After studying this chapter, you should be able to:

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1 5 Accounting Systems 1

2 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. 2

3 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 e-commerce. 3

4 5-1 Objective 1 Define an accounting system and describe its implementation. 4

5 Accounting Systems Growth Process 5-1 5

6 Three Step Process as a Business Grows and Changes 5-1 Step 1: Analysis Identify the needs of those who use the business s financial information. Determine how the system should provide this information. 6

7 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. 7

8 Feedback 5-1 Once a system has been implemented, feedback, or input from the users of the information can be used to analyze and improve the system. 8

9 Internal Controls 5-1 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. 9

10 Processing Methods 5-1 Processing methods are the means by which the system collects, summarizes, and reports accounting information. These methods may be either manual or computerized. 10

11 5-2 Objective 2 Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals. 11

12 5-2 A large number of individual accounts with a common characteristic can be grouped together in a separate ledger called a subsidiary ledger. 12

13 5-2 The primary ledger, which contains all of the balance sheet and income statement accounts, is called a general ledger. 13

14 5-2 Each subsidiary ledger is represented in the general ledger by a summarizing account, called a controlling account. 14

15 5-2 The individual customers accounts are arranged in alphabetical order in a subsidiary ledger called the accounts receivable subsidiary ledger or customers ledger. 15

16 5-2 The individual creditors accounts are arranged in alphabetical order in a subsidiary ledger called the accounts payable subsidiary ledger, or creditors ledger. 16

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

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

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

20 Special Journals 5-2 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. 20

21 5-2 The revenue journal is used for recording fees earned on account. Cash fees earned would be recorded in the cash receipts journal. 21

22 Posting the Revenue Journal 5-2 Revenue Journal Page 35 Invoice Post Accts. Rec. Debit Date No. Account Debited Ref. Fees Earned Credit Mar Accessories by Claire RapZone Web Cantina Accessories by Claire

23 5-2 Revenue Journal Page 35 Invoice Post Accts. Rec. Debit Date No. Account Debited Ref. Fees Earned Credit Mar Accessories by Claire RapZone Web Cantina Accessories by Claire Accounts Receivable Subsidiary Ledger Accessories by Claire Date Item P.R. Debit Credit Balance 2008 Mar. 2 R35 2,200 2,

24 5-2 Revenue Journal Page 35 Invoice Post Accts. Rec. Debit Date No. Account Debited Ref. Fees Earned Credit Mar Accessories by Claire RapZone Web Cantina Accessories by Claire Accounts Receivable Subsidiary Ledger Accessories by Claire Date Item P.R. Debit Credit Balance 2008 Mar. 2 R35 2,200 2,

25 5-2 Revenue Journal Page 35 Invoice Post Accts. Rec. Debit Date No. Account Debited Ref. Fees Earned Credit Mar Accessories by Claire RapZone Web Cantina Accessories by Claire

26 Exhibit 2 Revenue Journal 5-2 Revenue Journal Page 35 Invoice Post Accts. Rec. Debit Date No. Account Debited Ref. Fees Earned Credit Mar Accessories by Claire RapZone Web Cantina Accessories by Claire

27 5-2 The debit total is posted from the revenue journal to Accounts Receivable in the general ledger. ACCOUNT Accounts Receivable Account No. 12 Post. Date Item Ref. Dr. Cr Mar. 1 Balance R35 Dr. Balance Cr. Revenue Journal, page 35 27

28 5-2 Revenue Journal Page 35 Invoice Post Accts. Rec. Debit Date No. Account Debited Ref. Fees Earned Credit Mar Accessories by Claire RapZone Web Cantina Accessories by Claire Indicates a debit posting of $9,600 to Accounts Receivable (General Ledger Account 12) (12)

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

30 5-2 Revenue Journal Page 35 Invoice Post Accts. Rec. Debit Date No. Account Debited Ref. Fees Earned Credit Mar Accessories by Claire RapZone Web Cantina Accessories by Claire Indicates a credit posting of $9,600 to Fees Earned (General Ledger Account 41) (12)(41)

31 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 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. Record these transactions in a revenue journal as illustrated in Exhibit 2. 31

32 5-2 Follow My Example 5-1 Revenue Journal Page Invoice Post Accts. Rec. Debit Date No. Account Debited Ref. Fees Earned Credit 1 Dec Butler Company JoJo Enterprises Double D Inc For Practice: PE 5-1A, PE 5-1B 32

33 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

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

35 5-2 CASH RECEIPTS JOURNAL Page 14 Other Accounts Post Accounts Receivable Cash Date Account Credited Ref. Cr. Cr. Dr Mar. 1 Rent Revenue Web Cantina 3,400 3, Accessories by Claire 2,200 2, RapZone 1,750 1,750 Accounts Receivable Subsidiary Ledger Web Cantina Date Item P.R. Debit Credit Balance 2008 Mar. 1 Bal. 3, R35 2,650 6, CR14 3,400 2,650 35

36 5-2 After all journalizing and posting for the month to individual accounts is complete, the columns are totaled. 36

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

38 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. 38

39 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 NetSolutions Customer Balance Summary Report, March 31, 2008 Accessories By Claire $3,000 RapZone 0 Web Cantina 2,650 Total accounts receivable $5,650 39

40 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 1212 Lombard St. Date Item P.R. Dr. Cr. Balance July 1 Bal Inv. 35 R Inv. 31 CR Describe each transaction and the source of each posting. 40

41 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 5-2A, PE 5-2B 41

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

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

44 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. 44

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

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

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

48 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. 48

49 5-2 PURCHASES JOURNAL Page 11 Accts. Other Post Payable Supplies Accounts Post Date Account Credited Ref. Cr. Dr. Dr. Ref. Amount 2008 Mar. 3 Howard Supplies Donnelly Supplies Jewett Business Sys. 2,800 Off. Equip. 18 2, Donnelly Supplies 1,450 1, Howard Supplies ,230 3,430 2,800 ( 21) ( ) ( ) GENERAL LEDGER ACCOUNT Accounts Payable No. 21 Date Item P.R. Debit Credit Balance 2008 Mar. 1 Bal 1, P11 6,230 7,460 49

50 5-2 PURCHASES JOURNAL Page 11 Accts. Other Post Payable Supplies Accounts Post Date Account Credited Ref. Cr. Dr. Dr. Ref. Amount 2008 Mar. 3 Howard Supplies Donnelly Supplies Jewett Business Sys. 2,800 Off. Equip. 18 2, Donnelly Supplies 1,450 1, Howard Supplies ,230 3,430 2,800 ( 21) ( 14) ( ) GENERAL LEDGER ACCOUNT Supplies No. 14 Date Item P.R. Debit Credit Balance 2008 Mar. 1 Bal 2, P11 3,430 5,930 50

51 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

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

53 Cash Payments Journal 5-2 All transactions involving a credit to Cash are recorded in the cash payments journal. 53

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

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

56 5-2 Let s post to the accounts payable subsidiary ledger at this time to keep the creditors account current. 56

57 CASH PAYMENTS JOURNAL PAGE 7 Other Accounts Ck. Post Accounts Payable Cash Date No. Account Debited Ref. Dr. Dr. Cr 2008 Mar Rent Expense 1,600 1, Grayco Supplies 1,230 1, Accounts Payable Subsidiary Ledger Grayco Supplies Date Item P.R. Dr. Cr. Balance 2008 Mar. 3 Bal. 1, CP7 1,

58 CASH PAYMENTS JOURNAL PAGE 7 Other Accounts Ck. Post Accounts Payable Cash Date No. Account Debited Ref. Dr. Dr. Cr 2008 Mar Rent Expense 1,600 1, Grayco Supplies 1,230 1, Jewett Business Sys. 2,800 2, Donnelly Supplies Utilities Expense 1,050 1, Howard Supplies Journalize the remainder of March s cash disbursements. 58

59 CASH PAYMENTS JOURNAL PAGE 7 Other Accounts Ck. Post Accounts Payable Cash Date No. Account Debited Ref. Dr. Dr. Cr 2008 Mar Rent Expense 1,600 1, Grayco Supplies 1,230 1, Jewett Business Sys. 2,800 2, Donnelly Supplies Utilities Expense 1,050 1, Howard Supplies Journalized Post to the individual remainder of March s creditor s cash disbursements. accounts

60 CASH PAYMENTS JOURNAL PAGE 7 Other Accounts Ck. Post Accounts Payable Cash Date No. Account Debited Ref. Dr. Dr. Cr 2008 Mar Rent Expense 1,600 1, Grayco Supplies 1,230 1, Jewett Business Sys. 2,800 2, Donnelly Supplies Utilities Expense 1,050 1, Howard Supplies ,650 5,050 7, The journal is ruled, summed, and verified for equality of debits and the Cash Cr. column

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

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

63 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 301 St. Bonaventure Ave. Date Item P.R. Dr. Cr. Balance Aug. 1 Bal Bill 101 CP Bill 106 P Describe each transaction and the source of each posting. 63

64 5-2 Follow My Example 5-4 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. For Practice: PE 5-4A, PE 5-4B 64

65 5-3 Objective 3 Describe and give examples of additional subsidiary ledgers and modified special journals. 65

66 Modified Special Journals 5-3 A business may modify its special journals by adding one or more columns for recording transactions that occur frequently. 66

67 5-3 On November 2, NetSolutions issued Invoice No. 842 to Litten Company for $4,770, which included sales taxes of $

68 Modified Revenue Journal Revenue Journal Page 40 Invoice Accts. Rec. Fees Earned Sales Tax. Pay Date No. Account Debited PR Dr. Cr. Cr. Nov Litten Co

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

70 Revenue Journal Page 40 Invoice Accts. Rec. Fees Earned Sales Tax. Pay Date No. Account Debited PR Dr. Cr. Cr. Nov Litten Co A checkmark indicates that the amount has been posted. 70

71 5-3 On November 3, issued Invoice No. 843 to Kaufman Supply Company for $1,166, which included sales taxes of $66. 71

72 Revenue Journal Page 40 Invoice Accts. Rec. Fees Earned Sales Tax. Pay Date No. Account Debited PR Dr. Cr. Cr. Nov Litten Co Kaufmann Supply

58 to Helena Company for services provided on account, $1,400, plus sales tax. 19 Issued Invoice No.

73 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

74 5-3 Follow My Example 5-5 Revenue Journal Invoice Accts. Rec. Fees Earned Sales Tax. Pay Date No. Account Debited PR Dr. Cr. Cr. Aug Helena Company K-Jam Enterprises For Practice: PE 5-5A, PE 5-5B 74

75 5-4 Objective 4 Apply computerized accounting to the revenue and collection cycle. 75

76 Database 5-4 A database collects, stores, and organizes information in a retrievable format. 76

78 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. 78

79 5-5 Objective 5 Describe the basic features of e-commerce. 79

80 e-commerce 5-5 Using the Internet to perform business transactions is termed e-commerce. 80

81 B2C 5-5 When transactions are between a company and a consumer, it is termed B2C (business-toconsumer) e-commerce. 81

82 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) 82

Intuit Inc. Whether you realize it or not, you likely interact with. Accounting Systems CHAPTER 5

CHAPTER 5 Pixland/Jupiter Images Accounting Systems Intuit Inc. Whether you realize it or not, you likely interact with accounting systems. For example, your bank statement is a type of accounting system.