Accounting principles 8th weygars kieso kimmel chapter 02

Chapter
2-1


CHAPTER 2

THE RECORDING
PROCESS
Accounting Principles, Eighth Edition
Chapter
2-2


Study
Study Objectives
Objectives
1.

Explain what an account is and how it helps in the
recording process.

2.

Define debits and credits and explain their use in
recording business transactions.

3.

Identify the basic steps in the recording process.

4.

Explain what a journal is and how it helps in the
recording process.

5.

Explain what a ledger is and how it helps in the
recording process.

6.

Explain what posting is and how it helps in the
recording process.

7.

Prepare a trial balance and explain its purposes.

Chapter
2-3


The
The Recording
Recording Process
Process

The Account

Debits and

credits
Expansion of
basic equation

Chapter
2-4

Steps in the
Recording
Process
Journal
Ledger

The Recording
Process
Illustrated
Summary
illustration of
journalizing
and posting

The Trial
Balance
Limitations of a
trial balance
Locating errors
Use of dollar
signs

The
The Account
Account
Account

Record of increases and decreases
in a specific asset, liability, equity,
revenue, or expense item.
Debit = “Left”
Credit = “Right”

An Account can
be illustrated in a
T-Account
form.

Chapter
2-5

Account Name
Debit / Dr.

Credit / Cr.

LO 1 Explain what an account is and how it helps in the recording process.


Debits
Debits and
and Credits

Credits
Double-entry accounting system
Each transaction must affect two or more
accounts to keep the basic accounting equation
in balance.
Recording done by debiting at least one account
and crediting another.
DEBITS must equal CREDITS.

Chapter
2-6

LO 2 Define debits and credits and explain their
use in recording business transactions.


Debits
Debits and
and Credits
Credits
If Debits are greater than Credits, the account
will have a debit balance.
Account Name
Debit / Dr.

Transaction #1

$10,000

Transaction #3

8,000

Balance

Chapter
2-7

Credit / Cr.

$3,000

Transaction #2

$15,000

LO 2 Define debits and credits and explain their
use in recording business transactions.


Debits
Debits and
and Credits
Credits
If Credits are greater than Debits, the account
will have a credit balance.
Account Name
Debit / Dr.

Transaction #1

Balance

Chapter
2-8

$10,000

Credit / Cr.

$3,000

Transaction #2

8,000

Transaction #3

$1,000

LO 2 Define debits and credits and explain their
use in recording business transactions.


Debits
Debits and
and Credits
Credits Summary
Summary
Normal

Normal
Balance
Balance
Debit
Debit

Debit / Dr.

Normal
Normal
Balance
Balance
Credit
Credit

Assets

Credit / Cr.

Normal Balance

Chapter
3-24

Owner’s Equity

Credit / Cr.

Debit / Dr.

Liabilities

Debit / Dr.

Credit / Cr.

Normal Balance
Normal Balance
Chapter
3-23

Expense
Debit / Dr.

Revenue

Chapter
3-25

Credit / Cr.

Debit / Dr.

Normal Balance

Chapter
3-27

Chapter
2-9

Credit / Cr.

Normal Balance

Chapter
3-26

LO 2


Debits
Debits and
and Credits
Credits Summary
Summary
Balance Sheet

Income Statement

Asset = Liability + Equity

Revenue - Expense

Debit

Credit

Chapter
2-10

LO 2 Define debits and credits and explain their
use in recording business transactions.


Debits
Debits and
and Credits
Credits Summary
Summary

Review Question
Debits:
a. increase both assets and liabilities.
b. decrease both assets and liabilities.
c. increase assets and decrease liabilities.
d. decrease assets and increase liabilities.

Chapter
2-11

LO 2 Define debits and credits and explain their
use in recording business transactions.


Debits
Debits and
and Credits
Credits Summary
Summary

Discussion Question
Q4. Maria Alvarez, a beginning accounting
student, believes debit balances are favorable
and credit balances are unfavorable. Is Maria
correct? Discuss.

See notes page for discussion
Chapter
2-12

LO 2 Define debits and credits and explain their
use in recording business transactions.


Assets
Assets and
and Liabilities
Liabilities
Assets
Debit / Dr.

Credit / Cr.

Assets - Debits should
exceed credits.

Normal Balance

Liabilities – Credits

should exceed debits.

Chapter
3-23

Liabilities
Debit / Dr.

Credit / Cr.

The normal balance is on
the increase side.

Normal Balance

Chapter
3-24

Chapter
2-13

LO 2 Define debits and credits and explain their
use in recording business transactions.


Owners’
Owners’ Equity
Equity
Owner’s investments and
revenues increase owner’s

equity (credit).

Owner’s Equity
Debit / Dr.

Credit / Cr.

Owner’s drawings and expenses
decrease owner’s equity (debit).

Normal Balance

Chapter
3-25

Owner’s Capital
Debit / Dr.

Chapter
3-25

Chapter
2-14

Owner’s Drawing

Credit / Cr.

Debit / Dr.

Normal Balance

Normal Balance

Credit / Cr.

Chapter
3-23

LO 2 Define debits and credits and explain their
use in recording business transactions.


Revenue
Revenue and
and Expense
Expense
Revenue
Debit / Dr.

Credit / Cr.

Normal Balance

Chapter
3-26

Expense
Debit / Dr.

Normal Balance

Chapter
3-27

Chapter
2-15

Credit / Cr.

The purpose of earning
revenues is to benefit the
owner(s).
The effect of debits and
credits on revenue accounts
is the same as their effect
on Owner’s Capital.
Expenses have the opposite
effect: expenses decrease
owner’s equity.
LO 2 Define debits and credits and explain their
use in recording business transactions.


Debits
Debits and
and Credits
Credits Summary
Summary

Review Question
Accounts that normally have debit balances are:
a. assets, expenses, and revenues.
b. assets, expenses, and owner’s capital.
c. assets, liabilities, and owner’s drawings.
d. assets, owner’s drawings, and expenses.

Chapter
2-16

LO 2 Define debits and credits and explain their
use in recording business transactions.


Expansion
Expansion of
of the
the Basic
Basic Equation
Equation
Relationship among the assets, liabilities and
owner’s equity of a business:
Basic
Equation

Assets = Liabilities +

Owner’s Equity

Illustration 2-11

Expanded
Basic
Equation

The equation must be in balance after every
transaction. For every Debit there must be a Credit.
Chapter
2-17

LO 2 Define debits and credits and explain their
use in recording business transactions.


Steps
Steps in
in the
the Recording
Recording Process
Process
Illustration 2-12

Analyze each transaction

Enter transaction in a journal

Transfer journal information
to ledger accounts

Business documents, such as a sales slip, a check, a

bill, or a cash register tape, provide evidence of the
transaction.
Chapter
2-18

LO 3 Identify the basic steps in the recording process.


The
The Journal
Journal
Book of original entry (General Ledger).
Transactions recorded in chronological order.
Contributions to the recording process:
1. Discloses the complete effects of a transaction.
2. Provides a chronological record of transactions.
3. Helps to prevent or locate errors because the

debit and credit amounts can be easily compared.

Chapter
2-19

LO 3 Identify the basic steps in the recording process.


Journalizing
Journalizing
Journalizing - Entering transaction data in the journal.
E2-4 (Facts) Presented below is information related to

Hanshew Real Estate Agency.
Oct. 1 Pete Hanshew begins business as a real estate agent with
a cash investment of $15,000.
3 Purchases office furniture for $1,900, on account.
6 Sells a house and lot for B. Kidman; bills B. Kidman $3,200
for realty services provided.
27 Pays $700 on balance related to transaction of Oct. 3.
30 Pays the administrative assistant $2,500 salary for Oct.
E2-5 Instructions - Journalize the transactions for E2-4.
Chapter
2-20

LO 4 Explain what a journal is and how it helps in the recording process.


Journalizing
Journalizing
E2-4 (Facts) Presented below is information related
to Hanshew Real Estate Agency.
Pete Hanshew begins business as a real estate
agent with a cash investment of $15,000.

Oct. 1

General Journal
Date
Oct.

Account Title
1

Cash
Hanshew, Capital

Ref.

Debit

Credit

15,000
15,000

(Owners investment)

Chapter
2-21

LO 4 Explain what a journal is and how it helps in the recording process.


Journalizing
Journalizing
E2-4 (Facts) Presented below is information related
to Hanshew Real Estate Agency.
Oct. 3

Purchases office furniture for $1,900, on
account.
General Journal

Chapter
2-22

LO 4 Explain what a journal is and how it helps in the recording process.


Journalizing
Journalizing
E2-4 (Facts) Presented below is information related
to Hanshew Real Estate Agency.
Oct. 6

Sells a house and lot for B. Kidman; bills B.
Kidman $3,200 for realty services provided.
General Journal

Chapter
2-23

LO 4 Explain what a journal is and how it helps in the recording process.


Journalizing
Journalizing
E2-4 (Facts) Presented below is information related
to Hanshew Real Estate Agency.
Oct. 27 Pays $700 on balance related to transaction of

Oct. 3.

General Journal

Chapter
2-24

LO 4 Explain what a journal is and how it helps in the recording process.


Journalizing
Journalizing
E2-4 (Facts) Presented below is information related
to Hanshew Real Estate Agency.
Oct. 30 Pays the administrative assistant $2,500

salary for Oct.

General Journal

Chapter
2-25

LO 4 Explain what a journal is and how it helps in the recording process.