Appendix E Financial Accounting John J. Wild – Fifth Edition Reporting and Preparing Special Journals McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Fundamental System Principles Control Principle Control Principle Internal controls for management to monitor the business. Relevance Principle Relevance Principle Provide relevant, timely and pertinent information. Compatibility Principle Compatibility Principle System must be compatible with aims of the company. Flexibility Principle Flexibility Principle System needs to meet the changing needs of company. Cost-Benefit Principle Cost-Benefit Principle Benefits of the system must outweigh the costs incurred. C1 APPE-2

Components of Accounting Systems Increasingly, source documents are electronic files creating a “paperless” system. Source Documents Invoice from supplier Billings to customers Employee earnings records C2 APPE-3

Storage Components of Accounting SystemsCD Hard Drive Tape Paper Document CD Hard Drive Tape Paper Document Processor Input Source Documents C2 APPE-4

PrinterMonitorTelephoneCDTapeDisk Electronic File PrinterMonitorTelephoneCDTapeDisk Output Components of Accounting Systems Storage Processor Input Source Documents C2 APPE-5

Special Journals and Subsidiary Ledgers in Accounting General Journal For transactions not in special journals Cash Disbursements Journal For recording cash payments Purchases Journal For recording credit purchases purchases Cash Receipts Journal For recording cash receipts Sales Journal For recording credit sales C3/C4 APPE-6 Subsidiary ledgers are a listing of individual accounts with common characteristics.

Sales Journal P1 APPE-7 Each transaction yields a debit to Accounts Receivable and a credit to Sales. Also, we need to record the cost of the sale for the transaction. This column total is posted monthly. Here is the Sales Journal after recording some additional sales.

Proving the Subsidiary Ledgers The Accounts Receivable controlling account and the subsidiary ledger are in balance. P2 APPE-8

Sales Tax Each transaction is posted daily to the appropriate Accounts Receivable Ledger account. Column totals are posted monthly. P2 APPE-9 On January 4, Jeri’s Jewelry sold a necklace for $450 plus 8% sales tax ( $450 ´.08 = $36) on credit to Joan Oakes. The cost of the merchandise was $302.

Sales Returns and Allowances If a company has few sales returns, they may be recorded in the General Journal. A company with many sales returns may use a Sales Returns and Allowances Journal. P2 APPE-10

Amount is not posted individually to an account. Amount is posted individually to subsidiary ledger. Acct. No.Amount is posted to specified account. Cash Receipts Journal P2 APPE-11 Categories of Cash Receipts Cash from cash sales Cash from cash sales Cash from credit customers Cash from credit customers Cash from other sources Cash from other sources Categories of Cash Receipts Cash from cash sales Cash from cash sales Cash from credit customers Cash from credit customers Cash from other sources Cash from other sources

Purchases Journal P2 APPE-12 The Purchases Journal is used to record all purchases on credit.

Cash Disbursements Journal ( ) P2 APPE-13 The Cash Disbursements Journal is used to record all payments of cash.

General Journal Transactions Adjusting Entries Closing Entries Reversing Entries Other transactions not recorded in Special Journals P2 APPE-14

Technology-Based Accounting SystemsHardware Processing units Hard Drives RAMModems CD-ROM Drives SpeakersMonitorsServersPrintersHardware Processing units Hard Drives RAMModems CD-ROM Drives SpeakersMonitorsServersPrinters Software Programs with a series of commands directing operations of computer hardware such as data input, storage, processing, or output. Software C5 APPE-15

Computer Technology, Data Processing, and Enterprise Resource Planning Software Integrated accounting programs automatically update related accounts, journals, and ledgers for a single transaction. Integrated accounting programs automatically update related accounts, journals, and ledgers for a single transaction. C5 APPE-16  On-line processing enters and processes data immediately.  Batch processing accumulates information for a period of time and then processes all the data at one time (daily, weekly, or monthly).  On-line processing enters and processes data immediately.  Batch processing accumulates information for a period of time and then processes all the data at one time (daily, weekly, or monthly). Enterprise resource planning software, such as SAP or Oracle, links ordering, inventory, production, purchasing, planning, tracking and human resources for many of the world’s largest companies.

This ratio reflects the profitability of the segment. Segment Return on Assets Segment return on assets = Segment operating income Segment average assets A1 APPE-17 A segment is a part of a company that is separately identified by its products, services, or geographic market. A good AIS collects financial data for a company’s various segments.

End of Appendix E APPE-18