Module 7 Special Journals and Subsidiary Ledgers PDF

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NEW BRIGHTON SCHOOL OF THE PHILIPPINES, INC. Module No. 7 Subject: FAR 1 _ Date of Submission: ____________ Name of Student: ______________________________________________________ Course and Year: ______________________________________________________ Semester and School Year: _____________________________________________

Special Journals and Subsidiary Ledgers

Learning Objectives: After studying this chapter, we should be able to:

1. define special journals; 2. differentiate special journal from general journal; 3. describe, learn, and understand the illustrated use of the special journals; 4. record transactions on the special journals.

Special Journal Defined Everything that have been discussed from the previous chapters are performed manually thus called manual accounting system. When a company has recurring transactions like sales and purchases, accountants may find it time consuming to record it all one by one. Imagine recording 100 cash sales in a day debiting cash and crediting sales 100 times. To ease this problem, accountants provide journals that would summarize frequently occurring transaction as to minimize costs of recording and to use time efficiently. These journals are called special journals.

1. Sales Journal The book of original entry where sales on account are recorded. 2. Cash Receipts Journal The book of original entry where all cash received are recorded. 3. Purchases Journal The book of original entry where purchases on account are recorded. 4. Cash Payment Journal The book of original entry where all cash disbursements are recorded.

The General Journal is used to record transactions not mentioned in the special journals. General Journals may be used to record transactions such as: a. When a credit is granted to a customer for a sales return or allowance. b. Receipt of credit from a supplier for purchases returned. c. Acceptance of a note receivable from a customer. d. Purchase of assets by issuing a note payable.

e. Correcting, adjusting and closing entries. Module for Financial Accounting and Reporting 1, Lehnard R. Gellor, CPA Page 1 | 13

Accounting practitioners use the following interchangeably: 1. Sales Journal or Sales Book 2. Purchases Journal or Purchases Book. 3. Cash Receipts journal or Cash Receipts Book. 4. Cash Payment Journal or Cash Payments Book or Cash Disbursement Book.

Subsidiary Ledger To keep track of the customer and suppliers, all transactions related to their account are posted to the subsidiary ledgers. These ledgers are customers’ or suppliers’ balances that are arranged in alphabetical order, if convenient. The subsidiary ledger frees the general ledger from the details of individual balances.

At the end of the month, the total individual customer/supplier account must equal to the controlling account of Accounts Receivable or Accounts Payable posted to the General Ledger.

Controlling account is the account presented in the Financial Statements. For example, Accounts Receivable is a collectible from customers. Thus, Accounts Receivable could be debited many times with specific customer name like Accounts Receivable – Juan, then Accounts Receivable – Maria and list goes on. However, upon presentation in the Balance Sheet, only one Accounts Receivables (the control account) will appear.

Module for Financial Accounting and Reporting 1, Lehnard R. Gellor, CPA Page 2 | 13

Recording Process with Special Journals and Subsidiary Ledger Transactions in Journals are recorded daily

Cash Receipts Purchases

Sales

Cash Payments

General

General Ledger

Accounts Payable Subsidiary Ledger

1. All General Journal

Supplier C

transactions are posted

Supplier L

daily/upon transactions. Accounts Receivable Subsidiary Ledger Customer J Supplier E

All accounts related to Accounts Payable

2. Other accounts are posted daily/upon transaction.

3. All accounts in the

and Accounts Receivable are posted

special journals with

daily/upon transaction. This is to make

specific headings are

sure the receivables are collected and payables are paid on time

Module for Financial Accounting and Reporting 1, Lehnard R. Gellor, CPA Page 3 | 13

To illustrate accounting process with special journals and subsidiary ledgers, a problem presented below. This chart of accounts will be used in this problem: ELIJAH COMMERCIAL Chart of Accounts GENERAL LEDGERS

Assets (1-20)

Account No.

Income (41-50)

Account No.

Cash

01

Sales

41

Accounts Receivable

02

Sales Returns & Allow.

42

Prepaid Rent

03

Sales Discounts

43

Merchandise Inventory

04 Expenses (51-up)

Liabilities (21-30)

Purchases

51

Notes Payable

21

Purchase Returns & Allow.

52

Accounts Payable

22

Purchase Discount

53

Freight-In

54

Utilities Expenses

55

Proprietorship (31-40) Elijah, Drawing

31

Elijah, Capital

32 SUBSIDIARY LEDGERS

02 Accounts Receivable

(CUSTOMERS)

22 Accounts Payable

(SUPPLIERS)

Carreon Brothers

2-1

Imo Gonzaga

22-1

Silva Company

2-2

Mekeni Co.

22-2

To show the process of using special journals and subsidiary ledgers clearly, the transactions will not be presented by date. Transactions are grouped according to the type of transaction. Transactions related to sales on account and cash receipts will be presented first and will be followed by purchases on account and cash payments.

Module for Financial Accounting and Reporting 1, Lehnard R. Gellor, CPA Page 4 | 13

(1) Cash. The cash amount actually received

SALES

in each transaction is entered in this

The following sales on account occurred during the

column. The total is the cash receipts for

first month of operation: Date

the whole month.

Customers

Terms

Invoice #

Amount

(2) Sales

2019

discount.

Upon

collection

of

Accounts Receivable, this account may 2/10,

Jan. 6

repeatedly use as customers pay promptly

Carreon Bros.

n/30 2/10,

101

100,000

15

Silva Co.

n/30 1/15,

102

20,000 Credits:

23

Carreon Bros.

n/20 2/10,

103

25,000

28

Silva Co.

n/25

104

10,000

to avail cash discounts.

(1) Account Receivable. Accounts Receivable column is used to record cash collections on account. (2) Sales. This column refers to all cash sales

CASH RECEIPTS

of merchandise. Cash sales from other

Date

assets are recorded in this column.

Transactions

(3) Other Accounts. This is also called sundry 2019

accounts. It is used whenever the credit is

Elijah makes an Investment of 300,000 in the Jan. 1 8 15

other than Accounts Receivable or Sales.

business. Cash sales of merchandise amount of 50,000 Received payment from Carreon Bros. on Jan. 6 sales. Posting: Cash is received through signing of promissory

22

note 15,000 Received payment from Silva Co. on Jan. 15

27 sales. The above transactions will be recorded as follows:

(a) Reference column. The reference column is filled by specific code numbers upon posting to the subsidiary ledger accounts and to the General Ledger.

Sales Journal

(b) All accounts with specific column are

(a) Upon transaction, fill in the columns of date, Accounts credited, invoice number,

posted to the General Ledger. The code

terms

number is indicated below the total to

and

Accounts

Receivable/Sales.

make sure it has been posted.

(daily) (b) Fill in the reference column by their specific code number upon posting to the subsidiary ledger for each transaction.

(c) At the Accounts

(c) Other accounts are entered to the General Ledger upon transaction. An (x) sign is placed below its total at the end of the month to make sure it has not been

(daily) end of

the

month, total

Receivable/Sales

column

the and

post to the General Ledger. Indicate the code number below the total to make sure it has been posted.

Cash Receipts Journal Debits:

totaled at the end of the month and

posted twice.

Module for Financial Accounting and Reporting 1, Lehnard R. Gellor, CPA Page 5 | 13

Cash Receipts Journal (CR-1)

Sales Journal

Date 2019

Account Debited

Invoice No.

Jan. 6

Carreon Bros.

101

15

Silva Co.

102

23

Carreon Bros.

103

28

Silva Co.

104

Term s

Ref

2/10, n/30 2/10, n/30 1/15, n/20 2/10, n/25

2 Jan 2 Feb 2 Jan 2 Feb

Dr. Account Receivabl Cr. Sales

Accounts Credited 2019 Jan. 1

P 100,00

Elijah, Capital

8 20,000 P 25,000 10,000

Sales Discoun t Cr.

Date

15 22 27

Carreon Bros. Notes Payable Silva Co.

Ref

Cash Dr.

32

300,000

-

50,000

2-1

98,000

21

15,000

2-2

155,000 (2)/(41)

Accounts Receivable Cr.

Sales Cr.

Other Account Cr. 300,000

50,000 2,000

100,000 15,000

20,000

20,000

P483,0 00 (1)

P2,000

P120,000

(43)

(2)

P50,0 00 (41)

P315,0 0 (X)

ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER Carreon Bros. (2-1) Date 2019

Ref

Debit

Jan. 6

S1

100,000

15

CR1

23

S1

Credit

Balance 100,000

100,000 25,000

25,000

Silva Co. (2-2) Date 2019

Ref

Debit

Jan. 15

S1

20,000

27

CR1

28

S1

Credit

Balance 20,000

20,000 10,000

10,000

GENERAL LEDGER

Date 2019 Jan 31

Date 2019 Jan 31 Date 2019 Jan 31 31

Date 2019 Jan 31 31

Ref

Cash (01) Debit Credi t

ital (32) Balance Credit

CR 483,00 1 0 Sales Discount (43) Ref

Debi t

Credi t

483,000 Balance

CR 2,00 2,000 0Receivable (02) 1 Account Ref

Debit

S1

155,00 0

CR

Ref

Credit

Balance

300,00 300,00 able (21) Credit

Balanc

15,00 0

15,000

155,00 0

120,00 Sales (41) Debi t

35,000

Credit

Balance

S1

155,00 0

155,000

CR 1

50,000

205,000

PURCHASES

Balanc

s 2019 2/15,

The following credit purchases occurred during the Jan. 2

first month of operation: Date

Suppliers

Term

Invoice #

Amount

14

Mekeni Co.

n/30 2/10,

301

50,000

Imo Gonzaga

n/30

42 B

40,000

Module for Financial Accounting and Reporting 1, Lehnard R. Gellor, CPA Page 6 | 13

1/10, 20 26

Mekeni Co. Imo Gonzaga

Posting:

n/35 n/40

306 47 B

15,000 20,000

(d) Reference column is filled by specific code numbers

upon posting to the

subsidiary

ledger accounts and to the General Ledger for

CASH PAYMENTS

Other Accounts credited, Date 2019 Jan. 2

Transactions

(e) All accounts with specific columns are totaled

at the end of the month and posted to the Elijah paid in advance a 2 month office rental for 10,000 General Ledger. The code number is indicated below the total to make sure it has been Freight-In amounting 2,000 was paid for upcoming delivery

4 9 17 25

of merchandise. Cash purchase from Nextwork Inc., 100,000 (f) Paid Mekeni Co in payment of January 14 purchase Paid Imo Gonzaga in payment of January 14 purchase Paid Utilities amounting 5,000 for electricity, water,

posted.

29 30

fuel Elijah withdrew 30,000 cash for personal use.

make sure it has not been posted twice.

The above transactions will be recorded as follows: Purchases Journal (a) Upon transaction, fill in the columns pf date, Accounts debited, invoice number, terms and Purchases/Accounts Payable. (daily) (b) Fill in the reference column by their specific code number upon posting to the subsidiary ledger for each transaction. (daily) (c) At

the

end

of

the

month,

total

the

Purchases/Accounts Payable column and post to the General Ledger. Indicate the code number below the total to make sure it has been posted. Cash Payments Journal Debits: (1) Accounts Payable. Accounts Payable column is used to record cash payments on account. (2) Other Accounts. This sundry account is used whenever the debit is other than Accounts Payable. Credits: (1) Cash. The cash amount actually paid in each transaction is entered in this column. The total is the cash disbursement for the whole month. (2) Purchase discount. Upon payment of Accounts Payable, this account may be repeatedly used as

the

discounts.

company

avail

supplier’s

cash

Other accounts are entered to the General Ledger upon transaction. An (x) sign is placed and its total at the end of the month to below...