Ch04 Accounting Systems: Chapter Four Accounting Systems 5.1. Manual and Computerized Accounting Systetems

CH04 ACCOUNTING SYSTEMS
CHAPTER FOUR
ACCOUNTING SYSTEMS
5.1. MANUAL AND COMPUTERIZED ACCOUNTING SYSTETEMS
An accounting system is the methods and procedures for collecting, classifying, summarizing, and
reporting a business’s financial and operating information.
The accounting information system (AIS) collects and processes transaction data
and communicates financial information to decision makers.
Includes:
 All steps in the accounting cycle.
 Documents that provide evidence of transactions.
 Manual or computerized accounting system.
A. Computerized accounting systems:
 Software programs (functions include sales, purchases, receivables, payables, cash
receipts and disbursements, and payroll).
 Generate financial statements.
 Advantages: Typically enter data only once.
 Many human errors are eliminated.
 More timely information.
B. Manual Accounting Systems:
 Perform each step in the accounting cycle by hand.
 Satisfactory in a company with a low volume of transactions.
 Must understand manual accounting systems to understand computerized accounting
systems.
5.2. SUBSIDIARY LEDGERS AND CONTROLLING ACCOUNTS
A large number of individual accounts with a common characteristic can be grouped together in a
separate ledger called a subsidiary ledger. The primary ledger, which contains all of the balance sheet
and income statement accounts, is then called the general ledger. Each subsidiary ledger is represented in
the general ledger by a summarizing account, called a controlling account. The sum of the balances of
the accounts in a subsidiary ledger must equal the balance of the related controlling account. Thus, a
subsidiary ledger is a secondary ledger that supports a controlling account in the general ledger.
Two of the most common subsidiary ledgers are as follows:

1. Accounts receivable subsidiary ledger
2. Accounts payable subsidiary ledger
The accounts receivable subsidiary ledger, or customers’ ledger, lists the individual customer accounts
in alphabetical order. The controlling account in the general ledger that summarizes the debits and credits
to the individual customer accounts is Accounts Receivable.
The accounts payable subsidiary ledger, or creditors’ ledger, lists individual creditor accounts in
alphabetical order. The related controlling account in the general ledger is Accounts Payable.
Each general ledger control account balance must equal the composite balance of the individual
accounts in the related subsidiary ledger.
Relationship of general ledger and subsidiary ledgers
Advantages of subsidiary ledger:
1. Show in a single account transactions affecting one

customer or one creditor.
2. Free the general ledger of excessive details.
3. Help locate errors in individual
accounts.
4. Make possible a
division of labor
5.3. SPECIAL JOURNALS
 Used to record similar types of transactions. Example:
If a transaction cannot be recorded in a special journal, the

company records it in the general journal.
A. SALES JOURNAL
Companies make daily postings from the sales journal to the individual accounts receivable in
the subsidiary ledger.
Posting to the general ledger is done monthly.
Advantages of Sales Journal:
 One-line entry for each sales transaction saves time.

 Only totals, rather than individual entries, are posted to the general ledger.
 A division of labor results.
B. CASH RECEIPTS JOURNAL
In the cash receipts journal, companies record all receipts of cash.
The posting of the cash receipts journal is similar to the posting of the sale
journal.
C. PURCHASE JOURNAL
 Daily postings are made from the purchases journal to the accounts payable subsidiary
ledger.
 At the end of the accounting period, the company posts totals to the general ledger.
D. CASH PAYMENTS JOURNAL
 In a cash payments (cash disbursements) journal, companies record all

disbursements of cash.
 The procedures for posting the cash payments journal are similar to
those for other journals.
Effects of Special Journals on the General Journal:
 Special journals substantially reduce the number of entries that companies make in the general
journal.
Only transactions that cannot be entered in a special journal are recorded in the

general journal.
 Also, correcting, adjusting, and closing entries are made in the general journal.
ILLUSTRATIVE EXAMPLE OF SPECIAL JOURNAL

Ch04 Accounting Systems: Chapter Four Accounting Systems 5.1. Manual and Computerized Accounting Systetems

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CH04 ACCOUNTING SYSTEMS

5.2. SUBSIDIARY LEDGERS AND CONTROLLING ACCOUNTS

Two of the most common subsidiary ledgers are as follows:

Relationship of general ledger and subsidiary ledgers

Advantages of subsidiary ledger:

1. Show in a single account transactions affecting one

5.3. SPECIAL JOURNALS

 Used to record similar types of transactions. Example:

If a transaction cannot be recorded in a special journal, the

Advantages of Sales Journal:

 One-line entry for each sales transaction saves time.

 In a cash payments (cash disbursements) journal, companies record all

Effects of Special Journals on the General Journal:

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