CO5117 Introduction to Accounting

Topic 4 2013

Revision Week 3

CO5117 Introduction to Accounting

Lecture 4 Accounting Subsystems
Ref Ch 6 Carlon et el

Accounting for GST Accounting for retail firms Perpetual vs Periodic inventory Assigning cost flow methods to inventory Specific identification FIFO LIFO Moving / Weighted Average Income statement for Retail firms Lower of cost & NRV

Principles of Accounting Information Systems

Principles that underlie efficient & effective accounting information systems: Cost effectiveness Cost versus benefits consideration Useful output Relevant, reliable, understandable, timely, comparable Flexibility Technological advances, increased competition, changing accounting principles, organisational growth, government regulation & de-regulation

Control Accounts & Subsidiary ledgers

Subsidiary ledgers are groups of accounts with a common characteristic Details from subsidiary ledgers are summarised in the general ledger control account Two common subsidiary ledgers are: Accounts Receivable (customers) which collects transaction data of individual customers Accounts Payable (suppliers) which collects transaction data of individual creditors Stockcards used in perpetual inventory & form another subsidiary ledger!!

Control Accounts & Subsidiary ledgers cont.

Advantages of subsidiary ledgers

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Show transactions in a single account (ie debtor, creditor or inventory product) providing up to date information Free the general ledger of excessive details by using a secondary / subsidiary ledger Provide effective control control account & subsidiary total of subsidiary ledgers must balance Provide for segregation of duties

CO5117 Introduction to Accounting

Topic 4 2013

Special Journals

Sales Journal cont.

General journal recording inefficient, time consuming & incomplete Special journals can be used to eliminate these problems!! Special journals are used to record similar types of transactions Types of special journals: Sales journal Cash receipts journal Purchases journal Cash payments journal

Used to record credit sales of inventory Cash sales recorded in cash receipts journal Example : Karns Wholesale Supplies uses a perpetual inventory system, remember selling price & cost price of sales!!

Sales Journal cont.

Posting the sales journal Update the subsidiary ledger for individual debtors on a daily basis (account should always be up to date!!) At the end of the month column totals of sales journal are posted to the general ledger: (remember to apply rules of debit & credit!!) Debit to Accounts Receivable account Credit to Sales account Debit to Cost of Sales account Credit to Inventory account

Sales Journal cont.

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Sales Journal cont.

Checking the ledgers:

Cash Receipts Journal

Used to record ALL receipts of cash Column titles will depend on the frequency of transactions Debit columns Cash Discount Allowed Credit columns Accounts Receivable Sales Other accounts Debit and credit column (at cost price) Cost of sales and Inventory
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CO5117 Introduction to Accounting

Topic 4 2013

Cash receipts journal continued

CR1

Individual debtors - subsidiary a/cs updated on a daily basis. Other Accounts update a/cs in general ledger when they occur. Totals of columns are posted to general ledger at the end of the month 13

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Purchases Journal

Purchases Journal cont.

Only used to record credit purchases of inventory. Cash purchases are recorded in the cash payments journal Can be multi column format if also need to record GST & freight inwards!

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Posting the purchases journal Individual creditors are posted to the subsidiary ledger on a daily basis. At the end of the month column totals of purchases journal are posted to the general ledger: Debit to Inventory account 16 Credit to Accounts Payable account

Cash Payments Journal

Records all cash payments Number of columns will depend on the frequency of transactions Credit columns: Cash paid Discount Received Debit columns: Accounts Payable Cash purchases Other accounts paid
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CO5117 Introduction to Accounting

Topic 4 2013

Cash Payments Journal cont.

Posting the cash payments journal Individual creditors are posted to the subsidiary ledger on a daily basis other accounts update a/cs in general ledger when they occur Totals of columns are posted to general ledger at the end 19 of the month

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Using the General Journal

Now its your turn!!!

General Journal is now used for transactions that are not recorded in the specialised journals, i.e. purchase returns, sales returns, purchase of assets on credit, sale of assets, owner introducing personal assets for business use, balance day adjustments & closing entries. When recording in the GJ remember, if it impacts on an individual debtor, creditor or inventory item, the subsidiary ledger must be updated in addition to the control account in the general ledger!! Process of recording transactions is now more efficient & more complete!!

Lecture Exercise:

W.Glass wholesale distributor of wines & Spirits Required: Record the transactions in the journals Post to the subsidiary & general ledger Prepare a Trial Balance, Income Statement & Statement of Financial Position
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Computerised Accounting Information Systems

Basic features Built-in programs performing journalising, posting, preparation of trial balance & reports Use of modules: general ledger, inventory, accounts receivable, accounts payable Data entered in one module automatically updates information in other modules General ledger & accounting reports updated automatically

Advantages & Disadvantages of Computerised Systems

Advantages: Ability to process large number of transactions quickly Automatic posting of transactions Error reduction Fast response time Flexible & fast report production Disadvantages: Use of inappropriate &/or incompatible software & hardware Need for reliable back-up procedures Lack of computer system skills Computer viruses & hackers Fraud & embezzlement 24

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CO5117 Introduction to Accounting

Topic 4 2013

Summary
Streamlined the recording process using Specialised journals: SJ, PJ, CRJ & CPJ Control accounts & subsidiary ledgers Use of the general journal Computerised accounting

Next Week

Ch 7 - Internal control, cash & receivables!

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