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Chapter  2-1
CHAPTER 2          THE RECORDING             PROCESS            Accounting Principles, Eighth EditionChapter  2-2
Study Objectives                      Study Objectives     1.   Explain what an account is and how it helps in the        ...
The Recording Process                     The Recording Process                      Steps in the                      Ste...
The Account    The Account                                  Record of increases and decreases     Account                 ...
Debits and Credits    Debits and Credits     Double-entry accounting system          Each transaction must affect two or m...
Debits and Credits    Debits and Credits          If Debits are greater than Credits, the account          will have a deb...
Debits and Credits    Debits and Credits          If Credits are greater than Debits, the account          will have a cre...
Debits and Credits Summary     Debits and Credits Summary                                                                 ...
Debits and Credits Summary    Debits and Credits Summary               Balance Sheet                Income Statement      ...
Debits and Credits Summary    Debits and Credits Summary     Review Question          Debits:           a. increase both a...
Debits and Credits Summary    Debits and Credits Summary     Discussion Question     Q4. Maria Alvarez, a beginning accoun...
Assets and Liabilities    Assets and Liabilities                           Assets                                         ...
Owners’ Equity    Owners’ Equity                 Owner’s Equity                             Owner’s investments and       ...
Revenue and Expense    Revenue and Expense                         Revenue                       The purpose of earning   ...
Debits and Credits Summary    Debits and Credits Summary     Review Question          Accounts that normally have debit ba...
Expansion of the Basic Equation    Expansion of the Basic Equation      Relationship among the assets, liabilities and    ...
Steps in the Recording Process    Steps in the Recording Process                                                          ...
The Journal    The Journal          Book of original entry (General Ledger).          Transactions recorded in chronologic...
Journalizing    Journalizing     Journalizing - Entering transaction data in the journal.     E2-4 (Facts) Presented below...
Journalizing    Journalizing     E2-4 (Facts) Presented below is information related     to Hanshew Real Estate Agency.   ...
Journalizing    Journalizing     E2-4 (Facts) Presented below is information related     to Hanshew Real Estate Agency.   ...
Journalizing    Journalizing     E2-4 (Facts) Presented below is information related     to Hanshew Real Estate Agency.   ...
Journalizing    Journalizing     E2-4 (Facts) Presented below is information related     to Hanshew Real Estate Agency.   ...
Journalizing    Journalizing     E2-4 (Facts) Presented below is information related     to Hanshew Real Estate Agency.   ...
Journalizing    Journalizing     Simple Entry – Two accounts, one debit and one credit.     Compound Entry – Three or more...
The Ledger    The Ledger          A General Ledger contains the entire group of          accounts maintained by a company....
Chart of Accounts    Chart of Accounts     Accounts and account numbers arranged in sequence in     which they are present...
Standard Form of Account    Standard Form of Account     T-account form used in accounting textbooks.     In practice, the...
Posting    Posting     Posting – the process of transferring amounts from the     journal to the ledger accounts.         ...
Posting    Posting     Review Question          Posting:           a. normally occurs before journalizing.           b. tr...
The Recording Process Illustrated    The Recording Process Illustrated                                                    ...
The Trial Balance    The Trial Balance          A list of accounts          Hanshew Real Estate Agency                    ...
The Trial Balance    The Trial Balance     Limitations of a Trial Balance     The trial balance may balance even when     ...
The Trial Balance    The Trial Balance     Review Question          A trial balance will not balance if:           a. a co...
Recording Process    Recording Process     Discussion Question     Q2-19. Jim Benes is confused about how accounting     i...
Copyright                                 Copyright          Copyright © 2008 John Wiley & Sons, Inc. All rights reserved....
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Ch02

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Ch02

  1. 1. Chapter 2-1
  2. 2. CHAPTER 2 THE RECORDING PROCESS Accounting Principles, Eighth EditionChapter 2-2
  3. 3. Study Objectives Study Objectives 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.Chapter 2-3
  4. 4. The Recording Process The Recording Process Steps in the Steps in the The Recording The Recording The Trial The Trial The Account The Account Recording Recording Process Process Balance Balance Process Process Illustrated Illustrated Debits and Journal Summary Limitations of a credits Ledger illustration of trial balance Expansion of journalizing Locating errors basic equation and posting Use of dollar signsChapter 2-4
  5. 5. The Account The Account Record of increases and decreases Account in a specific asset, liability, equity, revenue, or expense item. Debit = “Left” Credit = “Right” An Account can Account Name be illustrated in a Debit / Dr. Credit / Cr. T-Account form.Chapter 2-5 LO 1 Explain what an account is and how it helps in the recording process.
  6. 6. Debits and Credits Debits and Credits 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.Chapter LO 2 Define debits and credits and explain their 2-6 use in recording business transactions.
  7. 7. Debits and Credits Debits and Credits If Debits are greater than Credits, the account will have a debit balance. Account Name Debit / Dr. Credit / Cr. Transaction #1 $10,000 $3,000 Transaction #2 Transaction #3 8,000 Balance $15,000Chapter LO 2 Define debits and credits and explain their 2-7 use in recording business transactions.
  8. 8. Debits and Credits Debits and Credits If Credits are greater than Debits, the account will have a credit balance. Account Name Debit / Dr. Credit / Cr. Transaction #1 $10,000 $3,000 Transaction #2 8,000 Transaction #3 Balance $1,000Chapter LO 2 Define debits and credits and explain their 2-8 use in recording business transactions.
  9. 9. Debits and Credits Summary Debits and Credits Summary Liabilities Normal Debit / Dr. Credit / Cr. Normal Normal Normal Balance Balance Balance Balance Debit Debit Credit Credit Normal Balance Assets Chapter Owner’s Equity 3-24 Debit / Dr. Credit / Cr. Debit / Dr. Credit / Cr. Normal Balance Normal Balance Chapter Expense 3-23 Revenue Chapter 3-25 Debit / Dr. Credit / Cr. Debit / Dr. Credit / Cr. Normal Balance Normal Balance Chapter 3-27 Chapter 3-26Chapter 2-9 LO 2
  10. 10. Debits and Credits Summary Debits and Credits Summary Balance Sheet Income Statement Asset = Liability + Equity Revenue - Expense Debit CreditChapter LO 2 Define debits and credits and explain their 2-10 use in recording business transactions.
  11. 11. Debits and Credits Summary Debits and Credits Summary Review Question 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.Chapter LO 2 Define debits and credits and explain their 2-11 use in recording business transactions.
  12. 12. Debits and Credits Summary Debits and Credits Summary Discussion Question Q4. Maria Alvarez, a beginning accounting student, believes debit balances are favorable and credit balances are unfavorable. Is Maria correct? Discuss. See notes page for discussionChapter LO 2 Define debits and credits and explain their 2-12 use in recording business transactions.
  13. 13. Assets and Liabilities Assets and Liabilities Assets Assets - Debits should Debit / Dr. Credit / Cr. exceed credits. Normal Balance Chapter 3-23 Liabilities – Credits should exceed debits. Liabilities The normal balance is on Debit / Dr. Credit / Cr. the increase side. Normal Balance Chapter 3-24Chapter LO 2 Define debits and credits and explain their 2-13 use in recording business transactions.
  14. 14. Owners’ Equity Owners’ Equity Owner’s Equity Owner’s investments and revenues increase owner’s Debit / Dr. Credit / Cr. equity (credit). Owner’s drawings and expenses Normal Balance Chapter 3-25 decrease owner’s equity (debit). Owner’s Capital Owner’s Drawing Debit / Dr. Credit / Cr. Debit / Dr. Credit / Cr. Normal Balance Normal Balance Chapter Chapter 3-25 3-23Chapter LO 2 Define debits and credits and explain their 2-14 use in recording business transactions.
  15. 15. Revenue and Expense Revenue and Expense Revenue The purpose of earning Debit / Dr. Credit / Cr. revenues is to benefit the owner(s). Normal Balance The effect of debits and credits on revenue accounts Chapter 3-26 Expense is the same as their effect Debit / Dr. Credit / Cr. on Owner’s Capital. Expenses have the opposite effect: expenses decrease Normal Balance Chapter 3-27 owner’s equity.Chapter LO 2 Define debits and credits and explain their 2-15 use in recording business transactions.
  16. 16. Debits and Credits Summary Debits and Credits Summary Review Question 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.Chapter LO 2 Define debits and credits and explain their 2-16 use in recording business transactions.
  17. 17. Expansion of the Basic Equation Expansion of the Basic Equation Relationship among the assets, liabilities and owner’s equity of a business: Illustration 2-11 Basic Assets = Liabilities + Owner’s Equity Equation Expanded Basic Equation The equation must be in balance after every transaction. For every Debit there must be a Credit.Chapter LO 2 Define debits and credits and explain their 2-17 use in recording business transactions.
  18. 18. Steps in the Recording Process Steps in the Recording Process Illustration 2-12 Transfer journal information Analyze each transaction Enter transaction in a journal to ledger accounts Business documents, such as a sales slip, a check, a bill, or a cash register tape, provide evidence of the transaction.Chapter 2-18 LO 3 Identify the basic steps in the recording process.
  19. 19. The Journal The Journal Book of original entry (General Ledger). 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.Chapter 2-19 LO 3 Identify the basic steps in the recording process.
  20. 20. Journalizing Journalizing Journalizing - Entering transaction data in the journal. E2-4 (Facts) Presented below is information related to Hanshew Real Estate Agency. Oct. 1 Pete Hanshew begins business as a real estate agent with a cash investment of $15,000. 3 Purchases office furniture for $1,900, on account. 6 Sells a house and lot for B. Kidman; bills B. Kidman $3,200 for realty services provided. 27 Pays $700 on balance related to transaction of Oct. 3. 30 Pays the administrative assistant $2,500 salary for Oct. E2-5 Instructions - Journalize the transactions for E2-4.Chapter 2-20 LO 4 Explain what a journal is and how it helps in the recording process.
  21. 21. Journalizing Journalizing E2-4 (Facts) Presented below is information related to Hanshew Real Estate Agency. Oct. 1 Pete Hanshew begins business as a real estate agent with a cash investment of $15,000. General Journal Date Account Title Ref. Debit Credit Oct. 1 Cash 15,000 Hanshew, Capital 15,000 (Owners investment)Chapter 2-21 LO 4 Explain what a journal is and how it helps in the recording process.
  22. 22. Journalizing Journalizing E2-4 (Facts) Presented below is information related to Hanshew Real Estate Agency. Oct. 3 Purchases office furniture for $1,900, on account. General Journal Date Account Title Ref. Debit Credit Oct. 3 Office Furniture 1,900 Accounts Payable 1,900 (Purchase furniture)Chapter 2-22 LO 4 Explain what a journal is and how it helps in the recording process.
  23. 23. Journalizing Journalizing E2-4 (Facts) Presented below is information related to Hanshew Real Estate Agency. Oct. 6 Sells a house and lot for B. Kidman; bills B. Kidman $3,200 for realty services provided. General Journal Date Account Title Ref. Debit Credit Oct. 6 Accounts Receivable 3,200 Service Revenue 3,200 (Realty services provided)Chapter 2-23 LO 4 Explain what a journal is and how it helps in the recording process.
  24. 24. Journalizing Journalizing E2-4 (Facts) Presented below is information related to Hanshew Real Estate Agency. Oct. 27 Pays $700 on balance related to transaction of Oct. 3. General Journal Date Account Title Ref. Debit Credit Oct. 27 Accounts Payable 700 Cash 700 (Payment on account)Chapter 2-24 LO 4 Explain what a journal is and how it helps in the recording process.
  25. 25. Journalizing Journalizing E2-4 (Facts) Presented below is information related to Hanshew Real Estate Agency. Oct. 30 Pays the administrative assistant $2,500 salary for Oct. General Journal Date Account Title Ref. Debit Credit Oct. 30 Salary Expense 2,500 Cash 2,500 (Payment for salaries)Chapter 2-25 LO 4 Explain what a journal is and how it helps in the recording process.
  26. 26. Journalizing Journalizing Simple Entry – Two accounts, one debit and one credit. Compound Entry – Three or more accounts. 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). General Journal Date Account Title Ref. Debit Credit June 15 Equipment 15,000 Cash 10,000 Accounts Payable 5,000 (Purchased equipment)Chapter 2-26 LO 4 Explain what a journal is and how it helps in the recording process.
  27. 27. The Ledger The Ledger 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.Chapter 2-27 LO 5 Explain what a ledger is and how it helps in the recording process.
  28. 28. Chart of Accounts Chart of Accounts Accounts and account numbers arranged in sequence in which they are presented in the financial statements. Hanshew Real Estate Agency Chart of Accounts Assets Owners Equity 101 Cash 300 Hanshew, Capital 112 Accounts receivable 306 Hanshew, Drawing 126 Advertising supplies 350 Income summary 130 Prepaid insurance 150 Office equipment Revenues 158 Accumulated depreciation 400 Service revenue Liabilities Expenses 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 expenseChapter 2-28 LO 6 Explain what posting is and how it helps in the recording process.
  29. 29. Standard Form of Account Standard Form of Account T-account form used in accounting textbooks. In practice, the account forms used in ledgers are much more structured. Cash No. 101 Date Explanation Ref. Debit Credit Balance Oct. 1 15,000 15,000 27 700 14,300 30 2,500 11,800Chapter 2-29 LO 5 Explain what a ledger is and how it helps in the recording process.
  30. 30. Posting Posting Posting – the process of transferring amounts from the journal to the ledger accounts. General Journal J1 Date Account Title Ref. Debit Credit Oct. 1 Cash 101 15,000 Hanshew, Capital 15,000 (Owners investment in business) General Ledger Cash Acct. No. 101 Date Explanation Ref. Debit Credit Balance Oct. 1 J1 15,000 15,000Chapter 2-30 LO 6 Explain what posting is and how it helps in the recording process.
  31. 31. Posting Posting Review Question 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.Chapter 2-31 LO 6 Explain what posting is and how it helps in the recording process.
  32. 32. The Recording Process Illustrated The Recording Process Illustrated Illustration 2-19Follow 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.Chapter 2-32 LO 6 Explain what posting is and how it helps in the recording process.
  33. 33. The Trial Balance The Trial Balance A list of accounts Hanshew Real Estate Agency Trial Balance and their balances October 31, 2008 at a given time. Debit Credit Cash $ 11,800 Purpose is to Accounts receivable 3,200 Office furniture 1,900 prove that debits Accounts payable $ 1,200 equal credits. Hanshew, Capital Service revenue 15,000 3,200 Salaries expense 2,500 $ 19,400 $ 19,400Chapter 2-33 LO 7 Prepare a trial balance and explain its purposes.
  34. 34. The Trial Balance The Trial Balance Limitations of a Trial Balance 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.Chapter 2-34 LO 7 Prepare a trial balance and explain its purposes.
  35. 35. The Trial Balance The Trial Balance Review Question 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.Chapter 2-35 LO 7 Prepare a trial balance and explain its purposes.
  36. 36. Recording Process Recording Process Discussion Question 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 discussionChapter 2-36 LO 7 Prepare a trial balance and explain its purposes.
  37. 37. Copyright Copyright Copyright © 2008 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.Chapter 2-37

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