1. Using Special Journals & Subsidiary Ledgers
Chapter 1: Accounting Systems.
© The McGraw-Hill Companies, Inc.

2. Components of an Accounting Information System: Subsidiary Ledgers
Accounts Receivable Subsidiary Ledger
Accounts Payable Subsidiary Ledger
Advantages of Using Subsidiary Ledgers
Dedicated accounts for individual customers and creditors.
Reduction of unnecessary detail in the general ledger accounts.
Easier to locate errors in individual customer and creditor accounts.
Division of labor.
To this point in the course, the accounting steps involved recording transactions in the general journal, posting them to the general ledger accounts, and summarizing the results in the financial statements. The general ledger is not a useful source of information for supplying detailed information about individual customers or individual creditors. To provide this detailed information most companies use subsidiary ledgers. A subsidiary ledger is used to group of accounts that share a common feature. Two of the more frequently used subsidiary ledgers are:
The accounts receivable subsidiary ledger, which tracks Accounts Receivable transactions and balances for individual customers, and
The accounts payable subsidiary ledger, which tracks Accounts Payable transactions and balances for individual creditors.

3. Accounts Receivable Subsidiary Ledger
Downtown Dental Services
Date
Item
Debit
Credit
Balance
Aug. 31
2,410
Sep. 1
1,389
3,799
Sep. 18
Gallegos Gift Shop
886
Sep. 12
1,825
2,711
Sep. 29
1,000
1,711
Keays Optical
1,277
Sep. 20
2,298
3,575
Sep. 22
1,987
1,588
Matthews Custom Computers
843 -
1,788
Tracks Accounts Receivable transactions and balances for individual customers.
Part I
On the left part of your screen is an example of an Accounts Receivable subsidiary ledger. You can think of a subsidiary ledger as a large file drawer containing customers’ file folders, arranged in alphabetical order. Each file folder contains the customer’s name, a record of services charged to the customer’s account, a record of payments received from the customer, and an up-to-date balance of the amount owed by the customer. All transactions are in chronological order. Notice that accounts receivable transactions are recorded in the individual customer’s account. For example, we sold merchandise on account to Downtown Dental Services on September 1st in the amount of $1,389. The updated balance in that company’s account receivable is $3,799 at the close of business on September 1st.
Part II
At the end of the month, we can prepare a schedule of our accounts receivable from all customers. The total of accounts receivable on September 30th is $6,476. The total is reflected in the Accounts Receivable control account shown on the right bottom of your screen. The debits and credits to the control account are determined by summing the total of all debits and credits in the Accounts Receivable subsidiary ledger.
Downtown Dental Services
$1,389
Accounts Receivable
Gallegos Gift Shop
1,711
Date
Item
Debit
Credit
Balance
Keays Optical
1,588
Aug. 31
5,416
Matthews Custom Computers
1,788
Sep. 30
7,300
12,716
Total
$6,476
6,240
6,476

4. Control Accounts and Posting of References
The purpose of the subsidiary ledger is to present detailed transaction history for each customer or creditor.
The purpose of the Accounts Receivable and Accounts Payable control accounts is to present the same information contained in the subsidiary ledger, but in a highly summarized form.
The purpose of the subsidiary ledger is to present detailed transaction history for each customer. The purpose of the Accounts Receivable and Accounts Payable control accounts is to present the same information contained in the subsidiary ledger, but in a highly summarized form.
Detailed Subsidiary
Control Account

5. Special Journals and Posting of Transactions
Special journals offer a solution to recording highly repetitive and frequently occurring transactions. Special journals do not eliminate the need for the general journal.
Revenue/
Sales Journal
Cash Receipts Journal
Purchases Journal
Cash Payments Journal
If accountants were to record a general journal entry each time Cash was debited or credited, they would spend an enormous amount of time just completing this task. By aggregating similar journal entries in one special journal, accounts can greatly reduce the amount of time and effort needed to journalize and post transactions. Special journals offer a solution to recording highly repetitive and frequently occurring transactions. Special journals do not eliminate the need for the general journal.

6. Special Journals– what each is used for
Revenue/Sales
Journal
Cash Receipts Journal
Purchase
Journal
Cash Payment
Journal
Used for:
All sales of merchandise on account
Used for:
All cash received
(including cash sales)
Used for:
All purchases of merchandise on account
Used for:
All cash paid
(including cash purchases)
General
Journal
Used for:
Transactions that cannot be entered in a special journal, including adjusting and closing entries

7. Account Title and Explanation
Revenue Journal
The revenue journal is only used to record revenue earned on account. Here is how four revenue transactions would be recorded and posted in the general journal.
Date
Account Title and Explanation
Ref.
Debit
Credit
Sep. 1
Accounts Receivable - Downtown Dental
110/✓
1,389
Fees Earned
410
Sep. 12
Accounts Receivable - Gallegos Gift
1,825
Sep. 20
Accounts Receivable - Keays Optical
2,298
Sep. 29
Accounts Receivable - Matthews Custom
1,788
On this screen is an example of the recording and posting of a single type of transaction; recorded fees earned on account from a variety of customers. Notice that the only variables in the transactions are the date, customer name, and amount. Rather than recording and posting revenue earned on account in the general journal, accountants have develop a special Revenue Journal. The Revenue Journal is used to record sales on account only.

8. Posted to individual account receivable subsidiary ledger daily.
Revenue Journal
Here is how those same four transactions would be recorded in the revenue journal.
Revenue Journal
Page 2
Invoice
A/R Dr.
Date
No.
Account Debited
Ref.
Fees Earn Cr.
Sep. 1
820
Downtown Dental Services  ✓
1,389
Sep. 12
822
Gallegos Gift Shop
1,825
Sep. 20
823
Keays Optical
2,298
Sep. 29
824
Matthews Custom Computers
1,788
Total
7,300
(110/410)
Here is how those same four transactions would be recorded in the revenue journal. We have added a column for the invoice number associated with the revenue. By doing so, we are able to trace the transaction back to the original source documentation. The check mark indicates that the transaction has been posted to the individual account receivable subsidiary ledger as a debit. Customer transactions are posted to the subsidiary ledger daily. At the end of the accounting period, a total is determined in the amount column of the revenue journal. In our case, the monthly total is $7,300. At the end of the period, the total is posted to the accounts receivable control account as a debit, and to the revenue account as a credit.
Posted to individual account receivable subsidiary ledger daily.
Posted to accounts receivable control account and fees earned account at the end of the accounting period.

9. Accounts Receivable No. 110
Revenue Journal
Revenue Journal
Page 2
Invoice
A/R Dr.
Date
No.
Account Debited
Ref.
Fees Earn Cr.
Sep. 1
820
Downtown Dental Services  ✓
1,389
Sep. 12
822
Gallegos Gift Shop
1,825
Sep. 20
823
Keays Optical
2,298
Sep. 29
824
Matthews Custom Computers
1,788
Total
7,300
(110/410)
Downtown Dental Services
Date
Ref.
Item
Debit
Credit
Balance
Aug. 31
2,410
Sep. 1 R2
1,389
3,799
Part I
For Downtown Dental Services, the transaction amount of $1,389 is posted to its subsidiary ledger on September 1st. The balance in the subsidiary account receivable is updated after the amount is posted. Notice that the posting reference in the subsidiary ledger is R2 which refers to the Revenue Journal, page 2. The posting reference in the Revenue Journal is the check mark.
Part II
At the end of September, the total amount of revenue earned is posted as a debit to the accounts receivable control account and as a credit to the Fees Earned, account 410.
Accounts Receivable No. 110
Date
Ref.
Debit
Credit
Balance
Aug. 31
Bal.
5,416
Sep. 30 R2
7,300
12,716

10. Cash Receipts Journal Part I
Page 3
Other
Accounts
Fees
Date
Ref.
Account Credited
Accts Cr.
Receivable Cr.
Earned Cr.
Cash Dr.
Sep. 1  ✓
Matthews Custom Computers
843
Sep. 15
820
Sep. 18
Downtown Dental Services
2,410
Sep. 20
710
Interest Revenue 80
Sep. 22
Keays Optical
1,987
Sep. 29
Gallegos Gift Shop
1,000
Sep. 30
890
Totals
6,240
1,710
8,030
(110)
(410)
(105)
Cash
Acct. 105
Date
Ref.
Debit
Credit
Balance
Aug. 31
Bal.
4,220
Sep. 30
CR3
8,030
12,250
Accounts Receivable
Acct. 110
5,416 R2
7,300
12,716
6,240
6,476
Fees Earned
Acct. 410
54,080
61,380
1,710
63,090
Part I
Up to this point in the course, we have recorded all cash transactions in the general journal. Because there are so many transactions involving cash, most companies prefer to have separate special journals for Cash Receipts and Cash Payments. Here is a typical Cash Receipts Journal. We have separate columns for a credit to Accounts Receivable representing collections on accounts receivable. In addition, we have a column for revenue recognition, in this case we have a credit to Fees Earned. The final column is for the debit, or increase, to the Cash account. Notice that the credits in the Accounts Receivable column are posted to the Accounts Receivable subsidiary ledger daily and have a posting reference of the check mark. We received cash interest revenue on September 20th, and posted the amount to the Interest Revenue account number 710. On both September 20th and September 30th, we received cash for services rendered and recorded the Fees Earned.
Part II
The totals in the Cash, Accounts Receivable, and Fees Earned columns are posted to the general ledger accounts at the end of the period. Notice the new posting reference of CR3, referring to the Cash Receipts Journal, page 3.

11. Preparation of the Schedule of Accounts Receivable
Downtown Dental Services
$1,389
Gallegos Gift Shop
1,711
Keays Optical
1,588
Matthews Custom Computers
1,788
Total
$6,476
Accounts Receivable
Date
Item
Debit
Credit
Balance
Aug. 31
5,416
Sep. 30
 R2
7,300
12,716
 CR3
6,240
6,476
We prepare the Schedule of Accounts Receivable from the Accounts Receivable subsidiary ledger and the total must agree with the balance in the Accounts Receivable control account. If they do not agree, an error has occurred in the processing of accounts receivable during the period.

12. Cash Payments Journal Part I
Page 8
Other
Accounts
Date
Check No.
Account Debited
Ref.
Accounts Dr.
Payable Dr.
Cash Cr.
Sep. 1
 5601
Carlson Equipment
  ✓
1,228
1228
Sep. 15
5602
Advertising Expense
520
645
Sep. 18
 5603
VOID
Sep. 20
5604
EmilRado Advertising Co.  ✓
365
Sep. 22
 5605
XYZ Supplies
 ✓ 
1,538
Sep. 29
 5606
Shipping Supplies
 115
325
Sep. 30
5607
Salaries Expense
 510
850
Totals
1,820
3,131
4,951
(210)
(105)
Cash
Acct. 105
Date
Ref.
Debit
Credit
Balance
Aug. 31
Bal.
4,220
Sep. 30
CR3
8,030
12,250
CP8
 4,951
7,299 
Accounts Payable
Acct. 210
3,113 P4
4,633
7,746
 3,131
4,615
Part I
The Cash Payments Journal is similar to the Cash Receipts Journal. All cash payments are recorded in this special journal. In the Accounts Payable column, we record the payments made on account for purchases from vendors. The Other Accounts columns is used to record cash payments for expenses or assets. The payments on account are posted to the Accounts Payable subsidiary ledger on a daily basis. The reference column shows a check mark for postings to the subsidiary ledger and account numbers for posting to general ledger accounts.
Part II
The total of $4,951 in the Cash column is posted at the end of the accounting period to the Cash general ledger account. The CP8 in the Cash general ledger account refers to the Cash Payments Journal page 8.
Part III
The total of $3,131 is posted to the Accounts Payable general ledger control account at the end of the period.

13. Cash Payments Journal From the Accounts Payable Subsidiary Ledger
Schedule of Accounts Payable
Carlson Equipment
$2,000
EmilRado Advertising Co.
715
XYZ Advertising
1,900
Total
$4,615
From the Accounts Payable Subsidiary Ledger
Accounts Payable Control Account
The Schedule of Accounts Payable is developed from the Accounts Payable subsidiary ledger and must agree with the balance in the Accounts Payable control account. If the two amounts do not agree, we have discovered an error in the processing of accounts payable during the period.
Accounts Payable
Acct. 210
Date
Ref.
Debit
Credit
Balance
Aug. 31
Bal.
3,113
Sep. 30 P4
4,633
7,746
CP8
 3,131
4,615

14. Use of General Journal
Recording Unusual Transactions in the General Journal
Date
Account Title and Explanation
Ref.
Debit
Credit
Sep. 1
Store Equipment
170
4,000
Notes Payable
250
( Purchased equipment by issuing a note payable)
The General Journal is used to record transactions that cannot be recorded in a special journal. In addition, all correcting, adjusting, and closing entries are recorded in the General Journal.
The General Journal is used to record transactions that cannot be recorded in a special journal. In addition, all correcting, adjusting, and closing entries are recorded in the General Journal. The transaction shown on your screen reflects the purchase of equipment by issuing a note payable. The transaction does not involve an account receivable or account payable so it could not be recorded in the Accounts Receivable or Payable Ledger. There was no cash involved in the transaction so it could not be recorded in the Cash Receipts or Cash Payments journal. This type of transaction does not occur frequently and would be best recorded in the General Journal. Notice that the amounts have been posted to the Store Equipment (number 170) and Notes Payable (number 250) general ledger accounts.

15. The Purchases Journal is used to record only credit purchases.

16. Posting From Purchases Journal to Accounts Payable Ledger

17. Posting from Purchases Journal to General Ledger

18. Summary of the Recording Process
Identify Transactions to be recorded
General Journal
Record
Special Journal
General Ledger
Post
Special Ledger
A summary of the recording and posting process looks like this. Once the transaction has been identified and analyzed, it will be recorded in the general journal or special journal depending on the nature of the transaction. If the transaction involves an account receivable or account payable, it will be posted to both the subsidiary ledger account and the related general ledger control account. Other transaction amounts will be posted to either the general ledger or a special ledger. At the end of the accounting period, amounts will be summarized in both the general and special ledgers and used to prepare the financial statements.
Prepare
Financial Statements

19. Frequency of Posting From Journals
Item
Posting
Revenue Journal
Subsidiary Accounts Dr. (Customers)
Daily
Column totals to General Ledger (GL)
Monthly
Cash Receipts Journal
Subsidiary Accounts Cr. (Customers)
Other Accounts Dr. items to GL
Column totals (except Other) to GL
Purchases Journal
Subsidiary Accounts Cr. (Creditors)
Other Accounts Cr. items to GL
Cash Payments Journal
Subsidiary Accounts Dr. (Creditors)
General Journal
Subsidiary Accounts Dr./Cr. (All)
General Ledger Accounts (All)
This table summarizes the frequency of posting from journals to subsidiary accounts and general ledger accounts. We are assuming that the company prepares financial statements on a monthly basis.