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  1. Accounting Systems Chapter 5

  2. Learning Objectives • 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.

  3. Learning Objective 1 • Define and describe an accounting system. 3

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

  5. 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. LO 1 Basic Accounting Systems

  6. LO 1 Basic Accounting Systems

  7. LO 1 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.

  8. LO 1 Processing Methods • Processing methodsare the means by which the accounting system collects, summarizes, and reports accounting information. These methods may be either manual or computerized.

  9. 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.

  10. LO 2 Manual Accounting Systems • Understanding a manual accounting system is useful in identifying relationships between accounting data and reports.

  11. 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.

  12. LO 2 Subsidiary Ledgers • The primary ledger, which contains all of the balance sheet and income statement accounts, is called a general ledger.

  13. LO 2 Subsidiary Ledgers • Each subsidiary ledger is represented in the general ledger by a summarizing account,called a controlling account.

  14. LO 2 Subsidiary Ledgers • The individual customer accounts are arranged in alphabetical order in a subsidiary ledger called the accounts receivable subsidiary ledger,orcustomers ledger.

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

  16. LO 2 Subsidiary Ledgers

  17. LO 2 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.

  18. LO 2 Special Journals SELLING BUYING

  19. LO 2 Special Journals • 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.

  20. LO 2 Special Journals • The revenue journal is used for recording fees earned on account.

  21. LO 2 Special Journals • Cash fees earned would be recorded in the cash receiptsjournal.

  22. LO 2 Special Journals • Purchases made on account (on credit) are recorded in the purchases journal.

  23. LO 2 Special Journals • All cash payments are recorded in the cash payments journal.

  24. LO 2 Special Journals NetSolutions had the following selected general ledger balances as of March 1, 2012: Account Number Account Balance 11 Cash $6,200 12 Accounts Receivable 3,400 14 Supplies 2,500 18 Office Equipment 2,500 21 Accounts Payable 1,230

  25. LO 2 Revenue Journal If NetSolutions recorded its revenue transactions in the general journal, the following entries would have to be made:

  26. LO 2 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.

  27. LO 2 Revenue Journal If NetSolutions journalized these same fees earned on account entries in the revenue journal, the process is simplified, as you can see in Exhibit 2.

  28. LO 2

  29. 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.

  30. 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 Exhibit 3 (in steps) Click here to skip “Exhibit 3 (in Steps)” (continued)

  31. 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 Exhibit 3 (in steps) 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)

  32. 2012 Mar. 2 R35 2,200 2,200 LO 2 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 Accounts Receivable Subsidiary Ledger Accessories By Claire Date Item P.R. Debit Credit Balance (continued)

  33. LO 2 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 The same procedure would be used to post the other transactions to the individual accounts in the accounts receivable subsidiary ledger. (continued)

  34. LO 2 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 31 9 6 0 0 00 Next, the amount column would be totaled. (continued)

  35. Revenue Journal, page 35 LO 2 Exhibit 3 (in steps) 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)

  36. 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 Exhibit 3 (in steps) 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)

  37. 2012 Mar. 31 Revenue Journal, page 35 LO 2 Exhibit 3 (in steps) 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)

  38. 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 Exhibit 3 (in steps) 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)

  39. EE 5-1

  40. LO 2 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.

  41. LO 2

  42. 2012 Mar. 1 LO 2 Exhibit 4 (in steps) 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. Click the button to skip “Exhibit 4 (in Steps)” 400 400 CR14 (continued)

  43. 2012 Mar. 1 Bal. 3,400 18 R35 2,650 6,050 LO 2 Exhibit 4 (in steps) 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 Accounts Receivable Subsidiary Ledger Web Cantina Date Item P.R. Debit Credit Balance 3,400 19 2,650 CR14 (continued)

  44. LO 2 Cash Receipts Journal After all journalizing and posting to individual accounts for the month is complete, the columns are totaled.

  45. A check mark indicates that items in this column are posted individually. LO 2 Exhibit 4 (in steps) 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)

  46. LO 2 Accounts Receivable Account The total of the accounts in the accounts receivable subsidiary ledger should match the balance in the general ledger’s Accounts Receivable account.

  47. EE 5-2

  48. LO 2 Purchases Journal • The purchases journal is designed for recording all purchases on account.

  49. LO 2

  50. LO 2 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 Click on button to skip “Exhibit 5 (in steps)” (continued)