Page 189 - Accounting Information Systems

160 PART II Transaction Cycles and Business Processes

FI GU RE
4-6 ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER

Name: Howard Supply Account Number 1435
Address: 121 Maple St.
Winona, NY 18017
Invoice Payment Sale Account Credit Available
Date Explanation
Number (CR) (DR) Balance Limit Credit
9/27 3" Pulley 92131 600.00 600.00 1000.00 400.00
"
(300 Units)
10/7 600.00 0.00 1000.00

Periodically, the individual account balances are summarized in a report that is sent to the general
ledger. The purpose for this is discussed next.

POST TO GENERAL LEDGER. By the close of the transaction processing period, the general ledger
function has received journal vouchers from the billing and inventory control tasks and an account sum-
mary from the AR function. This information set serves two purposes. First, the general ledger uses the
journal vouchers to post to the following control accounts:

DR CR
Accounts Receivable Control XXXX.XX
Cost of Goods Sold XXX.XX
Inventory Control XXX.XX
Sales XXXX.XX

Because general ledger accounts are used to prepare financial statements, they contain only summary
figures (no supporting detail) and require only summary posting information. Second, this information
supports an important independent verification control. The AR summary, which the AR function inde-
pendently provides, is used to verify the accuracy of the journal vouchers from billing. The AR summary
figures should equal the total debits to AR reflected in the journal vouchers for the transaction period. By
reconciling these figures, the general ledger function can detect many types of errors. We examine this
point more fully in a later section dealing with revenue cycle controls.

SALES RETURN PROCEDURES
An organization can expect that a certain percentage of its sales will be returned. This occurs for a number
of reasons, some of which may be:
The company shipped the customer the wrong merchandise.
The goods were defective.
The product was damaged in shipment.
The buyer refused delivery because the seller shipped the goods too late or they were delayed in transit.

When a return is necessary, the buyer requests credit for the unwanted products. This involves revers-
ing the previous transaction in the sales order procedure. Using the DFD in Figure 4-7, let’s now review
the procedures for approving and processing returned items.