Professional Documents
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“Special Journal records one particular type of transaction that occurs frequently.”
“The special journals are designed to systematize the original recording of major
recurring types of transactions.”
Control Account
-an account in the general ledger that shows the total balance of all the subsidiary
accounts related to it.
The individual amounts are posted daily to each individual customer’s account in the
subsidiary ledger. The posting is done daily to show the amount currently due to the
customer. As each individual amount is posted, a check mark is placed in the Posting
Reference column to show that the item has been posted. At the end of the month, the
total of the money column is posted in the general ledger as a debit to Accounts
Receivable control account and as a credit to Sales Account.
Sales Journal
Inv. Post Acct. Rec. - Dr.
Date No. Account Debited Ref Sales - Cr.
20x2
Jan.
3 815 Sanchez Corporation 2,550.00
Sanchez Corporation
Date Items Post Debit Credit Balance
Ref.
20x2 Balance 2,070
Jan.
1
S1 2,550 4,620
3
The Accounts Receivable account and Sales Account are shown in the general
ledger below. The illustration shows the four-column type of account. The four-column
format has columns for debit, credit, debit balance, and credit balance. One advantage of
this format is that the balance of account is shown after posting each item.
After completing the posting of the account receivable, the Accounts Receivable
control account is equal to the sum of the balances in the Accounts Receivable subsidiary
ledger accounts. The subsidiary ledger accounts are not numbered, since their
composition is constantly changing, but are kept alphabetical order.
Some companies do not use formal sales journal for sales on account. Instead,
they enter the amount of each sales invoice directly in the subsidiary ledger account of
the customer. They arrange the sales invoices for a month in numerical order and fasten
them together. At the end of the month, they total all of the sales invoices for the month
and make an entry debiting the Accounts Receivable control account and Crediting Sales
for the total amount. This procedure eliminates the need for separate recording of each
credit sales in the sales journal.
Assume that the Friendly Variety Store issued a credit memorandum to Jugo &
Company the entry in the general journal is as follows:
5 CR1 4,800 -
10 S1 7,380 7,380
14 G1 330 7,050
25 CR1 7,050 -
Ramos Company
Post
Date Items Ref. Debit Credit Balance
20X2
Jan. 1 Balance 2,550
9 CR1 2,550 -
10 S1 3,198 3,198
Sanchez Corporation
Post
Date Items Ref. Debit Credit Balance
20X2
Jan. 1 Balance 2,070
3 S1 2,550 4,620
12 CR1 2,070 2,550
Bong Bongcac
Date Items Post Ref. Debit Credit Balance
20x2
Jan. 2 P1 6,720 6,720
Debit Totals
Purchases P 16, 080
Store Supplies 165
Office Supplies 96
Sundry Accounts 12, 150
Total P 28, 491
Credit Totals
Accounts Payable P 28, 491
_________
Total P 28, 491
Purchases Journal
Store Office Sundry Accounts – Debit
Post Accounts Purchases
Date Accounts Credited Supplies Supplies Post
Ref. Payable Credit Debit Account Titles Amount
Debit Debit Ref.
20x2
2 Bong Bongcac 6,720 6,720
Jan.
3 Evalle Supply Co. 4,950 Equipment 121 4,950
Mallari &
17 6,480 6,480
Company
22 Evalle Supply Co. 210 114 96
Mongalo
24 2,931 2,880 51
Manufacturing
Punsalan Furniture
29 7,200 Furniture 122 7,200
Store
28,491 16,080 165 96 12,150
(211) (511) (115) (116) ( √)
All transactions involving payments of cash for various purposes are recorded in
the Cash Disbursements or Cash Payment Journal. Such transactions include purchases of
merchandise and other items for cash, payment of expenses, payment to creditors on
account, cash withdrawal by the owner, etc. All these transactions are credited to Cash;
hence, it is necessary to have a Cash Credit column. Payments to creditors on account are
sufficiently frequent to require columns for Accounts Payable Debit and Purchase
Discount Credit. If payment for one or more specific operating expenses were sufficiently
numerous, other special columns are added to the journal.
At frequent intervals during the month, the amounts enter in the accounts payable
debit column are to the creditors account in the Accounts Payable Subsidiary Ledger. The
source of the entries is indicated by inserting “CD” and the appropriate journal page
number in the posting reference column of the accounts. A check mark placed in the
posting reference column of the Cash Payments Journal to indicate that the amounts have
been posted. The items in their Sundry Accounts Debit column are also posted to the
appropriate accounts in the General Ledger at frequent intervals. Posting is indicated by
writing the account numbers in the posting reference column of the Disbursements
Journal.
At the end of the month, the Cash Disbursements Journal is ruled, and their totals of
each money column are taken. The equality of the debits and the credits are determined
as follows:
A check mark is place below the total of the Sundry Accounts Debit column to
indicate that is not posted, Each of the totals of the other three columns is to a General
Ledger account and the appropriate posting reference is written below the column totals.
Recording Purchase Returns and Allowances
In recording Purchase returns, both creditor’s account and the controlling account
must be debited, and the account of commodity originally purchased must credited. Thus,
if the returns to the Office Equipment, the amount of reduction is credited to the Office
Equipment. If the reduction is in the cost of the merchandise purchased for resale,
Purchases is credited. If management wishes to know both the total amount of the
merchandise returned, a separate account entitled Purchase returns and Allowances is
credited.
On January 5, the friendly variety store received a credit memorandum from Bong
Bongcac for merchandised returned. The entry is recorded in a two column journal a
follows:
General Journal
Date Description Post Debi Credit
Ref. t
Jan. 5 Accounts Payable- Bong Bongcac 211/ 270
Purchased returns and Allowances 512 270
Received credit memorandum for
Merchandised returned.
Note that the debit to the Account Payable account is posted in the General Ledger
and also to the creditors account in the subsidiary ledger. The necessity for posting this
item to two different accounts is indicated by placing the diagonal line in the posting
reference column when the transaction is recorded.
The account number (211) and the check mark are written after the respective
accounts are posted.
The Accounts Payable Ledger and the Accounts payable control account appear as
follows after posting the purchases, cash disbursement, and the general journals.
Bong Bongcac
Date Items Post Debit Credit Balance
Ref.
Jan. 2 P1 6,720 6,720
5 G1 270 6,450
15 CD1 6,450
The General Journal is used for each transaction that does not belong in a special
journal. For example, the General Journal could be used to record Sales Returns and
Allowances if the original sale was made on account, Purchase Returns and Allowances
if the original purchase was made on account, the receipt of a note from a customer in
settlement of an accounts receivable, the purchase of equipment or some other asset by
giving a note, and the payment of Accounts Payable by giving a note. All Adjusting and
Closing entries are also recorded in the general journal.
The direct write off method is used by the small businesses who sell most of its
merchandise or services on cash basis. The amount of its receivable is small in relation to
its total current assets, the credit period is short, and the credit and collection procedure
are adequate.
The entry to write off an account believed to be uncollectable is as follows:
The entries to reinstate that account and to record the collection are as follows:
Allowance for Doubtful Accounts XXX
Accounts Receivable XXX
To write-off uncollectible account.
When an account that has been charged to the allowance account is subsequently
colleted, the account should be reinstated by an entry that is just the reverse of the write-
off entry.
Instead of using sales data, many businesses base their estimate on an analysis of
trade receivable accounts at the end of the period. The process of analyzing the accoumts
is called aging the receivables.
The estimated uncollectible account may be based on sales for the period or the
amount of receivables outstanding at the end of the period. When the company uses the
sales basis, the amount of the uncollectible account’s in the past year are compared to the
total sales to get the percentage of the estimated uncollectible. Since doubtful accounts
occur only with sales on account, it would be logical to develop a percentage of doubtful
accounts to credit sales only. However, since it would require extra work to separate cash
sales from credit sales, or to analyze sales data, the percentage is developed in terms of
total sales. In other cases, the percentage is adapted to net sales only.
To illustrate, assume that the total sales for the period is P500, 000, and the
estimated uncollectible account is 1% of sales, the charge for the doubtful accounts
would be P5, 000 (1% of P500, 000). The adjusting entry to record doubtful accounts
would be:
Note that the existing balance in the Allowance for Doubtful Accounts resulting
from charges to doubtful accounts in the part is not considered in computing the current
adjustment.
The sales percentage method for estimating doubtful account is widely used in
practice because of its simplicity.
ACCRUING INTEREST
To illustrate how to record accrued interest on the payee’s books and the maker’s
books, assume that on November 1, Miguel Company issued a 90-day, 12% note, for
P10,000 to Pablo Company on account. Both companies are using the calendar year as
their accounting period.
Nov. 1 – Issuance of note Accounts Payable 10, 000 Notes Receivable 10, 000
Notes Payable 10, 000 Accounts
Receivable 10, 000
Dec. 31 – Adjusting entry Interest Expense 200 Interest Receivable 200
Jan. 30 – Payment of note Notes Payable 10, 000 Cash 10, 300
Interest Expense 300 Notes
Receivable 10, 000
Cash 10, 300 Interest
Income 300