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- 1. Chapter 2-1 Chapter 2 The Recording Process AccountingPrinciples, Ninth Edition
- 2. Chapter 2-2 1. Explain whatan 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 Expansionof 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 Eachtransaction 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 IncomeStatement = + - 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 bothassets 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: MariaAlvarez, 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 - Debitsshould 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 revenuesincrease 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 ofearning 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 normallyhave 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 theBasic 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, suchas 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 originalentry. 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 - Enteringtransaction 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 CompoundEntries 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 Ledgercontains 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 5Explain what a ledger is and how it helps in the recording process.
- 23. Chapter 2-23 T-account form usedin 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 processof 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 occursbefore 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 accountnumbers 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 ProcessIllustrated 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 ProcessIllustrated LO 6 Explain what posting is and how it helps in the recording process. Illustration 2-20
- 29. Chapter 2-29 The Recording ProcessIllustrated Illustration 2-21
- 30. Chapter 2-30 The Recording ProcessIllustrated Illustration 2-22
- 31. Chapter 2-31 The Recording ProcessIllustrated Illustration 2-23
- 32. Chapter 2-32 The Recording ProcessIllustrated Illustration 2-24
- 33. Chapter 2-33 The Recording ProcessIllustrated Illustration 2-25
- 34. Chapter 2-34 The Recording ProcessIllustrated Illustration 2-26
- 35. Chapter 2-35 The Recording ProcessIllustrated Illustration 2-27
- 36. Chapter 2-36 The Recording ProcessIllustrated Illustration 2-28
- 37. Chapter 2-37 A list ofaccounts 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 balancemay 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 balancewill 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 Benesis 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 7Prepare a trial balance and explain its purposes.
- 42. Chapter 2-42 Copyright © 2009John 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. Copyright
Editor's Notes
- #3 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)
- #4 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
- #12 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.
- #41 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.