Fundamentals of Financial Accounting Chapter 9 PDF

12/6/2023 1 9 Special Journals and Subsidiary Ledgers 2 1  12/6/2023 Learning Outcomes After studying this chapter,...

12/6/2023 1 9 Special Journals and Subsidiary Ledgers 2 1  12/6/2023 Learning Outcomes After studying this chapter, you should be able to: ❑ Explain why special journals are created. ❑ Record the transactions to the special journals. ❑ Describe the nature and purpose of a subsidiary ledger. ❑ Post (transfer) the journal entries in the special journals and cash book to the ledgers. ❑ Record the transactions to the cash book. Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–3 3 Introduction This chapter illustrates the recording of transactions in the appropriate journals and ledgers. ❑ The journals used are: – sales & returns inwards journals, purchases & returns outwards journals, and the general journal ❑ The ledgers used are: – sales ledger, purchases ledger and general ledger ❑ A cash book is both a journal and a ledger. Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–4 4 2  12/6/2023 General Journal (Double-Entry) ❑ Transactions that cannot be entered in special journals are recorded in the general journal. These include: – Opening entries at the commencement of a business – Infrequently-occurring transactions, i.e. purchase of non-current assets on credit writing off of bad debts goods drawn by owner for personal use – Entries to correct errors of posting to ledger accounts – Adjusting entries – Closing entries at end of period Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–5 5 Special Journals ❑ The different types of journals that businesses use are as follows: Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–6 6 3  12/6/2023 Special Journals (cont.) ❑ Sales Journal – Used to record sales of goods on credit Cash sales of goods are entered in the cash book Credit sales of assets other than stocks of goods are entered in the general journal – Entries in a sales journal are made from sales invoices – Posting from the sales journal is made daily to the individual debtor accounts in the sales ledger, and monthly to the general ledger. Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–7 7 Special Journals (cont.) ❑ Returns Inwards Journal – When goods sold to customers are returned (return inwards or sales return), a credit note will be issued. – Daily postings are done in the sales ledger while the total sales returns will be posted at the end of the month to the sales returns account in the general ledger. Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–8 8 4  12/6/2023 Special Journals (cont.) ❑ Purchases Journal – All purchases of goods on credit are recorded in the purchases journal. Entries are made from purchases invoices. – The journalising procedure is similar to the procedures for a sales journal, but the purchases journal may not have an invoice number column because invoices received from different suppliers will not be in numerical sequence. Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–9 9 Special Journals (cont.) – Postings are made daily to the purchases ledger and monthly to the purchases account in the general ledger. ❑ Returns Outwards Journal – A credit note will be sent by the supplier to the business when goods are returned by a business to its supplier. – It indicates that the liability of the business to the supplier has been reduced accordingly. Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–10 10 5  12/6/2023 Special Journals (cont.) ❑ Samples of the special journals are as follows: Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–11 11 Special Journals (cont.) Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–12 12 6  12/6/2023 Cash Receipts Journal ❑ The cash receipts journal is used to record all cash (and/or bank) received by the business. – E.g. cash sales, income and cash received from debtors. – The ‘Discount Allowed’ column records the amount of cash discounts given by the business to the debtors for early settlement of their accounts (accounts receivable). Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–13 13 Cash Receipts Journal (cont.) ❑ The format of the cash receipts journal: Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–14 14 7  12/6/2023 Cash Payments Journal ❑ The cash payments journal is used to record all transactions where cash (and/or bank) has been paid out. – E.g. cash purchases, payments made to creditors, expenses paid and also discounts received. – Discounts received are the cash discounts received by the business from its creditors for early settlement of accounts payable. Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–15 15 Cash Payments Journal (cont.) ❑ The format of the cash payments journal: Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–16 16 8  12/6/2023 Subsidiary Ledgers ❑ A subsidiary ledger is a group of accounts with a common characteristic. It frees the general ledger from the details of individual balances. ❑ The subsidiary ledger facilitates the recording process by freeing the general ledger from the details of individual balances. Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–17 17 Subsidiary Ledgers (cont.) ❑ They might be customer or creditor accounts: – Customers (sales ledger) – Creditors/suppliers (purchases ledger) – Each debtor/creditor has its own account in the respective subsidiary ledgers Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–18 18 9  12/6/2023 Subsidiary Ledgers (cont.) ❑ The different ledgers are as follows: Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–19 19 Control Accounts ❑ Control accounts are the general ledger accounts whose balances represent the subsidiary ledger accounts’ total balances. ❑ There are two types: – Sales ledger control account (also known as the total account receivables account) – Purchases ledger control account (also known as the total account payables account) Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–20 20 10  12/6/2023 Control Accounts (cont.) Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–21 21 Control Accounts (cont.) ❑ Contra Settlement – Prepared when an individual is both a debtor and a creditor at the same time. – A set-off adjustment is made with the lowest balance of two accounts. – The journal entry: Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–22 22 11  12/6/2023 Control Accounts (cont.) ❑ Control Accounts Reconciliation – To reconcile the difference between the balance on a control account, and the total balances in the sub ledger it controls. – Typical errors and corrections: Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–23 23 Control Accounts (cont.) ❑ Benefits of maintaining control accounts: – Serves as an independent check on the accuracy of the ledgers. – Avoids fraudulent entries by segregating the duties of persons preparing the ledgers and control accounts. – Helps to speed up the preparation of the trial balance. – Assists in locating errors. Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–24 24 12  12/6/2023 Cash Book ❑ The cash book is an alternative to the cash receipts and cash payments journals. ❑ The cash received and paid out is entered into this book. It is a book of original entry (journal) and a ledger account. ❑ Posting in cash book: – money received is recorded on the debit side – money paid is entered on the credit side Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–25 25 Cash Book (cont.) ❑ Two-column Cash Book – The cash amount and the bank account are placed side by side. – This is to ensure that all money received and paid out are properly accounted for. Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–26 26 13  12/6/2023 Cash Book (cont.) – A summary of entries that can be found in a cash book: Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–27 27 Cash Book (cont.) Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–28 28 14  12/6/2023 Cash Book (cont.) ❑ Three-column Cash Book – It is similar to a two-column cash book, but with two extra columns: ‘Discounts Allowed’ column on the debit side ‘Discounts Received’ column on the credit side Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–29 29 Cash Book (cont.) Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–30 30 15  12/6/2023 Example 1) Max invest RM30,000 cash into MX Enterprise. 2) Purchase goods by cash amounting to RM1,500. 3) Purchase equipment on credit for RM2,000. 4) Purchase furniture by cash amounting to RM700. 5) Purchase goods on credit RM5,000 from AB Trading, the supplier. 6) Make a credit sale to Rita, a customer, RM850. The COGS is RM400. 7) Make a cash sale RM1,800. The COGS is RM900. 8) Pay RM400 for electricity expense. 9) Purchase stationery RM60 cash. 10) Received cash RM600 from Rita, the customer. 11) Pay RM3,000 to AB Trading. 12) Pay RM1,200 for monthly rental. 31 Example (cont.’) 13) Make sales on credit to a customer, Jihan, amounting to RM930. The COGS is RM470. 14) Purchase goods on credit from TX Sdn Bhd amounting to RM2,500. 15) Depreciation for equipment for the month is RM80. 16) Depreciation for furniture for the month is RM45. 17) A/R – Rita was declared bankrupt. Thus, direct write-off the debt. 32 16  12/6/2023 Group Assignment’s Requirements Prepare a list of accounting transactions for a month. The transactions must cover the following economic events: - capital - cash/credit sales - cash/credit purchases of inventories (if any) - cash/credit purchases of assets - expenses - payment to suppliers for the credit purchases - receive payment from customers/clients for the credit sales 33 Example (Classify into specialised journal) 1) Max invest RM30,000 cash into MX Enterprise. (CJ) 2) Purchase goods by cash amounting to RM1,500. (CJ) 3) Purchase equipment on credit for RM2,000. (GJ) 4) Purchase furniture by cash amounting to RM700. (CJ) 5) Purchase goods on credit RM5,000 from AB Trading, the supplier. (PJ) 6) Make a credit sale to Rita, a customer, RM850. The COGS is RM400. (SJ) 7) Make a cash sale RM1,800. The COGS is RM900. (CJ) 8) Pay RM400 cash for electricity expense. (CJ) 9) Purchase stationery RM60 cash. (CJ) 10) Received cash RM600 from Rita, the customer. (CJ) 11) Pay RM3,000 to AB Trading. (CJ) 12) Pay RM1,200 Fundamentals of Financialfor monthly(SECOND Accounting rental.EDITION) (CJ) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–34 34 17  12/6/2023 Example (Classify into specialised journal) – cont.’ 13) Make sales on credit to a customer, Jihan, amounting to RM930. The COGS is RM470. (SJ) 14) Purchase goods on credit from TX Sdn Bhd amounting to RM2,500. (PJ) 15) Depreciation for equipment for the month is RM80. (GJ) 16) Depreciation for furniture for the month is RM45. (GJ) 17) A/R – Rita was declared bankrupt. Thus, direct write-off the debt. (GJ) Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–35 35 Prepare the Specialised Journal (SJ, PJ) Sales Journal Date Particular Doc. No. RM 6) A/R - Rita INV001 850 13) A/R - Jihan INV002 930 Total (Credit Sales) 1,780 Purchase Journal Date Particular Doc. No. RM 5) A/P – AB Trading INV321A 5,000 14) A/P – TX Sdn Bhd INV21 2,500 Total (Credit Purchase) 7,500 36 18  12/6/2023 Prepare the Specialised Journal (CRJ, CPJ) Cash Received Journal Date Particular DocNo. Cash Sales A/R Others Total 1) Capital M01 30,000 30,000 7) Sales CS001 1,800 1,800 10) A/R – Rita R001 600 600 Total (Cash Received) 30,000 1,800 600 32,400 Cash Payment Journal Date Particular Doc Cash Inventory / Fixed A/P Others Total No. Purchases Asset 2) Purchase goods R231 1,500 1,500 4) Furniture IN12 700 700 8) Electricity Exp. R102 400 400 9) Stationery 023 60 60 11) A/P – AB Trading R11 3,000 3,000 12) Rental Exp. RC20 1,200 1,200 Total (Cash Paid) 1,500 700 3,000 1,660 6,860 37 Prepare the General Journal (double-entry) 3) Dr. Equipment RM2,000 Cr. Other Payable RM2,000 (Purchase of equipment on credit) 6) Dr. COGS RM400 Cr. Inventory RM400 (Record COGS for the sales made) 7) Dr. COGS RM900 Cr. Inventory RM900 (Record COGS for the sales made) 13) Dr. COGS RM470 Cr. Inventory RM470 (Record COGS for the sales made) 38 19  12/6/2023 Prepare the General Journal (double-entry) – cont.’ 15) Dr. Depreciation – equipment RM80 Cr. Accumulated depreciation – equipment RM80 (to recognise the depreciation expense for the month) 16) Dr. Depreciation – furniture RM45 Cr. Accumulated depreciation – furniture RM45 (to recognise the depreciation expense for the month) 17) Dr. Bad debts expense RM250 Cr. A/R – Rita RM250 (Rita was declared bankcrupt - Direct write-off) 39 Accounting Ledger Sales Inventory RM RM RM RM Bal. c/f 3,580 Sales Journal 1,780 Purchase Journal 7,500 COGS 400 Cash Sales 1,800 Cash Purchase 1,500 COGS 900 3,580 3,580 COGS 470 Bal. b/f 3,580 Bal. c/f 7,230 9,000 9,000 Account Receivable - Rita Bal. b/f 7,230 RM RM Sales 850 Cash 600 Account Payable - AB Trading Bad Debt Exp. 250 RM RM 850 850 Cash 3,000 Inventory 5,000 Bal. b/f - Bal. c/f 2,000 5,000 5,000 Account Receivable - Jihan Bal. b/f 2,000 RM RM Sales 930 Bal. c/f 930 Account Payable - TX Sdn Bhd 930 930 RM RM Bal. b/f 930 Bal. c/f 2,500 Inventory 2,500 2,500 2,500 Bal. b/f 2,500 Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–40 40 20  12/6/2023 Accounting Ledger – cont.’ Cash Electricity Expense RM RM RM RM CRJ 32,400 CPJ 6,860 Cash 400 Bal. c/f 400 Bal. c/f 25,540 400 400 32,400 32,400 Bal. b/f 400 Bal. b/f 25,540 Stationery Expense Capital RM RM RM RM Bal. c/f 30,000 Cash 30,000 Cash 60 Bal. c/f 60 30,000 30,000 60 60 Bal. b/f 30,000 Bal. b/f 60 Furniture Rental Expense RM RM RM RM Cash 700 Bal. c/f 700 Cash 1,200 Bal. c/f 1,200 700 700 1,200 1,200 Bal. b/f 700 Bal. b/f 1,200 Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–41 41 Accounting Ledger – cont.’ Equipment Depreciation Expense - Equipment RM RM RM RM Other Payable 2,000 Bal. c/f 2,000 Accumulated 80 2,000 2,000 Depreciation Bal. c/f 80 Bal. b/f 2,000 80 80 Bal. b/f 80 Other Payable RM RM Depreciation Expense - Furniture Bal. c/f 2,000 Equipment 2,000 RM RM 2,000 2,000 Accumulated 45 Bal. b/f 2,000 Depreciation Bal. c/f 45 45 45 Cost of Goods Sold (COGS) Bal. b/f 45 RM RM Inventory 400 Bal. c/f 1,770 Accumulated Depreciation - Equipment Inventory 900 RM Depreciation RM Inventory 470 Bal. b/f 80 Expense 80 1,770 1,770 80 80 Bal. b/f 1,770 Bal. c/f 80 Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–42 42 21  12/6/2023 Accounting Ledger – cont.’ Accumulated Depreciation - Furniture RM RM Depreciation 45 Bal. b/f Expense 45 45 45 Bal. c/f 45 Bad Debt Expense RM RM A/R - Rita 250 Bal. c/f 250 250 250 Bal. b/f 250 Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–43 43 TRIAL BALANCE Company Name Trial Balance 30-Nov-23 Dr. (RM) Cr. (RM Sales 3,580 Account Receivable - Rita - Account Receivable - Jihan 930 Inventory 7,230 Account Payable - AB Trading 2,000 Account Payable - TX Sdn Bhd 2,500 Cash 25,540 Capital 30,000 Furniture 700 Electricity Expense 400 Stationery Expense 60 Rental Expense 1,200 Equipment 2,000 Other Payable 2,000 Cost of Goods Sold (COGS) 1,770 Depreciation Expense - Equipment 80 Depreciation Expense - Furniture 45 Accumulated Depreciation - Equipment 80 Accumulated Depreciation - Furniture 45 Bad Debt Expense 250 40,205 40,205 44 22  12/6/2023 Company Name Balance Sheet INCOME STATEMENT as at 30/11/2023 RM RM Fixed Assets & BALANCE SHEET Furniture 700 (-) Accumulated Depreciation - Furniture (45) 655 Company Name Equipment 2,000 Income Statement (-) Accumulated Depreciation - Equipment (80) For the Month Ended 30/11/2023 1,920 RM RM Sales 3,580 Current Assets (-) COGS (1,770) Account Receivable - Rita - Gross Profit 1,810 Account Receivable - Jihan 930 Inventory 7,230 (-) Operating Expenses: Cash 25,540 Electricity Expense 400 33,700 Stationery Expense 60 TOTAL ASSETS 36,275 Rental Expense 1,200 Depreciation Expense - Equipment 80 Liabilities Account Payable - AB Trading 2,000 Depreciation Expense - Furniture 45 Account Payable - TX Sdn Bhd 2,500 Bad Debt Expense 250 Other Payable 2,000 (2,035) 6,500 NET LOSS (225) Owner's Equity Capital 30,000 Retainde Earnings (225) 29,775 TOTAL LIABILITIES AND OWNER'S EQUITY 36,275 45 - THE END - Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2018 6–46 46 23