Financial Accounting, Seventh Edition Appendix E Subsidiary Ledgers and Special Journals Financial Accounting, Seventh Edition

Study Objectives Describe the nature and purpose of a subsidiary ledger. Explain how companies use special journals in journalizing. Indicate how companies post a multi-column journal. 1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements? Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases). Forward-looking Information Soft Assets (a company’s know-how, market dominance, marketing setup, well-trained employees, and brand image). Timeliness (no real time financial information)

Subsidiary Ledgers Used to keep track of individual balances. Two common subsidiary ledgers are: Accounts receivable (customers’) Accounts payable (creditors’) Each general ledger control account balance must equal the composite balance of the individual accounts in the related subsidiary ledger. SO 1 Describe the nature and purpose of a subsidiary ledger.

Subsidiary Ledgers Relationship of general ledger and subsidiary ledgers Illustration E-2 SO 1 Describe the nature and purpose of a subsidiary ledger.

Advantages of Subsidiary Ledgers 1. Show in a single account transactions affecting one customer or one creditor. 2. Free the general ledger of excessive details. 3. Help locate errors in individual accounts. 4. Make possible a division of labor. SO 1 Describe the nature and purpose of a subsidiary ledger.

Special Journals Used to record similar types of transactions. Illustration E-4 If a transaction cannot be recorded in a special journal, the company records it in the general journal. SO 2 Explain how companies use special journals in journalizing.

Review Question Special Journals Each of the following is a subsidiary ledger except the: accounts receivable ledger. accounts payable ledger. customers’ ledger. general ledger. SO 2 Explain how companies use special journals in journalizing.

Special Journals Sales Journal Illustration E-5 Under a perpetual inventory system, one entry at selling price in Sales Journal results in a debit to Accounts Receivable and a credit to Sales. Another entry at cost results in a debit to Cost of Goods Sold and a credit to Merchandise Inventory. SO 2 Explain how companies use special journals in journalizing.

POSTING THE SALES JOURNAL Special Journals Illustration E-6 POSTING THE SALES JOURNAL Companies make daily postings from the sales journal to the individual accounts receivable in the subsidiary ledger. SO 2 Explain how companies use special journals in journalizing.

Special Journals Posting to the general ledger is done monthly. Illustration E-6 POSTING THE SALES JOURNAL Posting to the general ledger is done monthly. SO 2 Explain how companies use special journals in journalizing.

Advantages of Sales Journal Special Journals Advantages of Sales Journal One-line entry for each sales transaction saves time. Only totals, rather than individual entries, are posted to the general ledger. A division of labor results. SO 2 Explain how companies use special journals in journalizing.

Special Journals Cash Receipts Journal Illustration E-8 In the cash receipts journal, companies record all receipts of cash. The posting of the cash receipts journal is similar to the posting of the sale journal. See complete Illustration E-8 in the text. SO 2 Explain how companies use special journals in journalizing.

Special Journals Exercise PE-1A Grider Company’s chart of accounts includes the following selected accounts. 101 Cash 401 Sales 112 Accounts Receivable 414 Sales Discounts 120 Merchandise Inventory 505 Cost of Goods Sold 311 Common Stock On April 1 the accounts receivable ledger of Grider Company showed the following balances: Ogden $1,550 Chelsea $1,200 Eggleston Co. $2,900 Baez $1,800 The April transactions involving the receipt of cash were as follows. The June transactions involving the receipt of cash were as follows. April 1 Stockholders invested $7,200 additional cash in the business, in exchange for common stock. 4 Received check for payment of account from Baez less 2% cash discount. 5 Received check for $920 in payment of invoice no. 307 from Eggleston Co. 8 Made cash sales of merchandise totaling $7,245.The cost of the merchandise sold was $4,347. 10 Received check for $600 in payment of invoice no. 309 from Ogden. 11 Received cash refund from a supplier for damaged merchandise $740. 23 Received check for $1,500 in payment of invoice no. 310 from Eggleston Co. 29 Received check for payment of account from Chelsea. SO 2 Explain how companies use special journals in journalizing.

Cash Receipts Journal CR1 Special Journals Instructions: (a) Journalize the transactions above in a six-column cash receipts journal with columns for Cash Dr., Sales Discounts Dr., Accounts Receivable Cr., Sales Cr., Other Accounts Cr., and Cost of Goods Sold Dr./Merchandise Inventory Cr. Foot and crossfoot the journal. Cash Receipts Journal CR1 COGS Sales Accounts Other Dr. Account Cash Discounts Receivable Sales Accounts Merch Inv Date Credited Ref. Dr. Dr. Cr. Cr. Cr. Cr. Apr. 1 Common Stock 311 7,200 7,200 4 Baez √ 1,764 36 1,800 5 Eggleston Co. √ 920 920 8 7,245 7,245 4,347 10 Ogden √ 600 600 11 Merch Inv 120 740 740 23 Eggleston Co. √ 1,500 1,500 29 Chelsea √ 1,200 1,200 21,169 36 6,020 7,245 7,940 4.347 (101) (414) (112) (401) (X) (505)(120) SO 2 Explain how companies use special journals in journalizing.

Accounts Receivable Subsidiary Ledger Special Journals Instructions: (b) Insert the beginning balances in the Accounts Receivable control and subsidiary accounts, and post the April transactions to these accounts. General Ledger Accounts Receivable No. 112 Date Explanation Ref. Debit Credit Balance Apr. 1 Balance √ 7,450 30 CR1 6,020 1,430 Accounts Receivable Subsidiary Ledger Odgen Apr. 1 Balance √ 1,550 10 CR1 600 950 Chelsea Apr. 1 Balance √ 1,200 29 CR1 1,200 0 SO 2 Explain how companies use special journals in journalizing.

Accounts Receivable Subsidiary Ledger Special Journals (b) Continued Accounts Receivable Subsidiary Ledger Eggleston Date Explanation Ref. Debit Credit Balance Apr. 1 Balance √ 2,900 5 CR1 920 1,980 23 CR1 1,500 480 Baez Apr. 1 Balance √ 1,800 4 CR1 1,800 0 SO 2 Explain how companies use special journals in journalizing.

Special Journals Instructions: (c) Prove the agreement of the control account and subsidiary account balances. Subsidiary account balances: Ogden $950 Eggleston 480 Total $1,430 Accounts Receivable General Ledger Balance $1,430 SO 2 Explain how companies use special journals in journalizing.

Review Question Special Journals Cash sales of merchandise are recorded in the: cash payments journal. cash receipts journal. general journal. sales journal. SO 2 Explain how companies use special journals in journalizing.

Review Question Special Journals Which of the following is not one of the credit columns in the cash receipts journal: Other accounts. Accounts payable. Accounts receivable. Sales. SO 2 Explain how companies use special journals in journalizing.

Special Journals Purchases Journal Illustration E-11 Purchases Journal In the purchases journal, companies record all purchases of merchandise on account. SO 3 Indicate how companies post a multi-column journal.

Special Journals Purchases Journal Illustration E-11 Purchases Journal SO 3 Indicate how companies post a multi-column journal.

Review Question Special Journals All of the following are advantages of using subsidiary ledgers except they: show transactions affecting one customer or one creditor in a single account. free the general ledger of excessive details. eliminate errors in individual accounts. make possible a division of labor. SO 2 Explain how companies use special journals in journalizing.

Special Journals Cash Payments Journal Illustration E-15 In a cash payments (cash disbursements) journal, companies record all disbursements of cash. The procedures for posting the cash payments journal are similar to those for other journals. SO 3 Indicate how companies post a multi-column journal.

Review Question Special Journals Credit purchases of equipment or supplies other than merchandise are recorded in the: cash payments journal. cash receipts journal. general journal. purchases journal. SO 3 Indicate how companies post a multi-column journal.

Review Question Special Journals Cash payments of merchandise are recorded in the: cash payments journal. cash receipts journal. general journal. purchases journal. SO 3 Indicate how companies post a multi-column journal.

Special Journals Effects of Special Journals on the General Journal Special journals substantially reduce the number of entries that companies make in the general journal. Only transactions that cannot be entered in a special journal are recorded in the general journal. Also, correcting, adjusting, and closing entries are made in the general journal. SO 3 Indicate how companies post a multi-column journal.

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