Accounting Principles

Weygandt, Kieso, & Kimmel

Prepared by
Marianne Bradford, Ph. D.
Bryant College

John Wiley & Sons, Inc.

 PREVIEW OF CHAPTER

The Recording Process

Steps in the
The Account
Recording Process
 Debits and credits  Journal
 Expansion of basic equation  Ledger
 The Recording Process

Steps in the
The Account
Recording Process
 Debits and credits  Journal
 Expansion of basic equation  Ledger
 THE ACCOUNT
 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.
 The Recording Process

Steps in the
The Account
Recording Process
 Debits and credits  Journal
 Expansion of basic equation  Ledger
 The Recording Process

Steps in the
The Account
Recording Process
 Debits and credits  Journal
 Expansion of basic equation  Ledger
 STUDY OBJECTIVE 2

Define debits and credits and explain how

they are used to record business
transactions.
 The Recording Process

Steps in the
The Account
Recording Process
 Debits and credits  Journal
 Expansion of basic equation  Ledger
 The Recording Process

Steps in the
The Account
Recording Process
 Debits and credits  Journal
 Expansion of basic equation  Ledger
 The Recording Process

Steps in the
The Account
Recording Process
 Debits and credits  Journal
 Expansion of basic equation  Ledger
 ILLUSTRATION 2-1
BASIC FORM OF ACCOUNT
 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

 DEBITS AND CREDITS
 The term debit means left and credit means 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
 DOUBLE-ENTRY SYSTEM

 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

 The Recording Process

Steps in the
The Account
Recording Process
 Debits and credits  Journal
 Expansion of basic equation  Ledger
 The Recording Process

Steps in the
The Account
Recording Process
 Debits and credits  Journal
 Expansion of basic equation  Ledger
 ILLUSTRATION 2-3
DEBIT AND CREDIT EFFECTS —
ASSETS AND LIABILITIES

Debits Credits
Increase assets Decrease assets
Decrease liabilities Increase liabilities
 The Recording Process

Steps in the
The Account
Recording Process
 Debits and credits  Journal
 Expansion of basic equation  Ledger
 The Recording Process

Steps in the
The Account
Recording Process
 Debits and credits  Journal
 Expansion of basic equation  Ledger
 NORMAL BALANCE

Every account classification has a

normal balance, whether it is a debit
or credit.
For that particular account, the
opposite side entries should never
exceed the normal balance.
 The Recording Process

Steps in the
The Account
Recording Process
 Debits and credits  Journal
 Expansion of basic equation  Ledger
EXTENDED ACCOUNTING EQUATION

The Recording Process

Steps in the
The Account
Recording Process
 Debits and credits  Journal
 Expansion of basic equation  Ledger
 The Recording Process

4 Reasons of changes in Capital


Investments (+)

Withdrawals (-)
Revenues (+)
Expenses (-)
 ILLUSTRATION 2-5
DEBIT AND CREDIT EFFECTS — OWNER’S CAPITAL

Debits Credits
Decrease owner’s capital Increase owner’s capital
DEBITING AN ACCOUNT

Cash
Debits Credits
15,000

Example: The owner makes an initial

investment of $15,000 to start
the business. Cash is debited as
the owner’s Capital is credited.
CREDITING AN ACCOUNT

Cash
Debits Credits
7,000

Example: Monthly rent of $7,000 is paid.

Cash is credited as Rent Expense is
debited.
 ILLUSTRATION 2-4
NORMAL BALANCES — ASSETS AND LIABILITIES

Assets
Increase Decrease
Debit Credit
Normal
Balance

Liabilities
Decrease Increase
Debit Credit
Normal
Balance
 ILLUSTRATION 2-6
NORMAL BALANCE — OWNER’S CAPITAL

Owner’s Capital
Decrease Increase
Debit Credit

Normal
Balance
 ILLUSTRATION 2-7
DEBIT AND CREDIT EFFECTS — OWNER’S DRAWING

Debits Credits
Increase owner’s drawing Decrease owner’s drawing
 ILLUSTRATION 2-8
NORMAL BALANCE — OWNER’S DRAWING

Owner’s Drawing
Increase Decrease
Debit Credit

Normal
Balance
 ILLUSTRATION 2-9
DEBIT AND CREDIT EFFECTS — REVENUES AND EXPENSES

Debits Credits
Decrease revenues Increase revenues
Increase expenses Decrease expenses
 ILLUSTRATION 2-10
NORMAL BALANCES — REVENUES AND EXPENSES

Revenues
Decrease Increase
Debit Credit
Normal
Balance

Expenses
Increase Decrease
Debit Credit
Normal
Balance
 ILLUSTRATION 2-11
EXPANDED BASIC EQUATION AND
DEBIT/CREDIT RULES AND EFFECTS

Assets = Liabilities + Owner’s Equity

Owner’s Owner’s
Assets = Liabilities + -
Capital Drawing
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
+ - - + - + + -

+ Revenues - Expenses

Dr. Cr. Dr. Cr.

- + + -
 STUDY OBJECTIVE 3

Identify the basic steps in the recording process.

 STEPS IN THE
RECORDING PROCESS
The basic steps in the recording process are:
1 Analyze each transaction for its effect on
the accounts.
2 Enter the transaction information in a
journal (book of original entry).
3 Transfer the journal information to the
appropriate accounts in the ledger (book of
accounts).
 ILLUSTRATION 2-12
THE RECORDING PROCESS

JOURNAL

LEDGER
JOURNAL

1 Analyze each transaction

2 Enter transaction in a journal
3 Transfer journal information to ledger accounts
 STUDY OBJECTIVE 4

Explain what a journal is and how it

helps in the recording process.
 THE JOURNAL
 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 amount columns.
 THE JOURNAL
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.
 JOURNALIZING
 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.
 ILLUSTRATION 2-13
TECHNIQUE OF JOURNALIZING

The date of the transaction is entered in the date column.

GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2002
Sept. 1 Cash 15,000
R. Neal, Capital 15,000
(Invested cash in business)

1 Computer Equipment 7,000

Cash 7,000
(Purchased equipment for
cash)
 ILLUSTRATION 2-13
TECHNIQUE OF JOURNALIZING

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
R. Neal, Capital 15,000
(Invested cash in business)

1 Computer Equipment 7,000

Cash 7,000
(Purchased equipment for
cash)
 ILLUSTRATION 2-13
TECHNIQUE OF JOURNALIZING

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
R. Neal, Capital 15,000
(Invested cash in business)

1 Computer Equipment 7,000

Cash 7,000
(Purchased equipment for
cash)
 ILLUSTRATION 2-13
TECHNIQUE OF JOURNALIZING

A brief explanation of the transaction is given.

GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2002
Sept. 1 Cash 15,000
R. Neal, Capital 15,000
(Invested cash in business)

1 Computer Equipment 7,000

Cash 7,000
(Purchased equipment for
cash)
 ILLUSTRATION 2-13
TECHNIQUE OF JOURNALIZING

A space is left between journal entries. The blank

space separates individual journal entries and makes
the entire journal easier to read.

GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2002
Sept. 1 Cash 15,000
R. Neal, Capital 15,000
(Invested cash in business)

1 Computer Equipment 7,000

Cash 7,000
(Purchased equipment for
cash)
 ILLUSTRATION 2-13
TECHNIQUE OF JOURNALIZING

The column entitled Ref. is left blank at the time

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
R. Neal, Capital 15,000
(Invested cash in business)

1 Computer Equipment 7,000

Cash 7,000
(Purchased equipment for
cash)
 SIMPLE AND COMPOUND
JOURNAL ENTRIES

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
July 1 Cash 20,000
K. Browne, Capital 20,000
(Invested cash in the
business)
 ILLUSTRATION 2-14
COMPOUND JOURNAL 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
July 1 Delivery Equipment 14,000
1 Cash 8,000
Accounts Payable 6,000
2 (Purchased truck for cash
with balance on account)
3
COMPOUND JOURNAL ENTRY

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
July 1 Cash 8,000
Delivery Equipment 14,000
Accounts Payable 6,000
(Purchased truck for cash
with balance on account)
 STUDY OBJECTIVE 5

Explain what a ledger is and how it helps

in the recording process.
 THE LEDGER
The entire group of accounts maintained by a
company is called the ledger.
A general ledger contains all the assets, liabilities,
and owner’s equity accounts.

GENERAL
LEDGER
 ILLUSTRATION 2-15
THE GENERAL LEDGER

Individual Individual Individual

Assets Liabilities Owner’s Equity

Equipment Interest Payable Salaries Expense

Land Salaries Payable Fees Earned
Supplies Accounts Payable J. Lind, Drawing

Cash Notes Payable J. Lind, Capital

 STUDY OBJECTIVE 6

Explain what posting is and how it helps

in the recording process.
 ILLUSTRATION 2-17
POSTING A JOURNAL ENTRY
GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2002
Sept. 1 Cash 10 15,000
R. Neal, Capital 25 15,000
(invested cash in business)
GENERAL LEDGER
CASH NO. 10
Date Explanation Ref. Debit Credit Balance
2002
Sept. 1 J1 15,000 15,000

R. NEAL, CAPITAL NO. 25

Date Explanation Ref. Debit Credit Balance
2002
Sept. 1 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.
 ILLUSTRATION 2-17
POSTING A JOURNAL ENTRY
GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2002
Sept. 1 Cash 10 15,000
R. Neal, Capital 25 15,000
(invested cash in business)

GENERAL LEDGER
CASH NO. 10
Date Explanation Ref. Debit Credit Balance
2002
Sept. 1 J1 15,000 15,000

R. NEAL, CAPITAL NO. 25

Date Explanation Ref. Debit Credit Balance
2002
Sept. 1 J1 15,000 15,000

In the reference column of the journal, write the account

number to which the debit amount was posted.
 ILLUSTRATION 2-17
POSTING A JOURNAL ENTRY
GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2002
Sept. 1 Cash 10 15,000
R. Neal, Capital 25 15,000
(invested cash in business)
GENERAL LEDGER
CASH NO. 10
Date Explanation Ref. Debit Credit Balance
2002
Sept. 1 J1 15,000 15,000

R. NEAL, CAPITAL NO. 25

Date Explanation Ref. Debit Credit Balance
2002
Sept. 1 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.
 ILLUSTRATION 2-17
POSTING A JOURNAL ENTRY
GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2002
Sept. 1 Cash 10 15,000
R. Neal, Capital 25 15,000
(invested cash in business)

GENERAL LEDGER
CASH NO. 10
Date Explanation Ref. Debit Credit Balance
2002
Sept. 1 J1 15,000 15,000

R. NEAL, CAPITAL NO. 25

Date Explanation Ref. Debit Credit Balance
2002
Sept. 1 J1 15,000 15,000

In the reference column of the journal, write the account

number to which the credit amount was posted.
 ILLUSTRATION 2-18
CHART OF ACCOUNTS

Most companies have a chart of accounts that lists the accounts and
the account numbers which identify their location in the ledger.

Pioneer Advertising Agency

Assets Owner’s Equity
101. Cash 301. C.R. Byrd, Capital
112. Accounts Receivable 306. C.R. Byrd, Drawing
126. Advertising Supplies 350. Income Summary
130. Prepaid Insurance Revenues
157. Office Equipment 400. Fees Earned
158. Accumulated Depreciation — Office Equipment Expenses
Liabilities 631. Advertising Supplies Expense
200. Notes Payable 722. Insurance Expense
201. Accounts Payable 726. Salaries Expense
209. Unearned Fees 729. Rent Expense
212. Salaries Payable 905. Interest Expense
236. Interest Payable 911. Depreciation Expense
 ILLUSTRATION 2-19
INVESTMENT OF CASH BY OWNER

October 1, C.R. Byrd invests $10,000 cash in an

Transaction advertising venture to be known as the Pioneer
Advertising Agency.

Basic ????
Analysis

????
Debit-Credit
Analysis
 ILLUSTRATION 2-19
INVESTMENT OF CASH BY OWNER

October 1, C.R. Byrd invests $10,000 cash in an

Transaction advertising venture to be known as the Pioneer
Advertising Agency.

Basic The asset Cash is increased $10,000, and owner’s

Analysis equity C. R. Byrd, Capital is increased $10,000.

Debits increase assets: debit Cash $10,000.

Debit-Credit
Credits increase owner’s equity: credit C.R. Byrd,
Analysis Capital $10,000.
 ILLUSTRATION 2-19
INVESTMENT OF CASH BY OWNER

JOURNAL ENTRY

Date Account Titles and Explanation Ref. Debit Credit

Oct. 1 Cash 101 10,000
C. R. Byrd, Capital 301 10,000
(Invested cash in business)

POSTING

Cash 101 C. R. Byrd, Capital 301

Oct. 1 10,000 Oct. 1 10,000
 ILLUSTRATION 2-20
PURCHASE OF OFFICE EQUIPMENT

October 1, office equipment costing $5,000 is

Transaction purchased by signing a 3-month, 12%, $5,000 note
payable.

Basic The asset Office Equipment is increased $5,000, and

Analysis the liability Notes Payable is increased $5,000.

Debits increase assets: debit Office Equipment

Debit-Credit
$5,000. Credits increase liabilities: credit Notes
Analysis Payable $5,000.
 ILLUSTRATION 2-20
PURCHASE OF OFFICE EQUIPMENT

JOURNAL ENTRY

Date Account Titles and Explanation Ref. Debit Credit

Oct. 1 Office Equipment 157 5,000
Notes Payable 200 5,000
(Issued 3-month, 12% note
for office equipment)

POSTING

Office Equipment 157 Notes Payable 200

Oct. 1 5,000 Oct. 1 5,000
 ILLUSTRATION 2-21
RECEIPT OF CASH FOR FUTURE SERVICE

October 2, a $1,200 cash advance is received from

Transaction R. Knox, a client, for advertising services that are
expected to be completed by December 31.

Basic ????
Analysis

????
Debit-Credit
Analysis
 ILLUSTRATION 2-21
RECEIPT OF CASH FOR FUTURE SERVICE

October 2, a $1,200 cash advance is received from

Transaction R. Knox, a client, for advertising services that are
expected to be completed by December 31.

The asset Cash is increased $1,200; the liability

Unearned Fees is increased $1,200 because the
Basic service has not been rendered yet. Note that
Analysis although many liabilities have the word “payable” in
their title, unearned fees are considered a liability
even though the word payable is not used.

Debits increase assets: debit Cash $1,200.

Debit-Credit
Credits increase liabilities: credit Unearned Fees
Analysis $1,200.
 ILLUSTRATION 2-21
RECEIPT OF CASH FOR FUTURE SERVICE

JOURNAL ENTRY

Date Account Titles and Explanation Ref. Debit Credit

Oct. 2 Cash 101 1,200
Unearned Fees 209 1,200
(Received advance from R.
Knox for future services)

POSTING

Cash 101 Unearned Fees 209

Oct. 1 10,000 Oct. 2 1,200
2 1,200
 ILLUSTRATION 2-22
PAYMENT OF MONTHLY RENT

October 3, office rent for October is paid in cash,

Transaction $900.

Basic ????
Analysis

Debit-Credit ????
Analysis
 ILLUSTRATION 2-22
PAYMENT OF MONTHLY RENT

October 3, office rent for October is paid in cash,

Transaction $900.

Basic The expense Rent is increased $900 because the

Analysis payment pertains only to the current month; the
asset Cash is decreased $900.

Debit-Credit Debits increase expenses: debit Rent Expense $900.

Analysis Credits decrease assets: credit Cash $900.
 ILLUSTRATION 2-22
PAYMENT OF MONTHLY RENT

JOURNAL ENTRY

Date Account Titles and Explanation Ref. Debit Credit

Oct. 3 Rent Expense 729 900
Cash 101 900
(Paid October rent)

POSTING

Cash 101 Rent Expense 729

Oct. 1 10,000 Oct. 3 900 Oct. 3 900
2 1,200
 ILLUSTRATION 2-23
PAYMENT FOR INSURANCE

October 4, $600 is paid for a one-year insurance

Transaction policy that will expire next year on September 30.

Basic ????
Analysis

Debit-Credit ????
Analysis
 ILLUSTRATION 2-23
PAYMENT FOR INSURANCE

October 4, $600 is paid for a one-year insurance

Transaction policy that will expire next year on September 30.

The asset Prepaid Insurance is increased $600

because the payment extends to more than the
current month; the asset Cash is decreased $600.
Basic Note that payments of expenses that will benefit more
Analysis than one accounting period are identified as prepaid
expenses or prepayments. When a payment is made,
an asset account is debited in order to show the
service or benefit that will be received in the future.

Debit-Credit Debits increase assets: debit Prepaid Insurance

Analysis $600. Credits decrease assets: credit Cash $600.
 ILLUSTRATION 2-23
PAYMENT FOR INSURANCE

JOURNAL ENTRY

Date Account Titles and Explanation Ref. Debit Credit

Oct. 4 Prepaid Insurance 130 600
Cash 101 600
(Paid one-year policy;
effective date October 1)

POSTING

Cash 101 Prepaid Insurance 130

Oct. 1 10,000 Oct. 3 900 Oct. 4 600
2 1,200 4 600
 ILLUSTRATION 2-24
PURCHASE OF SUPPLIES ON CREDIT

October 5, an estimated 3-month supply of

Transaction advertising materials is purchased on account from
Aero Supply for $2,500.

Basic ????
Analysis

????
Debit-Credit
Analysis
 ILLUSTRATION 2-24
PURCHASE OF SUPPLIES ON CREDIT

October 5, an estimated 3-month supply of

Transaction advertising materials is purchased on account from
Aero Supply for $2,500.

Basic The asset Advertising Supplies is increased $2,500;

Analysis the liability Accounts Payable is increased $2,500.

Debits increase assets: debit Advertising Supplies

Debit-Credit
$2,500. Credits increase liabilities: credit
Analysis Accounts Payable $2,500.
 ILLUSTRATION 2-24
PURCHASE OF SUPPLIES ON CREDIT

JOURNAL ENTRY

Date Account Titles and Explanation Ref. Debit Credit

Oct. 5 Advertising Supplies 126 2,500
Accounts Payable 201 2,500
(Purchased supplies on
account from Aero Supply)

POSTING

Advertising Supplies 126 Accounts Payable 201

Oct. 5 2,500 Oct. 5 2,500
 ILLUSTRATION 2-25
HIRING OF EMPLOYEES

October 9, hire four employees to begin work on

October 15. Each employee is to receive a weekly
Transaction salary of $500 for a 5-day work week, payable every
2 weeks -- first payment made on October 26.

????
Basic
Analysis

Debit-Credit ????
Analysis
 ILLUSTRATION 2-25
HIRING OF EMPLOYEES

October 9, hire four employees to begin work on

October 15. Each employee is to receive a weekly
Transaction salary of $500 for a 5-day work week, payable every
2 weeks -- first payment made on October 26.

A business transaction has not occurred. There is

Basic only an agreement between the employer and the
Analysis employees to enter into a business transaction
beginning on October 15.

Debit-Credit A debit-credit analysis is not needed because there is

Analysis no accounting entry.
 ILLUSTRATION 2-26
WITHDRAWAL OF CASH BY OWNER

October 20, C. R. Byrd withdraws $500 cash for

Transaction personal use.

Basic ????
Analysis

????
Debit-Credit
Analysis
 ILLUSTRATION 2-26
WITHDRAWAL OF CASH BY OWNER

October 20, C. R. Byrd withdraws $500 cash for

Transaction personal use.

Basic The owner’s equity account C. R. Byrd, Drawing is

Analysis increased $500; the asset Cash is decreased $500.

Debits increase drawings: debit C. R. Byrd,

Debit-Credit
Drawing $500. Credits decrease assets: credit
Analysis Cash $500.
 ILLUSTRATION 2-26
WITHDRAWAL OF CASH BY OWNER

JOURNAL ENTRY

Date Account Titles and Explanation Ref. Debit Credit

Oct. 20 C. R. Byrd, Drawing 306 500
Cash 101 500
(Withdrew cash for personal
use)

POSTING

Cash 101 C. R. Byrd, Drawing 306

Oct. 1 10,000 Oct. 3 900 Oct. 20 500
2 1,200 4 600
20 500
 ILLUSTRATION 2-27
PAYMENT OF SALARIES

October 26, employee salaries of $4,000 are owed

Transaction and paid in cash. (See October 9 transaction.)

Basic ????
Analysis

Debit-Credit ????
Analysis
 ILLUSTRATION 2-27
PAYMENT OF SALARIES

October 26, employee salaries of $4,000 are owed

Transaction and paid in cash. (See October 9 transaction.)

Basic The expense account Salaries Expense is increased

Analysis $4,000; the asset Cash is decreased $4,000.

Debit-Credit Debits increase expenses: debit Salaries Expense

Analysis $4,000. Credits decrease assets: credit Cash $4,000.
 ILLUSTRATION 2-27
PAYMENT OF SALARIES
JOURNAL ENTRY

Date Account Titles and Explanation Ref. Debit Credit

Oct. 26 Salaries Expense 726 4,000
Cash 101 4,000
(Paid salaries to date)

POSTING

Cash 101 Salaries Expense 726

Oct. 1 10,000 Oct. 3 900 Oct. 26 4,000
2 1,200 4 600
20 500
26 4,000
 ILLUSTRATION 2-28
RECEIPT OF CASH FOR FEES EARNED

October 31, received $10,000 in cash from Copa

Transaction Company for advertising services rendered in
October.

Basic ????
Analysis

Debit-Credit ????
Analysis
 ILLUSTRATION 2-28
RECEIPT OF CASH FOR FEES EARNED

October 31, received $10,000 in cash from Copa

Transaction Company for advertising services rendered in
October.

Basic The asset Cash is increased $10,000; the revenue

Analysis Fees Earned is increased $10,000.

Debit-Credit Debits increase assets: debit Cash $10,000. Credits

Analysis increase revenues: credit Fees Earned $10,000.
 ILLUSTRATION 2-28
RECEIPT OF CASH FOR FEES EARNED

JOURNAL ENTRY
Date Account Titles and Explanation Ref. Debit Credit
Oct. 31 Cash 101 10,000
Fees Earned 400 10,000
(Received cash for fees
earned)

POSTING
Cash 101 Fees Earned 400
Oct. 1 10,000 Oct. 3 900 Oct. 31 10,000
2 1,200 4 600
31 10,000 20 500
26 4,000
 STUDY OBJECTIVE 7

Prepare a trial balance and explain its purposes.

 LEDGER BALANCES
Cash 101
Oct. 1 10,000 Oct. 3 900 Salaries Expense 726
2 1,200 4 600 Oct. 26 4,000
31 10,000 20 500
26 4,000

C. R. Byrd, Drawing 306

Advertising Supplies 126 Oct. 20 500
Oct. 5 2,500

Prepaid Insurance 130

Oct. 4 600 Rent Expense 729
Oct. 3 900

Office Equipment 157

Oct. 1 5,000
 LEDGER BALANCES
Notes Payable 200
Oct. 1 5,000

Fees Earned 400

Accounts Payable 201
Oct. 5 2,500 Oct. 31 10,000

Unearned Fees 209

Oct. 2 1,200

C. R. Byrd, Capital 301

Oct. 1 10,000
 ILLUSTRATION 2-31
A TRIAL BALANCE
PIONEER ADVERTISING AGENCY
Trial Balance
October 31, 2002

Debit Credit
Cash $ 15,200
Advertising Supplies 2,500
Prepaid Insurance 600
Office Equipment The total debits 5,000
Notes Payable $ 5,000
Accounts Payable must equal the 2,500
Unearned Fees total credits. 1,200
C. R. Byrd, Capital 10,000
C. R. Byrd, Drawing 500
Fees Earned 10,000
Salaries Expense 4,000
Rent Expense 900
$ 28,700 $ 28,700
 THE TRIAL BALANCE
 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
(check) that the debits equal the credits after posting.
 If the debits and credits do not agree, the trial balance
can be used to uncover errors in journalizing and
posting.
 The procedures for preparing a trial balance consist of:
1 List the account titles and their balances.
2 Total the debit and credit columns.
3 Prove the equality of the two columns.
 LIMITATIONS OF A
TRIAL BALANCE
 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.