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Chapter 5: Problem 21

TechSolve Consulting Company makes most of its sales and purchases on crectit. It uses the five journals described in this chapter (revenue, cash receipts, purchases, cash payments, and general journals). Identify the journal moxe likely used in recording the postings for selected transwations indicated by letter in the folkowing \(T\) accounts: \begin{tabular}{c|c|cll|ll} \multicolumn{2}{c|}{ Gash } & & & \multicolumn{2}{c}{ Prepaid Rent } \\ \cline { y y y y y y \end{tabular} \begin{tabular}{l|l|llc|lc} \multicolumn{3}{c}{ Accounts Receivable } & & \multicolumn{3}{c}{ Accounts Payable } \\ \cline { 6 - 7 } \cline { 5 - 6 } d. & 12,410 & e. & 10,500 & f. & 7,600 & \(g\) \end{tabular} \begin{tabular}{l|llll} \multicolumn{2}{c}{ Office Supplies } & & \multicolumn{2}{l}{ Fees Earned } \\\ \cline { 2 } \(\mid\) & & \(i .\) & 12,410 \end{tabular}

Short Answer

Expert verified
Transactions are recorded as follows: (d) Revenue Journal, (e) General Journal, (f) Cash Payments Journal.

Step by step solution

01

Identify the Transaction Details

Examine the given T-accounts to identify the nature of each transaction. In this case, they involve entries for transactions such as increases or decreases in cash or accounts receivable. Each letter corresponds to a specific transaction recorded in a T-account.
02

Determine Journal for Transaction (d)

Transaction (d) involves an entry of 12,410 in Accounts Receivable, suggesting this is a sale made on credit. Therefore, this transaction would be recorded in the revenue journal.
03

Analyze and Journalize Transaction (e)

Transaction (e) shows an entry of 10,500, which might pertain to a purchase or payment reducing accounts payable. This transaction is likely recorded in the general journal if it involves an adjustment to prepaid rent.
04

Determine Journal for Payment (f)

Transaction (f) deals with an amount of 7,600 in Accounts Payable, indicating a payment to a supplier. This transaction would typically be found in the cash payments journal.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Revenue Journal
A revenue journal is a specialized accounting tool used to record all sales transactions made on credit. When a business, like TechSolve Consulting Company, sells goods or services on credit, the revenue journal is utilized to document these transactions. This ensures accurate tracking of credit sales and effectively manages future cash flows.

Characteristics of a revenue journal include:
  • It focuses exclusively on credit sales, separating them from cash transactions.
  • It often includes columns for date, customer names, invoice numbers, and the amount of credit sales.
  • It helps in maintaining specialized records that are easy to reference for future credits or collections.
In the context of the original exercise, transaction (d) of 12,410 entered in the Accounts Receivable account indicates a credit sale recorded in the revenue journal. By keeping these entries separate, businesses can streamline the monitoring process of payments due from their customers, ensuring efficient credit control.
Cash Payments Journal
The cash payments journal is designed to record all cash disbursements made by a business. This includes payments made to suppliers, utility payments, and any other cash outflow. By maintaining a dedicated journal for cash payments, companies can effectively manage and monitor their cash flow.

Key features of a cash payments journal include:
  • It records only cash payments, distinguishing them from other types of payments like credit or electronic transfers.
  • It typically contains columns for details such as the date of payment, payee, check number, and the amount.
  • This journal aids in tracking outflows, ensuring funds are available for necessary business operations.
In the stated exercise, transaction (f) with an amount of 7,600 in Accounts Payable suggests a payment made to a supplier. This is a clear case for entry into the cash payments journal. Such entries help maintain a clear record of all cash spent, assisting in budget preparation and financial management.
Accounts Receivable
Accounts receivable represent the money owed to a business from its customers for goods and services sold on credit. It's recorded as an asset on a company's balance sheet, reflecting future cash inflows.

Key aspects of accounts receivable include:
  • They arise when a sale is made, and the customer promises to pay in the future.
  • It is crucial for maintaining healthy cash flows and for evaluating the liquidity of a business.
  • Timely and efficient collection processes are necessary to avoid cash flow issues and ensure that funds are reinvested into operations.
In the context of the exercise, transaction (d) posts a value to Accounts Receivable, indicating credit sales that were first noted in the revenue journal. This connection underscores the importance of clear record-keeping practices, as it impacts both the financial statements and operational cash management efforts. Maintaining accurate accounts receivable records helps businesses predict future earnings and identify potential risks related to overdue payments.

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Most popular questions from this chapter

Transactions related to purchases and cash payments completed by Safety Clean Inc. during the month of May 2007 are as follows: May 1. Issued Check No. 57 to Liquid Klean Supplies, Inc., in payment of account, \(\$ 145 .\) 3\. Purchased cleaning supplies on account from Industrial Products, Inc., \(\$ 85\). 8\. Issued Check No. 58 to purchase equipment from Hamilton Equipment Sales, \$450. 12\. Purchased cleaning supplies on account from Carver Paper Products, Inc., \(\$ 205 .\) 15\. Issued Check No. 59 to Fountain Laundry Service in payment of account, \(\$ 115 .\) 17\. Purchased supplies on account from Liquid Klean Supplies, \(\$ 170\). 20\. Purchased laundry services from Fountain Laundry Service on account, \(\$ 70\). (continued) May 25. Issued Check No. 60 to Industrial Products, Inc. in payment of May 3rd invoice. 31\. Issued Check No. 61 in payment of salaries, \(\$ 2,900\). Prepare a purchases journal and a cash payments journal to record these transactions. The forms of the journals are similar to those illustrated in the text. Place a check mark \((\boldsymbol{\Omega})\) in the Post. Ref. Column, as appropriate. Safety Clean uses the following accounts: \(\begin{array}{ll}\text { Equipment } & 18 \\ \text { Salary Expense } & 51 \\\ \text { Laundry Service Expense } & 53\end{array}\)

Event Sound Co. discovered a fraud whereby one of its front office administrative employees used company funds to purchase goods, such as computers, digital cameras, compact disk players, and other electronic items for her own use. The fraud was discovered when employees noticed an increase in delivery frequency from vendors and the use of unusual vendors. After some investigation, it was discovered that the employee would alter the description or change the quantity on an invoice in order to explain the cost on the bill. 1 What general internal control weaknesses contributed to this fraud?

Elegance by Elaine is a retail store specializing in women's clothing. The store has established a liberal return policy for the holiday season in order to encourage gift purchases. Any item purchased during November and December may be returned through January 31 , with a receipt, for cash or exchange. If the customer does not have a receipt, cash will still be refunded for any item under \(\$ 50\). If the item is more than \(\$ 50\), a check is mailed to the customer. Whenever an item is returned, a store clerk completes a return slip, which the customer signs. The return slip is placed in a special box. The store manager visits the return counter approximately once every two hours to authorize the return slips. Clerks are instructed to place the returned merchandise on the proper rack on the selling floor as soon as possible. This year, returns at Elegance by Elaine have reached an all-time high. There are a large number of returns under \(\$ 50\) without receipts. a. 1 How can sales clerks employed at Elegance by Elaine use the store's return policy to steal money from the cash register? b. 1. What internal control weaknesses do you see in the return policy that make cash thefts easier? 2\. Would issuing a store credit in place of a cash refund for all merchandise returned without a receipt reduce the possibility of theft? List some advantages and disadvantages of issuing a store credit in place of a cash refund. 3\. Assume that Elegance by Elaine is committed to the current policy of issuing cash refunds without a receipt. What changes could be made in the store's procedures regarding customer refunds in order to improve internal control?

Chen Consulting Services, Inc. was established on June 15,2006 . The clients for whom Chen provided consulting services during the remainder of June are listed below. These clients pay Chen the amount indicated plus a \(5 \%\) sales tax. June 16. A. Sommerfeld on account, Invoice No. \(1, \$ 300\) plus tax. 19\. K. Lee, Invoice No. \(2, \$ 120\) plus tax. 21\. J. Koss, Invoice No. \(3, \$ 80\) plus tax. 22\. D. Jeffries, Invoice No. \(4, \$ 120\) plus tax. 24\. \(\mathrm{K}\). Sallinger, in exchange for office supplies having a value of \(\$ 160\), plus tax. 26\. J. Koss, Invoice No. \(5, \$ 260\) plus tax. 28\. K. Lee, Invoice No. \(6, \$ 60\) plus tax. a. Journalize the transactions for June, using a three-column revenue journal and a two-column general journal. Post the customer accounts in the accounts receivable subsidiary ledger and insert the balance immediately after recording each entry. b. Post the general journal and the revenue journal to the following general ledger accounts, inserting account balances only after the last postings: \(\begin{array}{ll}12 & \text { Accounts Receivable } \\ 14 & \text { Office Supplies } \\ 22 & \text { Sales Tax Payable } \\ 41 & \text { Fees Earned }\end{array}\) c. 1. What is the sum of the balances in the accounts receivable subsidiary ledger at June \(30 ?\) 2\. What is the balance of the controlling account at June 30 ?

Barbara Holmes has recently been hired as the manager of Fresh Start Coffee. Fresh Start Coffee is a national chain of franchised coffee shops. During her first month as store manager, Barbara encountered the following internal control situations: a. Fresh Start Coffee has one cash register. Prior to Barbara's joining the coffee shop, each employee working on a shift would take a customer order, accept payment, and then prepare the order. Barbara made one employee on each shift responsible for taking orders and accepting the customer's payment. Other employees prepare the orders. b. Since only one employee uses the cash register, that employee is responsible for counting the cash at the end of the shift and verifying that the cash in the drawer matches the amount of cash sales recorded by the cash register. Barbara expects each cashier to balance the drawer to the penny every time-no exceptions. c. Barbara caught an employee putting a box of 100 single-serving tea bags in his car. Not wanting to create a scene, Barbara smiled and said, "I don't think you're putting those tea bags on the right shelf. Don't they belong inside the coffee shop?" The employee returned the tea bags to the stockroom. State whether you agree or disagree with Barbara's method of handling each situation and explain your answer.
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