Appendix E

Financial AccountingJohn J. Wild – Fifth Edition

Reporting and Preparing Special Journals

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Fundamental System Principles

Control PrincipleControl Principle Internal controls for

management to monitor the business.

Control PrincipleControl Principle Internal controls for

management to monitor the business.

Relevance PrincipleRelevance Principle Provide relevant,

timely and pertinent information.

Relevance PrincipleRelevance Principle Provide relevant,

timely and pertinent information.

Compatibility PrincipleCompatibility Principle System must be

compatible with aims of the company.

Compatibility PrincipleCompatibility Principle System must be

compatible with aims of the company.

Flexibility PrincipleFlexibility Principle System needs to

meet the changing needs of company.

Flexibility PrincipleFlexibility Principle System needs to

meet the changing needs of company.

Cost-Benefit PrincipleCost-Benefit Principle Benefits of the system

must outweigh the costs incurred.

Cost-Benefit PrincipleCost-Benefit Principle Benefits of the system

must outweigh the costs incurred.

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Components of Accounting Systems

Increasingly, source documents are electronic files

creating a “paperless” system.

Increasingly, source documents are electronic files

creating a “paperless” system.

Source DocumentsInvoice from Invoice from suppliersupplier

Billings to Billings to customerscustomers

Employee Employee earnings earnings recordsrecords

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StorageStorage

Components of Accounting Systems

CDCD

Hard DriveHard Drive

TapeTape

Paper Paper DocumentDocument

CDCD

Hard DriveHard Drive

TapeTape

Paper Paper DocumentDocumentProcessorProcessor

InputInput

Source Documents

Source Documents

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PrinterPrinterMonitorMonitor

TelephoneTelephoneCDCD

TapeTapeDiskDisk

Electronic Electronic FileFile

PrinterPrinterMonitorMonitor

TelephoneTelephoneCDCD

TapeTapeDiskDisk

Electronic Electronic FileFile

OutputOutput

Components of Accounting Systems

StorageStorageProcessorProcessor

InputInput

Source Documents

Source Documents

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Special Journals and Subsidiary Ledgers in Accounting

GeneralGeneralJournalJournalGeneralGeneralJournalJournal

For transactionsFor transactionsnot in specialnot in special

journalsjournals

For transactionsFor transactionsnot in specialnot in special

journalsjournals

CashCashDisbursementsDisbursements

JournalJournal

CashCashDisbursementsDisbursements

JournalJournal

For recordingFor recordingcash paymentscash paymentsFor recordingFor recording

cash paymentscash payments

PurchasesPurchasesJournalJournal

PurchasesPurchasesJournalJournal

For recordingFor recordingcredit credit

purchasespurchases

For recordingFor recordingcredit credit

purchasespurchases

Cash ReceiptsCash ReceiptsJournalJournal

Cash ReceiptsCash ReceiptsJournalJournal

For recordingFor recordingcash receiptscash receiptsFor recordingFor recordingcash receiptscash receipts

Sales JournalSales JournalSales JournalSales Journal

For recordingFor recordingcredit salescredit sales

For recordingFor recordingcredit salescredit sales

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CharacteristicControlling

Account Subsidary LedgerAmounts due

from customersAccounts

ReceivableAccounts

Receivable LedgerAmounts owed to

creditorsAccounts Payable

Accounts Payable Ledger

CharacteristicControlling

Account Subsidary LedgerAmounts due

from customersAccounts

ReceivableAccounts

Receivable LedgerAmounts owed to

creditorsAccounts Payable

Accounts Payable Ledger

Subsidiary ledgers are a listing of individual accounts with Subsidiary ledgers are a listing of individual accounts with common characteristics.common characteristics.Subsidiary ledgers are a listing of individual accounts with Subsidiary ledgers are a listing of individual accounts with common characteristics.common characteristics.

Sales JournalP1

Date Account DebitedInvoice Number PR

Accts. Receivable Dr.

Sales Cr.

Cost of Goods Sold Dr.

Inventory Cr

Jan. 1 Jim Carson 824 600 400

7 Tom Talley 825 900 600

22 Sue Wright 826 200 134

31 Total 1,700 1,134

(106/413) (502/119)

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Each transaction yields a debit to Accounts Receivable and a credit to Sales. Also, we need to record the cost of the sale for

the transaction. This column total is posted monthly.

Each transaction yields a debit to Accounts Receivable and a credit to Sales. Also, we need to record the cost of the sale for

the transaction. This column total is posted monthly.

Here is the Sales Journal after recording some additional sales.Here is the Sales Journal after recording some additional sales.Here is the Sales Journal after recording some additional sales.Here is the Sales Journal after recording some additional sales.

Proving the Subsidiary Ledgers

Barry's BikesSchedule of Accounts Receivable

January 31Jim Carson 600$ Tom Talley 900 Sue Wright 200 Total accounts receivable 1,700$

Barry's BikesSchedule of Accounts Receivable

January 31Jim Carson 600$ Tom Talley 900 Sue Wright 200 Total accounts receivable 1,700$

The Accounts The Accounts Receivable Receivable controlling controlling

account and account and the subsidiary the subsidiary ledger are in ledger are in

balance.balance.

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Sales Tax

ACCOUNTS RECEIVABLE LEDGER

Joan Oakes

Date PR Debit Credit Balance

Jan. 4 S1 486 486

Each transaction is posted Each transaction is posted daily to the appropriate daily to the appropriate Accounts Receivable Accounts Receivable

Ledger account.Ledger account.

Each transaction is posted Each transaction is posted daily to the appropriate daily to the appropriate Accounts Receivable Accounts Receivable

Ledger account.Ledger account.

Column totals are posted monthly.Column totals are posted monthly.Column totals are posted monthly.Column totals are posted monthly.

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SALES JOURNAL Page 1

Date Account DebitedInv. No. PR

Accts. Rec. Debit

Sales Taxes Payable Credit

Sales Credit

Cost of Goods Sold Dr.

Inventory Cr

Jan. 4 Joan Oakes 635 486 36 450 302

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On January 4, Jeri’s Jewelry sold a necklace for $450 On January 4, Jeri’s Jewelry sold a necklace for $450 plus 8% sales tax (plus 8% sales tax ($450 ´ .08 = $36) $450 ´ .08 = $36) on credit to Joan on credit to Joan Oakes. The cost of the merchandise was $302.Oakes. The cost of the merchandise was $302.

On January 4, Jeri’s Jewelry sold a necklace for $450 On January 4, Jeri’s Jewelry sold a necklace for $450 plus 8% sales tax (plus 8% sales tax ($450 ´ .08 = $36) $450 ´ .08 = $36) on credit to Joan on credit to Joan Oakes. The cost of the merchandise was $302.Oakes. The cost of the merchandise was $302.

Sales Returns and Allowances

If a company has few sales returns, they may If a company has few sales returns, they may be recorded in the General Journal.be recorded in the General Journal.

If a company has few sales returns, they may If a company has few sales returns, they may be recorded in the General Journal.be recorded in the General Journal.

A company with A company with manymany sales returns may use sales returns may use a Sales Returns and Allowances Journal.a Sales Returns and Allowances Journal.

A company with A company with manymany sales returns may use sales returns may use a Sales Returns and Allowances Journal.a Sales Returns and Allowances Journal.

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CASH RECEIPTS JOURNAL Page 1

DateAccounts Credited Explanation PR

Cash Dr.

Sales Disc. Dr.

Accts. Rec. Cr. Sales Cr.

Other Accts. Cr.

May 7 Sales Cash Sales 300 30016 Jane Waters Invoice 656 441 9 45031 Interest RevenueBank Acct. 409 15 1531 Total 756 9 450 300 15

(101) (415) (106) (413) ( )

Amount is not posted individually to an account.Amount is posted individually to subsidiary ledger.

Acct. No. Amount is posted to specified account.

Cash Receipts JournalP2

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Categories of Cash ReceiptsCategories of Cash Receipts• Cash from cash salesCash from cash sales• Cash from credit customersCash from credit customers• Cash from other sourcesCash from other sources

Categories of Cash ReceiptsCategories of Cash Receipts• Cash from cash salesCash from cash sales• Cash from credit customersCash from credit customers• Cash from other sourcesCash from other sources

Purchases Journal Page 3

Date AccountInvoice

Date Terms PR

Accts. Pay. Cr.

Inventory Dr.

Offc. Sup. Dr.

Other Accts. Dr.

May 7 Langley Products 5/5 2/10,n/30 300 300

18 Office World 5/18 n/30 125/ 150 125 25

28 Fife Company 5/27 2/10,n/30 200 175 25

31 Total 650 475 150 25

(201) (119) (124) ( )

Amount is not posted individually to an account.Amount is posted individually to subsidiary ledger.

Acct. No. Amount is posted to specified account.

Purchases JournalP2

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The Purchases Journal is used to record all purchases on credit.The Purchases Journal is used to record all purchases on credit.The Purchases Journal is used to record all purchases on credit.The Purchases Journal is used to record all purchases on credit.

Amount is not posted individually to an account.Amount is posted individually to subsidiary ledger.

Acct. No. Amount is posted to specified account.

Cash Disbursements Journal

Cash Disbursements Journal Page 1

DateCh. No. Payee

Account Debited PR

Cash Cr.

Inventory. Cr.

Other Accts.

Dr.Accts.

Pay. Dr.

Jun. 2 101 Fife Company Fife Company 196 4 200

15 102 Jane Hooks Salary Expense 622 300 300

28 103 Langley Products Purchases 505 100 100

30 Total 596 4 400 200

(101) (119) ( )(201)

( )

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The Cash Disbursements Journal is The Cash Disbursements Journal is used to record all payments of cash.used to record all payments of cash.

General Journal Transactions

Adjusting Adjusting EntriesEntries

Adjusting Adjusting EntriesEntries

Closing Closing EntriesEntriesClosing Closing EntriesEntries

Reversing Reversing EntriesEntries

Reversing Reversing EntriesEntries

Other transactions Other transactions not recorded in not recorded in

Special Journals Special Journals

Other transactions Other transactions not recorded in not recorded in

Special Journals Special Journals

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Technology-Based Accounting Systems

HardwareHardware

Processing unitsProcessing unitsHard DrivesHard Drives

RAMRAMModemsModems

CD-ROM DrivesCD-ROM DrivesSpeakersSpeakersMonitorsMonitorsServersServersPrintersPrinters

HardwareHardware

Processing unitsProcessing unitsHard DrivesHard Drives

RAMRAMModemsModems

CD-ROM DrivesCD-ROM DrivesSpeakersSpeakersMonitorsMonitorsServersServersPrintersPrinters

SoftwareSoftwarePrograms with a series of Programs with a series of

commands directing commands directing operations of operations of

computer hardware computer hardware such as data input, such as data input,

storage, processing, storage, processing, or output.or output.

SoftwareSoftwarePrograms with a series of Programs with a series of

commands directing commands directing operations of operations of

computer hardware computer hardware such as data input, such as data input,

storage, processing, storage, processing, or output.or output.

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Computer Technology, Data Processing, and Enterprise Resource Planning Software

Integrated accounting programs automatically update related Integrated accounting programs automatically update related accounts, journals, and ledgers for a single transaction. accounts, journals, and ledgers for a single transaction.

Integrated accounting programs automatically update related Integrated accounting programs automatically update related accounts, journals, and ledgers for a single transaction. accounts, journals, and ledgers for a single transaction.

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On-lineOn-line processing enters and processes data immediately. processing enters and processes data immediately.

Batch Batch processing accumulates information for a period of time processing accumulates information for a period of time and then processes all the data at one time (daily, weekly, or and then processes all the data at one time (daily, weekly, or monthly).monthly).

On-lineOn-line processing enters and processes data immediately. processing enters and processes data immediately.

Batch Batch processing accumulates information for a period of time processing accumulates information for a period of time and then processes all the data at one time (daily, weekly, or and then processes all the data at one time (daily, weekly, or monthly).monthly).

Enterprise resource planning softwareEnterprise resource planning software, such as , such as SAP or Oracle, links ordering, inventory, production, SAP or Oracle, links ordering, inventory, production, purchasing, planning, tracking and human purchasing, planning, tracking and human resources for many of the world’s largest resources for many of the world’s largest companies.companies.

Enterprise resource planning softwareEnterprise resource planning software, such as , such as SAP or Oracle, links ordering, inventory, production, SAP or Oracle, links ordering, inventory, production, purchasing, planning, tracking and human purchasing, planning, tracking and human resources for many of the world’s largest resources for many of the world’s largest companies.companies.

This ratio reflects the This ratio reflects the profitability of the segment. profitability of the segment.

This ratio reflects the This ratio reflects the profitability of the segment. profitability of the segment.

Segment Return on Assets

Segment return

on assets

= Segment operating incomeSegment average assets

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A A segmentsegment is a part of a is a part of a company that is company that is

separately identified by separately identified by its products, services, its products, services,

or geographic market. or geographic market.

A A segmentsegment is a part of a is a part of a company that is company that is

separately identified by separately identified by its products, services, its products, services,

or geographic market. or geographic market.

A good AIS collects financial data for a A good AIS collects financial data for a company’s various segments. company’s various segments. A good AIS collects financial data for a A good AIS collects financial data for a company’s various segments. company’s various segments.

End of Appendix E

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