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Chapter 2-1
Chapter 2
The Recording Process
Accounting Principles, Ninth Edition
Chapter 2-2
Account Name
Debit / Dr. Credit / Cr.
Record of increases and decreases in a specific asset, liability, equity, revenue, or expense item.
Debit = “Left”
Credit = “Right”
AccounAccountt
An Account can An Account can be illustrated be illustrated
in a T-Account in a T-Account form.form.
SO 1 Explain what an account is and how it helps in the recording SO 1 Explain what an account is and how it helps in the recording process.process.
The AccountThe AccountThe AccountThe Account
Chapter 2-3
Double-entry 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 equalmust equal CREDITS.
SO 2 Define debits and credits and explain SO 2 Define debits and credits and explain their use in recording business their use in recording business transactions.transactions.
Debits and CreditsDebits and CreditsDebits and CreditsDebits and Credits
Chapter 2-4
Account Name
Debit / Dr. Credit / Cr.
If Debits are greater thangreater than Credits, the account will have a debit balance.
$10,000 Transaction #2$3,000
$15,000$15,000
8,000Transaction #3
Balance
Transaction #1
Debits and CreditsDebits and CreditsDebits and CreditsDebits and Credits
SO 2 Define debits and credits and explain SO 2 Define debits and credits and explain their use in recording business their use in recording business transactions.transactions.
Chapter 2-5
Account Name
Debit / Dr. Credit / Cr.
If Credits are greater thangreater than Debits, the account will have a credit balance.
$10,000 Transaction #2$3,000
Balance
Transaction #1
Debits and CreditsDebits and CreditsDebits and CreditsDebits and Credits
SO 2 Define debits and credits and explain SO 2 Define debits and credits and explain their use in recording business their use in recording business transactions.transactions.
$1,000$1,000
8,000 Transaction #3
Chapter 2-6
Chapter 3-23
AssetsAssets
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter 3-27
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
ExpenseExpense
Chapter 3-24
LiabilitiesLiabilities
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter 3-25
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Owner’s EquityOwner’s Equity
Chapter 3-26
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
RevenueRevenue
Normal Balance Credit
Normal Balance Credit
Normal Balance Debit
Normal Balance Debit
Debits and Credits Debits and Credits SummarySummaryDebits and Credits Debits and Credits SummarySummary
SO 2 SO 2
Chapter 2-7
Balance Sheet Balance Sheet Income StatementIncome Statement
= + -Asset Liability
Equity Revenue
Expense
Debit
Credit
Debits and Credits SummaryDebits and Credits SummaryDebits and Credits SummaryDebits and Credits Summary
SO 2 Define debits and credits and explain SO 2 Define debits and credits and explain their use in recording business their use in recording business transactions.transactions.
Chapter 2-8
Assets - Debits should exceed credits.
Liabilities – Credits should exceed debits.
The normal balance is on the increase side.
SO 2 Define debits and credits and explain SO 2 Define debits and credits and explain their use in recording business their use in recording business transactions.transactions.
Assets and LiabilitiesAssets and LiabilitiesAssets and LiabilitiesAssets and Liabilities
Chapter 3-23
AssetsAssets
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter 3-24
LiabilitiesLiabilities
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter 2-9
Owner’s investments and revenues increase owner’s equity (credit).
Owner’s drawings and expenses decrease owner’s equity (debit).
SO 2 Define debits and credits and explain SO 2 Define debits and credits and explain their use in recording business their use in recording business transactions.transactions.
Owners’ EquityOwners’ EquityOwners’ EquityOwners’ Equity
Chapter 3-25
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Owner’s CapitalOwner’s Capital
Chapter 3-23
Owner’s DrawingOwner’s Drawing
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter 3-25
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Owner’s EquityOwner’s Equity
Chapter 2-10
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.
SO 2 Define debits and credits and explain SO 2 Define debits and credits and explain their use in recording business their use in recording business transactions.transactions.
Revenue and ExpenseRevenue and ExpenseRevenue and ExpenseRevenue and Expense
Chapter 3-27
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
ExpenseExpense
Chapter 3-26
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
RevenueRevenue
Chapter 2-11
Expansion of the Basic EquationExpansion of the Basic EquationExpansion of the Basic EquationExpansion of the Basic Equation
Relationship among the assets, liabilities and Relationship among the assets, liabilities and owner’s equity of a business: owner’s equity of a business:
The equation must be in balance after every The equation must be in balance after every transaction. For every transaction. For every DebitDebit there must be a there must be a CreditCredit..
Illustration 2-11Assets Liabilities= Owner’s Equity
Basic Equation
Expanded Basic Equation
SO 2 Define debits and credits and explain SO 2 Define debits and credits and explain their use in recording business their use in recording business transactions.transactions.
+
Chapter 2-12
Business documents, such as a sales slip, a check, a bill, or a cash register tape, provide evidence of the transaction.
Steps in the Recording ProcessSteps in the Recording ProcessSteps in the Recording ProcessSteps in the Recording Process
SO 3 Identify the basic steps in the recording process.SO 3 Identify the basic steps in the recording process.
Illustration 2-12
Analyze each transaction
Enter transaction in a journal
Transfer journal information to ledger
accounts
Chapter 2-13
Book of original entry.
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.
The JournalThe JournalThe JournalThe Journal
SO 4 Explain what a journal is and how it helps in the recording SO 4 Explain what a journal is and how it helps in the recording process.process.
Chapter 2-14
Journalizing - Entering transaction data in the journal.
JournalizingJournalizingJournalizingJournalizing
E2-4 (Facts) Presented below is information related to Hanshew Real Estate Agency.
SO 4 Explain what a journal is and how it helps in the recording SO 4 Explain what a journal is and how it helps in the recording process.process.
Pete Hanshew begins business as a real estate agent with a cash investment of $15,000.
Oct. 1
Purchases office furniture for $1,900, on account.3
Sells a house and lot for B. Kidman; bills B. Kidman $3,200 for realty services provided.
6
Pays $700 on balance related to transaction of Oct. 3.
27
Pays the administrative assistant $2,500 salary for Oct.
30
E2-5 Instructions - Journalize the transactions for E2-4.
Chapter 2-15
Account Title Ref. Debit CreditDate
JournalizingJournalizingJournalizingJournalizing
General Journal
SO 4 Explain what a journal is and how it helps in the recording SO 4 Explain what a journal is and how it helps in the recording process.process.
E2-5 (Facts) Journalize the transactions related to Hanshew Real Estate Agency.
Pete Hanshew begins business as a real estate agent with a cash investment of $15,000.
Oct. 1
Cash
Hanshew, capital
Oct. 1 15,000
15,000
(Owner’s investment)
Chapter 2-16
JournalizingJournalizingJournalizingJournalizing
SO 4 Explain what a journal is and how it helps in the recording SO 4 Explain what a journal is and how it helps in the recording process.process.
Purchases office furniture for $1,900, on account.
Oct. 3
E2-5 (Facts) Journalize the transactions related to Hanshew Real Estate Agency.
Account Title Ref. Debit CreditDate
General Journal
Office furniture
Accounts payable
Oct. 3 1,900
1,900
(Purchase on account)
Chapter 2-17
JournalizingJournalizingJournalizingJournalizing
SO 4 Explain what a journal is and how it helps in the recording SO 4 Explain what a journal is and how it helps in the recording process.process.
Sells a house and lot for B. Kidman; bills B. Kidman $3,200 for realty services provided.
Oct. 6
E2-5 (Facts) Journalize the transactions related to Hanshew Real Estate Agency.
Account Title Ref. Debit CreditDate
General Journal
Accounts receivable
Service revenue
Oct. 6 3,200
3,200
(Services provided)
Chapter 2-18
JournalizingJournalizingJournalizingJournalizing
SO 4 Explain what a journal is and how it helps in the recording SO 4 Explain what a journal is and how it helps in the recording process.process.
Pays $700 on balance related to transaction of Oct. 3.
Oct. 27
E2-5 (Facts) Journalize the transactions related to Hanshew Real Estate Agency.
Account Title Ref. Debit CreditDate
General Journal
Accounts payable
Cash
Oct. 27 700
700
(Payment on account)
Chapter 2-19
JournalizingJournalizingJournalizingJournalizing
SO 4 Explain what a journal is and how it helps in the recording SO 4 Explain what a journal is and how it helps in the recording process.process.
Pays the administrative assistant $2,500 salary for Oct.
Oct. 30
E2-5 (Facts) Journalize the transactions related to Hanshew Real Estate Agency.
Account Title Ref. Debit CreditDate
General Journal
Salaries expense
Cash
Oct. 30 2,500
2,500
(Payment for salaries)
Chapter 2-20
Simple Entry – Two accounts, one debit and one credit.
Compound Entry – Three or more accounts.
JournalizingJournalizingJournalizingJournalizing
Example – On June 15, H. Burns, purchased equipment for $15,000 by paying cash of $10,000 and the balance on account (to be paid within 30 days).
SO 4 Explain what a journal is and how it helps in the recording SO 4 Explain what a journal is and how it helps in the recording process.process.
Account Title Ref. Debit CreditDate
General Journal
Equipment
Cash
Jun. 15 15,000
10,000
(Purchase equipment)
Accounts payable 5,000
Chapter 2-21
A General Ledger contains the entire group of accounts maintained by a company.
The General Ledger includes all the asset, liability, owner’s equity, revenue and expense accounts.
The LedgerThe LedgerThe LedgerThe Ledger
SO 5 Explain what a ledger is and how it helps in the recording SO 5 Explain what a ledger is and how it helps in the recording process.process.
Chapter 2-22
Accounts and account numbers arranged in sequence in which they are presented in the financial statements.
Chart of AccountsChart of AccountsChart of AccountsChart of Accounts
SO 6 Explain what posting is and how it helps in the recording SO 6 Explain what posting is and how it helps in the recording process.process.
Hanshew Real Estate AgencyChart of Accounts
101 Cash 300 Hanshew, Capital112 Accounts receivable 306 Hanshew, Drawing126 Advertising supplies 350 Income summary140 Office furniture
150 Equipment158 Accumulated depreciation 400 Service revenue
200 Accounts payable 631 Advertising supplies expense201 Notes payable 711 Depreciation expense209 Unearned revenue 722 Insurance expense212 Salaries payable 726 Salaries expense230 Interest payable 729 Rent expense
905 Interest expense
Liabilities
Assets Owner's Equity
Revenues
Expenses
Chapter 2-23
T-account form used in accounting textbooks.
In practice, the account forms used in ledgers aremuch more structured.
Standard Form of AccountStandard Form of AccountStandard Form of AccountStandard Form of Account
Explanation Ref. Debit CreditOct. 1 15,000 15,000
27 700 14,300 30 2,500 11,800
CashDate
No. 101Balance
SO 5 Explain what a ledger is and how it helps in the recording SO 5 Explain what a ledger is and how it helps in the recording process.process.
Chapter 2-24
Posting Posting – the process of transferring amounts from the journal to the ledger accounts.
Cash Acct. No. 101
Date Explanation Ref. Debit Credit Balance
General Ledger
Account Title Ref. Debit Credit
Oct. 1 Cash 15,000
Hanshew, Capital 15,000
(Owner' s investment in business)
Date
General Journal
Oct. 1 J1 15,000 15,000
101
J1
PostingPostingPostingPosting
SO 6 Explain what posting is and how it helps in the recording SO 6 Explain what posting is and how it helps in the recording process.process.
Chapter 2-25
Date Explanation Ref. Debit Credit Balance
General Ledger
Date Explanation Ref. Debit Credit Balance
General Ledger
Oct. 1 J1 15,000 15,000
SO 6 Explain what posting is and how it helps in the recording SO 6 Explain what posting is and how it helps in the recording process.process.
Oct. 1 J1 15,000 15,000
Cash Acct. No. 101
Hanshew, capital
Acct. No. 300
101
300
J1
E2-5
PostinPostinggPostinPostingg
Chapter 2-26
Date Explanation Ref. Debit Credit Balance
General Ledger
Date Explanation Ref. Debit Credit Balance
General LedgerOffice Furniture Acct. No. 140
Accounts Payable
Acct. No. 200
PostinPostinggPostinPostingg
Oct. 3 J1 1,900 1,900
SO 6 Explain what posting is and how it helps in the recording SO 6 Explain what posting is and how it helps in the recording process.process.
Oct. 3 J1 1,900
140
200
J1
1,900
E2-5
Chapter 2-27
Date Explanation Ref. Debit Credit Balance
General Ledger
Date Explanation Ref. Debit Credit Balance
General LedgerAccounts
ReceivableAcct. No. 112
Service Revenue Acct. No. 400
Oct. 6 J1 3,200 3,200
SO 6 Explain what posting is and how it helps in the recording SO 6 Explain what posting is and how it helps in the recording process.process.
Oct. 6 J1 3,200 3,200
112
400
J1
E2-5
PostinPostinggPostinPostingg
Chapter 2-28 SO 6 Explain what posting is and how it helps in the recording SO 6 Explain what posting is and how it helps in the recording
process.process.
200
101
J1
E2-5
Date Explanation Ref. Debit Credit Balance
General LedgerAccounts Payable
Acct. No. 200
Oct. 3 J1 1,9001,900Oct.27 J1 1,200700
Date Explanation Ref. Debit Credit Balance
General Ledger
Oct. 1 J1 15,000 15,000
Cash Acct. No. 101
Oct.27
J1 700 14,300
PostinPostinggPostinPostingg
Chapter 2-29 SO 6 Explain what posting is and how it helps in the recording SO 6 Explain what posting is and how it helps in the recording
process.process.
726
101
J1
E2-5
Date Explanation Ref. Debit Credit Balance
General LedgerSalaries Expense
Acct. No. 726
Oct.30 J1 2,5002,500
Date Explanation Ref. Debit Credit Balance
General Ledger
Oct. 1 J1 15,000 15,000
Cash Acct. No. 101
Oct.27
J1 700 14,300Oct.3
0J1 2,500 11,800
PostinPostinggPostinPostingg
Chapter 2-30
A list of accounts and their balances at a given time.
Purpose is to prove that debits equal credits.
The Trial BalanceThe Trial BalanceThe Trial BalanceThe Trial Balance
LO 7 Prepare a trial balance and explain its purposes.LO 7 Prepare a trial balance and explain its purposes.
Debit CreditCash 11,800$ Accounts receivable 3,200 Office furniture 1,900 Accounts payable 1,200$ Hanshew, Capital 15,000 Service revenue 3,200 Salaries expense 2,500
19,400$ 19,400$
Hanshew Real Estate AgencyTrial Balance
October 31, 2010
E2-5
Chapter 2-31
The trial balance may balance even when
1. a transaction is not journalized,
2. a correct journal entry is not posted,
3. a journal entry is posted twice,
4. incorrect accounts are used in journalizing or posting, or
5. offsetting errors are made in recording the amount of a transaction.
The Trial BalanceThe Trial BalanceThe Trial BalanceThe Trial Balance
LO 7 Prepare a trial balance and explain its purposes.LO 7 Prepare a trial balance and explain its purposes.
Limitations of a Trial Balance