© 1991 John Petroff |
PRINCIPLES OF ACCOUNTING SYSTEMS
The accounting system of an organization should provide all
necessary information. The type of accounting system used
depends on the information needs of an organization. All
accounting systems should have the following characteristics:
1) cost effectiveness,
2) adequate internal controls,
3) flexibility to a changing environment, and
4) compatibility and adaptability to an organization's structure.
INSTALLING & REVISING ACCOUNTING
SYSTEMS
The installation and revision of an accounting system requires
a
complete knowledge of a business operation. The following steps
are
necessary when installing or changing an accounting system.
1)- Systems analysis: this stage determines data needs, the sources
of data and any problem in processing current data.
2)- Systems design: this stage involves designing new or revising
current accounting systems based upon the results of the
systems analysis.
3)- Systems implementation: this final stage installs and evaluates
the new or revised accounting system.
INTERNAL CONTROLS
Internal controls are designed to safeguard assets, check accuracy
of accounting data, promote efficiency, and encourage adherence
to
company policies. Internal accounting controls are specifically
concerned with the protection of assets and the reliability of
accounting information. Internal administrative controls are
concerned with operational efficiency, and help determine whether
business goals are being met.
SUBSIDIARY LEDGERS
Subsidiary ledgers are used for accounts that have a large number
of individual accounts with common characteristics. Subsidiary
ledgers are commonly used for accounts receivable and accounts
payable; both consist of a large number of smaller accounts. The
general ledger contains all balance sheet and income statement
accounts. Every subsidiary ledger has a controlling account which
can be found in the general ledger. The sum of the balances of
the
subsidiary ledger must be equal to the controlling account.
SPECIAL JOURNALS
Special journals are designed to record a specific type of
transaction which occurs frequently. The following is a summary
of
the four most commonly used special journals:
1)- purchases journal: used to record purchases on credit,
2)- sales journal: used to record all sales made on credit,
3)- cash payments journal: records all cash disbursements, and
4)- cash receipts journal: records all cash receipts.
In certain instances, business documents such as purchases and
sales
invoices are used instead of special journals to reduce expenses.
PURCHASES JOURNAL
Items commonly purchased on account are goods held in inventory
for
sale, supplies, and equipment. The accounts payable account is
always credited, and an asset account is debited. Assets purchased
on a recurring basis have their own column in the journal. Assets
purchased less regularly are posted in the sundry accounts section
of the journal. At all times, total debits must equal total credits.
At the end of an accounting period, all entries should be posted
to
a subsidiary ledger or the general ledger.
CASH PAYMENTS JOURNAL
When the cash payments journal is used, the cash column is always
credited whenever a payment is issued. When a payment is made
for goods previously purchased on credit, the accounts payable
column is credited. In the event a discount is offered for early
payment, the purchases discounts column should be debited. The
sundry accounts column is used for debits to accounts which do
not
have an individual column. At the end of the month, all data from
the journal should be posted to subsidiary ledgers or the general
ledger. The sum of the accounts payable subsidiary ledger must
be
equal to the controlling account. In the event it is not, errors
must be found and corrected.
SALES JOURNAL
The sales journal is only used to record sales of merchandise
on
account. A unique feature of the sales journal is that accounts
receivable debits and credits share the same column. A column
also
often exists to record sales tax payable. Any sales returns or
allowances granted for goods sold on credit require an entry to
the
general journal. If a cash refund is given, the transaction should
be recorded to the cash payments journal.
CASH RECEIPTS JOURNAL
The cash receipts journal is used to record all transactions that
increase the cash balance. The most common sources of cash receipts
are cash sales and payments for goods on account. When debtors
pay
for goods purchased on account, the accounts receivable column
should be credited. If a cash discount is taken by a customer,
the sales discount column should be debited for the cash discount.
All accounts in the cash receipts journal are posted periodically
to the general ledger. Accounts receivables should be posted
monthly to the accounts receivable subsidiary ledger.
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