Accounting - Chapters 5

On Mar. 30, Sparky's sold $1,500 of merchandise to The Toy Warehouse on account. Demonstrate how to record this transaction into a sales journal assuming that Sparky's originally paid $550 for the merchandise and a perpetual inventory system is used.

$1,500 is entered into the Sales Cr./Accounts Receivable Dr. column.

Armstrong Company sold $500 of merchandise (with a cost of $250) on credit to Babbling, Incorporated. This transaction is recorded in Armstrong's sales journal by entering _____.

$500 in the Accounts Receivable Debit Sales Credit column and $250 in the Cost of Goods Sold Debit Inventory Credit column.

How much cash would a seller receive if 1. The buyer does not pay within the discount's time period 2. If the buyer utilizes the discount

(1) : amount due = invoice amount - any returns of merchandise (2) : cash received = amount due - ((amount due) x (discount %))

What is each one recorded as to Merchandise inventory? (a) Invoice cost of merchandise purchases (b) Purchases discounts recieved (c) Purchases returns and allowances (d) cost of transportation

(a) debits (b) credits (c) credits (d) debits

On Jan. 15, ABC Co. sold a piece of land for $4,000 when the original cost of the land was $4,000. Show how to journalize the transaction into the cash receipts journal by selecting all of the correct actions below. (Check all that apply.)

- $4,000 is entered in the Cash Dr. column. - Land is entered into the Account Credited column. - Sold Land is entered in the Explanation column. - $4,000 is entered into the Other Accounts Cr. column.

On Jan. 20, ABC Co. received $98 in full payment of a $100 customer account. (The customer took advantage of a 2% discount for early payment.) Show how to journalize the transaction into the cash receipts journal by selecting all of the correct actions below.

- The customer's name is entered into the Account Credited column. - $98 is entered in the Cash Dr. column. - $2 is entered into the Sales Disc. Dr. column. - $100 is entered into the Accounts Receivable Cr. column.

Special journals:

- Used for recording transactions of similar type, each meant to cover one kind of transaction. - Four of the most common special journals are the sales journal, cash receipts journal, purchases journal, and cash disbursements journal. - Special journals are efficient and cost-effective tools in the journalizing and posting processes.

Posting reference (PR) column

- when sales recorded in the sales journal are individually posted to customer accounts in the accounts receivable ledger, check marks are entered in the sales journal's PR column - not used when entering transactions - used when posting - individual transactions in the sales journal are posted regularly (often on daily basis) to customer accounts in the accounts receivable ledger - these postings keep customer accounts up-to-date, which is important for the person granting credit to customers

When posting from the sales journal to the individual accounts in the accounts receivable ledger: (Check all that apply).

1. A check mark is entered in the Sales Journal's PR column. 2. A check mark is used instead of account numbers because customer accounts are arranged alphabetically in the accounts receivable ledger.

Describe what a special journal is by selecting all of the correct statements below. (Check all that apply.)

1. A special journal is used to record transactions of a certain type. 2. It is a journal that has specific columns for accounts debited and credited. 3. Special journals allow an efficient division of labor. 4. A special journal used as an alternative to only using a general journal.

Show your understanding of the posting procedure from a sales journal to a subsidiary ledger by selecting the correct statements below. (Check all that apply.)

1. After posting to a customer's account in the subsidiary ledger, check marks are entered in the sales journal's PR column. 2. Individual transactions are posted daily to the customer accounts affected in the subsidiary ledger. 3. Posting to individual customer accounts regularly keeps customer accounts up-to-date.

Review the transactions listed below and determine the ones that would be recorded in a special cash receipts journal. (Check all that apply.)

1. Cash from credit customers in payment of their accounts 2. Cash sales 3. Equipment sold for cash

What is the operating cycle for a merchandiser?

1. Cash purchase of merchandise 2. Inventory for sale 3. Credit sales 4. Accounts receivable 5. Cash

The five basic principles of accounting information systems

1. Control 2. Relevance 3. Compatibility 4. Flexibility 5. Cost-Benefit

What are the typical columns that would appear in a special sales journal? (Check all that apply.)

1. Cost of Goods Sold Dr./Inventory Cr. 2. Customer Account Debited 3. Invoice number 4. Sales Cr./Accounts Receivable Dr. 5. Date

Review the statements below and select the correct statements regarding the posting procedure from a sales journal to the subsidiary ledger. (Check all that apply.)

1. Customer accounts in the sales journal are posted individually in the subsidiary ledger. 2. The sales journal's account columns are totaled at the end of the period. These totals are posted to the general ledger.

Determine which of the statements below explain what an accounting system does. (Check all that apply.)

1. Organizes financial information into useful reports. 2. Collects and processes data from transactions and events. 3. Helps users to be better informed, so they can evaluate the risks and returns of different business decisions. 4. Communicates financial information to decision makers.

Describe the transactions recorded in a special cash payments journal. (Check all that apply.)

1. Payment of utility bills 2. Payment of employee wages 3. Purchases of merchandise for cash 4. Any transaction where the Cash account is credited

The five components of accounting systems are:

1. Source Documents 2. Input Devices 3. Information Processors 4. Information Storage 5. Output Devices

Subsidiary ledger benefits

1. removal of excessive details from the general ledger 2. Up-to-date information available on specific customers, suppliers, and other items

Only ___________ (purchases/receipts/sales) of inventory on _______ (cash/credit) as well as the charges for sales taxes owed, are recorded in a sales journal.

1. sales 2. credit

Merit Consulting Company regularly performs services for its clients on credit but does not offer discount terms. Because the company was concerned about the credit-worthiness of a new client, that client paid $2,500 in cash at the time that the consulting services were performed. This transaction is recorded into Merit's cash receipts journal by entering _____.

2,500 in the Cash Debit column and 2,500 in the Other Accounts Credit column

subsidiary ledger

a list of individual accounts with a common characteristic - has detailed information on specific accounts in the general ledger - It is a supporting ledger that contains detailed information about a general ledger account. - types of subsidiary ledgers are accounts receivable and accounts payable - The subsidiary ledger of the accounts receivable ledger is set up to keep a separate account for each customer

FOB destination

ownership transfers from the seller to the buyer when the goods arrive at the buyer's place of business - seller is responsible for shipping costs - seller bears risk of damage or loss when goods are in transit - seller does not report revenue until the goods arrive at destination

Source Documents

provide the basic information processed by an accounting system Examples: - bank statements and checks - invoices from suppliers - customer bills - sales receipts - employee earning records

Accounts receivable ledger

stores transaction data of individual customers - When a company has more than one credit customer, the accounts receivable records must show each customer purchase, paid, and has yet to pay - After all items are posted, the balance in the accounts receivable account must equal the total of all balances of its customer accounts - Accounts receivable account is said to control the accounts receivable ledger and is a control account

The flexibility principle prescribes that an accounting information system be able to...

Adapt to changes in the company, business environment, and needs of decision makers, technological advancements, competitive pressures, consumer tastes, regulations, and company activities

Summarize the transactions that would be entered into a general journal because they would not fit into a special journal by selecting the correct answers below. (Check all that apply.)

Adjusting journal entries Purchase of equipment by issuing a note payable Sales returns and allowances if a sales returns and allowances journal is not used Purchase returns and allowances Receiving a note receivable from a customer Closing journal entries

Which of the following statements is correct regarding inventory shrinkage? (a) Shrinkage refers to the loss of inventory (b) can be caused by theft or deterioration (c) computed by comparing a physical count of inventory with the recorded amount (d) recorded by debiting Cost of Goods Sold.

All are correct

Assume that numerous transactions have been entered into the cash receipts journal. Which of the following statements is correct with regards to the posting of the sales journal?

Amounts in the Accounts Receivable Credit column should be individually posted to the related accounts receivable ledger accounts.

Describe the transactions recorded in a special cash receipts journal.

Any transaction where the Cash account is debited

Input Devices

Capture information from source documents and transfer it to the information processing component. Those devices convert data on source documents into a usable form Examples: - Keyboards - scanners

Assume that two transactions have been entered into the sales journal. Which of the following statements is correct with regards to the posting of those transactions from the sales journal?

Check marks are entered in the PR column for each transaction row of the sales journal when amounts are posted to subsidiary ledgers.

FOB Shipping point

Ownership transfers from the seller to the buyer at shipping point - The buyer is responsible for shipping costs - Buyer bears the risk of damage or loss when goods are in transit - Buyer reports goods as part of inventory when they are in transit

Information Processors

Summarize information for use in analysis and reporting. An important part of information processors in accounting systems is professional judgement... which is essential. Examples: - journals - ledgers - working papers - posting procedures

Total cost of merchandise purchases =

invoice cost of merchandise purchases - (purhcases discounts + returns and allowances) + cost of transportation

Accounts payable ledger

stores transaction data of individual suppliers - Companies that buy on credit from multiple suppliers keep a separate account for each supplier by having an Accounts Payable controlling account in the general ledger - Have a separate account for each supplier (creditor) in an accounts payable ledger

The cost-benefit principle prescribes that the benefits from an activity outweigh...

the costs of that activity - the cost and benefits of an activity will impact the decisions of both external and internal users - Decisions regarding other system principles (control, relevance, compatibility, flexibility) are also affected by the cost-benefit principle

After each amount is posted from the cash receipts journal to the general ledger...

the letter x is entered in the PR column for Cash Debit, Cost of Goods Sold Debit/Inventory Credit columns.

The control principle prescribes that an accounting information system has...

Internal Controls - procedures that help managers to control and monitor business activities. - Include safeguards to protect company assets, policies to direct operations, procedures to ensure reliable financial reports, and methods to achieve compliance with laws and regulations

Information Storage

Keeps data accessible to information processors. After being inputted and processed, data is stored for future analyses and reports. ***Auditors rely on this database when they audit financial statements and a company's controls*** Examples: - Cloud storage

Output Devices

Make accounting information available to users. They provide users a variety of items including customers bills, financial statements, and internal reports Examples: - printers - monitors - smartphones

The relevance principle prescribes that an accounting information system report...

Useful, understandable, and timely information for decision making

The compatibility principle that prescribes that an accounting information system conforms with....

a company's activities, personnel, and structure

Goods available for sale =

beginning inventory + net purchases