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Chapter 2-1
Chapter 2-2
CHAPTER CHAPTER 22
THE RECORDING THE RECORDING PROCESSPROCESS
Accounting Principles, Eighth Edition
Chapter 2-3
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.
Study ObjectivesStudy ObjectivesStudy ObjectivesStudy Objectives
Chapter 2-4
The AccountThe AccountThe AccountThe Account
Debits and Debits and creditscredits
Expansion of Expansion of basic equationbasic equation
Steps in the Steps in the
Recording Recording
ProcessProcess
Steps in the Steps in the
Recording Recording
ProcessProcess
The Recording The Recording
Process Process
IllustratedIllustrated
The Recording The Recording
Process Process
IllustratedIllustrated
The Trial The Trial
BalanceBalanceThe Trial The Trial
BalanceBalance
Limitations of a Limitations of a trial balancetrial balance
Locating errorsLocating errors
Use of dollar Use of dollar signssigns
Summary Summary illustration of illustration of journalizing journalizing and postingand posting
The Recording ProcessThe Recording ProcessThe Recording ProcessThe Recording Process
JournalJournal
LedgerLedger
Chapter 2-5
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.
LO 1 Explain what an account is and how it helps in the recording LO 1 Explain what an account is and how it helps in the recording process.process.
The AccountThe AccountThe AccountThe Account
Chapter 2-6
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.
LO 2 Define debits and credits and explain LO 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 2-7
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
LO 2 Define debits and credits and explain LO 2 Define debits and credits and explain their use in recording business their use in recording business transactions.transactions.
Chapter 2-8
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
LO 2 Define debits and credits and explain LO 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 2-9
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
LO 2 LO 2
Chapter 2-10
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
LO 2 Define debits and credits and explain LO 2 Define debits and credits and explain their use in recording business their use in recording business transactions.transactions.
Chapter 2-11
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.
Review QuestionReview Question
Debits and Credits SummaryDebits and Credits SummaryDebits and Credits SummaryDebits and Credits Summary
LO 2 Define debits and credits and explain LO 2 Define debits and credits and explain their use in recording business their use in recording business transactions.transactions.
Chapter 2-12
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
Debits and Credits SummaryDebits and Credits SummaryDebits and Credits SummaryDebits and Credits Summary
LO 2 Define debits and credits and explain LO 2 Define debits and credits and explain their use in recording business their use in recording business transactions.transactions.
Chapter 2-13
Assets - Debits should exceed credits.
Liabilities – Credits should exceed debits.
The normal balance is on the increase side.
LO 2 Define debits and credits and explain LO 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 2-14
Owner’s investments and revenues increase owner’s equity (credit).
Owner’s drawings and expenses decrease owner’s equity (debit).
LO 2 Define debits and credits and explain LO 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 2-15
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 LO 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 2-16
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.
Review QuestionReview Question
Debits and Credits SummaryDebits and Credits SummaryDebits and Credits SummaryDebits and Credits Summary
LO 2 Define debits and credits and explain LO 2 Define debits and credits and explain their use in recording business their use in recording business transactions.transactions.
Chapter 2-17
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
LO 2 Define debits and credits and explain LO 2 Define debits and credits and explain their use in recording business their use in recording business transactions.transactions.
+
Chapter 2-18
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
LO 3 Identify the basic steps in the recording process.LO 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 2-19
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.
The JournalThe JournalThe JournalThe Journal
LO 3 Identify the basic steps in the recording process.LO 3 Identify the basic steps in the recording process.
Chapter 2-20
Journalizing - Entering transaction data in the journal.
JournalizingJournalizingJournalizingJournalizing
E2-4 (Facts) Presented below is information related to Hanshew Real Estate Agency.
LO 4 Explain what a journal is and how it helps in the recording LO 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 2-21
Account Title Ref. Debit Credit
Oct. 1 Cash 15,000
Hanshew, Capital 15,000
(Owners investment)
Date
JournalizingJournalizingJournalizingJournalizing
General Journal
LO 4 Explain what a journal is and how it helps in the recording LO 4 Explain what a journal is and how it helps in the recording process.process.
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
Chapter 2-22
Account T itle Ref . Debit Credit
Oct. 3 Offi ce Furniture 1,900
Accounts Payable 1,900
(Purchase f urniture)
Date
JournalizingJournalizingJournalizingJournalizing
General Journal
LO 4 Explain what a journal is and how it helps in the recording LO 4 Explain what a journal is and how it helps in the recording process.process.
E2-4 (Facts) Presented below is information related to Hanshew Real Estate Agency.
Purchases office furniture for $1,900, on account.
Oct. 3
Chapter 2-23
Account T itle Ref . Debit Credit
Oct. 6 Accounts Receivable 3,200
S ervice Revenue 3,200
(Realty services provided)
Date
JournalizingJournalizingJournalizingJournalizing
General Journal
LO 4 Explain what a journal is and how it helps in the recording LO 4 Explain what a journal is and how it helps in the recording process.process.
E2-4 (Facts) Presented below is information related to Hanshew Real Estate Agency.
Sells a house and lot for B. Kidman; bills B. Kidman $3,200 for realty services provided.
Oct. 6
Chapter 2-24
Account T itle Ref . Debit Credit
Oct. 27 Accounts Payable 700
Cash 700
(Payment on account)
Date
JournalizingJournalizingJournalizingJournalizing
General Journal
LO 4 Explain what a journal is and how it helps in the recording LO 4 Explain what a journal is and how it helps in the recording process.process.
E2-4 (Facts) Presented below is information related to Hanshew Real Estate Agency.
Pays $700 on balance related to transaction of Oct. 3.
Oct. 27
Chapter 2-25
Account T itle Ref . Debit Credit
Oct. 30 S alary Expense 2,500
Cash 2,500
(Payment f or salar ies)
Date
JournalizingJournalizingJournalizingJournalizing
General Journal
LO 4 Explain what a journal is and how it helps in the recording LO 4 Explain what a journal is and how it helps in the recording process.process.
E2-4 (Facts) Presented below is information related to Hanshew Real Estate Agency.
Pays the administrative assistant $2,500 salary for Oct.
Oct. 30
Chapter 2-26
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).
LO 4 Explain what a journal is and how it helps in the recording LO 4 Explain what a journal is and how it helps in the recording process.process.
Account Title Ref . Debit Credit
J une 15 Equipment 15,000
Cash 10,000
Accounts Payable 5,000
(Purchased equipment)
Date
General Journal
Chapter 2-27
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
LO 5 Explain what a ledger is and how it helps in the recording LO 5 Explain what a ledger is and how it helps in the recording process.process.
Chapter 2-28
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
LO 6 Explain what posting is and how it helps in the recording LO 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 summary130 Prepaid insurance
150 Office 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 2-29
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
LO 5 Explain what a ledger is and how it helps in the recording LO 5 Explain what a ledger is and how it helps in the recording process.process.
Chapter 2-30
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
LO 6 Explain what posting is and how it helps in the recording LO 6 Explain what posting is and how it helps in the recording process.process.
Chapter 2-31
Posting:
a. normally occurs before journalizing.
b. transfers ledger transaction data to the journal.
c. is an optional step in the recording process.
d. transfers journal entries to ledger accounts.
Review QuestionReview Question
PostingPostingPostingPosting
LO 6 Explain what posting is and how it helps in the recording LO 6 Explain what posting is and how it helps in the recording process.process.
Chapter 2-32
The Recording Process IllustratedThe Recording Process IllustratedThe Recording Process IllustratedThe Recording Process Illustrated
LO 6 Explain what posting is and how it helps in the recording LO 6 Explain what posting is and how it helps in the recording process.process.
Follow these steps:
1. Determine what type of account is involved.
2. Determine what items increased or decreased and by how much.
3. Translate the increases and decreases into debits and credits.
Illustration 2-19
Chapter 2-33
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$ A ccounts receivable 3,200 O ffice furniture 1,900 A ccounts payable 1,200$ Hanshew, Capital 15,000 S ervice revenue 3,200 S alaries expense 2,500
19,400$ 19,400$
Hanshew R eal E s tate A gencyTrial B alance
Oc tober 31, 2008
Chapter 2-34
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
Chapter 2-35
A trial balance will not balance if:
a. a correct journal entry is posted twice.
b. the purchase of supplies on account is debited to Supplies and credited to Cash.
c. a $100 cash drawing by the owner is debited to Owner’s Drawing for $1,000 and credited to Cash for $100.
d. a $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45.
Review QuestionReview Question
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.
Chapter 2-36
Q2-19. Jim Benes is confused about how accounting information flows through the accounting system. He believes the flow of information is as follows.
a. Debits and credits posted to the ledger.b. Business transaction occurs. c. Information entered in the journal.d. Financial statements are prepared.e. Trial balance is prepared.
Is Jim correct? If not, indicate to Jim the proper flow of the information.
See notes page for discussion
Recording ProcessRecording ProcessRecording ProcessRecording Process
Discussion QuestionDiscussion Question
LO 7 Prepare a trial balance and explain its purposes.LO 7 Prepare a trial balance and explain its purposes.
Chapter 2-37
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