Appendix E Subsidiary Ledgers and Special Journals Financial Accounting, Sixth Edition Appendix E-1 Study Objectives 1. Describe the nature and purpose of a subsidiary ledger. 2. Explain how companies use special journals in journalizing. 3. Indicate how companies post a multi-column journal. Appendix E-2 Subsidiary Ledgers Used to keep track of individual balances. Two common subsidiary ledgers are: 1. Accounts receivable (customers’) 2. Accounts payable (creditors’) Each general ledger control account balance must equal the composite balance of the individual accounts in the related subsidiary ledger. Appendix E-3 SO 1 Describe the nature and purpose of a subsidiary ledger. Subsidiary Ledgers Relationship of general ledger and subsidiary ledgers Illustration E-2 Appendix E-4 SO 1 Describe the nature and purpose of a subsidiary ledger. Subsidiary Ledgers Advantages of Subsidiary Ledgers 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. Appendix E-5 SO 1 Describe the nature and purpose of a subsidiary ledger. Special Journals Used to record similar types of transactions. Illustration E-4 If a transaction cannot be recorded in a special journal, the company records it in the general journal. Appendix E-6 SO 2 Explain how companies use special journals in journalizing. Special Journals Review Question Each of the following is a subsidiary ledger except the: a. accounts receivable ledger. b. accounts payable ledger. c. customer’s ledger. d. general ledger. Appendix E-7 SO 2 Explain how companies use special journals in journalizing. Special Journals Sales Journal Illustration E-5 Under a perpetual inventory system, one entry at selling price in 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. Appendix E-8 SO 2 Explain how companies use special journals in journalizing. Special Journals Illustration E-6 POSTING THE SALES JOURNAL Companies make daily postings from the sales journal to the individual accounts receivable in the subsidiary ledger. Appendix E-9 SO 2 Explain how companies use special journals in journalizing. Special Journals Illustration E-6 POSTING THE SALES JOURNAL Posting to the general ledger is done monthly. Appendix E-10 SO 2 Explain how companies use special journals in journalizing. Special Journals 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. Appendix E-11 SO 2 Explain how companies use special journals in journalizing. Special Journals Cash Receipts Journal Illustration E-8 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. See complete Illustration E-8 in the text. Appendix E-12 SO 2 Explain how companies use special journals in journalizing. Special Journals Review Question Cash sales of merchandise are recorded in the: a. cash payments journal. b. cash receipts journal. c. general journal. d. sales journal. Appendix E-13 SO 2 Explain how companies use special journals in journalizing. Special Journals Review Question Which of the following is not one of the credit columns in the cash receipts journal: a. Other accounts. b. Accounts payable. c. Accounts receivable. d. Sales. Appendix E-14 SO 2 Explain how companies use special journals in journalizing. Special Journals Illustration E-11 Purchases Journal In the purchases journal, companies record all purchases of merchandise on account. Appendix E-15 SO 3 Indicate how companies post a multi-column journal. Special Journals Illustration E-11 Purchases Journal Appendix E-16 SO 3 Indicate how companies post a multi-column journal. Special Journals Review Question All of the following are advantages of using subsidiary ledgers except they: a. show transactions affecting one customer or one creditor in a single account. b. free the general ledger of excessive details. c. eliminate errors in individual accounts. d. make possible a division of labor. Appendix E-17 SO 2 Explain how companies use special journals in journalizing. Special Journals Cash Payments Journal Illustration E-15 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. Appendix E-18 SO 3 Indicate how companies post a multi-column journal. Special Journals Review Question Credit purchases of equipment or supplies other than merchandise are recorded in the: a. cash payments journal. b. cash receipts journal. c. general journal. d. purchases journal. Appendix E-19 SO 3 Indicate how companies post a multi-column journal. Special Journals Review Question Cash payments of merchandise are recorded in the: a. cash payments journal. b. cash receipts journal. c. general journal. d. purchases journal. Appendix E-20 SO 3 Indicate how companies post a multi-column journal. Special 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. Appendix E-21 SO 3 Indicate how companies post a multi-column journal. 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