ACCOUNTING
PRINCIPLES
Third Canadian Edition
Appendix C
ACCOUNTING
SYSTEMS
Subsidiary Ledgers
• A subsidiary ledger is a group of accounts that
share a common characteristic (e.g. all accounts
receivable)
• The subsidiary ledger is in addition to, and expands
on, the general ledger; subsidiary ledgers show the
details
• The two most common are the accounts receivable
ledger and the accounts payable ledger; these
ledgers show the details of individual customers
and suppliers respectively
• There is control account in the general ledger for
each subsidiary ledger; each general ledger control
account balance must equal the total of the
individual records in the related subsidiary ledger
Relationship of General Ledgers and
Subsidiary Ledgers
Accounts receivable controls
a subsidiary ledger of many
different customers.
General
Ledger
Subsidiary
Ledgers
Cash
Accounts
Receivable
Accounts payable controls a
subsidiary ledger of many
different creditors.
Accounts
Payable
Owner’s
Capital
Customer Customer Customer
A
B
C
Creditor
X
Creditor
Y
Creditor
Z
Advantages of Subsidiary Ledgers
• Subsidiary ledgers show transactions that affect
one customer or one creditor in a single account,
providing up-to-date information on specific account
balances
• They free the general ledger of excessive details
• In a manual system, they help locate errors in
individual accounts by reducing the number of
accounts combined in one ledger and by using
control
• In manual systems, they make possible a division
of labour in posting to the general ledger and
subsidiary ledgers, which strengthens internal
control
Special Journals in a Perpetual
Inventory System
• A special journal is used to record similar types of
transactions
• The use of special journals reduces the time needed for
the recording and posting process
• Special journals permit greater division of labour because
different employees can record entries in different
journals
• For a merchandising company the same special journals
are used for both periodic or perpetual inventory systems;
the only difference is the number of, and title for, the
columns each journal uses
• The following examples are for the perpetual inventory
system. Special journals under a periodic inventory
system are shown at the end of the presentation.
Use of Special Journals and the General
Journal
Sales
Journal
(S)
Used for:
All sales of
merchandise on
account
Cash
Receipts
Journal
(CR)
Used for:
All cash
received
(including
cash
sales)
Purchases
Journal
(P)
Cash
Payments
Journal
(CP)
General
Journal
(J)
Used for:
Used for:
Used for:
All
purchases
of
merchandise on
account
All cash
paid
(including
cash
purchases)
Transactions
that cannot
be entered
in a special
journal,
including
correcting,
adjusting,
and closing
entries
The types of special journals used depend largely on the types
of transactions that occur frequently in a business enterprise.
Journalizing the Sales Journal Perpetual
Inventory System
Karns Wholesale Supply
Sales Journal
Date
Account
Debited
Invoice
#
Ref
Accts Receivable Dr
Sales Cr
S1
Cost of Goods Sold Dr
Merchandise Inventory Cr
Abbot Sisters
101

10,600
6,360
Babson Co.
102

11,350
7,370
14
Carson Bros.
103

7.800
5,070
19
Deli Co.
104

9,300
6,510
21
Abbot Sisters
105

15,400
10,780
24
Deli Co.
106

21,210
15,900
27
Babson Co.
107

14,570
10,200
90,230
62,190
May 3
7
• Only one line is needed to record each transaction and all entries are made
from pre-numbered sales invoices.
• One entry at selling price in the Sales Journal results in a debit to Accounts
Receivable and a credit to Sales. Another entry at cost results in a debit to
Cost of Goods Sold and a credit to Merchandise Inventory. Column totals are
posted to the general ledger at the end of each month.
• Postings are made daily to the accounts receivable subsidiary ledger. A
check in the reference column shows that the amount has been posted to the
customer’s account.
Proving the Accuracy of the Accounts
Receivable Subsidiary Ledger
Accounts Receivable
Subsidiary Ledger
General Ledger
Accounts Receivable
$90,230
Abbot Sisters
Babson Co.
Carson Bros.
Deli Co.
$26,000
25,920
7,800
30,510
$90,230
To prove the accuracy of the ledgers it is necessary to determine two
things: (1) the sum of the accounts receivable subsidiary ledger
balances equals the balance in the general ledger’s Accounts
Receivable control account.
Cash Receipts Journal
• All receipts of cash are recorded in the cash receipts journal
• Only one line is needed for each entry and each line must
have equal debit and credit amounts
• At the end of each month columns are totalled and compared
for equality; this process is called footing and cross-footing
• The individual amounts in the Accounts Receivable column
are posted daily to the subsidiary ledger account specified in
the Accounts Credited column
• The total of the Other Accounts column is not posted; the
individual amounts comprising the total are posted separately
to the general ledger accounts specified in the Accounts
Credited column
• All column totals except for the Other Accounts total are
posted at the end of the month; G/L account numbers are
listed below the column totals to show that posting has been
done
Cash Receipts Journal Perpetual
System
Karns Wholesale Supply
Cash Receipts Journal
Date
Accounts Credited
Ref
May 3
7
10
12
17
21
24
28
D. A. Karns, Capital
50
Abbot Sisters

Babson Co.
Notes Payable –
Carson Bros.
Deli Co.

21


Cash
Dr
5,000
1,900
10,600
2,600
11,350
6,000
7,800
9,300
54,550
Accounts
Receivable
Cr
Sales
Cr
CGS Dr/
Inventory
Cr
Other
Accounts Cr
5,000
1,900
1,240
2,600
1,690
10,600
11,350
6,000
7,800
9,300
39,050
4,500
2,930
11,000
54,550
• The debit columns for cash and cost of goods sold must be
equal to the total of the credit columns for accounts
receivable, sales, inventory, and other accounts
Proving the Ledgers after Posting the Sales
and the Cash Receipts Journals
Accounts Receivable
Subsidiary Ledger
Abbot Sisters
Babson Co.
Deli Co.
$15,400
14,570
21,210
$51,180
After the posting of the cash
receipts journal is completed, it
is necessary to prove the
ledgers. The general ledger
totals are in agreement and the
sum of the subsidiary ledger
balances equals the control
account balance.
General Ledger
Debits
Cash
Accounts Receivable
Cost of Goods Sold
Credits
Merchandise Inventory
Notes Payable
D. A. Karns, Capital
Sales
$54,550
51,180
65,120
$170,850
$ 65,120
6,000
5,000
94,730
$170,850
Purchases Journal Perpetual System
Karns Wholesale Supply
Purchases Journal
Date
May 6
10
14
19
26
29
Account Credited
Jasper Manufacturing Inc.
Eaton and Howe Inc.
Fabor and Son
Jasper Manufacturing Inc.
Fabor and Son
Eaton and Howe Inc.
Terms
n/20
n/20
n/20
n/20
n/20
n/20
Ref.






Merchandise
Inventory Dr.
Accounts Payable Cr.
11,000
7,200
6,900
17,500
8,700
12,600
63,900
• All purchases on account are recorded in the purchase journal
• In a perpetual system, each entry results in a debit to Merchandise
Inventory and a credit to Accounts Payable
• Postings are made daily to the accounts payable subsidiary journal
and monthly to the general ledger for Merchandise Inventory and
Accounts Payable
Proving the Accuracy of the Accounts
Payable Subsidiary Ledger
General Ledger
Debits
Cash
Accounts Receivable
Cost of Goods Sold
Credits
Merchandise Inventory
Notes Payable
Accounts Payable
D. A. Karns, Capital
Sales
Accounts Payable
Subsidiary Ledger
$54,550
51,180
65,120
$170,850
1,120
6,000
63,900
5,000
94,730
$170,850
Eaton and Howe, Inc.
$19,800
Fabor and Son
15,600
Jasper Manufacturing Inc. 28,500
$63,900
$
To prove the ledgers it is
necessary to determine that the
sum of the subsidiary ledger
balances equals the balance in
the control account.
Cash Payments Journal Perpetual
System
Karns Wholesale Supply
Cash Payments Journal
Date
May 3
3
7
10
19
24
28
31
Cheque
#
101
102
103
104
105
106
107
108
Payee
Corporate General Ins.
Canpar
Zwicker
Jasper Manufaturing Inc.
Eaton & Howe, Inc.
Fabor and Son
Jasper Manufaturing Inc.
D.A.Karns
Cash
Cr
1,200
100
4,400
11,000
7,200
6,900
17,500
500
48,800
Merchandise Accounts
Inventory
Payable
Dr.
Dr.
Account Debited
Prepaid insurance
Other
Accounts
Ref
Dr.
130
1,200
Jasper Manufaturing Inc.
Eaton & Howe, Inc.
Fabor and Son
Jasper Manufaturing Inc.
D.A. Karns, Drawings
306
100
4,400
11,000
7,200
6,900
17,500
4,500
42,600
• All disbursements of cash are entered into the cash payments journal.
Entries are made from pre-numbered cheques
• Each transaction is entered on one line and there must be equal debit
and credit amounts
• Journalizing procedures are similar to cash receipts journal
• Posting procedures are also like the cash receipts journal
500
1,700
Proving the Accuracy of the Accounts
Payable Subledger
General Ledger
Accounts Payable
Subsidiary Ledger
Eaton and Howe, Inc.
Fabor and Son
Debits
$12,600
8,700
Cash
Accounts Receivable
Merchandise Inventory
Prepaid Insurance
D. A. Karns, Drawings
Cost of Goods Sold
$21,300
$ 5,750
51,180
3,280
1,200
500
65,120
$127,030
Credits
Accounts Payable
Notes Payable
D. A. Karns, Capital
Sales
$ 21,300
6,000
5,000
94,730
$127,030
To prove the ledgers it is necessary to determine that the
sum of the subsidiary ledger balances equals the balance in
the control account
General Journal: Effects of Special
Journals
•
•
•
•
Special journals for sales, purchases and cash greatly
reduce the number of entries that are made in the
general journal
Only transactions that cannot be entered in a special
journal are recorded in the general journal. Examples
include sales returns from credit sales, adjusting
entries and closing entries
When the entry involves both control and subsidiary
accounts, both the control and subsidiary accounts
must be identified in the journal
In posting there must be a dual posting: once to the
control account and once to the subsidiary account
Journalizing and Posting the General
Journal
General Journal
Date
Account Title and Explanation
31-May Accounts Payable-Fabor and Sons
Merchandise Inventory
Received credit for returned
goods.
Date
2005
May 14
24
26
31
Fabor and Son
Ref
Debit
Credit
P1
CP1
P1
G1
6,900
6,900
8,700
500
Balance
6,900
8,700
8,200
Ref
201
120
Debit
500
J1
Credit
500
General Ledger
Merchandise Inventory
Date Ref
Debit
Credit
2005
May 31 S1
62,190
31 CR1
2,930
31 P1
63,900
31 CP1
4,500
31 G1
500
120
Balance
(62,190)
(65,120)
(1,220)
3,280
2,780
Accounts Payable
201
Date Ref
Debit
Credit
Balance
2005
May 31 P1
63,900
63,900
31 CP1
42,600
21,300
31 G1
500
20,800
Special Journals in a Periodic Inventory
System
Two differences exist between special journals for a
periodic inventory system and a perpetual inventory
system:
1. The columns in the sales journal and cash receipts
journal that are used to record the cost of goods
sold debit and merchandise inventory credit are not
required when using a periodic inventory system.
2. Purchases and Freight-In are the accounts used to
record the cost of inventory bought when using a
periodic system; cost of goods sold is not recorded
until determined at the end of the period.
The Sales Journal Periodic Inventory System:
Illustration C-9
KARNS WHOLESALE SUPPLY
Sales Journal
S1
Invoice
No.
Ref.
101
√
10,600
7 Babson Co.
102
√
11,350
14 Carson Bros.
103
√
7,800
19 Deli Co.
104
√
9,300
21 Abbot Sisters
105
√
15,400
24 Deli Co.
106
√
21,210
27 Babson Co.
107
√
14,570
Date
Account Debited
Accts. Receivable Dr.
Sales Cr.
2005
May 3 Abbot Sisters
90,230
The Cash Receipts Journal
Periodic Inventory System: Illustration C-10
KARNS WHOLESALE SUPPLY
Cash Receipts Journal
Date
Account Credited
Ref.
May 1 D. A. Karns, Capital
301
Cash
Dr.
Accts.
Receivable
Cr.
CR1
Sales
Cr.
Other
Accounts
Cr.
2005
7
10 Abbot Sisters
5,000
5,000
1,900
√
12
10,600
1,900
10,600
2,600
2,600
√
11,350
22 Notes Payable
200
6,000
23 Carsons Bros.
√
7,800
7,800
28 Deli Co.
√
9,300
9,300
54,550
39,050
17 Babson Co.
11,350
6,000
4,500
11,000
The Purchases Journal
Periodic Inventory System: Illustration C-11
KARNS WHOLESALE SUPPLY
Purchases Journal
Date
Account Credited
P1
Purchases Dr.
Accounts Payable Cr.
Terms
Ref.
n/20
√
11,000
10 Eaton and Howe, Inc.
n/20
√
7,200
14 Fabor and Son
n/20
√
6,900
19 Jasper Manufacturing Inc.
n/20
√
17,500
26 Fabor and Son
n/20
√
8,700
28 Eaton and Howe, Inc.
n/20
√
12,600
2005
May 6 Jasper Manufacturing Inc.
63,900
The Cash Payments Journal
Periodic Inventory System: Illustration C-12
KARNS WHOLESALE SUPPLY
Cash Payments Journal
Date
Cheque
No.
Payee
Cash
Dr.
Accts.
Payable
Dr.
CP1
Ref.
Other
Accts.
Cr.
Prepaid Insurance
130
1,200
Freight In
516
100
4,400
Account Debited
2005
May 3
101
Corporate
General Ins.
3
102
CANPAR
7
103
Zwicker Corp.
4,400
Purchases
510
104
Jasper
Manufact. Inc.
11,000
11,000 Jasper Manuf. Inc.
√
19
105
Eaton
& Howe, Inc.
7,200
7,200 Eaton & Howe, Inc.
√
24
106
Fabor & Son
6,900
6,900 Fabor & Son
√
28
107
Jasper
Manufact. Inc.
31
108
D. A. Karns
10
1,200
100
17,500
17,500 Jasper Manuf. Inc.
500
48,000
D. A. Karns, Drawings
42,600
√
306
500
6,200
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