CHAPTER 6
Accounting Information Systems
Chapter Outline
Objective 4: Use the sales journal, the cash receipts journal, and the accounts receivable subsidiary ledger
A. While all businesses must use a general journal (to record transactions that do not fit into one of the special journals), special journals are designed to record specific types of transactions.
1. See Exhibit 6-9 for an overview of an accounting system with special journals.
2. The four special journals that most business’s use are:
a. Sales journal (S)
b. Cash receipts journal (CR)
c. Purchases journal (P)
d. Cash payments journal (CP)
B. The sales journal is used to record all sales on account. (Refer to Exhibit 6-10.)
1. Every transaction in the sales journal is a debit to Accounts Receivable and a credit to Sales Revenue.
2. The date, invoice number, and customer account name (or number) are entered along with the amount of the transaction.
3. This procedure saves time in a manual system. In a computerized system, the transaction may be entered at a cash register computer terminal that records both the sale and the related cost of goods sold as well as the decrease in the perpetual inventory.
4. Totals from the sales journal are posted monthly to the general ledger.
5. Individual amounts from the sales journal are posted daily to the subsidiary ledger.
a. A subsidiary ledger is a record of accounts that provides supporting details on individual customer balances.
b. The total of the subsidiary ledger should equal the total of Accounts Receivable in the general ledger. When a subsidiary ledger is used, the general ledger account is called the control account.
c. Since the subsidiary ledger is not part of the general ledger, posting to it is not indicated with an account number but with a check mark.
d. The journal reference for items posted from the sales journal will all begin with "S", followed by the page number.
e. The design of the sales journal, or any of the special journals, can be changed to meet managers’ needs for information.
f. Small businesses may alternatively use actual documents (such as sales invoices) as the journal.
C. The cash receipts journal is used for all transactions that involve a receipt of cash. (See Exhibit 6-11.)
1. All transactions in the cash receipts journal involve a debit to Cash.
2. The main sources of cash are collections on account and cash sales, thus the cash receipts journal includes columns for Accounts Receivable (Cr) and Sales (Cr).
3. Other sources of cash are recorded in the Other Accounts column. Individual customer names are also listed in the "Account Title" column.
4. Column totals, except for Other Accounts, are posted monthly. The accounts that appear in the Other Accounts column are posted individually, either daily or at the end of the month. The journal reference will begin with "CR", followed by the page number.
5. Collections of accounts receivable must be posted to the subsidiary ledger daily.
Objective 5: Use the purchases journal, the cash payments journal, and the accounts payable subsidiary ledger
A. The purchases journal is used to record all purchases on account. (Refer to Exhibit 6-12.)
1. Every transaction in the purchases journal includes a credit to Accounts Payable.
2. Purchases on account of inventory and supplies are recorded in this journal; a (Dr) column is provided for each.
3. Purchases of other assets are recorded in the Other Accounts column.
4. Posting procedures are similar to those of other special journals. Column totals, except for Other Accounts, are posted monthly to the general ledger. The journal reference will begin with "P", followed by the page number.
5. Items in the Other Accounts column are posted individually, usually at the end of the month.
6. A subsidiary ledger is also used for accounts payable. All credits to Accounts Payable are posted daily to the subsidiary ledger.
B. The cash payments journal (also called the check register or cash disbursements journal) is used to record all payments of cash. (See Exhibit 6-13.)
1. All transactions in the cash payments journal involve a credit to Cash.
2. Many cash payments are for payments on account; therefore, an Accounts Payable (Dr) column appears in the cash payments journal.
3. Other payments of cash are recorded in the Other Accounts column.
4. Column totals, except for Other Accounts, are posted monthly. The amounts that appear in the Other Accounts column are posted individually, either daily or at the end of the month. The journal reference will begin with "CP", followed by the page number.
5. Payments on accounts payable must be posted to the subsidiary ledger daily.
C. At the end of each accounting period, a list of individual customers’ (or vendors’) account balances should be made and the total balanced with the related control account in the general ledger.
D. While special journals save time when recording repetitive transactions, a business still has need for a general journal. Examples of transactions recorded in the general journal include:
1. Adjusting and closing entries.
2. Sales returns and allowances. The business will issue a credit memorandum or credit memo to notify the customer that he has received credit for returned merchandise. The related journal entry includes a credit to both the customer’s account receivable and the accounts receivable control account.
3. Purchase returns and allowances. The business may issue a debit memorandum or debit memo to notify a vendor that merchandise has been returned. The related journal entry includes a debit to both the vendor’s account payable and to the accounts payable control account.
E. At the end of each period, balancing the ledgers or proving the ledgers helps ensure that certain equalities exist:
1. In the general ledger: there should be equal debit account and credit account totals.
2. In the general ledger and the subsidiary ledger: the control account should be equal to the sum of the individual balances in the subsidiary ledger (for both accounts receivable and accounts payable).
F. Generally, computerized special journals require no drastic changes in system design.
G. Decision guidelines summarize the uses of special journals and control accounts.