QuickBooks® Helps This Retailer Sell Guitars
Starting a small business requires many decisions. For example, you have to decide where to locate, how much space you need, how much inventory to have, how many employees to hire, and where to advertise. Small business owners are typically so concerned about the product and sales side of their business that they often do not give enough thought to something that is critical to their success—how to keep track of financial results.
Small business owners today can choose either manual or computerized accounting systems. For example, Paul and Laura West are the owners of the first independent dealership of Carvin guitars and professional audio equipment. When they founded their company, in Sacramento, California, they decided to purchase a computerized accounting system that would integrate many aspects of their retail operations. They wanted to use their accounting software to manage their inventory of guitars and amplifiers, enter sales, record and report financial data, and process credit card and debit card transactions. They evaluated a number of options and chose QuickBooks® by Intuit Inc.
QuickBooks®, like most other popular software packages, has programs designed for the needs of a specific business, which in this case is retailing. This QuickBooks® retailing package automatically collects sales information from its point-of-sale scanning devices. It also keeps track of inventory levels and automatically generates purchase orders for popular items when re-order points are reached. It even supports sales efforts by compiling a customer database from which the Wests send out targeted direct mailings to potential customers. The computerized system enables data files to be emailed to the company's accountant. This keeps costs down and makes it easier and more efficient to generate financial reports as needed. The Wests believe that the investment in the computerized system has saved them time and money, and allowed them to spend more time on other aspects of their business.
Source: Intuit Inc., “QuickBooks® and ProAdvisor® Help Make Guitar Store a Hit,” Journal of Accountancy (May 2006), p. 101.
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Learning Objectives
After studying this chapter, you should be able to:
[1] Identify the basic concepts of an accounting information system.
[2] Describe the nature and purpose of a subsidiary ledger.
[3] Explain how companies use special journals in journalizing.
Preview of Chapter 7
As you see from the Feature Story, a reliable information system is a necessity for any company. Whether companies use pen, pencil, or computers in maintaining accounting records, certain principles and procedures apply. The purpose of this chapter is to explain and illustrate these features.
The content and organization of Chapter 7 are as follows.
Basic Concepts of Accounting Information Systems
The accounting information system collects and processes transaction data and communicates financial information to decision-makers. It includes each of the steps in the accounting cycle that you studied in earlier chapters. It also includes the documents that provide evidence of the transactions, and the records, trial balances, worksheets, and financial statements that result. An accounting system may be either manual or computerized. Most businesses these days use some sort of computerized accounting system, whether it is an off-the-shelf system for small businesses, like QuickBooks or Peachtree, or a more complex custom-made system.
Efficient and effective accounting information systems are based on certain basic principles. These principles, as described in Illustration 7-1, are (1) cost-effectiveness, (2) usefulness, and (3) flexibility. If the accounting system is cost-effective, provides useful output, and has the flexibility to meet future needs, it can contribute to both individual and organizational goals.
Illustration 7-1
Principles of an efficient and effective accounting information system
Computerized Accounting Systems
Many small businesses eventually replace their manual accounting system with a computerized general ledger accounting system. General ledger accounting systems are software programs that integrate the various accounting functions related to sales, purchases, receivables, payables, cash receipts and disbursements, and payroll. They also generate financial statements. Computerized systems have a number of advantages over manual systems. First, the company typically enters data only once in a computerized system. Second, because the computer does most steps automatically, it eliminates many errors resulting from human intervention in a manual system, such as errors in posting or preparation of financial statements. Computerized systems also provide information up-to-the-minute. More timely information results in better business decisions. Many different general ledger software packages are available.
CHOOSING A SOFTWARE PACKAGE
To identify the right software for your business, you must understand your company's operations. For example, consider its needs with regard to inventory, billing, payroll, and cash management. In addition, the company might have specific needs that are not supported by all software systems. For example, you might want to track employees’ hours on individual jobs or to extract information for determining sales commissions. Choosing the right system is critical because installation of even a basic system is time-consuming, and learning a new system will require many hours of employee time.
ENTRY-LEVEL SOFTWARE
Software publishers tend to classify businesses into groups based on revenue and the number of employees. Companies with revenues of less than $5 million and up to 20 employees generally use entry-level programs. The two leading entry-level programs are Intuit's QuickBooks and The Sage Group's Sage 50. These programs control more than 90% of the market. Each of these entry-level programs comes in many different industry-specific versions. For example, some are designed for very specific industry applications such as restaurants, retailing, construction, manufacturing, or nonprofit.
Quality entry-level packages typically involve more than recording transactions and preparing financial statements. Here are some common features and benefits:
- Easy data access and report preparation. Users can easily access information related to specific customers or suppliers. For example, you can view all transactions, invoices, payments, as well as contact information for a specific client.
- Audit trail. As a result of the Sarbanes-Oxley Act, companies are now far more concerned that their accounting system minimizes opportunities for fraud. Many programs provide an “audit trail” that enables the tracking of all transactions.
- Internal controls. Some systems have an internal accounting review that identifies suspicious transactions or likely mistakes such as wrong account numbers or duplicate transactions.
- Customization. This feature enables the company to create data fields specific to the needs of its business.
- Network-compatibility. Multiple users in the company can access the system at the same time.
Ethics Note 
Entire books and movies have used computer-system tampering as a major theme. Most programmers would agree that tamper-proofing and debugging programs are the most difficult and time-consuming phases of their jobs.
ENTERPRISE RESOURCE PLANNING SYSTEMS
Enterprise resource planning (ERP) systems are typically used by manufacturing companies with more than 500 employees and $500 million in sales. The best-known of these systems are SAP AG's SAP ERP (the most widely used) and Oracle's ERP. ERP systems go far beyond the functions of an entry-level general ledger package. They integrate all aspects of the organization, including accounting, sales, human resource management, and manufacturing. Because of the complexity of an ERP system, implementation can take three years and cost five times as much as the purchase price of the system. Purchase and implementation of ERP systems can cost from $250,000 to as much as $50 million for the largest multinational corporations.
ETHICS INSIGHT
Curbing Fraudulent Activity with Software 
The Sarbanes-Oxley Act (SOX) requires that companies demonstrate that they have adequate controls in place to detect significant fraudulent behavior by employees. Recently, about 15% of publicly traded companies reported at least one material weakness in their controls that needed to be remedied.
The SOX requirements have created a huge market for software that can monitor and trace every recorded transaction and adjusting entry. This enables companies to pinpoint who used the accounting system and when they used it. These systems also require “electronic signatures” by employees for all significant transactions. Such signatures verify that employees have followed all required procedures, and that all actions are properly authorized. SOX-related technology spending was estimated to be approximately $2 billion at one time. One firm that specializes in compliance software had 10 clients prior to SOX and 250 after SOX.
Source: W. M. Bulkeley and C. Forelle, “Anti-Crime Program: How Corporate Scandals Gave Tech Firms a New Business Line,” Wall Street Journal (December 9, 2005), p. A1.
Why might this software help reduce fraudulent activity by employees? (See page 371.)
Manual Accounting Systems
Manual accounting systems perform each of the steps in the accounting cycle by hand. For example, someone manually enters each accounting transaction in the journal and manually posts each to the ledger. Other manual computations must be made to obtain ledger account balances and to prepare a trial balance and financial statements. In the remainder of this chapter, we illustrate the use of a manual system.
You might be wondering, “Why cover manual accounting systems if the real world uses computerized systems?” First, small businesses still abound. Most of them begin operations with manual accounting systems and convert to computerized systems as the business grows. You may work in a small business or start your own someday, so it is useful to know how a manual system works. Second, to understand what computerized accounting systems do, you also need to understand manual accounting systems.
The manual accounting system represented in the first six chapters of this textbook is satisfactory in a company with a low volume of transactions. However, in most companies, it is necessary to add additional ledgers and journals to the accounting system to record transaction data efficiently.
Subsidiary Ledgers
Imagine a business that has several thousand charge (credit) customers and shows the transactions with these customers in only one general ledger account—Accounts Receivable. It would be nearly impossible to determine the balance owed by an individual customer at any specific time. Similarly, the amount payable to one creditor would be difficult to locate quickly from a single Accounts Payable account in the general ledger.
Instead, companies use subsidiary ledgers to keep track of individual balances. A subsidiary ledger is a group of accounts with a common characteristic (for example, all accounts receivable). It is an addition to and an expansion of the general ledger. The subsidiary ledger frees the general ledger from the details of individual balances.
Two common subsidiary ledgers are:
1. The accounts receivable (or customers’) subsidiary ledger, which collects transaction data of individual customers.
2. The accounts payable (or creditors’) subsidiary ledger, which collects transaction data of individual creditors.
In each of these subsidiary ledgers, companies usually arrange individual accounts in alphabetical order.
A general ledger account summarizes the detailed data from a subsidiary ledger. For example, the detailed data from the accounts receivable subsidiary ledger are summarized in Accounts Receivable in the general ledger. The general ledger account that summarizes subsidiary ledger data is called a control account. Illustration 7-2 presents an overview of the relationship of subsidiary ledgers to the general ledger. There, the general ledger control accounts and subsidiary ledger accounts are in green. Note that Cash and Owner's Capital in this illustration are not control accounts because there are no subsidiary ledger accounts related to these accounts.
Illustration 7-2
Relationship of general ledger and subsidiary ledgers
At the end of an accounting period, each general ledger control account balance must equal the composite balance of the individual accounts in the related subsidiary ledger. For example, the balance in Accounts Payable in Illustration 7-2 must equal the total of the subsidiary balances of Creditors X + Y + Z.
Subsidiary Ledger Example
Illustration 7-3 lists credit sales and collections on account for Pujols Company.
Illustration 7-3
Sales and collection transactions
Illustration 7-4 provides an example of a control account and subsidiary ledger for Pujols Company. (Due to space considerations, the explanation column in these accounts is not shown in this and subsequent illustrations.) Illustration 7-4 is based on the transactions listed in Illustration 7-3.
Illustration 7-4
Relationship between general and subsidiary ledgers
Pujols can reconcile the total debits ($12,000) and credits ($8,000) in Accounts Receivable in the general ledger to the detailed debits and credits in the subsidiary accounts. Also, the balance of $4,000 in the control account agrees with the total of the balances in the individual accounts (Aaron Co. $2,000 + Branden Inc. $0 + Caron Co. $2,000) in the subsidiary ledger.
As Illustration 7-4 shows, companies make monthly postings to the control accounts in the general ledger. This practice allows them to prepare monthly financial statements. Companies post to the individual accounts in the subsidiary ledger daily. Daily posting ensures that account information is current. This enables the company to monitor credit limits, bill customers, and answer inquiries from customers about their account balances.
Advantages of Subsidiary Ledgers
Subsidiary ledgers have several advantages:
1. They show in a single account transactions affecting one customer or one creditor, thus providing up-to-date information on specific account balances.
2. They free the general ledger of excessive details. As a result, a trial balance of the general ledger does not contain vast numbers of individual account balances.
3. They help locate errors in individual accounts by reducing the number of accounts in one ledger and by using control accounts.
4. They make possible a division of labor in posting. One employee can post to the general ledger while someone else posts to the subsidiary ledgers.
ACCOUNTING ACROSS THE ORGANIZATION 
“I'm John Smith, a.k.a. 13695071642”
Rather than relying on customer or creditor names in a subsidiary ledger, a computerized system expands the account number of the control account in a pre-specified manner. For example, if Accounts Receivable was numbered 10010, the first account in the accounts receivable subsidiary ledger might be numbered 10010–0001. Most systems allow inquiries about specific accounts in the subsidiary ledger (by account number) or about the control account. With the latter, the system would automatically total all the subsidiary accounts whenever an inquiry to the control account was made.
Why use numbers to identify names in a computerized system? (See page 371.)
DO IT!
Subsidiary Ledgers
Presented below is information related to Sims Company for its first month of operations. Determine the balances that appear in the accounts payable subsidiary ledger. What Accounts Payable balance appears in the general ledger at the end of January?
Action Plan
Subtract cash paid from credit purchases to determine the balances in the accounts payable subsidiary ledger.
Sum the individual balances to determine the Accounts Payable balance.
Solution
Subsidiary ledger balances:
Devon Co. $4,000 ($11,000 − $7,000)
Shelby Co. $5,000 ($7,000 − $2,000)
Taylor Co. $5,000 ($14,000 − $9,000)
General ledger Accounts Payable balance: $14,000 ($4,000 + $5,000 + $5,000)
Related exercise material: BE7-4, BE7-5, E7-1, E7-2, E7-4, E7-5, and DO IT! 7-1.
Special Journals
So far you have learned to journalize transactions in a two-column general journal and post each entry to the general ledger. This procedure is satisfactory in only very small companies. To expedite journalizing and posting, most companies use special journals in addition to the general journal.
Companies use special journals to record similar types of transactions. Examples are all sales of merchandise on account or all cash receipts. The types of transactions that occur frequently in a company determine what special journals the company uses. Most merchandising companies record daily transactions using the journals shown in Illustration 7-5.
Illustration 7-5
Use of special journals and the general journal
If a transaction cannot be recorded in a special journal, the company records it in the general journal. For example, if a company had special journals for only the four types of transactions listed above, it would record purchase returns and allowances in the general journal. Similarly, correcting, adjusting, and closing entries are recorded in the general journal. In some situations, companies might use special journals other than those listed above. For example, when sales returns and allowances are frequent, a company might use a special journal to record these transactions.
Special journals permit greater division of labor because several people can record entries in different journals at the same time. For example, one employee may journalize all cash receipts, and another may journalize all credit sales. Also, the use of special journals reduces the time needed to complete the posting process. With special journals, companies may post some accounts monthly, instead of daily, as we will illustrate later in the chapter. On the following pages, we discuss the four special journals shown in Illustration 7-5.
Sales Journal
In the sales journal, companies record sales of merchandise on account. Cash sales of merchandise go in the cash receipts journal. Credit sales of assets other than merchandise go in the general journal.
JOURNALIZING CREDIT SALES
To demonstrate use of a sales journal, we will use data for Karns Wholesale Supply, which uses a perpetual inventory system. Under this system, each entry in the sales journal results in one entry at selling price and another entry at cost. The entry at selling price is a debit to Accounts Receivable (a control account) and a credit of equal amount to Sales Revenue. The entry at cost is a debit to Cost of Goods Sold and a credit of equal amount to Inventory (a control account). Using a sales journal with two amount columns, the company can show on only one line a sales transaction at both selling price and cost. Illustration 7-6 shows this two-column sales journal of Karns Wholesale Supply, using assumed credit sales transactions (for sales invoices 101–107).
Helpful Hint Postings are also made daily to individual ledger accounts in the inventory subsidiary ledger to maintain a perpetual inventory.
Illustration 7-6
Journalizing the sales journal—perpetual inventory system
Note that, unlike the general journal, an explanation is not required for each entry in a special journal. Also, note that use of prenumbered invoices ensures that all invoices are journalized and no invoices are duplicated. Finally, note that the reference (Ref.) column is not used in journalizing. It is used in posting the sales journal, as explained in the next section.
POSTING THE SALES JOURNAL
Companies make daily postings from the sales journal to the individual accounts receivable in the subsidiary ledger. Posting to the general ledger is done monthly. Illustration 7-7 (page 338) shows both the daily and monthly postings.
A check mark (
) is inserted in the reference column to indicate that the daily posting to the customer's account has been made. If the subsidiary ledger accounts were numbered, the account number would be entered in place of the check mark. At the end of the month, Karns posts the column totals of the sales journal to the general ledger. Here, the column totals are as follows. From the selling-price column, a debit of $90,230 to Accounts Receivable (account No. 112), and a credit of $90,230 to Sales Revenue (account No. 401). From the cost column, a debit of $62,190 to Cost of Goods Sold (account No. 505), and a credit of $62,190 to Inventory (account No. 120). Karns inserts the account numbers below the column totals to indicate that the postings have been made. In both the general ledger and subsidiary ledger accounts, the reference S1 indicates that the posting came from page 1 of the sales journal.
PROVING THE LEDGERS
The next step is to “prove” the ledgers. To do so, Karns must determine two things: (1) The total of the general ledger debit balances must equal the total of the general ledger credit balances. (2) The sum of the subsidiary ledger balances must equal the balance in the control account. Illustration 7-8 (page 339) shows the proof of the postings from the sales journal to the general and subsidiary ledgers.
ADVANTAGES OF THE SALES JOURNAL
The use of a special journal to record sales on account has a number of advantages. First, the one-line entry for each sales transaction saves time. In the sales journal, it is not necessary to write out the four account titles for each transaction.
Illustration 7-7
Posting the sales journal
Second, only totals, rather than individual entries, are posted to the general ledger. This saves posting time and reduces the possibilities of errors in posting. Finally, a division of labor results because one individual can take responsibility for the sales journal.
Illustration 7-8
Proving the equality of the postings from the sales journal
Cash Receipts Journal
In the cash receipts journal, companies record all receipts of cash. The most common types of cash receipts are cash sales of merchandise and collections of accounts receivable. Many other possibilities exist, such as receipt of money from bank loans and cash proceeds from disposal of equipment. A one- or two-column cash receipts journal would not have space enough for all possible cash receipt transactions. Therefore, companies use a multiple-column cash receipts journal.
Generally, a cash receipts journal includes the following columns: debit columns for Cash and Sales Discounts, and credit columns for Accounts Receivable, Sales Revenue, and “Other Accounts.” Companies use the “Other Accounts” category when the cash receipt does not involve a cash sale or a collection of accounts receivable. Under a perpetual inventory system, each sales entry also is accompanied by an entry that debits Cost of Goods Sold and credits Inventory for the cost of the merchandise sold. Illustration 7-9 (page 340) shows a six-column cash receipts journal.
Companies may use additional credit columns if these columns significantly reduce postings to a specific account. For example, a loan company such as Household International receives thousands of cash collections from customers. Using separate credit columns for Loans Receivable and Interest Revenue, rather than the Other Accounts credit column, would reduce postings.
JOURNALIZING CASH RECEIPTS TRANSACTIONS
To illustrate the journalizing of cash receipts transactions, we will continue with the May transactions of Karns Wholesale Supply. Collections from customers relate to the entries recorded in the sales journal in Illustration 7-6. The entries in the cash receipts journal are based on the following cash receipts.
| May | 1 | D. A. Karns makes an investment of $5,000 in the business. |
| 7 | Cash sales of merchandise total $1,900 (cost, $1,240). | |
| 10 | Received a check for $10,388 from Abbot Sisters in payment of invoice No. 101 for $10,600 less a 2% discount. | |
| 12 | Cash sales of merchandise total $2,600 (cost, $1,690). | |
| 17 | Received a check for $11,123 from Babson Co. in payment of invoice No. 102 for $11,350 less a 2% discount. | |
| 22 | Received cash by signing a note for $6,000. | |
| 23 | Received a check for $7,644 from Carson Bros. in full for invoice No. 103 for $7,800 less a 2% discount. | |
| 28 | Received a check for $9,114 from Deli Co. in full for invoice No. 104 for $9,300 less a 2% discount. |
Further information about the columns in the cash receipts journal is listed on page 341.
Illustration 7-9
Journalizing and posting the cash receipts journal
1. Cash. Karns enters in this column the amount of cash actually received in each transaction. The column total indicates the total cash receipts for the month.
2. Sales Discounts. Karns includes a Sales Discounts column in its cash receipts journal. By doing so, it does not need to enter sales discount items in the general journal. As a result, the cash receipts journal shows on one line the collection of an account receivable within the discount period.
Credit Columns:
3. Accounts Receivable. Karns uses the Accounts Receivable column to record cash collections on account. The amount entered here is the amount to be credited to the individual customer's account.
4. Sales Revenue. The Sales Revenue column records all cash sales of merchandise. Cash sales of other assets (plant assets, for example) are not reported in this column.
5. Other Accounts. Karns uses the Other Accounts column whenever the credit is other than to Accounts Receivable or Sales Revenue. For example, in the first entry, Karns enters $5,000 as a credit to Owner's Capital. This column is often referred to as the sundry accounts column.
Debit and Credit Column:
6. Cost of Goods Sold and Inventory. This column records debits to Cost of Goods Sold and credits to Inventory.
Helpful Hint When is an account title entered in the “Account Credited” column of the cash receipts journal?
Answer: A subsidiary ledger account is entered when the entry involves a collection of accounts receivable. A general ledger account is entered when the account is not shown in a special column (and an amount must be entered in the Other Accounts column). Otherwise, no account is shown in the “Account Credited” column.
In a multi-column journal, generally only one line is needed for each entry. Debit and credit amounts for each line must be equal. When Karns journalizes the collection from Abbot Sisters on May 10, for example, three amounts are indicated. Note also that the Account Credited column identifies both general ledger and subsidiary ledger account titles. General ledger accounts are illustrated in the May 1 and May 22 entries. A subsidiary account is illustrated in the May 10 entry for the collection from Abbot Sisters.
When Karns has finished journalizing a multi-column journal, it totals the amount columns and compares the totals to prove the equality of debits and credits. Illustration 7-10 shows the proof of the equality of Karns's cash receipts journal.
Illustration 7-10
Proving the equality of the cash receipts journal
Totaling the columns of a journal and proving the equality of the totals is called footing and cross-footing a journal.
POSTING THE CASH RECEIPTS JOURNAL
Posting a multi-column journal (Illustration 7-9, page 340) involves the following steps.
1. At the end of the month, the company posts all column totals, except for the Other Accounts total, to the account title(s) specified in the column heading (such as Cash or Accounts Receivable). The company then enters account numbers below the column totals to show that they have been posted. For example, Karns has posted Cash to account No. 101, Accounts Receivable to account No. 112, Inventory to account No. 120, Sales Revenue to account No. 401, Sales Discounts to account No. 414, and Cost of Goods Sold to account No.505.
2. The company separately posts the individual amounts comprising the Other Accounts total to the general ledger accounts specified in the Account Credited column. See, for example, the credit posting to Owner's Capital. The total amount of this column has not been posted. The symbol (X) is inserted below the total to this column to indicate that the amount has not been posted.
3. The individual amounts in a column, posted in total to a control account (Accounts Receivable, in this case), are posted daily to the subsidiary ledger account specified in the Account Credited column. See, for example, the credit posting of $10,600 to Abbot Sisters.
The symbol CR, used in both the subsidiary and general ledgers, identifies postings from the cash receipts journal.
PROVING THE LEDGERS
After posting of the cash receipts journal is completed, Karns proves the ledgers. As shown in Illustration 7-11, the general ledger totals agree. Also, the sum of the subsidiary ledger balances equals the control account balance.
Illustration 7-11
Proving the ledgers after posting the sales and the cash receipts journals
Purchases Journal
In the purchases journal, companies record all purchases of merchandise on account. Each entry in this journal results in a debit to Inventory and a credit to Accounts Payable. For example, consider the following credit purchase transactions for Karns Wholesale Supply in Illustration 7-12.
Illustration 7-12
Credit purchase transactions
Illustration 7-13 shows the purchases journal for Karns Wholesale Supply. When using a one-column purchases journal (as in Illustration 7-13), a company cannot journalize other types of purchases on account or cash purchases in it. For example, in the purchases journal in Illustration 7-13, Karns would have to record credit purchases of equipment or supplies in the general journal. Likewise, all cash purchases would be entered in the cash payments journal. As illustrated later, companies that make numerous credit purchases for items other than merchandise often expand the purchases journal to a multi-column format. (See Illustration 7-15 on page 345.)
Illustration 7-13
Journalizing and posting the purchases journal
JOURNALIZING CREDIT PURCHASES OF MERCHANDISE
The journalizing procedure is similar to that for a sales journal. Companies make entries in the purchases journal from purchase invoices. In contrast to the sales journal, the purchases journal may not have an invoice number column because invoices received from different suppliers will not be in numerical sequence. To ensure that they record all purchase invoices, some companies consecutively number each invoice upon receipt and then use an internal document number column in the purchases journal. The entries for Karns Wholesale Supply are based on the assumed credit purchases listed in Illustration 7-12.
POSTING THE PURCHASES JOURNAL
The procedures for posting the purchases journal are similar to those for the sales journal. In this case, Karns makes daily postings to the accounts payable ledger. It makes monthly postings to Inventory and Accounts Payable in the general ledger. In both ledgers, Karns uses P1 in the reference column to show that the postings are from page 1 of the purchases journal.
Helpful Hint Postings to subsidiary ledger accounts are done daily because it is often necessary to know a current balance for the subsidiary accounts.
Proof of the equality of the postings from the purchases journal to both ledgers is shown in Illustration 7-14.
Illustration 7-14
Proving the equality of the purchases journal
EXPANDING THE PURCHASES JOURNAL
As noted earlier, some companies expand the purchases journal to include all types of purchases on account. Instead of one column for inventory and accounts payable, they use a multiple-column format. This format usually includes a credit column for Accounts Payable and debit columns for purchases of Inventory, Supplies, and Other Accounts. Illustration 7-15 shows a multi-column purchases journal for Hanover Co. The posting procedures are similar to those shown earlier for posting the cash receipts journal.
Helpful Hint A single-column purchases journal needs only to be footed to prove the equality of debits and credits.
Cash Payments Journal
In a cash payments (cash disbursements) journal, companies record all disbursements of cash. Entries are made from prenumbered checks. Because companies make cash payments for various purposes, the cash payments journal has multiple columns. Illustration 7-16 (page 346) shows a four-column journal.
JOURNALIZING CASH PAYMENTS TRANSACTIONS
The procedures for journalizing transactions in this journal are similar to those for the cash receipts journal. Karns records each transaction on one line, and for each line there must be equal debit and credit amounts. The entries in the cash payments journal in Illustration 7-16 are based on the following transactions for Karns Wholesale Supply.
Illustration 7-15
Multi-column purchases journal
| May | 1 | Issued check No. 101 for $1,200 for the annual premium on a fire insurance policy. |
| 3 | Issued check No. 102 for $100 in payment of freight when terms were FOB shipping point. | |
| 8 | Issued check No. 103 for $4,400 for the purchase of merchandise. | |
| 10 | Sent check No. 104 for $10,780 to Jasper Manufacturing Inc. in payment of May 6 invoice for $11,000 less a 2% discount. | |
| 19 | Mailed check No. 105 for $6,984 to Eaton and Howe Inc. in payment of May 10 invoice for $7,200 less a 3% discount. | |
| 23 | Sent check No. 106 for $6,831 to Fabor and Son in payment of May 14 invoice for $6,900 less a 1% discount. | |
| 28 | Sent check No. 107 for $17,150 to Jasper Manufacturing Inc. in payment of May 19 invoice for $17,500 less a 2% discount. | |
| 30 | Issued check No. 108 for $500 to D. A. Karns as a cash withdrawal for personal use. |
Note that whenever Karns enters an amount in the Other Accounts column, it must identify a specific general ledger account in the Account Debited column. The entries for checks No. 101, 102, 103, and 108 illustrate this situation. Similarly, Karns must identify a subsidiary account in the Account Debited column whenever it enters an amount in the Accounts Payable column. See, for example, the entry for check No. 104.
After Karns journalizes the cash payments journal, it totals the columns. The totals are then balanced to prove the equality of debits and credits.
POSTING THE CASH PAYMENTS JOURNAL
The procedures for posting the cash payments journal are similar to those for the cash receipts journal. Karns posts the amounts recorded in the Accounts Payable column individually to the subsidiary ledger and in total to the control account. It posts Inventory and Cash only in total at the end of the month. Transactions in the Other Accounts column are posted individually to the appropriate account(s) affected. The company does not post totals for the Other Accounts column.
Illustration 7-16
Journalizing and posting the cash payments journal
Illustration 7-16 shows the posting of the cash payments journal. Note that Karns uses the symbol CP as the posting reference. After postings are completed, the company proves the equality of the debit and credit balances in the general ledger. In addition, the control account balances should agree with the subsidiary ledger total balance. Illustration 7-17 shows the agreement of these balances.
Illustration 7-17
Proving the ledgers after postings from the sales, cash receipts, purchases, and cash payments journals
Effects of Special Journals on the General Journal
Special journals for sales, purchases, and cash substantially reduce the number of entries that companies make in the general journal. Only transactions that cannot be entered in a special journal are recorded in the general journal. For example, a company may use the general journal to record such transactions as granting of credit to a customer for a sales return or allowance, granting of credit from a supplier for purchases returned, acceptance of a note receivable from a customer, and purchase of equipment by issuing a note payable. Also, correcting, adjusting, and closing entries are made in the general journal.
The general journal has columns for date, account title and explanation, reference, and debit and credit amounts. When control and subsidiary accounts are not involved, the procedures for journalizing and posting of transactions are the same as those described in earlier chapters. When control and subsidiary accounts are involved, companies make two changes from the earlier procedures:
1. In journalizing, they identify both the control and the subsidiary accounts.
2. In posting, there must be a dual posting: once to the control account and once to the subsidiary account.
To illustrate, assume that on May 31, Karns Wholesale Supply returns $500 of merchandise for credit to Fabor and Son. Illustration 7-18 (page 348) shows the entry in the general journal and the posting of the entry. Note that if Karns receives cash instead of credit on this return, then it would record the transaction in the cash receipts journal.
Note that the general journal indicates two accounts (Accounts Payable, and Fabor and Son) for the debit, and two postings (“201/”) in the reference column. One debit is posted to the control account and another debit to the creditor's account in the subsidiary ledger.
Illustration 7-18
Journalizing and posting the general journal
DO IT!
Special Journals
Swisher Company had the following transactions during March.
1. Collected cash on account from Oakland Company.
2. Purchased equipment by signing a note payable.
3. Sold merchandise on account.
4. Purchased merchandise on account.
5. Paid $2,400 for a 2-year insurance policy.
Identify the journal in which each of the transactions above is recorded.
Action Plan
Determine if the transaction involves the receipt of cash (cash receipts journal) or the payment of cash (cash payments journal).
Determine if the transaction is a sale of merchandise on account (sales journal) or a purchase of merchandise on account (purchases journal).
All other transactions are recorded in the general journal.
Solution
| 1. Collected cash on account from Oakland Company. | Cash receipts journal |
| 2. Purchased equipment by signing a note payable. | General journal |
| 3. Sold merchandise on account. | Sales journal |
| 4. Purchased merchandise on account. | Purchases journal |
| 5. Paid $2,400 for a 2-year insurance policy. | Cash payments journal |
Related exercise material: BE7-6, BE7-7, BE7-8, BE7-9, BE7-10, E7-6, E7-7, E7-8, E7-10, and DO IT! 7-2.
Cassandra Wilson Company uses a six-column cash receipts journal with the following columns.
| Cash (Dr.) | Other Accounts (Cr.) |
| Sales Discounts (Dr.) | Cost of Goods Sold (Dr.) and Inventory (Cr.) |
| Accounts Receivable (Cr.) | |
| Sales Revenue (Cr.) |
Cash receipts transactions for the month of July 2014 are as follows.
| July | 3 | Cash sales total $5,800 (cost, $3,480). |
| 5 | Received a check for $6,370 from Jeltz Company in payment of an invoice dated June 26 for $6,500, terms 2/10, n/30. | |
| 9 | Cassandra Wilson, the proprietor, made an additional investment of $5,000 in cash in the business. | |
| 10 | Cash sales total $12,519 (cost, $7,511). | |
| 12 | Received a check for $7,275 from R. Eliot & Co. in payment of a $7,500 invoice dated July 3, terms 3/10, n/30. | |
| 15 | Received an advance of $700 cash for future services. | |
| 20 | Cash sales total $15,472 (cost, $9,283). | |
| 22 | Received a check for $5,880 from Beck Company in payment of $6,000 invoice dated July 13, terms 2/10, n/30. | |
| 29 | Cash sales total $17,660 (cost, $10,596). | |
| 31 | Received cash of $200 on interest earned for July. |
Action Plan
Record all cash receipts in the cash receipts journal.
The “account credited” indicates items posted individually to the subsidiary ledger or to the general ledger.
Record cash sales in the cash receipts journal— not in the sales journal.
The total debits must equal the total credits.
Instructions
(a) Journalize the transactions in the cash receipts journal.
(b) Contrast the posting of the Accounts Receivable and Other Accounts columns.
Solution to Comprehensive DO IT!
SUMMARY OF LEARNING OBJECTIVES
1 Identify the basic concepts of an accounting information system. The basic principles in developing an accounting information system are cost-effectiveness, useful output, and flexibility. Most companies use a computerized accounting system. Smaller companies use entry-level software such as QuickBooks or Sage 50. Larger companies use custom-made software packages, which often integrate all aspects of the organization.
2 Describe the nature and purpose of a subsidiary ledger. A subsidiary ledger is a group of accounts with a common characteristic. It facilitates the recording process by freeing the general ledger from details of individual balances.
3 Explain how companies use special journals in journalizing. Companies use special journals to group similar types of transactions. In a special journal, generally only one line is used to record a complete transaction.
GLOSSARY
Accounting information system A system that collects and processes transaction data and communicates financial information to decision-makers. (p. 330).
Accounts payable (creditors’) subsidiary ledger A subsidiary ledger that collects transaction data of individual creditors. (p. 333).
Accounts receivable (customers’) subsidiary ledger A subsidiary ledger that collects transaction data of individual customers. (p. 333).
Cash payments (cash disbursements) journal A special journal that records all disbursements of cash. (p. 344).
Cash receipts journal A special journal that records all cash received. (p. 339).
Control account An account in the general ledger that summarizes subsidiary ledger data. (p. 333).
Manual accounting system A system in which someone performs each of the steps in the accounting cycle by hand. (p. 332).
Purchases journal A special journal that records all purchases of merchandise on account. (p. 342).
Sales journal A special journal that records all sales of merchandise on account. (p. 336).
Special journal A journal that records similar types of transactions, such as all credit sales. (p. 336).
Subsidiary ledger A group of accounts with a common characteristic. (p. 332).
Self-Test, Brief Exercises, Exercises, Problem Set A, and many more components are available for practice in WileyPLUS.
SELF-TEST QUESTIONS
Answers are on page 371.
(LO 1)
1. The basic principles of an accounting information system include all of the following except:
(a) cost-effectiveness.
(b) flexibility.
(c) useful output.
(d) periodicity.
(LO 1)
2. Which of the following is not an advantage of computerized accounting systems?
(a) Data is entered only once in computerized accounting systems.
(b) Computerized accounting systems provide up-to-date information.
(c) Computerized accounting systems eliminate entering of transaction information.
(d) Computerized accounting systems eliminate many errors resulting from human intervention.
(LO 2)
3. Which of the following is incorrect concerning subsidiary ledgers?
(a) The purchases ledger is a common subsidiary ledger for creditor accounts.
(b) The accounts receivable ledger is a subsidiary ledger.
(c) A subsidiary ledger is a group of accounts with a common characteristic.
(d) An advantage of the subsidiary ledger is that it permits a division of labor in posting.
4. Two common subsidiary ledgers are:
(a) accounts receivable and cash receipts.
(b) accounts payable and cash payments.
(c) accounts receivable and accounts payable.
(d) sales and cost of goods sold.
(LO 2)
5. At the beginning of the month, the accounts receivable subsidiary ledger showed balances for Apple Company $5,000 and Berry Company $7,000. During the month, credit sales were made to Apple $6,000, Berry $4,500, and Cantaloupe $8,500. Cash was collected on account from Berry $11,500 and Cantaloupe $3,000. At the end of the month, the control account Accounts Receivable in the general ledger should have a balance of:
(a) $11,000.
(b) $12,000.
(c) $16,500.
(d) $31,000.
(LO 3)
6. A sales journal will be used for:
(LO 3)
7. A purchase of equipment on account is recorded in the:
(a) cash receipts journal.
(b) purchases journal.
(c) cash payments journal.
(d) general journal.
(LO 3)
8. A purchase of equipment using cash is recorded in the:
(a) cash receipts journal.
(b) purchases journal.
(c) cash payments journal.
(d) general journal.
(LO 3)
9. Which of the following statements is correct?
(a) The sales discount column is included in the cash receipts journal.
(b) The purchases journal records all purchases of merchandise whether for cash or on account.
(c) The cash receipts journal records sales on account.
(d) Merchandise returned by the buyer is recorded by the seller in the purchases journal.
(LO 3)
10. Dotel Company's cash receipts journal includes an Accounts Receivable column and an Other Accounts column. At the end of the month, these columns are posted to the general ledger as:
(LO 3)
11. Which of the following is incorrect concerning the posting of the cash receipts journal?
(a) The total of the Other Accounts column is not posted.
(b) All column totals except the total for the Other Accounts column are posted once at the end of the month to the account title(s) specified in the column heading.
(c) The totals of all columns are posted daily to the accounts specified in the column heading.
(d) The individual amounts in a column posted in total to a control account are posted daily to the subsidiary ledger account specified in the Account Credited column.
(LO 3)
12. Postings from the purchases journal to the subsidiary ledger are generally made:
(a) yearly.
(b) monthly.
(c) weekly.
(d) daily.
(LO 3)
13. Which statement is incorrect regarding the general journal?
(a) Only transactions that cannot be entered in a special journal are recorded in the general journal.
(b) Dual postings are always required in the general journal.
(c) The general journal may be used to record acceptance of a note receivable in payment of an account receivable.
(d) Correcting, adjusting, and closing entries are made in the general journal.
(LO 3)
14. When companies use special journals:
(a) they record all purchase transactions in the purchases journal.
(b) they record all cash received, except from cash sales, in the cash receipts journal.
(c) they record all cash disbursements in the cash payments journal.
(d) a general journal is not necessary.
(LO 3)
15. If a customer returns goods for credit, the selling company normally makes an entry in the:
(a) cash payments journal.
(b) sales journal.
(c) general journal.
(d) cash receipts journal.
Go to the book's companion website, www.wiley.com/college/weygandt, for additional Self-Test Questions.
QUESTIONS
1. (a) What is an accounting information system? (b) “An accounting information system applies only to a manual system.” Do you agree? Explain.
2. Certain principles should be followed in the development of an accounting information system. Identify and explain each of the principles.
3. What are common features of computerized accounting packages beyond recording transactions and preparing financial statements?
4. How does an enterprise resource planning (ERP) system differ from an entry-level computerized accounting system?
5. What are the advantages of using subsidiary ledgers?
6. (a) When do companies normally post to (1) the subsidiary accounts and (2) the general ledger control accounts? (b) Describe the relationship between a control account and a subsidiary ledger.
7. Identify and explain the four special journals discussed in the chapter. List an advantage of using each of these journals rather than using only a general journal.
8. Kensington Company uses special journals. It recorded in a sales journal a sale made on account to R. Stiner for $435. A few days later, R. Stiner returns $70 worth of merchandise for credit. Where should Kensington Company record the sales return? Why?
9. A $500 purchase of merchandise on account from Lore Company was properly recorded in the purchases journal. When posted, however, the amount recorded in the subsidiary ledger was $50. How might this error be discovered?
10. Why would special journals used in different businesses not be identical in format? What type of business would maintain a cash receipts journal but not include a column for accounts receivable?
11. The cash and the accounts receivable columns in the cash receipts journal were mistakenly over-added by $4,000 at the end of the month. (a) Will the customers’ ledger agree with the Accounts Receivable control account? (b) Assuming no other errors, will the trial balance totals be equal?
12. One column total of a special journal is posted at month-end to only two general ledger accounts. One of these two accounts is Accounts Receivable. What is the name of this special journal? What is the other general ledger account to which that same month-end total is posted?
13. In what journal would the following transactions be recorded? (Assume that a two-column sales journal and a single-column purchases journal are used.)
(a) Recording of depreciation expense for the year.
(b) Credit given to a customer for merchandise purchased on credit and returned.
(c) Sales of merchandise for cash.
(d) Sales of merchandise on account.
(e) Collection of cash on account from a customer.
(f) Purchase of office supplies on account.
14. In what journal would the following transactions be recorded? (Assume that a two-column sales journal and a single-column purchases journal are used.)
(a) Cash received from signing a note payable.
(b) Investment of cash by the owner of the business.
(c) Closing of the expense accounts at the end of the year.
(d) Purchase of merchandise on account.
(e) Credit received for merchandise purchased and returned to supplier.
(f) Payment of cash on account due a supplier.
15. What transactions might be included in a multiple-column purchases journal that would not be included in a single-column purchases journal?
16. Give an example of a transaction in the general journal that causes an entry to be posted twice (i.e., to two accounts), one in the general ledger, the other in the subsidiary ledger. Does this affect the debit/credit equality of the general ledger?
17. Give some examples of appropriate general journal transactions for an organization using special journals.
BRIEF EXERCISES
Identify basic concepts of an accounting information system.
(LO 1)
BE7-1 Indicate whether each of the following statements is true or false.
1. When designing an accounting system, we need to think about the needs and knowledge of both the top managers and various other users.
2. When the environment changes as a result of technological advances, increased competition, or government regulation, an accounting system does not have to be sufficiently flexible to meet the changes in order to save money.
3. In developing an accounting system, cost is relevant. The benefits obtained from the information disseminated must outweigh the cost of providing it.
Identify basic concepts of an accounting information system.
(LO 1)
BE7-2 Here is a list of words or phrases related to computerized accounting systems.
1. Entry-level software.
2. Enterprise resource planning systems.
3. Network-compatible.
4. Audit trail.
5. Internal control.
Instructions
Match each word or phrase with the best description of it.
________ (a) Allows multiple users to access the system at the same time.
________ (b) Enables the tracking of all transactions.
________ (c) Identifies suspicious transactions or likely mistakes such as wrong account numbers or duplicate transactions.
________ (d) Large-scale computer systems that integrate all aspects of the organization including accounting, sales, human resource management, and manufacturing.
________ (e) System for companies with revenues of less than $5 million and up to 20 employees.
Identify basic concepts of an accounting information system.
(LO 1)
BE7-3 Benji Borke has prepared the following list of statements about accounting information systems.
1. The accounting information system includes each of the steps of the accounting cycle, the documents that provide evidence of transactions that have occurred, and the accounting records.
2. The benefits obtained from information provided by the accounting information system need not outweigh the cost of providing that information.
3. Designers of accounting systems must consider the needs and knowledge of various users.
4. If an accounting information system is cost-effective and provides useful output, it does not need to be flexible.
Instructions
Identify each statement as true or false. If false, indicate how to correct the statement.
Identify subsidiary ledger balances.
(LO 2)
BE7-4 Presented below is information related to Gantner Company for its first month of operations. Identify the balances that appear in the accounts receivable subsidiary ledger and the accounts receivable balance that appears in the general ledger at the end of January.
Identify subsidiary ledger accounts.
(LO 2)
BE7-5 Identify in what ledger (general or subsidiary) each of the following accounts is shown.
(a) Rent Expense.
(b) Accounts Receivable—Cabrera.
(c) Notes Payable.
(d) Accounts Payable—Pacheco.
Identify special journals.
(LO 3)
BE7-6 Identify the journal in which each of the following transactions is recorded.
(a) Cash sales.
(b) Owner withdrawal of cash.
(c) Cash purchase of land.
(d) Credit sales.
(e) Purchase of merchandise on account.
(f) Receipt of cash for services performed.
Identify entries to cash receipts journal.
(LO 3)
BE7-7 Indicate whether each of the following debits and credits is included in the cash receipts journal. (Use “Yes” or “No” to answer this question.)
(a) Debit to Sales Revenue.
(b) Credit to Inventory.
(c) Credit to Accounts Receivable.
(d) Debit to Accounts Payable.
Identify transactions for special journals.
(LO 3)
BE7-8 Villar Co. uses special journals and a general journal. Identify the journal in which each of the following transactions is recorded.
(a) Purchased equipment on account.
(b) Purchased merchandise on account.
(c) Paid utility expense in cash.
(d) Sold merchandise on account.
Identify transactions for special journals.
(LO 3)
BE7-9 Identify the special journal(s) in which the following column headings appear.
(a) Sales Discounts Dr.
(b) Accounts Receivable Cr.
(c) Cash Dr.
(d) Sales Revenue Cr.
(e) Inventory Dr.
Indicate postings for cash receipts journal.
(LO 3)
BE7-10 Rauch Computer Components Inc. uses a multi-column cash receipts journal. Indicate which column(s) is/are posted only in total, only daily, or both in total and daily.
(a) Accounts Receivable.
(b) Sales Discounts.
(c) Cash.
(d) Other Accounts.
Determine subsidiary and general ledger balances.
(LO 2)
DO IT! 7-1 Presented below is information related to Rizzo Company for its first month of operations. Determine the balances that appear in the accounts payable subsidiary ledger. What Accounts Payable balance appears in the general ledger at the end of January?
Identify special journals.
(LO 3)
DO IT! 7-2 Hinske Company had the following transactions during April.
1. Sold merchandise on account.
2. Purchased merchandise on account.
3. Collected cash from a sale to Renfro Company.
4. Recorded accrued interest on a note payable.
5. Paid $2,000 for supplies.
Identify the journal in which each of the transactions above is recorded.
EXERCISES
Determine control account balances, and explain posting of special journals.
(LO 2, 3)
E7-1 Nex Company uses both special journals and a general journal as described in this chapter. On June 30, after all monthly postings had been completed, the Accounts Receivable control account in the general ledger had a debit balance of $340,000; the Accounts Payable control account had a credit balance of $77,000.
The July transactions recorded in the special journals are summarized below. No entries affecting accounts receivable and accounts payable were recorded in the general journal for July.
| Sales journal | Total sales $161,400 |
| Purchases journal | Total purchases $66,400 |
| Cash receipts journal | Accounts receivable column total $131,000 |
| Cash payments journal | Accounts payable column total $47,500 |
Instructions
(a) What is the balance of the Accounts Receivable control account after the monthly postings on July 31?
(b) What is the balance of the Accounts Payable control account after the monthly postings on July 31?
(c) To what account(s) is the column total of $161,400 in the sales journal posted?
(d) To what account(s) is the accounts receivable column total of $131,000 in the cash receipts journal posted?
Explain postings to subsidiary ledger.
(LO 2)
E7-2 Presented below is the subsidiary accounts receivable account of Jill Longley.
Instructions
Write a memo to Sara Fogelman, chief financial officer, that explains each transaction.
Post various journals to control and subsidiary accounts.
(LO 2, 3)
E7-3 On September 1, the balance of the Accounts Receivable control account in the general ledger of Montgomery Company was $10,960. The customers’ subsidiary ledger contained account balances as follows: Hurley $1,440, Andino $2,640, Fowler $2,060, Sogard $4,820. At the end of September, the various journals contained the following information.
Sales journal: Sales to Sogard $800; to Hurley $1,260; to Giambi $1,330; to Fowler $1,600.
Cash receipts journal: Cash received from Fowler $1,310; from Sogard $3,300; from Giambi $380; from Andino $1,800; from Hurley $1,240.
General journal: An allowance is granted to Sogard $220.
Instructions
(a) Set up control and subsidiary accounts and enter the beginning balances. Do not construct the journals.
(b) Post the various journals. Post the items as individual items or as totals, whichever would be the appropriate procedure. (No sales discounts given.)
(c) Prepare a list of customers and prove the agreement of the controlling account with the subsidiary ledger at September 30, 2014.
Determine control and subsidiary ledger balances for accounts receivable.
(LO 2)
E7-4 Kieschnick Company has a balance in its Accounts Receivable control account of $10,000 on January 1, 2014. The subsidiary ledger contains three accounts: Bixler Company, balance $4,000; Cuddyer Company, balance $2,500; and Freeze Company. During January, the following receivable-related transactions occurred.
Instructions
(a) What is the January 1 balance in the Freeze Company subsidiary account?
(b) What is the January 31 balance in the control account?
(c) Compute the balances in the subsidiary accounts at the end of the month.
(d) Which January transaction would not be recorded in a special journal?
Determine control and subsidiary ledger balances for accounts payable.
(LO 2)
E7-5 Pennington Company has a balance in its Accounts Payable control account of $9,250 on January 1, 2014. The subsidiary ledger contains three accounts: Hale Company, balance $3,000; Janish Company, balance $1,875; and Valdez Company. During January, the following payable-related transactions occurred.
Instructions
(a) What is the January 1 balance in the Valdez Company subsidiary account?
(b) What is the January 31 balance in the control account?
(c) Compute the balances in the subsidiary accounts at the end of the month.
(d) Which January transaction would not be recorded in a special journal?
Record transactions in sales and purchases journal.
(LO 3)
E7-6 Gomes Company uses special journals and a general journal. The following transactions occurred during September 2014.
| Sept. | 2 | Sold merchandise on account to H. Drew, invoice no. 101, $620, terms n/30. |
| The cost of the merchandise sold was $420. | ||
| 10 | Purchased merchandise on account from A. Pagan $650, terms 2/10, n/30. | |
| 12 | Purchased office equipment on account from R. Cairo $6,500. | |
| 21 | Sold merchandise on account to G. Holliday, invoice no. 102 for $800, terms | |
| 2/10, n/30. The cost of the merchandise sold was $480. | ||
| 25 | Purchased merchandise on account from D. Downs $860, terms n/30. | |
| 27 | Sold merchandise to S. Miller for $700 cash. The cost of the merchandise sold was $400. |
(a) Prepare a sales journal (see Illustration 7-7) and a single-column purchases journal (see Illustration 7-13). (Use page 1 for each journal.)
(b) Record the transaction(s) for September that should be journalized in the sales journal and the purchases journal.
Record transactions in cash receipts and cash payments journal.
(LO 3)
E7-7 R. Santiago Co. uses special journals and a general journal. The following transactions occurred during May 2014.
| May | 1 | R. Santiago invested $40,000 cash in the business. |
| 2 | Sold merchandise to Lawrie Co. for $6,300 cash. The cost of the merchandise sold was $4,200. | |
| 3 | Purchased merchandise for $7,700 from J. Moskos using check no. 101. | |
| 14 | Paid salary to H. Rivera $700 by issuing check no. 102. | |
| 16 | Sold merchandise on account to K. Stanton for $900, terms n/30. The cost of the merchandise sold was $630. | |
| 22 | A check of $9,000 is received from M. Mangini in full for invoice 101; no discount given. |
Instructions
(a) Prepare a multiple-column cash receipts journal (see Illustration 7-9) and a multiple-column cash payments journal (see Illustration 7-16). (Use page 1 for each journal.)
(b) Record the transaction(s) for May that should be journalized in the cash receipts journal and cash payments journal.
Explain journalizing in cash journals.
(LO 3)
E7-8 Francisco Company uses the columnar cash journals illustrated in the textbook. In April, the following selected cash transactions occurred.
1. Made a refund to a customer as an allowance for damaged goods.
2. Received collection from customer within the 3% discount period.
3. Purchased merchandise for cash.
4. Paid a creditor within the 3% discount period.
5. Received collection from customer after the 3% discount period had expired.
6. Paid freight on merchandise purchased.
7. Paid cash for office equipment.
8. Received cash refund from supplier for merchandise returned.
9. Withdrew cash for personal use of owner.
10. Made cash sales.
Instructions
Indicate (a) the journal, and (b) the columns in the journal that should be used in recording each transaction.
Journalize transactions in general journal and explain postings.
(LO 3)
E7-9 Hasselback Company has the following selected transactions during March.
| Mar. | 2 | Purchased equipment costing $7,400 from Bole Company on account. |
| 5 | Received credit of $410 from Carwell Company for merchandise damaged in shipment to Hasselback. | |
| 7 | Issued credit of $400 to Dempsey Company for merchandise the customer returned. The returned merchandise had a cost of $260. |
Hasselback Company uses a one-column purchases journal, a sales journal, the columnar cash journals used in the text, and a general journal.
Instructions
(a) Journalize the transactions in the general journal.
(b) In a brief memo to the president of Hasselback Company, explain the postings to the control and subsidiary accounts from each type of journal.
Indicate journalizing in special journals.
(LO 3)
E7-10 Below are some typical transactions incurred by Ricketts Company.
1. Payment of creditors on account.
2. Return of merchandise sold for credit.
3. Collection on account from customers.
4. Sale of land for cash.
5. Sale of merchandise on account.
6. Sale of merchandise for cash.
7. Received credit for merchandise purchased on credit.
8. Sales discount taken on goods sold.
9. Payment of employee wages.
10. Income summary closed to owner's capital.
11. Depreciation on building.
12. Purchase of office supplies for cash.
13. Purchase of merchandise on account.
Instructions
For each transaction, indicate whether it would normally be recorded in a cash receipts journal, cash payments journal, sales journal, single-column purchases journal, or general journal.
Explain posting to control account and subsidiary ledger.
(LO 2, 3)
E7-11 The general ledger of Hensley Company contained the following Accounts Payable control account (in T-account form). Also shown is the related subsidiary ledger.
Instructions
(a) Indicate the missing posting reference and amount in the control account, and the missing ending balance in the subsidiary ledger.
(b) Indicate the amounts in the control account that were dual-posted (i.e., posted to the control account and the subsidiary accounts).
Prepare purchases and general journals.
(LO 2, 3)
E7-12 Selected accounts from the ledgers of Youngblood Company at July 31 showed the following.
From the data prepare:
(a) The single-column purchases journal for July.
(b) The general journal entries for July.
Determine correct posting amount to control account.
(LO 2, 3)
E7-13 Tresh Products uses both special journals and a general journal as described in this chapter. Tresh also posts customers’ accounts in the accounts receivable subsidiary ledger. The postings for the most recent month are included in the subsidiary T-accounts below.
Instructions
Determine the correct amount of the end-of-month posting from the sales journal to the Accounts Receivable control account.
Compute balances in various accounts.
(LO 3)
E7-14 Selected account balances for Hulse Company at January 1, 2014, are presented below.
| Accounts Payable | $14,000 |
| Accounts Receivable | 22,000 |
| Cash | 17,000 |
| Inventory | 13,500 |
Hulse's sales journal for January shows a total of $110,000 in the selling price column, and its one-column purchases journal for January shows a total of $77,000.
The column totals in Hulse's cash receipts journal are: Cash Dr. $61,000; Sales Discounts Dr. $1,100; Accounts Receivable Cr. $45,000; Sales Revenue Cr. $6,000; and Other Accounts Cr. $11,100.
The column totals in Hulse's cash payments journal for January are: Cash Cr. $55,000; Inventory Cr. $1,000; Accounts Payable Dr. $46,000; and Other Accounts Dr. $10,000. Hulse's total cost of goods sold for January is $63,600.
Accounts Payable, Accounts Receivable, Cash, Inventory, and Sales Revenue are not involved in the “Other Accounts” column in either the cash receipts or cash payments journal, and are not involved in any general journal entries.
Instructions
Compute the January 31 balance for Hulse in the following accounts.
(a) Accounts Payable.
(b) Accounts Receivable.
(d) Inventory.
(e) Sales Revenue.
EXERCISES: SET B AND CHALLENGE EXERCISES
Visit the book's companion website, at www.wiley.com/college/weygandt, and choose the Student Companion site to access Exercise Set B and Challenge Exercises.
PROBLEMS: SET A
Journalize transactions in cash receipts journal; post to control account and subsidiary ledger.
(LO 2, 3) 
P7-1A Kozma Company's chart of accounts includes the following selected accounts.
| 101 Cash | 401 Sales Revenue |
| 112 Accounts Receivable | 414 Sales Discounts |
| 120 Inventory | 505 Cost of Goods Sold |
| 301 Owner's Capital |
On April 1, the accounts receivable ledger of Kozma Company showed the following balances: Morrow $1,550, Rose $1,200, Jennings Co. $2,900, and Dent $2,200. The April transactions involving the receipt of cash were as follows.
| Apr. | 1 | The owner, T. Kozma, invested additional cash in the business $7,200. |
| 4 | Received check for payment of account from Dent less 2% cash discount. | |
| 5 | Received check for $920 in payment of invoice no. 307 from Jennings Co. | |
| 8 | Made cash sales of merchandise totaling $7,245. The cost of the merchandise sold was $4,347. | |
| 10 | Received check for $600 in payment of invoice no. 309 from Morrow. | |
| 11 | Received cash refund from a supplier for damaged merchandise $740. | |
| 23 | Received check for $1,000 in payment of invoice no. 310 from Jennings Co. | |
| 29 | Received check for payment of account from Rose. |
Instructions
(a) Balancing totals $21,105
(a) Journalize the transactions above in a six-column cash receipts journal with columns for Cash Dr., Sales Discounts Dr., Accounts Receivable Cr., Sales Revenue Cr., Other Accounts Cr., and Cost of Goods Sold Dr./Inventory Cr. Foot and cross-foot the journal.
(b) Insert the beginning balances in the Accounts Receivable control and subsidiary accounts, and post the April transactions to these accounts.
(c) Accounts Receivable $1,930
(c) Prove the agreement of the control account and subsidiary account balances.
Journalize transactions in cash payments journal; post to control account and subsidiary ledgers.
(LO 2, 3)
P7-2A Reineke Company's chart of accounts includes the following selected accounts.
| 101 Cash | 201 Accounts Payable |
| 120 Inventory | 306 Owner's Drawings |
| 130 Prepaid Insurance | 505 Cost of Goods Sold |
| 157 Equipment |
On October 1, the accounts payable ledger of Reineke Company showed the following balances: Uggla Company $2,700, Orr Co. $2,500, Rosenthal Co. $1,800, and Clevenger Company $3,700. The October transactions involving the payment of cash were as follows.
| Oct. | 1 | Purchased merchandise, check no. 63, $300. |
| 3 | Purchased equipment, check no. 64, $800. | |
| 5 | Paid Uggla Company balance due of $2,700, less 2% discount, check no. 65, $2,646. | |
| 10 | Purchased merchandise, check no. 66, $2,550. | |
| 15 | Paid Rosenthal Co. balance due of $1,800, check no. 67. | |
| 16 | C. Reineke, the owner, pays his personal insurance premium of $400, check no. 68. | |
| 19 | Paid Orr Co. in full for invoice no. 610, $2,000 less 2% cash discount, check no. 69, $1,960. | |
| 29 | Paid Clevenger Company in full for invoice no. 264, $2,500, check no. 70. |
(a) Balancing totals $13,050
(a) Journalize the transactions above in a four-column cash payments journal with columns for Other Accounts Dr., Accounts Payable Dr., Inventory Cr., and Cash Cr. Foot and cross-foot the journal.
(b) Insert the beginning balances in the Accounts Payable control and subsidiary accounts, and post the October transactions to these accounts.
(c) Accounts Payable $1,700
(c) Prove the agreement of the control account and the subsidiary account balances.
Journalize transactions in multi-column purchases journal and sales journal; post to the general and subsidiary ledgers.
(LO 2, 3)
P7-3A The chart of accounts of LR Company includes the following selected accounts.
| 112 Accounts Receivable | 401 Sales Revenue |
| 120 Inventory | 412 Sales Returns and Allowances |
| 126 Supplies | 505 Cost of Goods Sold |
| 157 Equipment | 610 Advertising Expense |
| 201 Accounts Payable |
In July, the following selected transactions were completed. All purchases and sales were on account. The cost of all merchandise sold was 70% of the sales price.
| July | 1 | Purchased merchandise from Eby Company $8,000. |
| 2 | Received freight bill from Shaw Shipping on Eby purchase $400. | |
| 3 | Made sales to Fort Company $1,300 and to Hefner Bros. $1,500. | |
| 5 | Purchased merchandise from Getz Company $3,200. | |
| 8 | Received credit on merchandise returned to Getz Company $300. | |
| 13 | Purchased store supplies from Dayne Supply $720. | |
| 15 | Purchased merchandise from Eby Company $3,600 and from Bosco Company $4,300. | |
| 16 | Made sales to Aybar Company $3,450 and to Hefner Bros. $1,870. | |
| 18 | Received bill for advertising from Welton Advertisements $600. | |
| 21 | Sales were made to Fort Company $310 and to Duncan Company $2,800. | |
| 22 | Granted allowance to Fort Company for merchandise damaged in shipment $40. | |
| 24 | Purchased merchandise from Getz Company $3,000. | |
| 26 | Purchased equipment from Dayne Supply $900. | |
| 28 | Received freight bill from Shaw Shipping on Getz purchase of July 24, $380. | |
| 30 | Sales were made to Aybar Company $5,600. |
Instructions
(a) Purchases journal—Accounts Payable $25,100 Sales journal—Sales Revenue total $16,830
(a) Journalize the transactions above in a purchases journal, a sales journal, and a general journal. The purchases journal should have the following column headings: Date, Account Credited (Debited), Ref., Accounts Payable Cr., Inventory Dr., and Other Accounts Dr.
(c) Accounts Receivable $16,790
Accounts Payable $24,800
(b) Post to both the general and subsidiary ledger accounts. (Assume that all accounts have zero beginning balances.)
(c) Prove the agreement of the control and subsidiary accounts.
Journalize transactions in special journals.
(LO 2, 3)
P7-4A Selected accounts from the chart of accounts of Mercer Company are shown below.
| 101 Cash | 401 Sales Revenue |
| 112 Accounts Receivable | 412 Sales Returns and Allowances |
| 120 Inventory | 414 Sales Discounts |
| 126 Supplies | 505 Cost of Goods Sold |
| 157 Equipment | 726 Salaries and Wages Expense |
| 201 Accounts Payable |
The cost of all merchandise sold was 60% of the sales price. During January, Mercer completed the following transactions.
Mercer Company uses the following journals.
1. Sales journal.
2. Single-column purchases journal.
3. Cash receipts journal with columns for Cash Dr., Sales Discounts Dr., Accounts Receivable Cr., Sales Revenue Cr., Other Accounts Cr., and Cost of Goods Sold Dr./Inventory Cr.
4. Cash payments journal with columns for Other Accounts Dr., Accounts Payable Dr., Inventory Cr., and Cash Cr.
5. General journal.
Instructions
Using the selected accounts provided:
(a) Record the January transactions in the appropriate journal noted.
(b) Foot and cross-foot all special journals.
(c) Show how postings would be made by placing ledger account numbers and check-marks as needed in the journals. (Actual posting to ledger accounts is not required.)
(a) Sales journal $21,180 Purchases journal $30,100 Cash receipts journal balancing total $28,690 Cash payments journal balancing total $40,780
Journalize in sales and cash receipts journals; post; prepare a trial balance; prove control to subsidiary; prepare adjusting entries; prepare an adjusted trial balance.
(LO 2, 3)
P7-5A Presented below are the purchases and cash payments journals for Fornelli Co. for its first month of operations.
In addition, the following transactions have not been journalized for July. The cost of all merchandise sold was 65% of the sales price.
| July | 1 | The founder, N. Fornelli, invests $80,000 in cash. |
| 6 | Sell merchandise on account to Dow Co. $6,200 terms 1/10, n/30. | |
| 7 | Make cash sales totaling $8,000. | |
| 8 | Sell merchandise on account to S. Goebel $4,600, terms 1/10, n/30. | |
| 10 | Sell merchandise on account to W. Leiss $4,900, terms 1/10, n/30. | |
| 13 | Receive payment in full from S. Goebel. | |
| 16 | Receive payment in full from W. Leiss. | |
| 20 | Receive payment in full from Dow Co. | |
| 21 | Sell merchandise on account to H. Kenney $5,000, terms 1/10, n/30. | |
| 29 | Returned damaged goods to N. Alvarado and received cash refund of $420. |
Instructions
(a) Open the following accounts in the general ledger.
| 101 Cash | 306 Owner's Drawings |
| 112 Accounts Receivable | 401 Sales Revenue |
| 120 Inventory | 414 Sales Discounts |
| 126 Supplies | 505 Cost of Goods Sold |
| 131 Prepaid Rent | 631 Supplies Expense |
| 201 Accounts Payable | 729 Rent Expense |
| 301 Owner's Capital |
(b) Journalize the transactions that have not been journalized in the sales journal and the cash receipts journal (see Illustration 7-9).
(b) Sales journal total $20,700 Cash receipts journal balancing totals $104,120
(c) Post to the accounts receivable and accounts payable subsidiary ledgers. Follow the sequence of transactions as shown in the problem.
(d) Post the individual entries and totals to the general ledger.
(e) Totals $122,520
(e) Prepare a trial balance at July 31, 2014.
(f) Accounts Receivable $5,000
Accounts Payable $13,820
(f) Determine whether the subsidiary ledgers agree with the control accounts in the general ledger.
(g) The following adjustments at the end of July are necessary.
(1) A count of supplies indicates that $140 is still on hand.
(2) Recognize rent expense for July, $500.
Prepare the necessary entries in the general journal. Post the entries to the general ledger.
(h) Prepare an adjusted trial balance at July 31, 2014.
(h) Totals $122,520
Journalize in special journals; post; prepare a trial balance.
(LO 2, 3)
P7-6A The post-closing trial balance for Horner Co. is shown below.
The subsidiary ledgers contain the following information: (1) accounts receivable—B. Hannigan $2,500, I. Kirk $7,500, and T. Hodges $5,000; (2) accounts payable—T. Igawa $12,000, D. Danford $18,000, and K. Thayer $13,000. The cost of all merchandise sold was 60% of the sales price.
The transactions for January 2015 are as follows.
| Jan. | 3 | Sell merchandise to M. Ziesmer $8,000, terms 2/10, n/30. |
| 5 | Purchase merchandise from E. Pheatt $2,000, terms 2/10, n/30. | |
| 7 | Receive a check from T. Hodges $3,500. | |
| 11 | Pay freight on merchandise purchased $300. | |
| 12 | Pay rent of $1,000 for January. | |
| 13 | Receive payment in full from M. Ziesmer. | |
| 14 | Post all entries to the subsidiary ledgers. Issued credit of $300 to B. Hannigan for returned merchandise. | |
| 15 | Send K. Thayer a check for $12,870 in full payment of account, discount $130. | |
| 17 | Purchase merchandise from G. Roland $1,600, terms 2/10, n/30. | |
| 18 | Pay sales salaries of $2,800 and office salaries $2,000. | |
| 20 | Give D. Danford a 60-day note for $18,000 in full payment of account payable. | |
| 23 | Total cash sales amount to $9,100. | |
| 24 | Post all entries to the subsidiary ledgers. Sell merchandise on account to I. Kirk $7,400, terms 1/10, n/30. | |
| 27 | Send E. Pheatt a check for $950. | |
| 29 | Receive payment on a note of $40,000 from B. Stout. | |
| 30 | Post all entries to the subsidiary ledgers. Return merchandise of $300 to G Roland for credit. |
Instructions
(a) Open general and subsidiary ledger accounts for the following.
| 101 Cash | 301 Owner's Capital |
| 112 Accounts Receivable | 401 Sales Revenue |
| 115 Notes Receivable | 412 Sales Returns and Allowances |
| 120 Inventory | 414 Sales Discounts |
| 157 Equipment | 505 Cost of Goods Sold |
| 158 Accumulated Depreciation—Equipment | 726 Salaries and Wages Expense |
| 200 Notes Payable | 729 Rent Expense |
| 201 Accounts Payable |
(b) Sales journal $15,400 Purchases journal $3,600 Cash receipts journal (balancing) $60,600 Cash payments journal (balancing) $20,050
(b) Record the January transactions in a sales journal, a single-column purchases journal, a cash receipts journal (see Illustration 7-9), a cash payments journal (see Illustration 7-16), and a general journal.
(c) Post the appropriate amounts to the general ledger.
(d) Prepare a trial balance at January 31, 2015.
(d) Totals $144,800
(e) Determine whether the subsidiary ledgers agree with controlling accounts in the general ledger.
(e) Accounts Receivable $18,600
Accounts Payable $14,350
PROBLEMS: SET B
P7-1B Belt Company's chart of accounts includes the following selected accounts.
| 101 Cash | 401 Sales Revenue |
| 112 Accounts Receivable | 414 Sales Discounts |
| 120 Inventory | 505 Cost of Goods Sold |
| 301 Owner's Capital |
Journalize transactions in cash receipts journal; post to control account and subsidiary ledger.
(LO 2, 3)
On June 1, the accounts receivable ledger of Belt Company showed the following balances: Suppan & Son $3,000, Guthrie Co. $2,800, Quentin Bros. $2,400, and Hinshaw Co. $2,000. The June transactions involving the receipt of cash were as follows.
Instructions
(a) Balancing totals $40,850
(a) Journalize the transactions above in a six-column cash receipts journal with columns for Cash Dr., Sales Discounts Dr., Accounts Receivable Cr., Sales Revenue Cr., Other Accounts Cr., and Cost of Goods Sold Dr./Inventory Cr. Foot and cross-foot the journal.
(b) Insert the beginning balances in the Accounts Receivable control and subsidiary accounts, and post the June transactions to these accounts.
(c) Prove the agreement of the control account and subsidiary account balances.
(c) Accounts Receivable $0
Journalize transactions in cash payments journal; post to the general and subsidiary ledgers.
(LO 2, 3)
P7-2B Schellhammer Company's chart of accounts includes the following selected accounts.
| 101 Cash | 157 Equipment |
| 120 Inventory | 201 Accounts Payable |
| 130 Prepaid Insurance | 306 Owner's Drawings |
On November 1, the accounts payable ledger of Schellhammer Company showed the following balances: S. Gentry $4,000, D. Montero $2,100, R. Trumbo $800, and W. Olivo $1,800. The November transactions involving the payment of cash were as follows.
| Nov. | 1 | Purchased merchandise, check no. 11, $950. |
| 3 | Purchased store equipment, check no. 12, $1,400. | |
| 5 | Paid W. Olivo balance due of $1,800, less 1% discount, check no. 13, $1,782. | |
| 11 | Purchased merchandise, check no. 14, $1,700. | |
| 15 | Paid R. Trumbo balance due of $800, less 3% discount, check no. 15, $776. | |
| 16 | M. Richey, the owner, withdrew $400 cash for own use, check no. 16. | |
| 19 | Paid D. Montero in full for invoice no. 1245, $2,100 less 2% discount, check no. 17, $2,058. | |
| 25 | Paid premium due on one-year insurance policy, check no. 18, $2,400. | |
| 30 | Paid S. Gentry in full for invoice no. 832, $2,700, check no. 19. |
Instructions
(a) Journalize the transactions above in a four-column cash payments journal with columns for Other Accounts Dr., Accounts Payable Dr., Inventory Cr., and Cash Cr. Foot and cross-foot the journal.
(a) Balancing totals $14,250
(b) Insert the beginning balances in the Accounts Payable control and subsidiary accounts, and post the November transactions to these accounts.
(c) Prove the agreement of the control account and the subsidiary account balances.
(c) Accounts Payable $1,300
Journalize transactions in multi-column purchases journal; post to the general and subsidiary ledgers.
(LO 2, 3)
P7-3B The chart of accounts of Henry Company includes the following selected accounts.
| 112 Accounts Receivable | 401 Sales Revenue |
| 120 Inventory | 412 Sales Returns and Allowances |
| 126 Supplies | 505 Cost of Goods Sold |
| 157 Equipment | 610 Advertising Expense |
| 201 Accounts Payable |
In May, the following selected transactions were completed. All purchases and sales were on account except as indicated. The cost of all merchandise sold was 60% of the sales price.
| May | 2 | Purchased merchandise from Berkman Company $5,000. |
| 3 | Received freight bill from Fast Freight on Berkman purchase $250. | |
| 5 | Sales were made to Persinger Company $1,300, Fehr Bros. $2,300, and Mount Company $1,000. | |
| 8 | Purchased merchandise from Kayser Company $5,400 and Neufeld Company $3,000. | |
| 10 | Received credit on merchandise returned to Neufeld Company $350. | |
| 15 | Purchased supplies from Rabel's Supplies $600. | |
| 16 | Purchased merchandise from Berkman Company $3,100, and Kayser Company $4,200. | |
| 17 | Returned supplies to Rabel's Supplies, receiving credit $70. (Hint: Credit Supplies.) | |
| 18 | Received freight bills on May 16 purchases from Fast Freight $325. | |
| 20 | Returned merchandise to Berkman Company receiving credit $200. | |
| 23 | Made sales to Fehr Bros. $1,600 and to Mount Company $2,500. | |
| 25 | Received bill for advertising from Mock Advertising $620. | |
| 26 | Granted allowance to Mount Company for merchandise damaged in shipment $140. | |
| 28 | Purchased equipment from Rabel's Supplies $400. |
(a) Journalize the transactions above in a purchases journal, a sales journal, and a general journal. The purchases journal should have the following column headings: Date, Account Credited (Debited), Ref., Accounts Payable Cr., Inventory Dr., and Other Accounts Dr.
(a) Purchases journal— Accounts Payable, Cr. $22,895 Sales journal—Sales Revenue total $8,700
(b) Post to both the general and subsidiary ledger accounts. (Assume that all accounts have zero beginning balances.)
(c) Accounts Receivable $8,560
Accounts Payable $22,275
(c) Prove the agreement of the control and subsidiary accounts.
Journalize transactions in special journals.
(LO 2, 3)
P7-4B Selected accounts from the chart of accounts of Conley Company are shown below.
| 101 Cash | 201 Accounts Payable |
| 112 Accounts Receivable | 401 Sales Revenue |
| 120 Inventory | 414 Sales Discounts |
| 126 Supplies | 505 Cost of Goods Sold |
| 140 Land | 610 Advertising Expense |
| 145 Building |
The cost of all merchandise sold was 65% of the sales price. During October, Conley Company completed the following transactions.
| Oct. | 2 | Purchased merchandise on account from Kent Company $15,000. |
| 4 | Sold merchandise on account to Doumit Co. $5,600. Invoice no. 204, terms 2/10, n/30. | |
| 5 | Purchased supplies for cash $60. | |
| 7 | Made cash sales for the week totaling $6,700. | |
| 9 | Paid in full the amount owed Kent Company less a 2% discount. | |
| 10 | Purchased merchandise on account from Wrigley Corp. $2,600. | |
| 12 | Received payment from Doumit Co. for invoice no. 204. | |
| 13 | Returned $150 worth of damaged goods purchased on account from Wrigley Corp. on October 10. | |
| 14 | Made cash sales for the week totaling $6,000. | |
| 16 | Sold a parcel of land for $20,000 cash, the land's original cost. | |
| 17 | Sold merchandise on account to JR's Warehouse $4,900, invoice no. 205, terms 2/10, n/30. | |
| 18 | Purchased merchandise for cash $1,600. | |
| 21 | Made cash sales for the week totaling $6,000. | |
| 23 | Paid in full the amount owed Wrigley Corp. for the goods kept (no discount). | |
| 25 | Purchased supplies on account from Francisco Co. $190. | |
| 25 | Sold merchandise on account to Fryer Corp. $3,800, invoice no. 206, terms 2/10, n/30. | |
| 25 | Received payment from JR's Warehouse for invoice no. 205. | |
| 26 | Purchased for cash a small parcel of land and a building on the land to use as a storage facility. The total cost of $26,000 was allocated $16,000 to the land and $10,000 to the building. | |
| 27 | Purchased merchandise on account from Marte Co. $6,200. | |
| 28 | Made cash sales for the week totaling $5,500. | |
| 30 | Purchased merchandise on account from Kent Company $10,000. | |
| 30 | Paid advertising bill for the month from the Gazette, $290. | |
| 30 | Sold merchandise on account to JR's Warehouse $3,400, invoice no. 207, terms 2/10, n/30. |
Conley Company uses the following journals.
1. Sales journal.
2. Single-column purchases journal.
3. Cash receipts journal with columns for Cash Dr., Sales Discounts Dr., Accounts Receivable Cr., Sales Revenue Cr., Other Accounts Cr., and Cost of Goods Sold Dr./Inventory Cr.
4. Cash payments journal with columns for Other Accounts Dr., Accounts Payable Dr., Inventory Cr., and Cash Cr.
5. General journal.
(b) Sales journal $17,700 Purchases journal $33,800
Cash receipts journal—Cash, Dr. $54,490
Cash payments journal, Cash, Cr. $45,100
Instructions
Using the selected accounts provided:
(a) Record the October transactions in the appropriate journals.
(b) Foot and cross-foot all special journals.
(c) Show how postings would be made by placing ledger account numbers and check marks as needed in the journals. (Actual posting to ledger accounts is not required.)
P7-5B Presented below are the sales and cash receipts journals for Lowery Co. for its first month of operations.
Journalize in purchases and cash payments journals; post; prepare a trial balance; prove control to subsidiary; prepare adjusting entries; prepare an adjusted trial balance.
(LO 2, 3)
In addition, the following transactions have not been journalized for February 2014.
| Feb. | 2 | Purchased merchandise on account from B. Setterstrom for $5,600, terms 2/10, n/30. |
| 7 | Purchased merchandise on account from A. Dambro for $23,000, terms 1/10, n/30. | |
| 9 | Paid cash of $980 for purchase of supplies. | |
| 12 | Paid $5,488 to B. Setterstrom in payment for $5,600 invoice, less 2% discount. | |
| 15 | Purchased equipment for $4,500 cash. | |
| 16 | Purchased merchandise on account from D. Budke $1,900, terms 2/10, n/30. | |
| 17 | Paid $22,770 to A. Dambro in payment of $23,000 invoice, less 1% discount. | |
| 20 | S. Lowery withdrew cash of $800 from the business for personal use. | |
| 21 | Purchased merchandise on account from Eberle Company for $8,000, terms 1/10, n/30. | |
| 28 | Paid $1,900 to D. Budke in payment of $1,900 invoice. |
Instructions
(a) Open the following accounts in the general ledger.
| 101 Cash | 301 Owner's Capital |
| 112 Accounts Receivable | 306 Owner's Drawings |
| 120 Inventory | 401 Sales Revenue |
| 126 Supplies | 414 Sales Discounts |
| 157 Equipment | 505 Cost of Goods Sold |
| 158 Accumulated Depreciation—Equipment | 631 Supplies Expense |
| 201 Accounts Payable | 711 Depreciation Expense |
(b) Journalize the transactions that have not been journalized in a one-column purchases journal and the cash payments journal (see Illustration 7-16).
(b)Purchases journal total $38,500
Cash payments journal— Cash, Cr. $36,438
(c) Post to the accounts receivable and accounts payable subsidiary ledgers. Follow the sequence of transactions as shown in the problem.
(d) Post the individual entries and totals to the general ledger.
(e) Prepare a trial balance at February 28, 2014.
(e) Totals $56,500
(f) Determine that the subsidiary ledgers agree with the control accounts in the general ledger.
(f) Accounts Receivable $12,000
Accounts Payable $8,000
(g) The following adjustments at the end of February are necessary.
(1) A count of supplies indicates that $200 is still on hand.
(2) Depreciation on equipment for February is $150.
Prepare the adjusting entries and then post the adjusting entries to the general ledger.
(h) Prepare an adjusted trial balance at February 28, 2014.
(h) Totals $56,650
PROBLEMS: SET C
Visit the book's companion website, at www.wiley.com/college/weygandt, and choose the Student Companion site to access Problem Set C.
COMPREHENSIVE PROBLEM: Chapters 3 TO 7
CP7 McBride Company has the following opening account balances in its general and subsidiary ledgers on January 1 and uses the periodic inventory system. All accounts have normal debit and credit balances.
In addition, the following transactions have not been journalized for January 2014.
Instructions
(a) Record the January transactions in the appropriate journal—sales, purchases, cash receipts, cash payments, and general.
(b) Post the journals to the general and subsidiary ledgers. Add and number new accounts in an orderly fashion as needed.
(c) Prepare a trial balance at January 31, 2014, using a worksheet. Complete the work-sheet using the following additional information.
(1) Supplies at January 31 total $700.
(2) Insurance coverage expires on October 31, 2014.
(3) Annual depreciation on the equipment is $1,500.
(4) Interest of $30 has accrued on the note payable.
(5) Inventory at January 31 is $15,000.
(c) Trial balance totals $200,320;
Adj. T/B totals $200,475
(d) Prepare a multiple-step income statement and an owner's equity statement for January and a classified balance sheet at the end of January.
(d) Net income $12,185 Total assets $130,815
(e) Prepare and post the adjusting and closing entries.
(f) Prepare a post-closing trial balance, and determine whether the subsidiary ledgers agree with the control accounts in the general ledger.
(f) Post-closing T/B totals $132,440
Broadening Your Perspective
Financial Reporting and Analysis
Financial Reporting Problem—Mini Practice Set
BYP7-1 Jeter Co. uses a perpetual inventory system and both an accounts receivable and an accounts payable subsidiary ledger. Balances related to both the general ledger and the subsidiary ledger for Jeter are indicated in the working papers. Presented on the next page are a series of transactions for Jeter Co. for the month of January. Credit sales terms are 2/10, n/30. The cost of all merchandise sold was 60% of the sales price.
Instructions
(a) Record the January transactions in a sales journal, a single-column purchases journal, a cash receipts journal as shown on page 340, a cash payments journal as shown on page 346, and a two-column general journal.
(b) Post the journals to the general ledger.
(c) Prepare a trial balance at January 31, 2014, in the trial balance columns of the worksheet. Complete the worksheet using the following additional information.
(1) Office supplies at January 31 total $900.
(2) Insurance coverage expires on October 31, 2014.
(3) Annual depreciation on the equipment is $1,500.
(4) Interest of $50 has accrued on the note payable.
(d) Prepare a multiple-step income statement and an owner's equity statement for January and a classified balance sheet at the end of January.
(e) Prepare and post adjusting and closing entries.
(f) Prepare a post-closing trial balance, and determine whether the subsidiary ledgers agree with the control accounts in the general ledger.
Real-World Focus
BYP7-2 Intuit provides some of the leading accounting software packages. Information related to its products is found at its website.
Address: http://quickbooks.intuit.com or go to www.wiley.com/college/weygandt
Instructions
Look under product and services for the product QuickBooks Premier for Accountants. Be ready to discuss its new features with the class.
Decision-Making Across the Organization
BYP7-3 Ermler & Trump is a wholesaler of small appliances and parts. Ermler & Trump is operated by two owners, Jack Ermler and Andrea Trump. In addition, the company has one employee, a repair specialist, who is on a fixed salary. Revenues are earned through the sale of appliances to retailers (approximately 75% of total revenues), appliance parts to do-it-yourselfers (10%), and the repair of appliances brought to the store (15%). Appliance sales are made on both a credit and cash basis. Customers are billed on prenumbered sales invoices. Credit terms are always net/30 days. All parts sales and repair work are cash only.
Merchandise is purchased on account from the manufacturers of both the appliances and the parts. Practically all suppliers offer cash discounts for prompt payments, and it is company policy to take all discounts. Most cash payments are made by check. Checks are most frequently issued to suppliers, to trucking companies for freight on merchandise purchases, and to newspapers, radio, and TV stations for advertising. All advertising bills are paid as received. Jack and Andrea each make a monthly drawing in cash for personal living expenses. The salaried repairman is paid twice monthly. Ermler & Trump currently has a manual accounting system.
Instructions
With the class divided into groups, answer the following.
(a) Identify the special journals that Ermler & Trump should have in its manual accounting system. List the column headings appropriate for each of the special journals.
(b) What control and subsidiary accounts should be included in Ermler & Trump's manual accounting system? Why?
Communication Activity
BYP7-4 Jill Locey, a classmate, has a part-time bookkeeping job. She is concerned about the inefficiencies in journalizing and posting transactions. Ben Newell is the owner of the company where Jill works. In response to numerous complaints from Jill and others, Ben hired two additional bookkeepers a month ago. However, the inefficiencies have continued at an even higher rate. The accounting information system for the company has only a general journal and a general ledger. Ben refuses to install a computerized accounting system.
Instructions
Now that Jill is an expert in manual accounting information systems, she decides to send a letter to Ben Newell explaining (1) why the additional personnel did not help and (2) what changes should be made to improve the efficiency of the accounting department. Write the letter that you think Jill should send.
Ethics Case
BYP7-5 Wiemers Products Company operates three divisions, each with its own manufacturing plant and marketing/sales force. The corporate headquarters and central accounting office are in Wiemers, and the plants are in Freeport, Rockport, and Bayport, all within 50 miles of Wiemers. Corporate management treats each division as an independent profit center and encourages competition among them. They each have similar but different product lines. As a competitive incentive, bonuses are awarded each year to the employees of the fastest-growing and most-profitable division.
Indy Grover is the manager of Wiemers's centralized computerized accounting operation that enters the sales transactions and maintains the accounts receivable for all three divisions. Indy came up in the accounting ranks from the Bayport division where his wife, several relatives, and many friends still work.
As sales documents are entered into the computer, the originating division is identified by code. Most sales documents (95%) are coded, but some (5%) are not coded or are coded incorrectly. As the manager, Indy has instructed the data-entry personnel to assign the Bayport code to all uncoded and incorrectly coded sales documents. This is done, he says, “in order to expedite processing and to keep the computer files current since they are updated daily.” All receivables and cash collections for all three divisions are handled by Wiemers as one subsidiary accounts receivable ledger.
(a) Who are the stakeholders in this situation?
(b) What are the ethical issues in this case?
(c) How might the system be improved to prevent this situation?
All About You
BYP7-6 In this chapter, you learned about a basic manual accounting information system. Computerized accounting systems range from the very basic and inexpensive to the very elaborate and expensive. However, even the most sophisticated systems are based on the fundamental structures and relationships that you learned in this chapter.
Instructions
Go to the book's companion site for this textbook, www.wiley.com/college/weygandt, and review the demonstration that is provided for the general ledger software package that is used with this textbook. Prepare a brief explanation of how the general ledger system works—that is, how it is used, and what information it provides.
Answers to Chapter Questions
Answers to Insight and Accounting Across the Organization Questions
p. 332 Curbing Fraudulent Activity with Software Q: Why might this software help reduce fraudulent activity by employees? A: By pinpointing who used the accounting system and when they used it, the software can hold employees more accountable for their actions. Companies hope that this will reduce efforts by employees to enter false accounting entries, change the dates of transactions, or create unauthorized expenditures. If employees do engage in these activities, there will be significant evidence of their activities.
p. 335 “I'm John Smith, a.k.a. 13695071642” Q: Why use numbers to identify names in a computerized system? A: Computerized systems process numbers faster than letters. Also, letters sometimes cause problems because you may have two people with the same name. Computerized systems avoid this problem by giving different customers, including those with the same names, different account numbers.
Answers to Self-Test Questions
1. d 2. c 3. a 4. c 5. c ($5,000 + $7,000 + $6,000 + $4,500 + $8,500 − $11,500 − $3,000) 6. c 7. d 8. c 9. a 10. d 11. c 12. d 13. b 14. c 15. c
A Look at IFRS
As discussed in Chapter 1, IFRS is growing in acceptance around the world. For example, recent statistics indicate a substantial number of the Global Fortune 500 companies use IFRS. And the chair of the IASB predicts that IFRS adoption will grow from its current level of 115 countries to nearly 150 countries in the near future.
When countries accept IFRS for use as accepted accounting policies, companies need guidance to ensure that their first IFRS financial statements contain high-quality information. Specifically, IFRS 1 requires that information in a company's first IFRS statements (1) be transparent, (2) provide a suitable starting point, and (3) have a cost that does not exceed the benefits.
Key Points
- The basic concepts related to an accounting information system are the same under GAAP and IFRS.
- The use of subsidiary ledgers and control accounts, as well as the system used for recording transactions, are the same under GAAP and IFRS.
- Many companies will be going through a substantial conversion process to switch from their current reporting standards to IFRS.
- The overriding principle in converting to IFRS is full retrospective application of IFRS. Retrospective application—recasting prior financial statements on the basis of IFRS—provides financial statement users with comparable information.
- As indicated, the objective of the conversion process is to present a set of IFRS statements as if the company always reported under IFRS. To achieve this objective, a company follows these steps.
1. Identify the timing of its first IFRS statements.
2. Prepare an opening balance sheet at the date of transition to IFRS.
3. Select accounting principles that comply with IFRS, and apply these principles retrospectively.
4. Make extensive disclosures to explain the transition to IFRS.
- Once a company decides to convert to IFRS, it must decide on the transition date and the reporting date. The transition date is the beginning of the earliest period for which full comparative IFRS information is presented. The reporting date is the closing balance sheet date for the first IFRS financial statements.
- To illustrate, assume that FirstChoice Company plans to provide its first IFRS statements for the year ended December 31, 2014. FirstChoice decides to present comparative information for one year only. Therefore, its date of transition to IFRS is January 1, 2013, and its reporting date is December 31, 2014.
- The timeline for first-time adoption is presented in the following graphic.
The graphic shows the following.
1. The opening IFRS statement of financial position for FirstChoice on January 1, 2013, serves as the starting point (date of transition) for the company's accounting under IFRS.
2. The first full IFRS statements are shown for FirstChoice for December 31, 2014. In other words, a minimum of two years of IFRS statements must be presented before a conversion to IFRS occurs. As a result, FirstChoice must prepare at least one year of comparative financial statements for 2013 using IFRS.
3. FirstChoice presents financial statements in accordance with U.S. GAAP annually to December 31, 2013.
Following this conversion process, FirstChoice provides users of the financial statements with comparable IFRS statements for 2013 and 2014.
- Upon first-time adoption of IFRS, a company must present at least one year of comparative information under IFRS.
Looking to the Future
The basic recording process shown in this textbook is followed by companies around the globe. It is unlikely to change in the future. The definitional structure of assets, liabilities, equity, revenues, and expenses may change over time as the IASB and FASB evaluate their overall conceptual framework for establishing accounting standards. In addition, high-quality international accounting requires both high-quality accounting standards and high-quality auditing. Similar to the convergence of U.S. GAAP and IFRS, there is a movement to improve international auditing standards. The International Auditing and Assurance Standards Board (IAASB) functions as an independent standard-setting body. It works to establish high-quality auditing and assurance and quality-control standards throughout the world. Whether the IAASB adopts internal control provisions similar to those in SOX remains to be seen. You can follow developments in the international audit arena at http://www.ifac.org/laasb/.
IFRS Practice
IFRS Self-Test Questions
1. Information in a company's first IFRS statements must:
(a) have a cost that does not exceed the benefits.
(b) be transparent.
(c) provide a suitable starting point.
(d) All the above.
2. Indicate which of these statements is false.
(a) The use of subsidiary ledgers is the same under IFRS and GAAP.
(b) GAAP and IFRS use the same accounting principles.
(c) The use of special journals is the same under IFRS and GAAP.
(d) At conversion, companies should retrospectively adjust the financial statements presented following IFRS.
3. The transition date is the date:
(a) when a company no longer reports under its national standards.
(b) when the company issues its most recent financial statement under IFRS.
(c) three years prior to the reporting date.
(d) None of the above.
4. When converting to IFRS, a company must:
(a) recast previously issued financial statements in accordance with IFRS.
(b) use U.S. GAAP in the reporting period but subsequently use IFRS.
(c) prepare at least three years of comparative statements.
(d) use U.S. GAAP in the transition year but IFRS in the reporting year.
5. The purpose of presenting comparative information in the transition to IFRS is:
(a) to ensure that the information is reliable.
(b) in accordance with the Sarbanes-Oxley Act.
(c) to provide users of the financial statements with information on U.S. GAAP in one period and IFRS in the other period.
(d) to provide users of the financial statements with information on IFRS for at least two periods.
IFRS Exercises
IFRS7-1 How is the date of transition and the date of reporting determined in first-time adoption of IFRS?
IFRS7-2 What are the characteristics of high-quality information in a company's first IFRS financial statements?
IFRS7-3 What are the steps to be completed in preparing the opening IFRS statement of financial position?
IFRS7-4 Becker Ltd. is planning to adopt IFRS and prepare its first IFRS financial statements at December 31, 2014. What is the date of Becker's opening balance sheet assuming one year of comparative information? What periods will be covered in Becker's first IFRS financial statements?
IFRS7-5 Stengel plc is preparing its opening IFRS balance sheet on January 1, 2014. Under its previous GAAP, Stengel used the LIFO inventory method. Under LIFO, its inventory is reported at £250,000 (in British pounds). Under FIFO, which Stengel will use upon adoption of IFRS, the inventory is valued at £265,000. Explain what Stengel must do.
Answers to IFRS Self-Test Questions
1. d 2. b 3. d 4. a 5. d
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