College Accounting: A Practical Approach by Slater (13th edition)

College Accounting: A Practical Approach by Slater (13th edition) is the 13th edition of the college textbook that is titled College Accounting: A Practical Approach, has been written by Jeffrey Slater and published by Pearson Education, Inc. Vaughn College of Aeronautics and Technology utilizes this textbook for its Vaughn College MGT120 course.

Accounting Concepts and Procedures (Chapter 1)

Chapter 1 definitions

• Accounting. A system that measures the business' activities in financial terms, provides written reports and financial statements about those activities, and communicates these reports to decision makers and others.
• Sole proprietorship. A type of business organization that has one owner. This owner is personally liable for paying the business' debt.
• Partnership. A form of business organization that has at least two owners. The partners usually are generally liable for the partnership's debts.
• Corporation. A form of business organization that is owned by stockholders. Stockholders usually are not personally liable for the corporation's debts.
• Limited Liability Company. A form of business organization that is owned by one or more members. Members are only liable to the extent of their investments.
• Service company. An enterprise that provides one or more services.
• Merchandise company. An enterprise that makes its own products or buys a product from a manufacturer to sell to customers.
• Manufacturer. An enterprise that makes a product and sells it to its customers.
• Generally Accepted Accounting Principles (GAAP). The procedures and guidelines that must be followed during the accounting process.
• International Financial Reporting Standards. A group of accounting standards and procedures that if adopted by the United States could replace GAAP.
• Bookkeeping. The recording function of the accounting process.
• Assets. Properties (resources) of value such as cash, sup;lies, equipment, or land owned by an organization.
• Equities. The rights of financial claims of creditors (liabilities) and owners (owner's equity) who supply the assets to an organization.
• Liabilities. Obligations that come due in the future. Liabilities are the financial rights or claims of creditors to assets.
• Creditor. Anyone who has a claim to assets.
• Owner's equity. Rights of financial claims to the assets of an organization. In the basic accounting equation, assets minus liabilities).
• Basic accounting equation. Assets = Liabilities + Owner's equity.
• Capital. The owner's investment of equity in the organization.
• Supplies. The type of assets acquired by an organization that has a much shorter life than equipment.
• Shift in assets. A shift that occurs when the composition of the assets has changed but the total of the assets remains the same.
• Accounts payable. Amounts owed to creditors that result from the purchase of goods or services on account -- a liability.
• Balance sheet (also known as statement of financial position). A financial statement, as of a particular date, that shows the amount of assets owned by an organization as well as the amount of claims (liabilities and owner's equity) against these assets.
• Cash basis. An accounting system that records revenue when cash is received and expenses when paid. This system does not match revenues and expenses like in the accrual basis of accounting.
• Accrual basis. An accounting system that matches revenues when earned with expenses that are incurred.
• Revenue. An amount earned by performing services for customers or selling goods to customers; it can be in the form of cash or accounts receivable. Revenue is a subdivision of owner's equity: As revenue increases, owner's equity increases.
• Accounts receivable. An asset that indicates the amount owed by customers.
• Expenses. A cost incurred in running a business by consuming goods or services in producing revenue. Expenses is a subdivision of owner's equity.
• Net income. The financial result of operations when revenue totals more than expenses.
• Net loss. The financial result of operations when expenses total more than revenue.
• Withdrawals. A subdivision of owner's equity that records money or other assets an owner withdraws from a business for personal use.
• Expanded accounting equation. Assets = Liabilities + Capital - Withdrawals + Revenue - Expenses.
• Income statement. An accounting statement that details the performance of an organization (revenue minus expenses) for a specific period of time.
• Statement of owner's equity. A financial statement that reveals the change in capital. The ending figure for capital is then placed on the balance sheet.
• Ending capital. Beginning Capital + Additional Investments + Net income - Withdrawals = Ending Capital. Or Beginning Capital + Additional Investments - Net loss - Withdrawals = Ending Capital

Chapter 1 summary problem

Data. Michael Brown opened his law office on June 1, 2018. During the first month of operation, Michael conducted the following transactions:

1. Invested $6,000 in cash in law practice.
2. Paid $600 for office equipment.
3. Purchased additional office equipment on account, $1,000.
4. Received cash for performing legal services for clients, $2,000.
5. Paid salaries, $800.
6. Performed legal services for clients on account, $1,000.
7. Paid rent, $1,200.
8. Withdrew $500 from his law practice for personal use.
9. Received $500 from customers in partial payment for legal services performed in transaction (6).

Requirements:

1. Record these transactions in the expanded accounting equation.
2. Prepare the financial statements at June 30 for Michael Brown, Attorney-at-Law.

Debits and Credits: Analyzing and Recording Business Transactions (Chapter 2)

Chapter 2 definitions

• Account. An accounting device used in bookkeeping to record increases and decreases of business transactions relating to individual assets, liabilities, capital, withdrawals, revenue, expenses, and so on.
• Standard account. A formal account that includes columns for date, explanation, posting reference, debit, and credit.
• Ledger. A group of accounts that records data from business transactions.
• T account. A skeleton version of a standard account, used for demonstration purposes.
• Debit. The left-hand side of any account. A number entered on the left side of any account is said to be debited to an account.
• Credit. The right-hand side of any account. A number entered on the right side of any account is said to be credited to an account.
• Footings. The totals of each side of a T account.
• Ending balance. The difference between footings in a T account.
• Normal balance of an account. The side of an account that increases by the rules of debit and credit.
• Chart of accounts. A numbering system of accounts that lists the account titles and account numbers to be used by an organization.
• Compound entry. A transaction involving more than one debit or credit.
• Double-entry bookkeeping. An accounting system in which the recording of each transaction affects two or more accounts and the total of the debits is equal to the total of the credits.
• Trial balance. A list of the ending balances of all the accounts in a ledger. The total of the debits should equal the total of the credits. Alternatively, trial balance can be defined as an informal listing of the ledger accounts and their balances in the ledger to aid in providing the equality of debits and credits.

Chapter 2 summary problem

Data. Mel's Delivery Service is a sole proprietorship. Its available data is as follows:

Mel's Delivery Service's chart of accounts

To be used in	Category	Account code	Account name
Balance sheet	Assets	111	Cash
		112	Accounts Receivable
		121	Office Equipment
		122	Delivery Trucks
	Liabilities	211	Accounts Payable
	Owner's Equity	311	Mel Free, Capital
		312	Mel Free, Withdrawals
		313	Income Summary
Income statement	Revenue	411	Delivery Fees Earned
	Expenses	511	Salaries Expense
		512	Advertising Expense
		513	Gas Expense
		514	Office Supplies Expense
		515	Telephone Expense

The following transactions resulted for Mel's Delivery Service during the month of July of 2018:

Mel's Delivery Service's operations, July of 2018

Transaction date	Transaction reference	Transaction description
July 1	A	Mel invested $10,000 in the business from his personal savings account
July 5	B	Bought delivery trucks on account, $17,000
July 9	C	Advertising bill received but unpaid, $700
July 12	D	Bought office equipment for cash, $1,200
July 19	E	Received cash for delivery services rendered, $15,000
July 21	F	Paid salaries expense, $3,000
July 22	G	Paid gas expense for company trucks, $1,250
July 25	H	Billed customers for delivery services rendered, $4,000
July 26	I	Paid telephone bill, $300
July 27	J	Received $3,000 as partial payment of transaction H
July 29	K	Mel paid home telephone bill from company checkbook, $150

Requirements:

As Mel's newly employed accountant, you must do the following:

1. Set up T accounts in a ledger.
2. Record transactions in the T accounts (please place the letter of the transaction next to the entry).
3. Foot and take the balance of each account where appropriate.
4. Prepare a trial balance at the end of July.
5. Prepare from the trial balance, in a proper form, (a) an income statement for the month of July, (b) a statement of owner's equity, and (c) balance sheet as of July 31st, 2018.

Beginning the Accounting Cycle (Chapter 3)

Chapter 3 definitions

• Accounting cycle. For each accounting period, the process that begins with the recording of business transactions or procedures into a journal and ends with the completion of a post-closing trial balance.
• Accounting period. The period of time for which an income statement is prepared.
• Interim report. A fiscal statement that is prepared for a month, quarter, or some other portion of the fiscal year.
• Journal (alternatively known as general journal). A listing of business transactions in chronological order. The journal links on one page the debit and credit parts of transactions.
• Journal entry. The transaction (debits and credits) that is recorded into a journal once it is analyzed.
• Journalizing. The process of recording a transaction into the journal.
• Book of original entry. Book that records the first formal information about business transactions. A journal is an example of a book of original entry.
• Book of final entry. Book that records information about business transactions from a book of original entry such as a journal. A ledger is an example of a book of final entry.
• Compound journal entry. A journal entry that affects more than two accounts.
• Posting. The transferring, copying, or recording of information from a journal to a ledger.
• Four-column account. A running balance account that records debits and credits and has a column for an ending balance (debit or credit). It replaces the standard two-column account we used earlier.
• Cross-referencing. Adding to the PR column of the journal the account number of the ledger account that was upgraded from the journal.
• Slide. The error that results in adding or deleting zeros in the writing of a number such as 79,200 instead of 7,920.
• Transposition. The accidental rearrangement of digits of a number such as 152 instead of 125.

Chapter 3 summary problem

Data. In March of 2018, Abby's Employment Agency had the following transactions:

Abby's Employment Agency's operations, March of 2018

Transaction date	Transaction reference	Transaction description
March 1	A	Abby Todd invested $5,000 cash in the new employment agency.
March 4	B	Bought equipment for cash, $200.
March 5	C	Earned employment fee commission, $200, but payment from Blue Co. will not be received until June.
March 6	D	Paid wages expense, $300.
March 7	E	Abby paid her home utility bill from the company checkbook, $75.
March 9	F	Placed Rick Wool at VCR Corporation, receiving $1,200 cash.
March 15	G	Paid cash for supplies, $200.
March 28	H	Telephone bill received but not paid, $180.
March 29	I	Advertising bill received but not paid, $400.

The chart of accounts includes Cash, 111; Accounts Receivable, 112; Supplies, 131; Equipment, 141; Accounts Payable, 211; A. Todd, Capital, 311; A. Todd, Withdrawals, 321; Employment Fees Earned, 411; Wage Expense, 511; Telephone Expense, 521; and Advertising Expense, 531.

Requirements: Your tasks are to do the following:

1. Journalize business transactions in the General Journal (all page 1).
2. Set up a ledger based on the chart of accounts.
3. Post journal entries.
4. Prepare a trial balance for March 31.

The Accounting Cycle Continued (Chapter 4)

Chapter 4 definitions

• Worksheet. A columnar device used by accountants to aid them in completing the accounting cycle -- often just referred to as spreadsheet. It is not a formal report.
• Adjusting. The process of calculating the latest up-to-date balance of each account at the end of an accounting period.
• Historical cost. The actual cost of an asset at time of purchase.
• Depreciation. The allocation (spreading) of the cost of an asset such as an auto or equipment over its expected useful life.
• Residual value. Estimated value of an asset after all the allowable depreciation has been taken.
• Accumulated Depreciation. A contra-asset account that summarizes or accumulates the amount of depreciation that has been taken on an asset.
• Book value. Cost of equipment less accumulated depreciation.
• Accrued salaries payable. Salaries that are earned by employees but unpaid and unrecorded during the period (and thus need to be recorded by an adjustment) and will not come due for payment until the next accounting period.

Chapter 4 summary problem

Data. From the following trial balance and adjustment data, complete (1) a worksheet and (2) the three financial statements (numbers are intentionally small so you may concentrate on the theory).

Frost Company, Trial Balance, December 31, 2018

Account code	Account name	Dr.	Cr.
111	Cash	14
112	Accounts Receivable	4
130	Prepaid Insurance	5
151	Plumbing Supplies	3
157	Plumbing Equipment	7
158	Accumulated Depreciation, Plumbing Equipment		5
201	Accounts Payable		1
300	J. Frost, Capital		12
301	J. Frost, Withdrawals	3
410	Plumbing Fees		27
726	Salaries Expense	5
729	Rent Expense	4
	Totals	45	45

Adjustment Data:

1. Insurance Expired, $3.
2. Plumbing Supplies on hand, $1.
3. Depreciation Expense, Plumbing Equipment, $1.
4. Salaries owed but not paid to employees, $2.

Requirements:

1. Prepare a worksheet
2. Prepare financial statements for month of December

The Accounting Cycle Completed (Chapter 5)

Chapter 5 definitions

• Adjusting journal entries. Journal entries that are needed in order to update specific ledger accounts to reflect correct balances at the end of an accounting period.
• Permanent account (also known as real account). An account, such as Assets, Liabilities, and Capital, whose balances are carried over to the next accounting period.
• Temporary account (also known as nominal account). An account whose balances at the end of an accounting period are not carried over to the next accounting period.
• Closing journal entry. A journal entry that is prepared to (a) reset all temporary accounts to a zero balance and (b) update Capital to a new balance.
• Income Summary. A temporary account in the ledger that summarizes revenue and expenses and transfers the balance (either net income or net loss) to Capital. This account does not have a normal balance (i.e., it could have a debit or a credit balance.
• Post-closing trial balance. The final step in the accounting cycle that lists only permanent accounts in the ledger and their balances after adjusting and closing entries have been posted.

Chapter 5 summary problem

Data. Rolo Company is a sole proprietorship. Its available data is as follows:

Rolo Company's chart of accounts

To be used in	Category	Account code	Account name
Balance sheet	Assets	111	Cash
		112	Accounts Receivable
		114	Prepaid Rent
		115	Office Supplies
		121	Office Equipment
		122	Accumulated Depreciation, Office Equipment
	Liabilities	211	Accounts Payable
		212	Salaries Payable
	Owner's Equity	311	R. Kern, Capital
		312	R. Kern, Withdrawals
		313	Income Summary
Income statement	Revenue	411	Fees Earned
	Expenses	511	Salaries Expense
		512	Advertising Expense
		513	Rent Expense
		514	Office Supplies Expense
		515	Depreciation Expense, Office Equipment

The following transactions resulted for Rolo Company during the month of January of 2019:

Rolo Company's operations, January of 2019

Transaction date	Transaction reference	Transaction description
January 1	A	Rolo Kern invested $1,200 cash and $100 of office equipment to open Rolo Co.
January 1	B	Paid rent for 3 months in advance, $300.
January 4	C	Purchased office equipment on account, $50.
January 6	D	Bought office supplies for cash, $40.
January 8	E	Collected $400 for services rendered.
January 12	F	Rolo paid his home electric bill from the company checkbook, $20.
January 14	G	Provided $100 worth of services to clients who will not pay until next month.
January 16	H	Paid salaries, $60.
January 18	I	Advertising bill received for $70 but will not be paid until next month.

We will use unusually small numbers to simplify calculation and emphasize the theory.

Adjustment data on January 31:

1. Supplies on hand, $6.
2. Rent expired, $100.
3. Depreciation, Office Equipment, $20.
4. Salaries accrued, $50

Requirements:

1. Journalize transactions and post to ledger.
2. Prepare a worksheet.
3. Prepare financial statements.
4. Journalize adjusting and closing entries and prepare a post-closing trial balance.

Banking Procedures and Control of Cash (Chapter 6)

• Internal control system. Procedures and methods to control an organization's assets as well as monitor its operations.
• Signature card. A form signed by a bank customer that the bank uses to verify signature authenticity on all checks.
• Deposit slip. A form provided by a bank for use in depositing money or checks into a checking account.
• Endorsement. A payee's signature on a check. When endorsement is blank, a check could be further endorsed. When endorsement is executed (its field is full), this endorsement restricts further endorsement to only the person or organization named. When endorsement is restrictive, this endorsement restricts any further endorsement.
• Check. A form used to indicate a specific amount of money that is to be paid by the bank to a named person or organization.
• Drawer. A person who writes a check.
• Drawee. A bank that the drawer has an account with.
• Payee. The person or organization to whom the check is payable.
• Cancelled check. A check that has been processed by a bank and is no longer negotiable.
• Bank reconciliation. The process of reconciling the checkbook balance with the bank balance given on the bank statement.
• Bank statement. A financial report sent by a bank to a customer indicating the previous balance, ATM transactions, nonsufficient funds, individual checks processed, individual deposits received, service charges, and ending bank balance.
• Deposit in transit. Deposits that were made by customers of a bank but did not reach, or were not processed by the bank before the preparation of the bank statement.
• Outstanding check. A check written by an organization or person that were not received or not processed by the bank before the preparation of the bank statement.
• Nonsufficient funds (NSF). Notation indicating that a check has been written on an account that lacks sufficient funds to back it up.
• Debit memorandum. Decrease in depositor's balance.
• Credit memorandum. Increase in depositor's balance.
• Electronic funds transfer. An electronic system that transfers funds without the use of paper checks.
• ATM (automatic teller machine). Machine that allows for depositing, withdrawal, and advanced banking transactions.
• Phishing. Fake emails that attempt to obtain information about online banking customers.
• Check truncation (check safekeeping). Procedure whereby checks are not returned to the drawer with the bank statement but are instead kept at the bank for a certain amount of time before being first transferred to image and then destroyed.
• Petty cash fund. Fund (source) that allows payment of small amounts without the writing of checks.
• Petty cash voucher. A petty cash form to be completed when money is taken out of petty cash.
• Auxiliary petty cash record. A supplementary record for summarizing petty cash information.
• Cash Short and Over. The account that records cash shortages and overages. If the ending balance is a debit

Calculating Pay and Recording Payroll Taxes: The Beginning of the Payroll Process (Chapter 7)

• Fair Labor Standards Act (Federal Wage and Hour Law). A United States law that the majority of American employers must follow that contains rules stating the minimum hourly rate of pay and the maximum number of hours a worker will work before being paid time and a half for overtime hours worked. This law also has other rules and regulations that employers must follow for payroll purposes.
• Interstate commerce. A test that is applied to determine whether an employer must follow the rules of the Fair Labor Standards Act. If an employer communicates or does business with another business in some other state, it is usually considered to be involved in interstate commerce.
• Pay period (payroll period). A length of time used by an employer to calculate the amount of an employee's earnings. Pay periods can be daily, weekly, biweekly (once every 2 weeks), semimonthly (twice each month), monthly, quarterly, or annually.
• Gross earnings (gross pay). All earnings before any deductions.
• Workweek. A 7-day (168-hour) period used to determine overtime hours for employees. A workweek can begin on any given day, but must end 7 days later.
• Form W-4 ((Employee's Withholding Allowance Certificate). A form filled out by employees and used by employers to supply needed information about the number of allowances claimed, marital status, and so forth. The form is used for payroll purposes to determine federal income tax withholding from an employee's paycheck.
• Federal income tax withholding (FIT withholding). Amount of federal income tax withheld by the employer from the employee's gross pay; the amount withheld is determined by the employee's gross pay, the pay period, the number of allowances claimed by the employee on the W-4 form, and the marital status indicated on the W-4 form.
• Allowances (also known as exemptions). Certain dollar amounts of a person's income tax that will be considered nontaxable for income tax withholding purposes.
• Wage bracket table. One of various charts in IRS Circular E that provide information about deductions for federal income tax based on earnings and data supplied on the W-4 form.
• IRS Circular E (Circular E). An IRS tax publication of payroll procedures, including tax tables.
• State income tax withholding. Amount of state income tax withheld by the employer from the employee's gross pay.
• Calendar year. A 1-year period beginning on January 1 and ending on December 31. In United States, employers must use a calendar year for payroll purposes, even if the employer uses a fiscal year for financial statements and for any other reason.
• FICA (Federal Insurance Contributions Act). Part of the Social Security Act of 1935, this law taxes both the employer and employee up to a certain maximum rate and wage base for OASDI tax purposes. It also taxes both the employer and employee for Medicare purposes, but this tax has no wage base maximum.
• Taxable earnings. A numerical value that shows amount of earnings subject to a tax. The tax itself is not shown.
• Medical insurance. Health care insurance for which premiums may be paid through a deduction from an employee's paycheck.
• Net pay. Gross earnings, less deductions. Net pay, or take-home pay, is what the worker actually takes home.
• Payroll register. A multicolumn form that is used to record payroll data.
• Individual employee earnings record. An accounting document that summarizes the total amount of wages paid and the deductions for the calendar year. It aids in preparing governmental reports. A new record is prepared for each employee each year.
• Federal Unemployment Tax Act (FUTA). A tax paid by employers to the federal government. The current rate is 0.6% on the first $7,000 of earnings of each employee after the normal FUTA tax credit is applied.
• State Unemployment Tax Act (SUTA). A tax usually paid only by employers to the state for employee unemployment insurance.
• Workers' compensation insurance. Insurance purchased by most employers to protect their employees against losses due to injury or death while on the job.
• Experience rating (merit rating). A rate assigned by an insurance company to determine the cost of insurance coverage. This rate is based on the physical difficulty of jobs within various industries and the history/cost of prior employee accident claims submitted.
• Payroll tax expense. The cost to employers that includes the total of the employer's FICA OASDI, FICA Medicare, FUTA, and SUTA taxes. Remember, the employer matches the employee contributions for OASDI and Medicare.

Paying the Payroll, Depositing Payroll Taxes, and Filing the Required Quarterly and Annual Tax Forms: The Conclusion of the Payroll Process (Chapter 8)

• Employer identification number (EIN). A number assigned by the IRS that is used by an employer when recording and paying payroll and income taxes.
• Form SS-4. The form filled out by an employer to get an EIN. The form is sent to the IRS, which assigns the number to the business.
• Form 941 tax. Another term used to describe FIT, OASDI, and Medicare. This name comes from the form used to report these taxes.
• Look-back period. A period of time used to determine whether a business should make its Form 941 tax deposits on a monthly or semiweekly basis. The IRS defines this period as July 1 through June 30 of the year prior to the year in which Form 941 tax deposits will be made.
• Monthly depositor. A business classified as a monthly depositor will make its payroll tax deposits only once each month for the amount of Form 941 taxes due from the prior month.
• Semiweekly depositor. A business classified as a semiweekly depositor may have to make its payroll tax deposits up to twice in one week, depending on when payroll is paid.
• Banking day. Any day that a bank is open to the public for business. Generally, a banking day will end at 2:00 or 3:00 p.m. local time. Banking business transacted after this time is usually considered to be the next day’s business. Saturdays, Sundays, and federal holidays are usually not considered banking days.
• Form 941 (Employer's Quarterly Federal Tax Return). A tax report that a business will complete after the end of each calendar quarter indicating the total FICA (OASDI and Medicare) taxes owed plus the amount of FIT withheld from employees' pay for the quarter. If federal tax deposits have been made correctly and on time, the total amount deposited should equal the amount due on Form 941. Any difference results in a payment due or a refund.
• Calendar quarter. A three-month, 13-week time period. Four calendar quarters occur during a calendar year that runs from January 1 through December 31. The first quarter is January through March, the second is April through June, the third is July through September, and the fourth is October through December.
• Form 940 (Employer's Annual Federal Unemployment Tax Return). This form is used by employers at the end of the calendar year to report the amount of unemployment tax due for the year. If more than $500 is cumulatively owed at the end of a quarter, it should be paid one month after the end of that quarter. Normally, the report is due January 31 after the calendar year, or February 10 if an employer has already made all deposits.
• Form W-2 (Wage and Tax Statement). A form completed by the employer at the end of the calendar year to provide a summary of gross earnings and deductions to each employee. At least three copies go to the employee, one copy to the IRS, one copy to any state where employee income taxes have been withheld, one copy to the Social Security Administration, and one copy into the records of the business.
• Form W-3 (Transmittal of Wage and Tax Statements). A form completed by the employer to verify the number of W-2s and amounts withheld as shown on them. This form is sent to the Social Security Administration data processing center along with copies of each employee's W-2 forms.

Sales and Cash Receipts (Chapter 9)

• Retailer. A merchant who buy goods from wholesalers for resale to customers.
• Merchandise. Goods brought into a store for resale to customers.
• Sales Returns and Allowances account (SRA account). A contra-revenue account that records price adjustments and allowances granted on merchandise that is defective and has been returned.
• Sales discount. Amount a customer is allowed to deduct from the bill total for paying a bill during the discount period.
• Discount period. A period shorter than the credit period when a discount is available to encourage early payment of bills.
• Credit period. Length of time allowed for payment of goods sold on account.
• Sales Discount account. A contra-revenue account that records cash discounts granted to customers for payments made within a specific period of time.
• Net sales. Gross sales less sales returns and allowances less sales discounts.
• Gross sales. The revenue earned from sale of merchandise to customers.
• Sales Tax Payable account. An account in the general ledger that accumulates the amount of sales tax owed. It has a credit balance.
• Wholesaler. A merchant who buys goods from suppliers and manufacturers for sale to retailers.
• Sales invoice. A bill sent to customer(s) reflecting a credit sale.
• Accounts receivable subsidiary ledger. A book or file that contains the individual records, in alphabetical order, of amounts owed by various credit customers.
• Subsidiary ledger. A ledger that contains accounts of a single type. Example: The accounts receivable subsidiary ledger records all credit customers.
• Accounts Receivable account (Accounts Receivable controlling account). The Accounts Receivable account in the general ledger, after postings are complete, shows a firm the total amount of money owed to it. This figure is broken down in the accounts receivable subsidiary ledger, where it indicates specifically who owes the money.
• Credit memorandum. A piece of paper sent by the seller to a customer who has returned merchandise previously purchased on credit. The credit memorandum indicates to the customer that the seller is reducing the amount owed by the customer.
• Schedule of accounts receivable. A list of the customers, in alphabetical order, that have an outstanding balance in the accounts receivable subsidiary ledger. This total should be equal to the balance of the Accounts Receivable controlling account in the general ledger at the end of the month.

Purchases and Cash Payments (Chapter 10)

• Purchases. Merchandise for resale. It is a cost.
• Purchases Returns and Allowances. A contra-cost account in the ledger that records the amount of defective or unacceptable merchandise returned to suppliers and/or price reductions given for defective items.
• Purchases Discount. A contra-cost account in the general ledger that records discounts offered by vendors of merchandise for prompt payment of purchases by buyers.
• F.O.B. destination. Seller pays or is responsible for the cost of freight to purchaser's location or destination.
• F.O.B. shipping point. Purchaser pays or is responsible for the shipping costs from seller's shipping point to purchaser's location.
• Purchase requisition. A form used within a business by the requesting department asking the purchasing department of the business to buy specific goods.
• Purchase order. A form used in business to place an order for the buying of goods from a seller.
• Purchase invoice. The seller's sales invoice, which is sent to the purchaser.
• Receiving report. A business form used to notify the appropriate people of the ordered goods received along with the quantities and specific condition of the goods.
• Invoice approval form. A form used by the accounting department in checking the invoice and finally approving it for recording and payment.
• Accounts payable subsidiary ledger. A book or file that contains, in alphabetical order, the name of the creditor and amount owed from purchases on account.
• Debit memorandum. A memo issued by a purchaser to a seller, indicating that some Purchases Returns and Allowances have occurred and therefore the purchaser now owes less money on account.
• Controlling account. The account in the general ledger that summarizes or controls a subsidiary ledger. Example: The Accounts Payable account in the general ledger is the controlling account for the accounts payable subsidiary ledger. After postings are complete, it shows the total amount owed from purchases made on account.
• Perpetual inventory system. An inventory system that keeps continual track of each type of inventory by recording units on hand at the beginning of each accounting period, units sold, and the current balance after each sale or purchase.
• Cost of Goods Sold. In a perpetual inventory system, an account that records the cost of goods sold or the cost of merchandise inventory used to make the sale.
• Periodic inventory system. An inventory system that, at the end of each accounting period, calculates the cost of the unsold goods on hand by taking the cost of each unit times the number of units of each product on hand.
• Merchandise Inventory. An asset and perpetual inventory system account that records purchases of merchandise. Discounts and returns are recorded in this account for the buyer.

Preparing a Worksheet for a Merchandise Company (Chapter 11)

• Cost of goods sold. Total cost of the goods which were sold to customers.
• Beginning merchandise inventory (beginning inventory). The cost of goods on hand in a company to begin an accounting period.
• Ending merchandise inventory (ending inventory). The cost of goods that remain unsold at the end of the accounting period. It is an asset on the new balance sheet.
• Freight-In. A cost of goods sold account that records the shipping cost to the buyer.
• Gross profit. Net sales less cost of goods sold.
• Mortgage Payable. A liability account showing amount owed on a mortgage.
• Interest Expense. The cost of borrowing money.
• Unearned Revenue. A liability account that records amount owed for goods or services in advance of delivery. The Cash account would record the receipt of cash.

Completion of the Accounting Cycle for a Merchandise Company (Chapter 12)

• Selling expenses.
• Administrative expenses (general expenses).
• Other income.
• Other expenses.
• Classified balance sheet.
• Current assets.
• Operating cycle.
• Plant and equipment.
• Current liabilities.
• Long-term liabilities.
• Reversing entries.