Chapter  2-1
Chapter    2          The Recording             ProcessChapter  2-2          Accounting Principles, Ninth Edition
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                       St...
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     Q2-4: Maria Alvarez, a beginning acco...
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.          Transactions recorded in chronological order.        ...
Journalizing    Journalizing     Journalizing - Entering transaction data in the journal.     Illustration: On September 1...
Journalizing    Journalizing     Simple and Compound Entries     Illustration: Assume that on July 1, Butler Company     p...
The Ledger    The Ledger          A General Ledger contains the entire group of accounts          maintained by a company....
Chapter 2-23     SO 5 Explain what a ledger is and how it helps in the recording process.
Standard Form of Account    Standard Form of Account     T-account form used in accounting textbooks.     In practice, the...
Posting  PostingPosting – theprocess oftransferringamounts fromthe journal tothe ledgeraccounts.    Illustration 2-17Chapt...
Posting    Posting     Review Question          Posting:           a. normally occurs before journalizing.           b. tr...
Chart of Accounts    Chart of Accounts     Accounts and account numbers arranged in sequence in     which they are present...
The Recording Process Illustrated    The Recording Process IllustratedFollow these steps:1. Determine what                ...
The Recording Process Illustrated    The Recording Process Illustrated                                                    ...
The Recording Process Illustrated    The Recording Process Illustrated                                        Illustration...
The Recording Process Illustrated    The Recording Process Illustrated                                        Illustration...
The Recording Process Illustrated    The Recording Process Illustrated                                        Illustration...
The Recording Process Illustrated    The Recording Process Illustrated                                        Illustration...
The Recording Process Illustrated    The Recording Process Illustrated                                        Illustration...
The Recording Process Illustrated    The Recording Process Illustrated                                        Illustration...
The Recording Process Illustrated    The Recording Process Illustrated                                        Illustration...
The Recording Process Illustrated    The Recording Process Illustrated                                        Illustration...
The Trial Balance    The Trial Balance                                                                 Illustration 2-31  ...
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...
Chapter 2-42     LO 7 Prepare a trial balance and explain its purposes.
Copyright                                 Copyright          Copyright © 2009 John Wiley & Sons, Inc. All rights reserved....
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  • 1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements? Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases). Forward-looking Information Soft Assets (a company’s know-how, market dominance, marketing setup, well-trained employees, and brand image). Timeliness (no real time financial information)
  • Service Cost - Actuaries compute service cost as the present value of the new benefits earned by employees during the year. Future salary levels considered in calculation. Interest on Liability - Interest accrues each year on the PBO just as it does on any discounted debt. Actual Return on Plan Assets - Increase in pension funds from interest, dividends, and realized and unrealized changes in the fair market value of the plan assets. Amortization of Unrecognized Prior Service Cost - The cost of providing retroactive benefits is allocated to pension expense in the future, specifically to the remaining service-years of the affected employees. Gain or Loss - Volatility in pension expense can be caused by sudden and large changes in the market value of plan assets and by changes in the projected benefit obligation. Two items comprise the gain or loss: difference between the actual return and the expected return on plan assets and, amortization of the unrecognized net gain or loss from previous periods
  • Question 2-4 (textbook) Maria is incorrect. A debit balance only means that debits amounts exceed credit amounts in an account. Conversely, a credit balance only means that credit amounts are greater than debit amounts in an account. Thus, a debit or credit balance is neither favorable nor unfavorable.
  • Question 2-19 (textbook) No, Jim is not correct . The proper sequence is as follows : ( b ) Business transaction occurs. ( c ) Information entered in the journal. ( a ) Debits and credits are posted to the ledger. ( e ) Trial balance is prepared. ( d ) Financial statements are prepared.
  • Ch02

    1. 1. Chapter 2-1
    2. 2. Chapter 2 The Recording ProcessChapter 2-2 Accounting Principles, Ninth Edition
    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 Account The Account Recording Recording Process Process The Trial Balance The Trial Balance Process Process Illustrated Illustrated Debits and Journal Summary Limitations of a credits Ledger illustration of trial balance Expansion of journalizing and Locating errors basic equation 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 SO 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 SO 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 SO 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 SO 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 SO 2
    10. 10. Debits and Credits Summary Debits and Credits Summary Balance Sheet Income Statement Asset = Liability + Equity Revenue - Expense Debit CreditChapter SO 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 SO 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 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 discussionChapter SO 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 SO 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 SO 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 SO 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 SO 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 SO 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 SO 3 Identify the basic steps in the recording process.
    19. 19. The Journal The Journal 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.Chapter 2-19 SO 4 Explain what a journal is and how it helps in the recording process.
    20. 20. Journalizing Journalizing Journalizing - Entering transaction data in the journal. Illustration: On September 1, Ray Neal invested $15,000 cash in the business, and Softbyte purchased computer equipment for $7,000 cash. Illustration 2-13 General Journal Date Account Title Ref. Debit Credit Sept. 1 Cash 15,000 R. Neal, Capital 15,000 Computer equipment 7,000 Cash 7,000Chapter 2-20 SO 4 Explain what a journal is and how it helps in the recording process.
    21. 21. Journalizing Journalizing Simple and Compound Entries 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. Illustration 2-14 General Journal Date Account Title Ref. Debit Credit Sept. 1 Delivery equipment 14,000 Cash 8,000 Accounts payable 6,000Chapter 2-21 SO 4 Explain what a journal is and how it helps in the recording process.
    22. 22. 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. Illustration 2-15Chapter 2-22 SO 5 Explain what a ledger is and how it helps in the recording process.
    23. 23. Chapter 2-23 SO 5 Explain what a ledger is and how it helps in the recording process.
    24. 24. 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. Illustration 2-16Chapter 2-24 SO 5 Explain what a ledger is and how it helps in the recording process.
    25. 25. Posting PostingPosting – theprocess oftransferringamounts fromthe journal tothe ledgeraccounts. Illustration 2-17Chapter 2-25 SO 6 Explain what posting is and how it helps in the recording process.
    26. 26. 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 2-26 SO 6 Explain what posting is and how it helps in the recording process.
    27. 27. Chart of Accounts Chart of Accounts Accounts and account numbers arranged in sequence in which they are presented in the financial statements. Illustration 2-18Chapter 2-27 SO 6 Explain what posting is and how it helps in the recording process.
    28. 28. The Recording Process Illustrated The Recording Process IllustratedFollow these steps:1. Determine what Illustration 2-19 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 2-28 LO 6 Explain what posting is and how it helps in the recording process.
    29. 29. The Recording Process Illustrated The Recording Process Illustrated Illustration 2-20Chapter 2-29 LO 6 Explain what posting is and how it helps in the recording process.
    30. 30. The Recording Process Illustrated The Recording Process Illustrated Illustration 2-21Chapter 2-30
    31. 31. The Recording Process Illustrated The Recording Process Illustrated Illustration 2-22Chapter 2-31
    32. 32. The Recording Process Illustrated The Recording Process Illustrated Illustration 2-23Chapter 2-32
    33. 33. The Recording Process Illustrated The Recording Process Illustrated Illustration 2-24Chapter 2-33
    34. 34. The Recording Process Illustrated The Recording Process Illustrated Illustration 2-25Chapter 2-34
    35. 35. The Recording Process Illustrated The Recording Process Illustrated Illustration 2-26Chapter 2-35
    36. 36. The Recording Process Illustrated The Recording Process Illustrated Illustration 2-27Chapter 2-36
    37. 37. The Recording Process Illustrated The Recording Process Illustrated Illustration 2-28Chapter 2-37
    38. 38. The Trial Balance The Trial Balance Illustration 2-31 A list of accounts and their balances at a given time. Purpose is to prove that debits equal credits.Chapter 2-38 LO 7 Prepare a trial balance and explain its purposes.
    39. 39. 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 2-39 LO 7 Prepare a trial balance and explain its purposes.
    40. 40. 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 2-40 LO 7 Prepare a trial balance and explain its purposes.
    41. 41. 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 2-41 LO 7 Prepare a trial balance and explain its purposes.
    42. 42. Chapter 2-42 LO 7 Prepare a trial balance and explain its purposes.
    43. 43. Copyright Copyright Copyright © 2009 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 2-43

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