Chapter 5, Problem 2PA

Transactions related to revenue and cash receipts completed by Albany Architects Co. during the period November 2–30, 2016, are as follows:

Instructions

1. 1. Insert the following balances in the general ledger as of November 1:

1. 2. Insert the following balances in the accounts receivable subsidiary ledger as of November 1:

1. 3. Prepare a single-column revenue journal (p. 40) and a cash receipts journal (p. 36). Use the following column headings for the cash receipts journal: Fees Earned Cr., Accounts Receivable Cr., and Cash Dr. The Fees Earned column is used to record cash fees. Insert a check mark (✓) in the Post. Ref. column when recording cash fees.
2. 4. Using the two special journals and the two-column general journal (p. 1), journalize the transactions for November. Post to the accounts receivable subsidiary ledger, and insert the balances at the points indicated in the narrative of transactions. Determine the balance in the customer’s account before recording a cash receipt.
3. 5. Total each of the columns of the special journals, and post the individual entries and totals to the general ledger. Insert account balances after the last posting.
4. 6. Determine that the sum of the customer balances agrees with the accounts receivable controlling account in the general ledger.
5. 7. Why would an automated system omit postings to a controlling account as performed in step 5 for Accounts Receivable?

To determine

Prepare general ledger for given accounts.

Explanation of Solution

General Ledger: General ledger refers to the ledger that records all the transactions of the business related to the company’s assets, liabilities, owners’ equities, revenues and expenses. Each subsidiary ledger is represented in the general ledger by summarizing the account.

Accounts receivable subsidiary ledger: Account receivable subsidiary ledger is the ledger which is used to post the customer transaction in one particular ledger account. It helps the business for locate the error in the customer ledger balance. After all transactions are posted, the balances in the accounts receivable subsidiary ledger should be totaled, and compare with the balance in the general ledger of accounts receivable. If both the balance does not agree, the error has been located and corrected.

Revenue journal: Revenue journal refers to the journal that is used to record the fees earned on account. In the revenue journal, all revenue transactions are recorded only when the business performed service to customer on account (credit).

Cash receipts journal: Cash receipts journal refers to the journal that is used to record the all transaction which is involve the cash receipts. For example, the business received cash from customer (service performed in cash).

Prepare the general ledger for given accounts as follows:

Account:         Cash                                                              Account no. 11
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
NOV	1	Balance	✓			11,350
	30		CR36	37,600		48,950

Table (1)

Account:    Accounts Receivable                                             Account no. 12
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
NOV	1	Balance	✓			16,230
	25		J1		3,000	13,230
	30		R40	26,620		39,850
	30		CR36		24,330	15,520

Table (2)

Account:    Notes Receivable                                                   Account no. 14
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
NOV	1	Balance	✓			6,000
	25		J1		3,000	9,000

Table (3)

Account:    Fees earned                                                             Account no. 41
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
NOV	30	Balance	R40		26,620		26,620
	30		CR36		13,270		39,890

Table (4)

Journal                                                      Page  01
Date		Description	Post. Ref	Debit ($)	Credit ($)
NOV	25	Notes receivable	14	3,000
		Accounts receivable	12		3,000
		(To record payable note raised against the accounts receivable from customer Company S)

Table (5)

To determine

Prepare accounts receivable subsidiary ledger for given customers.

Explanation of Solution

The accounts receivable subsidiary ledger for given customers are as follows:

Accounts receivable subsidiary ledger

Name: Company M
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance ($)
2016
NOV	1	Balance	✓			9,4608
	5		CR36		9,460	-
	22		R40	8,040		8,040

Table (6)

Name: Company O
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance ($)
2016
NOV	2		R40	5,650		5,650
	19		CR36		5,650	-

Table (7)

Name: Company R
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance ($)
2016
NOV	1	Balance	✓			6,770
	6		R40	2,450		9,220
	15		CR36		6,770	2,450
	16		R40	6,500		8,950
	20		CR36		2,450	6,500

Table (8)

Name: Company S
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance ($)
2016
NOV	13		R40	3,980		3,980
	25		J1		3,000	980

Table (9)

To determine

Prepare single column revenue journal and cash receipt journal.

Explanation of Solution

Revenue journal

Revenue journal of C Business service in the month of November 2016 is as follows:

Revenue journal

                                                                                                                              Page 40

Date		Invoice No.	Account debited	Post Ref.	Account receivable Dr. Fees earned Cr. ($)
2016
NOV	2	793	Company O	✓	5,650
	6	794	Company R	✓	2,450
	13	795	Company S	✓	3,980
	16	796	Company R	✓	6,500
	22	797	Company M	✓	8,040
	30				$26,620
					(12) (41)

Table (10)

Cash receipt journal

Cash receipt journal of C Business service in the month of November, 2016 is as follows:

Cash receipt journal

                                                                                                                  Page 36

Date		Account Credited	Post Ref.	Fees earned Cr.	Accounts receivable Cr.	Cash Dr.
2016
NOV	5	Company M	✓		9,460	9,460
	15	Company R	✓		6,770	6,770
	19	Company O	✓		5,650	5,650
	20	Company R	✓		2,450	2,450
	30	Fees earned		13,270		13,270
	30			13,270	24,330	37,600
				(41)	(12)	(11)

Table (11)

To determine

Prepare accounts receivable customers balance, and verify that the total agrees with the ending balance of accounts receivable control account.

Explanation of Solution

Accounts receivable customer balance

Accounts receivable customers balance is as follows:

C Business service
Accounts receivable customers balances
NOV 30
	Amount ($)
Company M	8,040
Company R	6,500
Company S	980
Total accounts receivable	15,520

Table (12)

Accounts receivable controlling account

Ending balance of accounts receivable controlling account is as follows:

C Business service
Accounts receivable (Controlling account)
NOV 30
	Amount ($)
Opening balance on NOV 1	16,230
Add:
Total debits (from revenue journal)	26,620
Less:
Total credits (from cash receipts journal and journal) (1)	(27,330)
Total accounts receivable	15,520

Table (13)

Working note: Calculate the total credits in the accounts receivable

$\begin{array}{c}\text{Total credit in accounts receivable = }\left(\begin{array}{l}\text{Credit balance in cash receipt journal + }\\ \text{credit balance in genral journal}\end{array}\right)\\ \text{=\$24,330+\$3,000}\\ \text{=\$27,330}\end{array}$

In this case, accounts receivable subsidiary ledger is used to identify and locate the error by way of cross check the customer balance and accounts receivable controlling account. From the above calculation,  we can understand that the both balance of accounts receivable is agree, hence there is no error in the recording and posing of transactions.

To determine

Discuss reason of an automated system omit to posting a controlling accounting system.

Explanation of Solution

At the time of the original transactions are entered, the individual sales transactions are posted automatically in the computer system. So, there is no need to post the summary totals to the general ledger accounts.