Accounting Systems And Internal Controls

Chapter 5 Accounting Systems and Internal Controls Accounting, 21st Edition Warren Reeve Fess

PowerPoint Presentation by Douglas Cloud Professor Emeritus of Accounting Pepperdine University

© Copyright 2004 South-Western, a division of Thomson Learning. All rights reserved. Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc.

Some Some of of the the action action has has been been automated, automated, so so click click the themouse mouse when when you you see see this this lightning lightning bolt bolt in in the thelower lower right-hand right-hand corner corner of of the the screen. screen. You You can can point point and and click click anywhere anywhere on on the the screen. screen.

Objectives Objectives 1. Define an accounting system and After studying this After studying this describe its implementation. chapter, chapter, you you should should 2. List the three objectives of internal be be able able to: to: control, and define and give examples of the five elements of internal control. 3. Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals.

Objectives Objectives 4. Describe and give examples of additional subsidiary ledgers and modified special journals. 5. Apply computerized accounting to the revenue and collection cycle. 6. Describe the basic features of e-commerce.

Basic Basic Accounting Accounting System System

Analysis

Design

Implementation

F E E D B A C K

Objectives Objectives of of Internal Internal Control Control To provide reasonable assurance that: 1. assets are safeguarded and used for business purposes. 2. business information is accurate. 3. employees comply with laws and regulations.

Elements of Internal Control 1. 2. 3. 4. 5.

Control environment Risk assessment Control procedures Monitoring Information and communication

Elements of Internal Control 1. 2. 3. 4. 5.

Control environment Risk assessment Control procedures Monitoring Information and communication

Management Management philosophy philosophy and and operating operating style style influences influences the the control control environment. environment.

Elements Elements of of Internal Internal Control Control 1. 2. 3. 4. 5.

Control environment Risk assessment Control procedures Monitoring Information and communication

Once Once risks risks are are identified, identified, they they can can be be analyzed analyzed to to estimate estimate their their significance, significance, to to assess assess their their likelihood likelihood of of occurring, occurring, and and to to determine determine actions actions that that will will minimize minimize them. them.

Elements Elements of of Internal Internal Control Control 1. 2. 3. 4. 5.

Control environment Risk assessment Control procedures Monitoring Information and communication

Control Control Procedures Procedures Competent Personnel Rotating Duties Mandatory Vacations Separating Responsibilities for Related Operations  Separating Operations, Custody of Assets, and Accounting  Proofs and Security Measures    

Control Control Procedures Procedures    

Competent Personnel Rotating Duties Mandatory Vacations Separating Responsibilities for Related Operations  Separating Operations, Custody of Assets, and Accounting  Proofs and Security Measures

Separating Otherwise, the Separating Otherwise, the following following Responsibilities for abuses are Responsibilities for abuses are possible: possible: Related Operations 1. Orders may be placed on the basis of Related Operations

friendship with a supplier, rather than on price, quality, and other objective factors. 2. The quantity and quality of supplies received may not be verified, thus causing payment for supplies not received or poor-quality supplies. 3. Supplies may be stolen by the employee. 4. The validity and accuracy of invoices may be verified carelessly.

Control Control Procedures Procedures    

Competent Personnel Rotating Duties Mandatory Vacations Separating Responsibilities for Related Operations  Separating Operations, Custody of Assets, and Accounting  Proofs and Security Measures

Custody of Assets

Independent check

Independent check

Operations

Accounting

Independent check

Elements Elements of of Internal Internal Control Control 1. 2. 3. 4. 5.

Control environment Risk assessment Control procedures Monitoring Information and communication

Clues Clues to to Potential Potential Problems Problems Warning signs with regard to people: 1. Abrupt changes in lifestyle. 2. Close social relationships with suppliers. 3. Refusing to take a vacation. 4. Frequent borrowing from other employees. 5. Excessive use of alcohol or drugs.

Clues Clues to to Potential Potential Problems Problems Warning signs from the accounting system: 1. Missing documents or gaps in transaction numbers. 2. An unusual increase in customer refunds. 3. Differences between daily cash receipts and bank deposits. 4. Sudden increase in slow payments. 5. Backlog in recording transactions.

Manual Accounting Systems

General General Ledger Ledger and and Subsidiary Subsidiary Ledgers Ledgers General Ledger

Cash

11

Accounts Receivable Subsidiary Ledger

Accts. Rec.

12

Customer Accounts

A

B

C

Supplies

14

Accounts Payable Subsidiary Ledger

Accts. Pay.

21

Creditor Accounts

A

B

C

D

D

Special Journals SELLING Providing services on account recorded Revenue journal recordedin in Receipt of cash from any source recorded recordedin in

Cash receipts journal

BUYING Purchase of items on account recorded Purchases journal recordedin in Payment of cash for any purpose recorded recordedin in

Cash payments journal

The The Revenue Revenue Journal Journal Page 35

Revenue Journal Date

Invoice No.

Account Debited

Post Ref.

Accts. Rec. – Debit Fees Earned – Credit

1

1

2

2

3

3

4

4

5

5

6

6

All All sales sales on on account account are are recorded recorded in in this this journal. journal. Each Each sales sales invoice invoice isis listed listed in in numerical numerical order. order.

The The Revenue Revenue Journal Journal Page 35

Revenue Journal Date

Invoice No.

2006 1 Mar. 2 615 2

Account Debited

MyMusicClub.com

Post Ref.

Accts. Rec. – Debit Fees Earned – Credit

2 2 0 0 00

1 2

3

3

4

4

5

5

6

6

Performed Performed services services on on credit credit to to MyMusic.com, MyMusic.com, $2,200. $2,200.

The The Revenue Revenue Journal Journal Page 35

Revenue Journal Date

Invoice No.

2006 1 Mar. 2 615 2

Account Debited

MyMusicClub.com

Post Ref.

Accts. Rec. – Debit Fees Earned – Credit

2 2 0 0 00

1 2

3

3

4

4

5

5

6

6

Notice Notice that that only only one one line line isis required required to to make make the the entry. entry.

Posting Posting from from the the Revenue Revenue Journal Journal Page 35

Revenue Journal Date

Invoice No.

2006 1 Mar. 2 615 2

Account Debited

MyMusicClub.com

Post Ref.

Accts. Rec. – Debit Fees Earned – Credit

2 2 0 0 00

1 2

3

3

4

4

5

5

6

6

To To update update the the MyMusicClub.com MyMusicClub.com account, account, the the $2,200 $2,200 debit debit isis posted posted to to the the accounts accounts receivable receivable subsidiary subsidiary ledger. ledger.

Posting Posting from from the the Revenue Revenue Journal Journal Page 35

Revenue Journal Date

Invoice No.

2006 1 Mar. 2 615 2

Post Ref.

Account Debited

Accts. Rec. – Debit Fees Earned – Credit

MyMusicClub.com

2 2 0 0 00

1 2

3

3

4

4

5 6

Accounts Receivable Subsidiary Ledger MyMusicClub.com Date 2006

Mar. 2

Item

P.R.

R35

Debit

2,200

Credit

Balance

2,200

5 6

Posting Posting from from the the Revenue Revenue Journal Journal Page 35

Revenue Journal Date

Invoice No.

2006 1 Mar. 2 615 2

Post Ref.

Account Debited

Accts. Rec. – Debit Fees Earned – Credit

MyMusicClub.com

2 2 0 0 00

1 2

3

3

4

4

5 6

Accounts Receivable Subsidiary Ledger MyMusicClub.com Date 2006

Mar. 2

Item

P.R.

R35

Debit

2,200

Credit

Balance

2,200

This procedure is repeated for each posting to the accounts receivable subsidiary ledger.

5 6

Posting Posting from from the the Revenue Revenue Journal Journal Page 35

Revenue Journal Date

Invoice No.

2003 2006 1 Mar. 2 615 2 6 616 3 18 617

4

27 618

Account Debited

Post Ref.

Accts. Rec. – Debit Fees Earned – Credit

MyMusicClub.com

2 2 0 0 00

1

RapZone.com

1 7 5 0 00

2

Web Cantina

2 6 5 0 00

3

MyMusicClub.com

3 0 0 0 00

4

5

5

6

6

Assume Assume that that similar similar entries entries were were journalized journalized and and posted posted during during the the month month of of March. March.

Posting Posting from from the the Revenue Revenue Journal Journal Page 35

Revenue Journal Date

Invoice No.

2006 1 Mar. 2 615 2 6 616 3 18 617

4

27 618

5

31

Account Debited

Post Ref.

Accts. Rec. – Debit Fees Earned – Credit

MyMusicClub.com

2 2 0 0 00

1

RapZone.com

1 7 5 0 00

2

Web Cantina

2 6 5 0 00

3

MyMusicClub.com

3 0 0 0 00

4

9 6 0 0 00

5

6

6

On On March March 31, 31, the the revenue revenue journal journal isis totaled totaled and and ruled. ruled.

Posting Posting the the Revenue Revenue Journal Journal Total Total Page 35

Revenue Journal Date

Invoice No.

2006 1 Mar. 2 615 2 6 616 3 18 617

4

27 618

5

31

Account Debited

Post Ref.

Accts. Rec. – Debit Fees Earned – Credit

MyMusicClub.com

2 2 0 0 00

1

RapZone.com

1 7 5 0 00

2

Web Cantina

2 6 5 0 00

3

MyMusicClub.com

3 0 0 0 00

4

9 6 0 0 00

5

6

6

Next, Next, the the revenue revenue journal’s journal’s total total ($9,600) ($9,600) isis posted posted to to the the general general ledger. ledger.

Posting Posting the the Revenue Revenue Journal Journal Total Total GENERAL LEDGER ACCOUNT Date 2006

Mar. 1 31

Accounts Receivable Item

Post. Ref.

Account No. 12 Balance

Dr.

Balance

Cr.

Dr.

3 400 00 R359 600 00

Revenue Journal, page 35

13 000 00

Cr.

Posting Posting the the Revenue Revenue Journal Journal Total Total Page 35

Revenue Journal Date

Invoice No.

2006 1 Mar. 2 615 2 6 616 3 18 617

4

27 618

5

31

6

Account Debited

Post Ref.

Accts. Rec. – Debit Fees Earned – Credit

MyMusicClub.com

2 2 0 0 00

1

RapZone.com

1 7 5 0 00

2

Web Cantina

2 6 5 0 00

3

MyMusicClub.com

3 0 0 0 00

4

9 6 0 0 00

5

(12)(41)

6

By placing the account number here, we indicate that $9,600 has been debited to Accounts Receivable in the general ledger.

Posting Posting the the Revenue Revenue Journal Journal Total Total GENERAL LEDGER ACCOUNT Date 2006

Mar. 31

Fees Earned Item

Post. Ref.

R35

Account No. 41 Balance Dr.

Cr.

9 600 00

Dr.

Cr.

9 600 00

Posting Posting the the Revenue Revenue Journal Journal Total Total Page 35

Revenue Journal Date

Invoice No.

2006 1 Mar. 2 615 2 6 616 3 18 617

4

27 618

5

31

6

Account Debited

Post Ref.

Accts. Rec. – Debit Fees Earned – Credit

MyMusicClub.com

2 2 0 0 00

1

RapZone.com

1 7 5 0 00

2

Web Cantina

2 6 5 0 00

3

MyMusicClub.com

3 0 0 0 00

4

9 6 0 0 00

5

(12)(41)

6

Placing “41” here indicates that $9,600 has been posted to the credit side of Fees Earned in the general ledger.

The The Cash Cash Receipts Receipts Journal Journal

The The Cash Cash Receipts Receipts Journal Journal All All transactions transactions that that involve involve the the receipt receipt of of cash cash are are recorded recorded in in the the cash cash receipts receipts journal. journal.

The The Cash Cash Receipts Receipts Journal Journal CASH RECEIPTS JOURNAL

Date 2006

Account Credited

Mar. 1 Rent Revenue

Post Ref.

Page 14 Other Accounts Cr.

Accounts Receivable Cr.

400

NetSolutions NetSolutions received received $400 $400 cash cash on on March March 11 for for the the month’s month’s rent. rent.

Cash Dr. 400

The The Cash Cash Receipts Receipts Journal Journal CASH RECEIPTS JOURNAL

Date

Account Credited

Mar. 1 19 28 30

Rent Revenue Web Cantina MyMusicClub.com RapZone.com

2006

Post Ref.

Page 14 Other Accounts Cr.

Accounts Receivable Cr.

400 3,400 2,200 1,750

Cash Dr. 400 3,400 2,200 1,750

During During March, March, NetSolutions NetSolutions collected collected cash cash from from three three customers. customers.

Posting Posting the the Cash Cash Receipts Receipts Journal Journal CASH RECEIPTS JOURNAL

Date

Account Credited

Mar. 1 19 28 30

Rent Revenue Web Cantina MyMusicClub.com RapZone.com

2006

Post Ref.

Page 14 Other Accounts Cr.

Accounts Receivable Cr.

400 3,400 2,200 1,750

Cash Dr. 400 3,400 2,200 1,750

Each Each account account under under “Accounts “Accounts Receivable Receivable Cr.” Cr.” isis posted posted to to the the accounts accounts receivable receivable subsidiary subsidiary ledger. ledger.

Posting Posting the the Cash Cash Receipts Receipts Journal Journal CASH RECEIPTS JOURNAL

Date

Account Credited

Mar. 1 19 28 30

Rent Revenue Web Cantina MyMusicClub.com RapZone.com

2006

Page 14

Post Ref.

Other Accounts Cr.

Accounts Receivable Cr.

400

400 3,400 2,200 1,750

3,400 2,200 1,750

Accounts Receivable Subsidiary Ledger Web Cantina Date

Item

P.R.

Debit

Credit

2006

Mar. 1 Bal. 18 R35 19

2,650 3,400

Cash Dr.

Balance

3,400 6,050 2,650

Posting Posting the the Cash Cash Receipts Receipts Journal Journal CASH RECEIPTS JOURNAL

Date

Account Credited

Mar. 1 19 28 30

Rent Revenue Web Cantina MyMusicClub.com RapZone.com

2006

Page 14

Post Ref.

Other Accounts Cr.

√

Accounts Receivable Cr.

400

400 3,400 2,200 1,750

3,400 2,200 1,750

Accounts Receivable Subsidiary Ledger Web Cantina Date

Item

P.R.

Debit

Credit

2006

Mar. 1 Bal. 18 R35 19 CR14

2,650 3,400

Cash Dr.

Balance

3,400 6,050 2,650

The The Cash Cash Receipts Receipts Journal Journal After After all all journalizing journalizing and and posting posting to to the the accounts accounts receivable receivable subsidiary subsidiary ledger ledger for for the the month month isis complete, complete, the the columns columns are are totaled. totaled.

The The Cash Cash Receipts Receipts Journal Journal CASH RECEIPTS JOURNAL

Date

Account Credited

Mar. 1 19 28 30 31

Rent Revenue Web Cantina MyMusicClub.com RapZone.com

2006

Page 14

Post Ref.

Other Accounts Cr.

Accounts Receivable Cr.

400 √ √ √ 400

3,400 2,200 1,750 7,350

Cash Dr. 400 3,400 2,200 1,750 7,750

The The total total “Cash “Cash Dr.” Dr.” column column equals equals the the total total of of the the two two credit credit columns. columns.

Posting Posting the the Cash Cash Receipts Receipts Journal Journal CASH RECEIPTS JOURNAL

Date

Account Credited

Mar. 1 19 28 30 31

Rent Revenue Web Cantina MyMusicClub.com RapZone.com

2006

Page 14

Post Ref.

Other Accounts Cr.

Accounts Receivable Cr.

400 √ √ √ 400

3,400 2,200 1,750 7,350

Cash Dr. 400 3,400 2,200 1,750 7,750

GENERAL LEDGER Account: Accounts Receivable

No. 12

The circled are The three three circled items are Balance Date Item P.R. items Debit Credit Mar. Balgeneral √ posted to ledger. posted to1the the general ledger. 3,400 31 R35 9,600 13,000 Let’s Let’s post post Accounts Accounts Receivable Receivable.. 2006

Posting Posting the the Cash Cash Receipts Receipts Journal Journal CASH RECEIPTS JOURNAL

Date

Account Credited

Mar. 1 19 28 30 31

Rent Revenue Web Cantina MyMusicClub.com RapZone.com

2006

Page 14

Post Ref.

Other Accounts Cr.

Accounts Receivable Cr.

400 √ √ √ 400

3,400 2,200 1,750 7,350

Cash Dr. 400 3,400 2,200 1,750 7,750

GENERAL LEDGER Account: Accounts Receivable Date Item P.R.

2006

Debit Credit

Mar. 1 Bal √ 31 R35 9,600 31 CR14

7,350

No. 12 Balance

3,400 13,000 5,650

Posting Posting the the Cash Cash Receipts Receipts Journal Journal CASH RECEIPTS JOURNAL

Date

Account Credited

Mar. 1 19 28 30 31

Rent Revenue Web Cantina MyMusicClub.com RapZone.com

2006

Page 14

Post Ref.

Other Accounts Cr.

Accounts Receivable Cr.

400 √ √ √ 400

3,400 2,200 1,750 7,350

( √)

(12)

Cash Dr. 400 3,400 2,200 1,750 7,750

Posting Posting the the Cash Cash Receipts Receipts Journal Journal The The $7,750 $7,750 total total in in the the Cash Cash Debit Debit column column isis posted posted to to Cash Cash in in aa similar similar manner. manner.

Posting Posting the the Cash Cash Receipts Receipts Journal Journal The The $400 $400 credit credit to to Rent Rent Revenue Revenue could could have have been been posted posted earlier, earlier, but but posting posting itit at at the the same same time time as as other other general general ledger ledger accounts accounts isis proper. proper.

Posting Posting the the Cash Cash Receipts Receipts Journal Journal A A completely completely posted posted cash cash receipts receipts journal journal isis shown shown in in the the next next slide. slide.

Posted Posted Cash Cash Receipts Receipts Journal Journal CASH RECEIPTS JOURNAL

Date

Account Credited

Mar. 1 19 3,400 28 30 31

Rent Revenue Web Cantina

2006

MyMusicClub.com RapZone.com

Page 14

Post Ref.

42

Other Accounts Cr.

Accounts Receivable Cr.

400

400 3,400

√ √ √

(400) √

Cash Dr.

2,200 1,750 (12) 7,350

2,200 1,750 (11) 7,750

Accounts Receivable Control Account

GENERAL LEDGER ACCOUNT Accounts Receivable Date Item P.R.

Debit Credit

Mar. 1 Bal √ 31 R35 9,600 31 CR14

7,350

No. 12 Balance

3,400 13,000 5,650

If If the the accounts accounts receivable receivable account account in in the the general general ledger ledger only only shows shows summary summary totals, totals, where where are are the the individual individual customer customer balances? balances?

Accounts Receivable Control Account

GENERAL LEDGER ACCOUNT Accounts Receivable Date Item P.R.

Debit Credit

Mar. 1 Bal √ 31 R35 9,600 31 CR14

7,350

No. 12 Balance

3,400 13,000 5,650

MyMusicClub.com Date

Accounts Receivable Subsidiary Ledger

Item

3/2 3/27 3/28

P.R.

Debit

Credit Balance

R35 2,200 R35 3,000 CR14

2,200 5,200 3,000

2,200

RapZone.com Date

Item

3/6 3/30

P.R.

Debit

Credit Balance

R35 1,750 CR14

1,750 --

1,750

Web Cantina Date

Item

P.R.

Debit

Credit Balance

3/1 Bal. ✓ 3/18 R35 2,650 3/19 CR14

3,400 6,050 2,650

3,400

The The purchases purchases journal journal isis designed designed for for recording recording all all purchases purchases on on account. account.

Journalizing Journalizing in in the the Purchases Purchases Journal Journal

Date 2006

Page 11 PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Post Account Credited Ref. Cr. Dr. Dr. Ref. Amount

Mar. 3 Howard Supplies

600

600

On March 3, 2003, NetSolutions purchased supplies from Howard Supplies, $600.

Posting Posting the the Purchases Purchases Journal Journal

Date

Page 11 PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Post Account Credited Ref. Cr. Dr. Dr. Ref. Amount

2006

Mar. 3 Howard Supplies

600

600

Accounts Payable Subsidiary Ledger Howard Supplies Date 2006

Item

P.R.

Dr.

Cr.

Balance

Mar 3 the accounts payable 600 600 To keep subsidiary ledger current, this entry is posted on March 3.

Posting Posting the the Purchases Purchases Journal Journal

Date 2006

Page 11 PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Post Account Credited Ref. Cr. Dr. Dr. Ref. Amount

Mar. 3 Howard Supplies

600

600

Accounts Payable and Supplies will be posted as totals.

Journalizing Journalizing in in the the Purchases Purchases Journal Journal

Date 2006

Page 11 PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Post Account Credited Ref. Cr. Dr. Dr. Ref. Amount

Mar. 3 Howard Supplies 7 Donnelly Supplies

600 420

600 420

On March 7, NetSolutions purchased supplies from Donnelly Supplies, $420.

Journalizing Journalizing in in the the Purchases Purchases Journal Journal

Date 2006

Page 11 PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Post Account Credited Ref. Cr. Dr. Dr. Ref. Amount

Mar. 3 Howard Supplies 7 Donnelly Supplies

600 420

600 420

Journalizing Journalizing in in the the Purchases Purchases Journal Journal

Date 2006

Page 11 PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Post Account Credited Ref. Cr. Dr. Dr. Ref. Amount

Mar. 3 Howard Supplies 7 Donnelly Supplies 12 Jewett Bus. Sys.

600 420 2,800

600 420 Off. Equip.

Because On March there 12, isn’t NetSolutions a special purchased column for office Office equipment Equipment from , thisJewett purchase Business was recorded under Systems, “Other $2,800. Accounts Dr.”

2,800

Journalizing Journalizing in in the the Purchases Purchases Journal Journal

Date 2006

Mar. 3 7 12 19 27

Page 11 PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Post Account Credited Ref. Cr. Dr. Dr. Ref. Amount Howard Supplies Donnelly Supplies Jewett Bus. Sys. Donnelly Supplies Howard Supplies

600 420 2,800 1,450 960

600 420 Off. Equip.

2,800

1,450 960

Now, let’s look at the rest of March’s entries (assume that all postings to the accounts payable subsidiary ledger have been made).

Totaling Totaling the the Purchases Purchases Journal Journal Page 11 PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Post Account Credited Ref. Cr. Dr. Dr. Ref. Amount

Date 2006

Mar. 3 7 12 19 27 31

Howard Supplies Donnelly Supplies Jewett Bus. Sys. Donnelly Supplies Howard Supplies

600 420 2,800 1,450 960 6,230

600 420 Off. Equip. 1,450 960 3,430

2,800

2,800

At At the the end end of of March, March, all all columns columns are are totaled totaled $6,230 = $3,430 + $ 2,800 $6,230 = $3,430 + $ 2,800 and equality of debits and credits and equality of debits and credits isis verified. verified.

Posting Posting the the Purchases Purchases Journal Journal

Date 2006

Mar. 3 7 12 19 27 31

Page 11 PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Post Account Credited Ref. Cr. Dr. Dr. Ref. Amount Howard Supplies Donnelly Supplies Jewett Bus. Sys. Donnelly Supplies Howard Supplies

600 420 2,800 1,450 960 6,230

600 420 Off. Equip. 1,450 960 3,430

The next step is to post to the general journal.

2,800

2,800

Date 2006

Mar. 3 7 12 19 27 31

Page 11 PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Post Account Credited Ref. Cr. Dr. Dr. Ref. Amount Howard Supplies Donnelly Supplies Jewett Bus. Sys. Donnelly Supplies Howard Supplies

600 420 2,800 1,450 960 6,230

600 420 Off. Equip. 1,450 960 3,430

2,800

GENERAL LEDGER ACCOUNT Accounts Payable Date Item P.R.

Mar. 1 Bal 31 P11

Debit Credit

6,230

2,800

No. 21 Balance

1,230 7,460

Date 2003

Mar. 3 7 12 19 27 31

Page 11 PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Post Account Credited Ref. Cr. Dr. Dr. Ref. Amount Howard Supplies Donnelly Supplies Jewett Bus. Sys. Donnelly Supplies Howard Supplies

600 420 2,800 1,450 960 6,230 (21)

600 420 Off. Equip. 1,450 960 3,430

2,800

GENERAL LEDGER ACCOUNT Accounts Payable Date Item P.R.

Mar. 1 Bal 31 P11

Debit Credit

6,230

2,800

No. 21 Balance

1,230 7,460

Date 2003

Mar. 3 7 12 19 27 31

Page 11 PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Post Account Credited Ref. Cr. Dr. Dr. Ref. Amount Howard Supplies Donnelly Supplies Jewett Bus. Sys. Donnelly Supplies Howard Supplies

600 420 2,800 1,450 960 6,230 (21)

600 420 Off. Equip. 18 1,450 960 3,430 (14)

Supplies is posted as a total of $3,430 to general ledger account 21. Office Equipment is posted individually.

2,800

2,800

Date 2006

Mar. 3 7 12 19 27 31

Page 11 PURCHASES JOURNAL Accts. Other Post Payable Supplies Accounts Post Account Credited Ref. Cr. Dr. Dr. Ref. Amount Howard Supplies Donnelly Supplies Jewett Bus. Sys. Donnelly Supplies Howard Supplies

600 420 2,800 1,450 960 6,230 (21)

600 420 Off. Equip. 18 1,450 960 3,430 (14)

NetSolutions had only one entry in the “Other Accounts Dr.” column. If there were others, they would be posted individually. Therefore, the total is not posted. A check mark indicates that the total was not posted.

2,800

2,800 ( )

The Cash Payments Journal

All All payments payments are are recorded recorded in in the the cash cash payments payments journal. journal. NetSolutions NetSolutions makes makes all all payments payments by by check. check.

Let’s Let’s make make all all of of the the cash cash payment payment journal journal entries entries for for March. March.

CASH PAYMENTS JOURNAL

Date 2006

Mar. 2

Ck. No.

150

Account Debited

Rent Expense

Other Accounts Post Accounts Payable Ref. Dr. Dr.

1,600

On March 2, NetSolutions paid the rent for March by issuing Check No. 150 for $1,600.

PAGE 7

Cash Cr

1,600

CASH PAYMENTS JOURNAL

Date 2006

Mar. 2 15

Ck. No.

150 151

Account Debited

Rent Expense Grayco Supplies

PAGE 7

Other Accounts Post Accounts Payable Ref. Dr. Dr.

Cash Cr

1,600 1,230

On March 15, issued Check No. 151 to Grayco Supplies on account, $1,230.

1,600 1,230

CASH PAYMENTS JOURNAL

Date 2006

Mar. 2 15

Ck. No.

150 151

Account Debited

Rent Expense Grayco Supplies

PAGE 7

Other Accounts Post Accounts Payable Ref. Dr. Dr.

1,600 √

1,230

Cash Cr

1,600 1,230

Accounts Payable Subsidiary Ledger Grayco Supplies Let’s post to the accounts payable Date Item P.R. Dr. Cr. Balance subsidiary Mar. ledger at this time to keep1,230 3 Bal. 15 CP7 1,230 the creditor’s account current. ---

CASH PAYMENTS JOURNAL

Date 2006

Mar. 2 15 21

Ck. No.

150 151 152

Account Debited

PAGE 7

Other Accounts Post Accounts Payable Ref. Dr. Dr.

Rent Expense Grayco Supplies √ Jewett Business Sys.

1,600 1,230 2,800

On March 21, issued Check No. 152 as payment on account to Jewett Business Systems, $2,800.

Cash Cr

1,600 1,230 2,800

CASH PAYMENTS JOURNAL

Date 2006

Mar. 2 15 21 22

Ck. No.

150 151 152 153

Account Debited

PAGE 7

Other Accounts Post Accounts Payable Ref. Dr. Dr.

Rent Expense Grayco Supplies √ Jewett Business Sys. √ Donnelly Supplies.

1,600 1,230 2,800 420

On March 22, issued Check No. 153 as payment on account to Donnelly Supplies, $420.

Cash Cr

1,600 1,230 2,800 420

CASH PAYMENTS JOURNAL

Date 2006

Mar. 2 15 21 22 30

Ck. No.

150 151 152 153 154

Account Debited

PAGE 7

Other Accounts Post Accounts Payable Ref. Dr. Dr.

Rent Expense Grayco Supplies √ Jewett Business Sys. √ Donnelly Supplies. √ Utilities Expense

1,600 1,230 2,800 420 1,050

Cash Cr

1,600 1,230 2,800 420 1,050

On March 30, issued Check No. 154 as payment for utility bill, $1,050.

CASH PAYMENTS JOURNAL

Date 2006

Mar. 2 15 21 22 30 31

Ck. No.

150 151 152 153 154 155

Account Debited

PAGE 7

Other Accounts Post Accounts Payable Ref. Dr. Dr.

Rent Expense Grayco Supplies √ Jewett Business Sys. √ Donnelly Supplies. √ Utilities Expense Howard Supplies

1,600 1,230 2,800 420 1,050 600

On March 31, issued Check No. 155 on account to Howard Supplies, $600

Cash Cr

1,600 1,230 2,800 420 1,050 600

CASH PAYMENTS JOURNAL

Date 2006

Mar. 2 15 21 22 30 31 31

Ck. No.

150 151 152 153 154 155

Account Debited

Rent Expense Grayco Supplies Jewett Business Sys. Donnelly Supplies. Utilities Expense Howard Supplies

PAGE 7

Other Accounts Post Accounts Payable Ref. Dr. Dr.

1,600 √ √ √ √

1,230 2,800 420 1,050 2,650

600 5,050

The journal is ruled, summed, and verified for equality of debits and the “Cash Cr.” column.

Cash Cr

1,600 1,230 2,800 420 1,050 600 7,700

CASH PAYMENTS JOURNAL

Date 2006

Mar. 2 15 21 22 30 31 31

Ck. No.

150 151 152 153 154 155

Account Debited

Rent Expense Grayco Supplies Jewett Business Sys. Donnelly Supplies. Utilities Expense Howard Supplies

PAGE 7

Other Accounts Post Accounts Payable Ref. Dr. Dr.

52 √ √ √ 54 √

1,600

600 5,050

1,600 1,230 2,800 420 1,050 600 7,700

(21)

(11)

1,230 2,800 420 1,050 2,650 (√ )

Cash Cr

Individual items in the “Other Accounts Dr.” column are posted. Then the totals for “Accounts Payable Dr.” and “Cash Cr.” are posted.

Accounts Accounts Payable Payable Control Control Accounts Accounts Payable Payable

GENERAL LEDGER

Accounts Payable (Controlling)

ACCOUNT Accounts Payable Date Item P.R.

Mar. 1 Bal 31 31

No. 12

Debit Credit

P11 CP7 5,050

6,230

Balance

1,230 7,460 2,410

Donnelly Supplies Date

Accounts Jewett Business Payable SystemsSubsidiary also has a zero balance, so Ledger that account was omitted for space reasons.

Item

Mar 2 19 22

P.R.

P11 P11 CP7

Debit

Credit

420 1,450 420

Balance

420 1,870 1,450

Grayco Supplies Date

Item

P.R.

Mar 1 Bal. 15 ✔ CP7 -Howard Supplies Date

Mar 3 27 31

Item

P.R.

P11 P11 CP7

Debit

Credit

1,230 0

1,230

Debit

Credit

600 960 600

Balance

Balance

600 1,560 960

Advantages Advantages of of aa Computerized Computerized Accounting Accounting System System Over Over aa Manual Manual Accounting Accounting System System 1. Computerized systems simplify the recordkeeping process. 2. Computerized systems are generally more accurate. 3. Computerized systems provide management current account balance information to support decision making.

The The Revenue Revenue and and Collection Collection Cycle Cycle in in QuickBooks QuickBooks From Exhibit 10, page 203 of textbook

Mail invoice to customer

The The Revenue Revenue and and Collection Collection Cycle Cycle in in QuickBooks QuickBooks Continued Continued From Exhibit 10, page 203 of textbook

The The Revenue Revenue and and Collection Collection Cycle Cycle in in QuickBooks QuickBooks Continued Continued From Exhibit 10, page 203 of textbook

Advanced Advanced Areas Areas Where Where the the Internet Internet is is Being Being Used Used for for Business Business Purposes Purposes Supply chain management (SCM) Customer relationship management (CRM) Product life-cycle management (PLM)

Chapter 5 The The End End