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Chapter 6 Questions 9.

A subsidiary ledger is a group of accounts with a common characteristic. The accounts are assembled to facilitate the accounting process by freeing the general ledger from details concerning individual balances. The advantages of using subsidiary ledgers are that they:  Permit transactions affecting a single customer or single creditor to be shown in a single account, thus providing necessary up-to-date information on specific account balances.  Free the general ledger of excessive details relating to inventory, accounts receivable and accounts payable. As a result, a trial balance of the general ledger does not contain potentially thousands of individual account balances.  Assist in locating errors in individual accounts by reducing the number of accounts combined in one ledger and by using control accounts.  Permit a division of labour in posting by having one employee post to the general ledger and a different employee(s) post to the subsidiary ledgers.

10.

(a)

(1)

Individual transactions are generally posted daily to the subsidiary ledger.

(2) (b)

11.

In contrast, postings to the control accounts are usually made in total at the end of the month.

A control account is a general ledger account that summarises subsidiary ledger data. Subsidiary ledger accounts keep track of specific account activity (i.e. specific debtors or creditors). A subsidiary ledger is outside the general ledger and is not used in the trial balance. The control account provides the same information as the subsidiary ledger – only in summary.

At the end of the month, after all posting to both the general ledger and the subsidiary ledger accounts have been made, a total of a subsidiary ledger account balances should equal the balance of the control account in the general ledger. In this case, the control account balance will be $450 larger than the total of the subsidiary accounts. The difference would be investigated by checking the postings made to the control account and subsidiary ledger accounts and the error would be discovered.

BRIEF EXERCISE 6.3 Cumin Ltd (a) (b) (c)

Separation of duties Independent internal verification Documentation procedures

BRIEF EXERCISE 6.4 (a) (b) (c) (d)

General ledger Subsidiary ledger General ledger Subsidiary ledger

BRIEF EXERCISE 6.5 (a) (b) (c) (d) (e) (f)

Cash receipts journal Cash payments journal Cash payments journal Sales journal Purchases journal Cash receipts journal

EXERCISE 6.3 Tessa Ltd (a)

$261,650. Beginning balance of $200,000 plus $125,150 debit from sales journal less $63,500 credit from cash receipts journal.

(b)

$48,430. Beginning balance of $45,000 plus $27,180 credit from purchases journal less $23,750 debit from cash payments journal.

(c)

The column total of $125,150 in the sales journal would be posted to the credit side of the Sales account and the debit side of the Accounts Receivable account in the general ledger.

(d)

The accounts receivable column total of $63,500 in the cash receipts journal would be posted to the credit side of the Accounts Receivable account in the general ledger.

EXERCISE 6.7 Jamies Hardware 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

(a) Journal Cash Payments Cash Receipts Cash Payments Cash Payments Cash Receipts Cash Payments Cash Payments Cash Receipts Cash Payments Cash Receipts

(b) Columns in the journal Other Accounts (Dr); Cash (Cr). Cash (Dr); Discount Allowed (Dr); and Accounts Receivable (Cr). Inventory (Dr); Cash (Cr). Accounts Payable (Dr); Cash (Cr); and Discount Received (Cr). Cash (Dr); Accounts Receivable (Cr)’ Other Accounts (Dr); Cash (Cr). Other Accounts (Dr); Cash (Cr). Cash (Dr); Other Accounts (Cr). Other Accounts (Dr); Cash (Cr). Cash (Dr); Sales (Cr); Cost of Sales (Dr); and Inventory (Cr)

PROBLEM SET A 6.1 Computer Supplies Ltd (a) Cash Receipts Journal CR4

Date

Apr. 1 4 5 8 10 11 23 29

Account Credited

Ref

S Wiggle, Capital Computer for U PC West Ltd Cash Sales East PC Ltd Inventory PC West Ltd Office Supplies

301 √ √ √ 120 √ √

Cash Dr 18,000 4,998 1,860 21,736 2,400 1,650 4,500 3,600 58,744 (101)

Discount Allowed Dr

Accounts Receivable Cr

Sales Rev Cr

Other

Cost of Sales Dr Inventory Cr

Cr 18,000

102

5,100 1,860 21,736

13,040

2,400 1,650 4,500 3,600 17,460 (112)

102 (414)

21,736 (401)

19,650 (x)

13,040 (505)/(120)

Cross-footing Totals $71,886 Dr Total = $71,886 ($58,744 + $102 + $13,040) Cr Total = $71,886 ($17,460 + $21,736 + $19,650 + $13,040) (b) General Ledger Accounts Receivable Date Explanation Apr. 1 Balance 30 Cash

Ref.

Debit

CRJ

No. 112 Credit Balance

17,460

22050DR 4590DR

Accounts Receivable Subsidiary Ledger East PC Ltd Date Explanation Apr. 1 Balance 10 Cash

Office Supplies Ltd Date Explanation Apr. 1 Balance 29 Cash

Ref.

Debit

CRJ

Ref. CRJ

Credit 2,400

Debit

Credit 3,600

Balance 4,650DR 2,250DR

Balance 3,600DR 0

PC West Ltd Date Explanation Apr. 1 Balance 5 Cash 23 Cash

Ref.

Credit

CRJ CRJ

Computers for U Ltd Date Explanation Apr. 1 Balance 4 Cash

(c)

Debit

Balance 8,700DR 6,840DR 2,340DR

1,860 4,500

Ref.

Debit

Credit

CRJ

Balance 5,100DR 0

5,100

Accounts receivable balance

$4,590

Accounts Receivable subsidiary account balances: East PC Ltd PC West Ltd Total

$2,550 2,340 $4,590

PROBLEM SET B 6.1 South Morange’s Hardware (a)

Date

Nov 1 3 5 11 15 16 19 25 30

Chq No.

11 12 13 14 15 16 17 18 19

Account Debited

Inventory Equipment Wald Bros. Inventory R. Snyder V. Creek, Drawing G. Paul Prepaid Insurance R. Huff

Cash Payments Journal CPJ Post Other Accounts Ref Accounts Payable Dr Dr 120 157 √ 120 √ 306 √ 130 √

Cash Cr

450 850 950

9

500

15

650

13

1,250 3,350 (201)

37 (120)

1,000 250 1,500 4,050 (X)

Cross-footing Totals:

Discount Received Cr

Dr = 7,400

450 850 941 1,000 485 250 637 1,500 1,250 7,363 (101)

Cr = 7,400

(b) General Ledger Accounts Payable Control Date Explanation Nov. 1 Balance 30 Cash

Post √ CPJ

Debit

Credit

3,350

No. 201 Balance 4,875Cr 1,525Cr

Accounts Payable Subsidiary Ledger R. Huff Date Explanation Nov. 1 Balance 30 Cash

Post √ CPJ

Debit

G. Paul Date Explanation Nov. 1 Balance

Post √

Debit

19 Cash

CPJ

Debit

Wald Bros. Date Explanation Nov. 1 Balance 5 Cash

Post √ CPJ

Debit

Subsidiary account balances: R. Huff G. Paul

$1,525 $1,000 525 $1,525

Credit

Balance 1,175C r 525Cr

Credit

Balance 500Cr 0

Credit

Balance 950 0

650

Post √ CPJ

Accounts payable control balance:

Balance 2,250Cr 1,000Cr

1,250

R. Snyder Date Explanation Nov. 1 Balance 15 Cash

(c)

Credit

500

950

Chapter 7 Questions 3.

Disagree. Internal control for handling cash is also concerned with the effectiveness and efficiency of operations, and the safeguarding of cash asset from employee theft, and unauthorised use.

7.

(a) A dishonoured cheque occurs when the bank on which the cheque is drawn refuses to pay the cheque, because it has been cancelled or because the balance of the account on which it is drawn is less than the amount of the cheque. (b) It reduced the balance of the bank account reported on the bank statement. The dishonoured cheque should be recorded in the Cash at Bank account. It does not appear in the bank reconciliation statement. (c) A dishonoured cheque should be entered into the cash receipts as a reduction in cash receipts. The adjusting entry in the company’s ledger accounts is a debit to Accounts Receivable and a credit to Cash.

EXERCISE 7.4 Shoe City Ltd (a)

(b)

Balance as per bank statement Add: Outstanding deposits Less: Unpresented cheques Balance as per Cash at Bank account (1)

$4,392.20 708.00 5,100.20 (876.00) $4,224.20

(1)

$4,770.20

Cash balance per books Less: Dishonoured cheque Bank charges Adjusted cash balance per books

$516.00 30.00

455.00 $4,224.20

(In general journal form) Accounts Receivable Cash at Bank

516.00

Bank Charges Cash at Bank

30.00

516.00

30.00

PROBLEM SET A 7.3

(a) Cash Receipts Journal (for workings only) Date Account Bank 31 Dec Sub-total 16 822.10 Net Note 3 145 collection Dishon Chq (647.10) Error in Dep (9) 20/12 Totals

19 311

Cash Payments Journal (for workings only) Date Account Cheque Number 31 Dec Sub-total Error in Chq 3485

Bank 14 384.10 90

Totals

14 474.10 Bank

Dr Date 1 Dec

Account Balance

$ Date 10,596.30 31 Dec

31 Dec

Receipts

19,311.00 31 Dec

Account Payments

Balance

29,907.30 1 Jan

Balance

15,433.20 JONA Ltd Bank Reconciliation Statement as at 31 December 2016

Balance as per bank statement Add: Outstanding deposit

Less: Unpresented cheques No. Amount 3470 720.10 3474 1,050.00 3478 538.20 3481 807.40 3484 832.00

19,580.00 Cr 1,190.40 20,770.40 Cr

Cr $ 14,474.1 0 15,433.2 0 29,907.3 0

3486

1,389.50

5,337.20

Balance as per Cash at Bank account

$ 15,433.20 Dr

PROBLEM SET A 7.4

Delicious Pies Pty Ltd Bank Reconciliation Statement As at 31 October 2017

(a) Balance as per bank statement Add: Undeposited receipts Less: Unpresented cheques: No. Amount 62 $177.45 183 210.00 284 354.55 862 266.99 863 317.52 864 231.39 Balance as per Cash at Bank account (1)

(1)

(b)

Original Balance of Cash at Bank account Add: Bank credit (collection of note receivable) Adjusted balance per books (before theft) Less: Theft Adjusted balance of Cash at Bank account

$25,732.00 CR 5,313.71 31,045.71 CR

(1,557.90) $29,487.81 DR

$30,369.81 280.00 30,649.81 (1,162.00) $29,487.81

The cashier attempted to cover the theft of $1,162 by: 1.

Not listing as unpresented three cheques totalling $742.00 (No. 62, $177.45; No. 183, $210.00 and No. 284, $354.55).

2.

Understating the unpresented cheques listed by $140. (The correct total of the 3 cheques listed is $815.90).

3.

Did not add $280 credit note to the book balance.

(c)

1.

The principle of independent internal verification has been violated because the cashier prepared the bank reconciliation.

2.

The principle of segregation of duties has been violated because the cashier had access to the accounting records and also prepared the bank reconciliation. Additional Problem 12 The following information is provided for Southern Cross Cricketers Ltd:

Southern Cross Cricketers Ltd Bank Reconciliation as at 31 May 2017 Cash balance per bank statement Add Deposits not credited Less Unpresented cheques: 506 509

4,817.00 Cr 284.00 5,101.00 161.00 220.00

(381.00)

Balance per cash at bank ledger account

4,720.00 Dr

CASH PAYMENTS JOURNAL Date 2017

Name

Chq. No.

Bank CR

Jun 4

Car

510

1,000

4

D.H.A

511

26

9

D. Grace

512

87

19

C. Goode

513

260

10

Investments

514

1,908

15

Wages

515

150

18

Petrol

516

97

20

Drawings

517

20

29

Oil

518

16

30

Wages

519

150

30

CASH RECEIPTS JOURNAL D. Grace 520

115

Sub Total Name Rec. No.

3 829 Bank DR

Jun 1

Capital

16

500

5

V. Daly

17

39

Date 2017

5

Fees

18-56

1247

12

Fees

57-85

1537

16

G. Press

86

68

30

Int. Rev.

Voucher 29

52

SubTotal

3 443

SOUTHERN CROSS CRICKETERS LTD BANK STATEMENT DR CR June 1

BALANCE 4,817.00CR

1

C/C

2

State Duty

1.00 CPJ

5,100.00CR

2 2

Federal Duty C/C

3.00 CPJ

5,097.00CR 5,597.00CR

3

506

6 7 8

C/c Fee 510

13 14 14

C/C 512 513

17

C/C

17

514

1,908.00

5,067.00CR

18

515

150.00

4,917.00CR

21

517

20.00

4,897.00CR

22

511 Citicorp Int Direct Payment

26.00

4,871.00CR

30

284.00

500.00 161.00

5,101.00CR

5,436.00CR 1,286.00

6,722.00CR 6,717.00CR 5,717.00CR

1,537.00

7,254.00CR 7,167.00CR 6,907.00CR

68.00

6,975.00CR

5.00 1,000.00 87.00 260.00

20.00 CRJ

4,891.00CR

Required: (a)

Prepare the Cash at Bank ledger account showing the final balance at 30 June 2017.

(b)

Prepare the bank reconciliation as at 30 June 2017.

Bank Ledger Account Date Details 1 Jun Balance

DR

30 Jun

Sundry Receipts

30 Jun

Sundry Payments

CR

3,463.00 (or 3,443 + 20)

BAL 4,720.00 Dr 8,183.00 Dr

3,838.00 (or 3,829 + 1 + 3 +5)

4,345.00 Dr

Southern Cross Cricketers Ltd Bank Reconciliation as at 30 June 2017 Cash balance per bank statement Add Deposits not credited Less Unpresented cheques: 509 220.00 516 97.00 518 16.00 519 150.00 520 115.00 Balance per cash at bank ledger account

4,891.00 Cr 52.00 4,943.00

(598.00) 4,345.00 Dr

Additional Problem 13 James Brown runs a business of selling amplifier parts. The following transactions took place in October 2016.

Transaction 1 2 3 4 5

Date 3 7 12 14 30

Details Purchase of goods on credit from Dave Grohl Sold goods on credit to Tom Petty Cash sales to Elvis Presley Paid Dave Grohl the full amount owing. Tom Petty paid his outstanding account in full

$ 612 750 820 612 980

As at 1 October 2016, Tom Petty’s account shows a balance of $250. Required: (a)

Explain the advantages provided by the use of special journals.

(b)

For transactions 1 to 5, identify the special journals to be used.

(c)

Post the transactions in the subsidiary ledger of James Brown with respect to the transactions with Tom Petty for the month of October 2016.

Answer: (a) Explain the advantages provided by the use of special journals. Reduces entering repetitive transactions Reduces detail/clutter in the general ledger Improves speed and efficiency (b) For transactions 1 to 5, identify the special journals to be used. 1 2 3 4 5

Purchases Journal Sales Journal CRJ CPJ CRJ

(c) Post the transactions in the subsidiary ledger of James Brown in respect of the transactions with Tom Petty for the month of October 2016. Tom Petty 1/10

Balance

$ 250 30/10

Cash at Bank, Discount Expense

7/10

Sales Revenue

980 20

750

1 000

1 000...