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Appendix E
Financial AccountingJohn J. Wild – Fifth Edition
Reporting and Preparing Special Journals
McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Fundamental System Principles
Control PrincipleControl Principle Internal controls for
management to monitor the business.
Control PrincipleControl Principle Internal controls for
management to monitor the business.
Relevance PrincipleRelevance Principle Provide relevant,
timely and pertinent information.
Relevance PrincipleRelevance Principle Provide relevant,
timely and pertinent information.
Compatibility PrincipleCompatibility Principle System must be
compatible with aims of the company.
Compatibility PrincipleCompatibility Principle System must be
compatible with aims of the company.
Flexibility PrincipleFlexibility Principle System needs to
meet the changing needs of company.
Flexibility PrincipleFlexibility Principle System needs to
meet the changing needs of company.
Cost-Benefit PrincipleCost-Benefit Principle Benefits of the system
must outweigh the costs incurred.
Cost-Benefit PrincipleCost-Benefit Principle Benefits of the system
must outweigh the costs incurred.
C1
APPE-2
Components of Accounting Systems
Increasingly, source documents are electronic files
creating a “paperless” system.
Increasingly, source documents are electronic files
creating a “paperless” system.
Source DocumentsInvoice from Invoice from suppliersupplier
Billings to Billings to customerscustomers
Employee Employee earnings earnings recordsrecords
C2
APPE-3
StorageStorage
Components of Accounting Systems
CDCD
Hard DriveHard Drive
TapeTape
Paper Paper DocumentDocument
CDCD
Hard DriveHard Drive
TapeTape
Paper Paper DocumentDocumentProcessorProcessor
InputInput
Source Documents
Source Documents
C2
APPE-4
PrinterPrinterMonitorMonitor
TelephoneTelephoneCDCD
TapeTapeDiskDisk
Electronic Electronic FileFile
PrinterPrinterMonitorMonitor
TelephoneTelephoneCDCD
TapeTapeDiskDisk
Electronic Electronic FileFile
OutputOutput
Components of Accounting Systems
StorageStorageProcessorProcessor
InputInput
Source Documents
Source Documents
C2
APPE-5
Special Journals and Subsidiary Ledgers in Accounting
GeneralGeneralJournalJournalGeneralGeneralJournalJournal
For transactionsFor transactionsnot in specialnot in special
journalsjournals
For transactionsFor transactionsnot in specialnot in special
journalsjournals
CashCashDisbursementsDisbursements
JournalJournal
CashCashDisbursementsDisbursements
JournalJournal
For recordingFor recordingcash paymentscash paymentsFor recordingFor recording
cash paymentscash payments
PurchasesPurchasesJournalJournal
PurchasesPurchasesJournalJournal
For recordingFor recordingcredit credit
purchasespurchases
For recordingFor recordingcredit credit
purchasespurchases
Cash ReceiptsCash ReceiptsJournalJournal
Cash ReceiptsCash ReceiptsJournalJournal
For recordingFor recordingcash receiptscash receiptsFor recordingFor recordingcash receiptscash receipts
Sales JournalSales JournalSales JournalSales Journal
For recordingFor recordingcredit salescredit sales
For recordingFor recordingcredit salescredit sales
C3/C4
APPE-6
CharacteristicControlling
Account Subsidary LedgerAmounts due
from customersAccounts
ReceivableAccounts
Receivable LedgerAmounts owed to
creditorsAccounts Payable
Accounts Payable Ledger
CharacteristicControlling
Account Subsidary LedgerAmounts due
from customersAccounts
ReceivableAccounts
Receivable LedgerAmounts owed to
creditorsAccounts Payable
Accounts Payable Ledger
Subsidiary ledgers are a listing of individual accounts with Subsidiary ledgers are a listing of individual accounts with common characteristics.common characteristics.Subsidiary ledgers are a listing of individual accounts with Subsidiary ledgers are a listing of individual accounts with common characteristics.common characteristics.
Sales JournalP1
Date Account DebitedInvoice Number PR
Accts. Receivable Dr.
Sales Cr.
Cost of Goods Sold Dr.
Inventory Cr
Jan. 1 Jim Carson 824 600 400
7 Tom Talley 825 900 600
22 Sue Wright 826 200 134
31 Total 1,700 1,134
(106/413) (502/119)
APPE-7
Each transaction yields a debit to Accounts Receivable and a credit to Sales. Also, we need to record the cost of the sale for
the transaction. This column total is posted monthly.
Each transaction yields a debit to Accounts Receivable and a credit to Sales. Also, we need to record the cost of the sale for
the transaction. This column total is posted monthly.
Here is the Sales Journal after recording some additional sales.Here is the Sales Journal after recording some additional sales.Here is the Sales Journal after recording some additional sales.Here is the Sales Journal after recording some additional sales.
Proving the Subsidiary Ledgers
Barry's BikesSchedule of Accounts Receivable
January 31Jim Carson 600$ Tom Talley 900 Sue Wright 200 Total accounts receivable 1,700$
Barry's BikesSchedule of Accounts Receivable
January 31Jim Carson 600$ Tom Talley 900 Sue Wright 200 Total accounts receivable 1,700$
The Accounts The Accounts Receivable Receivable controlling controlling
account and account and the subsidiary the subsidiary ledger are in ledger are in
balance.balance.
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APPE-8
Sales Tax
ACCOUNTS RECEIVABLE LEDGER
Joan Oakes
Date PR Debit Credit Balance
Jan. 4 S1 486 486
Each transaction is posted Each transaction is posted daily to the appropriate daily to the appropriate Accounts Receivable Accounts Receivable
Ledger account.Ledger account.
Each transaction is posted Each transaction is posted daily to the appropriate daily to the appropriate Accounts Receivable Accounts Receivable
Ledger account.Ledger account.
Column totals are posted monthly.Column totals are posted monthly.Column totals are posted monthly.Column totals are posted monthly.
P2
SALES JOURNAL Page 1
Date Account DebitedInv. No. PR
Accts. Rec. Debit
Sales Taxes Payable Credit
Sales Credit
Cost of Goods Sold Dr.
Inventory Cr
Jan. 4 Joan Oakes 635 486 36 450 302
APPE-9
On January 4, Jeri’s Jewelry sold a necklace for $450 On January 4, Jeri’s Jewelry sold a necklace for $450 plus 8% sales tax (plus 8% sales tax ($450 ´ .08 = $36) $450 ´ .08 = $36) on credit to Joan on credit to Joan Oakes. The cost of the merchandise was $302.Oakes. The cost of the merchandise was $302.
On January 4, Jeri’s Jewelry sold a necklace for $450 On January 4, Jeri’s Jewelry sold a necklace for $450 plus 8% sales tax (plus 8% sales tax ($450 ´ .08 = $36) $450 ´ .08 = $36) on credit to Joan on credit to Joan Oakes. The cost of the merchandise was $302.Oakes. The cost of the merchandise was $302.
Sales Returns and Allowances
If a company has few sales returns, they may If a company has few sales returns, they may be recorded in the General Journal.be recorded in the General Journal.
If a company has few sales returns, they may If a company has few sales returns, they may be recorded in the General Journal.be recorded in the General Journal.
A company with A company with manymany sales returns may use sales returns may use a Sales Returns and Allowances Journal.a Sales Returns and Allowances Journal.
A company with A company with manymany sales returns may use sales returns may use a Sales Returns and Allowances Journal.a Sales Returns and Allowances Journal.
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APPE-10
CASH RECEIPTS JOURNAL Page 1
DateAccounts Credited Explanation PR
Cash Dr.
Sales Disc. Dr.
Accts. Rec. Cr. Sales Cr.
Other Accts. Cr.
May 7 Sales Cash Sales 300 30016 Jane Waters Invoice 656 441 9 45031 Interest RevenueBank Acct. 409 15 1531 Total 756 9 450 300 15
(101) (415) (106) (413) ( )
Amount is not posted individually to an account.Amount is posted individually to subsidiary ledger.
Acct. No. Amount is posted to specified account.
Cash Receipts JournalP2
APPE-11
Categories of Cash ReceiptsCategories of Cash Receipts• Cash from cash salesCash from cash sales• Cash from credit customersCash from credit customers• Cash from other sourcesCash from other sources
Categories of Cash ReceiptsCategories of Cash Receipts• Cash from cash salesCash from cash sales• Cash from credit customersCash from credit customers• Cash from other sourcesCash from other sources
Purchases Journal Page 3
Date AccountInvoice
Date Terms PR
Accts. Pay. Cr.
Inventory Dr.
Offc. Sup. Dr.
Other Accts. Dr.
May 7 Langley Products 5/5 2/10,n/30 300 300
18 Office World 5/18 n/30 125/ 150 125 25
28 Fife Company 5/27 2/10,n/30 200 175 25
31 Total 650 475 150 25
(201) (119) (124) ( )
Amount is not posted individually to an account.Amount is posted individually to subsidiary ledger.
Acct. No. Amount is posted to specified account.
Purchases JournalP2
APPE-12
The Purchases Journal is used to record all purchases on credit.The Purchases Journal is used to record all purchases on credit.The Purchases Journal is used to record all purchases on credit.The Purchases Journal is used to record all purchases on credit.
Amount is not posted individually to an account.Amount is posted individually to subsidiary ledger.
Acct. No. Amount is posted to specified account.
Cash Disbursements Journal
Cash Disbursements Journal Page 1
DateCh. No. Payee
Account Debited PR
Cash Cr.
Inventory. Cr.
Other Accts.
Dr.Accts.
Pay. Dr.
Jun. 2 101 Fife Company Fife Company 196 4 200
15 102 Jane Hooks Salary Expense 622 300 300
28 103 Langley Products Purchases 505 100 100
30 Total 596 4 400 200
(101) (119) ( )(201)
( )
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APPE-13
The Cash Disbursements Journal is The Cash Disbursements Journal is used to record all payments of cash.used to record all payments of cash.
General Journal Transactions
Adjusting Adjusting EntriesEntries
Adjusting Adjusting EntriesEntries
Closing Closing EntriesEntriesClosing Closing EntriesEntries
Reversing Reversing EntriesEntries
Reversing Reversing EntriesEntries
Other transactions Other transactions not recorded in not recorded in
Special Journals Special Journals
Other transactions Other transactions not recorded in not recorded in
Special Journals Special Journals
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APPE-14
Technology-Based Accounting Systems
HardwareHardware
Processing unitsProcessing unitsHard DrivesHard Drives
RAMRAMModemsModems
CD-ROM DrivesCD-ROM DrivesSpeakersSpeakersMonitorsMonitorsServersServersPrintersPrinters
HardwareHardware
Processing unitsProcessing unitsHard DrivesHard Drives
RAMRAMModemsModems
CD-ROM DrivesCD-ROM DrivesSpeakersSpeakersMonitorsMonitorsServersServersPrintersPrinters
SoftwareSoftwarePrograms with a series of Programs with a series of
commands directing commands directing operations of operations of
computer hardware computer hardware such as data input, such as data input,
storage, processing, storage, processing, or output.or output.
SoftwareSoftwarePrograms with a series of Programs with a series of
commands directing commands directing operations of operations of
computer hardware computer hardware such as data input, such as data input,
storage, processing, storage, processing, or output.or output.
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APPE-15
Computer Technology, Data Processing, and Enterprise Resource Planning Software
Integrated accounting programs automatically update related Integrated accounting programs automatically update related accounts, journals, and ledgers for a single transaction. accounts, journals, and ledgers for a single transaction.
Integrated accounting programs automatically update related Integrated accounting programs automatically update related accounts, journals, and ledgers for a single transaction. accounts, journals, and ledgers for a single transaction.
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APPE-16
On-lineOn-line processing enters and processes data immediately. processing enters and processes data immediately.
Batch Batch processing accumulates information for a period of time processing accumulates information for a period of time and then processes all the data at one time (daily, weekly, or and then processes all the data at one time (daily, weekly, or monthly).monthly).
On-lineOn-line processing enters and processes data immediately. processing enters and processes data immediately.
Batch Batch processing accumulates information for a period of time processing accumulates information for a period of time and then processes all the data at one time (daily, weekly, or and then processes all the data at one time (daily, weekly, or monthly).monthly).
Enterprise resource planning softwareEnterprise resource planning software, such as , such as SAP or Oracle, links ordering, inventory, production, SAP or Oracle, links ordering, inventory, production, purchasing, planning, tracking and human purchasing, planning, tracking and human resources for many of the world’s largest resources for many of the world’s largest companies.companies.
Enterprise resource planning softwareEnterprise resource planning software, such as , such as SAP or Oracle, links ordering, inventory, production, SAP or Oracle, links ordering, inventory, production, purchasing, planning, tracking and human purchasing, planning, tracking and human resources for many of the world’s largest resources for many of the world’s largest companies.companies.
This ratio reflects the This ratio reflects the profitability of the segment. profitability of the segment.
This ratio reflects the This ratio reflects the profitability of the segment. profitability of the segment.
Segment Return on Assets
Segment return
on assets
= Segment operating incomeSegment average assets
A1
APPE-17
A A segmentsegment is a part of a is a part of a company that is company that is
separately identified by separately identified by its products, services, its products, services,
or geographic market. or geographic market.
A A segmentsegment is a part of a is a part of a company that is company that is
separately identified by separately identified by its products, services, its products, services,
or geographic market. or geographic market.
A good AIS collects financial data for a A good AIS collects financial data for a company’s various segments. company’s various segments. A good AIS collects financial data for a A good AIS collects financial data for a company’s various segments. company’s various segments.
End of Appendix E
APPE-18