ACCT 652 Accounting
Week 4–Special Journals, Cash, and Internal Controls
Some slides © Times Mirror Higher Education Division, Inc. Used by permission © Michael D. Kinsman, Ph.D.
Review of last week
• Some highlights of what we did last week are:
– Handling terms and what terms means for accounts receivable.
– Two methods of recording discounts. – Cost of goods sold is a bathtub. – Calculating cost of goods sold.
ACCT 652 Week 4 2
Should you always take discounts?
• The interest rate you earn on your money by taking the discount is given by the formula Rate = [(Discount %)/(100 - discount %)] * [365 / (net days - discount days)] • Using a 1/10 net 100 example, we’d have:
• Don’t take the discount if money costs you more than 4%!
Rate = [1 / (100 - 1)] * [365 /(100 - 10)] = [1/99] * 365/90 = 4.096% per year
Recording discounts–Method A:
Show opportunities lost
• If you normally expect to take a discount, and want your statements to show when you goofed by not taking one, record as follows:
GENERAL JOURNAL Page
Date Description Post. Ref. Debit Credit
M M DD Purchases 98.00 Accounts payable 98.00
Record purchase
M M DD+ Accounts payable 98.00 Cash 98.00
Record payment on day 10
*********OR*********
M M DD+ Accounts payable 98.00 Discounts lost 2.00 Cash 100.00
Record payment after day 10
ACCT 652 Week 4 4
Recording discounts–Method B:
Show opportunities taken
• Suppose, instead, that you do not expect to take the discount. Then you would enter:
GENERAL JOURNAL Page
Date Description
Post.
Ref. Debit Credit
M M DD Purchases 100.00 Accounts payable 100.00 Record purchase M M DD+ Accounts payable 100.00 Cash 98.00 Discounts taken 2.00 Record payment on day 10
*********OR*********
M M DD+ Accounts payable 100.00
Cash 100.00
Record payment after day 10
ACCT 652 Week 4 5
Cost of goods sold
• Cost of goods sold is like a bathtub:
• Where 1 is beginning inventory, 2 is purchases, 3 is cost of goods, 4 is ending inventory, and 5 is “evaporation.”
4
3
5
1
Calculating cost of goods sold
• So now we have to calculate CGS and Evaporation:
Cost of Goods Sold + Evaporation = Beginning inventory + Purchases -Ending inventory
• How much is CGS and how much is evaporation does matter, because evaporation is stuff we “lost.”
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Worksheet for a merchandiser
No.Name Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. 101Cash 8,200 8,200 106Accounts receivable 11,200 11,200 119Inventory 19,000 19,000 21,000 21,000 124Office supplies 2,350 1,800 550 125Store supplies 1,450 1,200 250 128Prepaid insurance 900 600 300 163Office equipment 4,200 4,200 164Accumulated deprec. OE 700 700 1,400 165Store equipment 30,000 30,000 166Accumulated deprec. SE 3,000 3,000 6,000 201Accounts payable 16,000 16,000 209Salaries payable 800 800 301Meg capital 34,000 34,000 302Meg withdrawals 4,000 4,000 413Sales 321,000 321,000
414Sales returns and allow 2,000 2,000
415Sales discounts 4,300 4,300 505Purchases 235,800 235,800 506Purchase R&A 1,500 1,500 507Purchase discounts 4,200 4,200 508Transportation in 2,300 2,300 612Depreciation exp, SE 3,000 3,000 613Depreciation exp, OE 700 700
620Office salaries expense 25,000 300 25,300 621Sales salaries expense 18,000 500 18,500
637Insurance expense 600 600
641Rent expense Office 900 900
642Rent expense. Selling 8,100 8,100
650Office supplies expense 1,800 1,800
651Store supplies expense 1,200 1,200
655Advertising expense 2,700 2,700 380,400 380,400 8,100 8,100 326,200 347,700 79,700 58,200 21,500 21,500 347,700 347,700 79,700 79,700 Income Balance Statement Sheet Adjustments Unadjusted Trial Balance Account ACCT 652 Week 4 8 9
Adjusting entry method
No.Name Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. 101Cash 8,200 8,200 106Accounts receivable 11,200 11,200 119Inventory 19,000 21,000 19,000 21,000 124Office supplies 2,350 1,800 550 125Store supplies 1,450 1,200 250 128Prepaid insurance 900 600 300 163Office equipment 4,200 4,200 164Accumulated deprec. OE 700 700 1,400 165Store equipment 30,000 30,000 166Accumulated deprec. SE 3,000 3,000 6,000 201Accounts payable 16,000 16,000 209Salaries payable 800 800 301Meg capital 34,000 34,000 302Meg withdrawals 4,000 4,000 413Sales 321,000 321,000
414Sales returns and allow 2,000 2,000
415Sales discounts 4,300 4,300 505Purchases 235,800 2,000 233,800 506Purchase R&A 1,500 1,500 507Purchase discounts 4,200 4,200 508Transportation in 2,300 2,300 612Depreciation exp, SE 3,000 3,000 613Depreciation exp, OE 700 700
620Office salaries expense 25,000 300 25,300 621Sales salaries expense 18,000 500 18,500
637Insurance expense 600 600
641Rent expense Office 900 900
642Rent expense. Selling 8,100 8,100
650Office supplies expense 1,800 1,800
651Store supplies expense 1,200 1,200
Internal Control
• The purpose of internal control is to assure that you are not stolen from and that your business runs as efficiently as possible. • A properly designed internal control system
– Encourages adherence to managerial policies. – Promotes efficient operations.
– Protects assets from waste, fraud and theft. – Ensures accurate and reliable accounting data.
ACCT 652 Week 4 10
Internal control example
• One example of internal control occurred in what we did last week. Our method of handling the recording of discounts on accounts payable lets the manager look at the statements and see in an instant whether the policies of the business are being adhered to. If we have either a discount lost or a discount taken, an error was made.
ACCT 652 Week 4 11
Obvious methods of internal control
• Use checks to pay bills.
• Have a voucher system, where multiple approvals are required to approve payment. • Separate duties, so that no one person is in a
position to “rip you off.”
Internal Control
Broad Principles ➊ Clearly establish responsibilities. ➋ Maintain adequate records. ➌ Insure assets and bond employees.➍ Separate record-keeping and custody over assets. ➎ Divide responsibility for related transactions. ➏ Use mechanical devices whenever feasible. ➐ Perform regular and independent reviews.
ACCT 652 Week 4 13
What industry has the best
internal control?
• Casinos. Think about what you see: – Virtually all bets are made with chips. – Chips arrive carried by a BIG casino guard. – Chips are counted by the cashier, the pit boss,
the dealer, and the “guy upstairs.” – All bets are monitored from “upstairs.” – At shift end, each table’s winning percentage is
calculated. “Losing tables” are monitored.
ACCT 652 Week 4 14
Reconciling the Bank Balance
• A bank reconciliation is prepared periodically to . . .– Explain the difference between cash reported on the bank statement and the cash balance on the company’s books.
– Provide information for reconciling journal entries.
• An employee who does not handle cash receipts, process checks, or maintain cash records should prepare the bank reconciliation.
• Items that may cause the bank statement balance to differ from the company’s book balance include . . .
– Outstanding checks.
– Unrecorded deposits (deposits in transit). – Bank service charges.
– Bank collections and interest earned. – Company and/or bank errors.
Reconciling the Bank Balance
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• Two sections
– Reconcile bank statement balance to the reconciled (correct) balance.
– Reconcile book balance to the reconciled (correct) balance.
• The reconciled bank balance must be equal to the reconciled book balance.
• All reconciling items in the book balance section require journal entries.
Reconciling the Bank Balance
ACCT 652 Week 4 17
• Start with bank statement balance. • Add deposits not yet recorded by the bank
(deposits in transit). • Deduct outstanding checks.
• Add or deduct bank errors as appropriate.
• Start with the book balance.
• Add deposits credited by bank, but not yet recorded in company’s books.
• Deduct bank service charges and Nonsufficient Funds (NSF) checks. • Add or deduct book errors as appropriate. • Changes require journal entries.
Reconciling the Bank Balance
Book Balance SectionACCT 652 Week 4 19
How many of you reconcile your
bank balance monthly?
• Surprisingly, only about half of students at your level typically reconcile. The reasons given as to why they don’t:
– I don’t have time.
– I don’t really want to know how little money I have.
– And the ever popular, “The bank never makes a mistake.”
ACCT 652 Week 4 20
• Balance per bank: $9,610. Balance per books: $7,430. • Outstanding checks totaled $2,417.
• A $500 check mailed to the bank for deposit had not reached the bank at the statement date.
• The bank returned a customer’s NSF check for $225 received as payment of an account receivable.
• The bank statement showed $30 interest earned on the bank balance for the month of July.
• Check 781 for supplies cleared the bank for $268 but was erroneously recorded in our books as $240.
• A $486 deposit by Acme Company was erroneously deposited in our account by the bank.
Reconciling the Bank Balance
Bank Reconciliation
Bank Balance, July 31 $ 9,610 Add: Deposit in Transit 500
Less: Bank Error $ 486
Outstanding Checks 2,417 (2,903) Adjusted Balance, July 31 $ 7,207
Book Balance, July 31 $ 7,430
Add: Interest 30
Less: Recording Error $ 28
NSF Check 225 (253) Adjusted Balance, July 31 $ 7,207
ACCT 652 Week 4 22
Bank Reconciliation–Journal
Entry
GENERAL JOURNAL Page 7
Date Description Post. Ref. Debit Credit July 31 Supplies Inventory 28
Cash 28
To record reconciling item decreasing cash
July 31 Accounts Receivable 225
Cash 225
To record reconciling item decreasing cash
ACCT 652 Week 4 23
Petty Cash Funds
• Petty Cash funds are used to make small amounts of cash available for immediate payment of
miscellaneous expenditures.
• Disbursements from the Petty Cash fund are
exceptions to the rule that all cash disbursements must
be made by check. Why?
Because it’s more expensive to do it “right”
Petty Cash Funds
• Establish the fund witha debit to Petty Cash and a credit to Cash for the amount of the fund. • Additional entries to Petty Cash are required
only when the fund balance is changed. • At end of period, or when the balance is low, a
check is written and cashed to transfer cash to Petty Cash from the checking account. • Debit assets, expenses, or liabilities, depending
on the expenditures shown on Petty Cash vouchers, and credit the Cash account.
ACCT 652 Week 4 25
Petty Cash Funds
GENERAL JOURNAL Page 7
Date Description
Post.
Ref. Debit Credit
July 31 Travel Expense 79.30 Entertainment Expense 93.42 Postage Expense 55.00 Office Supplies Expense 32.48 Cash Over and Short 2.00
Cash 262.20
To replenish Petty Cash Fund.
Cash Over and short is the difference between the amount needed to replenish the fund ($262.20) and the total of the Petty Cash vouchers ($260.20).
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Special Journals
• Special journals save time in journalizing and posting by providing special columns for accumulating the debits and credits of similar transactions.
• This allows you to post column totalsrather than having to post individual amounts.
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Sales Journal
SALES JOURNAL Page 17
Date Account Debited
Invoice Number
Post. Ref. Amount
The Sales Journal is used to record credit sales.
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Sales Journal after posting
SALES JOURNAL Page 17 Date Account Debited
Invoice Number
Post. Ref. Amount Jan. 2 Clothing Inc. 125 1,500
9 Adams Clothing 126 2,500 12 Calton Clothing 127 1,200 31 Total -Accts. Rec., Dr; Sales, Cr. 5,200 (106) (413)
GENERAL LEDGER
Account Accounts Receivable No.106
Date Explanation Post.
Ref. Debit Credit Balance
Jan. 1 Beginning Balance 4,000
31 S17 5,200 9,200
GENERAL LEDGER
Account Sales No.413
Date Explanation Post.
Ref. Debit Credit Balance
Jan. 1 Beginning Balance 0
31 S17 5,200 5,200
ACCT 652 Week 4 29
Keeping a Separate Account for
Each Credit Customer
• A separate record is established for each credit customer in the Accounts Receivable Ledger.
– This is a subsidiary ledgerthat contains the detail for each credit customer.
• The General Ledger contains the Accounts Receivable account that we posted to in the previous example.
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Keeping a Separate Account for
Each Credit Customer
SALES JOURNAL Page 17 Date Account Debited NumberInvoice Post. Ref. Amount
Jan. 2 Clothing Inc. 125 ✓ 1,500
9 Adams Clothing 126 2,500
12 Calton Clothing 127 1,200
31 Total -Accts. Rec., Dr; Sales, Cr. 5,200 (106) (413)
ACCOUNTS RECEIVABLE LEDGER Account Clothing Inc.
Date Item
Post.
Ref. Debit Credit Balance
Jan. 1 Balance 1,000
2 S17 1,500 2,500
ACCT 652 Week 4 31
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Keeping a Separate Account for
Each Credit Customer
SALES JOURNAL Page 17 Date Account Debited NumberInvoice Post. Ref. Amount
Jan. 2 Clothing Inc. 125 ✓ 1,500
9 Adams Clothing 126 ✓ 2,500
12 Calton Clothing 127 ✓ 1,200
31 Total -Accts. Rec., Dr; Sales, Cr. 5,200 (106) / (413)
Clothes-R-Us would post each of the other entries daily to the individual credit customers’ accounts in a similar manner.
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Keeping a Separate Account for
Each Credit Customer
GENERAL LEDGER Account Accounts Receivable No.106
Date Explanation Post.
Ref. Debit Credit Balance
Jan. 1 Beginning Balance 4,000
31 S17 5,200 9,200
CLOTHES-R-US Schedule of Accounts Receivable
January 31, 19XX Adams Clothing $ 1,500
Calton Clothing 2,200
Clothing Inc. 2,500
DD's Enterprises 3,000
Total accounts receivable $ 9,200
After all items are posted, the balance in the Accounts Receivable account in the General Ledger should equal the sum of the balances in the customers’ accounts in the Accounts Receivable Ledger.
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Cash Receipts Journal
• The Cash Receipts Journalis used anytime cash is received.
– Examples include: cash from credit customers, cash from cash sales, cash from other sources. • Special columns are used in the journal for
the accounts that are commonly used in these transactions.
ACCT 652 Week 4 34
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Cash from Credit Customers
ACCOUNTS RECEIVABLE LEDGER Account DD's Enterprises
Date Item
Post.
Ref. Debit Credit Balance
Jan. 1 Balance 2,500
5 R18 2,000 500
CASH RECEIPTS JOURNAL Page 18 Date Account Credited Explanation
Post. Ref. Other Accts. Credit Accts. Rec. Credit Sales Credit Sales Disc. Debit Cash Debit Jan. 5 DD's Enterprises Invoice 643 ✓ 2,000 40 1,960
ACCT 652 Week 4 35
Cash Sales
Place either a ✓ or a ✓✓ in the posting reference column when the entry is made to
indicate that an individual posting is not necessary.
CASH RECEIPTS JOURNAL Page 18 Date Account Credited Explanation
Post. Ref. Other Accts. Credit Accts. Rec. Credit Sales Credit Sales Disc. Debit Cash Debit Jan. 5 DD's Enterprises Invoice 643 ✓ 2,000 40 1,960
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Miscellaneous Receipts of Cash
CASH RECEIPTS JOURNAL Page 18 Date Account Credited Explanation
Post. Ref. Other Accts. Credit Accts. Rec. Credit Sales Credit Sales Disc. Debit Cash Debit Jan. 5 DD's Enterprises Invoice 643 ✓ 2,000 40 1,960
14 Carl's Discount Store Cash sales ✓ ✓ 1,000 1,000
22 Notes Payable Note to bank 245 5,000 5,000
GENERAL LEDGER
Account Notes Payable No.245
Date Explanation Post.
Ref. Debit Credit Balance
Jan. 1 Beginning Balance 0
22 R18 5,000 5,000
ACCT 652 Week 4 37
38 CASH RECEIPTS JOURNAL Page 18 Date Account Credited Explanation Post. Ref.
Other Accts. Credit
Accts. Rec. Credit Sales Credit
Sales Disc. Debit Cash Debit Jan. 5 DD's Enterprises Invoice 643 ✓ 2,000 40 1,960
14 Carl's Discount Store Cash sales ✓ ✓ 1,000 1,000
22 Notes Payable Note to bank 245 5,000 5,000
31 Totals 6,200 8,500 22,000 170 36,530
(106)
Month-End Postings
GENERAL LEDGER
Account Accounts Receivable No.106
Date Explanation
Post.
Ref. Debit Credit Balance
Jan. 1 Beginning Balance 4,000
31 S17 5,200 9,200
31 R18 8,500 700
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Month-End Postings
CASH RECEIPTS JOURNAL Page 18 Date Account Credited Explanation Post. Ref.
Other Accts. Credit
Accts. Rec. Credit CreditSales
Sales Disc. Debit Cash Debit Jan. 5 DD's Enterprises Invoice 643 ✓ 2,000 40 1,960
14 Carl's Discount Store Cash sales ✓ ✓ 1,000 1,000
22 Notes Payable Note to bank 245 5,000 5,000
31 Totals 6,200 8,500 22,000 170 36,530
(✓) (106) (413) (415) (101)
Since the amount in the Other Accounts Credit column is not posted, a ✓ is placed under the amount to indicate that the total is not posted.
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Purchases Journal
PURCHASES JOURNAL Page 22 Date Account Invoice Date Terms Post. Ref. Purchases Debit Office Supplies Debit Other Accounts Debit Accts. Payable Credit Jan. 2 Franklin Company 1/1 2/10,n/30 ✓ 10,000 10,000
7 Office Supplies, Inc. 1/6 2/10,n/30 ✓ 250 250
10 Smith Supplies 1/8 n/30 125/✓ 75 75
A ✓in the posting reference column indicates that the entries have been posted daily to the Accounts Payable Subsidiary Ledger accounts.
ACCT 652 Week 4 40
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Purchases Journal
PURCHASES JOURNAL Page 22 Date Account Invoice Date Terms Post. Ref. Purchases Debit Office Supplies Debit Other Accounts Debit Accts. Payable Credit Jan. 2 Franklin Company 1/1 2/10,n/30 ✓ 10,000 10,000
7 Office Supplies, Inc. 1/6 2/10,n/30 ✓ 250 250
10 Smith Supplies 1/8 n/30 125/✓ 75 75
The 125in the posting reference column for the third entry is required because the entry is also posted to the Store Supplies account in the
General Ledger.
ACCT 652 Week 4 41
Purchases Journal
PURCHASES JOURNAL Page 22 Date Account Invoice Date Terms Post. Ref. Purchases Debit
Office Supplies Debit Other Accounts Debit Accts. Payable Credit Jan. 2 Franklin Company 1/1 2/10,n/30 ✓ 10,000 10,000
7 Office Supplies, Inc. 1/6 2/10,n/30 ✓ 250 250
10 Smith Supplies 1/8 n/30 125/✓ 75 75
31 Totals 22,000 300 75 22,375
(505) (124) (201)
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Purchases Journal
PURCHASES JOURNAL Page 22 Date Account Invoice Date Terms Post. Ref. Purchases Debit
Office Supplies Debit Other Accounts Debit Accts. Payable Credit Jan. 2 Franklin Company 1/1 2/10,n/30 ✓ 10,000 10,000
7 Office Supplies, Inc. 1/6 2/10,n/30 ✓ 250 250
10 Smith Supplies 1/8 n/30 125/✓ 75 75
31 Totals 22,000 300 75 22,375
(505) (124) (✓) (201) The total of the Other Accounts Debit column is not posted.
ACCT 652 Week 4 43
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Cash Disbursements Journal or
Check Register
• The Cash Disbursements Journal is used anytime cash is paid.
– Examples include: payments to suppliers, payments for transportation-in, and payments for salaries.
ACCT 652 Week 4 44
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Cash Disbursements Journal or
Check Register
CASH DISBURSEMENTS JOURNAL Page 25 Date
Ch.
No. Payee Account Debited Post. Ref. Other Accts. Debit Accts. Pay. Debit Pur. Disc. Credit Cash Credit Jan.2 256 R&R Trucking Transportation-in 508 25 25
4 257 Franklin Company Franklin Company ✓ 200 200 15 258 Sally Jones Salaries Expense 622 250 250 22 259 Office Supplies, Inc. Ofc. Supplies, Inc. ✓ 250 5 245
A ✓in the posting reference column indicates that the entries have been posted to the Accounts Payable Subsidiary Ledger accounts.
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Cash Disbursements Journal or
Check Register
CASH DISBURSEMENTS JOURNAL Page 25 Date Ch. No. Payee Account Debited Post. Ref.
Other Accts. Debit Accts. Pay. Debit Pur. Disc. Credit CreditCash Jan. 2 256 R&R Trucking Transportation-in 508 25 25
4 257 Franklin Company Franklin Company ✓ 200 200
15 258 Sally Jones Salaries Expense 622 250 250
22 259 Office Supplies, Inc. Ofc. Supplies, Inc. ✓ 250 5 245
An account numberin the posting reference column indicates that the entries have been posted to the account in the General Ledger.
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Cash Disbursements Journal or
Check Register
CASH DISBURSEMENTS JOURNAL Page 25 Date
Ch.
No. Payee Account Debited Post. Ref. Other Accts. Debit Accts. Pay. Debit Pur. Disc. Credit Cash Credit Jan.2 256 R&R Trucking Transportation-in 508 25 25
4 257 Franklin Company Franklin Company ✓ 200 200 15 258 Sally Jones Salaries Expense 622 250 250 22 259 Office Supplies, Inc. Ofc. Supplies, Inc. ✓ 250 5 245
31 Totals 300 850 50 1,100
(201) (507) (101)
At the end of the month, the totals in the Accounts Payable Debit, Purchases Discounts Credit, and Cash Credit
columns are posted. ACCT 652 Week 4 47
Cash Disbursements Journal or
Check Register
CASH DISBURSEMENTS JOURNAL Page 25 Date
Ch.
No. Payee Account Debited Post. Ref. Other Accts. Debit Accts. Pay. Debit Pur. Disc. Credit Cash Credit Jan.2 256 R&R Trucking Transportation-in 508 25 25
4 257 Franklin Company Franklin Company ✓ 200 200 15 258 Sally Jones Salaries Expense 622 250 250 22 259 Office Supplies, Inc. Ofc. Supplies, Inc. ✓ 250 5 245
31 Totals 300 850 50 1,100
(✓) (201) (507) (101)
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Schedule of Accounts Payable
• At the end of the month, a schedule of accounts payableis prepared in the same way as a schedule of accounts receivable. – The sum of the individual accounts payable in
the Accounts Payable Subsidiary Ledger should equal the balance in the Accounts Payable account in the General Ledger.
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To review
• We now have not only the General Journal, but also several special journals that make bookkeeping easier. These include:
– Cash Receipts Journal for receipts of cash (Ref is CR).
– Cash Disbursements Journal for payments of cash (CD).
– Purchases Journal for purchases of merchandise on credit. (P)
– Sales Journal for “normal” sales made on credit. (S)
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The accounting process
Ledger Journals Main records 8 column worksheet and statements Cash
payments* Trial Balance
Accounts payable Purchases* General Ledger Adjustments Accounts receivable Sales* General Journal Income statement Cash receipts* Closing Balance sheet
* Transactions may first go to any of these records Posted monthly Dotted lines are posted daily
OK, it
’
s time
• To ask questions. Remember that I am not a resource to you after I pass out the exams. • The exam will be open book, open notes,
calculators allowed.
• The exam must be done alone.
• Did I mention that the exam has to be done alone?
ACCT 652 Week 4 52
The exam
• The exam will be open book, open notes, calculators allowed.
• The exam must be done alone.
• You have 1-3/4 hours (105 minutes) to do the first part of the exam. As much time as you want for the last problem.
• Mail it back on time ordinary first class mail. Post mark will determine “on time.”
• Keep a copy for yourself. If you are paranoid, mail two copies.
• You know plenty to do well on this exam.
ACCT 652 Week 4 53
