Question

CT7.2 Ermler & Trump is a wholesaler of small appliances and parts. Ermler & Trump is operated by two owners, Jack Ermler and Andrea Trump. 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 prenumbered sales invoices. Credit terms are always net/30 days. All parts sales and repair work 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. Jack and Andrea each make a monthly drawing in cash for personal living expenses. The salaried repairman is paid twice monthly. Ermler & Trump currently has a manual accounting system.

Instructions

With the class divided into groups, answer the following.

a. Identify the special journals that Ermler & Trump should have in its manual accounting system. List the column headings appropriate for each of the special journals.

b. What control and subsidiary accounts should be included in Ermler & Trump's manual accounting system? Why?

Answer 1

Hi,

Here are the answers with detiailed explanations.

Answer to Qn,#a.

Special Journals that Ermler and Trump should have in their manual accounting system are:
Sales Journal
Cash Receipts journal
Purchases Journal
Cash Payments journal

Column Headings

Column headings for special journals
Sales Journal
Date	Invoice #	Customer	Ref	Dr, Accounts receivable/Cr. Sales
This is used for all sales made on credit (account)
Purchases journal
Date	Purchase order	Customer	Ref	Dr.Purchases/Credit Accounts payable
This is used for all credit purchases
Cash Receipts journal
Date	Account	Ref	Cash Dr.	Sales Discount Dr.	Acconts Receivable Dr.	Sales Cr.	Others Cr.
This is used for recording all cash receipts and each debit is represented by credit to another account
Cash Payments journal
Date	Check#Account	Ref	Accounts Payable Cr.	Other Dr.	Purchase Discount Cr	Cash Cr.

Answer to Qn # b.

b.

Control accounts and subsidiary accounts to be included in Ermler & Trump are

Control Accounts

Debtors Ledger Control Account

Creditors Ledger Control Account

Subsidiary Accounts are

Accounts Receivable-Customer wise(Debtor or Buyer)

Accounts Payable Customer wise(Vendor or supplier wise)

Why Control accounts and subsidiary accounts are required

A Control account summarizes the set of subsidiary accounts. Instead of posting all the entries to a General Ledger,

Control accounts summary is taken to the General Ledger. This will help minimise entries and have control over

Transactions. Control accounts help the businesses to check and detect errors and frauds early, minimises bulk posting

to General ledger, helps preparing conscise Trial balances,.

Subsidiary account is an account that is kept within the Subsidiary Ledger to track information on each customer

be it a vendor or a buyer.

It is a summary level account in general ledger. It helps in reconciling balances.

The grand total balance in accounts receivable ledger totals to Debtors Ledger Control account, and grand total in accounts payable register totals to Creditors Ledger control account.

A subsidiary account is also known as a sub-account.

Hope this is useful.

All the best.