Appendix E – Accounting with Special Journals
APP E-1
Appendix E
Accounting with Special Journals
Related Assignment Materials
Student Learning Objectives
Questions
Quick
Studies*
Exercises*
Problems*
Beyond the
Numbers
Conceptual objectives:
C1. Identify the principles and
components of accounting
information systems.
1, 2, 3, 4, 5,
6
E-1, E-2, E-3
EC
C2. Explain the goals and uses of
special journals.
7, 8, 9, 10,
11
E-4, E-5,
E-8, E-11
E-2, E-4, E-7
CIP
C3. Describe the use of controlling
accounts and subsidiary ledgers.
12, 9
E-6
E-5
E-1, E-2,
E-3, E-4,
E-5, E-6
CIP, TIA
Analytical objectives:
A1 Compute segment return on
assets and use it to evaluate
segment performance.
E-10
E-11
TTN
Procedural objectives:
P1. Journalize and post transactions
using special journals.
E-7
E-1, E-3,
E-6, E-8,
E-9
E-1, E-2, E-3
TIA
P2. Prepare and prove the accuracy
of subsidiary ledgers.
E-9
E-10
E-1, E-2,
E-3, E-4,
E-5, E-6
TIA
P3. Journalize and post transactions
using special journals in a
periodic inventory system.
E-12
E-12, E-13,
E-14
E-4, E-5, E-6
*See additional information on next page that pertains to these quick studies, exercises and
problems.
Appendix E – Accounting with Special Journals
*Assignment materials that can be completed by students using:
Appendix E – Accounting with Special Journals
APP E-3
Appendix Outline
Notes
I. Fundamental System Principles—Accounting information systems
(AIS) collect, process, organize, and communicate information to
decision makers. The five fundamental principles of accounting
information systems are:
A. Control Principle
Requires that AIS include methods and procedures called internal
controls. These controls allow managers to control and monitor
activities.
B. Relevance Principle
Requires that AIS report useful, understandable, timely and
pertinent information for effective decision making.
C. Compatibility Principle
Requires that AIS conform with a company’s activities, personnel
and structure. It must adapt to the unique characteristics of a
company.
D. Flexibility Principle
Requires that AIS adapt to changes in the company, business
environment, and needs of decisions makers.
E. Cost-Benefit Principle
Requires that the benefits from an activity in AIS outweigh the
costs of that activity.
II. Components of Accounting Systems—AIS consist of people,
records, methods and equipment. Five basic components of AIS are:
A. Source Documents
Documents (paper and electronic) that provide the basic
information to be processed by an accounting system.
B. Input Devices
Capture information from source documents and enable its transfer
to the information system’s processing component.
C. Information Processors
Systems that interpret, transform, and summarize information for
use in analysis and reporting.
D. Information Storage
System component that keeps data in a form accessible to
information processors. Most modern systems depend on
electronic storage devices or cloud storage.
E. Output Devices
Means to take information out of the accounting system and make
it available for use.
Appendix E – Accounting with Special Journals
APP E-4
Appendix Outline
Notes
III. Special Journals in Accounting
A. Basics of Special Journals
Used to record and post transactions of similar type. Use reduces
recording and posting labor by grouping similar transactions and
periodically posting totals accumulated.
B. Subsidiary Ledgers
List of individual accounts with a common characteristic. Supports
the general ledger by providing detailed information on specific
general ledger accounts.
1. Two common subsidiary ledgers are:
a. Accounts receivable ledger—contains accounts for and
stores transaction data of individual customers; controlled
by Accounts Receivable in General Ledger.
b. Accounts payable ledger— contains accounts for and
stores transaction data of individual suppliers; controlled
by Accounts Payable in General Ledger.
2. Other Subsidiary ledgers are common for other general ledger
accounts such as equipment or investments.
3. At least four benefits derive from subsidiary ledgers:
a. Removal of excessive details from the general ledger.
b. Up-to-date information readily available on specific
customers and suppliers.
c. Aid in error identification for specific accounts.
d. Potential efficiencies in record keeping through division of
labor in posting.
C. Sales Journal – used to record sales of inventory on credit.
1. Journalizing – credit sale transactions are recorded with
information about each sale entered separately in a sales
journal. Information is generally taken from a sales ticket or
invoice. It has columns for recording the date, customer name,
invoice number, posting reference and retail and cost amounts
of each credit sale. One column is used to record each sale and
the total is posted to Accounts Receivable (debit) and to Sales
(credit) in the General Ledger. It has a second column to
record the tracking of the perpetual inventory cost. This
column total is posted to Cost of Goods Sold (debit) and
Inventory (credit).
2. Posting – post to the subsidiary ledger and to the general
ledger. Debits to the accounts of particular customers are
individually posted to the customer’s account in the subsidiary
accounts receivable ledger. Sales journal account columns are
totaled at the end of each period. Sales column total is debited
to Accounts Receivable and credited to Sales. The cost
column is debited to Cost of Goods Sold and credited to
Inventory in the general ledger.
Appendix E – Accounting with Special Journals
APP E-5
Appendix Outline
Notes
3. Proving the Ledgers – account balances in the general ledger
and subsidiary ledgers are periodically proved for accuracy
after posting. A trial balance of the general ledger is prepared
to confirm that debits equal credits. A schedule (list) of
accounts receivable is used to prove the accuracy of the
subsidiary ledger. The total of this schedule must equal the
balance of the Accounts Receivable controlling account in the
general ledger.
4. Additional issues
A. Sales taxes – governmental agencies often require sellers
to collect sales taxes from customers and periodically send
these taxes to the appropriate agency. A Sales Taxes
Payable column can be added to the sales journal.
B. Sales returns and allowances – companies with few sales
returns and allowances can record them in a general journal
with a debit to sales returns and allowances and a credit to
their account receivable.
C. Sales invoices as a sales journal – some companies avoid
using a sales journal for credit sales and instead post each
sales invoice amount directly to the customer’s account in
the accounts receivable ledger. At the end of the period,
they total all invoices for that period and make a general
journal entry to debit accounts receivable and credit sales
for the total amount. This is called direct posting of sales
invoices.
D. Cash Receipts Journal – multicolumn journal used to record all
receipts of cash.
1. Journalizing and Posting. Cash receipts are either from credit
customers in payment of their accounts, from cash sales, or
from other sources. Every transaction increases Cash and is
recorded in a special Cash debit column. Only the total of this
column is posted.
A. Cash from credit customers. The amounts debited to both
cash and the Sales Discount are entered in their columns.
The amount credited to the customer’s account is entered
in the Accounts Receivable Cr. column. Individual
amounts are posted immediately to the customer accounts
in the subsidiary ledger.
B. Cash sales. The amount of each cash sale is entered in the
Cash Dr. column and the Sales Cr. column.
C. Cash from other sources. Examples include money
borrowed from the bank, cash interest received on account
and cash sale of non-inventory assets.
Appendix E – Accounting with Special Journals
APP E-6
Appendix Outline
Notes
2. Footing, Crossfooting, and Posting. To be sure that total
debits and credits are equal, crossfoot column totals before
posting them. To foot a column is to add it. To crossfoot,
means to add the debit column totals, then add the credit
column totals and compare the two sums for equality.
E. Purchases Journal – used to record all credit purchases including
inventory.
1. Journalizing – entries in the purchases journal reflect purchase
invoices or other source documents. The accounts payable Cr.
column is used to record the amounts owed to each creditor.
Inventory purchases are recorded in the Inventory Dr. column.
2. Posting – amounts in the Accounts Payable Cr. column are
immediately posted to the individual creditor accounts in the
accounts payable subsidiary ledger. Individual amounts in the
Other Accounts Dr. column are immediately posted to their
general ledger accounts. At the end of the period, all column
totals except the Other Accounts Dr. column are posted to the
general ledger accounts.
3. Proving the Ledger – a schedule (list) of accounts payable is
used to prove the accuracy of the subsidiary ledger. The total
of this schedule must equal the balance of the Accounts
Payable controlling account in the general ledger.
F. Cash Disbursements (Payments) Journal — Used to record all
payments of cash.
1. Journalizing. Cash disbursements journal used to record
repetitive entries to the Cash Cr. column reflecting cash
payments. A Check Register is a cash disbursements journal
that includes a column for entering the number of each check.
2. Posting. Individual amounts in the Other Accounts Dr. column
are immediately posted to their general ledger accounts.
Individual amounts in the Accounts Payable Dr. column are
also immediately posted to the creditors’ accounts in the
subsidiary ledger. A special Cash credit column is established.
Only the total of this column is posted to the general ledger.
G. General Journal Transactions – used to record transactions that do
not fit in any of the special journals. Examples include any
transactions which include purchases returns and allowances,
purchases of plant assets by issuing notes payable, sales returns if
a sales returns and allowances journal is not used and receipt of a
note receivable from a customer.
IV. Technology-Based Accounting Systems – range from simple
calculators to advanced computerized systems.
A. Computer Technology in Accounting – computer technology
provides accuracy, speed, efficiency, and convenience in
performing accounting tasks. Multipurpose off-the-shelf software
applications exist including Sage and Quickbooks.
Appendix E – Accounting with Special Journals
APP E-7
Appendix Outline
Notes
B. Data Processing in Accounting – two types of processing are:
1. On-line processing—enters and processes data as soon as
source documents are available. Updates databases
immediately. Examples: airline reservations, credit card
records, and rapid mail-order processing.
2. Batch processing – accumulates source documents for a
period of time and then processes them all at once such as
daily, weekly, or monthly.
C. Computer Networks in Accounting – computer networks are links
among computers giving different users and different computers
access to common databases, programs, and hardware.
D. Enterprise-Resource Planning Software – programs that manage a
company’s vital operations.
E. Cloud Computing is the delivery of computing as a service rather
than a product. Uses applications via the Web instead of installing
them on one’s own computer whereby companies lease
applications so that the user does not need to update applications.
V. Global View
A. Both U.S. GAAP and IFRS aim for high-quality financial
reporting.
B. System principles and components are fundamentally similar
across the globe.
C. Special Journals – the exact structure of special journals is unique
to each company, but the basic structure is identical. Systems that
employ special journals are applied worldwide.
VI. Decision Analysis—Segment Return on Assets
A. A business segment is a part of a company that is separately
identified by its products or services or by the geographic market
it serves.
B. One measure of success for business segments is the segment
return on assets ratio.
C. It is calculated as segment operating income divided by segment
average assets.
Appendix E – Accounting with Special Journals
APP E-8
Appendix Outline
Notes
VII. Special Journals Under a Periodic System. (Appendix E-A)
A. Transactions are journalized and posted using special journals in a
periodic system using methods similar to those in a perpetual
system.
B. Primary difference is that the periodic system does not record the
increase in cost of goods sold and the decrease in inventory at the
time of each sale. This results in the deletion of these columns in
the sales and cash receipt journals. Also, in the purchases journal
the Inventory debit column is replaced with a Purchases debit
column and in the cash disbursements journal the Inventory credit
column is replaced with a Purchases Discount credit column.
Appendix E – Accounting with Special Journals
APP E-9
Appendix E Alternate Demonstration Problem #1
Bedrock Company completed these transactions during February of the
current year:
Feb
1
Owner, F. Stone invested $100,000 cash in the business.
1
Sent Flint Company check No. 413 for a cash purchase of
inventory $ 75,000.
2
Sold inventory costing $500 on credit to Dale Dent for $800,
Invoice No. 711. (Terms of all credit sales are 2/10, n/60.)
3
Received inventory and an invoice dated January 30, terms
2/10, n/60, from Able Company, $1,750.
4
Sold inventory costing $850 on credit to Gary Glen for $1,250,
Invoice No. 712.
5
Purchased on credit from Best Company inventory, $1,855;
store supplies, $75; and office supplies, $35. Invoice dated
February 4, terms n/10, EOM.
7
Borrowed $5,000 by giving First National Bank a promissory
note payable.
9
Purchased office equipment on credit from More Company,
invoice dated February 6, terms n/10, EOM, $625.
9
Sent Able Company Check No. 414 in payment of its January
30 invoice less the discount.
11
Sold inventory costing $1,000 on credit to Carl Cole for $ 1,650
Invoice No. 713.
12
Received payment from Dale Dent of the February 2 sale less
the discount.
14
Received payment from Gary Glen of the February 4 sale less
the discount.
1
4
14
Received inventory and an invoice dated February 11, terms
2/10, n/60, from Old Company, $1,985.