CHAPTER ACCOUNTING SYSTEMS DISCUSSION QUESTIONS The individual accounts receivable ledger accounts provide business managers information on the status of individual customer accounts, which is necessary for managing collections Managers need to know which customers owe money, how much they owe, and how long the amount owed has been outstanding The major advantages of the use of special journals are substantial savings in record-keeping expenses and a reduction of record-keeping errors a b 400 None a b 400 a Sometime following the end of the current month, one of two things may happen: (1) an overdue notice will be received from Kelly Co., and/or (2) a letter will be received from Kelley Co., informing the buyer of the overpayment (It is also possible that the error will be discovered at the time of making payment if the original invoice is inspected at the time the check is being written.) b The schedule of accounts payable would not agree with the balance of the accounts payable account The error might also be discovered at the time the invoice is paid c The creditor will call the attention of the debtor to the unpaid balance of $800 d The error will become evident during the verification process at the end of the month The total debits in the purchases journal will be less than the total credits by $3,600 a b c Purchases journal Cash payments journal Purchases journal An electronic form is a software window that provides the inputs for a particular transaction For example, a check form provides the inputs (payee, amount, date) for a cash payment transaction An electronic invoice provides the inputs (customer, amount sold, item sold) for recording revenues earned on account The use of controlling accounts to verify the accuracy of subsidiary accounts is used in a manual system In a computerized system, it is assumed that the computer will accurately sum the individual transactions in the subsidiary accounts in determining the aggregate balance For automated systems that use electronic forms, the special journals are not used to record original transactions Rather, electronic forms capture the original transaction detail from an invoice, for example, and automatically post the transaction details to the appropriate ledger accounts 10 E-commerce can be used by a business to conduct transactions directly with customers Thus, an order can be received directly from the customer’s Internet input and cash can be received from the credit card Many times, the cash is received prior to actually shipping the product, resulting in a faster revenue/collection cycle Reducing paperwork throughout the cycle also improves the efficiency of the process For example, all of the accounting transactions can be fed automatically from the initial Internet-based inputs d e Cash payments journal Cash payments journal 5-1 © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part CHAPTER Accounting Systems PRACTICE EXERCISES PE 5–1A REVENUE JOURNAL Invoice No Date Nov 17 23 121 122 123 Account Debited Post Ref Accounts Rec Dr Fees Earned Cr Drew Co Triple A Inc Whaley Co 290 470 610 PE 5–1B REVENUE JOURNAL Invoice No Date Apr 11 19 78 79 80 Account Debited Post Ref Accounts Rec Dr Fees Earned Cr Lemon Co Hitchcock Inc Fletcher Inc 1,240 2,570 990 PE 5–2A May 20 Collected cash of $100 from Matrix Communications Inc (Invoice No 527) Amount posted from page 106 of the cash receipts journal 27 Provided $90 of services on account to Matrix Communications Inc., itemized on Invoice No 579 Amount posted from page 92 of the revenue journal 10 Provided $750 services on account to Moravian Products Inc., itemized on Invoice No 119 Amount posted from page 24 of the revenue journal 17 Collected cash of $610 from Moravian Products Inc (Invoice No 106) PE 5–2B Aug Amount posted from page 46 of the cash receipts journal CHAPTER PE 5–3A PURCHASES JOURNAL Date Feb Account Credited 11 14 27 Post Ref Celebration Supplies Inc Fun All Supplies Inc Office Space Inc Accounts Payable Cr Party Supplies Dr 440 290 2,350 PE 5–3B Other Accounts Dr Post Ref Amount 440 290 Office Furniture 2,350 PURCHASES JOURNAL Date Nov Accounting Systems Account Credited 14 22 Carry Out Supply Inc Zell Computer Inc Carry Out Supply Inc Post Ref Accounts Payable Cr Office Supplies Dr 330 1,950 195 Other Accounts Dr Post Ref Amount 330 Office Equipment 195 5-3 © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 1,950 CHAPTER Accounting Systems PE 5–4A Dec 11 Made purchases of $2,340 on account from Martin Computer Services Inc (Invoice No 75) Amount posted from page of the purchases journal 19 Paid $5,540 to Martin Computer Services Inc on account (Invoice No 43) Amount posted from page 46 of the cash payments journal PE 5–4B Jan 11 Paid $64 to Colonial Inc on account (Invoice No 122) Amount posted from page 71 of the cash payments journal 26 Made purchases of $72 on account from Colonial Inc (Invoice No 139) Amount posted from page 55 of the purchases journal PE 5–5A Horizontal analysis: 2014 Retail Wholesale Total revenue 2013 $110,000 140,000 $250,000 $ 92,000 164,000 $256,000 Increase/(Decrease) Amount Percent $ 18,000 (24,000) $ (6,000) 19.6% –14.6% –2.3% Vertical analysis: 2014 Amount Retail Wholesale Total revenue $110,000 140,000 $250,000 2013 Percent 44.0% 56.0% 100.0% Amount $ 92,000 164,000 $256,000 Percent 35.9% 64.1% 100.0% 5-4 © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part CHAPTER Accounting Systems PE 5–5B Horizontal analysis: Increase/(Decrease) 2014 Camping Fishing Total revenue 2013 $280,000 140,000 $420,000 $240,000 160,000 $400,000 Amount Percent $ 40,000 (20,000) $ 20,000 16.7% –12.5% 5.0% Vertical analysis: 2014 Amount Camping Fishing Total revenue $280,000 140,000 $420,000 2013 Percent 66.7% 33.3% 100.0% Amount $240,000 160,000 $400,000 Percent 60.0% 40.0% 100.0% CHAPTER Accounting Systems EXERCISES Ex 5–1 General ledger accounts: (e) Subsidiary ledger accounts: (a), (b), (c), (d) Ex 5–2 a., b., and c Accounts Receivable Mar Bal 480 Mar 31 6,795 Mar 31 Bal 7,275 Eco-Systems Mar Mar 20 31 Bal 1,700 1,700 Hazmat Safety Co Mar Mar 31 Bal Masco Co 2,875 2,875 Sunrise Enterprises Mar 10 980 Mar Mar 31 Bal 980 Mar 27 Bal 1,240 480 Mar 31 Bal 1,720 d ZETA SERVICES INC Accounts Receivable Customer Balances March 31, 2014 Eco-Systems Hazmat Safety Co Masco Co Sunrise Enterprises Total accounts receivable $1,700 2,875 980 1,720 $7,275 Ex 5–3 a b c d e Cash receipts journal General journal Cash receipts journal General journal (not a revenue transaction) Cash receipts journal f g h i j Cash receipts journal General journal Cash receipts journal Cash receipts journal Revenue journal f g h i j k General journal Purchases journal Purchases journal Purchases journal Cash payments journal General journal Ex 5–4 a b c d e General journal Cash payments journal Cash payments journal Cash payments journal General journal Ex 5–5 Apr Provided service on account; posted from revenue journal page 44 Granted an invoice adjustment or corrected an error related to sale of April 3; posted from general journal page 11 This does not represent a collection of cash, since the credit was not posted from the cash receipts journal 24 Received cash for balance due; posted from cash receipts journal page 81 Ex 5–6 a REVENUE JOURNAL Invoice No Date Sept 14 22 201 202 203 204 Account Debited Triple Play Corp Mid States Inc Triple Play Corp Rose Co 30 Post Ref Accounts Rec Dr Fees Earned Cr 380 295 320 650 1,645 b $1,645 $1,645 Debit to Accounts Receivable [from revenue journal column total in (a)] Credit to Fees Earned [from revenue journal column total in (a)] c $ 320 ($0 + $380 + $320 – $380) Ex 5–7 a and b May Aladdin Co Bal 14 Bal Borman Co 505 1,140 May 1,645 Bal 22 1,670 3,150 4,820 Life Star Inc May Bal 2,870 2,870 c Accounts Receivable May Bal 31 Bal Fees Earned 505 May 8,830 9,335 Bal 31 8,830 8,830 d EVERGREEN CONSULTING INC Accounts Receivable Customer Balances May 31, 2014 Aladdin Co Borman Co Life Star Inc Total accounts receivable $1,645 4,820 2,870 $9,335 The total in the schedule above agrees with the T account balance for the accounts receivable controlling account in part (c) e A computerized system would likely use an electronic form specially designed for recording sales transactions, such as an electronic invoice form The transaction details would be input into the form fields and submitted Once submitted, the transaction would be saved and automatically posted as a debit to the individual customer account receivable and a credit to the revenue account There would be no control totals posted to a controlling account Ex 5–8 FANTASY PRODUCTIONS INC Accounts Receivable Customer Balances July 31, 2014 Amber Communications Inc Crowne Studios Inc Franklin Broadcasting Co Gold Coast Media Inc $3,940 1,250 2,200 $7,390 Total accounts receivable Accounts Receivable (Controlling) $ 3,670 13,640 (9,920) $ 7,390 Balance, July 1, 2014 Total debits (from revenue journal) Total credits (from cash receipts journal) Balance, July 31, 2014 Ex 5–9 REVENUE JOURNAL Invoice No Date 2014 Oct 12 22 512 513 514 515 Account Debited Albany Co Gabriel Co Ells Inc Electronic Central Inc 31 CASH RECEIPTS JOURNAL Page Post Ref √ √ √ √ Accounts Rec Dr Fees Earned Cr 670 275 840 150 1,935 Page 12 CHAPTER Accounting Systems Prob 5–5B (Continued) Fees Earned Account: Post Date 2014 Mar Item 16 31 31 Ref Balance Debit CR31 CR31 R35 Credit Debit 26,800 56,200 95,740 2014 Mar Item 18 Ref Balance Debit CR31 Credit Debit 900 2014 Mar Item 30 Ref Balance Debit CP34 Credit 33,300 Debit 2014 Mar Item 20 Ref J1 Balance Debit Credit 4,400 Debit 2014 Mar Item Ref CP34 Balance Debit Credit 820 Debit 2014 Mar Item 31 Ref CP34 61 Account No Post Date Credit 820 Office Salaries Expense Account: 53 Account No Post Date Credit 4,400 Fuel Expense Account: 52 Account No Post Date Credit 33,300 Maintenance Supplies Expense Account: 51 Account No Post Date Credit 900 Driver Salaries Expense Account: 42 Account No Post Date Credit 26,800 29,400 39,540 Rent Revenue Account: 41 Account No Balance Debit 21,200 Credit Debit 21,200 Credit CHAPTER Accounting Systems Prob 5–5B (Continued) Post Date 2014 Mar Item Ref CP34 Balance Debit Credit 2,450 Debit 2014 Mar Account: Item 20 63 Account No Post Date Credit 2,450 Advertising Expense Account: 62 Account No Rent Expense Account: Ref CP34 Balance Debit 8,590 Miscellaneous Administrative Expense Credit Debit Credit 8,590 Account No 64 CHAPTER Post Date 2014 Mar Item 17 Ref CP34 Accounting Systems Balance Debit 4,680 Credit Debit 4,680 Credit CHAPTER Accounting Systems Prob 5–5B (Continued) and PURCHASES JOURNAL Date 2014 Mar Account Credited 18 19 21 McIntyre Sales Co Office Mate Inc Bastille Co Master Supply Co Office City Post Ref √ √ √ √ √ 31 Accounts Payable Cr Maintenance Supplies Dr 26,900 1,570 2,430 4,140 990 36,030 (21) Date 2014 Mar Account Credited 10 12 16 18 25 31 Chavez Co Sajeev Co Ellis Co Fees Earned Rent Revenue Chavez Co Fees Earned Other Accounts Cr 2,430 2,640 5,070 (14) Page Accounts Receivable Cr 7,950 10,000 7,000 √ √ √ 41 42 26,800 900 14,000 √ 41 Office Supplies Dr Other Accounts Dr Vehicles Office Equipment CASH RECEIPTS JOURNAL Post Ref Page 29,400 57,100 38,950 (12) (√) 1,500 990 2,490 (15) 31 Cash Dr 7,950 10,000 7,000 26,800 900 14,000 29,400 96,050 (11) 5-67 © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 37 Post Ref Amount 18 16 26,900 1,570 28,470 (√) CHAPTER Accounting Systems Prob 5–5B (Continued) and Invoice No Date 2014 Mar REVENUE JOURNAL 11 24 25 91 92 93 94 95 Account Debited Ellis Co Trent Co Jarvis Co Sajeev Co Trent Co 35 Page Post Ref Accounts Rec Dr Fees Earned Cr √ 7,000 9,840 7,200 9,200 6,300 39,540 (41) (12) √ √ √ √ 31 CASH PAYMENTS JOURNAL Page 34 5-82 © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part CHAPTER Ck No Date 2014 Mar Account Debited Accounting Systems Post Ref Other Accounts Dr Accounts Payable Dr Cash Cr 205 Rent Expense 62 2,450 2,450 206 Fuel Expense 53 820 820 450 450 1,890 415 26,900 10 207 Office City √ 10 11 208 209 Bastille Co Porter Co √ √ 1,890 415 13 210 McIntyre Sales Co √ 26,900 16 211 Vehicles 18 212 Misc Admin Expense 64 28,500 4,680 28,500 17 20 26 213 214 Advertising Expense Office Mate Inc 63 8,590 8,590 1,570 27 30 215 216 J Wu, Drawing Driver Salaries Expense 32 4,000 51 33,300 31 31 217 218 Office Salaries Expense Office Supplies 61 21,200 15 600 √ 1,570 104,140 31 4,680 (√) 4,000 33,300 21,200 600 31,225 (21) 135,365 (11) 5-83 © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Prob 5–5B (Concluded) JOURNAL Page Post Date 2014 Mar Description 20 Maintenance Supplies Expense Maintenance Supplies Ref 52 14 Debit Credit 4,400 4,400 AM EXPRESS COMPANY Unadjusted Trial Balance March 31, 2014 Debit Balances Cash Accounts Receivable Maintenance Supplies Office Supplies Office Equipment Accumulated Depreciation—Office Equipment Vehicles Accumulated Depreciation—Vehicles Accounts Payable J Wu, Capital J Wu, Drawing Fees Earned Rent Revenue Driver Salaries Expense Office Salaries Expense Advertising Expense Maintenance Supplies Expense Rent Expense Fuel Expense Miscellaneous Administrative Expense Credit Balances 25,885 32,540 7,910 6,780 18,870 4,250 117,800 17,800 7,560 162,975 4,000 95,740 900 33,300 21,200 8,590 4,400 2,450 820 4,680 289,225 289,225 CASES & PROJECTS CP 5–1 a The half-price offer is a normal business practice, so long as it is not the result of price collusion with other competitors or considered “unfair pricing” according to federal statutes Many businesses will offer low initial offers to entice customers to a subscription service For example, cable and satellite companies will often offer premium channels, such as HBO, for free for the first several months of service The business objective of low initial pricing is to demonstrate the value of the service so that customers will elect to continue the service at the full subscription price Thus, there is nothing inherently unethical about such a practice, and it would be considered a fairly typical business practice b Customer “lock in” can be unethical if it is the result of price fixing or acquiring competitors in order to achieve monopolistic concentration within an industry However, in this case, the customer lock in is a function and nature of the product Namely, the data that are created by the product cannot be easily migrated to another application Note, Netbooks is not denying the customer ownership of the data; rather it is making it costly to switch Such lock in is not considered an unethical business practice Indeed, we see such lock in characteristics in many settings For example: ● Razor blades are designed to be used only by the handle of the manufacturer Thus, customers become locked in to the razor blades of the handle manufacturer This is such a common strategy in many arenas that it has been termed the “razor blade strategy.” ● Movie theaters prevent customers from walking in with refreshments, thus locking theater goers in to the popcorn and refreshment stand of the theater Theater pricing of refreshments reflects this lock in ● Sony designs video games so that they only work on its Play Station® equipment Therefore, the games are locked in to the consoles This allows Sony and its licensees to limit and control competition for games ● Many manufacturers control replacement parts for equipment by custom designing the parts Customers then become locked into the original manufacturer for replacement parts ● Apple Computer’s iTunes can only be played on an iTunes compatible player Thus, Apple reduces competition for songs for its player and locks customers into its music platform Apple employs the same lock in strategy for its Mac operating system CP 5–2 Kyle is missing some of the principal benefits of the computerized system There are three primary advantages of a computerized system First, the computerized system is much more efficient and accurate at transaction processing In the computerized system, once the transaction data have been input, the information is simultaneously recorded in the electronic journal (file) and posted to the ledger accounts This saves a significant amount of time in recording and posting transactions Second, the computerized environment is less prone to mathematical, posting, and recording errors The computer does not make these types of mistakes Thus, the computerized environment should require less time correcting errors Third, the computerized system provides more timely information to management because account balances are always kept current Under the manual system, ledger accounts will only be as current as the latest posting date, but the computerized system posts every transaction when it is journalized or recorded on a form Thus, management has more current information with which to make decisions As an additional note, Kyle may be reacting out of some fear of the unknown This is a common reaction to change Thus, Kyle may be overreacting to the new computer environment because it will require significant change in the way the job is done as compared to the manual approach CP 5–3 a The accounts receivable and accounts payable accounts consist of transactions with individual customers and creditors (suppliers) In both cases, the subsidiary ledger tracks what is collectible from customers or owed to suppliers Thus, the subsidiary ledger is required for tracking the collection and payment process to individual customers and suppliers, respectively b The equipment account could use a subsidiary ledger The subsidiary ledger for equipment would track individual items of equipment, including their cost, location, and useful lives The subsidiary ledger would be useful for determining equipment depreciation and safeguarding equipment assets CP 5–4 Special journals are used to reduce the processing time and expense to record transactions A special journal is usually created when a specific type of transaction occurs frequently enough so that the use of the traditional twocolumn journal becomes cumbersome The frequency of transactions for Omni Care would probably justify the following special journals: Purchases journal Cash payments journal Revenue journal Cash receipts journal Note to Instructors: The number and nature of the special journals to be established for Omni Care involve judgment Differences of opinion may exist as to whether all the preceding special journals are necessary or cost-efficient You may wish to use this time to comment further on the costs of establishing special journals and the potential benefits of reducing the processing time to record transactions CHAPTER Accounting Systems CP 5–4 (Concluded) PURCHASES JOURNAL Date Post Ref Account Credited Accounts Payable Cr Medical Supplies Dr REVENUE JOURNAL Date Invoice No Page Office Supplies Dr Page Post Ref Account Debited Other Accounts Dr Accounts Rec Dr Fees Earned Cr The business should maintain subsidiary ledgers for customer accounts receivable, supplier accounts payable, and medical equipment 5-73 © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Post Ref Amount CHAPTER CP 5–5 Accounting Systems MEMORANDUM To: From: Senior Management Student Re: Internet-based (cloud computing) accounting software A new approach to automating our accounting requirements is now available It is called Internet-based accounting using a cloud computing provider Rather than purchasing our accounting software and loading it on our own computers, Internet-based accounting software is rented and resides on the provider’s computers Our data, along with the accounting software, stay with the provider There are several advantages to this approach We don’t need to administer the application or data on our own computers This becomes the job of the service provider, thus saving us computer system personnel costs All we need is a desktop computer and browser to use the software Our people can work with our data anytime or anyplace We don’t need to rely on our own internal computer network for accounting-related work Instead, this product is available on the Internet This means that we can enter transactions and access our accounting data from anywhere in the world, rather than having to be plugged into our corporate network This also will save us network support costs We never need to purchase and load software upgrades All upgrades are provided on the provider’s server when they are available Thus, we are always using the latest version Providers promise a highly secure environment for our data An Internet-based accounting system should help us when passing data, such as orders, between ourselves and our customers and suppliers There are also a number of disadvantages we need to consider The cost of the software is recurring Thus, we are trading off the recurring costs of maintaining our system infrastructure for the recurring cost of the service A financial analysis should be conducted to determine if the service is cost effective The Internet can be slow During busy times, we may experience slow response times Our data physically reside with the service provider Thus, we don’t control the security of our own data; the provider does Our data are our lifeblood, so confidence in the provider’s controls is paramount 5-89 © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part CHAPTER Accounting Systems Once we begin, we will become “locked in” to the provider It will be hard to change our mind at a later date However, this is also true for purchased software to some extent 5-90 © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part CP 5–6 Note to Instructors: While the list of functions and services can be quite large, the key services are identified below The purpose of these services will be fairly advanced for most students The activity asks for a listing rather than an explanation because most students would have very limited experience by which to provide much explanation Use this case to demonstrate the scope and basic nature of these application tools Selected JDA Supply Chain Management Solutions ● ● ● ● ● ● ● ● ● ● ● Demand management Factory planning and scheduling Merchandise operations Supplier relationship management Transportation and logistics management Space and category management Visibility, collaboration, and performance management Inventory optimization Planning on demand Replenishment and fulfillment Customer order management Selected Salesforce.com Customer Relationship Management Solutions ● Provide the sales force with real-time information about all customer contacts with the firm in order to improve the effectiveness of the sales call ● Provide real-time forecast estimation and accumulation tools ● Support promotion plans and integrate the plans with forecasting and manufacturing ● Decision tools for evaluating marketing campaign effectiveness ● Tools to support call center responsiveness ... part 2,790 2,790 CHAPTER Accounting Systems Ex 5–15 a and b Enviro-Wash Supplies Inc Jan 26 Bal Little Co 570 350 Jan 920 Bal Bal 15 410 290 700 Office Mate Inc Jan 19 Bal 3 ,050 3 ,050 c Accounts... originates the sales transaction inside the accounting system Accounting transactions flow directly from the shopping cart information directly into the accounting system 12 Ex 5–24 a Amazon.com... scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part CHAPTER Accounting Systems PE 5–5B Horizontal analysis: Increase/(Decrease) 2014 Camping Fishing Total