Concept explainers
Transactions related to revenue and cash receipts completed by Albany Architects Co. during the period November 2–30, 2016, are as follows:
Instructions
- 1. Insert the following balances in the general ledger as of November 1:
- 2. Insert the following balances in the accounts receivable subsidiary ledger as of November 1:
- 3. Prepare a single-column revenue journal (p. 40) and a cash receipts journal (p. 36). Use the following column headings for the cash receipts journal: Fees Earned Cr., Accounts Receivable Cr., and Cash Dr. The Fees Earned column is used to record cash fees. Insert a check mark (✓) in the Post. Ref. column when recording cash fees.
- 4. Using the two special journals and the two-column general journal (p. 1), journalize the transactions for November. Post to the accounts receivable subsidiary ledger, and insert the balances at the points indicated in the narrative of transactions. Determine the balance in the customer’s account before recording a cash receipt.
- 5. Total each of the columns of the special journals, and
post the individual entries and totals to the general ledger. Insert account balances after the last posting. - 6. Determine that the sum of the customer balances agrees with the accounts receivable controlling account in the general ledger.
- 7. Why would an automated system omit postings to a controlling account as performed in step 5 for Accounts Receivable?
1. and 5.
Prepare general ledger for given accounts.
Explanation of Solution
General Ledger: General ledger refers to the ledger that records all the transactions of the business related to the company’s assets, liabilities, owners’ equities, revenues and expenses. Each subsidiary ledger is represented in the general ledger by summarizing the account.
Accounts receivable subsidiary ledger: Account receivable subsidiary ledger is the ledger which is used to post the customer transaction in one particular ledger account. It helps the business for locate the error in the customer ledger balance. After all transactions are posted, the balances in the accounts receivable subsidiary ledger should be totaled, and compare with the balance in the general ledger of accounts receivable. If both the balance does not agree, the error has been located and corrected.
Revenue journal: Revenue journal refers to the journal that is used to record the fees earned on account. In the revenue journal, all revenue transactions are recorded only when the business performed service to customer on account (credit).
Cash receipts journal: Cash receipts journal refers to the journal that is used to record the all transaction which is involve the cash receipts. For example, the business received cash from customer (service performed in cash).
Prepare the general ledger for given accounts as follows:
Account: Cash Account no. 11 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2016 | |||||||
NOV | 1 | Balance | ✓ | 11,350 | |||
30 | CR36 | 37,600 | 48,950 |
Table (1)
Account: Accounts Receivable Account no. 12 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2016 | |||||||
NOV | 1 | Balance | ✓ | 16,230 | |||
25 | J1 | 3,000 | 13,230 | ||||
30 | R40 | 26,620 | 39,850 | ||||
30 | CR36 | 24,330 | 15,520 |
Table (2)
Account: Notes Receivable Account no. 14 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2016 | |||||||
NOV | 1 | Balance | ✓ | 6,000 | |||
25 | J1 | 3,000 | 9,000 |
Table (3)
Account: Fees earned Account no. 41 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2016 | |||||||
NOV | 30 | Balance | R40 | 26,620 | 26,620 | ||
30 | CR36 | 13,270 | 39,890 |
Table (4)
Journal Page 01 | |||||
Date | Description | Post. Ref | Debit ($) | Credit ($) | |
NOV | 25 | Notes receivable | 14 | 3,000 | |
Accounts receivable | 12 | 3,000 | |||
(To record payable note raised against the accounts receivable from customer Company S) |
Table (5)
2. and 4.
Prepare accounts receivable subsidiary ledger for given customers.
Explanation of Solution
The accounts receivable subsidiary ledger for given customers are as follows:
Accounts receivable subsidiary ledger
Name: Company M | ||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) |
Balance ($) | |
2016 | ||||||
NOV | 1 | Balance | ✓ | 9,4608 | ||
5 | CR36 | 9,460 | - | |||
22 | R40 | 8,040 | 8,040 |
Table (6)
Name: Company O | ||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) |
Balance ($) | |
2016 | ||||||
NOV | 2 | R40 | 5,650 | 5,650 | ||
19 | CR36 | 5,650 | - |
Table (7)
Name: Company R | ||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) |
Balance ($) | |
2016 | ||||||
NOV | 1 | Balance | ✓ | 6,770 | ||
6 | R40 | 2,450 | 9,220 | |||
15 | CR36 | 6,770 | 2,450 | |||
16 | R40 | 6,500 | 8,950 | |||
20 | CR36 | 2,450 | 6,500 |
Table (8)
Name: Company S | ||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) |
Balance ($) | |
2016 | ||||||
NOV | 13 | R40 | 3,980 | 3,980 | ||
25 | J1 | 3,000 | 980 |
Table (9)
3.
Prepare single column revenue journal and cash receipt journal.
Explanation of Solution
Revenue journal
Revenue journal of C Business service in the month of November 2016 is as follows:
Revenue journal
Page 40
Date | Invoice No. | Account debited | Post Ref. |
Account receivable Dr. Fees earned Cr. ($) | |
2016 | |||||
NOV | 2 | 793 | Company O | ✓ | 5,650 |
6 | 794 | Company R | ✓ | 2,450 | |
13 | 795 | Company S | ✓ | 3,980 | |
16 | 796 | Company R | ✓ | 6,500 | |
22 | 797 | Company M | ✓ | 8,040 | |
30 | $26,620 | ||||
(12) (41) |
Table (10)
Cash receipt journal
Cash receipt journal of C Business service in the month of November, 2016 is as follows:
Cash receipt journal
Page 36
Date | Account Credited | Post Ref. | Fees earned Cr. | Accounts receivable Cr. | Cash Dr. | |
2016 | ||||||
NOV | 5 | Company M | ✓ | 9,460 | 9,460 | |
15 | Company R | ✓ | 6,770 | 6,770 | ||
19 | Company O | ✓ | 5,650 | 5,650 | ||
20 | Company R | ✓ | 2,450 | 2,450 | ||
30 | Fees earned | 13,270 | 13,270 | |||
30 | 13,270 | 24,330 | 37,600 | |||
(41) | (12) | (11) |
Table (11)
6.
Prepare accounts receivable customers balance, and verify that the total agrees with the ending balance of accounts receivable control account.
Explanation of Solution
Accounts receivable customer balance
Accounts receivable customers balance is as follows:
C Business service | |
Accounts receivable customers balances | |
NOV 30 | |
Amount ($) | |
Company M | 8,040 |
Company R | 6,500 |
Company S | 980 |
Total accounts receivable | 15,520 |
Table (12)
Accounts receivable controlling account
Ending balance of accounts receivable controlling account is as follows:
C Business service | |
Accounts receivable (Controlling account) | |
NOV 30 | |
Amount ($) | |
Opening balance on NOV 1 | 16,230 |
Add: | |
Total debits (from revenue journal) | 26,620 |
Less: | |
Total credits (from cash receipts journal and journal) (1) | (27,330) |
Total accounts receivable | 15,520 |
Table (13)
Working note: Calculate the total credits in the accounts receivable
In this case, accounts receivable subsidiary ledger is used to identify and locate the error by way of cross check the customer balance and accounts receivable controlling account. From the above calculation, we can understand that the both balance of accounts receivable is agree, hence there is no error in the recording and posing of transactions.
7.
Discuss reason of an automated system omit to posting a controlling accounting system.
Explanation of Solution
At the time of the original transactions are entered, the individual sales transactions are posted automatically in the computer system. So, there is no need to post the summary totals to the general ledger accounts.
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Chapter 5 Solutions
Financial Accounting
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