Complete the attached, Problem 5-1A Template. Please refer to Ch. 5, in your textbook for detailed instructions. Save your completed work .
I’m going to paste the book below:
In Chapters 1, 2, 3, 4, an accounting system for NetSolutions was described and illustrated. An accounting system is the methods and procedures for collecting, classifying, summarizing, and reporting a business’s financial and operating information. Most accounting systems, however, are more complex than NetSolutions’. For example, Southwest Airlines‘s accounting system not only records basic transaction data but also records data on such items as ticket reservations, credit card collections, frequent-flier mileage, and aircraft maintenance.
As a business grows and changes, its accounting system also changes in a three-step process. This three-step process is as follows:
For NetSolutions, our analysis determined that Chris Clark needed financial statements for the new business (Step 1). In Chapters 1, 2, 3, and 4, we designed the system using a basic manual system that included a chart of accounts, a two-column journal, and a general ledger (Step 2). Finally, we implemented the system to record transactions and prepare financial statements (Step 3).
Once a system has been implemented, input from users is used to analyze and improve the system. For example, in later chapters, NetSolutions expands its chart of accounts to record more complex transactions.
The accounting system design consists of:
Internal controls are the policies and procedures that protect assets from misuse, ensure that business information is accurate, and ensure that laws and regulations are being followed. Internal controls are discussed in Chapter 8.
Processing methods are the means by which the accounting system collects, summarizes, and reports accounting information. These methods may be either manual or computerized. We begin by describing and illustrating a simple manual accounting system that uses special journals and subsidiary ledgers. This is followed by a discussion of more complex computerized accounting systems.
Accounting systems are manual or computerized. Understanding a manual accounting system is useful in identifying relationships between accounting data and reports. Also, most computerized systems use principles from manual systems.
In Chapters 1, 2, 3, and 4, the transactions for NetSolutions were manually recorded in an all-purpose (two-column) journal. The journal entries were then posted individually to the accounts in the ledger. Such a system is simple to use and easy to understand when there are a small number of transactions. However, when a business has a large number of similar transactions, using an all-purpose journal is inefficient and impractical. In such cases, subsidiary ledgers and special journals are useful.
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:
Subsidiary ledgers provide detail of individual accounts that are summarized in a controlling account in the general 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.
The relationship between the general ledger and the accounts receivable and accounts payable subsidiary ledgers is illustrated in Exhibit 1.
Exhibit 1General Ledger and Subsidiary Ledgers
Many businesses use subsidiary ledgers for other accounts in addition to Accounts Receivable and Accounts Payable. For example, businesses often use an equipment subsidiary ledger to keep track of each item of equipment purchased, its cost, location, and other data. Moreover, merchandising and manufacturing businesses use additional types of subsidiary ledgers that are unique to them. We simplify by illustrating accounting systems for a service business.
Link to Intuit
Intuit has subsidiary ledgers for property and equipment, inventory, and investments.
One method of processing transactions more efficiently in a manual system is to use special journals. Special journals are designed to record a single kind of transaction that occurs frequently. For example, since most businesses have many transactions in which cash is paid out, they will likely use a special journal for recording cash payments. Likewise, they will use another special journal for recording cash receipts.
Special journals summarize common transactions that are used frequently.
The format and number of special journals that a business uses depends on the nature of the business. The common transactions and their related special journals used by small service businesses are as follows:
The all-purpose two-column journal, called the general journal or simply the journal, can be used for entries that do not fit into any of the special journals. For example, adjusting and closing entries are recorded in the general journal.
The following types of transactions, special journals, and subsidiary ledgers are described and illustrated for NetSolutions:
TransactionSpecial JournalSubsidiary LedgerFees earned on accountRevenue journalAccounts receivable subsidiary ledgerCash receiptsCash receipts journalAccounts receivable subsidiary ledgerPurchases on accountPurchases journalAccounts payable subsidiary ledgerCash paymentsCash payments journalAccounts payable subsidiary ledger
As shown, transactions that are recorded in the revenue and cash receipts journals will affect the accounts receivable subsidiary ledger as part of the revenue and collection cycle. Likewise, transactions that are recorded in the purchases and cash payments journals will affect the accounts payable subsidiary ledger as part of the purchases and payments cycle.
We will assume that NetSolutions had the following selected general ledger balances on March 1, 2019:
Fees earned on account would be recorded in the revenue journal. Cash fees earned would be recorded in the cash receipts journal.
To illustrate the efficiency of using a revenue journal, an example for NetSolutions is used. Specifically, assume that NetSolutions recorded the following four revenue transactions for March in its general journal:
For the preceding entries, NetSolutions recorded eight accounts and eight amounts. In addition, NetSolutions made 12 postings to the ledgers—four to Accounts Receivable in the general ledger, four to the accounts receivable subsidiary ledger (indicated by each check mark), and four to Fees Earned in the general ledger.
The preceding revenue transactions could be recorded more efficiently in a revenue journal, as shown in Exhibit 2. In each revenue transaction, the amount of the debit to Accounts Receivable is the same as the amount of the credit to Fees Earned. Thus, only a single amount column is necessary. The date, invoice number, customer name, and amount are entered separately for each transaction.
Exhibit 2Revenue Journal
Revenues are normally recorded in the revenue journal when the company sends an invoice to the customer. An invoice is the bill that is sent to the customer by the company. Each invoice is normally numbered in sequence for future reference.
To illustrate, assume that on March 2, NetSolutions issued Invoice No. 615 to Accessories By Claire for fees earned of $2,200. This transaction is entered in the revenue journal, shown in Exhibit 2, by entering the following items:
The process of posting from a revenue journal, shown in Exhibit 3, is as follows:
Exhibit 3Revenue Journal and Postings
Exhibit 3 illustrates the efficiency gained by using the revenue journal rather than the general journal. Specifically, all of the transactions for fees earned during the month are posted to the general ledger only once—at the end of the month.
Example Exercise 5-1
Practice Exercises: PE 5-1A, PE 5-1B
All transactions that involve the receipt of cash are recorded in a cash receipts journal. The cash receipts journal for NetSolutions is shown in Exhibit 4.
Exhibit 4Cash Receipts Journal and Postings
This journal has a Cash Dr. column. The types of cash receipt transactions and their frequency determine the titles of the other columns. For example, NetSolutions often receives cash from customers on account. Thus, the cash receipts journal in Exhibit 4 has an Accounts Receivable Cr. column.
To illustrate, on March 19, Web Cantina made a payment of $3,400 on its account. This transaction is recorded in the cash receipts journal, shown in Exhibit 4, by entering the following items:
The Other Accounts Cr. column in Exhibit 4 is used for recording credits to any account for which there is no special credit column. For example, NetSolutions received cash on March 1 for rent. Since no special column exists for Rent Revenue, Rent Revenue is entered in the Account Credited column. Thus, this transaction is recorded in the cash receipts journal, shown in Exhibit 4, by entering the following items:
The process of posting from the cash receipts journal, shown in Exhibit 4, is as follows:
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