CHAPTER 9

Accounting Information Systems

 CHAPTER 9
 The Accounting Paper Trail
Using Special Journals and Subsidiary Ledgers
Computerized Accounting Systems
In Summary
Exercise

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The Accounting Paper Trail

Source documents, which provide evidence that a business transaction has occurred, come in many different forms.
Accountants use source documentation to update the accounting records of an organization.

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The Accounting Paper Trail

The Traditional Accounting Paper Trail follows these steps:

1. Source documentation is received at the company.

2. The Accountant records the transaction in the journal.

3. Once the accountant has recorded the transaction in the journal, they post entries in the ledger.

4. Ensure the books balance using a Trial Balance at the end of an accounting period.

5. Prepare any financial reports such as the income statement, statement of owner’s equity, and balance sheet.

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What are the documents that provide evidence of a business transaction called?

a. Photocopies

b. Financial statements

c. Ledgers

d. Source documents

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What are the documents that provide evidence of a business transaction called?

d. Source documents

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What is the last step of the traditional accounting paper trail?

a. Receive source documentation

b. Record transactions in a journal

c. Prepare financial statements

d. Prepare a trial balance

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What is the last step of the traditional accounting paper trail?

c. Prepare financial statements

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 CHAPTER 9
 The Accounting Paper Trail
 Using Special Journals and Subsidiary Ledgers
Computerized Accounting Systems
In Summary
Exercise

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Using Special Journals and Subsidiary Ledgers

In a traditional accounting system, recording all business transactions in one journal could be very time consuming—
especially when there are lots of activities concerning specific transactions.

For transactions that occur regularly, it is wise to maintain a separate book called a special journal. Examples of regular
transactions include sales, purchases, cash payments, cash receipts and payroll. All transactions must be recorded in a journal
before being posted to the ledgers, regardless of whether special journals are used or not. The following are the types special
Journals used:

• Sales Journal
• Purchases Journal
• Cash Payments Journal
• Cash Receipts Journal

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Using Special Journals and Subsidiary Ledgers

Function

Sales Journal This journal is used to record all sales made on account.

Purchases Journal This journal is used to record all purchases (products or services) made on account.

Cash Payments Journal This journal is used to record all cash payments made by the business.

This journal is used to record all cash deposits (e.g. cash sales) and collections from
Cash Receipts Journal
outstanding accounts receivable.

It is used to record any entry that does not belong in one of the special journals. Typical
General Journal entries recorded in the general journal are, Purchase & sale Return, Correcting entries
and Adjustments.

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Using Special Journals and Subsidiary Ledgers

Example
A Sales Journal would look like this:

There are columns for common accounts that are used. Debits must still equal credits for every transaction.

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Using Special Journals and Subsidiary Ledgers
Subledgers

Subledgers record and organize the accounts used by a business, which are then used to create the financial statements. It is
used to provide details that are not kept in the general ledger because too much information will clutter up the general ledger
accounts.
Transactions are initially recorded in one of the journals and are then posted to the general ledger or the subledgers as needed.
The subledgers are usually updated after each transaction, while the general ledger is usually updated at the end of the period,
such as the end of the month.

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Using Special Journals and Subsidiary Ledgers

Example

A Subsidiary Ledger would look like this:

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Which journal would be used to record the receipt of interest from the bank account?

a. Sales Journal

b. Purchases Journal

c. Cash Payments Journal

d. Cash Receipts Journal

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Which journal would be used to record the receipt of interest from the bank
account?
d. Cash Receipts Journal

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Which of the following information is not included in an Accounts Payable Subsidiary Ledger?

a. Gross profit

b. Transaction date

c. Dollar value of the transaction

d. Names of suppliers owed

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Which of the following information is not included in an Accounts Payable
Subsidiary Ledger?
a. Gross profit

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Which journal would be used to record a sale on account?

a. Sales Journal

b. Purchases Journal

c. Cash Payments Journal

d. Cash Receipts Journal

e. General Journal

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Which journal would be used to record a sale on account?

a. Sales Journal

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Which journal would be used to record buying inventory on account?

a. Sales Journal

b. Purchases Journal

c. Cash Payments Journal

d. Cash Receipts Journal

e. General Journal

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Which journal would be used to record buying inventory on account?

b. Purchases Journal

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A company sold $500 of inventory for cash. The cost of the inventory was $350. How much would be recorded
in the "COGS/Inventory (DR/CR)" column of the cash receipts journal?

a. $150

b. $350

c. $500

d. $850

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How much would be recorded in the "COGS/Inventory (DR/CR)" column of the
cash receipts journal?
b. $350

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 CHAPTER 9
 The Accounting Paper Trail
 Using Special Journals and Subsidiary Ledgers
 Computerized Accounting Systems
In Summary
Exercise

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Computerized Accounting Systems

Manual Accounting Systems

All journals, ledgers and subledgers have been illustrated in a manual accounting system. The more transactions a company
has, the more requirement for a computerized system.

Computerized Accounting Systems

A computerized system is set up in a similar manner to the special journals just described. Sales are entered in one section of
the software, while receipts are entered in another. Purchases and payments are also separated into different sections. The
general journal is available for any transaction that does not fit into any of the special journals.
Although entries can be recorded in different sections, they will update the appropriate subledgers and the general ledger
accounts at the time they are posted. Reports can be viewed or printed at any time and be up to date.

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Which of the following is true about computerized accounting systems?

a. Subledgers are updated as soon as entries are posted.

b. They work only when the number of transactions is small.

c. Purchases and payments are entered in the same section.

d. General journal is unavailable.

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Which of the following is true about computerized accounting systems?

a. Subledgers are updated as soon as entries are posted.

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 CHAPTER 9
 The Accounting Paper Trail
 Using Special Journals and Subsidiary Ledgers
 Computerized Accounting Systems
 In Summary
Exercise

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In Summary

Explain the flow of accounting information through the accounting paper trail
 Source documents provide evidence for journal entries, which are then posted to the ledger accounts. The values
from the ledger accounts are used to create a trial balance and the financial statements.

Describe and record transactions in special journals

 The sales journal is used to record all sales on account.
 The cash receipts journal is used to record all cash received.
 The purchases journal is used to record all purchases on account.
 The cash payments journal is used to record all cash paid.
 The general journal is used to record all transactions that do not fit into the other special journals.

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In Summary

 Describe and record transactions in subsidiary ledgers

 Subsidiary ledgers are used to track details that would clutter the general ledgers.
 All special journals are totaled at the end of the month and the totals are posted to the general ledger accounts.
 If a transaction in the sales or cash receipts journal affects accounts receivable, the accounts receivable subledger
account for that customer will be updated immediately.
 If a transaction in the purchase or cash payments journal affects accounts payable, the accounts payable subledger
account for that supplier will be updated immediately.

 Identify features of a computerized accounting system

 A computerized accounting system will have sections like the special journals to enter transactions. Transactions will
automatically update general and subsidiary ledgers.
 Subsidiary ledgers will keep information about suppliers and can be used to generate reports.
 Computerized accounting systems have many benefits, including simplifying recordkeeping and posting, providing a
user-friendly interface for entering and extracting information, allowing the user to customize and format financial
statements and reports, and producing timely financial statements and reports.

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 CHAPTER 9
 The Accounting Paper Trail
 Using Special Journals and Subsidiary Ledgers
 Computerized Accounting Systems
 In Summary
 Exercise

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Exercise

Palmer Furniture is an owner-operated office furniture retailer. Enter the following transaction in the
appropriate special journal and subledger. A customer, Time Products, paid the outstanding balance of their
account for $7,300 on September 4. At the end of the month, post the balance to the appropriate general
ledger account.
Cash Receipts Journal Page 3
Sales Accounts COGS/
Cash Discount Receivable Sales Bank Loan Other Inventory
Date Account PR (DR) (DR) (CR) (CR) (CR) (CR) (DR/CR)
Sep 4 Time Products  7,300 7,300

Outstanding A/R = $34,780

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Exercise

Palmer Furniture is an owner-operated office furniture retailer. Enter the following transaction in the
appropriate special journal and subledger. A customer, Time Products, paid the outstanding balance of their
account for $7,300 on September 4. At the end of the month, post the balance to the appropriate general
ledger account.
Cash Receipts Journal Page 3
Sales Accounts COGS/
Cash Discount Receivable Sales Bank Loan Other Inventory
Date Account PR (DR) (DR) (CR) (CR) (CR) (CR) (DR/CR)
Sep 4 Time Products  7,300 7,300

Account: Time Products Account: Accounts Receivable GL. No. 120

Date Description PR Debit Credit Balance Date Description PR Debit Credit Balance
O/B 7,300 DR Sep 30 O/B 34,780 DR
Sep 4 CR3 7,300 0 DR Sep 30 CR3 7,300 27,480 DR

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