Chapter 2: The Recording Process

1. AAccccoouunnttiinngg
PPrriinncciipplleess
SSeeccoonndd CCaannaaddiiaann EEddiittiioonn
Weygandt · Kieso · Kimmel · Trenholm
Prepared by:
Carole Bowman, Sheridan College

2. CCHHAAPPTTEERR
22
TTHHEE RREECCOORRDDIINNGG PPRROOCCEESSSS

3. TTHHEE AACCCCOOUUNNTT
 An account is an individual accounting
record of increases and decreases in a
specific asset, liability, or owner’s equity
item.
 A company will have separate accounts for
such items as cash, salaries expense,
accounts payable, and so on.

4. DDEEBBIITTSS AANNDD CCRREEDDIITTSS
 The terms debit and credit mean left and right,
respectively.
 The act of entering an amount on the left side of an
account is called debiting the account and making an
entry on the right side is crediting the account.
 When the debit amounts exceed the credits, an account
has a debit balance; when the reverse is true, the account
has a credit balance.
DR CR

5. IILLLLUUSSTTRRAATTIIOONN 22--11
BBAASSIICC FFOORRMM OOFF AACCCCOOUUNNTT
 In its simplest form, an account consists of
1. the title of the account,
2. a left or debit side, and
3. a right or credit side.
 The alignment of these parts resembles the letter T, and
therefore the account form is called a T account.
Title of Account
Left or debit side
Right or credit side
Debit balance Credit balance

6. IILLLLUUSSTTRRAATTIIOONN 22--22
TTAABBUULLAARR SSUUMMMMAARRYY CCOOMMPPAARREEDD TTOO
AACCCCOOUUNNTT FFOORRMM
Tabular Summary
Cash
$15,000
- 7,000
1,200
1,500
- 600
- 900
- 200
- 250
Cash
Debit Credit
15,000
1,200
1,500
600
7,000
600
200
900
Balance
Account Form
8,050
600
- 1,300
$8,050
250
1,300

7. DDEEBBIITTIINNGG AANN AACCCCOOUUNNTT
Cash
15,000
Example: The owner makes an initial investment of
Example: The owner makes an initial investment of
$15,000 to start the business. Cash is debited
and the owner’s Capital account is credited.
$15,000 to start the business. Cash is debited
and the owner’s Capital account is credited.

8. CCRREEDDIITTIINNGG AANN AACCCCOOUUNNTT
7,000
Cash
Example: Monthly rent of $7,000 is paid. Cash is
Example: Monthly rent of $7,000 is paid. Cash is
credited and Rent Expense is debited.
credited and Rent Expense is debited.

9. DDEEBBIITTIINNGG AANNDD CCRREEDDIITTIINNGG
AANN AACCCCOOUUNNTT
Cash
15,000 7,000
8,000
Example: Cash is debited for $15,000 and credited
Example: Cash is debited for $15,000 and credited
for $7,000, leaving a debit balance of $8,000.
for $7,000, leaving a debit balance of $8,000.

10. DDOOUUBBLLEE--EENNTTRRYY SSYYSSTTEEMM
In a double-entry system, equal debits and
credits are made in the accounts for each
transaction.
Thus, the total debits will always equal the
total credits and the accounting equation
will always stay in balance.
Assets Liabilities Equity

11. NNOORRMMAALL BBAALLAANNCCEE
Every account classification has a normal
balance, whether it is a debit or credit.

12. IILLLLUUSSTTRRAATTIIOONN 22--33
NNOORRMMAALL BBAALLAANNCCEESS —— AASSSSEETTSS AANNDD LLIIAABBIILLIITTIIEESS
Assets
Increase Decrease
Normal
Balance
Liabilities
Decrease Increase
Debit
Credit
Normal
Balance

13. IILLLLUUSSTTRRAATTIIOONN 22--44
NNOORRMMAALL BBAALLAANNCCEE —— OOWWNNEERR’’SS CCAAPPIITTAALL
Owner’s Capital
Decrease Increase
Debit
Credit
Normal
Balance

14. IILLLLUUSSTTRRAATTIIOONN 22--55
NNOORRMMAALL BBAALLAANNCCEE —— OOWWNNEERR’’SS DDRRAAWWIINNGGSS
Owner’s Drawings
Increase Decrease
Normal
Balance
Debit
Credit

15. IILLLLUUSSTTRRAATTIIOONN 22--66
NNOORRMMAALL BBAALLAANNCCEESS ——
RREEVVEENNUUEESS AANNDD EEXXPPEENNSSEESS
Revenues
Decrease Increase
Expenses
Increase Decrease
Debit
Credit
Normal
Normal Balance

16. IILLLLUUSSTTRRAATTIIOONN 22--77
EEXXPPAANNDDEEDD BBAASSIICC EEQQUUAATTIIOONN AANNDD
DDEEBBIITT//CCRREEDDIITT RRUULLEESS AANNDD EEFFFFEECCTTSS
Assets Liabilities Owner’s Equity
= +
Owner’s
Capital
= + -
+ -
Assets
Dr. Cr.
+ -
Liabilities
Dr. Cr.
- +
Owner’s
Drawings
Dr. Cr.
+ -
Revenues
Dr. Cr.
- +
Expenses
Dr. Cr.
+ -
Dr. Cr.
- +

17. IILLLLUUSSTTRRAATTIIOONN 22--99
TTHHEE RREECCOORRDDIINNGG PPRROOCCEESSSS
1. Analyse each transaction.
JOURNAL
2. Enter transaction in a journal.
JOURNAL
LEDGER
3. Transfer journal information to ledger accounts.

18. TTHHEE JJOOUURRNNAALL
Transactions are initially recorded in
chronological order in a journal before being
transferred to the accounts.
Every company has a general journal which
contains
1. spaces for dates,
2. account titles and explanations,
3. references, and
4. two money columns.

19. TTHHEE JJOOUURRNNAALL
The journal makes several significant contributions to the
recording process:
1. It discloses, in one place, the complete effect of a
transaction.
2. It provides a chronological record of transactions.
3. It helps to prevent or locate errors because the debit and
credit amounts for each entry can be readily compared.

20. JJOOUURRNNAALLIIZZIINNGG
Entering transaction data in the journal is known
as journalizing.
Separate journal entries are made for each
transaction.
A complete entry consists of
1. the date of the transaction,
2. the accounts and amounts to be debited and
credited, and
3. a brief explanation of the transaction.

21. IILLLLUUSSTTRRAATTIIOONN 22--1100
TTEECCHHNNIIQQUUEE OOFF JJOOUURRNNAALLIIZZIINNGG
TThhee ddaattee ooff tthhee ttrraannssaaccttiioonn iiss eenntteerreedd iinn tthhee ddaattee ccoolluummnn..
GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2002
Sept. 1 Cash 15,000
M. Doucet, Capital 15,000
Invested cash in business.
1 Equipment 7,000
Cash 7,000
Purchased equipment for cash.

22. IILLLLUUSSTTRRAATTIIOONN 22--1100
TTEECCHHNNIIQQUUEE OOFF JJOOUURRNNAALLIIZZIINNGG
The debit account title is entered at the extreme left
margin of the Account Titles and Explanation column.
The credit account title is indented on the next line.
The debit account title is entered at the extreme left
margin of the Account Titles and Explanation column.
The credit account title is indented on the next line.
GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2002
Sept. 1 Cash 15,000
M. Doucet, Capital 15,000
Invested cash in business.
1 Equipment 7,000
Cash 7,000
Purchased equipment for cash.

23. IILLLLUUSSTTRRAATTIIOONN 22--1100
TTEECCHHNNIIQQUUEE OOFF JJOOUURRNNAALLIIZZIINNGG
The amounts for the debits are recorded in the Debit column and
the amounts for the credits are recorded in the Credit column.
The amounts for the debits are recorded in the Debit column and
the amounts for the credits are recorded in the Credit column.
GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2002
Sept. 1 Cash 15,000
M. Doucet, Capital 15,000
Invested cash in business.
1 Equipment 7,000
Cash 7,000
Purchased equipment for cash.

24. IILLLLUUSSTTRRAATTIIOONN 22--1100
TTEECCHHNNIIQQUUEE OOFF JJOOUURRNNAALLIIZZIINNGG
AA bbrriieeff eexxppllaannaattiioonn ooff tthhee ttrraannssaaccttiioonn iiss ggiivveenn..
GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2002
Sept. 1 Cash 15,000
M. Doucet, Capital 15,000
Invested cash in business.
1 Equipment 7,000
Cash 7,000
Purchased equipment for cash.

25. IILLLLUUSSTTRRAATTIIOONN 22--1100
TTEECCHHNNIIQQUUEE OOFF JJOOUURRNNAALLIIZZIINNGG
A space is left between journal entries. The
blank space separates individual journal entries
and makes the journal easier to read.
A space is left between journal entries. The
blank space separates individual journal entries
and makes the journal easier to read.
GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2002
Sept. 1 Cash 15,000
M. Doucet, Capital 15,000
Invested cash in business.
1 Equipment 7,000
Cash 7,000
Purchased equipment for cash.

26. IILLLLUUSSTTRRAATTIIOONN 22--1100
TTEECCHHNNIIQQUUEE OOFF JJOOUURRNNAALLIIZZIINNGG
The column entitled Ref. is left blank at the time the
journal entry is made and is used later when the
journal entries are transferred to the ledger accounts.
The column entitled Ref. is left blank at the time the
journal entry is made and is used later when the
journal entries are transferred to the ledger accounts.
GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2002
Sept. 1 Cash 15,000
M. Doucet, Capital 15,000
Invested cash in business.
1 Equipment 7,000
Cash 7,000
Purchased equipment for cash.

27. SSIIMMPPLLEE AANNDD CCOOMMPPOOUUNNDD
JJOOUURRNNAALL EENNTTRRIIEESS
If an entry involves only two accounts, one debit and
one credit, it is considered a simple entry.
If an entry involves only two accounts, one debit and
one credit, it is considered a simple entry.
GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2002
Oct. 2 Delivery Equipment 14,000
Cash 14,000
Purchased truck for cash.

28. IILLLLUUSSTTRRAATTIIOONN 22--1111
CCOOMMPPOOUUNNDD JJOOUURRNNAALL EENNTTRRYY
When three or more accounts are required in one
journal entry, the entry is referred to as a
compound entry.
When three or more accounts are required in one
journal entry, the entry is referred to as a
compound entry.
GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2002
Oct. 2 Delivery Equipment 34,000
Cash 8,000
Note Payable 26,000
Purchased truck for cash
and note payable.
1
2
3

29. CCOOMMPPOOUUNNDD JJOOUURRNNAALL EENNTTRRYY
This is the wrong format; all debits must be listed
before the credits are listed.
This is the wrong format; all debits must be listed
before the credits are listed.
GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2002
Oct. 2 Cash 8,000
Delivery Equipment 34,000
Note Payable 26,000
Purchased truck for cash
and note payable.

30. TTHHEE LLEEDDGGEERR
The entire group of accounts maintained by a
company is referred to collectively as the ledger.
A general ledger contains all the assets, liabilities,
and owner’s equity accounts.
GENERAL
LEDGER

31. Individual
Liabilities
Individual
Assets
Individual
Owner’s Equity
IILLLLUUSSTTRRAATTIIOONN 22--1122
TTHHEE GGEENNEERRAALL LLEEDDGGEERR
Equipment
Supplies
Accounts Rec.
Cash
Interest Payable
Salaries Payable
Accounts Payable
Notes Payable
Salaries Expense
Service Revenue
Doucet, Drawings
Doucet, Capital

32. IILLLLUUSSTTRRAATTIIOONN 22--1144
PPOOSSTTIINNGG AA JJOOUURRNNAALL EENNTTRRYY
J1
General Journal
Date Account Title and Explanation Ref Debit Credit
2002
01-Sep Cash 101 15,000
M. Doucet, Capital 301 15,000
Invested cash in business.
101
General Ledger
Cash
Date Account Title and Explanation Ref Debit Credit Balance
2002
01-Sep J1 15,000 15,000
In the ledger, enter in the appropriate columns of the account(s)
debited the date, journal page, and debit amount shown in the journal
and the account number to which the journal was posted.

33. IILLLLUUSSTTRRAATTIIOONN 22--1144
PPOOSSTTIINNGG AA JJOOUURRNNAALL EENNTTRRYY
J1
General Journal
Date Account Title and Explanation Ref Debit Credit
2002
01-Sep Cash 101 15,000
M. Doucet, Capital 301 15,000
Invested cash in business.
301
General Ledger
M. Doucet, Capital
Date Account Title and Explanation Ref Debit Credit Balance
2002
1-Sep J1 15,000 15,000
In the ledger, enter in the appropriate columns of the account(s)
credited the date, journal page, and credit amount shown in the
journal and the account number to which the journal was posted.

34. TTHHEE TTRRIIAALL BBAALLAANNCCEE
 A trial balance is a list of accounts and their balances at
a given time.
 The primary purpose of a trial balance is to prove the
mathematical equality of debits and credits after posting.
 A trial balance also uncovers errors in journalizing and
posting.
 The procedures for preparing a trial balance consist of
1. listing the account titles and their balances,
2. totaling the debit and credit columns, and
3. proving the equality of the two columns.

35. IILLLLUUSSTTRRAATTIIOONN 22--228
AA TTRRIIAALL BBAALLAANNCCEE
PIONEER ADVERTISING AGENCY
Trial Balance
October 31, 2002
Debit Credit
Cash $ 15,200
Advertising Supplies 2,500
Prepaid Insurance 600
Office Equipment 5,000
Notes Payable $ 5,000
Accounts Payable 2,500
Unearned Revenue 1,200
C. R. Byrd, Capital 10,000
C. R. Byrd, Drawings 500
Service Revenue 10,000
Salaries Expense
900
$ 28,700 $ 28,700
The total debits
must equal the
total credits.
Rent Expense
4,000

36. LLIIMMIITTAATTIIOONNSS OOFF AA
TTRRIIAALL BBAALLAANNCCEE
 A trial balance does not prove that all transactions have
been recorded or that the ledger is correct.
 Numerous errors may exist even though the trial balance
columns agree.
 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,
5. offsetting errors are made in recording the amount of
the transaction.

37. CCOOPPYYRRIIGGHHTT
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