Accounting Subsystems

Chapter 6
Manufacturing Business Periodic Inventory Systems - COGS is calculated at the end of period: (COGS = BI + P EI) Cost Flow assumptions - FIFO - LIFO - Weighted Average
Developed by John Wiley Ltd Adapted by Abdul Razeed Accounting Principles | ACCT 5001

Review Week 6

Accounting for GST

Chapter 12

Inventory errors Closing Entries for merchandising entities

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19 April 2010

Week 7 Overview
Ch 6 LO 1-7, pp.312-333 Ch 12 LO 3-5 (only), pp.691-703 Demonstration Questions: BE6.4, PSA6.6, E12.12, PSA12.9(a) Self-Study Questions: Ch 12: BE12.5 & 12.6 Ch 6: Q3,5; E6.5; E6.11; PSA6.4; PSA6.8 Learning Objectives: 1. Identify the basic principles of accounting information systems 2. Explain the major phases in the development of an accounting system 3. Describe the nature and purpose of control accounts and subsidiary ledgers 4. Explain how special journals are used in recording transactions 5. Indicate how a multicolumn special journal is posted 6. Explain the basic process and features of the Goods and Services Tax (GST) Text:
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A. Special Journals

Special journals achieve a number of advantages over just using General Journal, such as: - Processing efficiency - Lower processing costs - Greater data accuracy and control - Task separation and specialisation improves document and work flow efficiency - Flexibility & adaptability to the type of business eg. can have columns for major types of payments or receipts, GST collected/paid.
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Special Journals
Sales Journal (SJ) Purchases Journal (PJ) Cash Receipts Journal (CRJ) Cash Payments Journal (CPJ) General Journal (GJ) All sales of inventory on account ie, on credit All purchases of inventory on account ie, on credit All cash received (eg. cash sales, receipts from receivables, other) All cash paid (eg. cash purchases, payments to payables, wages etc.) Transactions that cannot be entered in a special journal (eg. correcting, adjusting and closing entries).
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Subsidiary Ledgers

Records detailed information subsidiary to the General Ledger improve control Reduces the amount of detail kept in the General Ledger improve efficiency & accuracy Examples of Subsidiary Ledgers Accounts Receivable Accounts Payable Asset Registers Inventory systems Payroll systems
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Subsidiary Ledgers

Subsidiary Ledgers (SL)

The total of the accounts in the subsidiary ledger must equal the balance of the related control account in the General Ledger (GL) Use of subsidiary ledgers allows: Division of labour in maintaining ledgers Effective internal control by comparing the total of the subsidiary ledger with the balance in the GL control account; Batch processing to GL control account efficiency benefit
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Accounts Receivable 300

GL

Artrec 300/1

Barlow 300/2

Elliot 300/3

SL

Accounts Payable 400

GL

Carter 400/1

Hillman 400/2
BE6.4 (overleaf)

SL

Demonstration Question BE 6.4

Identify the journal in which each of the following transactions is recorded. a. Cash Sales Cash receipts journal b. Owner withdrawal of cash Cash payments journal c. Cash purchase of land Cash payments journal d. Credit sales Sales journal e. Purchase of inventory on account Purchases journal f. Receipt of cash for services performed Cash receipts journal
PSA6.6 (overleaf)
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Special Journals & Subsidiary ledgers

Demonstration Question PSA 6.6

Balloon Shop Post-Closing Trial Balance As at 31 December 2010
Debit ($) Cash Accounts Receivable Commissions Receivable Inventory Equipment Accumulated DepreciationEquipment Accounts Payable B Beatle, Capital 138 450 43 000 16 500 46 500 24 500 7 950 4 500 44 500 89 450 138 450
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Credit ($)

Special Journals & Subsidiary Ledgers

Subsidiary ledger contain the following information: Accounts Receivable Party Time Ltd $3 000 , Celebrations Pty Ltd - $8 000, S. Devine $5 500 Accounts Payable Toys 4 u $10 500, R. Grilson $18 500, D. Harms $15 500 Transactions during Jan 2011:

Special Journals & Subsidiary Ledgers

a) Review how we recorded transactions in the General Journal b) Identify and record the relevant transactions to Special journals, and post these to the General Ledger and Subsidiary Ledgers c) Prepare trial balance as at 31 January 2011 d) Reconcile subsidiary ledger with GL control accounts.

5/1 Sell inventory to W. Wong $5,500, terms 2/7, n/30 5/1 Purchase inventory from S. Warren $3,000, terms 2/7, n/30 7/1 Receive a cheque from S. Devine $3 500 11/1 Pay freight inwards on inventory purchased $500 12/1 Pay rent of $2,000 for January 12/1 Receive payment from W. Wong for amount due 14/1 Issue a credit note to acknowledge receipt of damaged inventory of $700 returned by Party Time Ltd 15/1 Send D.Harms a cheque for $15,000 in payment of account, discount $500

17/1 Purchase inventory from D. Lapeska $1,500, terms 2/7, n/30 18/1 Pay sales salaries of $2,500 and office salaries $1,000 20/1 Send R. Grilson a cheque for $18,500 in payment of accounts payable 23/1 Total cash sales amount to $10,000 24/1 Sell inventory on account to Celebrations Pty Ltd $7,700, terms 1/7, n/30 27/1 Send S. Warren a cheque for $950 29/1 Receive $46,5000 of the commissions revenue receivable at 31 Dec 2010 30/1 Return inventory of $500 to D.Lapeska for credit

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Special Journals & Subsidiary ledgers

a) Previously we would record all transactions in the general Journal as follows assuming we are using a periodic inventory system

Special Journals & Subsidiary ledgers

a) Previously we would record all transactions in the general Journal as follows assuming we are using a perpetual inventory system

General Journal
Account Titles and Explanation Date
Jan. 5 Accounts Receivable-W.Wong Sales Revenue (sale of inventory to W.Wong) Jan 5 COGS (5,500 x 65% see p.353) Inventory

General Journal
Debit Credit
Date Account Titles and Explanation Ref Debit Credit

Ref

112/4 401

5,500 5,500

Jan. 5

505 120 120 201/4 101 112/3

3,575 3,575 3,000 3,000 3,500 3,500 14

Jan. 5
Jan. 5 Inventory Accounts Payable-S.Warren

Jan. 7
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Jan. 7

Cash Accounts Receivable-S.Devine

Special Journal & Subsidiary ledgers

b) We will now record like transactions in special journals (eg. Sales) and post totals to the general ledger, and individual detail to the relevant subsidiary ledger (e.g. Accounts Receivable Subsidiary ledger)

Special Journal & Subsidiary ledgers

b) We will now record like transactions in special journals (eg. Sales) and post totals to the general ledger, and individual detail to the relevant subsidiary ledger (e.g. Accounts Receivable Subsidiary ledger)

Sales Journal
Date 5/1 5,500 Account Doc ref (Invoice #) Post Ref Acc Rec Dr Sales Cr

SJ1
COGS Dr Inventory Cr Date

Sales Journal
Account Doc ref (Invoice #) Post Ref Acc Rec Dr Sales Cr 5,500 5,500 5/1 W Wong 3,575 12345 112/4

SJ1
COGS Dr Inventory Cr 3,575 3,575

(112)(401)

(505)(120)

(112)(401)

(505)(120)

NB. We also debit Wongs A/c 112/4 in the Accounts Receivable ledger
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NB. We also debit Wongs A/c 112/4 in the Accounts Receivable ledger
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Special Journal & Subsidiary ledgers

b) We will now record like transactions in special journals (eg. Purchases) and post totals to the general ledger, and individual detail to the relevant subsidiary ledger (e.g. Accounts Payable ledger)

Special Journal & Subsidiary ledgers

b) We will now record like transactions in special journals (eg. Purchases) and post totals to the general ledger, and individual detail to the relevant subsidiary ledger (e.g. Accounts Payable ledger)

Purchases Journal
Date Account Terms Post Ref

PJ1
Inventory Dr Acc Pay Cr Date

Purchases Journal
Account Terms Post Ref

PJ1
Inventory Dr Acc Pay Cr

5/1 3,000
(120)(201)

5/1

S Warren

2/7,n/30

201/4

3,000 3,000 (120)(201)

NB. We also credit Warrens A/c 201/4 in Accounts Payable ledger

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NB. We also credit S Warrens A/c 201/4 in Accounts Payable ledger

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Special Journals & Subsidiary Ledgers

The General journal is generally only used for less common transactions. The double entry is posted to the General ledger, and any debit or credit to An individual is also posted to the relevant subsidiary ledger General Journal
Date Description Post Ref Debit 700 700 455 455
Date

Special Journals & Subsidiary Ledgers

Cash Receipts Journal

Account Credited Ref Cash Dr Discount Allowed Dr Accounts Receivable Cr Sales Cr Jan. 7 12 23 29 65,390 (101) 110 (714) 9,000 (112) 10,000 (401)

CRJ1
Other Accounts Cr Cost of Goods Sold Dr Inventory Cr

GJ1
Credit

14/1 Sales Returns and Allowances A/c Receivable Party Time Limited 14/1 Inventory Write-down expense COGS (700 x 65%)

412 (112) 112/1 750 505

46,500 (x)

6,500 (505)/(120)

NB. We also credit Party Time Ltds A/c 112/1 in the Accounts Receivable Subsidiary Ledger

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NB. We also credit Devines A/c 112/3, and Wongs A/c 112/4 in the Accounts Receivable ledger Cross-footing Totals $72,000 Dr Total = $72,000 ($65,390 + $110 + $6,500) Cr Total = $72,000 ($9,000 + $10,000 + $46,500 + $6,500)

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Special Journals & Subsidiary Ledgers

Special Journals & Subsidiary Ledgers

Cash Receipts Journal

Date Jan. 7 12 23 29 Commission Receivable 115 S Devine W. Wong 3,500 5,390 10,000 46,500 65,390 (101) 110 (714) 9,000 (112) 10,000 (401) 110 3,500 5,500 10,000 Account Credited Ref Cash Dr Discount Allowed Dr Accounts Receivable Cr Sales Cr

CRJ1
Other Accounts Cr Cost of Goods Sold Dr Inventory Cr

Cash Payments Journal

Account Debited Date Ref Other Accounts Dr Accounts Payable Dr Inventory Cr Jan. 11 12 6,500 15 18 6,500 18 20 27 6,000 (x) 34,950 (201) 0 (x)

CPJ1
Discount Received Cr Cash Cr

46,500 46,500 (x)

(505)/(120)

500 (415)

40,450 (101)

NB. We also credit Devines A/c 112/3, and Wongs A/c 112/4 in the Accounts Receivable ledger Cross-footing Totals $72,000 Dr Total = $72,000 ($65,390 + $110 + $6,500) Cr Total = $72,000 ($9,000 + $10,000 + $46,500 + $6,500)

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NB. We also debit Harmas A/C 201/3, Grilson A/C 201/2 and Warrens A/C 201/4 in the Accounts Payable ledger Cross-footing Totals = $40,950 Dr Total = $40,950 ($6,000 + $34,950) Cr Total = $40,950 ($500 + $40,450)

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Special Journals & Subsidiary Ledgers

Special Journals & Subsidiary Ledgers

Cash Payments Journal

Account Debited Date Ref Other Accounts Dr 500 2,000 15,500 2,500 1,000 18,500 950 6,000 (x) 34,950 (201) 0 (x) Accounts Payable Dr Inventory Cr Jan. 11 12 15 18 18 20 27 Freight Inwards Rent Expense D Harms Sales Salaries Expense Office Salaries Expense R Grilson S Warren 506 729 726 727

CPJ1
Discount Received Cr Cash Cr

Sales Journal
Account Debited Date Post Ref Jan 5 24 13,200

SJ1
Accounts Receivable Dr Sales Cr Cost of Goods Sold Dr Inventory Cr

500 2,000 500 15,000 2,500 1,000 18,500 950 500 (415) 40,450 (101) Date

8,580

(112)/(401)

(505)/(120)

Purchases Journal
Account Credited Terms Ref Jan. 5 17 2/7, n/30 2/7, n/30

PJ1
Inventory Dr Accounts Payable Cr

NB. We also debit Harmas A/C 201/3, Grilson A/C 201/2 and Warrens A/C 201/4 in the Accounts Payable ledger Cross-footing Totals = $40,950 Dr Total = $40,950 ($6,000 + $34,950) Cr Total = $40,950 ($500 + $40,450)

4,500 (120)/(201)

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Special Journals & Subsidiary Ledgers

Special Journals & Subsidiary Ledgers

Sales Journal
Account Debited Date Jan 5 24 W Wong Celebrations Ltd Post Ref 5,500 7,700 13,200 (112)/(401)

SJ1
Accounts Receivable Dr Sales Cr 3,575 5,005 8,580 (505)/(120) Cost of Goods Sold Dr Inventory Cr

General Journal
Account Titles and Explanation Date Jan. 14

GJ1
Ref Debit Credit

Purchases Journal
Date Account Credited Terms Ref Jan. 5 17 S Warren D Lapeska 2/7, n/30 2/7, n/30

PJ1
Inventory Dr Accounts Payable Cr 3,000 1,500 4,500 (120)/(201)

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Special Journals & Subsidiary Ledgers

Special Journals & Subsidiary Ledgers

General Journal
Account Titles and Explanation Date Jan. 14 Sales Returns and Allowances Accounts Receivable Party Time Inventory Write Down Expense ($700 x .65) Cost of Goods Sold (Issued credit note for return of damaged inventory. The inventory is considered unsaleable.) 30 Accounts Payable D Lapeska Inventory (Returned inventory to supplier)

GJ1
Ref Debit Credit

(a) & (c) General Ledger

Cash No. 101 Ref Debit Credit Balance 43,000 CR1 CP1 65,390 40,450 108,390 67,940 Explanation Date Jan. 1 Balance 31 31

412 /112 750 505

700 700 455 455

/201 120

500 500
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Special Journals & Subsidiary Ledgers

Special Journals & Subsidiary Ledgers

Accounts Receivable
Explanation Date Jan. 1 Balance 14 31 31 13,200 Ref Debit

No. 112
Credit Balance 16,500 700 9,000 15,800 6,800 20,000

Accounts Receivable
Explanation Date Jan. 1 Balance 14 31 31 G1 CR1 S1 13,200 Ref Debit

No. 112
Credit Balance 16,500 700 9,000 15,800 6,800 20,000

Continue following the demonstration of posting special journals to the General and Subsidiary ledger in your demonstration question

Continue following the demonstration of posting special journals to the General and Subsidiary ledger in your demonstration question
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Special Journals & Subsidiary Ledgers

Party Time Explanation Date Jan. 1 Accounts Receivable Explana tion Balance G1 CR1 S1 13,200 700 9,000 Ref No. 112 Debit Cred it Balan ce 16,500 15,800 6,800 20,000 Date Jan. 1 7 W Wong Explanation Date Jan. 5 12 S1 CR1 5,500 5,500 5,500 0 Ref Debit Credit Balance Balance CR1 3,500 5,500 2,000 14 Celebrations Explanation Date Jan. 1 24 S Devine Explanation Ref Debit Credit Balance Balance S1 7,700 8,000 15,700 Ref Debit Credit Balance Balance G1 700 3,000 2,300 Ref Debit Credit Balance

B. Accounting for GST

A 10% Goods & services tax (GST) is charged on the sale of most goods and services in Australia. Businesses must collect GST on good sold and pay GST on goods they purchase from suppliers Firms can offset GST collected with GST paid, and pay or claim the balance to the Australian Tax Office (ATO) periodically (usually quarterly).
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Date Jan. 1 14 31 31

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B. Accounting for GST Purchase of Goods (with perpetual inventory) Sale of Goods

B. Accounting for GST

Eg. Cash paid for inventory includes 10% GST Cost Inventory is $70
Dr Dr Inventory Dr GST Paid (an asset account) Cr Cash 70 7 77 Cr

Eg. Cash collected includes GST of $10 Sales/revenue is $100

Dr Cr

Dr Cash Cr GST Collected (a liability account) Cr Sales Revenue

110 10 100

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B. Accounting for GST

GST Settlement Quarterly with ATO If GST collected > GST paid Payable to ATO If GST collected < GST paid) Refund Receivable from the ATO
Dr Cr

B. Accounting for GST

E12.12 Peters Pottery Ltd lodges quarterly BASs with the taxation authority. Required: (a) Record the journal entries during the March 2010 quarter for sales $6600 (including GST) and purchases $1210 (including GST). (b) What is the journal entry to discharge the GST liability?
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Dr GST Collected Cr GST Paid Cr Cash Paid

10 7 3
E12.12 (overleaf)
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B. Accounting for GST

EXERCISE 12.12 Peters Pottery Ltd

Before Week 8 lecture

1. Do Week 7 Self-Study Questions Check solutions on Blackboard after doing the questions yourself You may find it useful to complete the reflective, self evaluation and learning strategies exercise Skim read chapter 7; start with Summary of Learning objectives pp.413-414

(a)

Cash/Accounts Receivable GST Collected (liability) Sales Inventory GST Paid (asset) Cash/Accounts Payable

Dr Cr Cr Dr Dr Cr Dr Cr Cr

6 600 600 6 000 1 100 110 1 210 600 110 490

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2. 3. 4.

5. 6.

Print a copy of Week 8 lecture slides to bring to next class Submit Group Assignment Part A by Friday, 23 April, 2010, 2pm sharp, both hardcopy (Assignment Locker 6) and one (1) softcopy per group (via Blackboard)

(b)

GST Collected GST Paid Cash

Alternatively, a single GST Clearing account can be used instead of GST Collected and GST Paid accounts.

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