1. Accounting 211 – Chapter 2 The Recording Process

2. What you will learn in Chapter 2:
Basics of the account
Steps in the recording process
Journalizing and posting
The trial balance

3. The Account
Individual record of increases or decreases in a specific asset, liability or equity item.
The T-account is a way of illustrating those changes. We will use it in the course to illustrate the effects of events on these specific accounts…

4. Remember: debits on the left, credits on the right!
Debits and Credits
A T-account represents a ledger account and is a tool used to understand the effects of one or more transactions.
Remember: debits on the left, credits on the right!

5. Double-Entry Accounting
An account balance is the difference between the increases and decreases in an account.

6. Double-Entry Accounting
Liabilities
Equity
Assets = +
Debit Credit
ASSETS
LIABILITIES
EQUITIES
In an accounting system, the sum of the debits always equals
the sum of the credits.

7. Normal Account Balances
Asset = Increase is a debit
= Decrease is a credit
= Normal balance is a debit
Liability = Increase is a credit
= Decrease is a debit
= Normal balance is a credit
Equity = Increase is a credit

8. Double-Entry Accounting
Exh.
3.8
Double-Entry Accounting
Equity
Revenues
Expenses
Owner’s Capital
Owner’s Withdrawals _ +
Debit Credit
Capital
Withdrawals
Expenses
Revenues

9. The Recording Process Steps are:
Analyze each transaction and how it affects the accounts.
Enter the transaction information in a journal.
Transfer (post) the journal information in the ledger (book of accounts).

10. Analyzing and Recording Process
Analyze each transaction and event form source documents
Record relevant transactions and events in a journal
Post journal information to ledger accounts
Prepare and analyze the trial balance

11. Journalizing
A journal is an original book of entry where the transactions are recorded.
It shows the complete record of one transaction.
It provides a chronological record of all transactions.
It helps to find errors by comparing debits and credits.

12. Employee Earnings Record
Source Documents
Bills from Suppliers
Checks
Purchase Orders
Employee Earnings Record
Bank Statement
Sales Tickets

13. Journalizing and Posting Transactions
Step 1: Analyze transactions and source documents.
Liabilities
Equity
Assets = +
Step 2: Apply double-entry accounting
Step 3: Record journal entry
Step 4: Post entry to ledger

14. General Journal (Debits on left, credits on right)
Titles of Affected Accounts
Transaction Date
Dollar amount of debits and credits
Transaction explanation

15. Simple vs. Compound Entry
A simple entry involves one debit and one credit.
A compound entry involves more than one debit or more than one credit
1/1/2006 Delivery Equipment 100, Cash ,000
Accounts Payable 60,000
To record purchase of truck on credit with down payment of $40,000.

16. General Ledger
A ledger account contains all the information in one place about changes in a specific account and the account’s balance.
The general ledger contains all the asset, liability and equity accounts maintained by the business.
Let’s look at Ill on p. 54.

17. Posting Journal Entries1
Identify the account.

18. Posting Journal Entries
Enter the date. 2

19. Posting Journal Entries
Enter the amount and description. 3

20. Posting Journal Entries4
Enter the journal reference.

21. Posting Journal Entries
Compute the balance. 5

22. Posting Journal Entries6
Enter the ledger reference.

23. Chart of Accounts
A list of accounts identified by a unique account number. III in text
Typical numbering system:
Assets
Liabilities
Equity
Revenues
Expenses
More specific revenue/expenses

24. Analyzing Transactions – An Illustration
Analysis:
Double entry:
101
301
Posting:

25. Analyzing Transactions
Analysis:
Double entry:
126
101
Posting:

26. Analyzing Transactions
Analysis:
Double entry:
167
101
Posting:

27. Analyzing Transactions
Analysis:
Double entry:
126
201
Posting:

28. Analyzing Transactions
Analysis:
Double entry:
403
101
Posting:

29. The Trial Balance
A trial balance is a list of all accounts and their balances at a specific point in time.
The trial balance is used to prove the equality of debits and credits.
If there are errors, the trial balance can be used to find them.

30. Steps to Prepare A Trial Balance
List the account titles and their balances
Total the debit and credit columns
Prove the equality of the two columns
Note: the trial balance proves that debits equal credits, but it does not prove that all transactions are correctly record or that the ledger balances are correct.

31. Example of a Trial Balance
After processing its remaining transactions for December, FastForward’s Trial Balance is prepared.
Debits
Credits
Cash
3,950 $
Accounts receivable -
Supplies
9,720
Prepaid Insurance
2,400
Equipment
26,000
Accounts payable
6,200
Unearned consulting revenue
3,000
C. Taylor, Capital
30,000
C. Taylor, Withdrawals
600
Consulting revenue
5,800
Rental revenue
300
Salaries expense
1,400
Rent expense
1,000
Utilities expense
230
Total
45,300
FastForward
Trial Balance
December 31, 2004
The trial balance lists all account balances in the general ledger. If the books are in balance, the total debits will equal the total credits.

32. Finding Errors In A Trial Balance
If the error is $1 or a multiple of $10, 100 or $1,000 re-add the trial balance or re-add the individual account balances.
If the error can be divided by $2, check if an amount equal to half the error was entered in the wrong column.
If the error can be divided by 9, there may be a transposition error.
If the error is some other amount, check to see if that amount was not entered on the trial balance.
If all else fails, go back to the original journal entries and check if they are correct!

33. Formatting with Dollar Signs
Don’t use dollar signs in the journals and ledgers.
Use them only in the trial balance and on financial statements.

34. Questions ?