chapter 5 accounting systems - nacm.org

1. The individual accounts receivable ledger accounts provide business managers with information on the status of individual customer accounts, which is necessary for managing collections. Managersneed to know which customers owe money, how much they owe, and how long the amount owed has been outstanding.

2. The major advantages of the use of special journals are substantial savings in record-keeping expenses and a reduction of record-keeping errors.

3. a. 400b. None

4. a. 400b. 1

5. a. Sometime following the end of the current month, one of two things may happen: (1) an overdue notice will be received from Kelly Co., and/or (2) a letter will be received from Kelley Co., informing the buyer of the overpayment. (It is also possible that the error will be discovered at the time of making payment if the original invoice is inspected at the time the check is being written.)

b. The schedule of accounts payable would not agree with the balance of the accounts payable account. The error might also be discovered at the time the invoice is paid.

c. The creditor will call the attention of the debtor to the unpaid balance of $800.

d. The error will become evident during the verification process at the end of the month. The total debits in the purchases journal will be less than the total credits by $3,600.

6. a. Purchases journal d. Cash payments journalb. Cash payments journal e. Cash payments journalc. Purchases journal

7. An electronic form is a software window that provides the inputs for a particular transaction. For example, a check form provides the inputs (payee, amount, date) for a cash payment transaction. An electronic invoice provides the inputs (customer, amount sold, item sold) for recording revenues earned on account.

8. Transactions are posted when they are entered into the computerized system. Thus, balances areupdated continuously as transactions occur.

9. For automated systems that use electronic forms, the special journals are not used to record original transactions. Rather, electronic forms capture the original transaction detail from an invoice, for example, and automatically post the transaction details to the appropriate ledger accounts.

10. E-commerce can be used by a business to conduct transactions directly with customers. Thus, an order can be received directly from the customer’s Internet input, and cash can be received from the credit card. Many times, the cash is received prior to actually shipping the product, resulting in a faster revenue/collection cycle. Reducing paperwork throughout the cycle also improves the efficiency of the process. For example, all of the accounting transactions can be fed automatically from the initial Internet-based inputs.

CHAPTER 5ACCOUNTING SYSTEMS

DISCUSSION QUESTIONS

5-1© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 5 Accounting Systems

PE 5-1A

Aug. 4 162 Carson Enterprises Co. 25515 163 City Electric Inc. 34025 164 Juniper Co. 185

PE 5-1B

Apr. 6 78 Lemon Co. 1,24011 79 Hitchcock Inc. 2,57019 80 Fletcher Inc. 990

PE 5-2A

Feb. 22. Collected cash of $120 from Horizon Entertainment (Invoice No. 422). Amount posted from Page 106 of the cash receipts journal.

27. Provided $170 of services on account to Horizon Entertainment, itemized on Invoice No. 445. Amount posted from Page 92 of the revenuejournal.

PE 5-2B

Aug. 10. Provided $750 services on account to Moravian Products Inc., itemized on Invoice No. 119. Amount posted from 4 of the revenue journal.

17. Collected cash of $610 from Moravian Products Inc. (Invoice No. 106).

Amount posted from Page 46 of the cash receipts journal.

PRACTICE EXERCISES

REVENUE JOURNAL

REVENUE JOURNAL

Date

InvoiceNo.

Account Debited

Post.Ref.

Accounts Rec. Dr.Fees Earned Cr.


Date

InvoiceNo.

Post.Ref.

Account Debited


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PE 5-4A

Nov. 11. Made purchases of $1,845 on account from Migrant Technology(Invoice No. 85). Amount posted from Page 8 of the purchases journal.

22. Paid $3,270 to Migrant Technology on account (Invoice No. 43). Amount posted from 6 of the cash payments journal.

PE 5-4B

Jan. 11. Paid $64 to Colonial Inc. on account (Invoice No. 122). Amount posted from Page 71 of the cash payments journal.

26. Made purchases of $72 on account from Colonial Inc. (Invoice No. 139). Amount posted from Page 55 of the purchases journal.

PE 5-5A

Horizontal analysis:

20Y5 20Y4 Amount Percent

Retail $126,000 $120,000 $ 6,000 5.0%Wholesale 150,000 164,000 (14,000) –8.5%

Total revenues $276,000 $284,000 $ (8,000) –2.8%

Vertical analysis:

Amount Percent Amount Percent

Retail $126,000 45.7% $120,000 42.3%Wholesale 150,000 54.3% 164,000 57.7%

Total revenues $276,000 100.0% $284,000 100.0%

20Y5 20Y4

Increase/(Decrease)



PE 5-5B

Horizontal analysis:

20Y3 20Y2 Amount Percent

Camping $280,000 $240,000 $ 40,000 16.7%Fishing 140,000 160,000 (20,000) –12.5%

Total revenues $420,000 $400,000 $ 20,000 5.0%

Vertical analysis:


Camping $280,000 66.7% $240,000 60.0%Fishing 140,000 33.3% 160,000 40.0%

Total revenues $420,000 100.0% $400,000 100.0%

Increase/(Decrease)

20Y3 20Y2



Ex. 5-1

1. General ledger accounts: (e)2. Subsidiary ledger accounts: (a), (b), (c), (d)

Ex. 5-2

a., b., and c.

May 1 Bal. 590

31 7,070

31 Bal. 7,660

May 20 2,800 May 1 2,050

31 Bal. 2,800 31 Bal. 2,050

May 10 980 May 1 Bal. 590

31 Bal. 980 27 1,240

31 Bal. 1,830

d.

Alpha GenCorpHazmat Safety Co.Masco Co.Tillman Inc.Total accounts receivable $7,660

EXERCISES

May 31, 20Y3

$2,8002,050

980

Masco Co. Tillman Inc.

Accounts Receivable

BOWMAN CLEANERS INC.Accounts Receivable Customer Balances

Alpha GenCorp Hazmat Safety Co.

1,830



Ex. 5-3

a. Cash receipts journal f. Cash receipts journalb. General journal g. Cash receipts journalc. Revenue journal h. General journal (not a revenue transaction)d. Cash receipts journal i General journal e. Cash receipts journal j. Cash receipts journal

Ex. 5-4

a. Cash payments journal g. General journalb. Purchases journal h. Cash payments journalc. Purchases journal i. General journald. General journal j. Cash payments journale. General journal k. Cash payments journalf. Purchases journal

Ex. 5-5

Apr. 3. Provided service on account; posted from revenue journal Page 44.

6. Granted an invoice adjustment or corrected an error related to sale of April 3; posted from general journal Page 11. This does not represent a collection of cash, since the credit was not posted from the cash receipts journal.

24. Received cash for balance due; posted from cash receipts journal Page 81.



Ex. 5-6

a.

2 Pryor Corp. 5953 Armor Inc. 310

14 Pryor Corp. 20524 Rose Co. 85031 1,960

b. Debit to Accounts Receivable [from revenue journal column total in (a)].Credit to Fees Earned [from revenue journal column total in (a)].

c. $205 ($0 + $595 + $205 – $595)


Date

Post.Ref.

Oct.

$1,960$1,960

REVENUE JOURNAL

Account Debited

InvoiceNo.

321322323324



Ex. 5-7

a. and b.

July 1 Bal. 625 July 4 Bal. 1,890

18 950 22 3,660

31 Bal. 1,575 31 Bal. 5,550

July 9 3,410

31 Bal. 3,410

c.

July 1 Bal. 625 July 31 9,910

31 9,910 31 Bal. 9,910

31 Bal. 10,535

d.

Aladdin Co. Clearmark Co.Life Star Inc.Total accounts receivable

The total in the schedule above agrees with the T account balance for the accounts receivable controlling account in part (c).

e. A computerized system would likely use an electronic form specially designed for recording sales transactions, such as an electronic invoice form. The transaction details would be input into the form fields and submitted. Once submitted, the transaction would be saved and automatically posted as a debit to the individual customer account receivable and a credit to the revenueaccount. No control totals would be posted to a controlling account.

$10,535

July 31, 20Y2

$ 1,5755,5503,410

Accounts Receivable Customer Balances

Accounts Receivable Fees Earned

Aladdin Co. Clearmark Co.

Life Star Inc.

SAPLING CONSULTING INC.



Ex. 5-8

Amber Communications Inc. $3,650Clear Pointe Studios Inc. 1,650Echo Broadcasting Co. 2,980Gold Coast Media Inc. 0Total accounts receivable $8,280

Note: The balances are determined by adding the debits and subtracting the credits for each subsidiary receivable account.

Balance, January 1, 20Y4 $ 3,790Total debits (from revenue journal) 15,680Total credits (from cash receipts journal) (11,190)Balance, January 31, 20Y4 $ 8,280

Ex. 5-9

Page 8

Invoice Post.

No. Ref. Fees Earned Cr.

20Y8 Mar. 2 512 Santorini Co.

8 513 Gabriel Co. 12 514 Yarnell Inc. 20 515 Electronic Central Inc. 31

Page 12

20Y8 Mar. 4 CMI Inc.

19 Yarnell Inc. 28 Fees Earned 16029 Santorini Co.

31 Fees Earned 8531 245 1,665

205555

905

1,91085

205555160905

REVENUE JOURNAL

2,165

CashDr.

Post.Ref.

Account Credited

Fees Earned Cr.

Accts.Rec. Cr.

CASH RECEIPTS JOURNAL

Date

Date

POLARIS PRODUCTIONS INC.Accounts Receivable Customer Balances

January 31, 20Y4

Accounts Receivable(Controlling)

905220845195

Accounts Rec. Dr.

Account Debited



Ex. 5-10

a.

Page 19

20Y5 Oct. 3 622 Palace Corp.

8 623 Sunny Style Inc.18 624 Amex Services Inc. 28 625 Wayfarer Co. 31

Page 25

20Y5 Oct. 5 Champion Co. 1,060

12 Wayfarer Co. 1,45023 Palace Corp. 2,89030 Fees Earned 12031 5,520

b.

Amex Services Inc. $2,970

Sunny Style Inc. 1,940Wayfarer Co. 900

Total accounts receivable $5,810

The total of the customer accounts on October 31, 20Y5, $5,810, equals the

balance of the accounts receivable controlling account, shown as follows:

Oct. 1 Bal. Oct. 313131 Bal.

5,4002,5108,7005,810

Accounts Receivable

LASTING SUMMER INC.Accounts Receivable Customer Balances

October 31, 20Y5

Post.Ref.

AccountCredited

120

1,0601,4502,890

5,400120

Date

8,700

CashDr.

Accts.Rec.Cr.

FeesEarned

Cr.

Date

2,890


InvoiceNo.

900


REVENUE JOURNAL

Account Debited

1,9402,970

Post.Ref.



Ex. 5-10 (Concluded)

c. The accounts receivable subsidiary ledger is needed to track customer services provided on account and customer collections. Without the subsidiary ledger, Lasting Summer Inc. would not know who owes how much for services rendered. Furthermore, without the subsidiary ledger, it would be impossible to manage collections from individual customers.

Ex. 5-11

1. General ledger account: (g), (h), (i), (j), (k), (l)2. Subsidiary ledger account: (a), (b), (c), (d), (e), (f)3. No posting required: (m)

Ex. 5-12

1. General ledger account: (b), (c), (e), (f), (h), (i), (k), (l)2. Subsidiary ledger account: (a), (d), (g)3. No posting required: (j)

Ex. 5-13

June 6. Purchased services, supplies, equipment, or other commodities on account; posted from purchases journal Page 49.

14. Received an invoice adjustment or corrected an error related to purchase of June 6; posted from general journal . (A payment

would be recorded in the cash payments journal.)

16. Paid balance owed; posted from cash payments journal Page 23.


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Ex. 5-15

a. and b.

Mar. 4 690 Mar. 1 Bal. 580

26 385 15 325

31 Bal. 1,075 31 Bal. 905

Mar. 20 3,860

31 Bal. 3,860

c.

Mar. 1 Bal. 580 Mar. 31 1,400

31 5,260 31 Bal. 1,400

31 Bal. 5,840

d.

Enviro-Wash Supplies Inc.Nicely Co. Office Mate Inc.Total accounts payable

The total in the schedule above agrees with the T account balance for the accounts payable control account in (c).

e. A computerized system would likely use an electronic form specially designed for recording purchase transactions. The transaction details would be input into the form fields and submitted. Once submitted, the transaction would be saved and automatically posted as a debit to an appropriate asset account and a credit to the individual creditor accounts payable account. No control totals would be posted to a controlling account.

Accounts Payable Creditor Balances

Enviro-Wash Supplies Inc. Nicely Co.

Office Mate Inc.

NEWMARK EXTERIOR CLEANERS INC.

Accounts Payable Cleaning Supplies

March 31, 20Y2$1,075

9053,860

$5,840



Ex. 5-16

Augusta Sod Co. $ 6,450Concrete Equipment Co. 6,700Home Centers Lumber Co. 8,430Nu Lawn Fertilizer 0Total accounts payable $21,580

Note: The account balances are determined by subtracting the debits from the credits

for each account.

Balance, June 1, 20Y1 $ 2,230Total credits (from purchases journal) 27,700Total debits (from cash payments journal) (8,350)Balance, June 30, 20Y1 $21,580

Accounts Payable(Controlling)

OUTDOOR ARTISAN LANDSCAPINGAccounts Payable Creditor Balances

June 30, 20Y1


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b.

Meow Mart Inc. $ 450

Poodle Pals Inc. 790Office Helper Inc. 2,510

Total accounts payable $3,750

The total of the creditor accounts on September 30, 20Y4, $3,750, equals the balance of the accounts payable controlling account, shown as follows:

Sept. 30 915 Sept. 1 Bal.3030 Bal.

c. Happy Tails Inc. uses a subsidiary ledger for accounts payable to track its credit purchases and payments to the individual supplier. This is needed so that it knowshow much it owes to each individual supplier. Without the subsidiary ledger, Happy Tails Inc. would have difficulty accurately paying suppliers for the amount owed in atimely manner.

Ex. 5-19a. Two errors were made in balancing the accounts in the subsidiary ledger:

(1) The Carbon Supplies Inc. transaction of March 9 should have resulted in a balance of $15,300 instead of $14,000, and the account balance at March 12 should have been $15,000 instead of $13,700. The account balance at March 20 should have been $9,200 instead of $7,900.

(2) The Hudson Bay Minerals Co. transaction of March 25 should have resulted in abalance of $700 instead of $1,700.

4,0453,750

Accounts Payable

HAPPY TAILS INC.Accounts Payable Creditor Balances

September 30, 20Y4

620




b.

C. D. Greer and Son $15,750Carbon Supplies Inc. 9,200Cutler and Powell 7,800Hudson Bay Minerals Co. 700Valley Power 3,150Total accounts payable $36,600

Ex. 5-20

Cash receipts journal: (a)Cash payments journal: (b)Revenue journal: (c)Purchases journal: (d)General journal: (e)

Ex. 5-211. The Cash column is for debits (not credits).

2. The Other Accounts column is for credits (not debits).

3. A better order of columns would be to place the Other Accounts Cr. column to the left of the Fees Earned Cr. column.

A recommended and corrected cash receipts journal is as follows:

Page 12

BUNKER HILL ASSAY SERVICES INC. Accounts Payable Creditor Balances

March 31, 20Y4

Date

CashDr.

Post.Ref.

AccountCredited

Accts.Rec.Cr.

OtherAccounts

Cr.

FeesEarned

Cr.




Ex. 5-22

a. In the electronic invoice form from QuickBooks® shown above, typical

fields for data input can be identified as follows:

1. Customer name and address2. Date and invoice number 3. Description of item sold4. Amount of revenue

b. The customer Accounts Receivable is debited, and Fees Earned is credited.A computerized accounting system does not require posting to a separate accounts receivable control account. In this case, the total accounts receivable reported on the balance sheet is merely the sum of the balances of the individual customer account balances. That is, the accounts receivable account summarizes the customer accounts automatically.




c. Controlling accounts are not posted at the end of the month in a computerized accounting system. Transactions are recorded through data input into electronic forms, into electronic special journals, or for infrequent transactions, by an electronic general journal. Balances of affected accounts are automatically postedand updated from the information recorded on the form. If desired, the computercan provide a printout of the monthly transaction history for a particular account, which provides the same information as a journal. In addition, the controlling account is not posted separately. In a manual system, separate posting to the controlling account provides additional control by reconciling the controlling account balance against the sum of the individual customer account balances. However, in a computerized accounting system, there are no separate postings to a controlling account because the computer is not going to make posting or mathematical errors. Therefore, there is no need for the additional control provided by posting a journal total to a controlling account.

Ex. 5-23

a. iTunes is an example of a B2C, or business-to-consumer, e-commerce application.The B, or business, is Apple. The C, or consumers, would mostly be individuals who purchase digital products from the download store.

b. Cash 15Fees Earned 15

c. The cash receipts journal would be used to record debits to Cash from cash sales or collections on account.

d. The electronic invoice form could be used for either transactions on account, as illustrated in the chapter, or for cash sales. The invoice form used for sales on account is different from the one used for cash sales. The latter invoice form makes a debit to Cash, rather than a debit to a customer account.

e. Sales made on B2C e-commerce transactions are computerized transactions, so a special journal is inappropriate. On an e-commerce site, the consumer inputs the transaction information on the web page; thus, there is no need for a separate electronic form for reentering the same information to record the sale. Essentially, the e-commerce application is the form that originates the sales transaction inside the accounting system. Accounting transactions flow directly from the shopping cart information directly into the accounting system.



Ex. 5-24

a. Amazon.com B2C. Sells books, DVDs, and other products to

individual consumers.

b. Dell Inc. B2C and B2B. Sells computer products to both

individuals and corporations. Its site separates

individual and corporate sales.

c. DuPont B2B. Specialty chemicals. DuPont Direct® is its B2B web application.

d. Intuit Inc. B2C and B2B. Arranges its site for both individuals

and businesses because its products are divided this

way.

e. L.L. Bean, Inc. B2C. Consumer clothes e-retailer.

f. W.W. Grainger, Inc. B2B. Sells maintenance, repair, and operating

supplies to manufacturing companies.

Ex. 5-25

a. Horizontal analysis:

Amount Percent

Americas $13,293 $11,980 $1,313 11.0%

EMEA 1,217 1,295 (78) –6.0%China/Asia Pacific 2,396 1,130 1,266 112.0%Channel Development 1,731 1,546 185 12.0%Other 526 497 29 5.8%

Total revenues $19,163 $16,448 $2,715 16.5%

b. Vertical analysis:


Americas $13,293 69.4% $11,980 72.8%EMEA 1,217 6.4% 1,295 7.9%China/Asia Pacific 2,396 12.5% 1,130 6.9%Channel Development 1,731 9.0% 1,546 9.4%Other 526 2.7% 497 3.0%

Total revenues $19,163 100.0% $16,448 100.0%

Recent Year Prior Year

Increase/(Decrease)Recent Year(in millions)

Prior Year(in millions)




c. The horizontal analysis indicates that the total revenues of Starbucks increasedby more than 16% (16.5%) from the prior year to the recent year. This increase is

explained by continued consumer preference for Starbucks coffee and aggressiveAsian expansion. Revenues increased by 112% in China/Asia Pacific versus 11%in the Americas. This was a noticeable difference in growth. Apparently, there are more store openings in China/Asia Pacific than in the Americas. EMEA actually declined slightly (−6%) between the two years, indicating a maturing market. Thevertical analysis indicates that the percent of Americas’ revenues to total revenues decreased from 72.8% in the prior year to 69.4% in the recent year. In this sameperiod, the percent of China/Asia Pacific to total revenues increased from 6.9% in the prior year to 12.5% in the recent year. This again confirms significant growth in China. Channel Development grew by 12% and nearly maintained its percentof total revenues between the two years. Both analyses indicate that China/Asia Pacific has been the primary engine for Starbucks’ growth.



Ex. 5-26

a.Twenty-First Century Fox, Inc.Major Product Segments

Cable Network Programming $13,773 45.4%Television 4,895 16.2%Filmed Entertainment 9,525 31.4%Direct Broadcast Satellite Television 2,112 7.0%

Total revenues $30,305 100.0%

b. Twenty-First Century Fox, Inc. is moderately diversified. The Cable Network Programming segment has the largest percent of revenues to total revenues at 45.4%. This segment represents almost half the revenues of the company. However, Television and Filmed Entertainment have a percent of revenues to total revenues of over 16% and 31%, respectively. Thus, these are significant segments suggesting a degree of diversification when all three are considered together.

The Direct Broadcast Satellite Television segment is the smallest segment with revenues equal to 7% of total revenues and thus provides some minor additionaldiversification.

For a Recent Year (in Millions) Percent



Ex. 5-27

a. Horizontal analysis:

Amount Percent

China $ 6,909 $ 6,934 $ (25) –0.4%KFC 2,948 3,193 (245) –7.7%Pizza Hut 1,145 1,148 (3) –0.3%Taco Bell 1,988 1,863 125 6.7%India 115 141 (26) –18.4%

Total revenues $13,105 $13,279 $(174) –1.3%

b. Vertical analysis:

China $ 6,909 52.7% $ 6,934 52.2%KFC 2,948 22.5% 3,193 24.0%Pizza Hut 1,145 8.7% 1,148 8.6%Taco Bell 1,988 15.2% 1,863 14.0%India 115 0.9% 141 1.1%

Total revenues $13,105 100.0% $13,279 99.9%

*The sum is less than 100% due to rounding errors in the percentage calculations.

c. The total revenues have declined by 1.3% between the two years. The largest declines occurred in the KFC (−7.7%) and India (−18.4%) segments. These declines more than offset the increase in the Taco Bell segment. Thus, overall, there was a small decline in revenue. The vertical analysis indicates that China represents the largest segment as a percent of revenues (52.7%), followed by KFC (22.5%) and Taco Bell (15.2%). The KFC segment dropped significantly as a percent of revenues between the two years (24.0% vs. 22.5%), while Taco Bell grew as a percent of total revenues between the two years (14.0% vs. 15.2%).

Year 2(in millions)

Year 1(in millions)

Percent

Year 2 Year 1

Amount(in millions) Percent

Amount(in millions)

Increase/(Decrease)

*



Prob. 5-1A

1. and 2.

Page 1

July 21 1 J. Dunlop 22 2 K. Tisdale 24 3 T. Quinn 27 4 F. Mintz 30 5 D. Chase 30 6 K. Tisdale 31 7 T. Quinn 31

Page 1

Debit Credit

July 25 Supplies 13 300Fees Earned 41 300

105

InvoiceNo.

JOURNAL

Date

1,170

Description

Date

PROBLEMS

225170120

REVENUE JOURNAL

Account Debited

(12) (41)

Post.Ref.

Post.Ref.

115


35085



Prob. 5-1A (Continued)

Post.Item Ref. Debit Credit Balance

July 30 R1 170 170


July 21 R1 115 115


July 27 R1 225 225


July 24 R1 85 8531 R1 105 190


July 22 R1 350 35030 R1 120 470

D. ChaseName:

ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER

Name: J. Dunlop

Date

Date

Name: T. Quinn

Date

Name: F. Mintz

Date

Name: K. Tisdale

Date



Prob. 5-1A (Concluded)

Account No. 12

Post.

Item Ref. Debit Credit Debit Credit

July 31 R1 1,170 1,170

Account No. 13

Post.


July 25 J1 300 300

Account No. 41

Post.


July 25 J1 300 30031 R1 1,170 1,470

3. a. $1,170 ($170 + $115 + $225 + $190 + $470)b. $1,170

4. The computerized system is more efficient. Each sales transaction is entered into an electronic invoice form. The postings to the accounts receivable subsidiary and fees earned ledgers are automatic. Also, all sums and totals in the subsidiary ledgers are calculated automatically. There are no separate postings to an accounts receivable control account because there is no need to verify the accuracy of account totals. There is no math or posting error. The computerizedsystem also provides management with current customer account balanceinformation because the postings are automatic.

GENERAL LEDGER

Account: Fees Earned

Balance

Date

Balance

Accounts ReceivableAccount:

Date

Account: Supplies

Balance

Date



Prob. 5-2A

1. and 5.

Account No. 11

Post.


Apr. 1 Balance 11,35030 CR36 34,390 45,740

Account No. 12

Post.


Apr. 1 Balance 14,83025 J1 3,200 11,63030 R40 23,090 34,72030 CR36 21,500 13,220

Account No. 14

Post.


Apr. 1 Balance 6,00025 J1 3,200 9,200

Account No. 41

Post.


Apr. 30 R40 23,090 23,09030 CR36 12,890 35,980

Date

Cash

GENERAL LEDGER


Account:

Balance

Date

Account: Accounts Receivable

Balance

Date

Account: Notes Receivable

Balance

Balance

Date




2. and 4.


Apr. 1 Balance 8,7105 CR36 8,710 —

22 R40 7,470 7,470


Apr. 2 R40 4,680 4,68019 CR36 4,680 —


Apr. 1 Balance 6,1206 R40 1,990 8,110

15 CR36 6,120 1,99016 R40 5,500 7,49020 CR36 1,990 5,500


Apr. 13 R40 3,450 3,45025 J1 3,200 250

Date

Name: Pinecrest Co.

Date


Name: Ohr Co.

Name: Shilo Co.

Date

Date

Mendez Co.Name:




3., 4., and 5.Page 40

2 793 Ohr Co. 6 794 Pinecrest Co.

13 795 Shilo Co. 16 796 Pinecrest Co. 22 797 Mendez Co. 30

Page 36

5 Mendez Co. 8,71015 Pinecrest Co. 6,12019 Ohr Co. 4,68020 Pinecrest Co. 1,99030 Fees Earned 12,89030 34,390

(11)

Page 1

25 Notes Receivable 14Accounts Receivable—Shilo Co. 12/ 3,200

The subsidiary account of Shilo Co. must also be posted for a $3,000 credit.

3,200

JOURNAL

Post.Ref.

Date Credit

12,89012,890

(41) (12)

Debit

Description

CashDr.

Accts.Rec.Cr.

FeesEarned

Cr.

(12) (41)

Apr.

Apr. 8,7106,1204,6801,990

Date

Post.Ref.

4,680


InvoiceNo.

7,470


Apr.

REVENUE JOURNAL

Account Debited

1,9903,450

Date

23,090

Post.Ref.

Account Credited

5,500

21,500




6. The sum of the customer balances is in agreement with the controlling account.Both have balances of $13,220 ($7,470 + $5,500 + $250).

7. In an automated system, individual sales transactions are posted automatically to the general ledger at the time of the original transaction. Thus, there is no need to post summary totals to the general ledger accounts. The accounts receivable account reported on the balance sheet is often merely the sum of the individual customer accounts.



Prob. 5-3A

1. and 4.

Account No. 14

Post.


Oct. 1 Balance 5,92031 P30 11,930 17,850

Account No. 15

Post.


Oct. 1 Balance 75031 P30 1,030 1,780

Account No. 18

Post.


Oct. 1 Balance 12,3005 P30 3,980 16,280

Account No. 21

Post.


Oct. 1 Balance 1,17031 P30 16,940 18,110

Date

Account: Office Equipment

Balance

Date

GENERAL LEDGER

Account: Accounts Payable

Balance

Date

Balance

Office SuppliesAccount:

Account: Field Supplies

Balance

Date




2. and 3.


Oct. 1 Balance 3909 P30 320 710

29 P30 310 1,020


Oct. 1 Balance 7802 P30 400 1,180


Oct. 14 P30 2,940 2,94024 P30 3,880 6,82031 P30 1,800 8,620


Oct. 5 P30 3,980 3,980


Oct. 13 P30 1,420 1,42017 P30 1,890 3,310

Executive Office Supply Co.Name:

ACCOUNTS PAYABLE SUBSIDIARY LEDGER

Name: Meade Co.

Date

Date

Name: Peach Computers Co.

Date

Name: Omni Co.

Date

Name: Yamura Co.

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Page 1

Apr. 16 1 Rent Expense 71 3,50019 2 Field Supplies 14 3,340

Office Supplies 15 40023 3 Land 19 140,00024 4 Hydro Supply Co. 5,340 5,34026 5 Pure Equip. Co. 21,450 21,45030 6 Best Office Supply Co. 510 51030 7 Salary Expense 61 29,40030 27,300 203,940

(21) (11)

1. and 2.Page 1

Apr. 30 Land 19 12,000Field Equipment 17 12,000

CASH PAYMENTS JOURNAL

4003,340

140,000

Post.Ref.

Ck.No.

Account Debited

Date

Debit

3,500

OtherAccounts

Dr.

AccountsPayable

Dr.

29,400176,640

()

Post.Ref.

CashCr.

Credit

Date

Description

JOURNAL




1.


Apr. 17 P1 510 51023 P1 660 1,17030 CP1 510 660


Apr. 16 P1 5,340 5,34024 CP1 5,340 —30 P1 7,650 7,650


Apr. 16 P1 21,450 21,45026 CP1 21,450 —30 P1 6,040 6,040


Name: Pure Equipment Co.

Date

Name: Hydro Supply Co.

Date

Date

Best Office Supply Co.Name:




2. and 3.

Account No. 11

Post.


30 CP1 203,940 203,940

Account No. 14

Post.


19 CP1 3,340 3,34030 P1 14,330 17,670

Account No. 15

Post.


19 CP1 400 40030 P1 1,170 1,570

Account No. 17

Post.


16 P1 21,450 21,45030 P1 4,700 26,15030 J1 12,000 14,150

Account No. 19

Post.


23 CP1 140,000 140,00030 J1 12,000 152,000

GENERAL LEDGER

Account: Field Equipment

Balance

Date

Balance

Field SuppliesAccount:

Account: Cash

Balance

Date

Apr.

Apr.

Apr.

Account:

Apr.

Date

Date

Apr.

Land

Balance

Account: Office Supplies

Balance

Date




Account No. 21

Post.


30 P1 41,650 41,65030 CP1 27,300 14,350

Account No. 61

Post.


30 CP1 29,400 29,400

Account No. 71

Post.


16 CP1 3,500 3,500

4.

Best Office Supply Co. $ 660Hydro Supply Co. 7,650Pure Equipment Co. 6,040Total accounts payable* $14,350

* The total of the schedule of accounts payable is equal to the balance of the accounts

payable control account.

5. A subsidiary ledger for the field equipment would allow the company to track each piece of equipment with respect to cost, location, useful life, and other data. Such information would be useful for safeguarding equipment anddetermining depreciation.

Account:

April 30

Apr.

Balance

Date

AQUAFRESH WATER TESTING SERVICE

Balance

Date

Rent Expense


Account: Salary Expense

Apr.

Apr.


Balance

Date



Prob. 5-5A

1., 3., and 4.

Account No. 11

Post.


1 Balance 161,68031 CR31 53,880 215,56031 CP34 119,940 95,620

Account No. 12

Post.


1 Balance 12,94031 R35 19,210 32,15031 CR31 14,680 17,470

Account No. 14

Post.


1 Balance 10,85020 J1 3,200 7,65031 P37 3,250 10,900

Account No. 15

Post.


1 Balance 4,90031 CP34 340 5,24031 P37 775 6,015

Account No. 16

Post.


1 Balance 28,5006 P37 4,500 33,000

Balance

Date

Dec.


Date

Date

Account: Maintenance Supplies

Date

Dec.

Dec.

Balance

Date

Balance

Dec.

Dec.


GENERAL LEDGER

Balance


Account: Cash

Balance




Account No. 17

Post.


1 Balance 6,900

Account No. 18

Post.


1 Balance 95,9005 P37 37,300 133,200

16 CP34 39,800 173,000

Account No. 19

Post.


1 Balance 14,700

Account No. 21

Post.


1 Balance 3,92031 P37 45,825 49,74531 CP34 45,720 4,025

Account No. 31

Post.


1 Balance 289,250

Account No. 32

Post.


24 CP34 3,000 3,000

Account: Vehicles

Dec.

Account: S. Holmes, Capital

Dec.


Date

Date

Dec.

Account: Accumulated Depreciation—Office Equipment

Balance

Date

S. Holmes, Drawing

Balance

Date

Balance

Date

Dec.

Account: Accumulated Depreciation—Vehicles

Balance

Date

Balance

Balance

Dec.

Dec.

Account:




Account No. 41

Post.


16 CR31 20,300 20,30031 CR31 18,900 39,20031 R35 19,210 58,410

Account No. 51

Post.


30 CP34 16,900 16,900

Account No. 52

Post.


20 J1 3,200 3,200

Account No. 53

Post.


9 CP34 600 600

Account No. 61

Post.


30 CP34 7,100 7,100

Account No. 62

Post.


1 CP34 4,200 4,200

Balance

Date

Dec.


Dec.

Account: Driver Salaries Expense

Balance

Balance

Date

Dec.

Account: Fuel Expense

Balance

Date

Balance

Date

Account: Maintenance Supplies Expense

Dec.

Date

Account: Office Salaries Expense

Dec.

Dec.

Balance

Date

Account: Rent Expense




Account No. 63

Post.


20 CP34 1,780 1,780

Account No. 64

Post.


17 CP34 500 500

Balance

Date

Dec.

Account: Advertising Expense

Account: Miscellaneous Administrative Expense

Balance

Date

Dec.


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2. and 4.Page 35

2 940 Clifford Co. 6 941 Ernesto Co.

10 942 Joy Co. 24 943 Sing Co. 25 944 Ernesto Co. 31

Page 34

1 610 Rent Expense 62 4,200

9 611 Fuel Expense 53 600

10 612 Office To Go Inc. 330 330

11 613 Essential Supply Co. 3,090 3,090

11 614 Porter Co. 500 500

13 615 Platinum Motors 37,300 37,300

16 616 Vehicles 18 39,800

17 617 Misc. Admin. Expense 64 500

20 618 Advertising Expense 63 1,780

24 619 S. Holmes, Drawing 32 3,000

26 620 Austin Computer Co. 4,500 4,500

30 621 Driver Salaries Exp. 51 16,900

Office Salaries Exp. 61 7,10031 622 Office Supplies 15 340

31 45,720 119,940

(21) (11)

74,220

Dec. 4,200

39,800

()

7,100340

500

16,900

1,780

3,000

Account Debited

Post.Ref.

Ck.No.

600

Date

Dec.

CashCr.

OtherAccounts

Dr.

3,870


Post.Ref.

Account Debited

REVENUE JOURNAL

Date

19,210


6,100

(12) (41)

1,970

5,530

Accounts Payable

Dr.

1,740

InvoiceNo.



Prob. 5-5A (Concluded)3. Page 1

Dec. 20 Maintenance Supplies Expense 52 3,200Maintenance Supplies 14 3,200

5.

Account Debit CreditNo. Balances Balances

Cash 11 95,620Accounts Receivable 12 17,470Maintenance Supplies 14 10,900Office Supplies 15 6,015Office Equipment 16 33,000Accumulated Depreciation—Office Equipment 17 6,900Vehicles 18 173,000Accumulated Depreciation—Vehicles 19 14,700Accounts Payable 21 4,025S. Holmes, Capital 31 289,250S. Holmes, Drawing 32 3,000Fees Earned 41 58,410Driver Salaries Expense 51 16,900Maintenance Supplies Expense 52 3,200Fuel Expense 53 600Office Salaries Expense 61 7,100Rent Expense 62 4,200Advertising Expense 63 1,780Miscellaneous Administrative Expense 64 500

373,285 373,285

Debit Credit

REVERE COURIER COMPANYUnadjusted Trial Balance

JOURNAL

Date DescriptionPost.Ref.

December 31



Prob. 5-1B

1. and 2.

Page 1

Jan. 18 1 Murphy Co. 20 2 Qwik-Mart Co. 24 3 Hopkins Co. 27 4 Carson Co. 28 5 Amber Waves Co. 30 6 Qwik-Mart Co. 31 7 Hopkins Co. 31

Page 1

Jan. 28 Supplies 14 100Fees Earned 41 100

Date

Post.Ref.

490


InvoiceNo.

(12) (41)

340750

295

680120

REVENUE JOURNAL

Account Debited

200

Post.Ref.

Description

Date

2,875

JOURNAL

Debit

Credit



Prob. 5-1B (Continued)


Jan. 28 R1 120 120


Jan. 27 R1 680 680


Jan. 24 R1 750 75031 R1 295 1,045


Jan. 18 R1 490 490


Jan. 20 R1 340 34030 R1 200 540

Hopkins Co.

Amber Waves Co. Name:

Name:


Name: Carson Co.

Date

Date

Qwik-Mart Co.

Date

Date

Name: Murphy Co.

Date

Name:



Prob. 5-1B (Concluded)

Account No. 12

Post.


31 R1 2,875 2,875

Account No. 14

Post.


28 J1 100 100

Account No. 41

Post.


28 J1 100 10031 R1 2,875 2,975

3. a. $2,875 ($120 + $680 + $1,045 + $490 + $540)b. $2,875

4. The computerized system is more efficient. Each sales transaction is entered intoan electronic invoice form. The postings to the accounts receivable subsidiary and fees earned ledgers are automatic. Also, all sums and totals in the subsidiary ledgers are calculated automatically. There are no separate postings to an accounts receivable control account because there is no need to verify the accuracy of account totals. There is no math or posting error. The computerized system also provides management with current customer account balance information becausethe postings are automatic.

Balance

Date

Account: Supplies

Jan.

Jan.

Date

Balance

Date

GENERAL LEDGER


Jan.

Balance




Prob. 5-2B

1. and 5.

Account No. 11

Post.


June 1 Balance 18,34030 CR36 9,270 27,610

Account No. 12

Post.


June 1 Balance 2,65030 J1 1,800 85030 R40 6,200 7,05030 CR36 4,750 2,300

Account No. 18

Post.


June 1 Balance 34,70030 J1 1,800 36,500

Account No. 41

Post.


June 30 R40 6,200 6,20030 CR36 4,520 10,720

GENERAL LEDGER


Balance

Date

Balance


Account: Cash

Balance

Date

Date


Balance

Date




2. and 4.


June 1 Balance 1,6703 CR36 1,670 —

23 R40 860 860


June 1 Balance 9807 R40 670 1,650

14 CR36 980 67016 R40 400 1,07020 CR36 670 400


June 10 R40 2,840 2,84030 J1 1,800 1,040


June 2 R40 1,430 1,43018 CR36 1,430 —

Date

Name: Ridge Communities

Date


Name: Cooper Development Co.

Name: Yee Co.

Date

Date

Auto-Flex Co.Name:




3., 4., and 5.Page 40

2 717 Yee Co. 7 718 Cooper Development Co.

10 719 Ridge Communities 16 720 Cooper Development Co. 23 721 Auto-Flex Co. 30

Page 36

3 Auto-Flex Co. 1,67014 Cooper Development Co. 98018 Yee Co. 1,43020 Cooper Development Co. 67030 Fees Earned 4,52030 9,270

(11)

Page 1

30 Office Equipment 18Accounts Receivable—RidgeCommunities 12/ 1,800

The subsidiary account for Ridge Communities must also be posted for an $1,800 credit.

Date

Post.Ref.

1,430

860400

June

REVENUE JOURNAL

Account Debited

6702,840


InvoiceNo.

CashDr.

Accts.Rec.Cr.

Post.Ref.

4,520

6,200

Account Credited

(12) (41)


June

JOURNAL

June

Post.Ref. CreditDebit

Date

FeesEarned

Cr.

1,670

4,750

9801,430

670

4,520

(41)

Description

Date

1,800

(12)




6. The sum of the customer balances is in agreement with the controlling account.Both have balances of $2,300 ($860 + $400 + $1,040).

7. In an automated system, individual sales transactions are posted automaticallyto the general ledger at the time of the original transaction. Thus, there is no need to post summary totals to the general ledger accounts. The accounts receivable account reported on the balance sheet is often merely the sum of the individual customer accounts.



Prob. 5-3B

1. and 4.

Account No. 14

Post.


May 1 Balance 6,20031 P30 16,900 23,100

Account No. 15

Post.


May 1 Balance 1,49031 P30 1,105 2,595

Account No. 18

Post.


May 1 Balance 19,40019 P30 8,150 27,550

Account No. 21

Post.


May 1 Balance 5,14531 P30 26,155 31,300

Date


Balance

Date

GENERAL LEDGER


Balance

Date

Balance

Office SuppliesAccount:

Account: Field Supplies

Balance

Date




2. and 3.


May 1 Balance 3,90019 P30 8,150 12,050


May 1 Balance 73015 P30 500 1,23026 P30 265 1,495


May 1 Balance 5153 P30 340 855


May 8 P30 4,500 4,50023 P30 2,450 6,95030 P30 3,040 9,990


May 1 P30 3,240 3,24012 P30 3,670 6,910

Accu-Vision Supply Co.Name:


Name: J-Mart Co.

Date

Date

Name: Tri Cities Supplies

Date

Name: Lassiter Co.

Date

Name: Wendell Co.

Date


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Oct. 31 Prepaid Rent 16 15,000Field Equipment 17 15,000

1., 2., and 3.

Page 1

Oct. 16 1 Rent Expense 71 7,00018 2 Field Supplies 14 4,570

Office Supplies 15 65024 3 Petro Services Inc. 32,600 32,60026 4 Midland Supply Co. 9,780 9,78028 5 Land 19 240,00030 6 A-One Office Supply Co. 1,320 1,32031 7 Salary Expense 61 32,00031 43,700 327,920

(21) (11)

Ck.No.

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OtherAccounts

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JOURNAL

Date

Post.Ref.

650

240,000

4,570

CashCr.

Accounts Payable

Dr.

Debit


Description

Credit

Date

Post.Ref.




1.


Oct. 20 P1 1,320 1,32028 P1 3,670 4,99030 CP1 1,320 3,670


Oct. 17 P1 9,780 9,78026 CP1 9,780 —30 P1 12,450 12,450


Oct. 16 P1 32,600 32,60024 CP1 32,600 —30 P1 30,800 30,800


Name: Petro Services Inc.

Date

Name: Midland Supply Co.

Date

Date

A-One Office Supply Co.Name:




2. and 3.

Account No. 11

Post.


31 CP1 327,920 327,920

Account No. 14

Post.


18 CP1 4,570 4,57031 P1 47,530 52,100

Account No. 15

Post.


18 CP1 650 65031 P1 4,990 5,640

Account No. 16

Post.


31 J1 15,000 15,000

Account No. 17

Post.


16 P1 32,600 32,60031 J1 15,000 17,600

Account No. 18

Post.


31 P1 5,500 5,500 Oct.

Balance

Date

Office Supplies

Balance

Date

Oct.

Balance

Date

Field Equipment

Oct.

Account:

Date

Balance

Date

Oct.


GENERAL LEDGER

Account: Prepaid Rent

Oct.

Oct.

Balance

Date

Account:

Balance

Field SuppliesAccount:

Account: Cash




Account No. 19

Post.


28 CP1 240,000 240,000

Account No. 21

Post.


31 P1 90,620 90,62031 CP1 43,700 46,920

Account No. 61

Post.


31 CP1 32,000 32,000

Account No. 71

Post.


16 CP1 7,000 7,000

4.

A-One Office Supply Co. $ 3,670Midland Supply Co. 12,450Petro Services Inc. 30,800Total accounts payable* $46,920

* The total of the schedule of accounts payable is equal to the balance of the accounts

payable control account.

5. A subsidiary ledger for the field equipment would allow the company to track each piece of equipment with respect to cost, location, useful life, and other data. Such information would be useful for safeguarding equipment and determining depreciation.

Oct.

Oct.

Balance

Date

Balance

Account: Land

Oct.

October 31

Oct.

Balance

Date

Accounts Payable


Account:

WEST TEXAS EXPLORATION CO.

Account: Salary Expense

Balance

Date

Rent Expense

Date

Account:



Prob. 5-5B

1., 3., and 4.

Account No. 11

Post.


1 Balance 65,20031 CR31 96,050 161,25031 CP34 135,365 25,885

Account No. 12

Post.


1 Balance 31,95031 R35 39,540 71,49031 CR31 38,950 32,540

Account No. 14

Post.


1 Balance 7,24020 J1 4,400 2,84031 P37 5,070 7,910

Account No. 15

Post.


1 Balance 3,69031 CP34 600 4,29031 P37 2,490 6,780

Account No. 16

Post.


1 Balance 17,3003 P37 1,570 18,870

Balance

Date

Mar.


Date

Date

Account: Maintenance Supplies

Date

Mar.

Mar.

Balance

Date

Balance

Mar.

Mar.


GENERAL LEDGER

Balance


Account: Cash

Balance




Account No. 17

Post.


1 Balance 4,250

Account No. 18

Post.


1 Balance 62,4002 P37 26,900 89,300

16 CP34 28,500 117,800

Account No. 19

Post.


1 Balance 17,800

Account No. 21

Post.


1 Balance 2,75531 P37 36,030 38,78531 CP34 31,225 7,560

Account No. 31

Post.


1 Balance 162,975

Account No. 32

Post.


27 CP34 4,000 4,000

Account: Vehicles

Mar.

Account: J. Wu, Capital

Mar.


Date

Date

Mar.

Account: Accumulated Depreciation—Office Equipment

Balance

Date

J. Wu, Drawing

Balance

Date

Balance

Date

Mar.

Account: Accumulated Depreciation—Vehicles

Balance

Date

Balance

Balance

Mar.

Mar.

Account:




Account No. 41

Post.


16 CR31 26,800 26,80031 CR31 29,400 56,20031 R35 39,540 95,740

Account No. 42

Post.


18 CR31 900 900

Account No. 51

Post.


30 CP34 33,300 33,300

Account No. 52

Post.


20 J1 4,400 4,400

Account No. 53

Post.


9 CP34 820 820

Account No. 61

Post.


31 CP34 21,200 21,200

Balance

Date

Mar.

Balance

Date

Mar.


Mar.

Account: Driver Salaries Expense

Account: Rent Revenue

Mar.

Mar.

Balance

Date

Account: Office Salaries Expense

Balance

Date

Account: Maintenance Supplies Expense

Balance

Date

Mar.

Account: Fuel Expense

Balance

Date




Account No. 62

Post.


1 CP34 2,450 2,450

Account No. 63

Post.


20 CP34 8,590 8,590

Account No. 64

Post.


17 CP34 4,680 4,680

Balance

Date

Account: Rent Expense

Mar.

Balance

Date

Balance

Mar.

Account: Advertising Expense

Account: Miscellaneous Administrative Expense

Date

Mar.


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2. and 4.Page 35

5 91 Ellis Co. 7 92 Trent Co.

11 93 Jarvis Co. 24 94 Sajeev Co. 25 95 Trent Co. 31

Page 34

1 205 Rent Expense 62 2,450

9 206 Fuel Expense 53 820

10 207 Office City 450 450

10 208 Bastille Co. 1,890 1,890

11 209 Porter Co. 415 415

13 210 McIntyre Sales Co. 26,900 26,900

16 211 Vehicles 18 28,500

17 212 Misc. Admin. Expense 64 4,680

20 213 Advertising Expense 63 8,590

26 214 Office Mate Inc. 1,570 1,570

27 215 J. Wu, Drawing 32 4,000

30 216 Driver Salaries Expense 51 33,300

31 217 Office Salaries Expense 61 21,20031 218 Office Supplies 15 600

31 31,225 135,365

(21) (11)

104,140

Mar. 2,450

28,500

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4,680

33,300

8,590

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Post.Ref.

Ck.No.

820

Date

Mar.

CashCr.

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Dr.

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Post.Ref.

Account Debited

REVENUE JOURNAL

Date

39,540


9,200

(41) (12)

7,200

6,300

Accounts Payable

Dr.

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InvoiceNo.



Prob. 5-5B (Concluded)3. Page 1

Mar. 20 Maintenance Supplies Expense 52 4,400Maintenance Supplies 14 4,400

5.

Account Debit CreditNo. Balances Balances

Cash 11 25,885Accounts Receivable 12 32,540Maintenance Supplies 14 7,910Office Supplies 15 6,780Office Equipment 16 18,870Accumulated Depreciation—Office Equipment 17 4,250Vehicles 18 117,800Accumulated Depreciation—Vehicles 19 17,800Accounts Payable 21 7,560J. Wu, Capital 31 162,975J. Wu, Drawing 32 4,000Fees Earned 41 95,740Rent Revenue 42 900Driver Salaries Expense 51 33,300Maintenance Supplies Expense 52 4,400Fuel Expense 53 820Office Salaries Expense 61 21,200Rent Expense 62 2,450Advertising Expense 63 8,590Miscellaneous Administrative Expense 64 4,680

289,225 289,225

Debit Credit

AM EXPRESS COMPANYUnadjusted Trial Balance

JOURNAL

Date DescriptionPost.Ref.

March 31



CP 5-1

a. The half-price offer is a normal business practice so long as it is not the result of price collusion with other competitors or is considered “unfair pricing” according to federal statutes. Many businesses offer low initial services to entice customers to a subscription service. For example, cable and satellite companies often offer premium channels, such as HBO, for free for the first several months of service. The business objective of low initial pricing is to demonstrate the value of the service so that customers will elect to continue the service at the full subscription price. Thus, there is nothing inherently unethical about such a practice, and it is considered a fairly typical business practice.

b. Customer “lock-in” can be unethical if it is the result of fixing prices or acquiring competitors to achieve monopolistic concentration within an industry. However, in this case, the customer lock-in is a function and nature of the product. Namely, the data that are created by the product cannot be easily migrated to another application. Note that Netbooks is not denying the customer ownership of the data; rather, Netbooks is making it costly to switch. Such lock-in is not considered an unethical business practice. Indeed, we see such lock-in characteristics in many settings. For example:

● Razor blades are designed to be used only by the handle of the manufacturer. Thus, customers become locked in to the razor blades of the handle manufacturer. This is such a common strategy in many arenas that it has been termed the “razor blade strategy.”

● Movie theaters prevent customers from walking in with refreshments, thus locking theater goers in to the popcorn and refreshment stand of the theater. Theater pricing of refreshments reflects this lock-in.

● Sony designs video games so that they only work on its PlayStation®

equipment. Therefore, the games are locked in to the consoles. This allows Sony and its licensees to limit and control competition for games.

● Many manufacturers control replacement parts for equipment by custom-designing the parts. Customers then become locked in to the original manufacturer for replacement parts.

● Apple Computer’s iTunes can only be played on an iTunes-compatible player. Thus, Apple reduces competition for songs for its player and locks customers in to its music platform. Apple employs the same lock-in strategy for its Mac®

operating system.

CASES & PROJECTS



CP 5-2

Note to Instructors: While the list of functions and services can be quite large, the key

services are identified below. The purpose of these services is fairly advanced formost students. The activity asks for a listing rather than an explanation because most students have limited experience by which to provide much explanation. Use this caseto demonstrate the scope and basic nature of these application tools.

Selected JDA Supply Chain Management Solutions

● Demand management● Factory planning and scheduling● Merchandise operations● Supplier relationship management● Transportation and logistics management● Space and category management● Visibility, collaboration, and performance management● Inventory optimization● Planning on demand● Replenishment and fulfillment● Customer order management

Selected Salesforce.com Customer Relationship Management Solutions

● Provide the sales force with real-time information about all customer contacts with the firm to improve the effectiveness of the sales call

● Provide real-time forecast estimation and accumulation tools

● Support promotion plans and integrate the plans with forecasting and manufacturing

● Provide decision tools for evaluating marketing campaign effectiveness

● Provide tools to support call center responsiveness



CP 5-3

To: Senior ManagementFrom: StudentRe: Cloud-based accounting software

A new approach to automating our accounting requirements is now available. It iscalled cloud-based accounting using a cloud computing provider. Rather than

purchasing our accounting software and loading it on our own computers, cloud-based accounting software is rented and resides on the provider’s computers. Our data, along with the accounting software, stay with the provider. There are severaladvantages to this approach.

1. We don’t need to administer the application or data on our own computers. This becomes the job of the service provider, thus saving us computer systempersonnel costs. All we need is a desktop computer and a browser to use thesoftware.

2. Our people can work with our data anytime or anyplace. We don’t need to rely onour own internal computer network for accounting-related work. Instead, this product is available on the Internet. So, we can enter transactions and access our accounting data from anywhere in the world, meaning that we don't have to be plugged into our corporate network. This also will save us network support costs.

3. We don't need to purchase and load software upgrades. All upgrades are provided on the provider’s server when they are available. Thus, we are alwaysusing the latest version.

4. Providers promise a highly secure environment for our data.

5. A cloud-based accounting system should help us when data, such as orders,are passed between us and our customers and suppliers.

We also need to consider a number of disadvantages.

1. The cost of the software is recurring. Thus, we are trading the recurring costs ofmaintaining our system infrastructure for the recurring cost of the service. A financial analysis should be conducted to determine whether the service is cost-effective.

2. The Internet can be slow. During busy times, we may experience slow responsetimes.

3. Our data physically reside with the service provider. Thus, we don’t control thesecurity of our own data; the provider does. Our data are our lifeblood, so confidence in the provider’s controls is paramount.

4. Once we begin, we become “locked in” to the provider. It will be hard to change ourmind at a later date. However, to some extent, this is also true for purchasedsoftware.

MEMORANDUM



CP 5-4

Kyle is missing some of the principal benefits of the computerized system. Acomputerized system has three primary advantages. First, the computerized system is more efficient and accurate at transaction processing. In the computerized system, once the transaction data have been input, the information is simultaneously recorded in the electronic journal (file) and posted to the ledger accounts. This saves a significant amount of time in recording and posting transactions. Second, the computerized environment is less prone to mathematical, posting, and recording errors. The computer does not make these types of mistakes. Thus, the computerized environment should require less time correcting errors. Third, the computerized system provides more timely information to management because account balances are kept current. Under the manual system, ledger accounts are only as current as the latest posting date, but the computerized system posts every transaction when it is journalized or recorded on a form. Thus, management has more current information with which to make decisions.

As an additional note, Kyle may be reacting out of fear of the unknown. This is a common reaction to change. Thus, Kyle may be overreacting to the new computer environment because it will require significant change in the way the job is done as compared to the manual approach.

CP 5-5a. The accounts receivable and accounts payable accounts consist of transactions

with individual customers and creditors (suppliers). In both cases, the subsidiaryledger tracks what is collectible from customers or owed to suppliers. Thus, the subsidiary ledger is required for tracking the collection and payment process to individual customers and suppliers, respectively.

b. The equipment account could use a subsidiary ledger. The subsidiary ledger for equipment would track individual items of equipment, including their cost, location, and useful lives. The subsidiary ledger would be useful for determining equipment depreciation and safeguarding equipment assets.



CP 5-6

1. Special journals are used to reduce the processing time and expense to record transactions. A special journal is usually created when a specific type of transaction occurs frequently enough so that the use of the traditional two-column journal becomes cumbersome. The frequency of transactions for Omni Care would probably justify the following special journals:

Purchases journalCash payments journalRevenue journalCash receipts journal

Note to Instructors: Judgment is required in determining the number and nature

of the special journals to be established for Omni Care. Differences of opinion may exist as to whether all the preceding special journals are necessary or cost-efficient. You may want to use this time to comment further on the costs of establishing special journals and the potential benefits of reducing the processing time to record transactions.


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