1. 5-1 1 Accounting Systems 5

2. 5-2 2 Click to edit Master title style Click to edit Master text styles –Second level Third level –Fourth level »Fifth level 2 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 give examples of other subsidiary ledgers and modified special journals. Accounting Systems After studying this chapter, you should be able to: 5-2

3. 5-3 3 4 Describe and illustrate the use of a computerized accounting system. 5 Describe the basic features of e- commerce. Accounting Systems (continued) 5-3

4. 5-4 4 Define and describe an accounting system. 1 5-4

5. 5-5 5 An accounting system is the methods and procedures for collecting, classifying, summarizing, and reporting a business’s financial and operating information. 1 Accounting System

6. 5-6 6 As a business grows and changes, accounting systems also change in the following three-step process: Step 1. Analyze user information needs. Step 2. Design the system to meet the user needs. Step 3. Implement the system. 1

7. 5-7 7 Accounting Systems Growth Process 1

8. 5-8 8 Once a system has been implemented, feedback, or input from the users of the information can be used to analyze and improve the system. 1 Feedback

9. 5-9 9 Internal controls are policies and procedures that protect assets from misuse, ensure that business information is accurate, and ensure that laws and regulations are being followed. 1 Internal Controls

10. 5-10 10 Processing methods are the means by which the system collects, summarizes, and reports accounting information. These methods may be either manual or computerized. 1 Processing Methods

11. 5-11 11 Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals. 2 5-11

12. 5-12 12 A large number of individual accounts with a common characteristic can be grouped together in a separate ledger called a subsidiary ledger. 2 Subsidiary Ledger

13. 5-13 13 The primary ledger, which contains all of the balance sheet and income statement accounts, is called a general ledger. 2 General Ledger

14. 5-14 14 Each subsidiary ledger is represented in the general ledger by a summarizing account, called a controlling account. 2 Controlling Account

15. 5-15 15 The individual customers’ accounts are arranged in alphabetical order in a subsidiary ledger called the accounts receivable subsidiary ledger or customers ledger. 2

16. 5-16 16 The individual creditors’ accounts are arranged in alphabetical order in a subsidiary ledger called the accounts payable subsidiary ledger, or creditors ledger. 2

17. 5-17 17 2 General Ledger and Subsidiary Ledgers Exhibit 1

18. 5-18 18 Each special journal is designed to be used for recording a single kind of transaction that occurs frequently. 2 Special Journal

19. 5-19 19 SELLING Providing services on account Revenue Journal Revenue Journal recorded in Receipt of cash from any source Cash Receipts Journal Cash Receipts Journal recorded in Special Journals 2

20. 5-20 20 Purchase of items on account Purchases Journal recorded in Payment of cash for any purpose Cash Payments Journal recorded in Special Journals 2 BUYING

21. 5-21 21 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. 2 General Journal

22. 5-22 22 The revenue journal is used for recording fees earned on account. Cash fees earned would be recorded in the cash receipts journal. 2 Other Special Journals

23. 5-23 23 2 Revenue Journal Exhibit 2

24. 5-24 24 2 Revenue Journal Postings to Ledger Exhibit 3

25. 5-25 25 Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page 35 123456123456 123456123456 Exhibit 3 in Steps Click here to skip “Exhibit 3 in Steps” 2 6616RapZone1 7 5 0 00 18617Web Cantina2 6 5 0 00 27618Accessories by Claire3 0 0 0 00 2010 Mar. 2615Accessories by Claire 2 2 0 0 00

26. 5-26 26 Exhibit 3 in Steps 2 Revenue Journal Page 35 123456123456 123456123456 6616RapZone1 7 5 0 00 18617Web Cantina2 6 5 0 00 27618Accessories by Claire3 0 0 0 00 2010 Mar. 2615Accessories by Claire 2 2 0 0 00 Date Item P.R. Debit CreditBalance Mar. 2R352,2002,200 2010 Accounts Receivable Subsidiary Ledger Accessories by Claire Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit

27. 5-27 27 Exhibit 3 in Steps 2 Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page 35 123456123456 123456123456 Mar. 2615Accessories by Claire 2 2 0 0 00 6616RapZone1 7 5 0 00 18617Web Cantina2 6 5 0 00 27618Accessories by Claire3 0 0 0 00 Date Item P.R. Debit CreditBalance Mar. 2R352,2002,200 2010 Accounts Receivable Subsidiary Ledger Accessories by Claire

28. 5-28 28 2 Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page 35 123456123456 123456123456 6616RapZone1 7 5 0 00 18617Web Cantina2 6 5 0 00 27618Accessories by Claire3 0 0 0 00 2010 Mar. 2615Accessories by Claire 2 2 0 0 00 Exhibit 3 in Steps

29. 5-29 29 2 Exhibit 3 in Steps Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page 35 123456123456 123456123456 6616RapZone1 7 5 0 00 18617Web Cantina2 6 5 0 00 27618Accessories by Claire3 0 0 0 00 319 6 0 0 00 2010 Mar. 2615Accessories by Claire 2 2 0 0 00

30. 5-30 30 ACCOUNT Accounts Receivable Account No. 12 Balance Dr. Cr. Date Dr.Cr. Item Post. Ref. 2010 Mar.1Balance 3 400 00 319 600 00 13 000 00 R35 The debit total is posted from the revenue journal to Accounts Receivable in the general ledger. Revenue Journal, page 35 2

31. 5-31 31 Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page 35 123456123456 123456123456 ( 12 ) Indicates a debit posting of $9,600 to Accounts Receivable (General Ledger Account 12) 2 2010 Mar. 2615Accessories by Claire 2 2 0 0 00 6616RapZone1 7 5 0 00 18617Web Cantina2 6 5 0 00 27618Accessories by Claire3 0 0 0 00 319 6 0 0 00

32. 5-32 32 ACCOUNT Fees Earned Account No. 41 Balance Date Dr.Cr. Item Post. Ref. 2010 Mar.31 9 600 00 R35 The credit total is posted from the revenue journal to Fees Earned in the general ledger. Revenue Journal, page 35 9 600 00 Dr. Cr. 2

33. 5-33 33 Indicates a credit posting of $9,600 to Fees Earned (General Ledger Account 41) 2 Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page 35 123456123456 123456123456 ( 12 ) 2010 Mar. 2615Accessories by Claire 2 2 0 0 00 6616RapZone1 7 5 0 00 18617Web Cantina2 6 5 0 00 27618Accessories by Claire3 0 0 0 00 319 6 0 0 00 ( 41 )

34. 34 The following revenue transactions occurred during December: Record these transactions in a revenue journal as illustrated in Exhibit 2 (Slide 23). Dec. 5Invoice No. 302 to Butler Company for services provided on account, $5,000. Dec. 9Invoice No. 303 to JoJo Enterprises for services provided on account, $2,100. Dec. 15Invoice No. 304 to Double D, Inc. for services provided on account, $3,250. Example Exercise 5-1 2 Revenue Journal 5-34

35. 35 Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page 123456123456 123456123456 9303JoJo Enterprises2 1 0 0 00 15304Double D Inc.3 2 5 0 00 Dec. 5302Butler Company 5 0 0 0 00 2 Example Exercise 5-1 (continued) 5-35 For Practice: PE 5-1A, PE 5-1B Follow My Example 5-1

36. 5-36 36 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. 2 Cash Receipts Journal

37. 5-37 37 2 Cash Receipts Journal and Postings Exhibit 4

38. 5-38 38 Mar. 1 Rent Revenue400 400 CASH RECEIPTS JOURNAL OtherAccounts PostAccounts ReceivableCash DateAccount Credited Ref.Cr.Cr.Dr. Page 14 2010 19 Web Cantina3,4003,400 28Accessories by Claire2,2002,200 30 RapZone 1,7501,750 Date Item P.R. Debit CreditCr. Bal. ACCOUNT Rent Revenue Acct. No. 42 GENERAL LEDGER 42 CR14 Exhibit 4 in Steps Click the button to skip “Exhibit 4 in Steps” 2 Mar. 1 2010 400

39. 5-39 39 Date Item P.R. Debit CreditBalance Web Cantina Mar. 1 Bal.3,400 18R352,6506,050 2010 3,400 2,650 19 Mar. 1 Rent Revenue400 400 CASH RECEIPTS JOURNAL OtherAccounts PostAccounts ReceivableCash DateAccount Credited Ref.Cr.Cr.Dr. Page 14 2010 19 Web Cantina3,4003,400 28Accessories by Claire2,2002,200 30 RapZone 1,7501,750 Accounts Receivable Subsidiary Ledger 42 CR14 2

40. 5-40 40 After all journalizing and posting to individual accounts for the month is complete, the columns are totaled. 2

41. 5-41 41 Mar. 1 Rent Revenue400 400 CASH RECEIPTS JOURNAL OtherAccounts PostAccounts ReceivableCash DateAccount Credited Ref.Cr.Cr.Dr. Page 14 2010 19 Web Cantina3,4003,400 28Accessories by Claire2,2002,200 30 RapZone 1,7501,750 42 4007,3507,750 ( ) A checkmark indicates that items in this column are posted individually. 2 1211

42. 5-42 42 The total amount of the accounts in the accounts receivable subsidiary ledger should match the balance in the general ledger’s Accounts Receivable account. 2

43. 5-43 43 Accounts Receivable—(Controlling) Balance, March 1, 2010$3,400 Total debits (from revenue journal)9,600 Total credits (from cash receipts journal) (7,350) Balance, March 31, 2010$5,650 NetSolutions’ Accounts Receivable Subsidiary Ledger Customer Balance Summary Report, March 31, 2010 Accessories By Claire$3,000 RapZone0 Web Cantina 2,650 Total accounts receivable$5,650 2

44. 5-44 44 Example Exercise 5-2 2 Accounts Receivable Subsidiary Ledger The debits and credits from two transactions are presented in the following customer account: Describe each transaction and the source of each posting. NAME Sweet Tooth Confections ADDRESS 1212 Lombard St. July 1Bal. 625 7Inv. 35R1286711 31Inv. 31CR4122589 DateItemP.R. Dr.Cr.Balance 5-44

45. 45 July 7Provided $86 services on account to Sweet Tooth Confections, itemized on invoice 35. Amount posted from page 12 of the revenue journal. 31Cash of $122 was collected from Sweet Tooth Confections (invoice 31). Amount posted from page 4 of the cash receipts journal. Example Exercise 5-2 (continued) 5-45 For Practice: PE 5-2A, PE 5-2B 2 Follow My Example 5-2

46. 5-46 46 The purchases journal is designed for recording all purchases on account. 2 Purchases Journal

47. 5-47 47 2 Purchases Journal and Postings Exhibit 5

48. 5-48 48 Exhibit 5 in Steps Accts.Other Post Payable SuppliesAccountsPost DateAccount CreditedRef.Cr.Dr.Dr.Ref.Amount PURCHASES JOURNAL Page 11 2010 Mar. 3Howard Supplies600600 7Donnelly Supplies420420 12Jewett Bus. Sys. 2,800Off. Equip.2,800 19Donnelly Supplies1,4501,450 27Howard Supplies960960 Click on button to skip “Exhibit 5 in Steps” 2

49. 5-49 49 2 PURCHASES JOURNAL Page 11 2010 Mar. 3Howard Supplies600600 7Donnelly Supplies420420 12Jewett Bus. Sys.2,800Off. Equip.2,800 19Donnelly Supplies1,4501,450 27Howard Supplies960960 Accts.Other Post Payable SuppliesAccountsPost DateAccount CreditedRef.Cr.Dr.Dr.Ref.Amount 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.

50. 5-50 50 PURCHASES JOURNAL Page 11 2010 Mar. 3Howard Supplies600600 7Donnelly Supplies420420 12Jewett Bus. Sys.2,800 Off. Equip.2,800 19Donnelly Supplies1,4501,450 27Howard Supplies960960 DateItemP.R. Dr.Cr.Balance Mar 3600600 2010 Accounts Payable Subsidiary Ledger Howard Supplies P11 2 Accts.Other Post Payable Supplies AccountsPost DateAccount CreditedRef.Cr.Dr.Dr.Ref.Amount

51. 5-51 51 PURCHASES JOURNAL Page 11 2010 Mar. 3Howard Supplies600600 7Donnelly Supplies420420 12Jewett Bus. Sys.2,800 Off. Equip.182,800 19Donnelly Supplies1,4501,450 27Howard Supplies960960 This posting reference indicates Office Equipment (Account 18) was debited in the general ledger for $2,800. 2 Accts.Other Post Payable Supplies AccountsPost DateAccount CreditedRef.Cr.Dr.Dr.Ref.Amount

52. 5-52 52 At the end of March, all columns are totaled and equality of debits and credits is verified. Then the total amount in the “Accounts Payable Cr.” and “Supplies Dr.” columns are posted. Because Office Equipment was posted earlier, the $2,800 total is not posted. 2

53. 5-53 53 7Donnelly Supplies420420 12Jewett Bus. Sys.2,800Off. Equip.182,800 19Donnelly Supplies1,4501,450 27Howard Supplies960960 316,2303,4302,800 ( ) ( )( ) Accts.Other PostPayable SuppliesAccountsPost DateAccount CreditedRef.Cr. Dr.Dr.Ref.Amount PURCHASES JOURNAL Page 11 2010 Mar. 3Howard Supplies600600 21 ACCOUNT Accounts Payable No. 21 GENERAL LEDGER DateItemP.R. DebitCreditBalance Mar. 1Bal1,230 6,2307,46031P11 2010 Supplies would be debited for $3,430 and 14 written in the parentheses. 2

54. 5-54 54 Example Exercise 5-3 2 Purchases Journal The following purchase transactions occurred during October for Helping Hand Cleaners: Oct. 11Purchased cleaning supplies for $235, on account, from General Supplies. 19Purchased cleaning supplies for $110, on account, from Hubble Supplies. 24Purchased office equipment for $850, on account, from Office Warehouse. Record these transactions in a purchases journal as illustrated at the top of Exhibit 5 (Slide 47). 5-54 Click the button to go to Slide 47. To return to this slide type “54” and press “Enter.”

55. 5-55 55 Example Exercise 5-3 (continued) 2 PURCHASES JOURNAL Accts.Other PostPayableSuppliesAccountsPost DateAccount CreditedRef.Cr.Dr.Dr.Ref.Amount Oct. 11General Supplies235235 19Hubble Supplies110110 24Office Warehouse850Off. Equip.18850 5-55 For Practice: PE 5-3A, PE 5-3B Follow My Example 5-3

56. 5-56 56 All transactions involving a credit to Cash are recorded in the cash payments journal. 2 Cash Payments Journal

57. 5-57 57 2 Cash Payments Journal and Postings Exhibit 6

58. 5-58 58 CASH PAYMENTS JOURNAL OtherAccounts Ck.PostAccounts PayableCash DateNo.Account DebitedRef.Dr.Dr.Cr PAGE 7 2010 Mar. 2150Rent Expense1,6001,600 On March 2, issued Check 150 for rent of $1,600. Exhibit 6 in Steps Left click button to skip “Exhibit 6 in Steps” 2

59. 5-59 59 The accounts listed in the “Other Accounts Dr.” column are posted on a regular basis. Rent Expense is posted to account number 52. 2

60. 5-60 60 CASH PAYMENTS JOURNAL OtherAccounts Ck.PostAccounts PayableCash DateNo.Account DebitedRef.Dr.Dr.Cr PAGE 7 2010 Mar. 2150Rent Expense1,6001,600 General Ledger Account Rent Expense Mar. 2 1,600 1,600 DateItemP.R. Dr.Cr.Balance 2010 Account No. 52 52 2

61. 5-61 61 15151Grayco Supplies1,2301,230 2 CASH PAYMENTS JOURNAL PAGE 7 OtherAccounts Ck.PostAccounts PayableCash DateNo.Account DebitedRef.Dr.Dr.Cr 2010 Mar. 2150Rent Expense1,6001,600 On March 15, issued Check 151 to Grayco Supplies on account, $1,230. 52

62. 5-62 62 Let’s post to the accounts payable subsidiary ledger at this time to keep the creditors’ account current. 2

63. 5-63 63 CASH PAYMENTS JOURNAL OtherAccounts Ck.PostAccounts PayableCash DateNo.Account DebitedRef.Dr.Dr.Cr PAGE 7 2010 Mar. 2150Rent Expense1,6001,600 15151Grayco Supplies1,2301,230 Accounts Payable Subsidiary Ledger Grayco Supplies Mar. 3Bal. 1,230 DateItemP.R. Dr.Cr.Balance 1,230 --- 15CP7  2010 52 2

64. 5-64 64 Now, let’s journalize the remainder of March’s cash disbursements. Following that, let’s post to the individual creditors’ accounts. 2

65. 5-65 65 CASH PAYMENTS JOURNAL OtherAccounts Ck.PostAccounts PayableCash DateNo.Account DebitedRef.Dr.Dr.Cr PAGE 7 2010 Mar. 2150Rent Expense1,6001,600 15151Grayco Supplies1,2301,230  21152Jewett Business Sys.2,8002,800 22153Donnelly Supplies420420 30154Utilities Expense1,0501,050 31155Howard Supplies600600 52 2

66. 5-66 66 CASH PAYMENTS JOURNAL OtherAccounts Ck.PostAccounts PayableCash DateNo.Account DebitedRef.Dr.Dr.Cr PAGE 7 2010 Mar. 2150Rent Expense1,6001,600 15151Grayco Supplies1,2301,230  52    54 2 21152Jewett Business Sys.2,8002,800 22153Donnelly Supplies420420 30154Utilities Expense1,0501,050 31155Howard Supplies600600

67. 5-67 67 The journal is ruled, summed, and verified for equality of debits and the “Cash Cr.” column. 2

68. 5-68 68 CASH PAYMENTS JOURNAL OtherAccounts Ck.PostAccounts PayableCash DateNo.Account DebitedRef.Dr.Dr.Cr PAGE 7 2008 Mar. 2150Rent Expense1,6001,600 15151Grayco Supplies1,2301,230 21152Jewett Business Sys.2,8002,800 22153Donnelly Supplies420420 30154Utilities Expense1,0501,050 31155Howard Supplies600600 CASH PAYMENTS JOURNAL OtherAccounts Ck.PostAccounts PayableCash DateNo.Account DebitedRef.Dr.Dr.Cr PAGE 7 2010 Mar. 2150Rent Expense1,6001,600 15151Grayco Supplies1,2301,230 312,6505,0507,700 52    54  2 21152Jewett Business Sys.2,8002,800 22153Donnelly Supplies420420 30154Utilities Expense1,0501,050 31155Howard Supplies600600

69. 5-69 69 CASH PAYMENTS JOURNAL OtherAccounts Ck.PostAccounts PayableCash DateNo.Account DebitedRef.Dr.Dr.Cr PAGE 7 2008 Mar. 2150Rent Expense1,6001,600 15151Grayco Supplies1,2301,230 21152Jewett Business Sys.2,8002,800 22153Donnelly Supplies420420 30154Utilities Expense1,0501,050 31155Howard Supplies600600 CASH PAYMENTS JOURNAL OtherAccounts Ck.PostAccounts PayableCash DateNo.Account DebitedRef.Dr.Dr.Cr PAGE 7 2010 Mar. 2150Rent Expense1,6001,600 15151Grayco Supplies1,2301,230 21152Jewett Business Sys.2,8002,800 22153Donnelly Supplies420420 30154Utilities Expense1,0501,050 31155Howard Supplies600600 312,6505,0507,700 52    54  (21) (11)( )   2 The totals for “Accounts Payable Dr.” and “Cash Cr.” are posted.

70. 5-70 70 Accounts Payable (Control) Balance, March 1, 2010$1,230 Total credits (from purchases journal)6,230 Total debits (from cash payments journal) (5,050) Balance, March 31, 2010$2,410 NetSolutions Supplier Balance Summary Report March 31, 2010 Donnelly Supplies$1,450 Grayco Supplies0 Howard Supplies960 Jewett Business Systems 0 Total$2,410 Accounts Payable Control Account and Subsidiary Ledger 2

71. 71 Example Exercise 5-4 2 Accounts Payable Subsidiary Ledger The debits and credits from two transactions are presented in the following creditor’s (supplier’s) account: Describe each transaction and the source of each posting. NAME Lassiter Services, Inc. ADDRESS 301 St. Bonaventure Ave. Aug. 1Bal. 320 12Inv. 101CP36200120 22Inv. 106P16140260 DateItemP.R. Dr.Cr.Balance 5-71

72. 72 Example Exercise 5-4 (continued) 2 Aug. 12Paid $200 to Lassiter Services, Inc. on account (Inv. 101). Amount posted from page 36 of the cash payments journal. 22Purchased $140 of services on account from Lassiter Services, Inc. itemized on Invoice 106. Amount posted from page 16 of the purchases journal. 5-72 For Practice: PE 5-4A, PE 5-4B Follow My Example 5-4

73. 73 Describe and give examples of other subsidiary ledgers and modified special journals. 3 5-73

74. 5-74 74 A business may modify its special journals by adding one or more columns for recording transactions that occur frequently. 3

75. 5-75 75 Nov. 2 NetSolutions issued Invoice No. 842 to Litten Company for $4,770, which included sales taxes of $270. 3Issued Invoice No. 843 to Kauffman Supply Company for $1,166, which included sales taxes of $66. 3

76. 5-76 76 Modified Special Journal 3

77. 77 The state of Tennessee has a 7% sales tax. Volunteer Services, Inc., a Tennessee company, had two revenue transactions as follows: Aug. 3Issued Invoice No. 58 to Helena Company for services provided on account, $1,400, plus sales tax. 19Issued Invoice No. 59 to K-Jam Enterprises for services provided on account, $900, plus sales tax. Record these transactions in a revenue journal as illustrated in the previous slides. Example Exercise 5-5 3 Modified Revenue Journal 5-77

78. 78 Example Exercise 5-5 (continued) 3 Revenue Journal Aug. 3 58 Helena Company1 498 001 400 0098 00 1959K-Jam Enterprises963 00900 0063 00 InvoiceAccts. Rec.Fees EarnedSales Tax. Pay DateNo. Account Debited PRDr.Cr.Cr. 5-78 For Practice: PE 5-5A, PE 5-5B Follow My Example 5-5

79. 5-79 79 Describe and illustrate the use of a computerized accounting system. 4 5-79

80. 5-80 80 Computerized Accounting System 1.Computerized systems simplify the record-keeping process in that transactions are recorded in electronic forms and, at the same time, posted electronically to general and subsidiary ledger accounts. 4

81. 5-81 81 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. 4

82. 5-82 82 Exhibit 7 Revenue and Cash Receipts in QuickBooks © (continued) 4

83. 5-83 83 4 Exhibit 7 Revenue and Cash Receipts in QuickBooks © (continued)

84. 5-84 84 Describe the basic features of e-commerce. 5 5-84

85. 5-85 85 Using the Internet to perform business transactions is termed e-commerce. 5 e-Commerce

86. 5-86 86 When transactions are between a company and a consumer, it is termed B2C (business-to- consumer) e-commerce. 5

87. 5-87 87 Three more advanced areas where the Internet is being used for business purposes are: 1.Supply chain management (SCM) 2.Consumer relationship management (CRM) 3.Product life-cycle management (PLM) 5

88. 5-88 88