an invoice adjustment or corrected an error related to purchase of June 6; posted from general journal Page 12. (A payment would be recorded in the cash payments journal.) 16. Paid balance owed; posted from cash payments journal Page

13 Ex a. PURCHASES JOURNAL Account Credited Accts. Payable Cr. Office Supplies Other Amount Apr. 4 Officemate Inc Tek Village Inc. 2,460 Office Equipment 2, Officemate Inc Paper-to-Go Inc , ,460 b. $3,255 Credit to Payable [from purchases journal column total in (a)]. $795 Debit to Office Supplies [from purchases journal column total in (a)]. c. $185 ($0 + $415 + $185 $415) 5-13

14 Ex a. and b. Enviro-Wash Supplies Inc. Nicely Co. Mar Mar. 1 Bal Bal. 1, Bal. 905 c. Office Mate Inc. Mar. 20 3, Bal. 3,860 Payable Cleaning Supplies Mar. 1 Bal. 580 Mar. 31 1, , Bal. 1, Bal. 5,840 d. NEWMARK EXTERIOR CLEANERS INC. Payable Creditor s March 31, 20Y2 Enviro-Wash Supplies Inc. Nicely Co. Office Mate Inc. Total accounts payable $1, ,860 $5,840 The total in the schedule above agrees with the T account balance for the accounts payable control account in (c). e. A computerized system would likely use an electronic form specially designed for recording purchase transactions. The transaction details would be input into the form fields and submitted. Once submitted, the transaction would be saved and automatically posted as a debit to an appropriate asset account and a credit to the individual creditor accounts payable account. No control totals would be posted to a controlling account. 5-14

15 Ex OUTDOOR ARTISAN LANDSCAPING Payable Creditor s June 30, 20Y1 Augusta Sod Co. $ 6,450 Concrete Equipment Co. 6,700 Home Centers Lumber Co. 8,430 Nu Lawn Fertilizer 0 Total accounts payable $21,580 Note: The account balances are determined by subtracting the debits from the credits for each account. Payable (Controlling), June 1, 20Y1 $ 2,230 Total credits (from purchases journal) 27,700 Total debits (from cash payments journal) (8,350), June 30, 20Y1 $21,

16 Ex PURCHASES JOURNAL Page 36 Account Credited Payable Cr. Cleaning Supplies Other Amount 20Y5 May 3 Brite N' Shine Products Inc Porter Products Inc Bio Safe Supplies Inc Bowman Electrical Service 110 Electrical Service Expense (21) (14) CASH PAYMENTS JOURNAL Page 41 Ck. No. Account Debited 20Y5 May 1 57 Bio Safe Supplies Inc Equipment 18 2,860 2, Bowman Electrical Service Brite N' Shine Products Inc Salary Expense 51 5,600 5, , ,150 (21) (11) Other Payable Cash Cr. 5-16

17 Ex a. PURCHASES JOURNAL Page 16 Account Credited Payable Cr. Pet Supplies Other Amount 20Y4 Sept. 4 Best Friend Supplies Inc Poodle Pals Inc Office Helper Inc. 2,510 Office Equipment 18 2, Meow Mart Inc ,045 1,535 2,510 (21) (14) CASH PAYMENTS JOURNAL Page 22 Ck. No. Account Debited Other Payable 20Y4 Sept Labradore Inc Meow Mart Inc Best Friend Supplies Inc Cleaning Expense (21) (11) Cash Cr. 5-17

18 Ex (Concluded) b. HAPPY TAILS INC. Payable Creditor s September 30, 20Y4 Meow Mart Inc. $ 450 Poodle Pals Inc. 790 Office Helper Inc. 2,510 Total accounts payable $3,750 The total of the creditor accounts on September 30, 20Y4, $3,750, equals the balance of the accounts payable controlling account, shown as follows: Payable Sept Sept. 1 Bal Bal ,045 3,750 c. Happy Tails Inc. uses a subsidiary ledger for accounts payable to track its credit purchases and payments to the individual supplier. This is needed so that it knows how much it owes to each individual supplier. Without the subsidiary ledger, Happy Tails Inc. would have difficulty accurately paying suppliers for the amount owed in a timely manner. Ex a. Two errors were made in balancing the accounts in the subsidiary ledger: (1) The Carbon Supplies Inc. transaction of March 9 should have resulted in a balance of $15,300 instead of $14,000, and the account balance at March 12 should have been $15,000 instead of $13,700. The account balance at March 20 should have been $9,200 instead of $7,900. (2) The Hudson Bay Minerals Co. transaction of March 25 should have resulted in a balance of $700 instead of $1,

19 Ex (Concluded) b. BUNKER HILL ASSAY SERVICES INC. Payable Creditor s March 31, 20Y4 C. D. Greer and Son $15,750 Carbon Supplies Inc. 9,200 Cutler and Powell 7,800 Hudson Bay Minerals Co. 700 Valley Power 3,150 Total accounts payable $36,600 Ex Cash receipts journal: (a) Cash payments journal: (b) Revenue journal: (c) Purchases journal: (d) General journal: (e) Ex The Cash column is for debits (not credits). 2. The Other column is for credits (not debits). 3. A better order of columns would be to place the Other Cr. column to the left of the Fees Earned Cr. column. A recommended and corrected cash receipts journal is as follows: CASH RECEIPTS JOURNAL Page 12 Account Credited Other Cr. Fees Earned Cr. Accts. Rec. Cr. Cash 5-19

20 Ex a. In the electronic invoice form from QuickBooks shown above, typical fields for data input can be identified as follows: 1. Customer name and address 2. and invoice number 3. Description of item sold 4. Amount of revenue b. The customer Receivable is debited, and Fees Earned is credited. A computerized accounting system does not require posting to a separate accounts receivable control account. In this case, the total accounts receivable reported on the balance sheet is merely the sum of the balances of the individual customer account balances. That is, the accounts receivable account summarizes the customer accounts automatically. 5-20

21 Ex (Concluded) c. Controlling accounts are not posted at the end of the month in a computerized accounting system. Transactions are recorded through data input into electronic forms, into electronic special journals, or for infrequent transactions, by an electronic general journal. s of affected accounts are automatically posted and updated from the information recorded on the form. If desired, the computer can provide a printout of the monthly transaction history for a particular account, which provides the same information as a journal. In addition, the controlling account is not posted separately. In a manual system, separate posting to the controlling account provides additional control by reconciling the controlling account balance against the sum of the individual customer account balances. However, in a computerized accounting system, there are no separate postings to a controlling account because the computer is not going to make posting or mathematical errors. Therefore, there is no need for the additional control provided by posting a journal total to a controlling account. Ex a. itunes is an example of a B2C, or business-to-consumer, e-commerce application. The B, or business, is Apple. The C, or consumers, would mostly be individuals who purchase digital products from the download store. b. Cash 15 Fees Earned 15 c. The cash receipts journal would be used to record debits to Cash from cash sales or collections on account. d. The electronic invoice form could be used for either transactions on account, as illustrated in the chapter, or for cash sales. The invoice form used for sales on account is different from the one used for cash sales. The latter invoice form makes a debit to Cash, rather than a debit to a customer account. e. Sales made on B2C e-commerce transactions are computerized transactions, so a special journal is inappropriate. On an e-commerce site, the consumer inputs the transaction information on the web page; thus, there is no need for a separate electronic form for reentering the same information to record the sale. Essentially, the e-commerce application is the form that originates the sales transaction inside the accounting system. Accounting transactions flow directly from the shopping cart information directly into the accounting system. 5-21

22 Ex a. Amazon.com B2C. Sells books, DVDs, and other products to individual consumers. b. Dell Inc. B2C and B2B. Sells computer products to both individuals and corporations. Its site separates individual and corporate sales. c. DuPont B2B. Specialty chemicals. DuPont Direct is its B2B web application. d. Intuit Inc. B2C and B2B. Arranges its site for both individuals and businesses because its products are divided this way. e. L.L. Bean, Inc. B2C. Consumer clothes e-retailer. f. W.W. Grainger, Inc. B2B. Sells maintenance, repair, and operating supplies to manufacturing companies. Ex a. Horizontal analysis: Recent Year (in millions) Prior Year (in millions) Increase/(Decrease) Amount Percent Americas $13,293 $11,980 $1, % EMEA 1,217 1,295 (78) 6.0% China/Asia Pacific 2,396 1,130 1, % Channel Development 1,731 1, % Other % Total revenues $19,163 $16,448 $2, % b. Vertical analysis: Recent Year Prior Year Amount Percent Amount Percent Americas $13, % $11, % EMEA 1, % 1, % China/Asia Pacific 2, % 1, % Channel Development 1, % 1, % Other % % Total revenues $19, % $16, % 5-22

23 Ex (Concluded) c. The horizontal analysis indicates that the total revenues of Starbucks increased by more than 16% (16.5%) from the prior year to the recent year. This increase is explained by continued consumer preference for Starbucks coffee and aggressive Asian expansion. Revenues increased by 112% in China/Asia Pacific versus 11% in the Americas. This was a noticeable difference in growth. Apparently, there are more store openings in China/Asia Pacific than in the Americas. EMEA actually declined slightly ( 6%) between the two years, indicating a maturing market. The vertical analysis indicates that the percent of Americas revenues to total revenues decreased from 72.8% in the prior year to 69.4% in the recent year. In this same period, the percent of China/Asia Pacific to total revenues increased from 6.9% in the prior year to 12.5% in the recent year. This again confirms significant growth in China. Channel Development grew by 12% and nearly maintained its percent of total revenues between the two years. Both analyses indicate that China/Asia Pacific has been the primary engine for Starbucks growth. 5-23

24 Ex a. Twenty-First Century Fox, Inc. Major Product Segments Cable Network Programming For a Recent Year (in Millions) $13,773 Percent 45.4% Television 4, % Filmed Entertainment 9, % Direct Broadcast Satellite Television 2, % Total revenues $30, % b. Twenty-First Century Fox, Inc. is moderately diversified. The Cable Network Programming segment has the largest percent of revenues to total revenues at 45.4%. This segment represents almost half the revenues of the company. However, Television and Filmed Entertainment have a percent of revenues to total revenues of over 16% and 31%, respectively. Thus, these are significant segments suggesting a degree of diversification when all three are considered together. The Direct Broadcast Satellite Television segment is the smallest segment with revenues equal to 7% of total revenues and thus provides some minor additional diversification. 5-24

25 Ex a. Horizontal analysis: Year 2 (in millions) Year 1 (in millions) Increase/(Decrease) Amount Percent China $ 6,909 $ 6,934 $ (25) 0.4% KFC 2,948 3,193 (245) 7.7% Pizza Hut 1,145 1,148 (3) 0.3% Taco Bell 1,988 1, % India (26) 18.4% Total revenues $13,105 $13,279 $(174) 1.3% b. Vertical analysis: Amount (in millions) Year 2 Year 1 Amount (in millions) Percent Percent China $ 6, % $ 6, % KFC 2, % 3, % Pizza Hut 1, % 1, % Taco Bell 1, % 1, % India % % Total revenues $13, % $13, % * *The sum is less than 100% due to rounding errors in the percentage calculations. c. The total revenues have declined by 1.3% between the two years. The largest declines occurred in the KFC ( 7.7%) and India ( 18.4%) segments. These declines more than offset the increase in the Taco Bell segment. Thus, overall, there was a small decline in revenue. The vertical analysis indicates that China represents the largest segment as a percent of revenues (52.7%), followed by KFC (22.5%) and Taco Bell (15.2%). The KFC segment dropped significantly as a percent of revenues between the two years (24.0% vs. 22.5%), while Taco Bell grew as a percent of total revenues between the two years (14.0% vs. 15.2%). 5-25

26 PROBLEMS Prob. 5-1A 1. and 2. REVENUE JOURNAL Page 1 Invoice No. Account Debited Rec. Fees Earned Cr. July 21 1 J. Dunlop 22 2 K. Tisdale 24 3 T. Quinn 27 4 F. Mintz 30 5 D. Chase 30 6 K. Tisdale 31 7 T. Quinn ,170 (12) (41) JOURNAL Page 1 Description Debit Credit July 25 Supplies Fees Earned

27 Prob. 5-1A (Continued) ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER Name: D. Chase Item Debit Credit July 30 R Name: J. Dunlop Item Debit Credit July 21 R Name: F. Mintz Item Debit Credit July 27 R Name: T. Quinn Item Debit Credit July 24 R R Name: K. Tisdale Item Debit Credit July 22 R R

28 Prob. 5-1A (Concluded) GENERAL LEDGER Receivable Account No. 12 July 31 R1 1,170 1,170 Supplies Account No. 13 July 25 J Fees Earned Account No. 41 July 25 J R1 1,170 1, a. $1,170 ($170 + $115 + $225 + $190 + $470) b. $1, The computerized system is more efficient. Each sales transaction is entered into an electronic invoice form. The postings to the accounts receivable subsidiary and fees earned ledgers are automatic. Also, all sums and totals in the subsidiary ledgers are calculated automatically. There are no separate postings to an accounts receivable control account because there is no need to verify the accuracy of account totals. There is no math or posting error. The computerized system also provides management with current customer account balance information because the postings are automatic. 5-28

29 Prob. 5-2A 1. and 5. Cash GENERAL LEDGER Account No. 11 Apr. 1 11, CR36 34,390 45,740 Receivable Account No. 12 Apr. 1 14, J1 3,200 11, R40 23,090 34, CR36 21,500 13,220 Notes Receivable Account No. 14 Apr. 1 6, J1 3,200 9,200 Fees Earned Account No. 41 Apr. 30 R40 23,090 23, CR36 12,890 35,

30 Prob. 5-2A (Continued) 2. and 4. ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER Name: Mendez Co. Item Debit Credit Apr. 1 8,710 5 CR36 8, R40 7,470 7,470 Name: Ohr Co. Item Debit Credit Apr. 2 R40 4,680 4, CR36 4,680 Name: Pinecrest Co. Item Debit Credit Apr. 1 6,120 6 R40 1,990 8, CR36 6,120 1, R40 5,500 7, CR36 1,990 5,500 Name: Shilo Co. Item Debit Credit Apr. 13 R40 3,450 3, J1 3,

31 Prob. 5-2A (Continued) 3., 4., and 5. REVENUE JOURNAL Page 40 Invoice No. Account Debited Rec. Fees Earned Cr. Apr Ohr Co Pinecrest Co Shilo Co Pinecrest Co Mendez Co. 30 4,680 1,990 3,450 5,500 7,470 23,090 (12) (41) CASH RECEIPTS JOURNAL Page 36 Account Credited Fees Earned Cr. Accts. Rec. Cr. Cash Apr. 5 Mendez Co. 8,710 8, Pinecrest Co. 6,120 6, Ohr Co. 4,680 4, Pinecrest Co. 1,990 1, Fees Earned 12,890 12, ,890 (41) 21,500 (12) 34,390 (11) JOURNAL Page 1 Description Debit Credit Apr. 25 Notes Receivable 14 3,200 Receivable Shilo Co. 12/ 3,200 The subsidiary account of Shilo Co. must also be posted for a $3,000 credit. 5-31

32 Prob. 5-2A (Concluded) 6. The sum of the customer balances is in agreement with the controlling account. Both have balances of $13,220 ($7,470 + $5,500 + $250). 7. In an automated system, individual sales transactions are posted automatically to the general ledger at the time of the original transaction. Thus, there is no need to post summary totals to the general ledger accounts. The accounts receivable account reported on the balance sheet is often merely the sum of the individual customer accounts. 5-32

33 Prob. 5-3A 1. and 4. Field Supplies GENERAL LEDGER Account No. 14 Oct. 1 5, P30 11,930 17,850 Office Supplies Account No. 15 Oct P30 1,030 1,780 Office Equipment Account No. 18 Oct. 1 12,300 5 P30 3,980 16,280 Payable Account No. 21 Oct. 1 1, P30 16,940 18,

34 Prob. 5-3A (Continued) 2. and 3. ACCOUNTS PAYABLE SUBSIDIARY LEDGER Name: Executive Office Supply Co. Item Debit Credit Oct P P ,020 Name: Meade Co. Item Debit Credit Oct P ,180 Name: Omni Co. Item Debit Credit Oct. 14 P30 2,940 2, P30 3,880 6, P30 1,800 8,620 Name: Peach Computers Co. Item Debit Credit Oct. 5 P30 3,980 3,980 Name: Yamura Co. Item Debit Credit Oct. 13 P30 1,420 1, P30 1,890 3,

35 Prob. 5-3A (Concluded) 3. and 4. PURCHASES JOURNAL Page 30 Account Credited Payable Cr. Field Supplies Office Supplies Other Amount Oct. 2 Meade Co Peach Computers Co. 3,980 Office Equipment 18 3,980 9 Executive Office Supply Co Yamura Co. 1,420 1, Omni Co. 2,940 2, Yamura Co. 1,890 1, Omni Co. 3,880 3, Executive Office Supply Co Omni Co. 1,800 1, ,940 11,930 1,030 3,980 (21) (14) (15) ( ) 5. a. $18,110 ($1,020 + $1,180 + $8,620 + $3,980 + $3,310) b. $18, Supply chain management e-commerce applications would be used to plan and coordinate transactions with suppliers. 5-35

36 Prob. 5-4A 1., 2., and 3. PURCHASES JOURNAL Page 1 Account Credited Payable Cr. Field Supplies Office Supplies Other Amount Apr. 16 Hydro Supply Co. 5,340 5, Pure Equipment Co. 21,450 Field Equipment 17 21, Best Office Supply Co Best Office Supply Co Hydro Supply Co. 7,650 7, Pure Equipment Co. 6,040 1,340 Field Equipment 17 4, ,650 14,330 1,170 26,150 (21) (14) (15) ( ) 5-36

37 Prob. 5-4A (Continued) CASH PAYMENTS JOURNAL Page 1 Ck. No. Account Debited Other Payable Cash Cr. Apr Rent Expense 71 3,500 3, Field Supplies 14 3,340 3,340 Office Supplies Land , , Hydro Supply Co. 5,340 5, Pure Equip. Co. 21,450 21, Best Office Supply Co Salary Expense 61 29,400 29, ,640 27, ,940 ( ) (21) (11) 1. and 2. JOURNAL Page 1 Description Debit Credit Apr. 30 Land 19 12,000 Field Equipment 17 12,

38 Prob. 5-4A (Continued) 1. ACCOUNTS PAYABLE SUBSIDIARY LEDGER Name: Best Office Supply Co. Item Debit Credit Apr. 17 P P , CP Name: Hydro Supply Co. Item Debit Credit Apr. 16 P1 5,340 5, CP1 5, P1 7,650 7,650 Name: Pure Equipment Co. Item Debit Credit Apr. 16 P1 21,450 21, CP1 21, P1 6,040 6,

39 Prob. 5-4A (Continued) 2. and 3. Cash GENERAL LEDGER Account No. 11 Apr. 30 CP1 203, ,940 Field Supplies Account No. 14 Apr. 19 CP1 3,340 3, P1 14,330 17,670 Office Supplies Account No. 15 Apr. 19 CP P1 1,170 1,570 Field Equipment Account No. 17 Apr. 16 P1 21,450 21, P1 4,700 26, J1 12,000 14,150 Land Account No. 19 Apr. 23 CP1 140, , J1 12, ,

40 Prob. 5-4A (Concluded) Payable Account No. 21 Apr. 30 P1 41,650 41, CP1 27,300 14,350 Salary Expense Account No. 61 Apr. 30 CP1 29,400 29,400 Rent Expense Account No. 71 Apr. 16 CP1 3,500 3, AQUAFRESH WATER TESTING SERVICE Payable Creditor s April 30 Best Office Supply Co. $ 660 Hydro Supply Co. 7,650 Pure Equipment Co. 6,040 Total accounts payable* $14,350 * The total of the schedule of accounts payable is equal to the balance of the accounts payable control account. 5. A subsidiary ledger for the field equipment would allow the company to track each piece of equipment with respect to cost, location, useful life, and other data. Such information would be useful for safeguarding equipment and determining depreciation. 5-40

41 Prob. 5-5A 1., 3., and 4. Cash GENERAL LEDGER Account No. 11 Dec , CR31 53, , CP34 119,940 95,620 Receivable Account No. 12 Dec. 1 12, R35 19,210 32, CR31 14,680 17,470 Maintenance Supplies Account No. 14 Dec. 1 10, J1 3,200 7, P37 3,250 10,900 Office Supplies Account No. 15 Dec. 1 4, CP , P ,015 Office Equipment Account No. 16 Dec. 1 28,500 6 P37 4,500 33,

42 Prob. 5-5A (Continued) Accumulated Depreciation Office Equipment Account No. 17 Dec. 1 6,900 Vehicles Account No. 18 Dec. 1 95,900 5 P37 37, , CP34 39, ,000 Accumulated Depreciation Vehicles Account No. 19 Dec. 1 14,700 Payable Account No. 21 Dec. 1 3, P37 45,825 49, CP34 45,720 4,025 S. Holmes, Capital Account No. 31 Dec ,250 S. Holmes, Drawing Account No. 32 Dec. 24 CP34 3,000 3,

43 Prob. 5-5A (Continued) Fees Earned Account No. 41 Dec. 16 CR31 20,300 20, CR31 18,900 39, R35 19,210 58,410 Driver Salaries Expense Account No. 51 Dec. 30 CP34 16,900 16,900 Maintenance Supplies Expense Account No. 52 Dec. 20 J1 3,200 3,200 Fuel Expense Account No. 53 Dec. 9 CP Office Salaries Expense Account No. 61 Dec. 30 CP34 7,100 7,100 Rent Expense Account No. 62 Dec. 1 CP34 4,200 4,

44 Prob. 5-5A (Continued) Advertising Expense Account No. 63 Dec. 20 CP34 1,780 1,780 Miscellaneous Administrative Expense Account No. 64 Dec. 17 CP

45 Prob. 5-5A (Continued) 2. and 4. PURCHASES JOURNAL Page 37 Account Credited Payable Cr. Maintenance Supplies Office Supplies Other Amount Dec. 5 Platinum Motors 37,300 Vehicles 18 37,300 6 Austin Computer Co. 4,500 Office Equipment 16 4, Essential Supply Co. 1,750 1, McClain Co. 1,875 1, Office To Go Inc ,825 3, ,800 (21) (14) (15) ( ) CASH RECEIPTS JOURNAL Page 31 Account Credited Other Cr. Receivable Cr. Cash Dec. 3 Ryan Co. 4,800 4, Sing Co. 4,040 4, Clifford Co. 1,740 1, Fees Earned 41 20,300 20, Ryan Co. 4,100 4, Fees Earned 41 18,900 18, ,200 14,680 53,880 ( ) (12) (11) 5-45

46 Prob. 5-5A (Continued) 2. and 4. REVENUE JOURNAL Page 35 Invoice No. Account Debited Rec. Fees Earned Cr. Dec Clifford Co Ernesto Co Joy Co Sing Co Ernesto Co. 31 1,740 3,870 1,970 6,100 5,530 19,210 (12) (41) CASH PAYMENTS JOURNAL Page 34 Ck. No. Account Debited Other Payable Cash Cr. Dec Rent Expense 62 4,200 4, Fuel Expense Office To Go Inc Essential Supply Co. 3,090 3, Porter Co Platinum Motors 37,300 37, Vehicles 18 39,800 39, Misc. Admin. Expense Advertising Expense 63 1,780 1, S. Holmes, Drawing 32 3,000 3, Austin Computer Co. 4,500 4, Driver Salaries Exp ,900 16,900 Office Salaries Exp. 61 7,100 7, Office Supplies ,220 45, ,940 ( ) (21) (11) 5-46

47 Prob. 5-5A (Concluded) 3. JOURNAL Page 1 Description Debit Credit Dec. 20 Maintenance Supplies Expense 52 3,200 Maintenance Supplies 14 3, REVERE COURIER COMPANY Unadjusted Trial December 31 Account Debit Credit No. s s Cash 11 95,620 Receivable 12 17,470 Maintenance Supplies 14 10,900 Office Supplies 15 6,015 Office Equipment 16 33,000 Accumulated Depreciation Office Equipment 17 6,900 Vehicles ,000 Accumulated Depreciation Vehicles 19 14,700 Payable 21 4,025 S. Holmes, Capital ,250 S. Holmes, Drawing 32 3,000 Fees Earned 41 58,410 Driver Salaries Expense 51 16,900 Maintenance Supplies Expense 52 3,200 Fuel Expense Office Salaries Expense 61 7,100 Rent Expense 62 4,200 Advertising Expense 63 1,780 Miscellaneous Administrative Expense , ,

48 Prob. 5-1B 1. and 2. REVENUE JOURNAL Page 1 Invoice No. Account Debited Rec. Fees Earned Cr. Jan Murphy Co Qwik-Mart Co Hopkins Co Carson Co Amber Waves Co Qwik-Mart Co Hopkins Co ,875 (12) (41) JOURNAL Page 1 Description Debit Credit Jan. 28 Supplies Fees Earned

49 Prob. 5-1B (Continued) ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER Name: Amber Waves Co. Item Debit Credit Jan. 28 R Name: Carson Co. Item Debit Credit Jan. 27 R Name: Hopkins Co. Item Debit Credit Jan. 24 R R ,045 Name: Murphy Co. Item Debit Credit Jan. 18 R Name: Qwik-Mart Co. Item Debit Credit Jan. 20 R R

50 Prob. 5-1B (Concluded) GENERAL LEDGER Receivable Account No. 12 Jan. 31 R1 2,875 2,875 Supplies Account No. 14 Jan. 28 J Fees Earned Account No. 41 Jan. 28 J R1 2,875 2, a. $2,875 ($120 + $680 + $1,045 + $490 + $540) b. $2, The computerized system is more efficient. Each sales transaction is entered into an electronic invoice form. The postings to the accounts receivable subsidiary and fees earned ledgers are automatic. Also, all sums and totals in the subsidiary ledgers are calculated automatically. There are no separate postings to an accounts receivable control account because there is no need to verify the accuracy of account totals. There is no math or posting error. The computerized system also provides management with current customer account balance information because the postings are automatic. 5-50

51 Prob. 5-2B 1. and 5. Cash GENERAL LEDGER Account No. 11 June 1 18, CR36 9,270 27,610 Receivable Account No. 12 June 1 2, J1 1, R40 6,200 7, CR36 4,750 2,300 Office Equipment Account No. 18 June 1 34, J1 1,800 36,500 Fees Earned Account No. 41 June 30 R40 6,200 6, CR36 4,520 10,

52 Prob. 5-2B (Continued) 2. and 4. ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER Name: Auto-Flex Co. Item Debit Credit June 1 1,670 3 CR36 1, R Name: Cooper Development Co. Item Debit Credit June R , CR R , CR Name: Ridge Communities Item Debit Credit June 10 R40 2,840 2, J1 1,800 1,040 Name: Yee Co. Item Debit Credit June 2 R40 1,430 1, CR36 1,

53 Prob. 5-2B (Continued) 3., 4., and 5. REVENUE JOURNAL Page 40 Invoice No. Account Debited Rec. Fees Earned Cr. June Yee Co Cooper Development Co Ridge Communities Cooper Development Co Auto-Flex Co. 30 1, , ,200 (12) (41) CASH RECEIPTS JOURNAL Page 36 Account Credited Fees Earned Cr. Accts. Rec. Cr. Cash June 3 Auto-Flex Co. 1,670 1, Cooper Development Co Yee Co. 1,430 1, Cooper Development Co Fees Earned 4,520 4, ,520 (41) 4,750 (12) 9,270 (11) JOURNAL Page 1 Description Debit Credit June 30 Office Equipment 18 1,800 Receivable Ridge Communities 12/ 1,800 The subsidiary account for Ridge Communities must also be posted for an $1,800 credit. 5-53

54 Prob. 5-2B (Concluded) 6. The sum of the customer balances is in agreement with the controlling account. Both have balances of $2,300 ($860 + $400 + $1,040). 7. In an automated system, individual sales transactions are posted automatically to the general ledger at the time of the original transaction. Thus, there is no need to post summary totals to the general ledger accounts. The accounts receivable account reported on the balance sheet is often merely the sum of the individual customer accounts. 5-54

55 Prob. 5-3B 1. and 4. Field Supplies GENERAL LEDGER Account No. 14 May 1 6, P30 16,900 23,100 Office Supplies Account No. 15 May 1 1, P30 1,105 2,595 Office Equipment Account No. 18 May 1 19, P30 8,150 27,550 Payable Account No. 21 May 1 5, P30 26,155 31,

56 Prob. 5-3B (Continued) 2. and 3. ACCOUNTS PAYABLE SUBSIDIARY LEDGER Name: Accu-Vision Supply Co. Item Debit Credit May 1 3, P30 8,150 12,050 Name: J-Mart Co. Item Debit Credit May P , P ,495 Name: Lassiter Co. Item Debit Credit May P Name: Tri Cities Supplies Item Debit Credit May 8 P30 4,500 4, P30 2,450 6, P30 3,040 9,990 Name: Wendell Co. Item Debit Credit May 1 P30 3,240 3, P30 3,670 6,

57 Prob. 5-3B (Concluded) 3. and 4. PURCHASES JOURNAL Page 30 Account Credited Payable Cr. Field Supplies Office Supplies Other Amount May 1 Wendell Co. 3,240 3,240 3 Lassiter Co Tri Cities Supplies 4,500 4, Wendell Co. 3,670 3, J-Mart Co Accu-Vision Supply Co. 8,150 Office Equipment 18 8, Tri Cities Supplies 2,450 2, J-Mart Co Tri Cities Supplies 3,040 3, ,155 16,900 1,105 8,150 (21) (14) (15) ( ) 5. a. $31,300 ($12,050 + $1,495 + $855 + $9,990 + $6,910) b. $31, Supply chain management e-commerce applications would be used to plan and coordinate transactions with suppliers. 5-57

58 Prob. 5-4B 1., 2., and 3. PURCHASES JOURNAL Page 1 Account Credited Payable Cr. Field Supplies Office Supplies Other Amount Oct. 16 Petro Services Inc. 32,600 Field Equipment 17 32, Midland Supply Co. 9,780 9, A-One Office Supply Co. 1,320 1, A-One Office Supply Co. 3,670 3, Petro Services Inc. 30,800 25,300 Office Equipment 18 5, Midland Supply Co. 12,450 12, ,620 47,530 4,990 38,100 (21) (14) (15) ( ) 5-58

59 Prob. 5-4B (Continued) 1. and 2. JOURNAL Page 1 Description Debit Credit Oct. 31 Prepaid Rent 16 15,000 Field Equipment 17 15,000 1., 2., and 3. CASH PAYMENTS JOURNAL Page 1 Ck. No. Account Debited Other Payable Cash Cr. Oct Rent Expense 71 7,000 7, Field Supplies 14 4,570 4,570 Office Supplies Petro Services Inc. 32,600 32, Midland Supply Co. 9,780 9, Land , , A-One Office Supply Co. 1,320 1, Salary Expense 61 32,000 32, ,220 43, ,920 ( ) (21) (11) 5-59

60 Prob. 5-4B (Continued) 1. ACCOUNTS PAYABLE SUBSIDIARY LEDGER Name: A-One Office Supply Co. Item Debit Credit Oct. 20 P1 1,320 1, P1 3,670 4, CP1 1,320 3,670 Name: Midland Supply Co. Item Debit Credit Oct. 17 P1 9,780 9, CP1 9, P1 12,450 12,450 Name: Petro Services Inc. Item Debit Credit Oct. 16 P1 32,600 32, CP1 32, P1 30,800 30,

61 Prob. 5-4B (Continued) 2. and 3. GENERAL LEDGER Cash Account No. 11 Oct. 31 CP1 327, ,920 Field Supplies Account No. 14 Oct. 18 CP1 4,570 4, P1 47,530 52,100 Office Supplies Account No. 15 Oct. 18 CP P1 4,990 5,640 Prepaid Rent Account No. 16 Oct. 31 J1 15,000 15,000 Field Equipment Account No. 17 Oct. 16 P1 32,600 32, J1 15,000 17,600 Office Equipment Account No. 18 Oct. 31 P1 5,500 5,

62 Prob. 5-4B (Concluded) Land Account No. 19 Oct. 28 CP1 240, ,000 Payable Account No. 21 Oct. 31 P1 90,620 90, CP1 43,700 46,920 Salary Expense Account No. 61 Oct. 31 CP1 32,000 32,000 Rent Expense Account No. 71 Oct. 16 CP1 7,000 7, WEST TEXAS EXPLORATION CO. Payable Creditor s October 31 A-One Office Supply Co. $ 3,670 Midland Supply Co. 12,450 Petro Services Inc. 30,800 Total accounts payable* $46,920 * The total of the schedule of accounts payable is equal to the balance of the accounts payable control account. 5. A subsidiary ledger for the field equipment would allow the company to track each piece of equipment with respect to cost, location, useful life, and other data. Such information would be useful for safeguarding equipment and determining depreciation. 5-62

63 Prob. 5-5B 1., 3., and 4. Cash GENERAL LEDGER Account No. 11 Mar. 1 65, CR31 96, , CP34 135,365 25,885 Receivable Account No. 12 Mar. 1 31, R35 39,540 71, CR31 38,950 32,540 Maintenance Supplies Account No. 14 Mar. 1 7, J1 4,400 2, P37 5,070 7,910 Office Supplies Account No. 15 Mar. 1 3, CP , P37 2,490 6,780 Office Equipment Account No. 16 Mar. 1 17,300 3 P37 1,570 18,

64 Prob. 5-5B (Continued) Accumulated Depreciation Office Equipment Account No. 17 Mar. 1 4,250 Vehicles Account No. 18 Mar. 1 62,400 2 P37 26,900 89, CP34 28, ,800 Accumulated Depreciation Vehicles Account No. 19 Mar. 1 17,800 Payable Account No. 21 Mar. 1 2, P37 36,030 38, CP34 31,225 7,560 J. Wu, Capital Account No. 31 Mar ,975 J. Wu, Drawing Account No. 32 Mar. 27 CP34 4,000 4,

65 Prob. 5-5B (Continued) Fees Earned Account No. 41 Mar. 16 CR31 26,800 26, CR31 29,400 56, R35 39,540 95,740 Rent Revenue Account No. 42 Mar. 18 CR Driver Salaries Expense Account No. 51 Mar. 30 CP34 33,300 33,300 Maintenance Supplies Expense Account No. 52 Mar. 20 J1 4,400 4,400 Fuel Expense Account No. 53 Mar. 9 CP Office Salaries Expense Account No. 61 Mar. 31 CP34 21,200 21,

66 Prob. 5-5B (Continued) Rent Expense Account No. 62 Mar. 1 CP34 2,450 2,450 Advertising Expense Account No. 63 Mar. 20 CP34 8,590 8,590 Miscellaneous Administrative Expense Account No. 64 Mar. 17 CP34 4,680 4,

67 Prob. 5-5B (Continued) 2. and 4. PURCHASES JOURNAL Page 37 Account Credited Payable Cr. Maintenance Supplies Office Supplies Other Amount Mar. 2 McIntyre Sales Co. 26,900 Vehicles 18 26,900 3 Office Mate Inc. 1,570 Office Equipment 16 1, Bastille Co. 2,430 2, Master Supply Co. 4,140 2,640 1, Office City ,030 5,070 2,490 28,470 (21) (14) (15) ( ) CASH RECEIPTS JOURNAL Page 31 Account Credited Other Cr. Receivable Cr. Cash Mar. 6 Chavez Co. 7,950 7, Sajeev Co. 10,000 10, Ellis Co. 7,000 7, Fees Earned 41 26,800 26, Rent Revenue Chavez Co. 14,000 14, Fees Earned 41 29,400 29,400 57,100 38,950 96,050 ( ) (12) (11) 5-67

68 Prob. 5-5B (Continued) 2. and 4. REVENUE JOURNAL Page 35 Invoice No. Account Debited Rec. Fees Earned Cr. Mar Ellis Co Trent Co Jarvis Co Sajeev Co Trent Co. 31 7,000 9,840 7,200 9,200 6,300 39,540 (41) (12) CASH PAYMENTS JOURNAL Page 34 Ck. No. Account Debited Other Payable Cash Cr. Mar Rent Expense 62 2,450 2, Fuel Expense Office City Bastille Co. 1,890 1, Porter Co McIntyre Sales Co. 26,900 26, Vehicles 18 28,500 28, Misc. Admin. Expense 64 4,680 4, Advertising Expense 63 8,590 8, Office Mate Inc. 1,570 1, J. Wu, Drawing 32 4,000 4, Driver Salaries Expense 51 33,300 33, Office Salaries Expense 61 21,200 21, Office Supplies ,140 31, ,365 ( ) (21) (11) 5-68

69 Prob. 5-5B (Concluded) 3. JOURNAL Page 1 Description Debit Credit Mar. 20 Maintenance Supplies Expense 52 4,400 Maintenance Supplies 14 4, AM EXPRESS COMPANY Unadjusted Trial March 31 Account Debit Credit No. s s Cash 11 25,885 Receivable 12 32,540 Maintenance Supplies 14 7,910 Office Supplies 15 6,780 Office Equipment 16 18,870 Accumulated Depreciation Office Equipment 17 4,250 Vehicles ,800 Accumulated Depreciation Vehicles 19 17,800 Payable 21 7,560 J. Wu, Capital ,975 J. Wu, Drawing 32 4,000 Fees Earned 41 95,740 Rent Revenue Driver Salaries Expense 51 33,300 Maintenance Supplies Expense 52 4,400 Fuel Expense Office Salaries Expense 61 21,200 Rent Expense 62 2,450 Advertising Expense 63 8,590 Miscellaneous Administrative Expense 64 4, , ,

70 CASES & PROJECTS CP 5-1 a. The half-price offer is a normal business practice so long as it is not the result of price collusion with other competitors or is considered unfair pricing according to federal statutes. Many businesses offer low initial services to entice customers to a subscription service. For example, cable and satellite companies often offer premium channels, such as HBO, for free for the first several months of service. The business objective of low initial pricing is to demonstrate the value of the service so that customers will elect to continue the service at the full subscription price. Thus, there is nothing inherently unethical about such a practice, and it is considered a fairly typical business practice. b. Customer lock-in can be unethical if it is the result of fixing prices or acquiring competitors to achieve monopolistic concentration within an industry. However, in this case, the customer lock-in is a function and nature of the product. Namely, the data that are created by the product cannot be easily migrated to another application. Note that Netbooks is not denying the customer ownership of the data; rather, Netbooks is making it costly to switch. Such lock-in is not considered an unethical business practice. Indeed, we see such lock-in characteristics in many settings. For example: Razor blades are designed to be used only by the handle of the manufacturer. Thus, customers become locked in to the razor blades of the handle manufacturer. This is such a common strategy in many arenas that it has been termed the razor blade strategy. Movie theaters prevent customers from walking in with refreshments, thus locking theater goers in to the popcorn and refreshment stand of the theater. Theater pricing of refreshments reflects this lock-in. Sony designs video games so that they only work on its PlayStation equipment. Therefore, the games are locked in to the consoles. This allows Sony and its licensees to limit and control competition for games. Many manufacturers control replacement parts for equipment by customdesigning the parts. Customers then become locked in to the original manufacturer for replacement parts. Apple Computer s itunes can only be played on an itunes-compatible player. Thus, Apple reduces competition for songs for its player and locks customers in to its music platform. Apple employs the same lock-in strategy for its Mac operating system. 5-70

71 CP 5-2 Note to Instructors: While the list of functions and services can be quite large, the key services are identified below. The purpose of these services is fairly advanced for most students. The activity asks for a listing rather than an explanation because most students have limited experience by which to provide much explanation. Use this case to demonstrate the scope and basic nature of these application tools. Selected JDA Supply Chain Management Solutions Demand management Factory planning and scheduling Merchandise operations Supplier relationship management Transportation and logistics management Space and category management Visibility, collaboration, and performance management Inventory optimization Planning on demand Replenishment and fulfillment Customer order management Selected Salesforce.com Customer Relationship Management Solutions Provide the sales force with real-time information about all customer contacts with the firm to improve the effectiveness of the sales call Provide real-time forecast estimation and accumulation tools Support promotion plans and integrate the plans with forecasting and manufacturing Provide decision tools for evaluating marketing campaign effectiveness Provide tools to support call center responsiveness 5-71

72 CP 5-3 MEMORANDUM To: Senior Management From: Student Re: Cloud-based accounting software A new approach to automating our accounting requirements is now available. It is called cloud-based accounting using a cloud computing provider. Rather than purchasing our accounting software and loading it on our own computers, cloudbased accounting software is rented and resides on the provider s computers. Our data, along with the accounting software, stay with the provider. There are several advantages to this approach. 1. We don t need to administer the application or data on our own computers. This becomes the job of the service provider, thus saving us computer system personnel costs. All we need is a desktop computer and a browser to use the software. 2. Our people can work with our data anytime or anyplace. We don t need to rely on our own internal computer network for accounting-related work. Instead, this product is available on the Internet. So, we can enter transactions and access our accounting data from anywhere in the world, meaning that we don't have to be plugged into our corporate network. This also will save us network support costs. 3. We don't need to purchase and load software upgrades. All upgrades are provided on the provider s server when they are available. Thus, we are always using the latest version. 4. Providers promise a highly secure environment for our data. 5. A cloud-based accounting system should help us when data, such as orders, are passed between us and our customers and suppliers. We also need to consider a number of disadvantages. 1. The cost of the software is recurring. Thus, we are trading the recurring costs of maintaining our system infrastructure for the recurring cost of the service. A financial analysis should be conducted to determine whether the service is costeffective. 2. The Internet can be slow. During busy times, we may experience slow response times. 3. Our data physically reside with the service provider. Thus, we don t control the security of our own data; the provider does. Our data are our lifeblood, so confidence in the provider s controls is paramount. 4. Once we begin, we become locked in to the provider. It will be hard to change our mind at a later date. However, to some extent, this is also true for purchased software. 5-72