Accounting Systems

5

Accounting Accounting

SystemsSystems

1

SystemsSystems

1. Define an accounting system and describe

its implementation.

After studying this chapter, you should

be able to:

2

2. Journalize and post transactions in a

manual accounting system that uses

subsidiary ledgers and special journals.

3. Describe and give examples of additional

subsidiary ledgers and modified special

journals.

After studying this chapter, you should

be able to:

3

journals.

4. Apply computerized accounting to the

revenue and collection cycle.

5. Describe the basic features of e-commerce.

Define an accounting

Objective 1Objective 1

5-1

4

Define an accounting

system and describe its

implementation.

5-1Accounting Systems Growth Process

55

� Identify the needs of those who use the

business’s financial information.

Step 1: Analysis

Three Step Process as a Business

Grows and Changes

5-1

6

business’s financial information.

� Determine how the system should

provide this information.

� The system is designed so that it meets

the users’ needs.

Step 2: Design

5-1

7

� The system is implemented and used.

Step 3: Implementation

Once a system has been

implemented, feedback, or input

from the users of the information

5-1Feedback

8

from the users of the information

can be used to analyze and

improve the system.

Internal controls are policies

and procedures that protect

assets from misuse, ensure that

5-1Internal Controls

9

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 system

collects, summarizes, and

5-1Processing Methods

10

collects, summarizes, and

reports accounting information.

These methods may be either

manual or computerized.

Journalize and post transactions

in a manual accounting system


5-2

11

in a manual accounting system

that uses subsidiary ledgers and

special journals.

A large number of individual

accounts with a common

characteristic can be grouped

5-2

12

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

5-2

13

sheet and income statement

accounts, is called a

general ledger.

Each subsidiary ledger is

represented in the general

ledger by a summarizing

5-2

14

ledger by a summarizing

account, called a

controlling account.

The individual customers’

accounts are arranged in

alphabetical order in a subsidiary

5-2

15

ledger called the accounts

receivable subsidiary ledger or

customers ledger.

The individual creditors’

accounts are arranged in

alphabetical order in a

subsidiary ledger called the

5-2

16

subsidiary ledger called the

accounts payable

subsidiary ledger, or

creditors ledger.

Cash 11

General Ledger

Accts. Rec. 12

Accounts Receivable

Subsidiary Ledger

Customer Accounts

General Ledger and Subsidiary Ledgers 5-2

1717

Accts. Pay. 21

Supplies 14

A B C D

Accounts Payable

Subsidiary Ledger

A B C D

Creditor Accounts

SELLING SELLING

Providing services on account

Special Journals 5-2

1818

Providing services on account

Revenue journalRevenue journalrecorded in

Receipt of cash from any source

Cash receipts journalCash receipts journalrecorded in

BUYING BUYING

Purchase of items on account

5-2Special Journals

1919

Purchases journalPurchases journalrecorded in

Payment of cash for any purpose

Cash payments journalCash payments journalrecorded in

The all-purpose two-column

journal, called the general journal

or simply the journal can be used

Special Journals 5-2

20

or simply the journal can be used

for entries that do not fit into any of

the special journals.

The revenue journal is used for

recording fees earned on account.

5-2

21

Cash fees earned would be recorded

in the cash receipts journal.

Posting the Revenue Journal

Revenue JournalInvoice Post Accts. Rec. – Debit

Date No. Account Debited Ref. Fees Earned – Credit

Page 35

1

2

1

2 6 616 RapZone 1 7 5 0 00

2008

Mar. 2 615 Accessories by Claire 2 2 0 0 00

5-2

2222

3

4

5

6

3

4

5

6

6 616 RapZone 1 7 5 0 00

18 617 Web Cantina 2 6 5 0 00

27 618 Accessories by Claire 3 0 0 0 00



Page 35

1

2

1

2 6 616 RapZone 1 7 5 0 00

2008


5-2

2323

3

4

5

6

3

4

5

6

6 616 RapZone 1 7 5 0 00

18 617 Web Cantina 2 6 5 0 00

27 618 Accessories by Claire 3 0 0 0 00Accounts Receivable Subsidiary Ledger

Date Item P.R. Debit Credit Balance

Accessories by Claire

Mar. 2 R35 2,200 2,2002008



Page 35

1

2

1

2 6 616 RapZone 1 7 5 0 00

2008


5-2

2424

3

4

5

6

3

4

5

6

6 616 RapZone 1 7 5 0 00

18 617 Web Cantina 2 6 5 0 00

27 618 Accessories by Claire 3 0 0 0 00Accounts Receivable Subsidiary Ledger


Accessories by Claire

Mar. 2 R35 2,200 2,2002008



Page 35

1

2

1

2 6 616 RapZone 1 7 5 0 00

2008


5-2

2525

3

4

5

6

3

4

5

6

6 616 RapZone 1 7 5 0 00

18 617 Web Cantina 2 6 5 0 00




Page 35

1

2

1

2 6 616 RapZone 1 7 5 0 00

2008


5-2Exhibit 2 Revenue Journal

2626

3

4

5

6

3

4

5

6

6 616 RapZone 1 7 5 0 00

18 617 Web Cantina 2 6 5 0 00


31 9 6 0 0 00

The debit total is posted from the

revenue journal to Accounts

Receivable in the general ledger.

5-2

2727

ACCOUNT Accounts Receivable Account No. 12

Balance

Dr. Cr.Date Dr. Cr.Item

Post.

Ref.

2008

Mar. 1 Balance 3 400 00

31 9 600 00 13 000 00 R35

Revenue Journal, page 35



Page 35

1

2

1

2 6 616 RapZone 1 7 5 0 00

2008


5-2

2828

3

4

5

6

3

4

5

6

6 616 RapZone 1 7 5 0 00

18 617 Web Cantina 2 6 5 0 00


31 9 6 0 0 00

(12)

Indicates a debit posting of $9,600 to Accounts

Receivable (General Ledger Account 12)

The credit total is posted from the

revenue journal to Fees Earned in

the general ledger.

5-2

2929

ACCOUNT Fees Earned Account No. 41

Balance

Date Dr. Cr.ItemPost.

Ref.

2008

Mar. 31 9 600 00 R35

Revenue Journal, page 35

9 600 00

Dr. Cr.



Page 35

1

2

1

2 6 616 RapZone 1 7 5 0 00

2008


5-2

3030

3

4

5

6

3

4

5

6

6 616 RapZone 1 7 5 0 00

18 617 Web Cantina 2 6 5 0 00


31 9 6 0 0 00

(12)

Indicates a credit posting of $9,600 to

Fees Earned (General Ledger Account 41)

(41)

Example Exercise 5-1

The following revenue transactions occurred during

December:

5-2

Dec. 5 Invoice No. 302 to Butler Company for

services provided on account, $5,000.

3131

Record these transactions in a revenue journal as

illustrated in Exhibit 2.

Dec. 9 Invoice No. 303 to JoJo Enterprises for


Dec. 15 Invoice No. 304 to Double D, Inc. for


Follow My Example 5-1

5-2



Page

11 Dec. 5 302 Butler Company 5 0 0 0 00

32For Practice: PE 5-1A, PE 5-1B 32

1

2

3

4

5

6

1

2

3

4

5

6

9 303 JoJo Enterprises 2 1 0 0 00

15 304 Double D Inc. 3 2 5 0 00

Dec. 5 302 Butler Company 5 0 0 0 00

All transactions that involve the

receipt of cash are recorded in a

cash receipts journal.

5-2Cash Receipts Journal

33

Every entry recorded in the cash

receipts journal will involve a debit

to the “Cash Dr.” column.

Mar. 1 Rent Revenue 400 400

CASH RECEIPTS JOURNAL

Other Accounts

Post Accounts Receivable Cash

Date Account Credited Ref. Cr. Cr. Dr.

Page 14

2008

19 Web Cantina 3,400 3,400

42

Cash Receipts Journal and Postings 5-2

3434

19 Web Cantina 3,400 3,400

28 Accessories by Claire 2,200 2,200

30 RapZone 1,750 1,750

Date Item P.R. Debit Credit Cr. Bal.

ACCOUNT Rent Revenue Acct. No. 42

Mar. 1 400 4002008

GENERAL LEDGER

CR14



Other Accounts



Page 14

2008

19 Web Cantina 3,400 3,400

42

5-2

3535


Web Cantina

Mar. 1 Bal. 3,400

18 R35 2,650 6,050

2008

3,400 2,650 19

19 Web Cantina 3,400 3,400


30 RapZone 1,750 1,750

Accounts Receivable Subsidiary Ledger

CR14

After all journalizing and

posting for the month to

5-2

36

posting for the month to

individual accounts is complete,

the columns are totaled.



Other Accounts



Page 14

200842

Posted Cash Receipts Journal 5-2

3737

19 Web Cantina 3,400 3,400


30 RapZone 1,750 1,750

400 7,350 7,750

( ) (12) (11)

A checkmark indicates that

the items in this column are

posted individually.

After posting, the total amount of the

accounts in the accounts receivable

subsidiary ledger should match the

5-2

38

subsidiary ledger should match the

balance in the general ledger’s

Accounts Receivable account.

Accounts Receivable—(Controlling)

Balance, March 1, 2008 $3,400

Total debits (from revenue journal) 9,600

Total credits (from cash receipts journal) (7,350)


5-2

3939

NetSolutionsCustomer Balance Summary Report, March 31, 2008Accessories By Claire $3,000

RapZone 0

Web Cantina 2,650

Total accounts receivable $5,650


The debits and credits from two transactions are presented

in the following customer account:

NAME Sweet Tooth Confections

ADDRESS 1212 Lombard St.

5-2

4040

Describe each transaction and the source of each posting.

ADDRESS 1212 Lombard St.

July 1 Bal. 625

7 Inv. 35 R12 86 711

31 Inv. 31 CR4 122 589

Date Item P.R. Dr. Cr. Balance


July 7 Provided $86 services on account to Sweet Tooth

Confections, itemized on invoice 35. Amount

posted from page 12 of the revenue journal.

5-2


July 31 Cash of $122 was collected from Sweet Tooth

Confections (invoice 31). Amount posted from

page 4 of the cash receipts journal.

The purchases journal is

designed for recording all

5-2

42

designed for recording all

purchases on account.

Accts. Other

Post Payable Supplies Accounts Post

Date Account Credited Ref. Cr. Dr. Dr. Ref. Amount

PURCHASES JOURNAL Page 11

Journalizing in the Purchases Journal

2008

Mar. 3 Howard Supplies 600 600

7 Donnelly Supplies 420 420

12 Jewett Business Sys. 2,800 Off. Equip. 2,800

5-2

4343


19 Donnelly Supplies 1,450 1,450

27 Howard Supplies 960 960

Note that the March 12 purchase

of office equipment for $2,800 is

recorded as a debit in the “Other

5-2

44

recorded as a debit in the “Other

Accounts Dr.” column. Also note

that the account title is written in

for proper posting.

Accts. Other




5-2

45

Date Account Credited Ref. Cr. Dr. Dr. Ref. Amount2008






45

Accts. Other




2008




Posting the Purchases Journal 5-2

4646





Mar 3 600 6002008

Accounts Payable Subsidiary Ledger

Howard Supplies

P11

Accts. Other




2008


5-2

4747



12 Jewett Business Sys. 2,800 Off. Equip. 18 2,800



Office Equipment (Account 18 in the

general ledger) is debited for $2,800.

At the end of March, all columns are totaled

and equality of debits and credits is verified.

Then the total amount in the “Accounts

5-2

48

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.



Accts. Other




2008


5-2

4949




31 6,230 3,430 2,800

( ) ( ) ( )21

ACCOUNT Accounts Payable No. 21

GENERAL LEDGER


Mar. 1 Bal 1,2306,230 7,46031 P11

2008

Accts. Other






2008


5-2

50




31 6,230 3,430 2,800

( ) ( ) ( )21

ACCOUNT Supplies No. 14

GENERAL LEDGER


Mar. 1 Bal 2,5003,430 5,93031 P11

14

502008


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

5-2

51

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 as

illustrated at the top of Exhibit 5.

51

PURCHASES JOURNAL


5-2

Accts. Other





Oct. 11 General Supplies 235 235

19 Hubble Supplies 110 110

24 Office Warehouse 850 Off. Equip. 18 850

All transactions involving

a credit to Cash are

5-2Cash Payments Journal

53

a credit to Cash are

recorded in the cash

payments journal.

CASH PAYMENTS JOURNAL

Other Accounts

Ck. Post Accounts Payable Cash

Date No. Account Debited Ref. Dr. Dr. Cr

PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600

5-2

5454

Mar. 2 150 Rent Expense 1,600 1,600

On March 2, issued Check 150

for rent of $1,600.


Other Accounts



PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600

5-2

5555

Mar. 2 150 Rent Expense 1,600 1,600

On March 15, issued Check 151 to

Grayco Supplies on account, $1,230.

15 151 Grayco Supplies 1,230 1,230

Let’s post to the accounts

payable subsidiary ledger at

this time to keep the

5-2

56

this time to keep the

creditors’ account current.


Other Accounts



PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600

15 151 Grayco Supplies 1,230 1,230√√√√

5-2

5757


Accounts Payable Subsidiary Ledger

Grayco Supplies

Mar. 3 Bal. 1,230


1,230 ---15 CP7

√√√√

2008


Other Accounts



PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600

15 151 Grayco Supplies 1,230 1,230√√√√

5-2

5858

15 151 Grayco Supplies 1,230 1,230√√√√

21 152 Jewett Business Sys. 2,800 2,800

22 153 Donnelly Supplies 420 420

30 154 Utilities Expense 1,050 1,050

31 155 Howard Supplies 600 600

Journalize the remainder of

March’s cash disbursements.


Other Accounts



PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600

15 151 Grayco Supplies 1,230 1,230√√√√


Other Accounts



PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600

15 151 Grayco Supplies 1,230 1,230√√√√

5-2

5921

15 151 Grayco Supplies 1,230 1,230√√√√





Journalized the remainder of

March’s cash disbursements.59

15 151 Grayco Supplies 1,230 1,230√√√√





Post to individual

creditor’s accounts.

√√√√

√√√√

√√√√


Other Accounts



PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600



Other Accounts



PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600

15 151 Grayco Supplies 1,230 1,230√√√√√√√√

5-2

6060

15 151 Grayco Supplies 1,230 1,23021 152 Jewett Business Sys. 2,800 2,800








√√√√√√√√

√√√√

√√√√

√√√√

The journal is ruled, summed, and verified for

equality of debits and the “Cash Cr.” column.

31 2,650 5,050 7,700


Other Accounts



PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600



Other Accounts



PAGE 7

2008Mar. 2 150 Rent Expense 1,600 1,600

15 151 Grayco Supplies 1,230 1,230√√√√√√√√52

5-2

6161









√√√√√√√√

√√√√

√√√√

√√√√

31 2,650 5,050 7,700Items in the “Other Accounts Dr.”

column are posted. Then the totals

for “Accounts Payable Dr.” and

“Cash Cr.” are posted.

(21) (11)( ) √√√√

54

Accounts Payable Control and

Subsidiary Ledger

Accounts Payable—

(Control)


Total credits (from purchases journal) 6,230

Total debits (from cash payments journal) (5,050)


5-2

6262


NetSolutions

Supplier Balance Summary Report

March 31, 2008

Donnelly Supplies $1,450

Grayco Supplies 0

Howard Supplies 960

Jewett Business Systems 0

Total $2,410


The debits and credits from two transactions are presented

in the following creditor’s (supplier’s) account:

NAME Lassiter Services, Inc.

ADDRESS 301 St. Bonaventure Ave.

5-2

6363

Describe each transaction and the source of each posting.

ADDRESS 301 St. Bonaventure Ave.

Aug. 1 Bal. 320

12 Bill 101 CP36 200 120

22 Bill 106 P16 140 260



Aug. 12 Paid $200 to Lassiter Services, Inc. on account

(Bill 101). Amount posted from page CP36 of

the cash payments journal.

5-2


Aug. 22 Purchased $140 of services on account from

Lassiter Services, Inc. itemized on Bill 106.

Amount posted from page P16 of the purchases

journal.

Describe and give


5-3

65

examples of additional

subsidiary ledgers and

modified special journals.

A business may modify its special

journals by adding one or more

5-3Modified Special Journals

66

journals by adding one or more

columns for recording transactions

that occur frequently.

On November 2,

NetSolutions issued Invoice

5-3

67

NetSolutions issued Invoice

No. 842 to Litten Company

for $4,770, which included

sales taxes of $270.

5-3Modified Revenue Journal

Revenue Journal Page 40

Nov. 2 842 Litten Co. 4 770 00 4 500 00 270 002008

Invoice Accts. Rec. Fees Earned Sales Tax. Pay

Date No. Account Debited PR Dr. Cr. Cr.

6868

Revenue JournalInvoice Accts. Rec. Fees Earned Sales Tax. Pay


Page 40

Nov. 2 842 Litten Co. 4 770 00 4 500 00 270 002008

5-3

6969

$4,770 is debited to Litten

Co. in the accounts

payable subsidiary ledger


Nov. 2 842 Litten Co. 4 770 00 4 500 00 270 002008

5-3



7070

A checkmark indicates

that the amount has

been posted.

On November 3, issued Invoice

No. 843 to Kaufman Supply

5-3

71

No. 843 to Kaufman Supply

Company for $1,166, which

included sales taxes of $66.

5-3


Nov. 2 842 Litten Co. 4 770 00 4 500 00 270 002008

3 843 Kaufmann Supply 1 166 00 1 100 00 66 00



7272


The state of Tennessee has a 7% sales tax. Volunteer

Services, Inc., a Tennessee company, had two revenue

transactions as follows:

Aug. 3 Issued Invoice No. 58 to Helena Company for

services provided on account, $1,400, plus sales

5-3

73

services provided on account, $1,400, plus sales

tax.

19 Issued 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 section.73


5-3

Revenue Journal

Aug. 3 58 Helena Company 1 498 00 1 400 00 98 00

19 59 K-Jam Enterprises 963 00 900 00 63 00




19 59 K-Jam Enterprises 963 00 900 00 63 00

Apply computerized


5-4

75

Apply computerized

accounting to the revenue

and collection cycle.

A database collects,

stores, and organizes

5-4Database

76

stores, and organizes

information in a

retrievable format.

5-4

7777

At any time, managers may request

reports from the software.

1) The customer balance

summary.

5-4

78

summary.

2) The fees earned by customer

detail.

3) The cash receipts.

Describe the basic


5-5

79

Describe the basic

features of e-commerce.

Using the Internet to

perform business

transactions is

5-5e-Commerce

80

transactions is

termed e-commerce.

When transactions are between

a company and a consumer, it

is termed B2C (business-to-

5-5B2C

81

is termed B2C (business-to-

consumer) e-commerce.

Three more advanced areas where the

Internet is being used for business

purposes are:

� Supply chain management (SCM)

5-5

82

� Supply chain management (SCM)

� Consumer relationship management

(CRM)

� Product life-cycle management

(PLM)

Documents

Accounting Systems