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Accounting Systems

Accounting Systems

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Accounting Systems

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  1. These slides should be viewed using the presentation mode (click the icon to start presentation). Accounting Systems Chapter 5

  2. Learning Objective 1 Define and describe an accounting system. 2

  3. Basic Accounting Systems An accounting system is the methods and procedures for collecting, classifying, summarizing, and reporting a business’s financial and operating information. LO 1

  4. As a business grows and changes, accounting systems also change in the following three-step process. Analyze user information needs. Design the system to meet the user needs. Implement the system. Basic Accounting Systems LO 1

  5. Basic Accounting Systems Internal controls are the policies and procedures that protect assets from misuse, ensure that business information is accurate, and ensure that laws and regulations are being followed. LO 1 • Processing methodsare the means by which the accounting system collects, summarizes, and reports accounting information. These methods may be either manual or computerized.

  6. Learning Objective 2 Define and describe an accounting system. Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals.

  7. LO 2 Subsidiary Ledgers • A large number of individual accounts with a common 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 accounts, is called a general ledger. • Each subsidiary ledger is represented in the general ledger by a summarizing account,called a controlling account.

  8. Subsidiary Ledgers LO 2 • The individual customer accounts are arranged in alphabetical order in a subsidiary ledger called the accounts receivable subsidiary ledger,orcustomers ledger. • Individual creditor accounts are arranged in alphabetical order in a subsidiary ledger called the accounts payable subsidiary ledger,or creditorsledger.

  9. Special Journal One method of processing transactions more efficiently in a manual system is to use special journals. Special journals are designed to be used for recording a single kind of transaction that occurs frequently. LO 2 • 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.

  10. Special Journals The revenue journal is used for recording fees earned on account. LO 2 • Cash fees earned would be recorded in the cash receiptsjournal. • Purchases made on account (on credit) are recorded in the purchases journal. • All cash payments are recorded in the cash payments journal.

  11. Revenue Journal Revenues are normally recorded to the revenue journal when the company sends a bill, referred to as aninvoice, to the customer. Each invoice is normally numbered in sequence for future reference. LO 2

  12. LO 2 Revenue Journal Let’s take a step-by-step look at the process used to post the first entry. This entry was made on March 2, 2012, when NetSolutions issued Invoice No. 615 to Accessories By Claire for fees earned of $2,200.

  13. Exhibit 3 (in steps) Page 35 Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit 2012 1 2 3 4 5 6 1 2 3 4 5 6 Mar. 2 615 Accessories By Claire 2 2 0 0 00 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 LO 2 (continued)

  14. Exhibit 3 (in steps) Page 35 Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit 2012 Mar. 2 615 Accessories By Claire 2 2 0 0 00 2012 Mar. 2 R35 2,200 2,200 LO 2 1 2 3 4 5 6 1 2 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 Accounts Receivable Subsidiary Ledger Accessories By Claire Date Item P.R. Debit Credit Balance (continued)

  15. Exhibit 3 (in steps) 2012 Mar. 2 R35 2,200 2,200 LO 2 Page 35 Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit 2012 1 2 3 4 5 6 1 2 3 4 5 6 Mar. 2 615 Accessories By Claire 2 2 0 0 00 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 Accounts Receivable Subsidiary Ledger Accessories By Claire Date Item P.R. Debit Credit Balance (continued)

  16. Exhibit 3 (in steps) LO 2 Page 35 Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit 2012 1 2 3 4 5 6 1 2 3 4 5 6 Mar. 2 615 Accessories By Claire 2 2 0 0 00 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 The same procedure would be used to post the other transactions to the individual accounts in the accounts receivable subsidiary ledger. (continued)

  17. Exhibit 3 (in steps) LO 2 Page 35 Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit 2012 1 2 3 4 5 6 1 2 3 4 5 6 Mar. 2 615 Accessories By Claire 2 2 0 0 00 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 31 9 6 0 0 00 Next, the amount column would be totaled. (continued)

  18. Exhibit 3 (in steps) Revenue Journal, page 35 LO 2 The debit total is posted from the revenue journal to Accounts Receivable in the general ledger. Accounts Receivable Account No. 12 ACCOUNT Balance Post. Ref. Dr. Cr. Date Item Cr. Dr. 2012 Mar. 1 Balance 3 400 00 31 9 600 00 R35 13 000 00 (continued)

  19. Exhibit 3 (in steps) Page 35 Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit 1 2 3 4 5 6 1 2 3 4 5 6 LO 2 2012 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 31 9 6 0 0 00 Mar. 2 615 Accessories By Claire 2 2 0 0 00 (12) Indicates a debit posting of $9,600 to Accounts Receivable (General Ledger Account 12) (continued)

  20. Exhibit 3 (in steps) 2012 Mar. 31 Revenue Journal, page 35 LO 2 The credit total is posted from the revenue journal to Fees Earned in the general ledger. Fees Earned Account No. 41 ACCOUNT Balance Post. Ref. Dr. Cr. Date Item Cr. Dr. R35 9 600 00 9 600 00 (continued)

  21. Exhibit 3 (in steps) Page 35 Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit 1 2 3 4 5 6 1 2 3 4 5 6 LO 2 2012 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 31 9 6 0 0 00 Mar. 2 615 Accessories By Claire 2 2 0 0 00 (12) (41) Indicates a credit posting of $9,600 to Fees Earned (General Ledger Account 41)

  22. Cash Receipts Journal All transactions that involve the receipt of cash are recorded in a cash receiptsjournal. Every entry recorded in the cash receipts journal will involve a debit to the “Cash Dr.” column. LO 2

  23. Exhibit 4 (in steps) 2012 Mar. 1 LO 2 CASH RECEIPTS JOURNAL Page 14 Other Accounts Post Accounts Receivable Cash Date Account Credited Ref. Cr. Cr. Dr. 2012 42 Mar. 1 Rent Revenue 400 400 19 Web Cantina 3,400 3,400 28 Accessories By Claire 2,200 2,200 30 RapZone 1,750 1,750 GENERAL LEDGER ACCOUNT Rent Revenue Acct. No. 42 Date Item P.R. Debit Credit Cr. Bal. 400 400 CR14 (continued)

  24. Exhibit 4 (in steps) A check mark indicates that items in this column are posted individually. LO 2 CASH RECEIPTS JOURNAL Page 14 Other Accounts Post Accounts Receivable Cash Date Account Credited Ref. Cr. Cr. Dr. 2012 42 Mar. 1 Rent Revenue 400 400 19 Web Cantina 3,400 3,400 28 Accessories By Claire 2,200 2,200 30 RapZone 1,750 1,750 400 7,350 7,750 31 ( ) ( ) ( ) 12 11 (continued)

  25. Exhibit 5 (in steps) Page 11 PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Post Date Account Credited Ref. Cr. Dr. Dr. Ref. Amount 2012 Mar. 3 Howard Supplies 600 600 7 Donnelly Supplies 420 420 12 Jewett Bus. Sys. 2,800 Off. Equip. 2,800 19 Donnelly Supplies 1,450 1,450 27 Howard Supplies 960 960 LO 2 • The purchases journal is designed for recording all purchases on account. (continued)

  26. Exhibit 5 (in steps) LO 2 Page 11 PURCHASES JOURNAL PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Post Date Account Credited Ref. Cr. Dr. Dr. Ref. Amount 2012 Mar. 3 Howard Supplies 600 600 7 Donnelly Supplies 420 420 12 Jewett Bus. Sys. 2,800 Off. Equip. 2,800 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 Accounts Dr.” column. Also note that the account title is written in for proper posting. (continued)

  27. Exhibit 5 (in steps) LO 2 Page 11 PURCHASES JOURNAL PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Post Date Account Credited Ref. Cr. Dr. Dr. Ref. Amount 2012 Mar. 3 Howard Supplies 600 600 7 Donnelly Supplies 420 420 12 Jewett Bus. Sys. 2,800 Off. Equip. 2,800 19 Donnelly Supplies 1,450 1,450 27 Howard Supplies 960 960 Accounts Payable Subsidiary Ledger Howard Supplies Date Item P.R. Dr. Cr. Balance 2012 Mar. 3 600 P11 600 (continued)

  28. LO 2 Exhibit 5 (in steps) Page 11 PURCHASES JOURNAL PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Post Date Account Credited Ref. Cr. Dr. Dr. Ref. Amount 2012 Mar. 3 Howard Supplies 600 600 7 Donnelly Supplies 420 420 12 Jewett Bus. Sys. 2,800 Off. Equip. 2,800 19 Donnelly Supplies 1,450 1,450 27 Howard Supplies 960 960 The other entries to the accounts payable subsidiary ledger are recorded using the same procedure. (continued)

  29. Exhibit 5 (in steps) LO 2 Page 11 PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Post Date Account Credited Ref. Cr. Dr. Dr. Ref. Amount 2012 2012 Mar. 3 Howard Supplies 600 600 7 Donnelly Supplies 420 420 12 Jewett Bus. Sys. 2,800 Off. Equip. 2,800 19 Donnelly Supplies 1,450 1,450 27 Howard Supplies 960 960 18 This posting reference indicates that Office Equipment (Account 18) is debited in the general ledger for $2,800.

  30. Purchases Journal At the end of March, all columns are totaled and the equality of debits and credits is verified. Then the total amounts in the “Accounts PayableCr.” and “Supplies Dr.” columns are posted. Because Office Equipment was posted earlier, the $2,800 total is not posted. LO 2

  31. Exhibit 5 (in steps) LO 2 Page 11 PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Post Date Account Credited Ref. Cr. Dr. Dr. Ref. Amount 2012 Mar. 3 Howard Supplies 600 600 7 Donnelly Supplies 420 420 12 Jewett Bus. Sys. 2,800 Off. Equip. 18 2,800 19 Donnelly Supplies 1,450 1,450 27 Howard Supplies 960 960 31 6,230 3,430 2,800 ( ) ( ) ( ) 21 Supplies would be debited for $3,430 and 14 written in the parentheses. GENERAL LEDGER ACCOUNT Accounts Payable No. 21 Date Item P.R. Debit Credit Balance 2012 Mar. 1 Bal 1,230 31 P11 6,230 7,460

  32. Cash Payments Journal All transactions involving a credit to Cash are recorded in the cash payments journal. LO 2

  33. Exhibit 6 (in steps) LO 2 • All transactions involving a credit to Cash are recorded in the cash payments journal. CASH PAYMENTS JOURNAL PAGE 7 Other Accounts Ck. Post Accounts Payable Cash Date No. Account Debited Ref. Dr. Dr. Cr 2012 Mar. 2 150 Rent Expense 1,600 1,600 On March 2, 2012, issued Check 150 for rent of $1,600. (continued)

  34. Cash Payments Journal LO 2 The amounts listed in the “Other Accounts Dr.” column are posted on a regular basis. The $1,600 for Rent Expense is posted to Account No. 52.

  35. Exhibit 6 (in steps) 2012 Mar. 2 LO 2 CASH PAYMENTS JOURNAL PAGE 7 Other Accounts Ck. Post Accounts Payable Cash Date No. Account Debited Ref. Dr. Dr. Cr 2012 Mar. 2 150 Rent Expense 1,600 1,600 52 General Ledger Account Rent Expense Account No. 52 Date Item P.R. Dr. Cr. Balance CP7 1,600 1,600 (continued)

  36. Exhibit 6 (in steps)    LO 2 CASH PAYMENTS JOURNAL PAGE 7 Other Accounts Ck. Post Accounts Payable Cash Date No. Account Debited Ref. Dr. Dr. Cr 2012 52 Mar. 2 150 Rent Expense 1,600 1,600  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 54 (continued)

  37. CASH PAYMENTS JOURNAL CASH PAYMENTS JOURNAL PAGE 7 PAGE 7 Other Accounts Ck. Post Accounts Payable Cash Date No. Account Debited Ref. Dr. Dr. Cr Other Accounts Ck. Post Accounts Payable Cash Date No. Account Debited Ref. Dr. Dr. Cr 2008 Mar. 2 150 Rent Expense 1,600 1,600   54 ( )    31 2,650 5,050 7,700 (11) (21) LO 2 Cash Payments Journal 2012 52 Mar. 2 150 Rent Expense 1,600 1,600  15 151 Grayco Supplies 1,230 1,230 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 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 The totals for “Accounts Payable Dr.” and “Cash Cr.” are posted. (continued)

  38. Learning Objective 3 Define and describe an accounting system. Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals. Describe and illustrate the use of a computerized accounting system.

  39. Computerized Accounting System Computerized systems simplify the record-keeping process by recording transactions in electronic forms and, at the same time, posting them electronically to general and subsidiary ledger accounts. LO 3 • Computerized accounting systems have the following three main advantages over manual systems:

  40. Computerized Accounting System Computerized systems are generally more accurate than manual systems. Computerized systems provide management with current account balance information to support decision making, since account balances are posted as the transactions occur. LO 3

  41. Learning Objective 4 Define and describe an accounting system. Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals. Describe and illustrate the use of a computerized accounting system. Describe the basic features of e-commerce. 41

  42. E-Commerce Using the Internet to perform business transactions is termed e-commerce. LO 4 • When transactions are between a company and a consumer, it is termedB2C(business-to-consumer) e-commerce.

  43. Learning Objective 5 Define and describe an accounting system. Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals. Describe and illustrate the use of a computerized accounting system. Describe the basic features of e-commerce. Use segment analysis in evaluating the operating performance of a company.

  44. Segment Analysis One way to report revenue is by different segments. Businesses may be segmented by region, by product or service, or by type of customer. LO 5

  45. Accounting Systems The End