Prepared by: C. Douglas Cloud Professor Emeritus of Accounting Pepperdine University © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Student Version Accounting Systems Chapter 5 These slides should be viewed using the presentation mode (click the icon to start presentation). © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Prepared by: C. Douglas Cloud Professor Emeritus of Accounting Pepperdine University Reeve Warren Duchac PRINCIPLES OF FINANCIAL ACCOUNTING PRINCIPLES OF ACCOUNTING ACCOUNTING PRINCIPLES Using excel for Success 12e 24e 2e

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objective 1 1.Define and describe an accounting system.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Basic Accounting Systems  An accounting system is the methods and procedures for collecting, classifying, summarizing, and reporting a business’s financial and operating information. LO 1

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  As a business grows and changes, accounting systems also change in the following three-step process.  Analyze user information needs.  Design the system to meet the user needs.  Implement the system. Basic Accounting Systems LO 1

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO 1 Basic Accounting Systems  Internal controls are the policies and procedures that protect assets from misuse, ensure that business information is accurate, and ensure that laws and regulations are being followed.  Processing methods are the means by which the accounting system collects, summarizes, and reports accounting information. These methods may be either manual or computerized.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objective 2  Define and describe an accounting system.  Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO 2  A large number of individual accounts with a common characteristic can be grouped together in a separate ledger called a subsidiary ledger.  The primary ledger, which contains all of the balance sheet and income statement accounts, is called a general ledger. Subsidiary Ledgers  Each subsidiary ledger is represented in the general ledger by a summarizing account, called a controlling account.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Subsidiary Ledgers LO 2  The individual customer accounts are arranged in alphabetical order in a subsidiary ledger called the accounts receivable subsidiary ledger, or customers ledger.  Individual creditor accounts are arranged in alphabetical order in a subsidiary ledger called the accounts payable subsidiary ledger, or creditors ledger.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Special Journal  One method of processing transactions more efficiently in a manual system is to use special journals. Special journals are designed to be used for recording a single kind of transaction that occurs frequently. LO 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.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Special Journals  The revenue journal is used for recording fees earned on account. LO 2  Cash fees earned would be recorded in the cash receipts journal.  Purchases made on account (on credit) are recorded in the purchases journal.  All cash payments are recorded in the cash payments journal.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Revenue Journal  Revenues are normally recorded to the revenue journal when the company sends a bill, referred to as an invoice, to the customer.  Each invoice is normally numbered in sequence for future reference. LO 2

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Revenue Journal LO 2 Let’s take a step-by-step look at the process used to post the first entry. This entry was made on March 2, 2012, when NetSolutions issued Invoice No. 615 to Accessories By Claire for fees earned of $2,200.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Exhibit 3 (in steps) LO 2 (continued) Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page Mar. 2615Accessories By Claire RapZone Web Cantina Accessories by Claire

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use RapZone Web Cantina Accessories by Claire Exhibit 3 (in steps) LO 2 (continued) Date Item P.R. Debit CreditBalance Mar. 2R352,2002, Accounts Receivable Subsidiary Ledger Accessories By Claire Revenue Journal Page Mar. 2615Accessories By Claire Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page Mar. 2615Accessories By Claire LO 2 (continued) Exhibit 3 (in steps) RapZone Web Cantina Accessories by Claire Date Item P.R. Debit CreditBalance Mar. 2R352,2002, Accounts Receivable Subsidiary Ledger Accessories By Claire

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page Mar. 2615Accessories By Claire LO 2 (continued) Exhibit 3 (in steps) 6616RapZone Web Cantina Accessories by Claire The same procedure would be used to post the other transactions to the individual accounts in the accounts receivable subsidiary ledger.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Revenue Journal Page Mar. 2615Accessories By Claire LO 2 (continued) Exhibit 3 (in steps) 6616RapZone Web Cantina Accessories by Claire Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Next, the amount column would be totaled

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. ACCOUNT Accounts Receivable Account No. 12 Balance Dr. Cr. Date Dr.Cr. Item Post. Ref Mar.1Balance R35 The debit total is posted from the revenue journal to Accounts Receivable in the general ledger. Revenue Journal, page 35 Exhibit 3 (in steps) LO 2 (continued)

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page ( 12 ) Indicates a debit posting of $9,600 to Accounts Receivable (General Ledger Account 12) 2012 Mar. 2615Accessories By Claire RapZone Web Cantina Accessories by Claire Exhibit 3 (in steps) LO 2 (continued)

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. ACCOUNT Fees Earned Account No. 41 Balance Date Dr.Cr. Item Post. Ref R35 The credit total is posted from the revenue journal to Fees Earned in the general ledger Dr. Cr. LO 2 (continued) Exhibit 3 (in steps) Revenue Journal, page 35 Mar

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Indicates a credit posting of $9,600 to Fees Earned (General Ledger Account 41 ) Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page ( 12 ) 2012 Mar. 2615Accessories By Claire RapZone Web Cantina Accessories by Claire ( 41 ) LO 2 Exhibit 3 (in steps)

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cash Receipts Journal  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. LO 2

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Mar. 1 Rent Revenue CASH RECEIPTS JOURNAL OtherAccounts PostAccounts ReceivableCash DateAccount Credited Ref.Cr.Cr.Dr. Page Web Cantina3,4003,400 28Accessories By Claire2,2002, RapZone 1,7501,750 Date Item P.R. Debit CreditCr. Bal. ACCOUNT Rent Revenue Acct. No. 42 GENERAL LEDGER 42 CR14 Mar Exhibit 4 (in steps) LO 2 (continued) 400

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Mar. 1 Rent Revenue CASH RECEIPTS JOURNAL OtherAccounts PostAccounts ReceivableCash DateAccount Credited Ref.Cr.Cr.Dr. Page Web Cantina3,4003,400 28Accessories By Claire2,2002, RapZone 1,7501, ,3507,750 ( ) A check mark indicates that items in this column are posted individually Exhibit 4 (in steps) LO 2 (continued) 31

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Accts.Other Post Payable SuppliesAccountsPost DateAccount CreditedRef.Cr.Dr.Dr.Ref.Amount PURCHASES JOURNAL Page Mar. 3Howard Supplies Donnelly Supplies Jewett Bus. Sys. 2,800Off. Equip.2,800 19Donnelly Supplies1,4501,450 27Howard Supplies Exhibit 5 (in steps) LO 2 (continued)  The purchases journal is designed for recording all purchases on account.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. PURCHASES JOURNAL Page 11 7Donnelly Supplies Jewett Bus. Sys.2,800Off. Equip.2,800 19Donnelly Supplies1,4501,450 27Howard Supplies 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. LO 2 (continued) Exhibit 5 (in steps) Accts.Other Post Payable SuppliesAccountsPost DateAccount CreditedRef.Cr.Dr.Dr.Ref.Amount PURCHASES JOURNAL 2012 Mar. 3Howard Supplies600600

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. PURCHASES JOURNAL Page 11 7Donnelly Supplies Jewett Bus. Sys.2,800Off. Equip.2,800 19Donnelly Supplies1,4501,450 27Howard Supplies Accts.Other Post Payable SuppliesAccountsPost DateAccount CreditedRef.Cr.Dr.Dr.Ref.Amount PURCHASES JOURNAL 2012 Mar. 3Howard Supplies DateItemP.R. Dr.Cr.Balance 2012 P11 LO 2 (continued) Exhibit 5 (in steps) Accounts Payable Subsidiary Ledger Howard Supplies 600 Mar

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. PURCHASES JOURNAL Page 11 7Donnelly Supplies Jewett Bus. Sys.2,800Off. Equip.2,800 19Donnelly Supplies1,4501,450 27Howard Supplies Accts.Other Post Payable SuppliesAccountsPost DateAccount CreditedRef.Cr.Dr.Dr.Ref.Amount PURCHASES JOURNAL 2012 Mar. 3Howard Supplies (continued) LO 2 Exhibit 5 (in steps) The other entries to the accounts payable subsidiary ledger are recorded using the same procedure.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. PURCHASES JOURNAL Page Mar. 3Howard Supplies Donnelly Supplies Jewett Bus. Sys.2,800 Off. Equip.2,800 19Donnelly Supplies1,4501,450 27Howard Supplies This posting reference indicates that Office Equipment (Account 18) is debited in the general ledger for $2,800. Exhibit 5 (in steps) LO 2 Accts.Other Post Payable SuppliesAccountsPost DateAccount CreditedRef.Cr.Dr.Dr.Ref.Amount

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Purchases Journal At the end of March, all columns are totaled and the equality of debits and credits is verified. Then the total amounts in the “Accounts Payable Cr.” and “Supplies Dr.” columns are posted. Because Office Equipment was posted earlier, the $2,800 total is not posted. LO 2

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 7Donnelly Supplies Jewett Bus. Sys.2,800Off. Equip.182,800 19Donnelly Supplies1,4501,450 27Howard Supplies ,2303,4302,800 ( ) ( )( ) Accts.Other PostPayable SuppliesAccountsPost DateAccount CreditedRef.Cr. Dr.Dr.Ref.Amount PURCHASES JOURNAL Page Mar. 3Howard Supplies ACCOUNT Accounts Payable No. 21 GENERAL LEDGER DateItemP.R. DebitCreditBalance Mar. 1Bal1,230 6,2307,460 31P LO 2 Exhibit 5 (in steps) Supplies would be debited for $3,430 and 14 written in the parentheses.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cash Payments Journal  All transactions involving a credit to Cash are recorded in the cash payments journal. LO 2

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 33 CASH PAYMENTS JOURNAL OtherAccounts Ck.PostAccounts PayableCash DateNo.Account DebitedRef.Dr.Dr.Cr PAGE Mar. 2150Rent Expense1,6001,600 On March 2, 2012, issued Check 150 for rent of $1,600. Exhibit 6 (in steps) LO 2 (continued)  All transactions involving a credit to Cash are recorded in the cash payments journal.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The amounts listed in the “Other Accounts Dr.” column are posted on a regular basis. The $1,600 for Rent Expense is posted to Account No. 52. Cash Payments Journal LO 2

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. CASH PAYMENTS JOURNAL OtherAccounts Ck.PostAccounts PayableCash DateNo.Account DebitedRef.Dr.Dr.Cr PAGE Mar. 2150Rent Expense1,6001,600 General Ledger Account Rent Expense 1,600 1,600 DateItemP.R. Dr.Cr.Balance Account No LO 2 (continued) Exhibit 6 (in steps) 2012 Mar. 2 CP7

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. PAGE Mar. 2150Rent Expense1,6001, Grayco Supplies1,2301,230  52    Jewett Business Sys.2,8002, Donnelly Supplies Utilities Expense1,0501, Howard Supplies (continued) LO 2 Exhibit 6 (in steps) CASH PAYMENTS JOURNAL OtherAccounts Ck.PostAccounts PayableCash DateNo.Account DebitedRef.Dr.Dr.Cr

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. CASH PAYMENTS JOURNAL OtherAccounts Ck.PostAccounts PayableCash DateNo.Account DebitedRef.Dr.Dr.Cr PAGE Mar. 2150Rent Expense1,6001, Grayco Supplies1,2301, Jewett Business Sys.2,8002, Donnelly Supplies Utilities Expense1,0501, Howard Supplies CASH PAYMENTS JOURNAL OtherAccounts Ck.PostAccounts PayableCash DateNo.Account DebitedRef.Dr.Dr.Cr PAGE Mar. 2150Rent Expense1,6001, Grayco Supplies1,2301, Jewett Business Sys.2,8002, Donnelly Supplies Utilities Expense1,0501, Howard Supplies ,6505,0507,    54  (21) (11)( )   The totals for “Accounts Payable Dr.” and “Cash Cr.” are posted. (continued) LO 2 Cash Payments Journal

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objective 3 1.Define and describe an accounting system. 2.Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals. 3.Describe and illustrate the use of a computerized accounting system.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Computerized Accounting System 1.Computerized systems simplify the record-keeping process by recording transactions in electronic forms and, at the same time, posting them electronically to general and subsidiary ledger accounts. LO 3  Computerized accounting systems have the following three main advantages over manual systems:

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Computerized Accounting System 2.Computerized systems are generally more accurate than manual systems. 3.Computerized systems provide management with current account balance information to support decision making, since account balances are posted as the transactions occur. LO 3

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objective 4 1.Define and describe an accounting system. 2.Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals. 3.Describe and illustrate the use of a computerized accounting system. 4.Describe the basic features of e-commerce.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. E-Commerce  Using the Internet to perform business transactions is termed e-commerce. LO 4  When transactions are between a company and a consumer, it is termed B2C (business- to-consumer) e-commerce.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objective 5 1.Define and describe an accounting system. 2.Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals. 3.Describe and illustrate the use of a computerized accounting system. 4.Describe the basic features of e-commerce. 5.Use segment analysis in evaluating the operating performance of a company.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Segment Analysis  One way to report revenue is by different segments. Businesses may be segmented by region, by product or service, or by type of customer. LO 5

Prepared by: C. Douglas Cloud Professor Emeritus of Accounting Pepperdine University © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Student Version Accounting Systems The End