2. Chapter 2: The Recording Process

3. The Recording Process The Account Debits and credits
Double-entry accounting
Analyzing and Recording Transactions
The accounting cycle and steps in the recording process
The journal
The Ledger
Posting
The recording process illustrated
Summary illustration of journalizing and posting
The Trial Balance
Limitations of a trial balance
Locating errors
Some process explanations

4. Chapter 2: The Recording Process LEARNING OBJECTIVES
Describe how accounts, debits, and credits are used to record business transactions.
State how a journal is used in the recording process and journalize transactions.
Explain how a ledger helps in the recording process and post transactions.
Prepare a trial balance.

5. The Account
An individual accounting record of increases and decreases in a specific asset, liability, or owner’s equity item
Examples: cash, accounts payable, service revenue, salaries expense
Three parts: title, debit side, credit side
In its simplest form, these parts are positioned like the letter T
Therefore called a T account

6. Debits & Credits
Debit (Dr.) indicates left; Credit (Cr.) indicates right
Entering an amount on the left side is called debiting the account
Entering an amount on the right side is crediting the account
Debit balance
Debit amounts exceed the credits
Credit balance
Credit amounts exceed the debits

7. Tabular Versus Account Form

8. Debit & Credit Procedure
Debit does not mean increase or decrease
Can be either depending on the type account
Credit also does not mean increase or decrease
also depends on account type
Assets are on the debit side of the equation
Increases are also on debit side; decreases on credit side
Liabilities are on the credit side of the equation
Increases are on the credit side; decreases on the debit side

9. Assets, Liabilities & Owner’s Capital

10. Drawings, Revenues, Expenses

11. Accounting Equation Expanded

12. Double-Entry Accounting System
Each transaction is recorded with equal debits and credits
Total debits always equals total credits
Accounting equation will always stay in balance
Assets = Liabilities + Owner’s Equity
Every account has a normal balance
Either debit or credit

13. Chapter 2: LEARNING OBJECTIVES
Describe how accounts, debits, and credits are used to record business transactions.
State how a journal is used in the recording process and journalize transactions.
Explain how a ledger helps in the recording process and post transactions.
Prepare a trial balance.

14. The Accounting Cycle — Steps 1 to 3

15. The first three steps in the accounting cycle:
The Recording Process
The first three steps in the accounting cycle:
Analyze Business Transactions
Determine effect on accounts
Journalize the Transactions
The book of original entry
Post to Ledger Accounts

16. Where transactions are first recorded
The Journal
Where transactions are first recorded
Every company has a general journal
Contributes to recording process:
Discloses complete effect of a transaction in one place
Provides a chronological record
Helps prevent and locate errors

17. Entering transaction data in the journal
Journalizing
Entering transaction data in the journal
Separate journal entry for each transaction
A complete entry consists of
Transaction date
Accounts & amounts to be debited and credited
Brief explanation of transaction

18. Journalizing Technique
Transaction date is entered in date column
Debit account title is entered at the left margin of the “Account Titles and Explanation” column
Credit account title is indented on the next line

19. Journalizing Technique (cont’d)
Debit amounts are recorded in the Debit (left) column
Credit amounts are recorded in the Credit (right) column
A brief explanation of the transaction is provided

20. Journalizing Technique (cont’d)
Separate entries with a blank line
Ref column is used later when transferred to ledger
List all debits in each entry before listing credits

21. Journalizing Technique (cont’d)
Simple entry: involves two accounts
Compound entry: involves three or more accounts

22. Chapter 2: LEARNING OBJECTIVES
Describe how accounts, debits, and credits are used to record business transactions.
State how a journal is used in the recording process and journalize transactions.
Explain how a ledger helps in the recording process and post transactions.
Prepare a trial balance.

23. The Ledger Ledger: entire group of accounts maintained by a company
General ledger: contains all the assets, liabilities, and owner’s equity accounts
Arranged in financial statement order
Assets, liabilities, owner’s capital, drawings, revenues and expenses
Posting: procedure of transferring journal entries to the ledger accounts

24. Standard Form of Account

25. Posting Post to debit account: date, journal page number, amount
Enter debit account number in journal reference column
Post to credit account: journal page number, amount
Enter credit account number in journal reference column

26. List of accounts and their account numbers
Chart of Accounts
List of accounts and their account numbers
Indicates where accounts are found in the ledger
Usually starts with balance sheet accounts, followed by income statement accounts
Varies by company
Number of accounts
Types of accounts
Numbering system

27. Chapter 2: LEARNING OBJECTIVES
Describe how accounts, debits, and credits are used to record business transactions.
State how a journal is used in the recording process and journalize transactions.
Explain how a ledger helps in the recording process and post transactions.
Prepare a trial balance.

28. The Accounting Cycle – Steps 1 to 4

29. The Trial Balance
List of accounts and their balances at a specific time
Proves that debits equal credits after posting
Uncovers errors in journalizing and posting
To prepare a trial balance:
List accounts and their balances
Total the debit and credit columns
Ensure the two column totals are equal

30. Example Trial Balance

31. Limitations of a Trial Balance
Does not prove:
That all transactions have been recorded, or
That the ledger is correct
Numerous errors may exist even though the trial balance columns agree
Total debits and total credits may be equal, but may still be posted to the wrong account or in the wrong amount

32. If trial balance does not balance, then:
Locating Errors
If trial balance does not balance, then:
If error is an amount such as $1, $100 or $1,000, re-add and re-calculate account balances
If divisible by two, look for entry (= ½ of the error ) in the wrong column
If divisible by nine, look for transposition errors
Otherwise, scan to see if an account balance has been omitted

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