Problem 5-1a – due in 20 hours | accounting

 Complete the attached, Problem 5-1A Template.  Please refer to Ch. 5, in your textbook for detailed instructions.  Save your completed work .

I’m going to paste the book below:

 

5-1Basic Accounting Systems

Obj. 1

In Chapters 1, 2, 3, 4, an accounting system for NetSolutions was described and illustrated. An accounting system is the methods and procedures for collecting, classifying, summarizing, and reporting a business’s financial and operating information. Most accounting systems, however, are more complex than NetSolutions’. For example, Southwest Airlines‘s accounting system not only records basic transaction data but also records data on such items as ticket reservations, credit card collections, frequent-flier mileage, and aircraft maintenance.

As a business grows and changes, its accounting system also changes in a three-step process. This three-step process is as follows:

  1. Step 1.Analyze user information needs.
  2. Step 2.Design the system to meet the user needs.
  3. Step 3.Implement the system.

For NetSolutions, our analysis determined that Chris Clark needed financial statements for the new business (Step 1). In Chapters 1, 2, 3, and 4, we designed the system using a basic manual system that included a chart of accounts, a two-column journal, and a general ledger (Step 2). Finally, we implemented the system to record transactions and prepare financial statements (Step 3).

Once a system has been implemented, input from users is used to analyze and improve the system. For example, in later chapters, NetSolutions expands its chart of accounts to record more complex transactions.

The accounting system design consists of:

  • internal controls and
  • information processing methods.

Internal controls are the policies and procedures that protect assets from misuse, ensure that business information is accurate, and ensure that laws and regulations are being followed. Internal controls are discussed in Chapter 8.

Processing methods are the means by which the accounting system collects, summarizes, and reports accounting information. These methods may be either manual or computerized. We begin by describing and illustrating a simple manual accounting system that uses special journals and subsidiary ledgers. This is followed by a discussion of more complex computerized accounting systems.

 

 

5-2Manual Accounting Systems

Obj. 2

Accounting systems are manual or computerized. Understanding a manual accounting system is useful in identifying relationships between accounting data and reports. Also, most computerized systems use principles from manual systems.

In Chapters 1, 2, 3, and 4, the transactions for NetSolutions were manually recorded in an all-purpose (two-column) journal. The journal entries were then posted individually to the accounts in the ledger. Such a system is simple to use and easy to understand when there are a small number of transactions. However, when a business has a large number of similar transactions, using an all-purpose journal is inefficient and impractical. In such cases, subsidiary ledgers and special journals are useful.

 

 

5-2aSubsidiary Ledgers

A large number of individual accounts with a common characteristic can be grouped together in a separate ledger called a subsidiary ledger. The primary ledger, which contains all of the balance sheet and income statement accounts, is then called the general ledger. Each subsidiary ledger is represented in the general ledger by a summarizing account, called a controlling account. The sum of the balances of the accounts in a subsidiary ledger must equal the balance of the related controlling account. Thus, a subsidiary ledger is a secondary ledger that supports a controlling account in the general ledger.

Two of the most common subsidiary ledgers are as follows:

  • Accounts receivable subsidiary ledger
  • Accounts payable subsidiary ledger

Note

Subsidiary ledgers provide detail of individual accounts that are summarized in a controlling account in the general ledger.

The accounts receivable subsidiary ledger, or customers ledger, lists the individual customer accounts in alphabetical order. The controlling account in the general ledger that summarizes the debits and credits to the individual customer accounts is Accounts Receivable.

The accounts payable subsidiary ledger, or creditors ledger, lists individual creditor accounts in alphabetical order. The related controlling account in the general ledger is Accounts Payable.

The relationship between the general ledger and the accounts receivable and accounts payable subsidiary ledgers is illustrated in Exhibit 1.

Exhibit 1General Ledger and Subsidiary LedgersA computer graphic visually illustrating a general ledger, an accounts receivable subsidiary ledger, and an accounts payable subsidiary ledger is shown. At the top, generic computer graphics representing eight general ledger accounts spread out from left to right are shown. A large purple bracket appears to the left of these eight images and is labeled General Ledger. The eight images are labeled with the following accounts and account numbers: Cash 11; Accts. Rec. 12 (Controlling Account); Supplies 14; • • • •; Accts. Payable 21 (Controlling Account); Chris Clark, Capital 31; Chris Clark, Drawing 32; and • • • •. A small red arrow points downward from the Accts. Rec. ledger account to a set of four computer graphic images. The arrow is labeled Accounts Receivable Subsidiary Ledger. The four computer graphic images representing the accounts receivable subsidiary ledger accounts are labeled as follows: Customer A, Customer B, Customer C, and Customer D. A small red arrow also points downward from the Accts. Payable ledger account to a set of four computer graphic images. The arrow is labeled Accounts Payable Subsidiary Ledger. The four computer graphic images representing the accounts payable subsidiary ledger accounts are labeled as follows: Creditor A, Creditor B, Creditor C, and Creditor D.

Many businesses use subsidiary ledgers for other accounts in addition to Accounts Receivable and Accounts Payable. For example, businesses often use an equipment subsidiary ledger to keep track of each item of equipment purchased, its cost, location, and other data. Moreover, merchandising and manufacturing businesses use additional types of subsidiary ledgers that are unique to them. We simplify by illustrating accounting systems for a service business.

 

 

5-2bSpecial Journals

Link to Intuit

Intuit has subsidiary ledgers for property and equipment, inventory, and investments.

One method of processing transactions more efficiently in a manual system is to use special journals. Special journals are designed to record a single kind of transaction that occurs frequently. For example, since most businesses have many transactions in which cash is paid out, they will likely use a special journal for recording cash payments. Likewise, they will use another special journal for recording cash receipts.

Note

Special journals summarize common transactions that are used frequently.

The format and number of special journals that a business uses depends on the nature of the business. The common transactions and their related special journals used by small service businesses are as follows:

An illustration showing four common transactions and their related special journals is shown. In the illustration, there are three columns. The first column shows the transaction, the second column shows a small green arrow pointing from left to right with the words recorded in shown above the arrow, and the third column shows the special journal in which the transaction is recorded. The special journal appears in blue type. The first transaction shown is for Providing services on account (with on account in italics), which is recorded in the revenue journal. The second transaction shown is for Receipt of cash from any source (with any in italics), which is recorded in the cash receipts journal. The third transaction shown is for Purchase of items on account (with on account in italics), which is recorded in the purchases journal. The fourth transaction shown is for Payment of cash for any purpose (with any in italics), which is recorded in the cash payments journal.

The all-purpose two-column journal, called the general journal or simply the journal, can be used for entries that do not fit into any of the special journals. For example, adjusting and closing entries are recorded in the general journal.

The following types of transactions, special journals, and subsidiary ledgers are described and illustrated for NetSolutions:

TransactionSpecial JournalSubsidiary LedgerFees earned on accountRevenue journalAccounts receivable subsidiary ledgerCash receiptsCash receipts journalAccounts receivable subsidiary ledgerPurchases on accountPurchases journalAccounts payable subsidiary ledgerCash paymentsCash payments journalAccounts payable subsidiary ledger

As shown, transactions that are recorded in the revenue and cash receipts journals will affect the accounts receivable subsidiary ledger as part of the revenue and collection cycle. Likewise, transactions that are recorded in the purchases and cash payments journals will affect the accounts payable subsidiary ledger as part of the purchases and payments cycle.

We will assume that NetSolutions had the following selected general ledger balances on March 1, 2019:

The following general ledger account information for NetSolutions is shown. The three columns are labeled Account Number, Account, and Balance. Account number 11, Cash, balance of $6,200; account number 12, Accounts Receivable, balance of 3,400; account number 14, Supplies, balance of 2,500; account number 18, Office Equipment, balance of 2,500; and account number 21, Accounts Payable, balance of 1,230. 

 

5-2cRevenue Journal

Fees earned on account would be recorded in the revenue journal. Cash fees earned would be recorded in the cash receipts journal.

To illustrate the efficiency of using a revenue journal, an example for NetSolutions is used. Specifically, assume that NetSolutions recorded the following four revenue transactions for March in its general journal:

A journal containing the revenue transactions for NetSolutions for March 2019 is shown. In the first entry, March 2 is the date indicated. Accounts Receivable—Accessories By Claire is debited—with 12 followed by a slash mark and a check mark shown in the Post. Ref. column and 2,200 shown in the Debit column. Fees Earned is credited—with 41 shown in the Post. Ref. column and 2,200 shown in the Credit column. In the second entry, March 6 is the date indicated. Accounts Receivable—RapZone is debited—with 12 followed by a slash mark and a check mark shown in the Post. Ref. column and 1,750 shown in the Debit column. Fees Earned is credited—with 41 shown in the Post. Ref. column and 1,750 shown in the Credit column. In the third entry, March 18 is the date indicated. Accounts Receivable—Web Cantina is debited—with 12 followed by a slash mark and a check mark shown in the Post. Ref. column and 2,650 shown in the Debit column. Fees Earned is credited—with 41 shown in the Post. Ref. column and 2,650 shown in the Credit column. In the fourth entry, March 27 is the date indicated. Accounts Receivable—Accessories By Claire is debited—with 12 followed by a slash mark and a check mark shown in the Post. Ref. column and 3,000 shown in the Debit column. Fees Earned is credited—with 41 shown in the Post. Ref. column and 3,000 shown in the Credit column.Enlarge Image

For the preceding entries, NetSolutions recorded eight accounts and eight amounts. In addition, NetSolutions made 12 postings to the ledgers—four to Accounts Receivable in the general ledger, four to the accounts receivable subsidiary ledger (indicated by each check mark), and four to Fees Earned in the general ledger.

The preceding revenue transactions could be recorded more efficiently in a revenue journal, as shown in Exhibit 2. In each revenue transaction, the amount of the debit to Accounts Receivable is the same as the amount of the credit to Fees Earned. Thus, only a single amount column is necessary. The date, invoice number, customer name, and amount are entered separately for each transaction.

Exhibit 2Revenue JournalA revenue journal for NetSolutions for March 2019 is shown. The page number, 35, is in the top-right corner. In the first transaction, March 2 is the date indicated. The invoice number is 615, shown in the Invoice No. column. Accessories By Claire is the account debited, with 2,200 shown in the Accts. Rec. Dr./Fees Earned Cr. column. The transaction is highlighted in yellow. In the second transaction, March 6 is the date indicated. The invoice number is 616, shown in the Invoice No. column. RapZone is the account debited, with 1,750 shown in the Accts. Rec. Dr./Fees Earned Cr. column. In the third transaction, March 18 is the date indicated. The invoice number is 617, shown in the Invoice No. column. Web Cantina is the account debited, with 2,650 shown in the Accts. Rec. Dr./Fees Earned Cr. column. In the fourth transaction, March 27 is the date indicated. The invoice number is 618, shown in the Invoice No. column. Accessories By Claire is the account debited, with 3,000 shown in the Accts. Rec. Dr./Fees Earned Cr. column. A single rule appears below the number 3,000. On the next line, March 31 is the date indicated. A balance of 9,600 is shown in the Accts. Rec. Dr./Fees Earned Cr. column. A double rule appears below the number 9,600.Enlarge Image

Revenues are normally recorded in the revenue journal when the company sends an invoice to the customer. An invoice is the bill that is sent to the customer by the company. Each invoice is normally numbered in sequence for future reference.

To illustrate, assume that on March 2, NetSolutions issued Invoice No. 615 to Accessories By Claire for fees earned of $2,200. This transaction is entered in the revenue journal, shown in Exhibit 2, by entering the following items:

  1. Date column: Mar. 2
  2. Invoice No. column: 615
  3. Account Debited column: Accessories By Claire
  4. Accts. Rec. Dr./Fees Earned Cr. column: 2,200

The process of posting from a revenue journal, shown in Exhibit 3, is as follows:

Exhibit 3Revenue Journal and PostingsAn illustration of a revenue journal, a partial general ledger, and an accounts receivable subsidiary ledger for NetSolutions is shown. Three accounts from NetSolutions' accounts receivable subsidiary ledger are shown. The first account shown is Accessories By Claire. There are two 2019 transactions listed. The first transaction listed is as follows: Mar. 2, Post. Ref. R35, Debit 2,200, Balance 2,200. This transaction is highlighted in yellow. There is a small black arrow pointing to 2,200 in the Balance column, with the words Step 1 appearing to the right of the arrow. There is another small black arrow pointing to R35 in the Post. Ref. column, with the words Step 2 appearing below the arrow. The second transaction listed is as follows: Mar. 27, Post. Ref. R35, Debit 3,000, Balance 5,200. The second account shown is RapZone. The 2019 transaction listed is as follows: Mar. 6, Post. Ref. R35, Debit 1,750, Balance 1,750. The third account shown is Web Cantina. The 2019 transactions listed are as follows: Mar. 1, Item Balance, Post. Ref. check mark, Balance 3,400. Mar. 18, Post. Ref. R35, Debit 2,650, Balance 6,050. Two accounts from NetSolutions' general ledger are shown to the left of the accounts receivable subsidiary ledger. The first account shown is Accounts Receivable. The account number, 12, is in the top-right corner. The 2019 transactions listed are as follows: Mar. 1, Item Balance, Post. Ref. check mark, Debit Balance 3,400. Mar. 31, Post. Ref. R35, Debit 9,600, Debit Balance 13,000. The second account shown is Fees Earned. The account number, 41, is in the top-right corner. The 2019 transaction listed is as follows: Mar. 31, Post. Ref. R35, Credit 9,600, Credit Balance 9,600. A revenue journal for NetSolutions for March 2019 is shown above the accounts receivable subsidiary ledger and general ledger. The page number, 35, is in the top-right corner. In the first transaction, March 2 is the date indicated. The invoice number is 615, shown in the Invoice No. column. Accessories By Claire is the account debited—with a check mark shown in the Post. Ref. column and 2,200 shown in the Accts. Rec. Dr./Fees Earned Cr. column. The transaction is highlighted in yellow. There is a small black arrow pointing to the check mark in the Post. Ref. column, with the words Step 3 appearing below the arrow. A callout line connects to a red arrow leading from 2,200 to 2,200 shown in the Debit column of the Accessories By Claire account in the accounts receivable subsidiary ledger below. In the second transaction, March 6 is the date indicated. The invoice number is 616, shown in the Invoice No. column. RapZone is the account debited—with a check mark shown in the Post. Ref. column and 1,750 shown in the Accts. Rec. Dr./Fees Earned Cr. column. A callout line connects to a red arrow leading from 1,750 to 1,750 shown in the Debit column of the RapZone account in the accounts receivable subsidiary ledger below. In the third transaction, March 18 is the date indicated. The invoice number is 617, shown in the Invoice No. column. Web Cantina is the account debited—with a check mark shown in the Post. Ref. column and 2,650 shown in the Accts. Rec. Dr./Fees Earned Cr. column. A callout line connects to a red arrow leading from 2,650 to 2,650 shown in the Debit column of the Web Cantina account in the accounts receivable subsidiary ledger below. In the fourth transaction, March 27 is the date indicated. The invoice number is 618, shown in the Invoice No. column. Accessories By Claire is the account debited—with a check mark shown in the Post. Ref. column and 3,000 shown in the Accts. Rec. Dr./Fees Earned Cr. column. A single rule appears below the number 3,000. A callout line connects to a red arrow leading from 3,000 to 3,000 shown in the Debit column of the Accessories By Claire account in the accounts receivable subsidiary ledger below. On the next line, March 31 is the date indicated. A balance of 9,600 is shown in the Accts. Rec. Dr./Fees Earned Cr. column. A double rule appears below the number 9,600. Below the double rule are the account numbers of the accounts receivable and fees earned accounts, 12 and 41. Both numbers appear in parentheses. There is a blue arrow leading from the balance of 9,600 to 9,600 shown in the Debit column of the accounts receivable account in the general ledger and to 9,600 shown in the Credit column of the fees earned account in the general ledger. The arrow is labeled Step 4.Enlarge Image

  1. Step 1.Each transaction is posted individually to a customer account in the accounts receivable subsidiary ledger. Postings to customer accounts should be made on a regular basis. In this way, the customer’s account will show a current balance.
    To illustrate, Exhibit 3 shows the posting of the $2,200 debit to Accessories By Claire in the accounts receivable subsidiary ledger. After the posting, Accessories By Claire has a debit balance of $2,200.
  2. Step 2.To provide a trail of the entries posted to the general and subsidiary ledgers, the source of these entries is indicated in the Posting Reference column of each account by inserting the letter R (for revenue journal) and the page number of the revenue journal.
    To illustrate, Exhibit 3 shows that after $2,200 is posted to Accessories By Claire’s account, R35 is inserted in the Post. Ref. column of the account.
  3. Step 3.To indicate that the transaction has been posted to the accounts receivable subsidiary ledger, a check mark (✓) is inserted in the Post. Ref. column of the revenue journal, as shown in Exhibit 3.
    To illustrate, Exhibit 3 shows that a check mark () has been inserted in the Post. Ref. column next to Accessories By Claire in the revenue journal to indicate that the $2,200 has been posted.
  4. Step 4.A single monthly total is posted to Accounts Receivable and Fees Earned in the general ledger. This total is equal to the sum of the month’s debits to the individual accounts in the subsidiary ledger. It is posted in the general ledger as a debit to Accounts Receivable and a credit to Fees Earned, as shown in Exhibit 3. The accounts receivable account number (12) and the fees earned account number (41) are then inserted below the total in the revenue journal to indicate that the posting is completed.
    To illustrate, Exhibit 3 shows that the monthly total of $9,600 was posted as a debit to Accounts Receivable (12) and as a credit to Fees Earned (41).

Exhibit 3 illustrates the efficiency gained by using the revenue journal rather than the general journal. Specifically, all of the transactions for fees earned during the month are posted to the general ledger only once—at the end of the month.

Example Exercise 5-1

Revenue Journal

Obj. 2

  1. The following revenue transactions occurred during December:
    Dec. 5.Issued Invoice No. 302 to Butler Company for services provided on account, $5,000.9.Issued Invoice No. 303 to JoJo Enterprises for services provided on account, $2,100.15.Issued Invoice No. 304 to Salinas Inc. for services provided on account, $3,250.Record these transactions in a revenue journal as illustrated in Exhibit 2.
    Follow My Example 5-1
    Answer

Practice Exercises: PE 5-1A, PE 5-1B

  

5-2dCash Receipts Journal

All transactions that involve the receipt of cash are recorded in a cash receipts journal. The cash receipts journal for NetSolutions is shown in Exhibit 4.

Exhibit 4Cash Receipts Journal and PostingsAn illustration of a cash receipts journal, a partial general ledger, and an accounts receivable subsidiary ledger for NetSolutions is shown. Three accounts from NetSolutions' accounts receivable subsidiary ledger are shown. The first account shown is Accessories By Claire. The 2019 transactions listed are as follows: Mar. 2, Post. Ref. R35, Debit 2,200, Balance 2,200. Mar. 27, Post. Ref. R35, Debit 3,000, Balance 5,200. Mar. 28, Post. Ref. CR14, Credit 2,200, Balance 3,000. The second account shown is RapZone. The 2019 transactions listed are as follows: Mar. 6, Post. Ref. R35, Debit 1,750, Balance 1,750. Mar. 30, Post. Ref. CR14, Credit 1,750. A dash appears in the Balance column to indicate the balance is zero. The third account shown is Web Cantina. The 2019 transactions listed are as follows: Mar. 1, Item Balance, Post. Ref. check mark, Balance 3,400. Mar. 18, Post. Ref. R35, Debit 2,650, Balance 6,050. Mar. 19, Post. Ref. CR14, Credit 3,400, Balance 2,650. This transaction is highlighted in yellow. There is a small black arrow pointing to 2,650 in the Balance column, with the words Step 1 appearing below the arrow. There is another small black arrow pointing to CR14 in the Post. Ref. column, with the words Step 2 appearing below the arrow. Three accounts from NetSolutions' general ledger are shown to the left of the accounts receivable subsidiary ledger. The first account shown is Cash. The account number, 11, is in the top-right corner. The 2019 transactions listed are as follows: Mar. 1, Item Balance, Post. Ref. check mark, Debit Balance 6,200. Mar. 31, Post. Ref. CR14, Debit 7,750, Debit Balance 13,950. The second account shown is Accounts Receivable. The account number, 12, is in the top-right corner. The 2019 transactions listed are as follows: Mar. 1, Item Balance, Post. Ref. check mark, Debit Balance 3,400. Mar. 31, Post. Ref. R35, Debit 9,600, Debit Balance 13,000. Mar. 31, Post. Ref. CR14, Credit 7,350, Debit Balance 5,650. The third account shown is Rent Revenue. The account number, 42, is in the top-right corner. The 2019 transaction listed is as follows: Mar. 1, Post. Ref. CR14, Credit 400, Credit Balance 400. A cash receipts journal for NetSolutions for March 2019 is shown above the accounts receivable subsidiary ledger and general ledger. The page number, 14, is in the top-right corner. In the first transaction, March 1 is the date indicated. Rent Revenue is the account credited—with 42 shown in the Post. Ref. column, 400 shown in the Other Accounts Cr. column, and 400 shown in the Cash Dr. column. In the second transaction, March 19 is the date indicated. Web Cantina is the account credited—with a check mark shown in the Post. Ref. column, 3,400 shown in the Accounts Receivable Cr. column, and 3,400 shown in the Cash Dr. column. The transaction is highlighted in yellow. A small black arrow points to the check mark in the Post. Ref. column and is labeled with the words Step 3. Another small black arrow points to the 3,400 in the Accounts Receivable Cr. Column and is labeled Step 1. A callout line connects to a red arrow leading from 3,400 in the Accounts Receivable Cr. column to 3,400 shown in the Credit column of the Web Cantina account in the accounts receivable subsidiary ledger below. In the third transaction, March 28 is the date indicated. Accessories By Claire is the account credited—with a check mark shown in the Post. Ref. column, 2,200 shown in the Accounts Receivable Cr. column, and 2,200 shown in the Cash Dr. column. A callout line connects to a red arrow leading from 2,200 in the Accounts Receivable Cr. column to 2,200 shown in the Credit column of the Accessories By Claire account in the accounts receivable subsidiary ledger below. In the fourth transaction, March 30 is the date indicated. RapZone is the account credited—with a check mark shown in the Post. Ref. column, 1,750 shown in the Accounts Receivable Cr. column, and 1,750 shown in the Cash Dr. column. A single rule appears below the numbers 1,750 in the Accounts Receivable Cr. and Cash Dr. columns and on the same line in the Other Accounts Cr. column. A callout line connects to a red arrow leading from 1,750 in the Accounts Receivable Cr. column to 1,750 shown in the Credit column of the RapZone account in the accounts receivable subsidiary ledger below. On the next line, March 31 is the date indicated. A balance of 400 is shown in the Other Accounts Cr. column. A double rule appears below the number 400. Below the double rule is a check mark that appears in parentheses. A balance of 7,350 is shown in the Accounts Receivable Cr. column. A double rule appears below the number 7,350. Below the double rule is the account number of the accounts receivable account, 12, in parentheses. A balance of 7,750 is shown in the Cash Dr. column. A double rule appears below the number 7,750. Below the double rule is the account number of the cash account, 11, in parentheses. There is a blue callout line below the number 12 in parentheses in the Accounts Receivable Cr. column that connects to a blue arrow leading to 7,350 shown in the Credit column of the accounts receivable account in the general ledger. The arrow is labeled Step 4. There is also a callout line below the number 11 in parentheses in the Cash Dr. column that connects to a blue arrow leading to 7,750 in the Debit column of the cash account in the general ledger. The arrow is labeled Step 5. Another callout line runs from the March 1 transaction amount of 400 in the Other Accounts Cr. column to a blue arrow leading to 400 shown in the Credit column of the rent revenue account in the general ledger. The arrow is labeled Step 6.Enlarge Image

This journal has a Cash Dr. column. The types of cash receipt transactions and their frequency determine the titles of the other columns. For example, NetSolutions often receives cash from customers on account. Thus, the cash receipts journal in Exhibit 4 has an Accounts Receivable Cr. column.

To illustrate, on March 19, Web Cantina made a payment of $3,400 on its account. This transaction is recorded in the cash receipts journal, shown in Exhibit 4, by entering the following items:

  1. Date column: Mar. 19
  2. Account Credited column: Web Cantina
  3. Accounts Receivable Cr. column: 3,400
  4. Cash Dr. column: 3,400

The Other Accounts Cr. column in Exhibit 4 is used for recording credits to any account for which there is no special credit column. For example, NetSolutions received cash on March 1 for rent. Since no special column exists for Rent Revenue, Rent Revenue is entered in the Account Credited column. Thus, this transaction is recorded in the cash receipts journal, shown in Exhibit 4, by entering the following items:

  1. Date column: Mar. 1
  2. Account Credited column: Rent Revenue
  3. Other Accounts Cr. column: 400
  4. Cash Dr. column: 400

The process of posting from the cash receipts journal, shown in Exhibit 4, is as follows:

  1. Step 1.Each transaction involving the receipt of cash on account is posted individually to a customer account in the accounts receivable subsidiary ledger. Postings to customer accounts should be made on a regular basis. In this way, the customer’s account will show a current balance.
    To illustrate, Exhibit 4 shows on March 19 the receipt of $3,400 on account from Web Cantina. The posting of the $3,400 credit to Web Cantina in the accounts receivable subsidiary ledger is also shown in Exhibit 4. After the posting, Web Cantina has a debit balance of $2,650.
  2. Step 2.To provide a trail of the entries posted to the subsidiary ledger, the source of these entries is indicated in the Posting Reference column of each account by inserting the letters CR (for cash receipts journal) and the page number of the cash receipts journal.
    To illustrate, Exhibit 4 shows that after $3,400 is posted to Web Cantina’s account in the accounts receivable subsidiary ledger, CR14 is inserted in the Post. Ref. column of the account.
  3. Step 3.To indicate that the transaction has been posted to the accounts receivable subsidiary ledger, a check mark (✓) is inserted in the Posting Reference column of the cash receipts journal.
    To illustrate, Exhibit 4 shows that a check mark () has been inserted in the Post. Ref. column next to Web Cantina to indicate that the $3,400 has been posted.
  4. Step 4.A single monthly total of the Accounts Receivable Cr. column is posted to the accounts receivable general ledger account. This is the total cash received on account and is posted as a credit to Accounts Receivable. The accounts receivable account number (12) is then inserted below the Accounts Receivable Cr. column to indicate that the posting is complete.
    To illustrate, Exhibit 4 shows that the monthly total of $7,350 was posted as a credit to Accounts Receivable (12).
  5. Step 5.A single monthly total of the Cash Dr. column is posted to the cash general ledger account. This is the total cash received during the month and is posted as a debit to Cash. The cash account number (11) is then inserted below the Cash Dr. column to indicate that the posting is complete.
    To illustrate, Exhibit 4 shows that the monthly total of $7,750 was posted as a debit to Cash (11).
  6. Step 6.The accounts listed in the Other Accounts Cr. column are posted on a regular basis as a separate credit to each account. The account number is then inserted in the Post. Ref. column to indicate that the posting is complete. Because accounts in the Other Accounts Cr. column are posted individually, a check mark is placed below the column total at the end of the month to show that no further action is needed.
    To illustrate, Exhibit 4 shows that $400 was posted as a credit to Rent Revenue in the general ledger and the rent revenue account number (42) was entered in the Post. Ref. column of the cash receipts journal. Also, at the end of the month, a check mark (✓) is entered below the Other Accounts Cr. column to indicate that no further action is needed.

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