Power Notes Chapter 5 Learning Objectives C5 Accounting Systems and Internal Controls Learning Objectives 1. Basic Accounting Systems 2. Internal Control 3. Manual Accounting Systems 4. Adapting Manual Accounting Systems 5. Computerized Accounting Systems C5

Power Notes Chapter 5 Accounting Systems and Internal Controls Slide # Power Note Topics 3 9 17 23 31 37 Internal Control Framework, Procedures Special Journals, Ledgers Revenue Journal and Ledgers Cash Receipts Journal and Ledgers Purchases Journal and Ledgers Cash Payments Journal and Ledgers Note: To select a topic type the slide # and press Enter.

Internal Control Framework 1. Control Environment Control Environment

Internal Control Framework 1. Control Environment 2. Risk Assessment Risk Assessment Control Environment

Internal Control Framework 1. Control Environment 2. Risk Assessment 3. Control Procedures Control Procedures Risk Assessment Control Environment

Internal Control Framework 1. Control Environment 2. Risk Assessment 3. Control Procedures 4. Monitoring Monitoring Control Procedures Risk Assessment Control Environment

Internal Control Framework 1. Control Environment 2. Risk Assessment 3. Control Procedures 4. Monitoring 5. Information and Communication Communication Monitoring Control Procedures Risk Assessment Control Environment

Internal Control Procedures Competent Personnel Rotating Duties Assigning Responsibility Separating Responsibilities for Related Operations Separating Accounting and Asset Custody Proofs and Security Measures

General Ledger and Subsidiary Ledgers Cash Accts. Receivable Supplies Accts. Payable

General Ledger and Subsidiary Ledgers Accounts Receivable Subsidiary Ledger A B C D Customer Accounts Cash Accts. Receivable Supplies Accts. Payable

General Ledger and Subsidiary Ledgers Accounts Receivable Subsidiary Ledger A B C D Customer Accounts Cash Accts. Receivable Supplies Accounts Payable Subsidiary Ledger A B C D Creditor Accounts Accts. Payable

Special Journals SELLING BUYING

Special Journals Revenue Journal Rendering of services on account SELLING Rendering of services on account recorded in Revenue Journal BUYING

Special Journals Revenue Journal Cash Receipts Journal SELLING Rendering of services on account recorded in Revenue Journal Receipt of cash from any source recorded in Cash Receipts Journal BUYING

Special Journals Revenue Journal Cash Receipts Journal SELLING Rendering of services on account recorded in Revenue Journal Receipt of cash from any source recorded in Cash Receipts Journal BUYING Purchase of items on account recorded in Purchases Journal

Special Journals Revenue Journal Cash Receipts Journal SELLING Rendering of services on account recorded in Revenue Journal Receipt of cash from any source recorded in Cash Receipts Journal BUYING Purchase of items on account recorded in Purchases Journal Payment of cash for any purpose recorded in Cash Payments Journal

The Revenue Journal Revenue Journal Page 35 Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit 3/2 615 MyMusicClub.com 2,200 3/6 616 RapZone.com 1,750 3/18 617 Web Cantina 2,650 3/27 618 MyMusicClub.com 3,000 Totals 9,600 All sales on account are recorded in this journal. Each sales invoice is listed in numerical order. This journal is often referred to as an invoice register.

Posting to the Subsidiary Ledger Revenue Journal Page 35 Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit 3/2 615 MyMusicClub.com 2,200 3/6 616 RapZone.com 1,750 3/18 617 Web Cantina 2,650 3/27 618 MyMusicClub.com 3,000 Totals 9,600 Each debit is posted to the accounts receivable subsidiary ledger. Accounts Receivable Subsidiary Ledger MyMusicClub.com Date Item P.R. Debit Credit Balance

Posting to the Subsidiary Ledger Revenue Journal Page 35 Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit 3/2 615 MyMusicClub.com  2,200 3/6 616 RapZone.com 1,750 3/18 617 Web Cantina 2,650 3/27 618 MyMusicClub.com 3,000 Totals 9,600 Each debit is posted to the accounts receivable subsidiary ledger. Accounts Receivable Subsidiary Ledger MyMusicClub.com Date Item P.R. Debit Credit Balance 3/2 R35 2,200 2,200

Posting to the Subsidiary Ledger Revenue Journal Page 35 Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit 3/2 615 MyMusicClub.com 2,200 3/6 616 RapZone.com 1,750 3/18 617 Web Cantina 2,650 3/27 618 MyMusicClub.com 3,000 Totals 9,600     Each debit is posted to the accounts receivable subsidiary ledger. Accounts Receivable Subsidiary Ledger MyMusicClub.com Date Item P.R. Debit Credit Balance 3/1 R35 2,200 2,200 3/27 R35 3,000 5,200

Posting to the General Ledger Revenue Journal Page 35 Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit 3/2 615 MyMusicClub.com 2,200 3/6 616 RapZone.com 1,750 3/18 617 Web Cantina 2,650 3/27 618 MyMusicClub.com 3,000 Totals 9,600     The total is posted to Accounts Receivable AND to Fees Earned. General Ledger Account: Accounts Receivable No. 12 Date Item P.R. Debit Credit Balance 3/1 Bal 3,400 

Posting to the General Ledger Revenue Journal Page 35 Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit 3/2 615 MyMusicClub.com 2,200 3/6 616 RapZone.com 1,750 3/18 617 Web Cantina 2,650 3/27 618 MyMusicClub.com 3,000 Totals 9,600 (12) (41)     The total is posted to Accounts Receivable AND to Fees Earned. General Ledger Account: Accounts Receivable No. 12 Date Item P.R. Debit Credit Balance 3/1 Bal 3,400 3/31 R35 9,600 13,000 

The Cash Receipts Journal 3/1 Rent Revenue 400 400 3/19 Web Cantina 3,400 3,400 3/28 MyMusicClub.com 2,200 2,200 3/30 RapZone.com 1,750 1,750 Totals 400 7,350 7,750 Cash Receipts Journal Other Accounts Post Accounts Receivable Cash Date Account Credited Ref. Credit Credit Debit Page 14 All cash received from any source is recorded in this journal. The total Cash Debit column equals the total of the two credit columns.

Posting to the Subsidiary Ledger Cash Receipts Journal Page 14 Other Accounts Post Accounts Receivable Cash Date Account Credited Ref. Credit Credit Debit 3/1 Rent Revenue 400 400 3/19 Web Cantina 3,400 3,400 3/28 MyMusicClub.com 2,200 2,200 3/30 RapZone.com 1,750 1,750 Totals 400 7,350 7,750 Each Accounts Receivable credit is posted to the accounts receivable subsidiary ledger. Accounts Receivable Subsidiary Ledger Web Cantina Date Item P.R. Debit Credit Balance 3/1 Bal 3,400 3/27 R35 2,650 6,050 

Posting to the Subsidiary Ledger Cash Receipts Journal Page 14 Other Accounts Post Accounts Receivable Cash Date Account Credited Ref. Credit Credit Debit 3/1 Rent Revenue 400 400 3/19 Web Cantina 3,400 3,400 3/28 MyMusicClub.com 2,200 2,200 3/30 RapZone.com 1,750 1,750 Totals 400 7,350 7,750  Each Accounts Receivable credit is posted to the accounts receivable subsidiary ledger. Accounts Receivable Subsidiary Ledger Web Cantina Date Item P.R. Debit Credit Balance 3/1 Bal 3,400 3/18 R35 2,650 6,050 3/19 CR14 3,400 2,650 

Posting to the General Ledger Cash Receipts Journal Page 14 Other Accounts Post Accounts Receivable Cash Date Account Credited Ref. Credit Credit Debit 3/1 Rent Revenue 400 400 3/19 Web Cantina 3,400 3,400 3/28 MyMusicClub.com 2,200 2,200 3/30 RapZone.com 1,750 1,750 Totals 400 7,350 7,750 ( )     The three highlighted items are posted to the general ledger. General Ledger Account: Accounts Receivable No. 12 Date Item P.R. Debit Credit Balance 3/1 Bal 3,400 3/31 R35 9,600 13,000 

Posting to the General Ledger Cash Receipts Journal Page 14 Other Accounts Post Accounts Receivable Cash Date Account Credited Ref. Credit Credit Debit 3/1 Rent Revenue 42 400 400 3/19 Web Cantina 3,400 3,400 3/28 MyMusicClub.com 2,200 2,200 3/30 RapZone.com 1,750 1,750 Totals 400 7,350 7,750 ( ) (12) (11)     The three highlighted items are posted to the general ledger. General Ledger Account: Accounts Receivable No. 12 Date Item P.R. Debit Credit Balance 3/1 Bal 3,400 3/31 R35 9,600 13,000 3/31 CR14 7,350 5,650 

General Ledger Accounts Receivable Control Account Accounts Receivable No. 12 Date Item P.R. Debit Credit Balance 3/1 Bal. 3,400 3/31 R35 9,600 13,000 3/31 CR14 7,350 5,650  If the accounts receivable account in the general ledger only shows summary totals, where are the individual customer balances?

Accounts Receivable Subsidiary General Ledger Accounts Receivable Control Account Account: Accounts Receivable No. 12 Date Item P.R. Debit Credit Balance 3/1 Bal. 3,400 3/31 R35 9,600 13,000 3/31 CR14 7,350 5,650  MyMusicClub.com Date Item P.R. Debit Credit Balance 3/2 R35 2,200 2,200 3/27 R35 3,000 5,200 3/28 CR14 2,200 3,000 Accounts Receivable Subsidiary Ledger RapZone.com Date Item P.R. Debit Credit Balance 3/6 R35 1,750 1,750 3/30 CR14 1,750 0 Web Cantina Date Item P.R. Debit Credit Balance 3/1 Bal. 3,400 3/18 R35 2,650 6,050 3/19 CR14 3,400 2,650 

Accounts Receivable Subsidiary General Ledger Accounts Receivable Control Account Account: Accounts Receivable No. 12 Date Item P.R. Debit Credit Balance 3/1 Bal. 3,400 3/31 R35 9,600 13,000 3/31 CR14 7,350 5,650  MyMusicClub.com Date Item P.R. Debit Credit Balance 3/2 R35 2,200 2,200 3/27 R35 3,000 5,200 3/28 CR14 2,200 3,000 Accounts Receivable Subsidiary Ledger RapZone.com Date Item P.R. Debit Credit Balance 3/6 R35 1,750 1,750 3/30 CR14 1,750 0 Web Cantina Date Item P.R. Debit Credit Balance 3/1 Bal. 3,400 3/18 R35 2,650 6,050 3/19 CR14 3,400 2,650 

The Purchases Journal Purchases Journal 3/3 Howard Supplies 600 600 Page 11 Accts. Other Post Payable Supplies Accounts Post Date Account Credited Ref. Credit Debit Debit Ref. Amount 3/3 Howard Supplies 600 600 3/7 Donnelly Supplies 420 420 3/12 Jewett Bus. Syst. 2,800 Office Equip. 2,800 3/19 Donnelly Supplies 1,450 1,450 3/27 Howard Supplies 960 960 Totals 6,230 3,430 2,800 All purchases on account are recorded in this journal. The total credits to Accounts Payable equals the total of the two debit columns.

Posting to the Subsidiary Ledger Purchases Journal Page 11 Accts. Other Post Payable Supplies Accounts Post Date Account Credited Ref. Credit Debit Debit Ref. Amount 3/3 Howard Supplies 600 600 3/7 Donnelly Supplies 420 420 3/12 Jewett Bus. Syst. 2,800 Office Equip. 2,800 3/19 Donnelly Supplies 1,450 1,450 3/27 Howard Supplies 960 960 Totals 6,230 3,430 2,800 Each credit is posted to the accounts payable subsidiary ledger. Accounts Payable Subsidiary Ledger Howard Supplies Date Item P.R. Debit Credit Balance

Posting to the Subsidiary Ledger Purchases Journal Page 11 Accts. Other Post Payable Supplies Accounts Post Date Account Credited Ref. Credit Debit Debit Ref. Amount 3/3 Howard Supplies  600 600 3/7 Donnelly Supplies 420 420 3/12 Jewett Bus. Syst. 2,800 Office Equip. 2,800 3/19 Donnelly Supplies 1,450 1,450 3/27 Howard Supplies 960 960 Totals 6,230 3,430 2,800 Each credit is posted to the accounts payable subsidiary ledger. Accounts Payable Subsidiary Ledger Howard Supplies Date Item P.R. Debit Credit Balance 3/3 P11 600 600

Posting to the Subsidiary Ledger Purchases Journal Page 11 Accts. Other Post Payable Supplies Accounts Post Date Account Credited Ref. Credit Debit Debit Ref. Amount 3/3 Howard Supplies 600 600 3/7 Donnelly Supplies 420 420 3/12 Jewett Bus. Syst. 2,800 Office Equip. 2,800 3/19 Donnelly Supp. 1,450 1,450 3/27 Howard Supplies 960 960 Totals 6,230 3,430 2,800      Each credit is posted to the accounts payable subsidiary ledger. Accounts Payable Subsidiary Ledger Howard Supplies Date Item P.R. Debit Credit Balance 3/3 P11 600 600 3/27 P11 960 1,560

Posting to the General Ledger Purchases Journal Page 11 Accts. Other Post Payable Supplies Accounts Post Date Account Credited Ref. Credit Debit Debit Ref. Amount 3/3 Howard Supplies 600 600 3/7 Donnelly Supplies 420 420 3/12 Jewett Bus. Syst. 2,800 Office Equip. 2,800 3/19 Donnelly Supp. 1,450 1,450 3/27 Howard Supplies 960 960 Totals 6,230 3,430 2,800         General Ledger The highlighted items are posted to the general ledger. Date Item P.R. Debit Credit Balance Account: Accounts Payable No. 21 Date Item P.R. Debit Credit Balance 3/1 Bal. 1,230 

Posting to the General Ledger Purchases Journal Page 11 Accts. Other Post Payable Supplies Accounts Post Date Account Credited Ref. Credit Debit Debit Ref. Amount 3/3 Howard Supplies 600 600 3/7 Donnelly Supplies 420 420 3/12 Jewett Bus. Syst. 2,800 Office Equip. 18 2,800 3/19 Donnelly Supp. 1,450 1,450 3/27 Howard Supplies 960 960 Totals 6,230 3,430 2,800 ( 21) (14) ( )         General Ledger The highlighted items are posted to the general ledger. Date Item P.R. Debit Credit Balance Account: Accounts Payable No. 21 Date Item P.R. Debit Credit Balance 3/1 Bal. 1,230 3/31 P11 6,230 7,460 

The Cash Payments Journal Page 7 Other Accounts Ck. Post Accounts Payable Cash Date No. Account Debited Ref. Debit Debit Credit 3/2 150 Rent Expense 1,600 1,600 3/15 151 Grayco Supplies 1,230 1,230 3/21 152 Jewett Bus. Syst. 2,800 2,800 3/22 153 Donnelly Supp. 420 420 3/30 154 Utilities Expense 1,050 1,050 3/31 155 Howard Supplies 600 600 Totals 2,650 5,050 7,700 All cash payments are recorded in this journal. Every check is listed in numerical order. This journal is often referred to as a check register.

Posting to the Subsidiary Ledger Cash Payments Journal Page 7 Other Accounts Ck. Post Accounts Payable Cash Date No. Account Debited Ref. Debit Debit Credit 3/2 150 Rent Expense 1,600 1,600 3/15 151 Grayco Supplies 1,230 1,230 3/21 152 Jewett Bus. Syst. 2,800 2,800 3/22 153 Donnelly Supp. 420 420 3/30 154 Utilities Expense 1,050 1,050 3/31 155 Howard Supplies 600 600 Totals 2,650 5,050 7,700 Accounts Payable Subsidiary Ledger Each Accounts Payable debit is posted to the accounts payable subsidiary ledger. Grayco Supplies Date Item P.R. Debit Credit Balance 3/1 Bal. 1,230 

Posting to the Subsidiary Ledger Cash Payments Journal Page 7 Other Accounts Ck. Post Accounts Payable Cash Date No. Account Debited Ref. Debit Debit Credit 3/2 150 Rent Expense 1,600 1,600 3/15 151 Grayco Supplies 1,230 1,230 3/21 152 Jewett Bus. Syst. 2,800 2,800 3/22 153 Donnelly Supp. 420 420 3/30 154 Utilities Expense 1,050 1,050 3/31 155 Howard Supplies 600 600 Totals 2,650 5,050 7,700  Accounts Payable Subsidiary Ledger Each Accounts Payable debit is posted to the accounts payable subsidiary ledger. Grayco Supplies Date Item P.R. Debit Credit Balance 3/1 Bal. 1,230 3/15 CP7 1,230 0 

Posting to the General Ledger Cash Payments Journal Page 7 Other Accounts Ck. Post Accounts Payable Cash Date No. Account Debited Ref. Debit Debit Credit 3/2 150 Rent Expense 1,600 1,600 3/15 151 Grayco Supplies 1,230 1,230 3/21 152 Jewett Bus. Syst. 2,800 2,800 3/22 153 Donnelly Supp. 420 420 3/30 154 Utilities Expense 1,050 1,050 3/31 155 Howard Supplies 600 600 Totals 2,650 5,050 7,700 ( )      General Ledger The highlighted items are posted to the general ledger. Date Item P.R. Debit Credit Balance Account: Accounts Payable No. 21 3/1 Bal. 1,230 3/31 P11 6,230 7,460 

Posting to the General Ledger Cash Payments Journal Page 7 Other Accounts Ck. Post Accounts Payable Cash Date No. Account Debited Ref. Debit Debit Credit 3/2 150 Rent Expense 52 1,600 1,600 3/15 151 Grayco Supplies 1,230 1,230 3/21 152 Jewett Bus. Syst. 2,800 2,800 3/22 153 Donnelly Supp. 420 420 3/30 154 Utilities Expense 54 1,050 1,050 3/31 155 Howard Supplies 600 600 Totals 2,650 5,050 7,700 ( ) (21) (11)      General Ledger The highlighted items are posted to the general ledger. Date Item P.R. Debit Credit Balance Account: Accounts Payable No. 21 3/1 Bal. 1,230 3/31 P11 6,230 7,460 3/31 CP7 5,050 2,410 

Power Notes This is the last slide in Chapter 5. Chapter 5 Accounting Systems and Internal Controls This is the last slide in Chapter 5. Note: To see the topic slide, type 2 and press Enter.