Principles of Accounting - Chapter 7 Part 2

Introduction

• Focus on streamlining the process of transferring transactions from journals to the general ledger using special journals.
• Avoids the numerous journal entries usually required.
• Recap of special journals and ledgers.

Types of Journals

General Journal

• Where journal entries are recorded.
• Previous segments covered:
  • Sales Journal
  • Cash Receipts Journal

Today’s Focus

• Purchases Journal
• Cash Payments Journal

Ledgers

General Ledger

• Contains every account and all related transactions.
• Balances are maintained for each account.

Subsidiary Ledgers

• Two main types:
  • Accounts Receivable Subsidiary Ledger
  • Accounts Payable Subsidiary Ledger
• Used to track specific details:
  • Accounts Receivable: Who owes us money and how much.
  • Accounts Payable: What we owe to others.
• Balances of subsidiary ledgers match with the general ledger accounts.

Purchases Journal

• Designed for purchases on account.
• Columns include:
  • Accounts Payable
  • Merchandise Inventory Debits
  • Office Supplies Debits
  • Other Debits (e.g., Equipment, Furniture)
• Posting Process:
  • Post to subsidiary ledgers immediately for each vendor (accounts payable).
  • Post to general ledger at month-end.

Example Entries

• Vendors: Advanced Printing, City Office Supply, Hanes Textiles, O’Leary Furniture, Pioneer Plastics.
• Each purchase is recorded in both the purchases journal and accounts payable subsidiary ledger.
• End-of-month totals posted to general ledger.

Cash Payments Journal

• Records all transactions where cash is paid out.
• Column structure:
  • Cash Credits
  • Merchandise Inventory Credits
  • Accounts Payable Debits
  • Other Account Debits
• Posting Process:
  • Post accounts payable payments to subsidiary ledger.
  • At month-end, total columns and post to general ledger.

Example Payments

• Payments to Accounts Payable Subsidiary Ledger: Hanes Textiles, Pioneer Plastics.
• General Ledger accounts updated with totals from cash payments journal at month-end.

This summary captures the essential elements of managing special journals and ledgers, focusing on processes for recording and posting purchases and cash payments.