4. recording process

1. Chapter
2-1
Chapter 2
The Recording
Process
Accounting Principles, Ninth Edition

2. Chapter
2-2
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 Objectives

3. Chapter
2-3
The Account
Debits and
credits
Expansion of
basic equation
Limitations of a
trial balance
Locating errors
Use of dollar
signs
Summary
illustration of
journalizing and
posting
Journal
Ledger
Steps in the
Recording
Process
The Recording
Process
Illustrated
The Trial Balance
The Recording Process

4. Chapter
2-4
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”
Account
An Account can
be illustrated in a
T-Account form.
SO 1 Explain what an account is and how it helps in the recording process.
The Account

5. Chapter
2-5
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 equal CREDITS.
SO 2 Define debits and credits and explain their
use in recording business transactions.
Debits and Credits

6. Chapter
2-6
Account Name
Debit / Dr. Credit / Cr.
If Debits are greater than Credits, the account
will have a debit balance.
$10,000 Transaction #2
$3,000
$15,000
8,000
Transaction #3
Balance
Transaction #1
Debits and Credits
SO 2 Define debits and credits and explain their
use in recording business transactions.

7. Chapter
2-7
Account Name
Debit / Dr. Credit / Cr.
If Credits are greater than Debits, the account
will have a credit balance.
$10,000 Transaction #2
$3,000
Balance
Transaction #1
Debits and Credits
SO 2 Define debits and credits and explain their
use in recording business transactions.
$1,000
8,000 Transaction #3

8. Chapter
2-8
Chapter
3-23
Assets
Assets
Debit / Dr. Credit / Cr.
Normal Balance
Normal Balance
Chapter
3-27
Debit / Dr. Credit / Cr.
Normal Balance
Normal Balance
Expense
Expense
Chapter
3-24
Liabilities
Liabilities
Debit / Dr. Credit / Cr.
Normal Balance
Normal Balance
Chapter
3-25
Debit / Dr. Credit / Cr.
Normal Balance
Normal Balance
Owner’s Equity
Owner’s Equity
Chapter
3-26
Debit / Dr. Credit / Cr.
Normal Balance
Normal Balance
Revenue
Revenue
Normal
Balance
Credit
Normal
Balance
Debit
Debits and Credits Summary
SO 2

9. Chapter
2-9
Balance Sheet Income Statement
= + -
Asset Liability Equity Revenue Expense
Debit
Credit
Debits and Credits Summary
SO 2 Define debits and credits and explain their
use in recording business transactions.

10. Chapter
2-10
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 Question
Debits and Credits Summary
SO 2 Define debits and credits and explain their
use in recording business transactions.

11. Chapter
2-11
Discussion Question
Q2-4: 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 Summary
SO 2 Define debits and credits and explain their
use in recording business transactions.

12. Chapter
2-12
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 their
use in recording business transactions.
Assets and Liabilities
Chapter
3-23
Assets
Assets
Debit / Dr. Credit / Cr.
Normal Balance
Normal Balance
Chapter
3-24
Liabilities
Liabilities
Debit / Dr. Credit / Cr.
Normal Balance
Normal Balance

13. Chapter
2-13
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 their
use in recording business transactions.
Owners’ Equity
Chapter
3-25
Debit / Dr. Credit / Cr.
Normal Balance
Normal Balance
Owner’s Capital
Owner’s Capital
Chapter
3-23
Owner’s Drawing
Owner’s Drawing
Debit / Dr. Credit / Cr.
Normal Balance
Normal Balance
Chapter
3-25
Debit / Dr. Credit / Cr.
Normal Balance
Normal Balance
Owner’s Equity
Owner’s Equity

14. Chapter
2-14
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 their
use in recording business transactions.
Revenue and Expense
Chapter
3-27
Debit / Dr. Credit / Cr.
Normal Balance
Normal Balance
Expense
Expense
Chapter
3-26
Debit / Dr. Credit / Cr.
Normal Balance
Normal Balance
Revenue
Revenue

15. Chapter
2-15
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 Question
Debits and Credits Summary
SO 2 Define debits and credits and explain their
use in recording business transactions.

16. Chapter
2-16
Expansion of the Basic Equation
Relationship among the assets, liabilities and
owner’s equity of a business:
The equation must be in balance after every
transaction. For every Debit there must be a Credit.
Assets Liabilities
= Owner’s Equity
Basic
Equation
Expanded
Basic
Equation
SO 2 Define debits and credits and explain their
use in recording business transactions.
+
Illustration 2-11

17. Chapter
2-17
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 Process
SO 3 Identify the basic steps in the recording process.
Analyze each transaction Enter transaction in a journal
Transfer journal information
to ledger accounts
Illustration 2-12

18. Chapter
2-18
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 Journal
SO 4 Explain what a journal is and how it helps in the recording process.

19. Chapter
2-19
Journalizing - Entering transaction data in the journal.
Journalizing
SO 4 Explain what a journal is and how it helps in the recording process.
Illustration: On September 1, Ray Neal invested $15,000
cash in the business, and Softbyte purchased computer
equipment for $7,000 cash.
Account Title Ref. Debit Credit
Date
Cash
R. Neal, Capital
Sept. 1 15,000
15,000
General Journal
Computer equipment
Cash
7,000
7,000
Illustration 2-13

20. Chapter
2-20
Simple and Compound Entries
Journalizing
SO 4 Explain what a journal is and how it helps in the recording process.
Illustration: Assume that on July 1, Butler Company
purchases a delivery truck costing $14,000. It pays $8,000
cash now and agrees to pay the remaining $6,000 on account.
Account Title Ref. Debit Credit
Date
Delivery equipment
Cash
Sept. 1 14,000
8,000
General Journal
6,000
Accounts payable
Illustration 2-14

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 Ledger
SO 5 Explain what a ledger is and how it helps in the recording process.
Illustration 2-15

22. Chapter
2-22 SO 5 Explain what a ledger is and how it helps in the recording process.

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 Account
SO 5 Explain what a ledger is and how it helps in the recording process.
Illustration 2-16

24. Chapter
2-24
Posting – the
process of
transferring
amounts from
the journal to
the ledger
accounts.
Posting
Illustration 2-17
SO 6 Explain what posting is and how it helps in the recording process.

25. Chapter
2-25
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 Question
Posting
SO 6 Explain what posting is and how it helps in the recording process.

26. Chapter
2-26
Accounts and account numbers arranged in sequence in
which they are presented in the financial statements.
Chart of Accounts
SO 6 Explain what posting is and how it helps in the recording process.
Illustration 2-18

27. Chapter
2-27
The Recording Process Illustrated
LO 6 Explain what posting is and how it helps in the recording 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

28. Chapter
2-28
The Recording Process Illustrated
LO 6 Explain what posting is and how it helps in the recording process.
Illustration 2-20

29. Chapter
2-29
The Recording Process Illustrated
Illustration 2-21

30. Chapter
2-30
The Recording Process Illustrated
Illustration 2-22

31. Chapter
2-31
The Recording Process Illustrated
Illustration 2-23

32. Chapter
2-32
The Recording Process Illustrated
Illustration 2-24

33. Chapter
2-33
The Recording Process Illustrated
Illustration 2-25

34. Chapter
2-34
The Recording Process Illustrated
Illustration 2-26

35. Chapter
2-35
The Recording Process Illustrated
Illustration 2-27

36. Chapter
2-36
The Recording Process Illustrated
Illustration 2-28

37. Chapter
2-37
A list of accounts
and their
balances at a
given time.
Purpose is to
prove that debits
equal credits.
The Trial Balance
LO 7 Prepare a trial balance and explain its purposes.
Illustration 2-31

38. Chapter
2-38
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 Balance
LO 7 Prepare a trial balance and explain its purposes.
Limitations of a Trial Balance

39. Chapter
2-39
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 Question
The Trial Balance
LO 7 Prepare a trial balance and explain its purposes.

40. Chapter
2-40
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 Process
Discussion Question
LO 7 Prepare a trial balance and explain its purposes.

41. Chapter
2-41 LO 7 Prepare a trial balance and explain its purposes.

42. Chapter
2-42
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