College Accounting Notes - Chapter 7

Chapter Seven                                                                  Page 266

                  Accounting Information Systems & Special Journals

 

Objective: To have students demonstrate their knowledge in classifying transactions into the appropriate Journal.  They will be able to prove each journal by footing and cross footing to assure accuracy. They will post and prepare a trial balance.

 

Topics to be covered:

 

System Principles

 

-   Controls

o   Both internal and external

o   Principles; relevance, compatability, flexabilty, and cost

o   System components – source documents, input, storage, output

 

 

-   Special Journals

o   Five Types

§  Sales

§  Cash Receipts

§  Purchase

§  Cash Disbursements

§  General

 

o   Subsidiary Ledgers-Two Types

§  Accounts Receivable

§  Accounts Payable

 

 

-   System Technology

o   Computers

o   Networks

o   Enterprise Resource Planning (ERP)

 

Accounting Information Systems

            -To collect and process data from transactions, then organize it, report with it, and communicate the results to decision makers.

 

Control Principle – Accounting systems must have internal controls.

-   Internal Controls – methods and procedures allowing managers to control and monitor business activities.

 

Relevance Principle – Accounting Information Systems report useful, understandable, timely, and pertinent information for effective decisions.

 

Compatibility Principle – Conforms to a company’s activities, personnel, and structure.

 

Flexibility Principle – Able to adapt to changes and needs as dictated by the economy.

 

Cost Benefit Principle – The cost and benefits of an activity will impact the decisions of both external and internal users.

 

Components of an Accounting System

-   Source documents

-   Input (keyboard, scanners)

-   Info processor

-   Storage – Disk, thumb drive, hard drive

-   Output – reports

 

SPECIAL JOURNALS

           

-There are five different types of special journals

            - They are used to record like transactions and then post them in total

            - Each transaction must be in balance

            - Organize transactions into common groups

            - The advantage of using them increases as the number of transactions increase

- At the end of the month a proof must be done for each to assure that Dr. = Cr. This is called footing.

            - Once proved the column total get posted to the G/L at month end.

 

            Footing – The process of adding columns down and rows across. Always maintaining that Dr. = Cr. (Cross Footing)

 

 

1.    Sales Journal – Used for recording credit sales or sales made on account.

--- Every transaction must debit A/R and credit Sales.

- Every transaction must get posted to the sub-ledger.

 - Columns on the journal include; A/R, dr, Sales cr., Sales Tax  payable cr.

-Terms of the sale are listed here.

- see page 274

 

 

 

2.    Cash Receipts Journal– Used for recording cash received for ANY reason at all. This would include cash sales.

-   Every transaction must debit Cash

-   Discounts are recorded here at time of receipt of payment.

-   Columns on the journal include; Cash dr., Sales cr., A/R cr., Sales Discounts dr.,  Other cr.

-   Any A/R transaction must get posted to the sub-ledger.

-   See page 277

 

 

3.    Purchase Journal – Used for recording all credit purchases of any kind. It can be merchandise or expenses or assets.

-   Every transaction must credit A/P

-   Discounts are reported here

-   Columns on the journal include; A/P cr, Merchandise purchase dr., Other dr.

-   All transactions are recorded into the sub-ledger

-   See page 279

 

4.    Cash Disbursements or Payments Journal - Used for recording all cash payments for any reason. Whenever cash is reduced for any reason.

-   Every transaction must credit Cash. All checks must be accounted for and recorded in chronological order.

-   Discounts are taken here at the time of our payment.

-   All check numbers must be accounted for in numeric order.

-   All A/P entries must be posted to the sub-ledger

-   Columns on the journal include; Cash cr., Merchandise dr., Freight dr., A/P dr., Other dr.

-   See page 280

 

5.    General Journal – Used for recording any transaction that does not fall into the other four journals.  Transactions include; adjustments, closing j/e, reclass, reversals, depreciation, ect.

- This is posted daily

- If A/R or A/P are used they must be posted to the sub-ledger as well as the G/L

 

 

Special Journals get posted to two different supporting Sub-ledgers; Accounts Receivable or Accounts Payable. The A/R and A/P accounts in the G/L are posted in total from the journals and are referred to as “Control Accounts”. The control accounts total in the G/L will always agree to the total of the individual amounts in the sub-ledger.  The detail or individual transactions are recorded into the sub-ledgers.

 

 

 

 

 

 

Posting Rules

 

-   The column totals of the journals are posted at the end of the month to the G/L

-   The individual amounts in the A/R and A/P columns from the journals they are in get posted as one sided entries to the appropriate sub-ledger.

-   The General Journal is posted daily to both the sub-ledgers and the G/L.

-   The detail of the “Other” column is always posted individually to the appropriate G/L account.

-   Posting to the G/L must always be in balance (dr = cr)

 

 

Accounts Receivable Sub-Ledger – A subsidiary ledger that supports the balance in the G/L with detailed information. This has a debit balance.

- It has customer account information and is listed in alphabetic order then by customer account number.  The G/L account, A/R, is the controlling account for the A/R sub-ledger.

-The information comes from the Sales, Cash Receipts, & General Ledgers. Transactions going here will be posted daily to the sub ledger.

-The total of the columns on the journal at the end of the month will be posted in total to the G/L.

- The total will agree to the controlling account in the G/L, A/R

 

Accounts Payable Sub-Ledger – A subsidiary ledger that supports the balance in the G/L with detailed information. This has a credit balance.  (pg280)

- It has customer account information and is listed in alphabetic order then by customer account number.  The G/L account, A/P, is the controlling account for the A/P sub-ledger.

-The information comes from the Purchases Cash Disbursement, & General Ledgers. Transactions going here will be posted daily to the sub ledger. 

-The total of the columns on the journal at the end of the month will be posted in total to the G/L.

- The total will agree to the controlling account in the G/L, A/P

 

 

Supporting Schedules

At the end of the month a schedule is prepared from the A/R and A/P sub-ledgers individually.  Each customer is listed with a balance and then the report is totaled.  The total will agree to the controlling account in the G/L.

 

 

 

Demo Problem pg 285-288

  

  Quick Study, Exercises, and Problems

 

1. Do QS:       7-1 – Principle pg 295

                       

            Ex.     7-5 – Identify Journals (use 7-4) pg 297

            Ex.     7-8 – Identify Journals (use 7-7) pg 298

            Ex.       7-1 – Sales Journal Prep. Pg. 297

            Ex.       7-4 – Cash Receipts Journal Prep. Pg. 297

 

2. Do QS:       7-3 –  Components pg 296

 

            Ex.      7-7 – Purchase Journal Prep pg 298

            Ex.      7-10 – Cash Disbursements Prep pg 298

                       

3. Do QS:       7-4 – Different Journals pg 296

                                   

Ex.       7-14 - Post to Sub-ledger, Schedule of A/R  pg 299

Ex.       7-15 – Post to Sub-ledger, Schedule of A/R pg 299

QS      7-5 – General Journal &Journal Entry pg 296 

 

 

4. Do Ex:        7-2 -  Different Journals pg 297

 

Prob.  7 –1 Sales and C/R Journals pg 300   

 

5. Do  Ex.       7-11 Identify Journals (use 7-11) pg 298

           

            Prob.  7-3 – Purchase, C/D, and General Journals, pg301

 

6. Do Problem 7-5  All five journals, T/B, & supporting Schedules pg 302