Accounting Systems

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5
Accounting Systems
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After studying this chapter, you should be able
to

1. Define an accounting system and describe its
   implementation.

1. Journalize and post transactions in a manual
   accounting system that uses subsidiary ledgers
   and special journals.

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After studying this chapter, you should be able
to

1. Describe and give examples of additional
   subsidiary ledgers and modified special journals.

1. Apply computerized accounting to the revenue and
   collection cycle.
2. Describe the basic features of e-commerce.

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Objective 1
Define an accounting system and describe its
implementation.
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5-1
Accounting Systems Growth Process
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Three Step Process as a Business Grows and Changes
Step 1 Analysis

• Identify the needs of those who use the
  businesss financial information.
• Determine how the system should provide this
  information.

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Step 2 Design

• The system is designed so that it meets the
  users needs.

Step 3 Implementation

• The system is implemented and used.

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Feedback
Once a system has been implemented, feedback, or
input from the users of the information can be
used to analyze and improve the system.
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Internal Controls
Internal controls are policies and procedures
that protect assets from misuse, ensure that
business information is accurate, and ensure that
laws and regulations are being followed.
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Processing Methods
Processing methods are the means by which the
system collects, summarizes, and reports
accounting information. These methods may be
either manual or computerized.
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Objective 2
Journalize and post transactions in a manual
accounting system that uses subsidiary ledgers
and special journals.
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A large number of individual accounts with a
common characteristic can be grouped together in
a separate ledger called a subsidiary ledger.
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The primary ledger, which contains all of the
balance sheet and income statement accounts, is
called a general ledger.
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Each subsidiary ledger is represented in the
general ledger by a summarizing account, called a
controlling account.
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The individual customers accounts are arranged
in alphabetical order in a subsidiary ledger
called the accounts receivable subsidiary ledger
or customers ledger.
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The individual creditors accounts are arranged
in alphabetical order in a subsidiary ledger
called the accounts payable subsidiary ledger, or
creditors ledger.
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General Ledger and Subsidiary Ledgers
General Ledger
Cash 11
Accts. Rec. 12
Supplies 14
Accts. Pay. 21
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Special Journals
SELLING
Providing services on account
Receipt of cash from any source
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Special Journals
Purchase of items on account
Payment of cash for any purpose
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Special Journals
The all-purpose two-column journal, called the
general journal or simply the journal can be used
for entries that do not fit into any of the
special journals.
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The revenue journal is used for recording fees
earned on account. Cash fees earned would be
recorded in the cash receipts journal.
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Posting the Revenue Journal
6 616 RapZone 1 7 5 0 00 18 617 Web
Cantina 2 6 5 0 00 27 618 Accessories by
Claire 3 0 0 0 00
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6 616 RapZone 1 7 5 0 00 18 617 Web
Cantina 2 6 5 0 00 27 618 Accessories by
Claire 3 0 0 0 00
Accounts Receivable Subsidiary Ledger
Accessories by Claire
Date Item P.R. Debit Credit Balance

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6 616 RapZone 1 7 5 0 00 18 617 Web
Cantina 2 6 5 0 00 27 618 Accessories by
Claire 3 0 0 0 00
Accounts Receivable Subsidiary Ledger
Accessories by Claire
Date Item P.R. Debit Credit Balance

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6 616 RapZone 1 7 5 0 00 18 617 Web
Cantina 2 6 5 0 00 27 618 Accessories by
Claire 3 0 0 0 00
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Exhibit 2 Revenue Journal
6 616 RapZone 1 7 5 0 00 18 617 Web
Cantina 2 6 5 0 00 27 618 Accessories by
Claire 3 0 0 0 00
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The debit total is posted from the revenue
journal to Accounts Receivable in the general
ledger.
Accounts Receivable
ACCOUNT
Account No. 12
Balance
Post. Ref.
Dr.
Cr.
Date
Item
Cr.
Dr.
2008
Mar. 1 Balance 3 400 00
31
9 600 00
13 000 00
R35
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6 616 RapZone 1 7 5 0 00 18 617 Web
Cantina 2 6 5 0 00 27 618 Accessories by
Claire 3 0 0 0 00
(12)
Indicates a debit posting of 9,600 to
Accounts Receivable (General Ledger Account 12)
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The credit total is posted from the revenue
journal to Fees Earned in the general ledger.
Fees Earned
ACCOUNT
Account No. 41
Balance
Post. Ref.
Dr.
Cr.
Date
Item
Cr.
Dr.
2008
Mar. 31
9 600 00
R35
9 600 00
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6 616 RapZone 1 7 5 0 00 18 617 Web
Cantina 2 6 5 0 00 27 618 Accessories by
Claire 3 0 0 0 00
(41)
(12)
Indicates a credit posting of 9,600 to Fees
Earned (General Ledger Account 41)
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The following revenue transactions occurred
during December
Dec. 5 Invoice No. 302 to Butler Company for
services provided on account, 5,000. Dec.
9 Invoice No. 303 to JoJo Enterprises for
services provided on account, 2,100. Dec.
15 Invoice No. 304 to Double D, Inc. for services
provided on account, 3,250.
Record these transactions in a revenue journal as
illustrated in Exhibit 2.
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Dec. 5 302 Butler Company 5 0 0 0 00
9 303 JoJo Enterprises 2 1 0 0
00 15 304 Double D Inc. 3 2 5 0 00
For Practice PE 5-1A, PE 5-1B
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Cash Receipts Journal
All transactions that involve the receipt of cash
are recorded in a cash receipts journal. Every
entry recorded in the cash receipts journal will
involve a debit to the Cash Dr. column.
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Cash Receipts Journal and Postings
42
GENERAL LEDGER
ACCOUNT Rent Revenue Acct. No.
42
Date Item P.R. Debit Credit Cr. Bal.
34
CR14
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CASH RECEIPTS JOURNAL
Page 14
Other Accounts Post Accounts
Receivable Cash Date Account Credited
Ref. Cr. Cr. Dr.
2008
42
Mar. 1 Rent Revenue 400 400
19 Web Cantina 3,400 3,400
28 Accessories by Claire 2,200 2,200
30 RapZone 1,750 1,750
Accounts Receivable Subsidiary Ledger
Web Cantina
Date Item P.R. Debit Credit Balance

35
CR14
3,400
2,650
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After all journalizing and posting for the month
to individual accounts is complete, the columns
are totaled.
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Posted Cash Receipts Journal
CASH RECEIPTS JOURNAL
Page 14
Other Accounts Post Accounts
Receivable Cash Date Account Credited
Ref. Cr. Cr. Dr.
2008
42
Mar. 1 Rent Revenue 400 400
19 Web Cantina 3,400 3,400
28 Accessories by Claire 2,200 2,200
30 RapZone 1,750 1,750
400 7,350 7,750
( )
(12)
(11)
A checkmark indicates that the items in this
column are posted individually.
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After posting, the total amount of the accounts
in the accounts receivable subsidiary ledger
should match the balance in the general ledgers
Accounts Receivable account.
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Accounts Receivable(Controlling)
Balance, March 1, 2008 3,400 Total debits (from
revenue journal) 9,600 Total credits (from cash
receipts journal) (7,350) Balance, March 31,
2008 5,650
NetSolutions Customer Balance Summary Report,
March 31, 2008
Accessories By Claire 3,000 RapZone 0 Web
Cantina 2,650 Total accounts receivable 5,650
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The debits and credits from two transactions are
presented in the following customer account
NAME Sweet Tooth Confections
ADDRESS 1212 Lombard St.
Date Item P.R. Dr. Cr. Balance
July 1 Bal. 625 7 Inv. 35 R12 86 711 31 I
nv. 31 CR4 122 589
Describe each transaction and the source of each
posting.
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July 7 Provided 86 services on account to Sweet
Tooth Confections, itemized on invoice 35.
Amount posted from page 12 of the revenue
journal. July 31 Cash of 122 was collected from
Sweet Tooth Confections (invoice 31). Amount
posted from page 4 of the cash receipts journal.
For Practice PE 5-2A, PE 5-2B
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The purchases journal is designed for recording
all purchases on account.
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Journalizing in the Purchases Journal
PURCHASES JOURNAL
Page 11
Accts. Other Post Payable Supplies Accounts
Post Date Account Credited Ref. Cr. Dr. Dr. Ref. A
mount
7 Donnelly Supplies 420 420 12 Jewett
Business Sys. 2,800 Off. Equip. 2,800 19 Donnel
ly Supplies 1,450 1,450 27 Howard
Supplies 960 960
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Note that the March 12 purchase of office
equipment for 2,800 is recorded as a debit in
the Other Accounts Dr. column. Also note that
the account title is written in for proper
posting.
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PURCHASES JOURNAL
Page 11
Accts. Other Post Payable Supplies Accounts
Post Date Account Credited Ref. Cr. Dr. Dr. Ref. A
mount
7 Donnelly Supplies 420 420 12 Jewett
Business Sys. 2,800 Off. Equip. 2,800 19 Donnel
ly Supplies 1,450 1,450 27 Howard
Supplies 960 960
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Posting the Purchases Journal
PURCHASES JOURNAL
Page 11
Accts. Other Post Payable Supplies Accounts
Post Date Account Credited Ref. Cr. Dr. Dr. Ref. A
mount
Accounts Payable Subsidiary Ledger
Howard Supplies
Date Item P.R. Dr. Cr. Balance

P11
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PURCHASES JOURNAL
Page 11
Accts. Other Post Payable Supplies Accounts
Post Date Account Credited Ref. Cr. Dr. Dr. Ref. A
mount
Office Equipment (Account 18 in the general
ledger) is debited for 2,800.
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At the end of March, all columns are totaled and
equality of debits and credits is verified. Then
the total amount in the Accounts Payable Cr.
and Supplies Dr. columns are posted. Because
Office Equipment was posted earlier, the 2,800
total is not posted.
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7 Donnelly Supplies 420 420 12 Jewett
Business Sys. 2,800 Off. Equip. 18 2,800 19 Donn
elly Supplies 1,450 1,450 27 Howard
Supplies 960 960 31 6,230 3,430 2,800 (
) ( ) ( )
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GENERAL LEDGER
ACCOUNT Accounts Payable No. 21
Date Item P.R. Debit Credit Balance
49
2008
Mar. 1 Bal 1,230
6,230
7,460
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P11
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Accts. Other Post Payable
Supplies Accounts Post Date Account
Credited Ref. Cr. Dr. Dr. Ref. Amount
7 Donnelly Supplies 420 420 12 Jewett
Business Sys. 2,800 Off. Equip. 18 2,800 19 Donn
elly Supplies 1,450 1,450 27 Howard
Supplies 960 960 31 6,230 3,430 2,800 (
) ( ) ( )
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GENERAL LEDGER
ACCOUNT Supplies
No. 14
Date Item P.R. Debit Credit Balance
50
2008
Mar. 1 Bal 2,500
3,430
5,930
31
P11
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The following purchase transactions occurred
during October for Helping Hand Cleaners Oct.
11 Purchased cleaning supplies for 235, on
account, from General Supplies. 19 Purchased
cleaning supplies for 110, on account, from
Hubble Supplies. 24 Purchased office equipment
for 850, on account, from Office
Warehouse. Record these transactions in a
purchases journal as illustrated at the top of
Exhibit 5.
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PURCHASES JOURNAL
Accts. Other Post Payable Supplies Accounts
Post Date Account Credited Ref. Cr. Dr. Dr. Ref. A
mount
Oct. 11 General Supplies 235 235
19 Hubble Supplies 110 110 24 Office
Warehouse 850 Off. Equip. 18 850
For Practice PE 5-3A, PE 5-3B
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Cash Payments Journal
All transactions involving a credit to Cash are
recorded in the cash payments journal.
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On March 2, issued Check 150 for rent of 1,600.
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15 151 Grayco Supplies 1,230 1,230
On March 15, issued Check 151 to Grayco Supplies
on account, 1,230.
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Lets post to the accounts payable subsidiary
ledger at this time to keep the creditors
account current.
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CASH PAYMENTS JOURNAL
PAGE 7
Other Accounts Ck. Post Accounts
Payable Cash Date No. Account Debited Ref. Dr. Dr
. Cr
?
15 151 Grayco Supplies 1,230 1,230
2008
---
1,230
15
CP7
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?
15 151 Grayco Supplies 1,230 1,230
21 152 Jewett Business Sys. 2,800 2,800 22 153
Donnelly Supplies 420 420 30 154 Utilities
Expense 1,050 1,050 31 155 Howard
Supplies 600 600
Journalize the remainder of Marchs cash
disbursements.
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?
?
15 151 Grayco Supplies 1,230 1,230
15 151 Grayco Supplies 1,230 1,230
21 152 Jewett Business Sys. 2,800 2,800 22 153
Donnelly Supplies 420 420 30 154 Utilities
Expense 1,050 1,050 31 155 Howard
Supplies 600 600
21 152 Jewett Business Sys. 2,800 2,800 22 153
Donnelly Supplies 420 420 30 154 Utilities
Expense 1,050 1,050 31 155 Howard
Supplies 600 600
Journalized the remainder of Marchs cash
disbursements.
Post to individual creditors accounts.
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15 151 Grayco Supplies 1,230 1,230
15 151 Grayco Supplies 1,230 1,230
21 152 Jewett Business Sys. 2,800 2,800 22 153
Donnelly Supplies 420 420 30 154 Utilities
Expense 1,050 1,050 31 155 Howard
Supplies 600 600
21 152 Jewett Business Sys. 2,800 2,800 22 153
Donnelly Supplies 420 420 30 154 Utilities
Expense 1,050 1,050 31 155 Howard
Supplies 600 600
The journal is ruled, summed, and verified for
equality of debits and the Cash Cr. column.
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15 151 Grayco Supplies 1,230 1,230
15 151 Grayco Supplies 1,230 1,230
21 152 Jewett Business Sys. 2,800 2,800 22 153
Donnelly Supplies 420 420 30 154 Utilities
Expense 1,050 1,050 31 155 Howard
Supplies 600 600
21 152 Jewett Business Sys. 2,800 2,800 22 153
Donnelly Supplies 420 420 30 154 Utilities
Expense 1,050 1,050 31 155 Howard
Supplies 600 600
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Items in the Other Accounts Dr. column are
posted. Then the totals for Accounts Payable
Dr. and Cash Cr. are posted.
(21)
(11)
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Accounts Payable Control and Subsidiary Ledger
Accounts Payable (Control)
Balance, March 1, 2008 1,230 Total credits (from
purchases journal) 6,230 Total debits (from cash
payments journal) (5,050) Balance, March 31,
2008 2,410
NetSolutions Supplier Balance Summary
Report March 31, 2008
Donnelly Supplies 1,450 Grayco Supplies 0 Howard
Supplies 960 Jewett Business Systems
0 Total 2,410
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The debits and credits from two transactions are
presented in the following creditors
(suppliers) account
NAME Lassiter Services, Inc.
ADDRESS 301 St. Bonaventure Ave.
Date Item P.R. Dr. Cr. Balance
Aug. 1 Bal. 320 12 Bill
101 CP36 200 120 22 Bill 106 P16 140 260
Describe each transaction and the source of each
posting.
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Aug. 12 Paid 200 to Lassiter Services, Inc. on
account (Bill 101). Amount posted from page CP36
of the cash payments journal. Aug. 22 Purchased
140 of services on account from Lassiter
Services, Inc. itemized on Bill 106. Amount
posted from page P16 of the purchases journal.
For Practice PE 5-4A, PE 5-4B
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Objective 3
Describe and give examples of additional
subsidiary ledgers and modified special journals.
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Modified Special Journals
A business may modify its special journals by
adding one or more columns for recording
transactions that occur frequently.
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On November 2, NetSolutions issued Invoice No.
842 to Litten Company for 4,770, which included
sales taxes of 270.
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Modified Revenue Journal
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Page 40
Revenue Journal
Invoice Accts. Rec. Fees Earned Sales Tax.
Pay Date No. Account Debited
PR Dr. Cr. Cr.
4,770 is debited to Litten Co. in the accounts
payable subsidiary ledger
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Page 40
Revenue Journal
Invoice Accts. Rec. Fees Earned Sales Tax.
Pay Date No. Account Debited
PR Dr. Cr. Cr.
A checkmark indicates that the amount has been
posted.
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On November 3, issued Invoice No. 843 to Kaufman
Supply Company for 1,166, which included sales
taxes of 66.
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Page 40
Revenue Journal
Invoice Accts. Rec. Fees Earned Sales Tax.
Pay Date No. Account Debited
PR Dr. Cr. Cr.
3 843 Kaufmann Supply 1 166 00 1 100 00
66 00
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The state of Tennessee has a 7 sales tax.
Volunteer Services, Inc., a Tennessee company,
had two revenue transactions as follows Aug.
3 Issued Invoice No. 58 to Helena Company for
services provided on account, 1,400, plus
sales tax. 19 Issued Invoice No. 59 to K-Jam
Enterprises for services provided on account,
900, plus sales tax. Record these
transactions in a revenue journal as illustrated
in the previous section.
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Revenue Journal
Invoice Accts. Rec. Fees Earned Sales Tax.
Pay Date No. Account Debited
PR Dr. Cr. Cr.
Aug. 3 58 Helena Company 1 498 00 1
400 00 98 00 19 59 K-Jam Enterprises 963 00 900
00 63 00
For Practice PE 5-5A, PE 5-5B
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5-4
Objective 4
Apply computerized accounting to the revenue and
collection cycle.
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Database
A database collects, stores, and organizes
information in a retrievable format.
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At any time, managers may request reports from
the software.

1. The customer balance summary.
2. The fees earned by customer detail.
3. The cash receipts.

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Objective 5
Describe the basic features of e-commerce.
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e-Commerce
Using the Internet to perform business
transactions is termed e-commerce.
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B2C
When transactions are between a company and a
consumer, it is termed B2C (business-to-consumer)
e-commerce.
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Three more advanced areas where the Internet is
being used for business purposes are

• Supply chain management (SCM)
• Consumer relationship management (CRM)
• Product life-cycle management (PLM)