Lecture 17 Chapter 5 Accounting Systems

Review of Lecture

 Competent Personnel  Rotating Duties  Mandatory Vacations  Separating Responsibilities for Related Operations  Separating Operations, Custody of Assets, and Accounting  Proofs and Security Measures

1. Orders may be placed on the basis of friendship with a supplier, rather than on price, quality, and other objective factors. 2.The quantity and quality of supplies received may not be verified, thus causing payment for supplies not received or poor-quality supplies. 3.Supplies may be stolen by the employee. 4.The validity and accuracy of invoices may be verified carelessly.

Clues to Potential Problems 1.Abrupt changes in lifestyle. 2.Close social relationships with suppliers. 3.Refusing to take a vacation. 4.Frequent borrowing from other employees. 5.Excessive use of alcohol or drugs. Warning signs with regard to people:

1.Missing documents or gaps in transaction numbers. 2.An unusual increase in customer refunds. 3.Differences between daily cash receipts and bank deposits. 4.Sudden increase in slow payments. 5.Backlog in recording transactions. Warning signs from the accounting system:

Manual Accounting Systems

Running Balance Method of Ledgers

SPECIAL JOURNAL SPECIAL JOURNAL contains records of original entry other than the general journal that are designed for recording specific types of transactions of similar nature, e.g. Sales Journal, Purchase Journal, Cash Receipts Journal, Cash Disbursements Journal

Subsidiary Ledger A subsidiary ledger is a group of similar accounts whose combined balances equal the balance in a specific general ledger account. The general ledger account that summarizes a subsidiary ledger's account balances is called a control account or master account. Subsidiary ledger accounts are not part of the general ledger; they are supplemental accounts that provide the detail to support the balance in a control account.

Cash11 Accts. Pay.21 General Ledger Accts. Rec.12 Supplies14 Accounts Receivable Subsidiary Ledger A BCD Customer Accounts Accounts Payable Subsidiary Ledger A BCD Creditor Accounts

BUYING SELLING Special Journals Providing services on account Revenue journal Revenue journal recorded in Receipt of cash from any source Cash receipts journal Cash receipts journal recorded in Purchase of items on account Purchases journal recorded in Payment of cash for any purpose Cash payments journal recorded in

Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page

Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page Mar. 2615MyMusicClub.com

Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page Mar. 2615MyMusicClub.com

Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page Mar. 2615MyMusicClub.com

Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page Mar. 2615MyMusicClub.com Accounts Receivable Subsidiary Ledger Date Item P.R. Debit CreditBalance MyMusicClub.com Mar. 2R352,2002,

Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page Mar. 2615MyMusicClub.com Accounts Receivable Subsidiary Ledger Date Item P.R. Debit CreditBalance MyMusicClub.com Mar. 2R352,2002, This procedure is repeated for each posting to the accounts receivable subsidiary ledger. 2010

Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page Mar. 2615MyMusicClub.com Zone.com Web Cantina MyMusicClub.com

Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page Mar. 2615MyMusicClub.com Zone.com Web Cantina MyMusicClub.com

Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page Mar. 2615MyMusicClub.com Zone.com Web Cantina MyMusicClub.com

ACCOUNT Accounts Receivable Account No. 12 Balance Dr. Cr. Date Dr.Cr. Item Post. Ref Mar.1Balance3 400 GENERAL LEDGER R35 Revenue Journal, page 35

By placing the account number here, we indicate that Rs. 9,600 has been debited to Accounts Receivable in the general ledger. Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page Mar. 2615MyMusicClub.com Zone.com Web Cantina MyMusicClub.com (12)(41) 2010

ACCOUNT Fees Earned Account No. 41 Balance Dr. Cr. Date Dr.Cr. Item Post. Ref. GENERAL LEDGER 2010 Mar. 31R

Revenue Journal Invoice Post Accts. Rec. – Debit Date No. Account Debited Ref. Fees Earned – Credit Page Mar. 2615MyMusicClub.com Zone.com Web Cantina MyMusicClub.com (12)(41) Placing “41” here indicates that Rs.9,600 has been posted to the credit side of Fees Earned in the general ledger. 2010

Review of Lecture Internal Control Internal Control Format of Ledger with running balance Format of Ledger with running balance Special Journal Special Journal Subsidiary Ledger Subsidiary Ledger Revenue Journal Revenue Journal

End of Lecture 17