1. Subsidiary Ledgers Special Journals
Chapter 7
Subsidiary Ledgers
Special Journals

2. Study Objectives
Identify the basic concepts of an accounting information system.
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)

3. Accounting Information Systems
Basic Concepts of Accounting Information Systems
Subsidiary Ledgers
Special Journals
Computerized accounting systems
Manual accounting systems
Example
Advantages
Sales journal
Cash receipts journal
Purchases journal
Cash payments journal
Effects of special journals on general journal
Service Cost - Actuaries compute service cost as the present value of the new benefits earned by employees during the year. Future salary levels considered in calculation.
Interest on Liability - Interest accrues each year on the PBO just as it does on any discounted debt.
Actual Return on Plan Assets - Increase in pension funds from interest, dividends, and realized and unrealized changes in the fair market value of the plan assets.
Amortization of Unrecognized Prior Service Cost - The cost of providing retroactive benefits is allocated to pension expense in the future, specifically to the remaining service-years of the affected employees.
Gain or Loss - Volatility in pension expense can be caused by sudden and large changes in the market value of plan assets and by changes in the projected benefit obligation. Two items comprise the gain or loss:
difference between the actual return and the expected return on plan assets and,
amortization of the unrecognized net gain or loss from previous periods

4. Basic Concepts of AIS
The accounting information system (AIS) collects and processes transaction data and communicates financial information to decision makers.
Includes:
All steps in the accounting cycle.
Documents that provide evidence of transactions.
Manual or computerized accounting system.
SO 1 Identify the basic concepts of an accounting information system.

5. Computerized Accounting Systems
Basic Concepts of AIS
Computerized Accounting Systems
Software programs (functions include sales, purchases, receivables, payables, cash receipts and disbursements, and payroll).
Generate financial statements.
Advantages:
Typically enter data only once.
Many human errors are eliminated.
More timely information.
SO 1 Identify the basic concepts of an accounting information system.

6. Special Journals Used to record similar types of transactions.
Illustration 7-5
If a transaction cannot be recorded in a special journal, the company records it in the general journal.
SO 3 Explain how companies use special journals in journalizing.

7. Subsidiary Ledgers
Relationship of general ledger and subsidiary ledgers
Illustration 7-3
SO 2 Describe the nature and purpose of a subsidiary ledger.

8. 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 2 Describe the nature and purpose of a subsidiary ledger.

9. Special Journals
Sales Journal
Illustration 7-6
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 3 Explain how companies use special journals in journalizing.

10. POSTING THE SALES JOURNAL
Special Journals
Illustration 7-7
POSTING THE SALES JOURNAL
Companies make daily postings from the sales journal to the individual accounts receivable in the subsidiary ledger.
SO 3 Explain how companies use special journals in journalizing.

11. Special Journals Posting to the general ledger is done monthly.
Illustration 7-7
POSTING THE SALES JOURNAL
Posting to the general ledger is done monthly.
SO 3 Explain how companies use special journals in journalizing.

12. Special Journals
Cash Receipts Journal
Illustration 7-9
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 7-9 in the text.
SO 3 Explain how companies use special journals in journalizing.

13. Special Journals
Illustration 7-13
Purchases Journal
Daily postings are made from the purchases journal to the accounts payable subsidiary ledger.
SO 4 Indicate how companies post a multi-column journal.

14. Special Journals
Illustration 7-13
Purchases Journal
At the end of the accounting period, the company posts totals to the general ledger.
SO 4 Indicate how companies post a multi-column journal.

15. Special Journals
Cash Payments Journal
Illustration 7-16
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 4 Indicate how companies post a multi-column journal.

16. 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 4 Indicate how companies post a multi-column journal.

17. 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 4 Indicate how companies post a multi-column journal.

18. ASSIGNMENTS