04 Oct Manual Accounting Systems
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:
5-1Basic Accounting Systems
Obj. 1
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:
- Step 1.Analyze user information needs.
- Step 2.Design the system to meet the user needs.
- Step 3.Implement the system.
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 and
- information processing methods.
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.
5-2Manual Accounting Systems
Obj. 2
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.
5-2aSubsidiary Ledgers
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:
- Accounts receivable subsidiary ledger
- Accounts payable subsidiary ledger
Note
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.
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