7.7: Practice Questions

Multiple Choice

1.

LO 7.1So far, computer systems cannot yet ________.

1. receive data and instructions from input devices such as a scanner.
2. decide how to record a business transaction.
3. communicate with other computers electronically.
4. recognize that you made a mistake entering $100 when you meant to enter $101.

2.

LO 7.1Any device used to provide the results of processing data is a(n) ________ device.

1. sources
2. input
3. output
4. storage

3.

LO 7.1Source documents ________.

1. are input devices
2. are output devices
3. do not have to be on paper
4. cannot be electronic files

4.

LO 7.1All of the following can provide source data except ________.

1. a scanning device at the grocery store
2. a utility bill received in the mail
3. a bar code reader
4. software to process the source data

5.

LO 7.1A document that asks you to return an identifying part of it with your payment is a(n) ________.

1. source document
2. cloud document
3. point-of-sale document
4. turn-around document

6.

LO 7.1Which of the following is false about accounting information systems?

1. They provide reports that people analyze.
2. They prevent errors and stop employees from stealing inventory.
3. They are designed to gather data about the company’s transactions.
4. They consist of processes that involve input of data from source documents, processing, output, and storage.

7.

LO 7.2An unhappy customer just returned $50 of the items he purchased yesterday when he charged the goods to the company’s store credit card. Which special journal would the company use to record this transaction?

1. sales journal
2. purchases journal
3. cash receipts journal
4. cash disbursements journal
5. general journal

8.

LO 7.2A customer just charged $150 of merchandise on the company’s own charge card. Which special journal would the company use to record this transaction?

1. sales journal
2. purchases journal
3. cash receipts journal
4. cash disbursements journal
5. general journal

9.

LO 7.2A customer just charged $150 of merchandise using MasterCard. Which special journal would the company use to record this transaction?

1. sales journal
2. purchases journal
3. cash receipts journal
4. cash disbursements journal
5. general journal

10.

LO 7.2The company just took a physical count of inventory and found $75 worth of inventory was unaccounted for. It was either stolen or damaged. Which journal would the company use to record the correction of the error in inventory?

1. sales journal
2. purchases journal
3. cash receipts journal
4. cash disbursements journal
5. general journal

11.

LO 7.2Your company paid rent of $1,000 for the month with check number 1245. Which journal would the company use to record this?

1. sales journal
2. purchases journal
3. cash receipts journal
4. cash disbursements journal
5. general journal

12.

LO 7.2On January 1, Incredible Infants sold goods to Babies Inc. for $1,540, terms 30 days, and received payment on January 18. Which journal would the company use to record this transaction on the 18th?

1. sales journal
2. purchases journal
3. cash receipts journal
4. cash disbursements journal
5. general journal

13.

LO 7.2Received a check for $72 from a customer, Mr. White. Mr. White owed you $124. Which journal would the company use to record this transaction?

1. sales journal
2. purchases journal
3. cash receipts journal
4. cash disbursements journal
5. general journal

14.

LO 7.2You returned damaged goods you had previously purchased from C.C. Rogers Inc. and received a credit memo for $250. Which journal would your company use to record this transaction?

1. sales journal
2. purchases journal
3. cash receipts journal
4. cash disbursements journal
5. general journal

15.

LO 7.2Sold goods for $650 cash. Which journal would the company use to record this transaction?

1. sales journal
2. purchases journal
3. cash receipts journal
4. cash disbursements journal
5. general journal

16.

LO 7.2Sandren & Co. purchased inventory on credit from Acto Supply Co. for $4,000. Sandren & Co. would record this transaction in the ________.

1. general journal
2. cash receipts journal
3. cash disbursements journal
4. purchases journal
5. sales journal

17.

LO 7.3Sold goods for $650, credit terms net 30 days. Which journal would the company use to record this transaction?

1. sales journal
2. purchases journal
3. cash receipts journal
4. cash disbursements journal
5. general journal

18.

LO 7.3You returned damaged goods to C.C. Rogers Inc. and received a credit memo for $250. Which journal(s) would the company use to record this transaction?

1. sales journal only
2. purchases journal and the accounts payable subsidiary ledger
3. cash receipts journal and the accounts receivable subsidiary ledger
4. cash disbursements journal and the accounts payable subsidiary ledger
5. general journal and the accounts payable subsidiary ledger

19.

LO 7.3The sum of all the accounts in the accounts receivable subsidiary ledger should ________.

1. equal the accounts receivable account balance in the general ledger before posting any amounts
2. equal the accounts payable account balance in the general ledger before posting any amounts
3. equal the accounts receivable account balance in the general ledger after posting all amounts
4. equal the cash account balance in the general ledger after posting all amounts

20.

LO 7.3AB Inc. purchased inventory on account from YZ Inc. The amount was $500. AB Inc. uses an accounting information system with special journals. Which special journal would the company use to record this transaction?

1. sales journal
2. purchases journal
3. cash receipts journal
4. cash disbursements journal
5. general journal

21.

LO 7.3You just posted a debit to ABC Co. in the accounts receivable subsidiary ledger. Which special journal did it come from?

1. sales journal
2. cash receipts journal
3. purchases journal
4. cash disbursements journal
5. general journal

22.

LO 7.3You just posted a credit to Stars Inc. in the accounts receivable subsidiary ledger. Which special journal did it come from?

1. sales journal
2. cash receipts journal
3. purchases journal
4. cash disbursements journal
5. general journal

23.

LO 7.3You just posted a debit to Cash in the general ledger. Which special journal did it come from?

1. sales journal
2. cash receipts journal
3. purchases journal
4. cash disbursements journal
5. general journal

24.

LO 7.3You just posted a credit to Accounts Receivable. Which special journal did it come from?

1. sales journal
2. cash receipts journal
3. purchases journal
4. cash disbursements journal
5. general journal

25.

LO 7.3You just posted a credit to Sales and a debit to Cash. Which special journal did it come from?

1. sales journal
2. cash receipts journal
3. purchases journal
4. cash disbursements journal
5. general journal

26.

LO 7.5An enterprise resource planning (ERP) system ________.

1. is software to help you prepare your tax return
2. requires that you pay ransom before you can operate it
3. is a large, company-wide integrated accounting information system that connects all of a company’s applications
4. is part of the darknet

27.

LO 7.5Which of the following is not a way to prevent your computer from being attacked by ransomware?

1. making sure your antivirus security programs are up to date
2. opening all attachments from emails from unknown senders
3. using secure (password protected) networks and backing up your files regularly
4. not using open Wi-Fi (nonpassword, nonencrypted) in public locations

28.

LO 7.5Big data is mined ________.

1. to find business trends
2. to record transactions
3. as an alternative to creating an accounting information system
4. as an alternative to the darknet

29.

LO 7.5Artificial intelligence refers to ________.

1. tutorials that can make humans smarter than they naturally are
2. programming computers to mimic human reasoning and perform tasks previously performed by humans
3. humans that do not possess reasonably high IQs
4. a concept that exists only in science fiction but has not yet been achieved today

30.

LO 7.5Blockchain is a technology that ________.

1. is in the early stages of being developed
2. was a failed attempt to change the way we do business
3. refers to an application developed strictly for the real estate business
4. involves the use of a single shared ledger between the many parties that may be involved in a transaction.

31.

LO 7.5Which of the following is not true about cybercurrency?

1. Bitcoin is one of several cybercurrencies.
2. It is an alternate currency that does not go through the banking system.
3. It does not involve the actual exchange of physical currency.
4. It is not accepted by any legitimate businesses.

Questions

1.

LO 7.1Why does a student need to understand how to use a manual, paper-based accounting information system since everyone uses computerized systems?

2.

LO 7.1Provide an example of how paper-based accounting information systems are different from computerized systems.

3.

LO 7.1Why are scanners better than keyboards?

4.

LO 7.1Why are there so many different accounting information system software packages?

5.

LO 7.1Which area of accounting needs a computerized accounting information system the most—payroll, tax, or preparing financial statements?

6.

LO 7.1The American Institute of Certified Public Accountants (AICPA) has stated that accountants will need to have an even better understanding of computer systems in the future. Why do you think computer skills will be more important?

7.

LO 7.4Which special journals also require an entry to a subsidiary ledger?

8.

LO 7.4What is a schedule of accounts receivable?

9.

LO 7.4How often do we post the cash column in the cash receipts journal to the subsidiary ledger?

10.

LO 7.4The schedule of accounts payable should equal what?

11.

LO 7.4Which amounts do we post daily and which do we post monthly?

12.

LO 7.4Why are special journals used?

13.

LO 7.4Name the four main special journals.

14.

LO 7.4A journal entry that requires a debit to Accounts Receivable and a credit to Sales goes in which special journal?

15.

LO 7.4The purchase of equipment for cash would be recorded in which special journal?

16.

LO 7.4Can a sales journal be used to record sales on account and a cash sale? Why or why not?

17.

LO 7.4When should entries from the sales journal be posted?

18.

LO 7.4We record a sale on account that involves sales tax in which journal?

19.

LO 7.4We record purchases of inventory for cash in which journal(s)?

20.

LO 7.4Should the purchases journal have a column that is a debit to Accounts Payable?

21.

LO 7.5Forensic means “suitable for use in a court of law.” How does that have anything to do with accounting?

Exercise Set A

EA1.

LO 7.1For each of the following, indicate if the statement reflects an input component, output component, or storage component of an accounting information system.

1. A credit card scanner at a grocery store.
2. A purchase order for 1,000 bottles of windshield washing fluid to be used as inventory by an auto parts store.
3. A report of patients who missed appointments at a doctor’s office.
4. A list of the day’s cash and credit sales.
5. Electronic files containing a list of current customers.

EA2.

LO 7.1All of the following information pertains to Green’s Grocery. Match each of the following parts of Green’s accounting information system in the left-hand column with the appropriate item(s) from the right-hand column. You may use items in the right-hand column more than once or not at all. There may be several answers for each item in the left-hand column.

A. Source document	i. Check written for office supplies
B. Output device	ii. Invoice from a supplier of inventory
C. Input device	iii. Payroll check
D. Data and information storage	iv. Time card
E. Information processing	v. Computer software
	vi. Keyboard
	vii. Grocery store bar code scanner
	viii. Printer
	ix. Flash drive
	x. Hard drive
	xi. The cloud
	xii. Computer screen

EA3.

LO 7.2Match the special journal you would use to record the following transactions. Select from the following:

A. cash receipts journal	i. Sold inventory for cash
B. cash disbursements journal	ii. Sold inventory on account
C. sales journal	iii. Received cash a week after selling items on credit
D. purchases journal	iv. Paid cash to purchase inventory
E. general journal	v. Paid a cash dividend to shareholders
	vi. Sold shares of stock for cash
	vii. Bought equipment for cash
	viii. Recorded an adjusting entry for supplies
	ix. Paid for a purchase of inventory on account within the discount period
	x. Paid for a purchase of inventory on account after the discount period has passed

EA4.

LO 7.2For each of the transactions, state which special journal (sales journal, cash receipts journal, cash disbursements journal, purchases journal, or general journal) and which subsidiary ledger (Accounts Receivable, Accounts Payable, or neither) would be used in recording the transaction.

1. Paid utility bill
2. Sold inventory on account
3. Received but did not pay phone bill
4. Bought inventory on account
5. Borrowed money from a bank
6. Sold old office furniture for cash
7. Recorded depreciation
8. Accrued payroll at the end of the accounting period
9. Sold inventory for cash
10. Paid interest on bank loan

EA5.

LO 7.3Catherine’s Cookies has a beginning balance in the Accounts Payable control total account of $8,200. In the cash disbursements journal, the Accounts Payable column has total debits of $6,800 for November. The Accounts Payable credit column in the purchases journal reveals a total of $10,500 for the current month. Based on this information, what is the ending balance in the Accounts Payable account in the general ledger?

EA6.

LO 7.3Record the following transactions in the sales journal:

Jan. 15	Invoice # 325, sold goods on credit for $2,400, to Maroon 4, account # 4501
Jan. 22	Invoice #326, sold goods on credit for $3,500 to BTS, account # 5032
Jan. 27	Invoice #327, sold goods on credit for $1,250 to Imagine Fireflies, account # 3896

EA7.

LO 7.3Record the following transactions in the cash receipts journal.

Jun. 12	Your company received payment in full from Jolie Inc. in the amount of $1,225 for merchandise purchased on June 4 for $1,250, invoice number #1032. Jolie Inc. was offered terms of 2/10, n/30. Record the payment.
Jun. 15	Portman Inc. mailed you a check for $2500. The company paid for invoice #1027, dated June 1, in the amount of $2,500, terms offered 3/10, n/30.
Jun. 17	Your company received a refund check (its check #12440) from the State Power Company because you overpaid your electric bill. The check was in the amount of $72. The Utility Expense account number is #450. Record receipt of the refund.

EA8.

LO 7.4Maddie Inc. has the following transactions for its first month of business.

May 1	Credit sale to Green Lantern Inc. for $1,999
May 2	Credit sale to Wonder Woman Inc. for $2,000
May 3	Credit sale to Flash Inc. for $3,050
May 4	Received $1,000 on account from Green Lantern Inc.
May 5	Credit sale to Black Panther Inc. for $1,875
May 6	Received the full amount from Flash Inc.

1. What are the individual account balances, and the total balance, in the accounts receivable subsidiary ledger?
2. What is the balance in the accounts receivable general ledger (control) account?

Exercise Set B

EB1.

LO 7.1For each of the following, indicate if the statement reflects an input component, output component, or storage component of the accounting information system for a bank.

1. Online customer check ordering system.
2. Approved loan applications.
3. Report of customers with savings accounts over $5,000.
4. Desktop hard drive on computer used by bank president’s administrative assistant.
5. List of the amount of money withdrawn from all of the bank’s ATMs on a given day.

EB2.

LO 7.1The following information pertains to Crossroads Consulting, Inc. Match each of the following parts of Crossroad’s accounting information system in the left-hand column with the appropriate item(s) from the right-hand column. You may use items in the right-hand column more than once or not at all. There may be several answers for each item in the left-hand column. You may choose items in the right-hand column more than once.

A. Source document	i. Sales invoice from cleaning company
B. Output device	ii. Printed check to be mailed to phone company
C. Input device	iii. Dropbox (online storage)
D. Data and information storage	iv. Voice-to-text software
E. Information processing	v. QuickBooks Accounting Software
	vi. Keyboard
	vii. Printer
	viii. Bar code scanner
	ix. Computer screen
	x. Flash drive
	xi. Text scanner
	xii. Computing interest on a loan

EB3.

LO 7.2Match the special journal you would use to record the following transactions.

A. Cash Receipts Journal	i. Took out a loan from the bank
B. Cash Disbursements Journal	ii. Paid employee wages
C. Sales Journal	iii. Paid income taxes
D. Purchases Journal	iv. Sold goods with credit terms 1/10, 2/30, n/60
E. General Journal	v. Purchased inventory with credit terms n/90
	vi. Sold inventory for cash
	vii. Paid the phone bill
	viii. Purchased stock for cash
	ix. Recorded depreciation on the factory equipment
	x. Returned defective goods purchased on credit to the supplier. The company had not yet paid for them.

EB4.

LO 7.2For each of the following transactions, state which special journal (Sales Journal, Cash Receipts Journal, Cash Disbursements Journal, Purchases Journal, or General Journal) and which subsidiary ledger (Accounts Receivable, Accounts Payable, neither) would be used in recording the transaction.

1. Sold inventory for cash
2. Issued common stock for cash
3. Received and paid utility bill
4. Bought office equipment on account
5. Accrued interest on a loan at the end of the accounting period
6. Paid a loan payment
7. Bought inventory on account
8. Paid employees
9. Sold inventory on account
10. Paid monthly insurance bill

EB5.

LO 7.3Catherine’s Cookies has a beginning balance in the Accounts Receivable control total account of $8,200. $15,700 was credited to Accounts Receivable during the month. In the sales journal, the Accounts Receivable debit column shows a total of $12,000. What is the ending balance of the Accounts Receivable account in the general ledger?

EB6.

LO 7.3Record the following transactions in the purchases journal:

Feb. 2	Purchased inventory on account from Pinetop Inc. (vendor account number 3765), Purchase Order (PO) # 12345 in the amount of $3,456.
Feb. 8	Purchased inventory on account from Sherwood Company (vendor account number 5461), PO# 12346, in the amount of $2,951.
Feb. 12	Purchased inventory on account from Green Valley Inc. (vendor #4653), PO# 12347, in the amount of $4,631.

EB7.

LO 7.3Record the following transactions in the cash disbursements journal:

Mar. 1	Paid Duke Mfg (account number D101) $980 for inventory purchased on Feb. 27 for $1,000. Duke Mfg offered terms of 2/10, n/30, and you paid within the discount period using check #4012.
Mar. 3	Paid Emergency Plumbing $450. They just came to fix the leak in the coffee room. Give them account number E143. Use check #4013 and debit the Repairs and Maintenance account, #655.
Mar. 5	Used check #4014 to pay Wake Mfg (account number W210) $1,684 for inventory purchased on Feb. 25, no terms offered.

EB8.

LO 7.4Piedmont Inc. has the following transactions for its first month of business:

Jun. 1	Purchased inventory from Montana Inc. on credit for $4,500
Jun. 2	Purchased inventory from Payton Inc. on credit for $2,400
Jun. 3	Purchased inventory from Montana Inc. on credit for $1,800
Jun. 4	Paid $2,000 on account to Montana Inc.
Jun. 8	Purchased inventory on credit from Taylor Inc. for $2,000
Jun. 9	Paid Payton

1. What are the individual account balances, and the total balance, in the accounts payable subsidiary ledger?
2. What is the balance in the Accounts Payable general ledger account?

Problem Set A

PA1.

LO 7.2On June 30, Oscar Inc.’s bookkeeper is preparing to close the books for the month. The accounts receivable control total shows a balance of $2,820.76, but the accounts receivable subsidiary ledger shows total account balances of $2,220.76. The accounts receivable subsidiary ledger is shown here. Can you help find the mistake?

PA2.

LO 7.4Evie Inc. has the following transactions during its first month of business. Journalize the transactions that go in the sales journal.

Jun. 1	Credit sale (invoice #1) to Green Lantern Inc. (acc #101) for $1,999
Jun. 2	Credit sale (invoice #2) to Wonder Woman Inc. (acc #102) for $2,000
Jun. 3	Credit sale to Flash Inc. (invoice #3) (acc #103) for $3,050
Jun. 4	Received $1,000 on account from Green Lantern Inc.
Jun. 5	Credit sale (invoice #4) to Black Panther Inc. (acc #104) for $1,875
Jun. 6	Received the full amount from Flash Inc.

PA3.

LO 7.4The following transactions occurred for Donaldson Inc. during the month of July.

Jul. 1	Sold 50 items to Palm Springs Inc. and offered terms of 2/10, n/30, $4,000 on July 1, and issued invoice #12 on account number #312
Jul. 5	Sold 20 thing-a-jigs to Miami Inc. for $2,150 cash on July 5, and issued invoice #13
Jul. 8	Sold 30 what-is to Smith Mfg. for $5,000 and offered terms of 2/10, n/30; issued invoice #14 on account number #178
Jul. 9	Received payment from Palm Springs Inc.
Jul. 22	Received payment from Smith Mfg. after expiration of the discount period

1. Record the transactions for Donaldson Inc. in the proper special journal and subsidiary ledger.
2. Record the same transactions using QuickBooks, and print the journals and subsidiary ledger. They should match.

PA4.

LO 7.4Use the journals and ledgers that follow. Total the journals. Post the transactions to the subsidiary ledger and (using T-accounts) to the general ledger accounts. Then prepare a schedule of accounts receivable.

PA5.

LO 7.4Brown Inc. records purchases in a purchases journal and purchase returns in the general journal. Record the following transactions using a purchases journal, a general journal, and an accounts payable subsidiary ledger. The company uses the periodic method of accounting for inventory.

Oct. 1	Purchased inventory on account from Price Inc. for $2,000
Oct. 1	Purchased inventory on account from Cabrera Inc. for $3,000
Oct. 8	Returned half of the inventory to Price Inc.
Oct. 9	Purchased inventory on account from Price Inc. for $4,200

Problem Set B

PB1.

LO 7.2On June 30, Isner Inc.’s bookkeeper is preparing to close the books for the month. The accounts receivable control total shows a balance of $550, but the accounts receivable subsidiary ledger shows total account balances of $850. The accounts receivable subsidiary ledger is shown here. Can you help find the mistake?

PB2.

LO 7.4Piedmont Inc. has the following transactions for the month of July.

Jul. 1	Sold merchandise for $4,000 to Pinetop Inc. (account number PT152) and offered terms of 1/10, n/30, on July 1, invoice # 1101
Jul. 5	Sold merchandise to Sherwood Inc. (account number SH 224), Invoice # 1102 for $2,450 cash on July 5
Jul. 9	Sold merchandise, invoice #1103, to Cardinal Inc. (account number CA 118) for $5,000, and offered terms of 3/10, n/30
Jul. 9	Received payment from Pinetop Inc.
Jul. 22	Received payment from Cardinal Inc. after expiration of the discount period
Jul. 30	Received a refund check in the amount of $120 from the insurance company (credit Insurance Expense, account number 504)

1. Record the transactions for Piedmont Inc. in the proper special journal, and post them to the subsidiary ledger and general ledger account.
2. Record the same transactions using QuickBooks, and print the special journals and subsidiary and general ledger. Your solution done manually should match your solution using QuickBooks.

PB3.

LO 7.4Use the journals and ledgers that follow. Total and rule (draw a line under the column of numbers) the journals. Post the transactions to the subsidiary ledger and (using T-accounts) to the general ledger accounts. Then prepare a schedule of Accounts Payable.

PB4.

LO 7.4Comprehensive Problem: Manual Accounting Information System versus QuickBooks

The following problem is a comprehensive problem requiring you to complete all of the steps in the accounting cycle, first manually and then by entering the same transactions and performing the same steps using QuickBooks. This will demonstrate the important point that a manual accounting information system (AIS) and a computerized AIS both allow the user to perform the same steps in the accounting cycle, but they are done differently.

In a manual system, every step must be performed by the user. In contrast to this, in a computerized system, for each transaction, the user determines the type of transaction it is and enters it in the appropriate data entry screen. The computer then automatically places the transactions in transaction files (the equivalent of journals in a manual system). The user then instructs the system to post the transaction to the subsidiary ledger and at the end of the month to the general ledger. The computer can do the posting automatically.

Other steps done automatically by the computer are preparing a trial balance, closing entries, and generating financial statements. The user would have to provide the computer with information about adjusting entries at the end of the period. Some adjusting entries can be set up to be done automatically every month, but not all. When we say the computer can do a specific step “automatically,” this presumes that a programmer wrote the programs (i.e., detailed step-by-step instructions in a computer language) that tell the computer how to do the task. The computer can then follow those instructions and do it “automatically” without human intervention.

Problem

Assume there is a small shoe store in your neighborhood with a single owner. The owner started the business on December 1, 2018, and sells two types of shoes: a comfortable sneaker that is something athletes would purchase, and a comfortable dress shoe that looks dressy but has the comfort of a sneaker. The name of the business is The Shoe Horn. Complete tasks A and B that follow, using the detailed instructions for each. Following is a list of all transactions that occurred during December 2018.

a.	Dec. 1	Jack Simmons, the owner contributed a $500,000 check from his personal account, which he deposited into an account opened in the name of the business, to start the business.
b.	Dec. 1	He rented space that had previously been used by a shoe store and wrote check no. 100 for $9,000 for the first six month’s rent.
c.	Dec. 2	He paid for installation and phone usage $300 (check no. 101)
d.	Dec. 2	He paid for advertising in the local paper $150 (check no. 102). The ads will all run in December.
e.	Dec. 2	He purchased $500 of office supplies (check no. 103)
f.	Dec. 3	He paid $300 for insurance for three months (December 2018, January and February 2019 using check no, 104).
g.	Dec. 4	He purchased 800 pairs of sneakers at $40 a pair– on account from Nike (using purchase order no. 301). Payment terms were 2/10, net 30. Assume the shoe store uses the perpetual inventory system.
h.	Dec. 5	He purchased 500 pairs of dress shoes from Footwear Corp. on account for $20 a pair (using purchase order no. 302). Payment terms were 2/10, net 30
i.	Dec. 10	He made a sale on account of 20 pairs of sneakers at $100 a pair, to a local University – Highland University (sales invoice number 2000) for their basketball team. Payment terms were 2/10 net 30.
j.	Dec. 11	He made a sale on account of 2 pairs of dress shoes at $50 a pair (sales invoice no. 2001) to a local charity, U.S. Veterans, that intended to raffle them off at one of their events.
k.	Dec. 12	He made a sale on account to The Jenson Group of 300 pairs of dress shoes at $50 a pair, to use as part of an employee uniform. Payment terms were 2/10 net 30.
l.	Dec. 14	He made a cash sale for 2 sneakers at $120 each and 1 pair of shoes for $60.
m.	Dec. 14	He paid the amount owed to Footwear Corp (check no 105)
n.	Dec. 17	Highland University returned 2 pairs of sneakers they had previously purchased on account.
o.	Dec. 18	He received a check from Highland University in full payment of their balance.
p.	Dec. 20	He made a cash sale to Charles Wilson of three pairs of sneakers at $120 each and 1 pair of dress shoes at $60.
q.	Dec. 20	He made a partial payment to Nike for $20,000 (check number 106)
r.	Dec. 23	Received a $400 utility bill which will be paid in January.
s.	Dec. 27	Received a check from The Jenson Group in the amount of $9,000.
t.	Dec. 28	He paid $2,000 of his balance to Nike (check number 107)

1. Enter all of the transactions and complete all of the steps in the accounting cycle assuming a manual system. Follow the steps to be performed using a manual system.
2. Enter the transactions into QuickBooks, complete all of the steps in the accounting cycle, and generate the same reports (journals trial balances, ledgers, financial statements). Follow the steps to be performed using a manual system. Follow the steps to be performed using QuickBooks.

Steps to be performed using a manual system

1. For each of the transactions listed for the month of December 2018, identify the journal to which the entry should be recorded. Your possible choices are as follows: general journal (GJ), cash receipts journal (CR), cash disbursements journal (CD), sales journal (SJ), or purchases journal (PJ). Templates for the journals and ledgers have been provided.
2. Enter each transaction in the appropriate journal using the format provided.
   
3. Open up Accounts Receivable subsidiary ledger accounts for customers and Accounts Payable subsidiary ledger accounts for vendors using the format provided. Post each entry to the appropriate subsidiary ledger on the date the transaction occurred.
   
4. Total the four special journals, and post from all of them to the general ledger on the last day of December. You should open ledger accounts for the following accounts:
   • Cash
   • Accounts Receivable
   • Merchandise Inventory
   • Prepaid Insurance
   • Prepaid Rent
   • Office Supplies
   • Accounts Payable
   • Purchases Discounts
   • Utilities Expense Payable
   • Jack Simmons, Capital
   • Sales
   • Sales Returns and Allowances
   • Sales Discounts
   • Cost of Goods Sold
   • Rent Expense
   • Advertising Expense
   • Telephone Expense
   • Utilities Expense
   • Office Supplies Expense
   • Insurance Expense
   
5. Compute balances for each general ledger account and for each Accounts Receivable and Accounts Payable subsidiary ledger account.
6. Prepare a trial balance.
7. Prepare an accounts receivable schedule and an accounts payable schedule.
8. Prepare adjusting journal entries based on the following information given, record the entries in the appropriate journal, and post the entries.
   • There were $100 worth of office supplies remaining at the end of December.
   • Make an adjusting entry relative to insurance.
   • There was an additional bill received in the mail for utilities expense for the month of December in the amount of $100 that is due by January 10, 2019. Jack Simmons intends to pay it in January.
   
9. Prepare an adjusted trial balance
10. Prepare closing journal entries, record them in the general journal, and post them.
    
11. Prepare an Income statement, Statement of Owner’s Equity, and Balance Sheet.

Steps to be performed using QuickBooks. You can access a trial version of QuickBooks(https://quickbooks.intuit.com/pricing/) to work through this problem.

1. Set up a new company called The Shoe Horn using easy step interview.
2. You will be adding a bank account, customizing preferences, adding customers, adding vendors, adding products, and customizing the chart of accounts. You will not need to enter opening adjustments since you are entering transactions for a new company, so there are no opening balances. QuickBooks should automatically create a chart of accounts, but you can customize it, and you will need to enter information for a customer list, vendor list, and (inventory) items list.
3. Use “QB transactions” to enter each of the following transactions for the month of December 2018. You can use Onscreen Journal to enter transactions into the general journal, and Onscreen Forms to enter transactions that will end up in the special journals. Identify the type of transaction it is: a sale, a purchase, a receipt of cash, or a payment by check. The categories QuickBooks uses are banking and credit card, customers and sales, vendors and expenses, employees and payroll (not needed in this problem), and other. Note: there is no need to identify the journal as in a manual system or to enter a journal entry, because in an AIS like QuickBooks, you enter the transaction information, and behind the scenes, QuickBooks creates a journal entry that gets added to a transaction file (the equivalent of a journal). After the transactions for the month have been entered, you can print out each of the five journals.
4. Enter the following transactions using the appropriate data entry screens based on the type of transaction it is, as identified in step 3.

   a.	Dec. 1	Jack Simmons, the owner contributed a $500,000 check from his personal account, which he deposited into an account opened in the name of the business, to start the business.
   b.	Dec. 1	He rented space that had previously been used by a shoe store and wrote check no. 100 for $9,000 for the first six month’s rent.
   c.	Dec. 2	He paid for installation and phone usage $300 (check no. 101)
   d.	Dec. 2	He paid for advertising in the local paper $150 (check no. 102). The ads will all run in December.
   e.	Dec. 2	He purchased $500 of office supplies (check no. 103)
   f.	Dec. 3	He paid $300 for insurance for three months (December 2018, January and February 2019 using check no, 104).
   g.	Dec. 4	He purchased 800 pairs of sneakers at $40 a pair– on account from Nike (using purchase order no. 301). Payment terms were 2/10, net 30. Assume the shoe store uses the perpetual inventory system.
   h.	Dec. 5	He purchased 500 pairs of dress shoes from Footwear Corp. on account for $20 a pair (using purchase order no. 302). Payment terms were 2/10, net 30
   i.	Dec. 10	He made a sale on account of 20 pairs of sneakers at $100 a pair, to a local University – Highland University (sales invoice number 2000) for their basketball team. Payment terms were 2/10 net 30.
   j.	Dec. 11	He made a sale on account of 2 pairs of dress shoes at $50 a pair (sales invoice no. 2001) to a local charity, U.S. Veterans, that intended to raffle them off at one of their events.
   k.	Dec. 12	He made a sale on account to The Jenson Group of 300 pairs of dress shoes at $50 a pair, to use as part of an employee uniform. Payment terms were 2/10 net 30.
   l.	Dec. 14	He made a cash sale for 2 sneakers at $120 each and 1 pair of shoes for $60.
   m.	Dec. 14	He paid the amount owed to Footwear Corp (check no 105)
   n.	Dec. 17	Highland University returned 2 pairs of sneakers they had previously purchased on account.
   o.	Dec. 18	He received a check from Highland University in full payment of their balance.
   p.	Dec. 20	He made a cash sale to Charles Wilson of three pairs of sneakers at $120 each and 1 pair of dress shoes at $60.
   q.	Dec. 20	He made a partial payment to Nike for $20,000 (check number 106)
   r.	Dec. 23	Received a $400 utility bill which will be paid in January.
   s.	Dec. 27	Received a check from The Jenson Group in the amount of $9,000.
   t.	Dec. 28	He paid $2,000 of his balance to Nike (check number 107)

5. Generate and print a trial balance. Use QB reports to print this and other reports.
6. Prepare and enter adjusting entries based on the following information given, and print them.
   • There were $100 worth of office supplies remaining at the end of December.
   • Make an adjusting entry relative to insurance
   • There was an additional bill received in the mail for utilities expense for the month of December in the amount of $100 that is due by January 10, 2019. Jack Simmons intends to pay it in January.
7. Generate and print an adjusted trial balance.
8. QuickBooks will automatically prepare closing journal entries.
9. Print the financial statements: the Income Statement (same as Profit and Loss Statement) and the Balance Sheet.
10. Print all of the five journals. After the transactions for the month have been entered, you can print out each of the five journals (general journal, cash receipts journal, cash disbursements journal, sales journal, purchases journal).
11. Print the general ledger and the accounts receivable and accounts payable subsidiary ledgers.
12. Compare the items you printed from QuickBooks to what you have manually prepared. The content should be identical, although the format may be slightly different. Note: while the results are the same, the QuickBooks software did many of the steps for you automatically.

Thought Provokers

TP1.

LO 7.2Why must the Accounts Receivable account in the general ledger match the totals of all the subsidiary Accounts Receivable accounts?

TP2.

LO 7.2Why would a company use a subsidiary ledger for its Accounts Receivable?

TP3.

LO 7.2If a customer owed your company $100 on the first day of the month, then purchased $200 of goods on credit on the fifth and paid you $50 on fifteenth, the customer’s ending balance for the month would show a (debit or credit) of how much?