For the past few years, your client, Professional Health Services (PHS), has operated a small medical practice. PHS’s current annual revenues are $945,000. 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, PHS is considering improving the accounting system by adding special journals and subsidiary ledgers. PHS has asked you to help with this project and has compiled the following information:

Type of Transaction

Estimated

Frequency per

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

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 PHS’s medical practice.

2. Assume that PHS 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?