Ch2

Chapter
2-1
Chapter 2
The Recording
Process
Accounting Principles, Ninth Edition

Chapter
2-2
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”
AccountAccount
An Account canAn Account can
be illustrated in abe illustrated in a
T-AccountT-Account
form.form.
SO 1 Explain what an account is and how it helps in the recording process.SO 1 Explain what an account is and how it helps in the recording process.
The AccountThe AccountThe AccountThe Account

Chapter
2-3
Double-entryDouble-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 equalmust equal CREDITS.
SO 2 Define debits and credits and explain theirSO 2 Define debits and credits and explain their
use in recording business transactions.use in recording business transactions.
Debits and CreditsDebits and CreditsDebits and CreditsDebits and Credits

Chapter
2-4
Account Name
If Debits are greater thangreater than Credits, the account
will have a debit balance.
$10,000 Transaction #2$3,000
$15,000$15,000
8,000Transaction #3
Balance
Transaction #1

Chapter
2-5
Account Name
If Credits are greater thangreater than Debits, the account
will have a credit balance.
$10,000 Transaction #2$3,000
Balance
Transaction #1
$1,000$1,000
8,000 Transaction #3

Chapter
2-6
Chapter
3-23
AssetsAssets
Normal BalanceNormal Balance
Chapter
3-27
ExpenseExpense
Chapter
3-24
LiabilitiesLiabilities
Chapter
3-25
Owner’s EquityOwner’s Equity
Chapter
3-26
RevenueRevenue
Normal
Balance
Credit
Normal
Balance
Credit
Normal
Balance
Debit
Normal
Balance
Debit
Debits and Credits SummaryDebits and Credits SummaryDebits and Credits SummaryDebits and Credits Summary
SO 2SO 2

Chapter
2-7
Balance SheetBalance Sheet Income StatementIncome Statement
= + -Asset Liability Equity Revenue Expense
Debit
Credit
Debits and Credits SummaryDebits and Credits SummaryDebits and Credits SummaryDebits and Credits Summary

Chapter
2-8
Assets - Debits should
exceed credits.
Liabilities – Credits
should exceed debits.
The normal balance is on
the increase side.
Assets and LiabilitiesAssets and LiabilitiesAssets and LiabilitiesAssets and Liabilities
Chapter
3-23
AssetsAssets
Chapter
3-24
LiabilitiesLiabilities

Chapter
2-9
Owner’s investments and
revenues increase owner’s
equity (credit).
Owner’s drawings and expenses
decrease owner’s equity (debit).
Owners’ EquityOwners’ EquityOwners’ EquityOwners’ Equity
Chapter
3-25
Owner’s CapitalOwner’s Capital
Chapter
3-23
Owner’s DrawingOwner’s Drawing
Chapter
3-25
Owner’s EquityOwner’s Equity

Chapter
2-10
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.
Revenue and ExpenseRevenue and ExpenseRevenue and ExpenseRevenue and Expense
Chapter
3-27
ExpenseExpense
Chapter
3-26
RevenueRevenue

Chapter
2-11
Expansion of the Basic EquationExpansion of the Basic EquationExpansion of the Basic EquationExpansion of the Basic Equation
Relationship among the assets, liabilities andRelationship among the assets, liabilities and
owner’s equity of a business:owner’s equity of a business:
The equation must be in balance after everyThe equation must be in balance after every
transaction. For everytransaction. For every DebitDebit there must be athere must be a CreditCredit..
Illustration 2-11
Assets Liabilities= Owner’s Equity
Basic
Equation
Expanded
Basic
Equation
+

Chapter
2-12
Business documents, such as a sales slip, a check, a
bill, or a cash register tape, provide evidence of the
transaction.
Steps in the Recording ProcessSteps in the Recording ProcessSteps in the Recording ProcessSteps in the Recording Process
SO 3 Identify the basic steps in the recording process.SO 3 Identify the basic steps in the recording process.
Illustration 2-12
Analyze each transaction Enter transaction in a journal
Transfer journal information
to ledger accounts

Chapter
2-13
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.
The JournalThe JournalThe JournalThe Journal
SO 4 Explain what a journal is and how it helps in the recording process.SO 4 Explain what a journal is and how it helps in the recording process.

Chapter
2-14
Journalizing - Entering transaction data in the journal.
JournalizingJournalizingJournalizingJournalizing
E2-4 (Facts) Presented below is information related to
Hanshew Real Estate Agency.
Pete Hanshew begins business as a real estate agent with
a cash investment of $15,000.
Oct. 1
Purchases office furniture for $1,900, on account.3
Sells a house and lot for B. Kidman; bills B. Kidman $3,200
for realty services provided.
6
Pays $700 on balance related to transaction of Oct. 3.27
Pays the administrative assistant $2,500 salary for Oct.30
E2-5 Instructions - Journalize the transactions for E2-4.

Chapter
2-15
Account Title Ref. Debit CreditDate
General Journal
E2-5 (Facts) Journalize the transactions related to
Pete Hanshew begins business as a real estate
agent with a cash investment of $15,000.
Oct. 1
Cash
Hanshew, capital
Oct. 1 15,000
15,000
(Owner’s investment)

Chapter
2-16
Purchases office furniture for $1,900, on
account.
Oct. 3
General Journal
Office furniture
Accounts payable
Oct. 3 1,900
1,900
(Purchase on account)

Chapter
2-17
Sells a house and lot for B. Kidman; bills B.
Kidman $3,200 for realty services provided.
Oct. 6
General Journal
Accounts receivable
Service revenue
Oct. 6 3,200
3,200
(Services provided)

Chapter
2-18
Pays $700 on balance related to transaction of
Oct. 3.
Oct. 27
General Journal
Accounts payable
Cash
Oct. 27 700
700
(Payment on account)

Chapter
2-19
Pays the administrative assistant $2,500
salary for Oct.
Oct. 30
General Journal
Salaries expense
Cash
Oct. 30 2,500
2,500
(Payment for salaries)

Chapter
2-20
Simple Entry – Two accounts, one debit and one credit.
Compound Entry – Three or more accounts.
Example – On June 15, H. Burns, purchased equipment
for $15,000 by paying cash of $10,000 and the balance
on account (to be paid within 30 days).
General Journal
Equipment
Cash
Jun. 15 15,000
10,000
(Purchase equipment)
Accounts payable 5,000

Chapter
2-21
A General Ledger contains 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 LedgerThe LedgerThe LedgerThe Ledger
SO 5 Explain what a ledger is and how it helps in the recording process.SO 5 Explain what a ledger is and how it helps in the recording process.

Chapter
2-22
Accounts and account numbers arranged in sequence in
which they are presented in the financial statements.
Chart of AccountsChart of AccountsChart of AccountsChart of Accounts
SO 6 Explain what posting is and how it helps in the recording process.SO 6 Explain what posting is and how it helps in the recording process.
Hanshew Real Estate Agency
Chart of Accounts
101 Cash 300 Hanshew, Capital
112 Accounts receivable 306 Hanshew, Drawing
126 Advertising supplies 350 Income summary
140 Office furniture
150 Equipment
158 Accumulated depreciation 400 Service revenue
200 Accounts payable 631 Advertising supplies expense
201 Notes payable 711 Depreciation expense
209 Unearned revenue 722 Insurance expense
212 Salaries payable 726 Salaries expense
230 Interest payable 729 Rent expense
905 Interest expense
Liabilities
Assets Owner's Equity
Revenues
Expenses

Chapter
2-23
T-account form used in accounting textbooks.
In practice, the account forms used in ledgers are
much more structured.
Standard Form of AccountStandard Form of AccountStandard Form of AccountStandard Form of Account
Explanation Ref. Debit Credit
Oct. 1 15,000 15,000
27 700 14,300
30 2,500 11,800
Cash
Date
No. 101
Balance
SO 5 Explain what a ledger is and how it helps in the recording process.SO 5 Explain what a ledger is and how it helps in the recording process.

Chapter
2-24
PostingPosting – the process of transferring amounts from the
journal to the ledger accounts.
Cash Acct. No. 101
Date Explanation Ref. Debit Credit Balance
General Ledger
Account Title Ref. Debit Credit
Oct. 1 Cash 15,000
Hanshew, Capital 15,000
(Owner's investment in business)
Date
General Journal
Oct. 1 J1 15,000 15,000
101
J1
PostingPostingPostingPosting

Chapter
2-25
General Ledger
General Ledger
Oct. 1 J1 15,000 15,000
Oct. 1 J1 15,000 15,000
Cash Acct. No. 101
Hanshew, capital Acct. No. 300
101
300
J1
E2-5

Chapter
2-26
General Ledger
General Ledger
Office Furniture Acct. No. 140
Accounts Payable Acct. No. 200
Oct. 3 J1 1,900 1,900
Oct. 3 J1 1,900
140
200
J1
1,900
E2-5

Chapter
2-27
General Ledger
General Ledger
Accounts Receivable Acct. No. 112
Service Revenue Acct. No. 400
Oct. 6 J1 3,200 3,200
Oct. 6 J1 3,200 3,200
112
400
J1
E2-5

Chapter
2-28 SO 6 Explain what posting is and how it helps in the recording process.SO 6 Explain what posting is and how it helps in the recording process.
200
101
J1
E2-5
General Ledger
Accounts Payable Acct. No. 200
Oct. 3 J1 1,9001,900
Oct.27 J1 1,200700
General Ledger
Oct. 1 J1 15,000 15,000
Cash Acct. No. 101
Oct.27 J1 700 14,300

Chapter
2-29 SO 6 Explain what posting is and how it helps in the recording process.SO 6 Explain what posting is and how it helps in the recording process.
726
101
J1
E2-5
General Ledger
Salaries Expense Acct. No. 726
Oct.30 J1 2,5002,500
General Ledger
Oct. 1 J1 15,000 15,000
Cash Acct. No. 101
Oct.27 J1 700 14,300
Oct.30 J1 2,500 11,800

Chapter
2-30
A list of accounts
and their balances
at a given time.
Purpose is to
prove that debits
equal credits.
The Trial BalanceThe Trial BalanceThe Trial BalanceThe Trial Balance
LO 7 Prepare a trial balance and explain its purposes.LO 7 Prepare a trial balance and explain its purposes.
Debit Credit
Cash 11,800$
Accounts receivable 3,200
Office furniture 1,900
Accounts payable 1,200$
Hanshew, Capital 15,000
Service revenue 3,200
Salaries expense 2,500
19,400$ 19,400$
Hanshew Real Estate Agency
Trial Balance
October 31, 2010
E2-5

Chapter
2-31
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, or
5. offsetting errors are made in recording the
amount of a transaction.
The Trial BalanceThe Trial BalanceThe Trial BalanceThe Trial Balance
LO 7 Prepare a trial balance and explain its purposes.LO 7 Prepare a trial balance and explain its purposes.
Limitations of a Trial Balance

Ch2

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