Question

1. What are the advantages of using subsidiary ledgers?

2. Certain principles should be followed in the development of an accounting information system. Identify and explain each of the principles.

3. What are the essential features of the allowance method of accounting for bad debts?

Answer 1

1) Advantageous of using subsidiary ledger :

It provides detailed information : It provides detailed information from selected accounts. The balance of each subsidiary ledger must equal the balance of corresponding accounts in general ledger.

It provides control : It increases the level of control. An account receivables ledger allows the credit manager to control the current balance of each customers.

It limits employees access : It can also limit employees access to the specific accounts they are responsible for. By using computer systems it helps to maintain confidentiality .

2) Principles should be followed in the development of an accounting information system :

1) Cost effectiveness :

a. Importance must be given to information costs.

b. It can provide desired information is become flexible .

c. It can contribute to achieve objectives of the organization.

2) Useful outputs :

a. It must be able to provide necessary results.

b. Information must be understandable , relevant ,reliable ,accurate and factual.

3) Flexibility :

a. There must be a provision for inclusion of changed information needs.

b. Adequate flexibility required to meet changed demand.

3) Features of allowance method of accounting for bad debts :

(1) Uncollectible account receivables are estimated and matched against revenues in the same accounting period in which the revenue occurred.

(2) Estimated uncollectibles are debited to baddebts expenses and credited to allowance for doubtful debts account through adjustment entry.

(3) Actual uncollectible  are debited to allow for doubtful debts account and credited to account receivables at the time of written off.