0
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...
Chapter
2-3
Double-entryDouble-entry accounting system
Each transaction must affect two or more
accounts to keep the basic...
Chapter
2-4
Account Name
Debit / Dr. Credit / Cr.
If Debits are greater thangreater than Credits, the account
will have a ...
Chapter
2-5
Account Name
Debit / Dr. Credit / Cr.
If Credits are greater thangreater than Debits, the account
will have a ...
Chapter
2-6
Chapter
3-23
AssetsAssets
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter
3-27
Debit / Dr. Credi...
Chapter
2-7
Balance SheetBalance Sheet Income StatementIncome Statement
= + -Asset Liability Equity Revenue Expense
Debit
...
Chapter
2-8
Assets - Debits should
exceed credits.
Liabilities – Credits
should exceed debits.
The normal balance is on
th...
Chapter
2-9
Owner’s investments and
revenues increase owner’s
equity (credit).
Owner’s drawings and expenses
decrease owne...
Chapter
2-10
The purpose of earning
revenues is to benefit the
owner(s).
The effect of debits and
credits on revenue accou...
Chapter
2-11
Expansion of the Basic EquationExpansion of the Basic EquationExpansion of the Basic EquationExpansion of the...
Chapter
2-12
Business documents, such as a sales slip, a check, a
bill, or a cash register tape, provide evidence of the
t...
Chapter
2-13
Book of original entry.
Transactions recorded in chronological order.
Contributions to the recording process:...
Chapter
2-14
Journalizing - Entering transaction data in the journal.
JournalizingJournalizingJournalizingJournalizing
E2-...
Chapter
2-15
Account Title Ref. Debit CreditDate
JournalizingJournalizingJournalizingJournalizing
General Journal
SO 4 Exp...
Chapter
2-16
JournalizingJournalizingJournalizingJournalizing
SO 4 Explain what a journal is and how it helps in the recor...
Chapter
2-17
JournalizingJournalizingJournalizingJournalizing
SO 4 Explain what a journal is and how it helps in the recor...
Chapter
2-18
JournalizingJournalizingJournalizingJournalizing
SO 4 Explain what a journal is and how it helps in the recor...
Chapter
2-19
JournalizingJournalizingJournalizingJournalizing
SO 4 Explain what a journal is and how it helps in the recor...
Chapter
2-20
Simple Entry – Two accounts, one debit and one credit.
Compound Entry – Three or more accounts.
JournalizingJ...
Chapter
2-21
A General Ledger contains the entire group of
accounts maintained by a company.
The General Ledger includes a...
Chapter
2-22
Accounts and account numbers arranged in sequence in
which they are presented in the financial statements.
Ch...
Chapter
2-23
T-account form used in accounting textbooks.
In practice, the account forms used in ledgers are
much more str...
Chapter
2-24
PostingPosting – the process of transferring amounts from the
journal to the ledger accounts.
Cash Acct. No. ...
Chapter
2-25
Date Explanation Ref. Debit Credit Balance
General Ledger
Date Explanation Ref. Debit Credit Balance
General ...
Chapter
2-26
Date Explanation Ref. Debit Credit Balance
General Ledger
Date Explanation Ref. Debit Credit Balance
General ...
Chapter
2-27
Date Explanation Ref. Debit Credit Balance
General Ledger
Date Explanation Ref. Debit Credit Balance
General ...
Chapter
2-28 SO 6 Explain what posting is and how it helps in the recording process.SO 6 Explain what posting is and how i...
Chapter
2-29 SO 6 Explain what posting is and how it helps in the recording process.SO 6 Explain what posting is and how i...
Chapter
2-30
A list of accounts
and their balances
at a given time.
Purpose is to
prove that debits
equal credits.
The Tri...
Chapter
2-31
The trial balance may balance even when
1. a transaction is not journalized,
2. a correct journal entry is no...
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  1. 1. Chapter 2-1 Chapter 2 The Recording Process Accounting Principles, Ninth Edition
  2. 2. 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” AccountAccount An Account canAn Account can be illustrated in abe illustrated in a T-AccountT-Account form.form. SO 1 Explain what an account is and how it helps in the recording process.SO 1 Explain what an account is and how it helps in the recording process. The AccountThe AccountThe AccountThe Account
  3. 3. Chapter 2-3 Double-entryDouble-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 theirSO 2 Define debits and credits and explain their use in recording business transactions.use in recording business transactions. Debits and CreditsDebits and CreditsDebits and CreditsDebits and Credits
  4. 4. 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 theirSO 2 Define debits and credits and explain their use in recording business transactions.use in recording business transactions.
  5. 5. 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 theirSO 2 Define debits and credits and explain their use in recording business transactions.use in recording business transactions. $1,000$1,000 8,000 Transaction #3
  6. 6. 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 SummaryDebits and Credits SummaryDebits and Credits SummaryDebits and Credits Summary SO 2SO 2
  7. 7. Chapter 2-7 Balance SheetBalance 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 theirSO 2 Define debits and credits and explain their use in recording business transactions.use in recording business transactions.
  8. 8. 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 theirSO 2 Define debits and credits and explain their use in recording business transactions.use in recording business 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
  9. 9. 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 theirSO 2 Define debits and credits and explain their use in recording business transactions.use in recording business 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
  10. 10. 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 theirSO 2 Define debits and credits and explain their use in recording business transactions.use in recording business 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
  11. 11. 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 andRelationship among the assets, liabilities and owner’s equity of a business:owner’s equity of a business: The equation must be in balance after everyThe equation must be in balance after every transaction. For everytransaction. For every DebitDebit there must be athere must be a CreditCredit.. Illustration 2-11 Assets Liabilities= Owner’s Equity Basic Equation Expanded Basic Equation SO 2 Define debits and credits and explain theirSO 2 Define debits and credits and explain their use in recording business transactions.use in recording business transactions. +
  12. 12. 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
  13. 13. 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 process.SO 4 Explain what a journal is and how it helps in the recording process.
  14. 14. 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 process.SO 4 Explain what a journal is and how it helps in the recording 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.
  15. 15. 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 process.SO 4 Explain what a journal is and how it helps in the recording 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)
  16. 16. Chapter 2-16 JournalizingJournalizingJournalizingJournalizing SO 4 Explain what a journal is and how it helps in the recording process.SO 4 Explain what a journal is and how it helps in the recording 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)
  17. 17. Chapter 2-17 JournalizingJournalizingJournalizingJournalizing SO 4 Explain what a journal is and how it helps in the recording process.SO 4 Explain what a journal is and how it helps in the recording 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)
  18. 18. Chapter 2-18 JournalizingJournalizingJournalizingJournalizing SO 4 Explain what a journal is and how it helps in the recording process.SO 4 Explain what a journal is and how it helps in the recording 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)
  19. 19. Chapter 2-19 JournalizingJournalizingJournalizingJournalizing SO 4 Explain what a journal is and how it helps in the recording process.SO 4 Explain what a journal is and how it helps in the recording 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)
  20. 20. 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 process.SO 4 Explain what a journal is and how it helps in the recording process. Account Title Ref. Debit CreditDate General Journal Equipment Cash Jun. 15 15,000 10,000 (Purchase equipment) Accounts payable 5,000
  21. 21. 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 process.SO 5 Explain what a ledger is and how it helps in the recording process.
  22. 22. 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 process.SO 6 Explain what posting is and how it helps in the recording process. Hanshew Real Estate Agency Chart of Accounts 101 Cash 300 Hanshew, Capital 112 Accounts receivable 306 Hanshew, Drawing 126 Advertising supplies 350 Income summary 140 Office furniture 150 Equipment 158 Accumulated depreciation 400 Service revenue 200 Accounts payable 631 Advertising supplies expense 201 Notes payable 711 Depreciation expense 209 Unearned revenue 722 Insurance expense 212 Salaries payable 726 Salaries expense 230 Interest payable 729 Rent expense 905 Interest expense Liabilities Assets Owner's Equity Revenues Expenses
  23. 23. Chapter 2-23 T-account form used in accounting textbooks. In practice, the account forms used in ledgers are much more structured. Standard Form of AccountStandard Form of AccountStandard Form of AccountStandard Form of Account Explanation Ref. Debit Credit Oct. 1 15,000 15,000 27 700 14,300 30 2,500 11,800 Cash Date No. 101 Balance SO 5 Explain what a ledger is and how it helps in the recording process.SO 5 Explain what a ledger is and how it helps in the recording process.
  24. 24. Chapter 2-24 PostingPosting – 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 process.SO 6 Explain what posting is and how it helps in the recording process.
  25. 25. 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 process.SO 6 Explain what posting is and how it helps in the recording process. Oct. 1 J1 15,000 15,000 Cash Acct. No. 101 Hanshew, capital Acct. No. 300 101 300 J1 E2-5 PostingPostingPostingPosting
  26. 26. Chapter 2-26 Date Explanation Ref. Debit Credit Balance General Ledger Date Explanation Ref. Debit Credit Balance General Ledger Office Furniture Acct. No. 140 Accounts Payable Acct. No. 200 PostingPostingPostingPosting Oct. 3 J1 1,900 1,900 SO 6 Explain what posting is and how it helps in the recording process.SO 6 Explain what posting is and how it helps in the recording process. Oct. 3 J1 1,900 140 200 J1 1,900 E2-5
  27. 27. Chapter 2-27 Date Explanation Ref. Debit Credit Balance General Ledger Date Explanation Ref. Debit Credit Balance General Ledger Accounts Receivable Acct. 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 process.SO 6 Explain what posting is and how it helps in the recording process. Oct. 6 J1 3,200 3,200 112 400 J1 E2-5 PostingPostingPostingPosting
  28. 28. Chapter 2-28 SO 6 Explain what posting is and how it helps in the recording process.SO 6 Explain what posting is and how it helps in the recording process. 200 101 J1 E2-5 Date Explanation Ref. Debit Credit Balance General Ledger Accounts Payable Acct. No. 200 Oct. 3 J1 1,9001,900 Oct.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 PostingPostingPostingPosting
  29. 29. Chapter 2-29 SO 6 Explain what posting is and how it helps in the recording process.SO 6 Explain what posting is and how it helps in the recording process. 726 101 J1 E2-5 Date Explanation Ref. Debit Credit Balance General Ledger Salaries 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 14,300 Oct.30 J1 2,500 11,800 PostingPostingPostingPosting
  30. 30. 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 Credit Cash 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 Agency Trial Balance October 31, 2010 E2-5
  31. 31. 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
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