2 The Recording Process

Learning 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.
8. Describe the four financial statements and how they are prepared.
Copyright © 2018 John Wiley & Sons, Inc. All rights reserved.
Edited by: Dr. Mohammed Elzahaby.
 The
The Account
Account
Record of increases and decreases in
Account 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.

Slide
2-2 LO 1 Explain what an account is and how it helps in the recording process.
 The
The Account
Account

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.

Slide LO 2 Define debits and credits and explain their use

2-3 in recording business transactions.
 Debits
Debits and
and Credits
Credits Summary
Summary
Liabilities
Debit / Dr. Credit / Cr.
Normal
Normal Normal
Normal
Balance
Balance Balance
Balance
Debit
Debit Credit
Credit Normal Balance

Assets Chapter
3-24

Equity
Debit / Dr. Credit / Cr.
Debit / Dr. Credit / Cr.

Normal Balance
Normal Balance

Chapter
3-23

Expense Chapter
3-25
Revenue
Debit / Dr. Credit / Cr.
Debit / Dr. Credit / Cr.

Normal Balance
Normal Balance

Chapter
3-27 Chapter
3-26

Slide
2-4 LO 2
 Debits
Debits and
and Credits
Credits Summary
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.

Slide
Solution LO 2 Define debits and credits and explain their use
notes page in recording business transactions.
2-5
 Summary
Summary of
of Debit/Credit
Debit/Credit Rules
Rules

Review Question
Accounts that normally have debit balances are:
a. assets, expenses, and revenues.
b. assets, expenses, and retained earnings.
c. assets, liabilities, and dividends.
d. assets, dividends, and expenses.

Slide
Solution LO 2 Define debits and credits and explain their use
notes page in recording business transactions.
2-6
 Recording
Recording Process:
Process: The
The Accounting
Accounting Cycle
Cycle

Slide
2-7 LO 3 Identify the basic steps in the recording process.
 Steps
Steps in
in the
the Recording
Recording Process
Process
Illustration 2-13

Transfer journal information to

Analyze each transaction Enter transaction in a journal ledger accounts

Business documents, such as a sales invoice, a check, a

bill, or a cash register tape, provide evidence of the
transaction.

Slide
2-8 LO 3 Identify the basic steps in the recording process.
 Steps
Steps in
in the
the Recording
Recording Process
Process

Journalizing
It is a 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 detect errors because the debit

and credit amounts can be easily compared.

Slide
2-9 LO 4 Explain what a journal is and how it helps in the recording process.
 Steps
Steps in
in the
the Recording
Recording Process
Process

Posting
The process of transferring amounts from the journal to the ledger accounts.

General Ledger
 All accounts maintained by a company.
 All asset, liability, equity, revenue and expense accounts.

Illustration 2-16

Slide
2-10
LO 5 Explain what a ledger is and how it helps in the recording process.
 The
The Recording
Recording Process
Process Illustrated
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 2-20
Slide
2-11 LO 6 Explain what posting is and how it helps in the recording process.
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-21

Slide
2-12 LO 6 Explain what posting is and how it helps in the recording process.
 The
The Recording
Recording Process
Process Illustrated
Illustrated
Illustration 2-22

Slide
2-13 LO 6
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-23

Slide
2-14 LO 6
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-24

Slide
2-15 LO 6
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-25

Slide
2-16 LO 6
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-26

Slide
2-17 LO 6 Explain what posting is and how it helps in the recording process.
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-27

Slide
2-18 LO 6
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-28

Slide
2-19 LO 6
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-29

Slide
2-20 LO 6
 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.

Solution on
notes page

Slide
2-21 LO 6 Explain what posting is and how it helps in the recording process.
 The
The Recording
Recording Process
Process Illustrated
Illustrated
Katherine Turner recorded the following
transactions during the month of March.

Post these entries to the Cash account.

Slide Solution on
2-22 notes page LO 6
 The
The Trial
Trial Balance
Balance
Illustration 2-32

A list of accounts
and their
balances at a
given time.
Purpose is to
prove that debits
equal credits.

Slide
2-23 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
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, or
4. incorrect accounts are used in journalizing or
posting.

Slide
2-24 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance

The accounts
come from the
Christel Corporation
ledger of Trial Balance (in thousands)
December 31, 2011
Christel
Corporation at
December 31,
2011.

Slide Solution on
2-25 notes page LO 7
LEARNING Describe the four financial statements
8
OBJECTIVE and how they are prepared.

Companies prepare four financial statements :

Owner’s
Income Equity Balance Sheet
Statement of
Statement Cash Flows
Statement

Copyright © 2018 John Wiley & Sons, Inc. All rights reserved.
Edited by: Dr. Mohammed Elzahaby. LO 5
 Net income is needed to determine the
Financial Statements ending balance in owner’s equity.

SOFTBYTE
Income Statement
For the Month Ended September 30, 2017

Illustration 1-9
Financial statements and
their interrelationships

SOFTBYTE
Owner’s Equity Statement
For the Month Ended September 30, 2017

Copyright © 2018 John Wiley & Sons, Inc. All rights reserved. LO 5
Edited by: Dr. Mohammed Elzahaby.
 SOFTBYTE
Owner’s Equity Statement
For the Month Ended September 30, 2017

Illustration 1-9
The ending
balance in SOFTBYTE
owner’s equity Balance Sheet
is needed in September 30, 2017
preparing the
balance sheet.

Illustration 1-9
Financial statements
and their
interrelationships

Copyright © 2018 John Wiley & Sons, Inc. All rights reserved.
Edited by: Dr. Mohammed Elzahaby.
 SOFTBYTE
Financial Balance Sheet
September 30, 2017

Statements

Balance sheet and

income statement
are needed to
prepare statement of
cash flows.
SOFTBYTE
Statement of Cash Flows
For the Month Ended September 30, 2017

Illustration 1-9
Financial statements
and their
interrelationships

Copyright © 2018 John Wiley & Sons, Inc. All rights reserved.
Edited by: Dr. Mohammed Elzahaby.
Income Statement

 Reports the revenues and expenses for a specific

period of time.
 Lists revenues first, followed by expenses.
 Shows net income (or net loss).
 Does not include
investment and
withdrawal
transactions between
the owner and the
business in
measuring net LO 5
income. Copyright © 2018 John Wiley & Sons, Inc. All rights reserved.
Edited by: Dr. Mohammed Elzahaby.
Owner’s Equity
Statement
 Reports the changes in owner’s equity for a
specific period of time.
 The time period is the same as that covered by
the income statement.

LO 5
Copyright © 2018 John Wiley & Sons, Inc. All rights reserved.
Edited by: Dr. Mohammed Elzahaby.
Balance Sheet

 Reports the assets, liabilities, and owner's equity

at a specific date.
 Lists assets at the top, followed by liabilities and
owner’s equity.
 Total assets must equal total liabilities and
owner's equity.
 Is a snapshot of the company’s financial
condition at a specific moment in time (usually
the month-end or year-end).

LO 5
Copyright © 2018 John Wiley & Sons, Inc. All rights reserved.
Edited by: Dr. Mohammed Elzahaby.
Statement of Cash
Flows
 Information on the cash receipts and payments
for a specific period of time.
 It answers the following:
► Where did cash come from?
► What was cash used for?
► What was the change in the
cash balance?

LO 5
Copyright © 2018 John Wiley & Sons, Inc. All rights reserved.
Edited by: Dr. Mohammed Elzahaby.
Financial Statements

Question
Net income will result during a time period when:
a. assets exceed liabilities.
b. assets exceed revenues.
c. expenses exceed revenues.
d. revenues exceed expenses.

Copyright © 2018 John Wiley & Sons, Inc. All rights reserved.
Edited by: Dr. Mohammed Elzahaby. LO 5
Financial Statements

Question
Which of the following financial statements is prepared as
of a specific date?
a. Balance sheet.
b. Income statement.
c. Owner's equity statement.
d. Statement of cash flows.

LO 5
Copyright © 2018 John Wiley & Sons, Inc. All rights reserved.
Edited by: Dr. Mohammed Elzahaby.
 Note !
It is required, by the end of semester, to prepare and present a research project
entitled: “The usefulness of financial and non-financial reporting in the capital
market”.
Details about this project will be explained through the following lectures.
Copyright © 2018 John Wiley & Sons, Inc. All rights reserved.
Edited by: Dr. Mohammed Elzahaby. LO 5
DO IT! 5 Financial Statement Items

Presented below is selected information related to Flanagan Company

at December 31, 2017. Flanagan reports financial information monthly.
Equipment $10,000 Utilities Expense $ 4,000
Cash 8,000 Accounts Receivable 9,000
Service Revenue 36,000 Salaries and Wages Expense 7,000
Rent Expense 11,000 Notes Payable 16,500
Accounts Payable 2,000 Owner’s Drawings 5,000

(a) Determine the total assets of at December 31, 2017.

(b) Determine the net income reported for December 2017.
(c) Determine the owner’s equity at December 31, 2017.

LO 5
DO IT! 5 Financial Statement Items

Presented below is selected information related to Flanagan Company

at December 31, 2017. Flanagan reports financial information monthly.
Equipment $10,000 Utilities Expense $ 4,000
Cash 8,000 Accounts Receivable 9,000
Service Revenue 36,000 Salaries and Wages Expense 7,000
Rent Expense 11,000 Notes Payable 16,500
Accounts Payable 2,000 Owner’s Drawings 5,000

(a) Determine the total assets of at December 31, 2017.

The total assets are $27,000, comprised of

• Cash $8,000,
• Accounts Receivable $9,000, and
• Equipment $10,000.

LO 5
DO IT! 5 Financial Statement Items

Presented below is selected information related to Flanagan Company

at December 31, 2017. Flanagan reports financial information monthly.
Equipment $10,000 Utilities Expense $ 4,000
Cash 8,000 Accounts Receivable 9,000
Service Revenue 36,000 Salaries and Wages Expense 7,000
Rent Expense 11,000 Notes Payable 16,500
Accounts Payable 2,000 Owner’s Drawings 5,000

(b) Determine the net income reported for December 2017.

LO 5
DO IT! 5 Financial Statement Items

Presented below is selected information related to Flanagan Company

at December 31, 2017. Flanagan reports financial information monthly.
Equipment $10,000 Utilities Expense $ 4,000
Cash 8,000 Accounts Receivable 9,000
Service Revenue 36,000 Salaries and Wages Expense 7,000
Rent Expense 11,000 Notes Payable 16,500
Accounts Payable 2,000 Owner’s Drawings 5,000

(c) Determine the owner’s equity at December 31, 2017.

LO 5
Task (1):
Financial
Statements

• Search for financial statements for

one of the Egyptian listed firms and
then, apply the accounting equation
in addition to identifying the
extended part of owner’s equity
section.

• Deadline: hand-in next lecture.

• For Inquiries
E-mail: [Link]@[Link]
Task (2):
Enron
Scandal

• Briefly summarize how and why

did Enron Inc. mislead
accounting information to users
of financial statements.

• Deadline: next lecture.

Task (3):
Blockcha
in
• Briefly summarize how
Blockchain affects the
recording of accounting
information.

• Deadline: next lecture.