Chapter 9 sec. 1

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Service and merchandising businesses are many of the same accounts. However merchandising businesses have additional accounts on their balance sheets and income statements to account on their balance sheets and income statements to account for the purchase and sale of merchandise.

One way that a corporation obtains capital to operate or grow a business is by selling ownership in the company

The articles of incorporation include the name and the address of the business, its purpose of the business, any limitations of it's activity and rules for dissolving the corporation. The articles of incorporation also how the business is to be governed and how capital may be acquired.

The main difference between the accounting records of proprietorships and corporations is in the capital accounts. Proprietorships have a single capital and drawing account for the owner. A corporation has separate capital accounts for the stock issued and for the earnings kept in the business

As in proprietorships, information in a corporation's accounting system is kept separate from the personal records of it's owners [CONCEPT: Business Entity]

Periodic financial statements must be sent to the stockholders of the corporation to report the financial activities of the business.

Unlike a proprietorship, a corporation exists independence of its owners. [CONCEPT: Going Concern]

A business can have several types of ledgers. The general ledger is a collection of accounts used to assemble similar transactions, such as those that affect CASH. General ledger accounts are used to prepare financial statements.

Merchandising businesses often purchase merchandise on account from many vendors, so they have many vendor accounts. A business needs to know the amount owed to each vendor to ensure it pays its bills on time.

This method is not practical for a business having a large number of vendors. This is why most businesses maintain a separate ledger with separate accounts for each vendor.

Accountants often refer to a subsidiary ledger as a sub-ledger

Accounts Payable, a liability account, is increased by a credit and decreased by a debit, as shown in the T-Account. Therefore it has a normal credit balance.

Accounts payable ledger forms are similar to general ledger forms. The accounts payable ledger form contains the same columns as the general ledger except that it lacks a Debit Balance column. Accounts Payable has a normal credit balance, so the accounts payable ledger form does not require a Debit Balance column.

Starting a new Page in a Subsidiary ledger

Write the account name

Write the account number

Write the date in the date column

Write the word balance in the item column

Place a check mark in the Post Ref. column to show that the amount has been carried forward from a previous page rather than posted from a journal

Write the balance in the credit Balance column

*A business can include letters in its subsidiary account numbers. Letters can have meaning that is useful to company employees.