Question

Lasting Summer Inc. has $2,290 in the October 1 balance of the accounts receivable account consisting of $1,050 from Champion Co. and $1,240 from Wayfarer Co. Transactions related to revenue and cash receipts completed by Lasting Summer Inc. during the month of October 20Y5 are as follows:

Oct.
3. Issued Invoice No. 622 for services provided to Palace Corp., $2,890.
5. Received cash from Champion Co., on account, for $1,060.
8. Issued Invoice No. 623 for services provided to Sunny Style Inc., $1,940.
12. Received cash from Wayfarer Co., on account, for $1,450.
18. Issued Invoice No. 624 for services provided to Amex Services Inc., $2,970.
23. Received cash from Palace Corp. for Invoice No. 622 of October 3.
28. Issued Invoice No. 625 to Wayfarer Co., on account, for $900.
30. Received cash from Rogers Co. for services provided, $120.

Required:
a. Prepare a single-column revenue journal and a cash receipts journal to record these transactions.
b. Prepare a listing of the accounts receivable customer balances and verify that the total of the accounts receivable customer balances equals the balance of the accounts receivable controlling account on October 31, 20Y5.
c. Why does Lasting Summer Inc. use a subsidiary ledger for accounts receivable?

Answer 1

Lasting Summer Inc.

a1) Revenue Journal

Date Description Invoice Ref Amount

Oct. 3 Palace Corp. 622 $2,890

Oct. 8 Sunny Style Inc. 623 1,940

Oct. 18 Amex Services Inc. 624 2,970

Oct. 28 Wayfarer Co. 625 900

Oct. 31 Accounts Receivable $8,700

a2) Cash Receipts Journal

Date Description Ref Amount

Oct. 5 Champion Co. $1,060

Oct. 12 Wayfarer Co. 1,450

Oct. 23 Palace Corp. 622 2,890

Oct. 30 Rogers Co. 120

Oct. 31 Accounts Receivable $5,400

Oct. 31 Cash Account $120

b1) Listing of the Account Receivable Customer Balances:

Champion Co. -$10

Wayfarer Co. 690

Sunny Style Inc. 1940

Amex Services 2,970

Total $5,590

b2) Verification of agreement with Accounts Receivable Control Account:

The total of accounts receivable listing and the Accounts Receivable Control Account agree.

c) Use of a Subsidiary Ledger for Accounts Receivable:

Subsidiary Ledger for the Accounts Receivable is kept in order to record the individual customers' accounts and their business transactions with the entity. The general ledger account for the same is a total account that summarizes the individual accounts and acts as a control measure to ensure accuracy.

Step-by-step explanation:

a) Account Balances:

1. Accounts Receivable

Beginning balance $2,290

Revenue Journal 8,700

Cash Journal -5,400

Ending balance $5,590

2. Champion Co.

Beginning balance $1,050

Oct. 5 Cash -1,060

Ending balance $10 CR

3. Wayfarer Co.

Beginning balance $1,240

Oct. 28 Inv.625 900

Oct. 14 Cash -1,450

Ending balance $690

4. Palace Corp.

Oct. 3 Revenue Inv. 622 $2,890

Oct. 23 Cash 622 2,890

5. Sunny Style Inc.

Oct. 8 Revenue Inv.623 1,940

6. Amex Services Inc.

Oct. 18 Revenue Inv.624 2,970

b) A subsidiary ledger is a group of similar accounts whose combined balances equal the balance in a specific general ledger account. In the general ledger, there is an account that summarizes a subsidiary ledger account balances. It is called a control account or master account.