Accounting Memo

BTN 7-4 – Page 312
TO: Wendy Geiger
DATE: June 19, 2011
SUBJECT: Manual Accounting Modifications for Expanded Business
M E M O R A N D U M
This memo is to advise you of the best possible ways for you to modify your current manual accounting system to accommodate the expanded business activities for your retail store. Pursuant to our conversation, you generally obtain your goods on credit using purchase orders, and your sales are primarily cash. You currently keep your manual accounting system using a general journal and a general ledger, and you make one summary entry for cash sales at the end of each business day. Due to increased demand for your products and higher sales volume, including credit sales, maintaining the accounting records
has become time consuming, but you would like to continue with your manual system. Allow me to provide pertinent information that will assist you in continuing your manual system in the most efficient way.
The accounting information system is one that collects and processes relevant data from transactions, and organizes them into relevant reports. This system is also used to report and record the exchange of goods and/or services. It is critical for you to understand how and what transactions are occurring in your business. A small business like yours can be effective with a manual process and with the use of special journals and subsidiary ledgers.
With the issues you mentioned in mind, most of your transactions can be categorized into the special journals with the use of four individual journals to complement the general journal you are currently using.
Special journals are used to record and post transactions, and are uniquely designed for each business, but for most merchandising companies, the journals used are sales journals, for recording sales on credit; cash receipts journals, to record sales made by cash; purchases journals, for recording goods obtained on credit; and cash disbursements journals, for recording payments made by cash. You are also able to use this format for your
ledger.
In order to understand special journals, it is necessary for you to understand that a subsidiary ledger is a list of detailed information on specific accounts of individuals with some commonality in the general ledger. One critical ledger is Accounts Receivable, which stores transactions of individual customers. This ledger will give relevant information on the individual customer, the date of purchase, the amount paid, and the amount owed. The other important ledger is Accounts Payable, which stores relevant data of individual suppliers. You would generate this ledger with similar information gleaned from my instructions regarding the Accounts Receivable ledger. These two ledgers are critical for recording your data, and they eliminate the need for posting same in the general ledger. The numbers at the bottom indicate the respective accounts delineated in your Chart of Accounts.
You are already summarizing each cash sales at the end of each business day, but my advice would be for you to continue recording the daily sales and purchases because it is necessary for you to balance your subsidiary ledger with your general ledger. Daily reconciliation will enable you to track any and all discrepancies more easily. Total your sales journal accounts at the end of each month and this amount should be the amount in the debit column in the Accounts Receivable. Regarding the last column, you will find more consistency in your inventory system if you follow this procedure.
I cannot stress the importance of proving the account balances in the general ledger and subsidiary ledgers periodically for accuracy after posting. You will first prepare a trial balance of the general ledger and confirm that all your debits are in balance with your credits. Additionally, Prepare a schedule of individual accounts and amounts. This is referred to as testing the subsidiary ledger. Generate a schedule of your customers' accounts to show the balance owed. If everything balances, the accounts are assumed
correct.
This method of accounting information system might seem challenging to you at first, but I assure you that this is the most advantageous way for you to maintain your manual system. It is imperative you balance your journals and ledgers every day, without fail, to avoid any unnecessary discrepancies. The example I have provided should be a head start and I am always available if you need additional information, or if I can be of further