Mitchell Franklin; Patty Graybeal; Dixon Cooper

Now that you have seen four special journals and two special ledgers, it is time to put all the pieces together.

Record the following transactions for Store Inc. in the special journals and post to the general ledger provided. Also post to the subsidiary ledgers provided. Beginning account balances are shown below. Use the perpetual inventory method and the gross method of dealing with sales terms.

First, enter these transactions manually by creating the relevant journals and subsidiary ledgers. Then enter them using QuickBooks.

Beginning Balances. Cash, $3,116. Accounts Receivable, 3,576. Prepaid Insurance, 130. Inventory, 8,917. Accounts Payable, $6,382. Stock, 5,000. Retained Earnings, 4,357.

Transactions for Store Inc.

Jan. 2	Issued check #629 for January store rent: $350.00
Jan. 3	Received check from PB&J in payment for December sale on credit, $915.00
Jan. 4	Issued check #630 to D & D in payment for December purchase on credit of $736.00
Jan. 5	Sold goods for $328.00 to Jones Co. on credit, Invoice #234 (Note: COGS is $164)
Jan. 6	Bought goods from BSA for $4,300.00, Purchase Order #71, terms: 2/10, net/30
Jan. 8	Sold goods on credit to Black & White Inc. for $2,100, Invoice #235, terms: 1/10, net/30 (Note: COGS is $1,050)
Jan. 9	Issued check #63 for telephone bill received today, $72.00
Jan. 10	Issued check #632 to pay BSA in full, PO 71.
Jan. 15	Received full payment from Black & White, Inc., Invoice #235
Jan. 20	Bought merchandise from Dow John, $525.00 payable in 30 days, Purchase Order #72
Jan. 26	Returned $100 of merchandise to Dow John, relating to Purchase Order #72
Jan. 31	Recorded cash sales for the month of $3,408 (Note: COGS is $1,704)
Jan. 31	Recognized that half of the Prepaid Insurance has been consumed

Table 7.2

Record all transactions using the sales journal, purchases journal, cash receipts journal, cash disbursements journal, and the general journal and post to the accounts receivable and accounts payable subsidiary ledgers. Then prepare a schedule of accounts receivable and a schedule of accounts payable.

Cash Receipts Journal Solution, page 65. Twelve columns, labeled left to right: Date, Invoice Number, Description, Cash Debit, Sales Discount Debit, Reference, Accounts Receivable Credit, Sales Credit. The last four columns are headed Other Accounts: Account Number, Checkmark, Debit, Credit. Line One: January 3, 2019; 234; PB&J; 915; Blank; Blank; 915; Blank; Blank; Blank; Blank; Blank. Line two: January 15, 2019; Blank; Black & White; 2,079; 21; Blank; 2,100; Blank; Blank; Blank; Blank; Blank. Line Three: January 31, 2019; Blank; Jan. Cash Sales; 3,408; Blank; Blank; Blank; 3,408; 501; Blank; 1,204; Blank. Line Four: Blank; Blank; Blank; Blank; Blank; Blank; Blank; Blank; 106; Blank; 1,204. Line Five: Blank; Blank; Total; 6,402; 21; Blank; 3,015; 3,408; Blank; Blank; 1,204; 1,204.

Explanation:

Jan. 3	The company received payment from PB&J; thus, a cash receipt is recorded.
Jan. 15	The company received payment on goods that were sold on Jan. 8 with credit terms if paid within the discount period. The payment was received within the discount period.
Jan. 31	Cash sales are recorded.

General Ledger Solution, 119. Four Columns, labeled left to right: Date, Description, Reference, Debit, Credit. Entry One: January 26, 2019. Accounts Payable; Dow John; Ref. 200; Debit 100. Merchandise Inventory; Ref 106; Credit 100. Explanation: “To record return of defective merchandise (Dow John AP No. 115).” Entry Two: January 31, 2019; Insurance Expense; Ref 504; Debit 65. Prepaid Insurance; Ref 105; Credit 65. Explanation: “To record expiration of Prepaid Insurance.”

Explanation:

Jan. 26	The company returns merchandise (inventory) previously purchased. Since the company is using the perpetual method, a credit is made to Inventory.
Jan. 31	An adjusting entry is made to recognize insurance expense for the current month that had previously been prepaid.

Sales Journal, page 143. Six columns, labeled left to right: Date, Invoice No., Account Debited, Account Number, Accounts Receivable DR Sales CR, Cost of Goods Sold DR Inventory CR. Line One: January 5; 234; Jones Co; JC1; 328; 164. Line Two: January 8; 235; Black & White Inc.; BW1; 2,100; 1,050. Line Three: Total A/R DR Sales CR: 2,428; Total Cost of Goods Sold DR Inventory CR: 1,214.

Explanation:

Jan. 8

Sales on credit are recorded

Cash Disbursements Journal, Page 102, Other Accounts. Eleven columns, labeled left to right: Date, Check Number, Payee, Cash CR, Ref., Accounts Payable (or Other account) DR, Purchase Discounts CR, Account Number, Checkmark, DR, CR. Line One: January 2, 2019; Check number 629; Rent; cash credit 350; account number 535, debit 350. Line Two: January 4, 2019; Check number 630; D&D; cash credit 736; Ref. D1218; AP debit 736. Line Three: January 9, 2019; Check number 631; phone; cash credit 72; account number 545; debit 72. Line Four: January 10, 2019; check number 632; BSA; cash credit 4,214; AP debit 4,300; PD credit 86; debit 422. Debits = 5,458. Credits = 5,458. Total Cash Credit: 5,372. Total AP debit: 5,036. Total PD credit: 86. Total debit 422.

Explanation:

Jan. 2	Rent for the month is paid.
Jan. 4	Payment is made for inventory purchased on account in a prior month.
Jan. 9	Paid the telephone bill.
Jan. 10	Paid for inventory purchased earlier on account. The payment arrangement had credit terms; the invoice was paid within the time allowed, and the discount was taken.

Purchases Journal, Page 54. Five columns, labeled left to right: Date, Purchase Order Number, Account credited, Account number, Debit Inventory Credit AP. Line One: January 6, 2019; PO 71; BSA: Account number 110; DP credit AP 4,300. Line Two: January 20, 2019; PO 72; Dow John; Account number 115; DP credit AP 525. Total DP credit AP: 4,825.

Explanation:

Jan. 6	Inventory is purchased on account.
Jan. 20	Inventory is purchased on account.

At the end of the month, each of the previous journal totals are posted to the appropriate account in the general ledger, and any individual account postings, such as to Rent Expense (Jan. 2 transaction) would also be posted to the general ledger. Note that each account used by the company has its own account section in the general ledger.

General Ledger Solution, Account: Cash, Number 101. January 1, 2019; Beginning Balance Debit 3,116. January 31, 2019; Cash Receipts; Ref. CR 65; Debit 6,402; Balance Debit 9,518. January 31, 2019; Cash Disbursements; Ref. CD 18; Credit 5,372; Balance Debit 4,146. Account: Accounts Receivable, Number 102. January 1, 2019; Beginning Balance Debit 3,576. January 31, 2019; Sales Journal; Ref. SJ 143; Debit 2,248; Balance Debit 6,004. January 31, 2019; Cash Receipts; Ref. CR 122; Credit 3,015; Balance Debit 2,989. Account: Prepaid Insurance, Number 106. January 1, 2019; Beginning Balance Debit 130. January 31, 2019; Adjusting Entry; Ref. GJ 119; Debit 65; Balance Debit 65. Account: Inventory, Number 106. January 1, 2019; Beginning Balance Debit 8,917. January 14, 2019; Purchases Journal; Ref. PJ 54; Debit 4,825; Balance Debit 13,742. January 31, 2019; Purchase Return; Ref. GJ 119; Credit 100; Balance Debit 13,642. January 31, 2019; Cash Receipts Journal; Ref. CR 65; Credit 1,704; Balance Debit 11,938. January 31, 2019; Cash Disbursements; Ref. CD 18; Credit 86; Balance Debit 11,852. January 31, 2019; Sales Journal; Ref. SJ 24; Credit 1,214; Balance Debit 10,638. Account: Accounts Payable, Number 200. January 1, 2019; Beginning Balance Credit 6,382. January 31, 2019; Purchases Journal; Ref. PJ 54; Credit 4,825; Balance Credit 11,207. January 31, 2019; Cash Disbursements; Ref. CD 18; Debit 5,036; Balance Credit 6,171. January 31, 2019; General Journal; Ref. GJ; Debit 100; Balance Credit 6,071.

General Ledger Solution, Account: Common Stock, Number 301. January 1, 2019; Beginning Balance Credit 5,000. Account: Retained Earnings, Number 350. January 1, 2019; Beginning Balance Credit 4,357. Account: Sales, Number 401. January 1, 2019; Beginning Balance Credit 2,428. January 13, 2019; Sales Journal; Ref. SJ 24; Credit 2,428; Balance Credit 5,836. Account: Sales Discounts, Number 410. January 1, 2019; Beginning Balance 0. January 15, 2019; General Journal; Ref. GJ 119; Debit 65; Balance Debit 65. Account: Cost of Goods Sold, Number 501. January 31, 2019; Sales Journal; Ref. SJ 24; Debit 1,214; Balance Debit 1,214. January 31, 2019; Cash Receipts; Ref. CR 65; Debit 1,704; Balance Debit 2,918. Account: Insurance Expense, Number 521. January 1, 2019; Beginning Balance 0. January 15, 2019. General Journal; Ref. GJ 119; Debit 65; Balance Debit 65. Account: Rent Expense, Number 535. January 1, 2019; Beginning Balance 0. January 31, 2019. Cash Disbursements; Ref. CD 18; Debit 350; Balance Debit 350. Account: Utilities Expense, Number 545. January 1, 2019; Beginning Balance 0. January 31, 2019. Cash Disbursements; Ref. CD 18; Debit 72; Balance Debit 72.

Accounts Receivable Subsidiary Ledger Solution, PB&J. December 20, 2018; Sales Journal, Ref. 23, Debit 2,661, Balance Debit 2,661. January 3, 2019; Cash Receipts, Ref. CR, Credit 915. Jones Co. January 1, 2019; Sales Journal, Ref. SJ 24, Debit 328, Balance Debit 328. Black & White, Inc. January 8, 2019; Sales Journal, Ref. SJ 24, Debit 2,100, Balance Debit 2,100. January 15, 2019; Cash Receipts, Ref. CR, Credit 2,100. Tiny Tim’s Inc. December 15, 2018; Sales Journal, Ref. 23, Debit 2,661, Balance Debit 2,661.

Accounts Payable Subsidiary Ledger, D & D Inc., AP Number 34. December 1, 2018; Purchases Journal, Ref. PJ 44, Credit 736, Balance Credit 736. December 10, 2019; Purchases Journal, Ref. PJ 44, Credit 5,646; Balance Credit 6,382. January 4, 2019; Cash Disbursements, Ref. CD, Debit 736, Balance Credit 5,646. BSA AP No. 71. January 6, 2019; Purchases Journal, Ref. PJ 45, Credit 4,300, Balance Credit 4,300. January 10, 2019; Cash Disbursements, Ref. CD, Debit 4,300; Balance Credit 0. Dow John AP No. 171. January 20, 2019; Purchases, Ref. PJ 45, Credit 525, Balance Credit 525. January 26, 2019; General Journal; Ref GJ 119; Debit 100; Balance Credit 425.

Store Inc. Schedule of Accounts Receivable, January 31. PB&J: 0. Jones Co.: 328. Black & White Inc.: 0. Tiny Tim’s Inc.: 2,661. Total: 2,989. Store Inc. Schedule of Accounts Payable, January 31. D & D Inc: 5,646. BSA: 0.Dow John: 425. Total: 6,071.

If you check Accounts Receivable in the general ledger, you see the balance is $2,989, and the balance in Accounts Payable is $6,071. If the numbers did not match, we would have to find out where the error was and then fix it.

The purpose of keeping subsidiary ledgers is for accuracy and efficiency. They aid us in keeping accurate records. Since the total of the accounts receivable subsidiary ledger must agree with the balance shown in the accounts receivable general ledger account, the system helps us find mistakes. Since bookkeeping using ledgers is older than the United States, it was an ingenious way to double-check without having to actually do everything twice. It provided an internal control over record keeping. Today, computerized accounting information systems use the same method to store and total amounts, but it takes a lot less time.

7.4 Prepare a Subsidiary Ledger