The Recording Process
2 The Recording Process
Learning Objectives
Describe how accounts, debits, and credits are used to
1 record business transactions.
2 Indicate how a journal is used in the recording process.
3 Explain how a ledger and posting help in the recording
process.
4 Prepare a trial balance.
LEARNING Describe how accounts, debits, and credits
1
OBJECTIVE are used to record business transactions.
◆ Record of increases and decreases
The in a specific asset, liability, owners’
Account equity, revenue, or expense item.
◆ Debit = “Left”
◆ Credit = “Right”
An account can
be illustrated in a
T-account form.
LO 1
The Account
DEBIT AND CREDIT PROCEDURES
Double-entry 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 at least one other account.
◆ DEBITS must equal CREDITS.
LO 1
Debits and Credits
◆ Assets - Debits should exceed
credits.
◆ Liabilities – Credits should
exceed debits.
◆ Normal balance is on the
increase side.
LO 1
Debits and Credits
◆ Owner’s investments and
revenues increase owner’s equity
(credit).
◆ Owner’s drawings and expenses
decrease owner’s equity (debit).
Helpful Hint Because
revenues increase owner’s
equity, a revenue account
has the same debit/credit
rules as the Owner’s
Capital account. Expenses
have the opposite effect.
LO 1
Debits and Credits
◆ 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.
LO 1
Debits/Credits Rules
Normal Normal
Balance Balance
Debit Credit
LO 1
Debits/Credits Rules
Balance Sheet Income Statement
Asset = Liability + Equity Revenue - Expense
Debit
Credit
LO 1
Steps in the Recording Process
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.
LO 2
Steps in the Recording Process
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
Sept. 1 Cash 15,000
Owner’s Capital 15,000
Equipment 7,000
Cash 7,000
LO 2
Steps in the Recording Process
SIMPLE AND COMPOUND ENTRIES
Illustration: 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
Compound journal entry
GENERAL JOURNAL
July 1 Equipment 14,000
Cash 8,000
Accounts payable 6,000
LO 2
LEARNING Explain how a ledger and posting help in the
3
OBJECTIVE recording process.
The Ledger
◆ General Ledger contains all the asset, liability, and owner’s
equity accounts.
Illustration 2-15
LO 3
The Ledger
Illustration 2-16
Three-column form
STANDARD FORM OF ACCOUNT of account
LO 3
Ledger
POSTING
Transferring
journal entries
to the ledger
accounts.
Illustration 2-17
Posting a journal entry
LO 3
Chart of Accounts
Illustration 2-18
LO 3
The Recording Process Illustrated
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
LO 3
LEARNING
OBJECTIVE
4 Prepare a trial balance.
Illustration 2-31 LO 4
Trial Balance
Limitations of a Trial Balance
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 a
transaction.
LO 4
Dollar Signs and Underlining
Dollar Signs
◆ Do not appear in journals or ledgers.
◆ Typically used only in the trial balance and the financial
statements.
◆ Shown only for the first item in the column and for the total
of that column.
Underlining
◆ A single line is placed under the column of figures to be
added or subtracted.
◆ Totals are double-underlined.
LO 4
DO IT! 4 Trial Balance
LO 4
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Azharul Islam
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Azharul Islam