SOLUTION TO EXERCISE F-4
(a) The main advantages of using special journals are that they:
- (1) Permit greater division of labor by allowing several individuals to record entries in different journals at the same time. For example, one employee may be responsible for journalizing all cash receipts, and another for journalizing all credit sales.
- (2) Reduce the time necessary to record and post transactions by eliminating the need to repeatedly write out account titles in the general journal and by dramatically cutting down on the number of postings required to the general ledger. Monthly postings to some accounts may be substituted for daily postings.
(b) The advantages of using subsidiary ledgers are that they:
- (1) Show transactions affecting one customer or one creditor in a single account, thus providing necessary up-to-date information on specific account balances.
- (2) Free the general ledger of excessive details. As a result, a trial balance of the general ledger does not contain a vast number of individual account balances.
- (3) Help locate errors in individual accounts by reducing the number of accounts combined in one ledger and by using controlling accounts.
- (4) Make possible a division of labor in posting by having one employee post to the general ledger and a different employee(s) post to the subsidiary ledgers.
TIP: A company may employ any number of special journals. A special journal can be designed to record any type of transaction that occurs frequently. The four ...