1. ACCOUNTING PRINCIPLES
Third Canadian Edition

2. Appendix C
ACCOUNTING
SYSTEMS

3. Subsidiary Ledgers
A subsidiary ledger is a group of accounts that share a common characteristic (e.g. all accounts receivable)
The subsidiary ledger is in addition to, and expands on, the general ledger; subsidiary ledgers show the details
The two most common are the accounts receivable ledger and the accounts payable ledger; these ledgers show the details of individual customers and suppliers respectively
There is control account in the general ledger for each subsidiary ledger; each general ledger control account balance must equal the total of the individual records in the related subsidiary ledger

4. Relationship of General Ledgers and Subsidiary Ledgers
Accounts receivable controls a subsidiary ledger of many different customers.
Accounts payable controls a subsidiary ledger of many different creditors.
General
Ledger
Accounts
Receivable
Accounts
Payable
Owner’s
Capital
Cash
Customer A B C
Creditor X Y Z
Subsidiary
Ledgers

5. Advantages of Subsidiary Ledgers
Subsidiary ledgers show transactions that affect one customer or one creditor in a single account, providing up-to-date information on specific account balances
They free the general ledger of excessive details
In a manual system, they help locate errors in individual accounts by reducing the number of accounts combined in one ledger and by using control
In manual systems, they make possible a division of labour in posting to the general ledger and subsidiary ledgers, which strengthens internal control

6. Special Journals in a Perpetual Inventory System
A special journal is used to record similar types of transactions
The use of special journals reduces the time needed for the recording and posting process
Special journals permit greater division of labour because different employees can record entries in different journals
For a merchandising company the same special journals are used for both periodic or perpetual inventory systems; the only difference is the number of, and title for, the columns each journal uses
The following examples are for the perpetual inventory system. Special journals under a periodic inventory system are shown at the end of the presentation.

7. Use of Special Journals and the General Journal
Cash Receipts
Journal
(CR)
Cash Payments
Journal
(CP)
Sales
Journal
(S)
Purchases Journal
(P)
General
Journal
(J)
Used for:
All purchases of
merchan-dise on account
Used for:
All cash paid
(including
cash
purchases)
Used for:
Transactions
that cannot
be entered
in a special
journal, including
correcting, adjusting, and closing entries
Used for:
All sales of
merchan-dise on account
Used for:
All cash
received
(including
cash sales)
The types of special journals used depend largely on the types of transactions that occur frequently in a business enterprise.

8. Journalizing the Sales Journal Perpetual Inventory System
Karns Wholesale Supply
Sales Journal S1
Only one line is needed to record each transaction and all entries are made from pre-numbered sales invoices.
One entry at selling price in the 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. Column totals are posted to the general ledger at the end of each month.
Postings are made daily to the accounts receivable subsidiary ledger. A check in the reference column shows that the amount has been posted to the customer’s account.

9. Proving the Accuracy of the Accounts Receivable Subsidiary Ledger
General Ledger
Accounts Receivable $90,230
Accounts Receivable Subsidiary Ledger
Abbot Sisters $26,000
Babson Co ,920
Carson Bros ,800
Deli Co ,510
$90,230
To prove the accuracy of the ledgers it is necessary to determine two things: (1) the sum of the accounts receivable subsidiary ledger balances equals the balance in the general ledger’s Accounts Receivable control account.

10. Cash Receipts Journal
All receipts of cash are recorded in the cash receipts journal
Only one line is needed for each entry and each line must have equal debit and credit amounts
At the end of each month columns are totalled and compared for equality; this process is called footing and cross-footing
The individual amounts in the Accounts Receivable column are posted daily to the subsidiary ledger account specified in the Accounts Credited column
The total of the Other Accounts column is not posted; the individual amounts comprising the total are posted separately to the general ledger accounts specified in the Accounts Credited column
All column totals except for the Other Accounts total are posted at the end of the month; G/L account numbers are listed below the column totals to show that posting has been done

11. Cash Receipts Journal Perpetual System
Karns Wholesale Supply
Cash Receipts Journal
54,550
The debit columns for cash and cost of goods sold must be equal to the total of the credit columns for accounts receivable, sales, inventory, and other accounts

12. Proving the Ledgers after Posting the Sales and the Cash Receipts Journals
Accounts Receivable
Subsidiary Ledger
Abbot Sisters $15,400
Babson Co ,570
Deli Co ,210
$51,180
General Ledger
Debits
Cash $54,550
Accounts Receivable ,180
Cost of Goods Sold ,120
$170,850
Credits
Merchandise Inventory $ 65,120
Notes Payable ,000
D. A. Karns, Capital ,000
Sales ,730
After the posting of the cash receipts journal is completed, it is necessary to prove the ledgers. The general ledger totals are in agreement and the sum of the subsidiary ledger balances equals the control account balance.

13. Purchases Journal Perpetual System
Karns Wholesale Supply
Purchases Journal 
All purchases on account are recorded in the purchase journal
In a perpetual system, each entry results in a debit to Merchandise Inventory and a credit to Accounts Payable
Postings are made daily to the accounts payable subsidiary journal and monthly to the general ledger for Merchandise Inventory and Accounts Payable

14. Proving the Accuracy of the Accounts Payable Subsidiary Ledger
General Ledger
Debits
Cash $54,550
Accounts Receivable ,180
Cost of Goods Sold ,120
$170,850
Credits
Merchandise Inventory $ 1,120
Notes Payable ,000
Accounts Payable ,900
D. A. Karns, Capital ,000
Sales ,730
Accounts Payable Subsidiary Ledger
Eaton and Howe, Inc. $19,800
Fabor and Son ,600
Jasper Manufacturing Inc ,500
$63,900
To prove the ledgers it is necessary to determine that the sum of the subsidiary ledger balances equals the balance in the control account.

15. Cash Payments Journal Perpetual System
Karns Wholesale Supply
Cash Payments Journal
All disbursements of cash are entered into the cash payments journal. Entries are made from pre-numbered cheques
Each transaction is entered on one line and there must be equal debit and credit amounts
Journalizing procedures are similar to cash receipts journal
Posting procedures are also like the cash receipts journal

16. Proving the Accuracy of the Accounts Payable Subledger
General Ledger
Debits
Cash $ 5,750
Accounts Receivable ,180
Merchandise Inventory ,280
Prepaid Insurance ,200
D. A. Karns, Drawings
Cost of Goods Sold ,120
$127,030
Credits
Accounts Payable $ 21,300
Notes Payable ,000
D. A. Karns, Capital ,000
Sales ,730
Accounts Payable Subsidiary Ledger
Eaton and Howe, Inc $12,600
Fabor and Son ,700
$21,300
To prove the ledgers it is necessary to determine that the sum of the subsidiary ledger balances equals the balance in the control account

17. General Journal: Effects of Special Journals
Special journals for sales, purchases and cash greatly reduce the number of entries that are made in the general journal
Only transactions that cannot be entered in a special journal are recorded in the general journal. Examples include sales returns from credit sales, adjusting entries and closing entries
When the entry involves both control and subsidiary accounts, both the control and subsidiary accounts must be identified in the journal
In posting there must be a dual posting: once to the control account and once to the subsidiary account

18. Journalizing and Posting the General Journal

19. Special Journals in a Periodic Inventory System
Two differences exist between special journals for a
periodic inventory system and a perpetual inventory
system:
The columns in the sales journal and cash receipts journal that are used to record the cost of goods sold debit and merchandise inventory credit are not required when using a periodic inventory system.
Purchases and Freight-In are the accounts used to record the cost of inventory bought when using a periodic system; cost of goods sold is not recorded until determined at the end of the period.

20. The Sales Journal Periodic Inventory System: Illustration C-9
KARNS WHOLESALE SUPPLY
Sales Journal S1
Date
Account Debited
Invoice No.
Ref.
Accts. Receivable Dr. Sales Cr.
2005
May 3
Abbot Sisters
101 √
10,600 7
Babson Co.
102
11,350 14
Carson Bros.
103
7,800 19
Deli Co.
104
9,300 21
105
15,400 24
106
21,210 27
107
14,570
90,230

21. The Cash Receipts Journal Periodic Inventory System: Illustration C-10
KARNS WHOLESALE SUPPLY
Cash Receipts Journal
CR1
Date
Account Credited
Ref.
Cash Dr.
Accts. Receivable Cr.
Sales Cr.
Other Accounts Cr.
2005
May 1
D. A. Karns, Capital
301
5,000 7
1,900 10
Abbot Sisters √
10,600 12
2,600 17
Babson Co.
11,350 22
Notes Payable
200
6,000 23
Carsons Bros.
7,800 28
Deli Co.
9,300
54,550
39,050
4,500
11,000

22. The Purchases Journal Periodic Inventory System: Illustration C-11
KARNS WHOLESALE SUPPLY
Purchases Journal P1
Date
Account Credited
Terms
Ref.
Purchases Dr. Accounts Payable Cr.
2005
May 6
Jasper Manufacturing Inc.
n/20 √
11,000 10
Eaton and Howe, Inc.
7,200 14
Fabor and Son
6,900 19
17,500 26
8,700 28
12,600
63,900

23. The Cash Payments Journal Periodic Inventory System: Illustration C-12
KARNS WHOLESALE SUPPLY
Cash Payments Journal
CP1
Date
Cheque No.
Payee
Cash Dr.
Accts. Payable Dr.
Account Debited
Ref.
Other Accts. Cr.
2005
May 3
101
Corporate General Ins.
1,200
Prepaid Insurance
130 3
102
CANPAR
100
Freight In
516 7
103
Zwicker Corp.
4,400
Purchases
510 10
104
Jasper Manufact. Inc.
11,000
Jasper Manuf. Inc. √ 19
105
Eaton
& Howe, Inc.
7,200
Eaton & Howe, Inc. 24
106
Fabor & Son
6,900 28
107
17,500 31
108
D. A. Karns
500
D. A. Karns, Drawings
306
48,000
42,600
6,200

24. COPYRIGHT
Copyright © 2004 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (The Canadian Copyright Licensing Agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein.