1. Accounting Systems
Chapter 5

2. Learning Objectives
Define and describe an accounting system.
Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals.
Describe and illustrate the use of a computerized accounting system.
Describe the basic features of e-commerce.
Use segment analysis in evaluating the operating performance of a company.

3. Define and describe an accounting system.
Learning Objective 1
Define and describe an accounting system. 3

4. Basic Accounting Systems
LO 1
Basic Accounting Systems
An accounting system is the methods and procedures for collecting, classifying, summarizing, and reporting a business’s financial and operating information.

5. Basic Accounting Systems
LO 1
Basic Accounting Systems
As a business grows and changes, accounting systems also change in the following three-step process.
Analyze user information needs.
Design the system to meet the user needs.
Implement the system.

6. Basic Accounting Systems
LO 1
Basic Accounting Systems

7. Basic Accounting Systems
LO 1
Basic Accounting Systems
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.

8. LO 1
Processing Methods
Processing methods are the means by which the accounting system collects, summarizes, and reports accounting information. These methods may be either manual or computerized.

9. Learning Objective 2
Define and describe an accounting system.
Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals.

10. Manual Accounting Systems
LO 2
Manual Accounting Systems
Understanding a manual accounting system is useful in identifying relationships between accounting data and reports.

11. LO 2
Subsidiary Ledgers
A large number of individual accounts with a common characteristic can be grouped together in a separate ledger called a subsidiary ledger.

12. LO 2
Subsidiary Ledgers
The primary ledger, which contains all of the balance sheet and income statement accounts, is called a general ledger.

13. LO 2
Subsidiary Ledgers
Each subsidiary ledger is represented in the general ledger by a summarizing account, called a controlling account.

14. LO 2
Subsidiary Ledgers
The individual customer accounts are arranged in alphabetical order in a subsidiary ledger called the accounts receivable subsidiary ledger, or customers ledger.

15. LO 2
Subsidiary Ledgers
The individual creditor accounts are arranged in alphabetical order in a subsidiary ledger called the accounts payable subsidiary ledger, or creditors ledger.

16. LO 2
Subsidiary Ledgers

17. LO 2
Special Journal
One method of processing transactions more efficiently in a manual system is to use special journals. Special journals are designed to be used for recording a single kind of transaction that occurs frequently.

18. LO 2
Special Journals
SELLING
BUYING

19. LO 2
Special Journals
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.

20. The revenue journal is used for recording fees earned on account.
LO 2
Special Journals
The revenue journal is used for recording fees earned on account.

21. Cash fees earned would be recorded in the cash receipts journal.
LO 2
Special Journals
Cash fees earned would be recorded in the cash receipts journal.

22. LO 2
Special Journals
Purchases made on account (on credit) are recorded in the purchases journal.

23. All cash payments are recorded in the cash payments journal.
LO 2
Special Journals
All cash payments are recorded in the cash payments journal.

24. LO 2
Special Journals
NetSolutions had the following selected general ledger balances as of March 1, 2012:
Account
Number Account Balance
11 Cash $6,200
12 Accounts Receivable 3,400
14 Supplies 2,500
18 Office Equipment 2,500
21 Accounts Payable 1,230

25. LO 2
Revenue Journal
If NetSolutions recorded its revenue transactions in the general journal, the following entries would have to be made:

26. Each invoice is normally numbered in sequence for future reference.
LO 2
Revenue Journal
Revenues are normally recorded to the revenue journal when the company sends a bill, referred to as an invoice, to the customer.
Each invoice is normally numbered in sequence for future reference.

27. LO 2
Revenue Journal
If NetSolutions journalized these same fees earned on account entries in the revenue journal, the process is simplified, as you can see in Exhibit 2.

28. LO 2

29. LO 2
Revenue Journal
Let’s take a step-by-step look at the process used to post the first entry. This entry was made on March 2, 2012, when NetSolutions issued Invoice No. 615 to Accessories By Claire for fees earned of $2,200.

30. Exhibit 3 (in steps) LO 2 (continued) Revenue Journal 1 2 3 4 5 6
Invoice Post Accts. Rec. – Debit
Date No. Account Debited Ref Fees Earned – Credit
Page 35 1 2 3 4 5 6
2012
Mar Accessories By Claire
6 616 RapZone
Web Cantina
Accessories by Claire
Click here to skip “Exhibit 3 (in Steps)”
(continued)

31. Exhibit 3 (in steps) LO 2 (continued) Revenue Journal 1 2 3 4 5 6 1 2
Page 35
2012
Mar Accessories By Claire
Invoice Post Accts. Rec. – Debit
Date No. Account Debited Ref Fees Earned – Credit 1 2 3 4 5 6 1 2 3 4 5 6
6 616 RapZone
Web Cantina
Accessories by Claire
Accounts Receivable Subsidiary Ledger
Accessories By Claire
Date Item P.R. Debit Credit Balance
Mar. 2 R35 2,200 2,200
2012
(continued)

32. Exhibit 3 (in steps) LO 2 (continued) Revenue Journal 1 2 3 4 5 6 1 2
Page 35
Invoice Post Accts. Rec. – Debit
Date No. Account Debited Ref Fees Earned – Credit 1 2 3 4 5 6
2012 1 2 3 4 5 6
Mar Accessories By Claire
6 616 RapZone
Web Cantina
Accessories by Claire
Accounts Receivable Subsidiary Ledger
Accessories By Claire
Date Item P.R. Debit Credit Balance
Mar. 2 R35 2,200 2,200
2012
(continued)

33. LO 2
Exhibit 3 (in steps)
Revenue Journal
Page 35
Invoice Post Accts. Rec. – Debit
Date No. Account Debited Ref Fees Earned – Credit 1 2 3 4 5 6
2012 1 2 3 4 5 6
6 616 RapZone
Web Cantina
Accessories by Claire
Mar Accessories By Claire
The same procedure would be used to post the other transactions to the individual accounts in the accounts receivable subsidiary ledger.
(continued)

34. Exhibit 3 (in steps) LO 2 Next, the amount column would be totaled.
Revenue Journal
Page 35
Invoice Post Accts. Rec. – Debit
Date No. Account Debited Ref Fees Earned – Credit 1 2 3 4 5 6
2012 1 2 3 4 5 6
6 616 RapZone
Web Cantina
Accessories by Claire
Mar Accessories By Claire 31
Next, the amount column would be totaled.
(continued)

35. LO 2
Exhibit 3 (in steps)
The debit total is posted from the revenue journal to Accounts Receivable in the general ledger.
ACCOUNT
Accounts Receivable
Account No. 12
Post. Ref.
Balance
Date
Item
Dr.
Cr.
Dr.
Cr.
2012
Mar. 1 Balance 31
R35
Revenue Journal, page 35
(continued)

36. LO 2
Exhibit 3 (in steps)
Revenue Journal
Invoice Post Accts. Rec. – Debit
Date No. Account Debited Ref Fees Earned – Credit
Page 35 1 2 3 4 5 6
2012
6 616 RapZone
Web Cantina
Accessories by Claire
Mar Accessories By Claire
(12)
Indicates a debit posting of $9,600 to Accounts Receivable (General Ledger Account 12)
(continued)

37. LO 2
Exhibit 3 (in steps)
The credit total is posted from the revenue journal to Fees Earned in the general ledger.
ACCOUNT
Fees Earned
Account No. 41
Post. Ref.
Balance
Date
Item
Dr.
Cr.
Dr.
Cr.
Mar. 31
2012
R35
Revenue Journal, page 35
(continued)

38. LO 2
Exhibit 3 (in steps)
Revenue Journal
Invoice Post Accts. Rec. – Debit
Date No. Account Debited Ref Fees Earned – Credit
Page 35 1 2 3 4 5 6
2012
6 616 RapZone
Web Cantina
Accessories by Claire
Mar Accessories By Claire
(12)
(41)
Indicates a credit posting of $9,600 to Fees Earned (General Ledger Account 41)

39. EE 5-1

40. LO 2
Cash Receipts Journal
All transactions that involve the receipt of cash are recorded in a cash receipts journal. Every entry recorded in the cash receipts journal will involve a debit to the “Cash Dr.” column.

41. LO 2

42. Exhibit 4 (in steps) LO 2 GENERAL LEDGER (continued) 42
CASH RECEIPTS JOURNAL
Page 14
Other Accounts
Post Accounts Receivable Cash
Date Account Credited Ref. Cr. Cr. Dr.
2012 42
Mar Rent Revenue
19 Web Cantina 3,400 3,400
28 Accessories By Claire 2,200 2,200
30 RapZone 1,750 1,750
GENERAL LEDGER
ACCOUNT Rent Revenue Acct. No. 42
Date Item P.R. Debit Credit Cr. Bal.
Click the button to skip “Exhibit 4 (in Steps)”
Mar. 1
2012
CR14
400
400
(continued)

43. Exhibit 4 (in steps) LO 2 (continued) 42
CASH RECEIPTS JOURNAL
Page 14
Other Accounts
Post Accounts Receivable Cash
Date Account Credited Ref. Cr. Cr. Dr.
2012 42
Mar Rent Revenue
19 Web Cantina 3,400 3,400
28 Accessories By Claire 2,200 2,200
30 RapZone 1,750 1,750
Accounts Receivable Subsidiary Ledger
Web Cantina
Date Item P.R. Debit Credit Balance
Mar Bal. 3, R35 2,650 6,050
2012 19
CR14
3,400
2,650
(continued)

44. LO 2
Cash Receipts Journal
After all journalizing and posting to individual accounts for the month is complete, the columns are totaled.

45. LO 2
Exhibit 4 (in steps)
CASH RECEIPTS JOURNAL
Page 14
Other Accounts
Post Accounts Receivable Cash
Date Account Credited Ref. Cr. Cr. Dr.
2012 42
Mar Rent Revenue
19 Web Cantina 3,400 3,400
28 Accessories By Claire 2,200 2,200
30 RapZone 1,750 1,750 31
400 7,350 7,750
( ) 12
( )
( ) 11
A check mark indicates that items in this column are posted individually.
(continued)

46. Accounts Receivable Account
LO 2
Accounts Receivable Account
The total of the accounts in the accounts receivable subsidiary ledger should match the balance in the general ledger’s Accounts Receivable account.

47. EE 5-2

48. LO 2
Purchases Journal
The purchases journal is designed for recording all purchases on account.

49. LO 2

50. Exhibit 5 (in steps) LO 2 (continued)
PURCHASES JOURNAL
Page 11
Accts. Other
Post Payable Supplies Accounts Post
Date Account Credited Ref. Cr. Dr. Dr. Ref. Amount
2012
Mar. 3 Howard Supplies
7 Donnelly Supplies
12 Jewett Bus. Sys. 2,800 Off. Equip. 2,800
19 Donnelly Supplies 1,450 1,450
27 Howard Supplies
Click on button to skip “Exhibit 5 (in steps)”
(continued)

51. LO 2
Exhibit 5 (in steps)
PURCHASES JOURNAL
PURCHASES JOURNAL
Page 11
Accts. Other
Post Payable Supplies Accounts Post
Date Account Credited Ref. Cr. Dr. Dr. Ref. Amount
2012
Mar. 3 Howard Supplies
7 Donnelly Supplies
12 Jewett Bus. Sys. 2,800 Off. Equip. 2,800
19 Donnelly Supplies 1,450 1,450
27 Howard Supplies
Note that the March 12 purchase of office equipment for $2,800 is recorded as a debit in the “Other Accounts Dr.” column. Also note that the account title is written in for proper posting.
(continued)

52. Exhibit 5 (in steps) LO 2 (continued)
PURCHASES JOURNAL
PURCHASES JOURNAL
Page 11
Accts. Other
Post Payable Supplies Accounts Post
Date Account Credited Ref. Cr. Dr. Dr. Ref. Amount
2012
Mar. 3 Howard Supplies
7 Donnelly Supplies
12 Jewett Bus. Sys. 2,800 Off. Equip. 2,800
19 Donnelly Supplies 1,450 1,450
27 Howard Supplies
Accounts Payable Subsidiary Ledger
Howard Supplies
Date Item P.R. Dr. Cr. Balance
2012
Mar. 3
P11
600
600
(continued)

53. LO 2
Exhibit 5 (in steps)
PURCHASES JOURNAL
PURCHASES JOURNAL
Page 11
Accts. Other
Post Payable Supplies Accounts Post
Date Account Credited Ref. Cr. Dr. Dr. Ref. Amount
2012
Mar. 3 Howard Supplies
7 Donnelly Supplies
12 Jewett Bus. Sys. 2,800 Off. Equip. 2,800
19 Donnelly Supplies 1,450 1,450
27 Howard Supplies
The other entries to the accounts payable subsidiary ledger are recorded using the same procedure.
(continued)

54. LO 2
Exhibit 5 (in steps)
PURCHASES JOURNAL
Page 11
Accts. Other
Post Payable Supplies Accounts Post
Date Account Credited Ref. Cr. Dr. Dr. Ref. Amount
2012
2012
Mar. 3 Howard Supplies
7 Donnelly Supplies
12 Jewett Bus. Sys. 2,800 Off. Equip. 2,800
19 Donnelly Supplies 1,450 1,450
27 Howard Supplies 18
This posting reference indicates that Office Equipment (Account 18) is debited in the general ledger for $2,800.

55. LO 2
Purchases Journal
At the end of March, all columns are totaled and the equality of debits and credits is verified. Then the total amounts in the “Accounts Payable Cr.” and “Supplies Dr.” columns are posted. Because Office Equipment was posted earlier, the $2,800 total is not posted.

56. LO 2
Exhibit 5 (in steps)
PURCHASES JOURNAL
Page 11
Accts. Other
Post Payable Supplies Accounts Post
Date Account Credited Ref. Cr. Dr. Dr. Ref. Amount
2012
Mar. 3 Howard Supplies
7 Donnelly Supplies
12 Jewett Bus. Sys. 2,800 Off. Equip. 18 2,800
19 Donnelly Supplies 1,450 1,450
27 Howard Supplies
31 6,230 3, ,800
( ) ( ) ( ) 21
Supplies would be debited for $3,430 and 14 written in the parentheses.
GENERAL LEDGER
ACCOUNT Accounts Payable No. 21
Date Item P.R. Debit Credit Balance
2012
Mar. 1 Bal 1,230 31
P11
6,230
7,460

57. EE 5-3

58. LO 2
Cash Payments Journal
All transactions involving a credit to Cash are recorded in the cash payments journal.

59. LO 2

60. On March 2, 2012, issued Check 150 for rent of $1,600.
LO 2
Exhibit 6 (in steps)
CASH PAYMENTS JOURNAL
PAGE 7
Other Accounts
Ck. Post Accounts Payable Cash
Date No. Account Debited Ref. Dr. Dr. Cr
2012
Mar Rent Expense 1,600 1,600
On March 2, 2012, issued Check 150 for rent of $1,600.
Click button to skip “Exhibit 6 (in steps)”
(continued)

61. LO 2
Cash Payments Journal
The amounts listed in the “Other Accounts Dr.” column are posted on a regular basis. The $1,600 for Rent Expense is posted to Account No. 52.

62. Exhibit 6 (in steps) LO 2 (continued) CASH PAYMENTS JOURNAL
PAGE 7
Other Accounts
Ck. Post Accounts Payable Cash
Date No. Account Debited Ref. Dr. Dr. Cr
2012
Mar Rent Expense 1,600 1,600 52
General Ledger
Account Rent Expense
Account No. 52
Date Item P.R. Dr. Cr. Balance
2012
Mar. 2
1, ,600
CP7
(continued)

63. LO 2
Exhibit 6 (in steps)
CASH PAYMENTS JOURNAL
PAGE 7
Other Accounts
Ck. Post Accounts Payable Cash
Date No. Account Debited Ref. Dr. Dr. Cr
2010
Mar Rent Expense 1,600 1,600 52
Grayco Supplies 1,230 1,230
On March 15, issued Check 151 to Grayco Supplies for $1,230.
(continued)

64. LO 2
Cash Payments Journal
Let’s post to the accounts payable subsidiary ledger at this time to keep the creditors’ accounts current.

65. Exhibit 6 (in steps) LO 2 (continued) CASH PAYMENTS JOURNAL
PAGE 7
Other Accounts
Ck. Post Accounts Payable Cash
Date No. Account Debited Ref. Dr. Dr. Cr
2012
Mar Rent Expense 1,600 1,600 52
Grayco Supplies 1,230 1,230 
Accounts Payable Subsidiary Ledger
Grayco Supplies
Mar. 1 Bal ,230
Date Item P.R. Dr. Cr. Balance
2012 15
CP7
1,230
---
(continued)

66. LO 2
Cash Payments Journal
Now, let’s journalize the remainder of March’s cash disbursements. Following that, let’s post to the individual creditors’ accounts.

67. Exhibit 6 (in steps) LO 2 (continued) CASH PAYMENTS JOURNAL
PAGE 7
Other Accounts
Ck. Post Accounts Payable Cash
Date No. Account Debited Ref. Dr. Dr. Cr
2010
Mar Rent Expense 1,600 1,600 52
Grayco Supplies 1,230 1,230 
Jewett Business Sys. 2,800 2,800
Donnelly Supplies
Utilities Expense 1,050 1,050
Howard Supplies
(continued)

68. Exhibit 6 (in steps) LO 2 (continued) CASH PAYMENTS JOURNAL
PAGE 7
Other Accounts
Ck. Post Accounts Payable Cash
Date No. Account Debited Ref. Dr. Dr. Cr
2012
Mar Rent Expense 1,600 1,600 52
Grayco Supplies 1,230 1,230 
Jewett Business Sys. 2,800 2,800
Donnelly Supplies
Utilities Expense 1,050 1,050
Howard Supplies  54
(continued)

69. LO 2
Cash Payments Journal
The journal is ruled, summed, and verified for the equality of the debits and the “Cash Cr.” column.

70. Cash Payments Journal LO 2 (continued) CASH PAYMENTS JOURNAL
Other Accounts
Ck. Post Accounts Payable Cash
Date No. Account Debited Ref. Dr. Dr. Cr
PAGE 7
CASH PAYMENTS JOURNAL
Other Accounts
Ck. Post Accounts Payable Cash
Date No. Account Debited Ref. Dr. Dr. Cr
PAGE 7
2008
Mar Rent Expense 1,600 1,600
2012
Mar Rent Expense 1,600 1,600 52
Grayco Supplies 1,230 1,230
Grayco Supplies 1,230 1,230 
Jewett Business Sys. 2,800 2,800
Donnelly Supplies
Utilities Expense 1,050 1,050
Howard Supplies
Jewett Business Sys. 2,800 2,800
Donnelly Supplies
Utilities Expense 1,050 1,050
Howard Supplies  54
,650 5,050 7,700
(continued)

71. Cash Payments Journal LO 2
Other Accounts
Ck. Post Accounts Payable Cash
Date No. Account Debited Ref. Dr. Dr. Cr
PAGE 7
CASH PAYMENTS JOURNAL
Other Accounts
Ck. Post Accounts Payable Cash
Date No. Account Debited Ref. Dr. Dr. Cr
PAGE 7
2012
2008
Mar Rent Expense 1,600 1,600
Mar Rent Expense 1,600 1,600 52
Grayco Supplies 1,230 1,230
Grayco Supplies 1,230 1,230 
Jewett Business Sys. 2,800 2,800
Donnelly Supplies
Utilities Expense 1,050 1,050
Howard Supplies
Jewett Business Sys. 2,800 2,800
Donnelly Supplies
Utilities Expense 1,050 1,050
Howard Supplies  54
,650 5,050 7,700
(21)
(11)
( )  
The totals for “Accounts Payable Dr.” and “Cash Cr.” are posted.
(continued)

72. Accounts Payable Account
LO 2
Accounts Payable Account
After all posting has been completed, the balances in the accounts payable subsidiary ledger should equal the balance of the accounts payable controlling account in the general ledger.

73. EE 5-4

74. Learning Objective 3
Define and describe an accounting system.
Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals.
Describe and illustrate the use of a computerized accounting system.

75. Computerized Accounting System
LO 3
Computerized Accounting System
Computerized accounting systems have the following three main advantages over manual systems:
Computerized systems simplify the record-keeping process by recording transactions in electronic forms and, at the same time, posting them electronically to general and subsidiary ledger accounts.

76. Computerized Accounting System
LO 3
Computerized Accounting System
Computerized systems are generally more accurate than manual systems.
Computerized systems provide management with current account balance information to support decision making, since account balances are posted as the transactions occur.

77. Computerized Accounting Systems
LO 3
Computerized Accounting Systems
(continued)

78. Computerized Accounting Systems
LO 3
Computerized Accounting Systems
(continued)

79. Computerized Accounting Systems
LO 3
Computerized Accounting Systems
(concluded)

80. Define and describe an accounting system.
Learning Objective 4
Define and describe an accounting system.
Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals.
Describe and illustrate the use of a computerized accounting system.
Describe the basic features of e-commerce. 80

81. LO 4
E-Commerce
Using the Internet to perform business transactions is termed e-commerce.

82. LO 4
E-Commerce
When transactions are between a company and a consumer, it is termed B2C (business-to-consumer) e-commerce.

83. E-Commerce Supply chain management (SCM)
LO 4
E-Commerce
Three more advanced areas where the Internet is being used for business purposes are:
Supply chain management (SCM)
Consumer relationship management (CRM)
Product life-cycle management (PLM)

84. Learning Objective 5
Define and describe an accounting system.
Journalize and post transactions in a manual accounting system that uses subsidiary ledgers and special journals.
Describe and illustrate the use of a computerized accounting system.
Describe the basic features of e-commerce.
Use segment analysis in evaluating the operating performance of a company.

85. LO 5
Segment Analysis
One way to report revenue is by different segments. Businesses may be segmented by region, by product or service, or by type of customer.

86. LO 5
Segment Analysis
Intuit Inc.

87. LO 5
Segment Analysis
Intuit Inc.

88. LO 5
Segment Analysis
Intuit Inc.

89. EE 5-5

90. Accounting Systems
The End