BYP1-18 Ehlert & Ramos is a wholesaler of small appliances and parts. Ehlert & Ramos is operated by two owners, Bill Ehlert and Denise Ramos. In addition, the company has one employee, a repair specialist, who is on a fixed salary. Revenues are earned through the sale of appliances to retailers (approximately 75% of total revenues), appliance parts to do-it-yourselfers (10%), and the repair of appliances brought to the store (15%). Appliance sales are made on both a credit and cash basis. Customers are billed on pre-numbered sales invoices. Credit terms are always net/30 days. All parts sales and repair works are cash only.
Merchandise is purchased on account from the manufacturers of both the appliances and the parts. Practically all suppliers offer cash discounts for prompt payments, and it is company policy to take all discounts. Most cash payments are made by check. Checks are most frequently issued to suppliers, to trucking companies for freight on merchandise purchases, and to newspapers, radio, and TV stations for advertising. All advertising bills are paid as received.
Bill and Denise each make a monthly drawing in cash for personal living expenses.
The salaried repairman is paid twice monthly. Ehlert & Ramos currently has a manual accounting system.
(a) Identify the special journals that Ehlert & Ramos should have in its manual system. List the column headings appropriate for each of the special journals.
(b) What control and subsidiary accounts should be included in Ehlert & Ramos's manual system? Why?
a) The special journals that Ehtert & Ramos should have in its manual system are:
v Purchases Journal: As Ehtert & Ramos purchase merchandise on account of both appliances and parts.
v Sales Journal: Those sales of Ehtert & Ramos that are sales on account need to be recorded in this journal. Sales made on cash should not be recorded here.
v Cash Payments Journal: Those payments of Ehtert & Ramos that are made need to be recorded in this journal irrespective of the source of payments. That is those transactions that involve credit to cash.
v Cash Receipts Journal: This special journal is to be used by Ehtert & Ramos to record transactions involving receipts of cash. That is all transactions that involve debit to cash are recorded here.
v General Ledger: Any transaction by Ehtert & Ramos that is not properly recorded in the other four journals is recorded here. All adjusting and closing entries are recorded here. Transactions that do not involve cash, purchases, or sales are recorded here.
b) The control and subsidiary accounts that should be included in Ehtert & Ramos manual system are:
The solution of 696 words including a listing of the types of special journals needed for a manual system of accounting plus information for various sorts of controls and subsidiary ledgers.