Chapter 3 The Recording Process

3-1 Three Parts of an Account (1) ACCOUNT TITLE (Left Side) (2) DEBIT (Right Side) (3) CREDIT Total Debits > Total Credits = Debit Balance Total Credits > Total Debits = Credit Balance Total Debits = Total Credits = Zero Balance

3-1 Three Parts of an Account (continued) CASH ACCOUNTS PAYABLE 9/1 Balance12,000 9/52,000 9/30Balance11,000 9/102,000 9/201,000 9/63,000 9/212,000 9/1Balance6,000 9/179,000 9/30Balance10,000 Example: (Debit Balance) (Credit Balance)

3-2 Double Entry Recording Rules ASSETS DIVIDENDS EXPENSES REVENUES RETAINED EARNINGS COMMON STOCK LIABILITIES Increase Account by DEBIT Decrease Account by DEBIT Increase Account by DEBIT Decrease Account by DEBIT Normal Balance

3-2 Double Entry Recording Rules (continued) DebitCredit ASSETSIncrease (N)Decrease LIABILITIESDecreaseIncrease (N) COMMON STOCKDecreaseIncrease (N) RETAINED EARNININGSDecreaseIncrease (N) DIVIDENDSIncrease (N)Decrease REVENUESDecreaseIncrease (N) EXPENSESIncrease (N)Decrease SUMMARY

3-3 Normal Account Balances Review the normal balances of accounts introduced in Chapters One and Two. Review how an increase in the account would be recorded (DR/CR). (a) For each account, indicate the normal balance (Debit/Credit). (b) For each account, indicate how an increase in the account is recorded (DR/CR) Instructions: AccountNormal BalanceIncrease in Account 1. Cash (EXAMPLE)DR 2. Accounts Receivable 3. Rent Expense 4. Service Revenue 5. Accounts Payable 6. Common Stock 7. Dividends 8. Unearned Revenue 9. Insurance Expense 10. Notes Payable 11. Retained Earnings

3-3 Normal Account Balances (continued) AccountNormal BalanceIncrease in Account 1. Cash (EXAMPLE)DR 2. Accounts ReceivableDR 3. Rent ExpenseDR 4. Service RevenueCR 5. Accounts PayableCR 6. Common StockCR 7. DividendsDR 8. Unearned RevenueCR 9. Insurance ExpenseDR 10. Notes PayableCR 11. Retained EarningsCR Answer: Note: The normal balance is same as increase to the account.

3-4 The Recording Process ANALYZE Business Transactions (for effects on specific accounts) RECORD Transactions entered in a Journal (book of original entry) TRANSFER Journal Information transferred to Ledger Accounts Business Documents Journalizing Posting

3-5 Journalizing DateAccount Titles and ExplanationRef.DebitCredit 2008 Sept. 1 Cash15,000 Common Stock15,000 (To record sale of stock) Key: 1.Enter date in Date Column. 2.Enter debit account title(s) at left margin of Account Titles and Explanation Column and amounts in Debit Column. 3.Enter credit account title(s) [INDENT CREDIT ACCOUNT TITLE(S)] and amounts in Credit Column. 4.Enter explanation under account titles. 5.Ref. Column is left blank until posting General Journal

3-6 Analyzing and Journalizing Transactions Steps in the Recording Process Instructions: Analyze and journalize the transactions provided. Sept.1Stockholders Invested $5,000 in his video services corporation. 2The corporation paid $500 cash for the store rent. 5The corporation purchased video supplies of $1,000. 9The corporation purchased video equipment for $12,000 paying $2,000 in cash and signed a $10,000 twenty-four month 9% note payable. 12The corporation provided video services and collected cash of $3, Declared and paid a $500 cash dived to stockholders.

3-6 Analyzing and Journalizing Transactions (continued) DateAccount Titles and ExplanationRef.DebitCredit 2008 Sept. 1 Cash Common Stock (Shares of stock issued for cash) 5,000 2Rent Expense Cash (Paid rent) 500 5Supplies Cash (Paid cash for supplies) 1,000 9Equipment Cash Notes payable (Purchased equipment, paying cash and issuing notes payable) 12,000 2,000 12,000 12Cash Service Revenue (Collected cash for services provided) 3,000 15Dividends Cash (Declared and paid a cash dividend) 500 General Journal

3-7 Forms of Accounts and Balances 1.Tabular 2.Account (or T-Account) 3.Three-Column All forms must show increases and decreases to the account in order to determine the account balances (amounts are assumed). Cash 9/1 Bal. 12,000 9/ /102,000 9/201,500 9/30 Bal. 9, Cash 9/1Bal.+ 12,000 9/ /10- 2,000 9/20- 1,500 9/30Bal. 9,000 Three-Column Account Form Cash No. 101 DateExplanationRef.DebitCreditBalance 2008 Sept. 1 Balance12,000 5Jl50012,500 10Jl2,00010,500 20Jl1,5009,000 30Balance9,000 POSTING

3-8 Steps in Posting Instructions: Post the first two entries recorded in the General Journal. DateAccount Titles and ExplanationRef.DebitCredit 2009 Sept. 1 Cash Common Stock (Issued shares of stock for cash) ,000 2Rent Expense Cash (Paid rent) Cash DateExplanationRef.DebitCreditBalance 2009, Sept. 1Jl5,000 2Jl5004,500 DateExplanationRef.DebitCreditBalance 2009, Sept. 1Jl5,000 General Journal Common Stock Rent Expense DateExplanationRef.DebitCreditBalance 2009, Sept. 2Jl500 Jl No. 101 No. 340 No. 560