Special

Some examples of special journals are the sales journal, the purchases journal, the cash receipts journal, the cash disbursements journal, the payroll register, and thevoucher register.

Sales on account are recorded in the sales journal. The subsequent collections onaccount, as well as other transactions involving the receipt of cash, are recorded in thecash receipts journal. Merchandise purchases on account are entered in a purchases journal or a voucher register. Subsequent payments on account, as well as other trans-actions involving the payment of cash, are recorded in a cash disbursements journal or a check register. A payroll register may be employed to accumulate payroll infor-mation, including payroll deductions and withholdings for taxes.

Column headings in the various journals specify the accounts to be debited or credited; account titles and explanations may therefore be omitted in recording routinetransactions. A Sundry column is usually provided for transactions that are relatively infrequent, and account titles must be entered in recording such transactions.

A Review of the Accounting Cycle E M Chapter 2 69

Use special journals and subsidiary ledgers to process accounting infor-mation more efficiently and to provide additionaluseful information.

The use of special journals facilitates recording and also simplifies the postingprocess, because the totals of many transactions, rather than separate data for each transaction, can be posted to the ledger accounts. Certain data must be transferred indi-viduallydata affecting individual accounts receivable and accounts payable and datareported in the Sundry columnsbut the overall volume of posting is substantiallyreduced.

The format of a particular journal must satisfy the needs of the individual businessunit. For example, with an automated or computerized system, the general journal, anyspecialized journals, and subsidiary ledgers may be modified or eliminated. Recognizingthat modifications are necessary for individual systems, the following sections discuss avoucher system and illustrate some special journals that are commonly used with manualaccounting systems.

VOUCHER SYSTEM

Relatively large organizations ordinarily provide for the control of purchases and cash dis-bursements through adoption of some form of a voucher system. With the use of avoucher system, checks may be drawn only upon a written authorization in the form ofa voucher approved by some responsible official.

A voucher is prepared not only in support of each payment to be made for goods andservices purchased on account but also for all other transactions calling for payment bycheck, including cash purchases, retirement of debt, replenishment of petty cash funds,payrolls, and dividends. The voucher identifies the person authorizing the expenditure,explains the nature of the transaction, and names the accounts affected by the transac-tion. For control purposes, vouchers should be prenumbered, checked against purchaseinvoices, and compared with receiving reports. Upon verification, the voucher and therelated business documents are submitted to the appropriate official for final approval.When approved, the prenumbered voucher is recorded in a voucher register. Thevoucher register is a book of original entry and takes the place of a purchases journal.Charges on each voucher are classified and recorded in appropriate Debit columns, andthe amount to be paid is listed in an Accounts Payable or Vouchers Payable column. Aftera voucher is entered in the register, it is placed in an unpaid vouchers file together withits supporting documents.

Checks are written in payment of individual vouchers. The checks are recorded in acheck register, which is used in place of a cash payments journal, as debits to AccountsPayable or Vouchers Payable and credits to Cash. Since charges to the various asset, lia-bility, or expense accounts were recognized when the payable was recorded in thevoucher register, these accounts need not be listed in the payments record. When acheck is issued, payment of the voucher is reported in the voucher register by enteringthe check number and the payment date. Paid vouchers and supporting documents areremoved from the unpaid file, marked paid,and placed in a separate paid vouchers file.The balance of the payable account, after the credit for total vouchers issued and thedebit for total vouchers paid, should be equal to the sum of the unpaid vouchers file. Thevoucher register, while representing a journal, also provides the detail in support of theaccounts payable or vouchers payable total.

ILLUSTRATION OF SPECIAL JOURNALS AND SUBSIDIARY LEDGERS

Assume that Central Valley, Inc., maintains the following books of original entry: salesjournal, cash receipts journal, voucher register, check register, and general journal. Asnoted, the format of a particular journal must satisfy the needs of the individual businessunit. Those presented for Central Valley, Inc., are illustrative only.

70 Part 1 E M Foundations of Financial Accounting

Sales Journal

The sales journal for the month of July 2002 appears as follows:

As illustrated, credit sales are recorded by debits to Accounts Receivable and creditsto Sales. The sales invoice number provides a reference to the original source documentfor each transaction. Debits are posted to individual customersaccounts in the accountsreceivable subsidiary ledger as indicated by a check () in the Posting Reference column.The total sales for the month ($40,150) are posted to Accounts Receivable and Sales(accounts #116 and #41, respectively).

Cash Receipts Journal

The cash receipts journal for Central Valley, Inc., for July 2002 appears as follows:

CASH RECEIPTS JOURNAL Page 8

Date Account CreditedPost.Ref.

Cash Dr.

2002July 3 Hamilton Sign Co. 5,650 113 5,537

7 DataMark Systems Inc. 1,400 28 1,372 8 Sales 41 365 365

10 The Chocolate Factory 3,450 69 3,38111 Sawyer Co. 2,735 2,73514 Rohas, Inc. 4,875 4,87516 Milo Company 920 92017 Poynter Corp. 6,100 6,10021 Earnst Co. 6,870 6,87022 Tax Refund Receivable 120 5,780 5,78025 Sales 41 440 44029 Hillcrest Sales Co. 1,900 38 1,86231 The Chocolate Factory 2,000 2,00031 Notes Receivable 113 8,500

Interest Revenue 72 65 8,565

15,150 35,900 248 50,802

() (116) (42) (111)

SundryAccounts

Cr.

AccountsReceivable

Cr.

SalesDiscounts

Dr.

SALES JOURNAL Page 6

Date Account DebitedPost.Ref.

Accts. Rec. Dr.Sales Cr.

2002July 2 701 The Chocolate Factory 3,450

6 702 Huffman Company 6,51010 703 Stocks and Co. 1,52512 704 Bennet, Inc. 4,86015 705 The Chocolate Factory 2,00018 706 Ridnour Corporation 5,94020 707 Hillcrest Sales Co. 1,91023 708 Kirstein, Inc. 7,65027 709 Datamark Systems Inc. 1,28029 710 Fuller Distributing Co. 2,92531 711 Stocks and Co. 2,100

40,150

(116) (41)

InvoiceNo.


The cash receipts journal records all receipts of cash. Collections of cash from pre-viously recorded credit sales are posted in total as a credit to Accounts Receivable(account #116) and as debits to Sales Discounts (account #42) and Cash (account #111).The credits to Accounts Receivable are posted to the individual customer accounts in thesubsidiary ledger as noted by the check () in the Posting Reference column. Cash sales,for example, as shown for July 8 and July 25, are posted individually as a credit to Sales(account #41) and as a part of the total debit to Cash. Other transactions involving cashreceipts, for example, the collection of a note receivable on July 31, are posted individu-ally as credits and as a part of the total debit to Cash.

Voucher Register

As noted, the voucher register takes the place of a purchases journal, providing a recordof all authorized payments to be made by check. A partial voucher register is presentedbelow. For illustrative purposes, separate debit columns are provided for two accountsPurchases and Payroll. Other items are recorded in the Sundry Dr. column. Additionalseparate columns could be added for other items, such as advertising, if desired. The totalamount of each column is posted to the corresponding account, with the exception ofthe Sundry Dr. and Cr. columns, which are posted individually.

Check Register

A partial check register is illustrated below. It accounts for all the checks issued duringthe period. Checks are issued only in payment of properly approved vouchers.The payeeis designated together with the number of the voucher authorizing the payment.

CHECK REGISTER

Date Account DebitedCheckNo.

Cash Cr.

31 3106 Security National Bank 7132 9,120 9,12031 3107 Payroll 7133 1,640 1,64031 3108 Pat Bunnell 7005 1,500 30 1,470

61,160 275 60,885

(213) (52) (111)

VoucherNo.

AccountsPayable

Dr.

PurchaseDiscounts

Cr.

VOUCHER REGISTER

DateVouch.

No.Post.Ref. Cr.

31 7132 Security National Notes Payable 211 9,120 Bank 7/31 3106 9,120

31 7133 Payroll 7/31 3107 1,640 2,130 FICA Taxes Payable 215 90

Income Taxes Payable 214 400

31 7134 Far Fabrications 3,290 3,29031 7135 Midland Inc. 1,500 1,50031 7136 Nyland Supply

Co. 5,550 5,55055,375 24,930 2,130 33,645 5,330

(213) (51) (620) () ()

Amount

Sundry

Dr.Payee

Paid

Date Ck. No.

AccountsPayable

Cr.Purchases

Dr.Payroll

Dr. Account

72 Part 1 E M Foundations of Financial Accounting

General Journal

Regardless of the number and nature of special journals, certain transactions cannotappropriately be recorded in the special journals and are recorded in the general journal.A general journal with an illustrative entry during the month of July is illustrated below.This general journal is prepared in two-column format. Debit and Credit columns is pro-vided for the entries that are to be made to the general ledger accounts.

Subsidiary Ledgers

Subsidiary ledgers provide the detail of individual accounts in support of a controlaccount in the general ledger. Whenever possible, individual postings to subsidiaryaccounts are made directly from the business documents evidencing the transactions.This practice saves time and avoids errors that might arise in summarizing and transfer-ring this information. If postings to the subsidiary records and to the control accounts aremade accurately, the sum of the detail in a subsidiary record will agree with the balancein the control account. A reconciliation of each subsidiary ledger with its related controlaccount should be made periodically, and any discrepancies found should be investigatedand corrected.

As an illustration of the relationship of a general ledger control account to its sub-sidiary ledger accounts, the accounts receivable control account is shown. Three of thesubsidiary accounts are also shown.

GENERAL LEDGERAccount: ACCOUNTS RECEIVABLE Account No. 116

Date ItemPost.Ref. Debit Credit

2002July 1 Balance 9,200

31 Sales on account S6 40,150 49,35031 Collections on account CR8 35,900 13,45031 Write -off of uncollectible

account (The Rit -Z Shop) J3 1,270 12,180

Balance

ACCOUNTS RECEIVABLE SUBSIDIARY LEDGERName: Stock and Co.Address: 546 South Fox Rd., Chicago, IL 60665



10 Purchase S6 1,525 2,52531 Purchase S6 2,100 4,625

Balance

GENERAL JOURNAL Page 3

Date DescriptionPost.Ref. Debit Credit

2002July 31 Allowance for Doubtful Accounts 117 1,270

Accounts Receivable 116 1,270To write off uncollectible account.(The Rit -Z Shop)


Identify and explain the basic steps in theaccounting process (accounting cycle). The

accounting process, often referred to as the account-ing cycle, generally includes the following steps inwell-defined sequence: analyze business documents,journalize transactions, post to ledger accounts, pre-pare a trial balance, prepare adjusting entries, preparefinancial statements (using a work sheet or from theadjusted individual accounts), close the nominalaccounts, and prepare a post-closing trial balance.This process of recording, classifying, summarizing,and reporting of accounting data is based on an oldand universally accepted system called double-entryaccounting.

Analyze transactions and make and postjournal entries. Transactions are events that

transfer or exchange goods or services between two ormore entities. Business documents, such as invoices,provide evidence that transactions have occurred aswell as the data required to record the transaction in theaccounting records. The data are recorded with journalentries using a system of double-entry accounting.The journal entries are subsequently posted to ledgeraccounts.

Make adjusting entries, produce financialstatements, and close nominal accounts.

Adjusting entries are made at the end of an accounting

period prior to preparing the financial statements for thatperiod. Adjusting entries are often required to updateaccounts so that the data are current and accurate.Generally, the required adjustments are the result ofanalysis rather than based on new transactions. Onceadjusting entries are journalized and posted, the balancesheet, income statement, and statement of cash flows canbe prepared and reported.

At the end of each accounting cycle, the nominalor temporary accounts must be transferred throughthe closing process to real or permanent accounts.The nominal accounts (all income statement accountsplus dividends) are left with a zero balance and are ready to receive transaction data for the newaccounting period. The real (balance sheet) accountsremain open and carry their balances forward to thenew period.

Distinguish between accrual and cash-basisaccounting. Accrual accounting recognizes

revenues when they are earned, not necessarily whencash is received. Similarly, expenses are recognized andrecorded under accrual accounting when they areincurred, not necessarily when cash is paid. Someorganizations (and most individuals) use cash-basisaccounting, which recognizes revenues when cash isreceived and expenses when cash is paid. The FASB hasindicated that accrual accounting generally provides abetter basis for financial reports, especially in reporting

74 Part 1 E O C Foundations of Financial Accounting

Name: The Chocolate FactoryAddress: 7890 Redwood Dr., Pittsburgh, PA 15234


2002July 2 Purchase S6 3,450 3,450

10 Payment CR8 3,450 015 Purchase S6 2,000 2,00031 Payment CR8 2,000 0

Balance

Name: The Rit-Z ShopAddress: 789 Cotton Drive, Phoenix, AZ 85090



31 Write -off of uncollectibleaccount (6 months old) J3 1,270 0

Balance

R E V I E W O F L E A R N I N G O B J E C T I V E S

Special

Documents

Transcript of Special