For the past few years, your client, Chow Medical Group (CMG), has operated a small medical practice. CMG's current annual revenues are $420,000. Because the accountant has been spending more and more time each month recording all transactions in a two-column journal and preparing the financial statements, CMG is considering improving the accounting system by adding special journals and subsidiary ledgers. CMG has asked you to help with this project and has compiled the following information:
Estimated
Frequency per
Type of Transaction Month
Fees earned on account ................. 240
Purchase of medical supplies on account ........ 190
Cash receipts from patients on account ........... 175
Cash payments on account ............... 160
Cash receipts from patients at time services provided ... 120
Purchase of office supplies on account ......... 35
Purchase of magazine subscriptions on account ....... 5
Purchase of medical equipment on account ........ 4
Cash payments for office salaries ............ 3
Cash payments for utilities expense ........... 3
A local sales tax is collected on all patient bills, and monthly financial statements are prepared.
1. Briefly discuss the circumstances under which special journals would be used in place of a two-column (all-purpose) journal. Include in your answer your recommendations for CMG's medical practice.
2. Assume that CMG has decided to use a revenue journal and a purchases journal.
Design the format for each journal, giving special consideration to the needs of the medical practice.
3. Which subsidiary ledgers would you recommend for the medical practice?