Lecture Accounting principles (8th edition) – Chapter 2: The recording process
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Chapter
2-1
CHAPTER 2
THE RECORDING
PROCESS
Accounting Principles, Eighth Edition
Chapter
2-2
Study Objectives
Study 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 Recording Process
The Recording Process
The
TheAccount
Account
Debits and
credits
Expansion of
basic equation
Chapter
2-4
Steps
Stepsin
inthe
the
Recording
Recording
Process
Process
Journal
Ledger
The
TheRecording
Recording
Process
Process
Illustrated
Illustrated
The
TheTrial
Trial
Balance
Balance
Summary
illustration of
journalizing
and posting
Limitations of a
trial balance
Locating errors
Use of dollar
signs
The Account
The Account
Record of increases and decreases in a specific
asset, liability, equity, revenue, or expense item.
Account
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 and Credits
Debits and Credits
Doubleentry accounting system
Doubleentry
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.
must equal
Chapter
2-6
LO 2 Define debits and credits and explain their use in
recording business transactions.
Debits and Credits
Debits and Credits
If Debits are greater than Credits, the account will have a
greater than
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 and Credits
Debits and Credits
If Credits are greater than Debits, the account will have a
greater than
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 and Credits Summary
Debits and Credits Summary
Normal
Normal
Balance
Balance
Debit
Debit
Lia b ilit ie s
Normal
Normal
Balance
Balance
Credit
Credit
As s e t s
Credit / Cr.
Normal Balance
Chapter
3-24
O wne r ’s Eq uit y
Credit / Cr.
Debit / Dr.
Debit / Dr.
Debit / Dr.
Credit / Cr.
Normal Balance
Normal Balance
Chapter
3-23
Ex pe ns e
Debit / Dr.
Re ve nue
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 and Credits Summary
Debits and Credits 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 and Credits Summary
Debits and Credits 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 and Credits Summary
Debits and Credits 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 and Liabilities
Assets and Liabilities
As s e t s
Debit / Dr.
Credit / Cr.
Assets Debits should exceed
credits.
Normal Balance
Liabilities – Credits should
exceed debits.
Chapter
3-23
Lia b ilit ie s
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’ Equity
Owners’ Equity
Owner’s investments and revenues
increase owner’s equity (credit).
O wne r ’s Eq uit y
Debit / Dr.
Credit / Cr.
Owner’s drawings and expenses
decrease owner’s equity (debit).
Normal Balance
Chapter
3-25
O wne r ’s Ca pit a l
Debit / Dr.
Chapter
3-25
Chapter
2-14
O wne r ’s Dr a wing
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 and Expense
Revenue and Expense
Re ve nue
Debit / Dr.
Credit / Cr.
Normal Balance
Chapter
3-26
Ex pe ns e
Debit / Dr.
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.
Normal Balance
Chapter
3-27
Chapter
2-15
LO 2 Define debits and credits and explain their use in
recording business transactions.
Debits and Credits Summary
Debits and Credits 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 of the Basic Equation
Expansion of the Basic Equation
Relationship among the assets, liabilities and owner’s equity of a
business:
Basic
Equation
Assets = Liabilities +
Owner’s Equity
Illustration 211
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 in the Recording Process
Steps in the Recording Process
Illustration 212
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 Journal
The 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.
E24 (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.
E25 Instructions Journalize the transactions for E24.
Chapter
2-20
LO 4 Explain what a journal is and how it helps in the recording process.
Journalizing
Journalizing
E24 (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.
General Journal
Da t e
O ct.
Ac c o unt T it le
1
Ca s h
Re f .
De b it
C r e d it
15 ,0 0 0
Ha ns he w, Ca pit a l
15 ,0 0 0
(O wne r s inve s t m e nt )
Chapter
2-21
LO 4 Explain what a journal is and how it helps in the recording process.
Journalizing
Journalizing
E24 (Facts) Presented below is information related to Hanshew Real
Estate Agency.
Oct. 3
Purchases office furniture for $1,900, on account.
General Journal
Da t e
O c t. 3
A c c o unt T it le
O f f ic e Fur nitur e
Ac c o unts Pa y a b le
Re f .
De b it
Cr e d it
1,9 0 0
1,9 0 0
( Pur c h a s e f ur nitur e )
Chapter
2-22
LO 4 Explain what a journal is and how it helps in the recording process.
Journalizing
Journalizing
E24 (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
Da t e
A c c o unt T it le
O c t. 6
Ac c o unts Re c e iva b le
Re f .
S e r vic e Re ve nue
De b it
Cr e d it
3 ,2 0 0
3 ,2 0 0
( Re a lty s e r vic e s p r o vid e d )
Chapter
2-23
LO 4 Explain what a journal is and how it helps in the recording process.
Journalizing
Journalizing
E24 (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
Da t e
A c c o unt T it le
O c t. 2 7
Ac c o unts Pa y a b le
Ca s h
Re f .
De b it
Cr e d it
7 0 0
7 0 0
( Pa y me nt o n a c c o unt)
Chapter
2-24
LO 4 Explain what a journal is and how it helps in the recording process.
Journalizing
Journalizing
E24 (Facts) Presented below is information related to Hanshew Real
Estate Agency.
Oct. 30
Pays the administrative assistant $2,500 salary for Oct.
General Journal
Da t e
O c t. 3 0
A c c o unt T it le
Re f .
S a la r y Ex p e ns e
Ca s h
De b it
Cr e d it
2 ,5 0 0
2 ,5 0 0
( Pa y me nt f o r s a la r ie s )
Chapter
2-25
LO 4 Explain what a journal is and how it helps in the recording process.
