1. Warren Reeve Duchac Accounting 26e Accounting Systems 5 C H A P T E R human/iStock/360/Getty Images

2. Learning Objectives LO1: Define and describe an accounting system. LO2: Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals. LO3: Describe and illustrate the use of a computerized accounting system. LO4: Describe the basic features of e-commerce. LO5: Use segment analysis in evaluating the operating performance of a company. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

3. Basic Accounting Systems (slide 1 of 2) An accounting system is the methods and procedures for collecting, classifying, summarizing, and reporting a business’s financial and operating information. As a business grows and changes, its accounting system also changes in the following three-step process. o Step 1: Analyze user information needs. o Step 2: Design the system to meet the user needs. o Step 3: Implement the system. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

4. Basic Accounting Systems (slide 2 of 2) 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. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

5. Manual Accounting Systems Understanding a manual accounting system is useful in identifying relationships between accounting data and reports. When a business has a large number of similar transactions, using an all-purpose (two-column) journal is inefficient and impractical. In such cases, subsidiary ledgers and special journals are useful. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

6. Subsidiary Ledgers (slide 1 of 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 the general ledger. Each subsidiary ledger is represented in the general ledger by a summarizing account, called a controlling account. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

7. Subsidiary Ledgers (slide 2 of 2) Two of the most common subsidiary ledgers are the accounts receivable subsidiary ledger and the accounts payable subsidiary ledger. o The accounts receivable subsidiary ledger, or customers ledger, lists the individual customer accounts in alphabetical order. The controlling account in the general ledger that summarizes the debits and credits to the individual customer accounts is Accounts Receivable. o The accounts payable subsidiary ledger, or creditors ledger, lists individual creditor accounts in alphabetical order. The related controlling account in the general ledger is Accounts Payable. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

8. General Ledger and Subsidiary Ledgers ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

9. Special Journals (slide 1 of 2) 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. 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. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

10. Special Journals (slide 2 of 2) ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

11. NetSolutions, General Ledger Balances NetSolutions had the following selected general ledger balances as of March 1, 2016: ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

12. Revenue Journal (slide 1 of 3) ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The revenue journal is used for recording fees earned on account.

13. Revenue Journal (slide 2 of 3) ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. If NetSolutions recorded its revenue transactions in the general journal, the following entries would have to be made: The preceding revenue transactions could be recorded more efficiently in a revenue journal.

14. Revenue Journal ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

15. Revenue Journal (slide 3 of 3) Revenues are normally recorded in the revenue journal when the company sends a bill, or invoice, to the customer. Each invoice is normally numbered in sequence for future reference. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

16. Steps in Posting from the Revenue Journal (slide 1 of 2) Step 1: Each transaction is posted individually to a customer account in the accounts receivable subsidiary ledger as a debit in order to reflect the customer’s current balance. Step 2: To provide a trail of the entries posted to the subsidiary and general ledger, the source of these entries is indicated in the Posting Reference column of each account by inserting the letter R (for revenue journal) and the page number of the revenue journal. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

17. Steps in Posting from the Revenue Journal (slide 2 of 2) Step 3: To indicate that the transaction has been posted to the subsidiary ledger, a check mark is inserted in the Posting Reference column of the revenue journal. Step 4: The monthly total from the revenue journal is posted to the general ledger as a debit to Accounts Receivable and a credit to Fees Earned. The general ledger account numbers are then inserted below the total in the revenue journal to indicate that the posting is complete. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

18. Revenue Journal and Postings ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

19. Example Exercise ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The following revenue transactions occurred during December: Dec. 5. Issued Invoice No. 302 to Butler Company for services provided on account, $5,000. 9. Issued Invoice No. 303 to JoJo Enterprises for services provided on account, $2,100. 15. Issued Invoice No. 304 to Salinas Inc. for services provided on account, $3,250. Record these transactions in a revenue journal. Revenue Journal

20. 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. The types of cash receipt transactions and their frequency determine the titles of the other columns. For example, if a business frequently receives cash from customers on account, an Accounts Receivable Cr. column is set up. The receipt of cash for infrequent transactions will be listed individually in the Other Accounts Cr. column. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

21. Cash Receipts Journal

22. Steps in Posting from the Cash Receipts Journal (slide 1 of 3) Step 1: Each transaction involving the receipt of cash on account is posted individually to a customer account in the accounts receivable subsidiary ledger as a credit in order to reflect the customer’s current balance. Step 2: To provide a trail of the entries posted to the subsidiary ledger, the source of these entries is indicated in the Posting Reference column of each account by inserting the letters CR (for cash receipts journal) and the page number of the cash receipts journal. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

23. Steps in Posting from the Cash Receipts Journal (slide 2 of 3) Step 3: To indicate that the transaction has been posted to the subsidiary ledger, a check mark is inserted in the Posting Reference column of the cash receipts journal. Step 4: The monthly total of the Accounts Receivable Cr. column is posted to the general ledger as a credit to Accounts Receivable. The accounts receivable account number is then inserted below the total in the Accounts Receivable Cr. column of the cash receipts journal to indicate that the posting is complete. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

24. Steps in Posting from the Cash Receipts Journal (slide 3 of 3) Step 5: The monthly total of the Cash Dr. column is posted to the general ledger as a debit to Cash. The cash account number is then inserted below the total in the Cash Dr. column of the cash receipts journal to indicate that the posting is complete. Step 6: The accounts listed in the Other Accounts Cr. column are posted on a regular basis as a separate credit to each account. The account number is then inserted in the Posting Reference column of the cash receipts journal to indicate that the posting is complete. A check mark is then inserted below the monthly total of the Other Accounts Cr. column to indicate that no further action is needed. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25. Cash Receipts Journal and Postings ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

26. Accounts Receivable Control Account and Subsidiary Ledger After all posting has been completed for the month, the total of the accounts in the accounts receivable subsidiary ledger should equal the balance of the accounts receivable controlling account in the general ledger. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

27. Example Exercise ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The debits and credits from two transactions are presented in the following customer account: Accounts Receivable Subsidiary Ledger Describe each transaction and the source of each posting.

28. Purchases Journal The purchases journal is designed for recording all purchases on account. Every entry recorded in the purchases journal will involve a credit to the Accounts Payable Cr. column. The items most often purchased on account will determine the titles of the other columns. For example, if the purchase of supplies on account occurs frequently, then a Supplies Dr. column is set up. The items purchased on account infrequently will be listed individually in the Other Accounts Dr. column. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

29. Purchases Journal ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

30. Steps in Posting from the Purchases Journal (slide 1 of 3) Step 1: Each transaction involving a purchase on account is posted individually to a creditor’s account in the accounts payable subsidiary ledger as a credit in order to reflect the creditor’s current balance. Step 2: To provide a trail of the entries posted to the subsidiary ledger and general ledger, the source of these entries is indicated in the Posting Reference column of each account by inserting the letter P (for purchases journal) and the page number of the purchases journal. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

31. Steps in Posting from the Purchases Journal (slide 2 of 3) Step 3: To indicate that the transaction has been posted to the subsidiary ledger, a check mark is inserted in the Posting Reference column of the purchases journal. Step 4: The monthly total of the Accounts Payable Cr. column is posted to the general ledger as a credit to Accounts Payable. The accounts payable account number is then inserted below the total in the Accounts Payable Cr. column of the purchases journal to indicate that the posting is complete. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

32. Steps in Posting from the Purchases Journal (slide 3 of 3) Step 5: The monthly total of the Supplies Dr. column is posted to the general ledger as a debit to Supplies. The supplies account number is then inserted below the total in the Supplies Dr. column of the purchases journal to indicate that the posting is complete. Step 6: The accounts listed in the Other Accounts Dr. column are posted on a regular basis as a separate debit to each account. The account number is then inserted in the Posting Reference column of the purchases journal to indicate that the posting is complete. A check mark is then inserted below the monthly total of the Other Accounts Dr. column to indicate that no further action is needed. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

33. Purchases Journal and Postings ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

34. Example Exercise ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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. Purchases Journal

35. Cash Payments Journal All transactions that involve the payment of cash are recorded in the cash payments journal. Every entry recorded in the cash payments journal will involve a credit to the Cash Cr. column. The kinds of transactions in which cash is paid and how often they occur determine the titles of the other columns. For example, if the payment of cash to creditors on account occurs frequently, then a Accounts Payable Dr. column is set up. The payment of cash for infrequent transactions will be listed individually in the Other Accounts Dr. column. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

36. Cash Payments Journal ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

37. Steps in Posting from the Cash Payments Journal (slide 1 of 3) Step 1: Each transaction involving the payment of cash on account is posted individually to a creditor account in the accounts payable subsidiary ledger as a debit in order to reflect the customer’s current balance. Step 2: To provide a trail of the entries posted to the subsidiary ledger and general ledger, the source of these entries is indicated in the Posting Reference column of each account by inserting the letters CP (for cash payments journal) and the page number of the cash payments journal. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

38. Steps in Posting from the Cash Payments Journal (slide 2 of 3) Step 3: To indicate that the transaction has been posted to the subsidiary ledger, a check mark is inserted in the Posting Reference column of the cash payments journal. Step 4: The monthly total of the Accounts Payable Dr. column is posted to the general ledger as a debit to Accounts Payable. The accounts payable account number is then inserted below the total in the Accounts Payable Dr. column of the cash payments journal to indicate that the posting is complete. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

39. Steps in Posting from the Cash Payments Journal (slide 3 of 3) Step 5: The monthly total of the Cash Cr. column is posted to the general ledger as a credit to Cash. The cash account number is then inserted below the total in the Cash Cr. column of the cash payments journal to indicate that the posting is complete. Step 6: The accounts listed in the Other Accounts Dr. column are posted on a regular basis as a separate debit to each account. The account number is then inserted in the Posting Reference column of the cash payments journal to indicate that the posting is complete. A check mark is then inserted below the monthly total of the Other Accounts Dr. column to indicate that no further action is needed. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

40. Cash Payments Journal and Postings ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

41. Accounts Payable Control Account and Subsidiary Ledger After all posting has been completed for the month, the total of the accounts in the accounts payable subsidiary ledger should equal the balance of the accounts payable controlling account in the general ledger. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

42. Example Exercise ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The debits and credits from two transactions are presented in the following creditor’s (supplier’s) account: Accounts Payable Subsidiary Ledger Describe each transaction and the source of each posting.

43. Computerized Accounting Systems Computerized accounting systems have the following three main advantages over manual systems: o Computerized systems simplify the record-keeping process by recording transactions in electronic journals or forms and, at the same time, posting them electronically to general and subsidiary ledger accounts. o Computerized systems are generally more accurate than manual systems. o Computerized systems provide management with current account balance information to support decision making, since account balances are posted as the transactions occur. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

44. Revenue and Cash Receipts in QuickBooks (slide 1 of 2) ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

45. Revenue and Cash Receipts in QuickBooks (slide 2 of 2) ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

46. E-Commerce (slide 1 of 2) Using the Internet to perform business transactions is termed e-commerce. When transactions are between a company and a consumer, it is termed B2C (business-to-consumer) e-commerce. When transactions are between two companies, it is termed B2B (business-to-business) e-commerce. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

47. E-Commerce (slide 2 of 2) Three additional areas where the Internet is being used for business purposes are: o Supply chain management (SCM) o Customer relationship management (CRM) o Product life-cycle management (PLM) ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

48. Financial Analysis and Interpretation: Segment Analysis (slide 1 of 3) One way to report revenue is by different segments. Businesses may be segmented by region, by product or service, or by type of customer. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

49. Financial Analysis and Interpretation: Segment Analysis (slide 2 of 3) ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The segment information can be used to perform horizontal analysis using the prior year as the base year as follows:

50. Financial Analysis and Interpretation: Segment Analysis (slide 3 of 3) ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. In addition, vertical analysis can be performed on the segment disclosures as follows:

51. Example Exercise ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Morse Company does business in two regional segments: East and West. The following annual revenue information was determined from the accounting system’s invoice information: Segment Analysis (slide 1 of 2) Prepare horizontal and vertical analyses of the segments.

52. Example Exercise ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Segment Analysis (slide 2 of 2)