Chapter 5, Problem 2PB

Transactions related to revenue and cash receipts completed by Sterling Engineering Services during the period June 2–30, 2016, are as follows:

Instructions

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

1. 2. Insert the following balances in the accounts receivable subsidiary ledger as of June 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 June. 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 accounts agrees with the accounts receivable controlling account in the general ledger.
5. 7. Why would an automated system omit postings to a control account as performed in step 5 for Accounts Receivable?

To determine

Prepare general ledger for given accounts.

Explanation of Solution

General Ledger: The general journal is the journal that is used to record all adjusting and closing entries at the end of the particular accounting period. In simple, the transactions which are not recorded in the special journal that transactions are recorded in the general journal.

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 to 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 the account. In the revenue journal, all revenue transactions are recorded only when the business performed service to the customer on the account (credit).

Cash receipts journal: Cash receipts journal refers to the journal that is used to record all transaction which involves the cash receipts. For example, the business received cash from the 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 ($)	Credit ($)
June	1	Balance	✓			18,340
	30		CR36	9,270		27,610

Table (1)

Account:    Accounts Receivable                                             Account no. 12
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
June	1	Balance	✓			2,650
	30		J1		1,800	850
	30		R40	6,200		7,050
	30		CR36		4,750	2,300

Table (2)

Account:    Office equipment                                                   Account no. 18
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
June	1	Balance	✓			34,700
	30		J1	1,800		36,500

Table (3)

Account:    Fees earned                                                             Account no. 41
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
June	30	Balance	R40		6,200		6,200
	30		CR36		4,520		10,720

Table (4)

Journal                                                      Page  01
Date		Description	Post. Ref	Debit ($)	Credit ($)
June	30	Office equipment	18	1,800
		Accounts receivable-R Communities	12/		1,800
		(To record office equipment purchased on account)

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 Auto F
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance ($)
June	1	Balance	✓			1,670
	3		CR36		1,670	-
	23		R40	860		860

Table (6)

Name: R Communities
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance ($)
June	10		R40	2,840		2,840
	30		J1		1,800	1,040

Table (7)

Name: Company CD
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance ($)
June	1	Balance	✓			980
	7		R40	670		1,650
	14		CR36		980	670
	16		R40	400		1,070
	20		CR36		670	400

Table (8)

Name: Company Y
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance ($)
June	2		R40	1,430		1,430
	18		CR36		1,430	-

Table (9)

To determine

Prepare single column revenue journal and cash receipt journal.

Explanation of Solution

Revenue journal

Revenue journal of S Engineering services in the month of June 2016 is as follows:

Revenue journal

                                                                                                                          Page 40

Date		Invoice No.	Account debited	Post Ref.	Account receivable Dr. Fees earned Cr. ($)
June	2	717	Company Y	✓	1,430
	7	718	Company CD	✓	670
	10	719	R Communities	✓	2,840
	16	720	Company CD	✓	400
	23	721	Company Auto F	✓	860
	30				$6,200
					(12) (41)

Table (10)

Cash receipt journal

Cash receipt journal of S Engineering services in the month of June 2016 is as follows:

Cash receipt journal

                                                                                                                  Page 36

Date		Account Credited	Post Ref.	Fees earned Cr.	Accounts receivable Cr.	Cash Dr.
June	3	Company Auto F	✓		1,670	1,670
	14	Company CD	✓		980	980
	28	Company Y	✓		1,430	1,430
	20	Company CD	✓		670	670
	30	Fees earned		4,520		4,520
	30			4,520	4,750	9,270
				(41)	(12)	(11)

Table (11)

To determine

Prepare the 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:

S Engineering services
Accounts receivable customers balances
June 30, 2016
	Amount ($)
Company Auto F	860
R Communities	1,040
Company CD	400
Total accounts receivable	2,300

Table (12)

Accounts receivable controlling account

Ending balance of accounts receivable controlling account is as follows:

S Engineering services
Accounts receivable (Controlling account)
June 30, 2016
	Amount ($)
Opening balance on June 1	2,650
Add:
Total debits (from revenue journal)	6,200
	8,850
Less:
Total credits (from cash receipts journal and journal) (1)	(6,550)
Total accounts receivable	2,300

Table (13)

Working note: Calculate the total credits in the accounts receivable

$\begin{array}{c}\text{Total credit in accounts receivable = }\left(\begin{array}{l}\text{Credit balance in cash receipt journal + }\\ \text{credit balance in genral journal}\end{array}\right)\\ =\$4,750+\$1,800\\ =\$6,550\end{array}$

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

To determine

Discuss reason for an automated system omits to post 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.