Slide 2-1

Chapter 2

The Recording The Recording ProcessProcess

Financial Accounting, IFRS EditionWeygandt Kimmel Kieso

Slide 2-4

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 can An Account can be illustrated in a be illustrated in a T-Account form.T-Account 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

Slide 2-5

Double-entry 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 equalmust equal CREDITS.

SO 2 Define debits and credits and explain their use SO 2 Define debits and credits and explain their use in recording business transactions.in recording business transactions.

The AccountThe AccountThe AccountThe Account

Debits and Credits

Slide 2-6

Account Name

Debit / Dr. Credit / Cr.

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

Debits and CreditsDebits and CreditsDebits and CreditsDebits and Credits

SO 2 Define debits and credits and explain their use SO 2 Define debits and credits and explain their use in recording business transactions.in recording business transactions.

Slide 2-7

Account Name

Debit / Dr. Credit / Cr.

If Credits are greater thangreater than Debits, the account will have a credit balance.

$10,000 Transaction #2$3,000

Balance

Transaction #1

Debits and CreditsDebits and CreditsDebits and CreditsDebits and Credits

$1,000$1,000

8,000 Transaction #3

SO 2 Define debits and credits and explain their use SO 2 Define debits and credits and explain their use in recording business transactions.in recording business transactions.

Slide 2-8

Chapter 3-23

AssetsAssets

Debit / Dr. Credit / Cr.

Normal BalanceNormal Balance

Chapter 3-27

Debit / Dr. Credit / Cr.

Normal BalanceNormal Balance

ExpenseExpense

Chapter 3-24

LiabilitiesLiabilities

Debit / Dr. Credit / Cr.

Normal BalanceNormal Balance

Chapter 3-25

Debit / Dr. Credit / Cr.

Normal BalanceNormal Balance

EquityEquity

Chapter 3-26

Debit / Dr. Credit / Cr.

Normal BalanceNormal Balance

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 2 SO 2

Slide 2-9

Transactions AnalysisTransactions AnalysisTransactions AnalysisTransactions Analysis

Summary of TransactionsSummary of TransactionsIllustration 1-10Tabular summary ofSoftbyte transactions

SO 7 Analyze the effects of business transactions on the accounting equation.

debit credit

Slide 2-10

Balance Sheet Balance Sheet Income StatementIncome Statement

= + -Asset Liability Equity Revenue Expense

Debit

Credit

Debits and Credits SummaryDebits and Credits SummaryDebits and Credits SummaryDebits and Credits Summary

SO 2 Define debits and credits and explain their use SO 2 Define debits and credits and explain their use in recording business transactions.in recording business transactions.

Slide 2-11

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

Debit / Dr. Credit / Cr.

Normal BalanceNormal Balance

Chapter 3-24

LiabilitiesLiabilities

Debit / Dr. Credit / Cr.

Normal BalanceNormal Balance

SO 2 Define debits and credits and explain their use SO 2 Define debits and credits and explain their use in recording business transactions.in recording business transactions.

Slide 2-12

Issuance of share capital and revenues increase equity (credit).

Dividends and expenses decrease equity (debit).

Equity RelationshipsEquity RelationshipsEquity RelationshipsEquity Relationships

Chapter 3-25

Debit / Dr. Credit / Cr.

Normal BalanceNormal Balance

Share CapitalShare Capital

Chapter 3-23

DividendsDividends

Debit / Dr. Credit / Cr.

Normal BalanceNormal Balance

Chapter 3-25

Debit / Dr. Credit / Cr.

Normal BalanceNormal Balance

EquityEquity

Chapter 3-25

Debit / Dr. Credit / Cr.

Normal BalanceNormal Balance

Retained EarningsRetained Earnings

SO 2 Define debits and credits and explain their use SO 2 Define debits and credits and explain their use in recording business transactions.in recording business transactions.

Slide 2-13

The purpose of earning revenues is to benefit the shareholders.

The effect of debits and credits on revenue accounts is the same as their effect on equity.

Expenses have the opposite effect: expenses decrease equity.

Revenue and ExpenseRevenue and ExpenseRevenue and ExpenseRevenue and Expense

Chapter 3-27

Debit / Dr. Credit / Cr.

Normal BalanceNormal Balance

ExpenseExpense

Chapter 3-26

Debit / Dr. Credit / Cr.

Normal BalanceNormal Balance

RevenueRevenue

SO 2 Define debits and credits and explain their use SO 2 Define debits and credits and explain their use in recording business transactions.in recording business transactions.

Slide 2-14

Summary of Debit/Credit RulesSummary of Debit/Credit RulesSummary of Debit/Credit RulesSummary of Debit/Credit Rules

Relationship among the assets, liabilities and equity of a business:

The equation must be in balance after every transaction. For every Debit there must be a Credit.

SO 2 Define debits and credits and explain their use SO 2 Define debits and credits and explain their use in recording business transactions.in recording business transactions.

Illustration 2-12

Slide 2-15

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.

Analyze each transaction Enter transaction in a journalTransfer journal information to

ledger accounts

Illustration 2-13

Slide 2-16

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.

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.

Steps in the Recording ProcessSteps in the Recording ProcessSteps in the Recording ProcessSteps in the Recording Process

Journalizing

Slide 2-17

Account Title Ref. Debit CreditDate

Share capital

Journalizing - Entering transaction data in the journal.

SO 4SO 4

Illustration: On September 1, stockholders invested $15,000 cash in exchange for ordinary shares, and Softbyte purchased computer equipment for $7,000 cash.

CashSept. 1 15,000

15,000

General Journal

Computer equipment

Cash

7,000

7,000

Illustration 2-14

Solution on notes page

Steps in the Recording ProcessSteps in the Recording ProcessSteps in the Recording ProcessSteps in the Recording Process

Slide 2-18

Account Title Ref. Debit CreditDate

8,000

Delivery equipment

Cash

14,000

6,000Accounts payable

Sept. 1

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.

General Journal

Illustration 2-15

SO 4SO 4Solution on notes page

Simple and Compound Entries

Steps in the Recording ProcessSteps in the Recording ProcessSteps in the Recording ProcessSteps in the Recording Process

Slide 2-19

General Ledger

All accounts maintained by a company.

All asset, liability, equity, revenue and expense accounts.

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.

The Ledger

Steps in the Recording ProcessSteps in the Recording ProcessSteps in the Recording ProcessSteps in the Recording Process

Illustration 2-16

Slide 2-20

T-account form used in accounting textbooks.

Ledger form used in practice.

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.

Illustration 2-17

The LedgerThe LedgerThe LedgerThe Ledger

Standard Form of Account

Slide 2-21

The LedgerThe LedgerThe LedgerThe Ledger

Illustration 2-18

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.

Chart of Accounts

Slide 2-22

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

Illustration 2-19

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.

PostingPostingPostingPosting

Slide 2-23

The Recording Process IllustratedThe Recording Process IllustratedThe Recording Process IllustratedThe 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 2-20

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.

Slide 2-24

The Recording Process IllustratedThe Recording Process IllustratedThe Recording Process IllustratedThe Recording Process Illustrated

Illustration 2-21

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.

Slide 2-25

The Recording Process IllustratedThe Recording Process IllustratedThe Recording Process IllustratedThe Recording Process Illustrated

Illustration 2-22

SO 6SO 6

Slide 2-26

The Recording Process IllustratedThe Recording Process IllustratedThe Recording Process IllustratedThe Recording Process Illustrated

Illustration 2-23

SO 6SO 6

Slide 2-27

The Recording Process IllustratedThe Recording Process IllustratedThe Recording Process IllustratedThe Recording Process Illustrated

SO 6SO 6

Illustration 2-24

Slide 2-28

The Recording Process IllustratedThe Recording Process IllustratedThe Recording Process IllustratedThe Recording Process Illustrated

SO 6SO 6

Illustration 2-25

Slide 2-29

The Recording Process IllustratedThe Recording Process IllustratedThe Recording Process IllustratedThe Recording Process Illustrated

Illustration 2-26

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.

Slide 2-30

The Recording Process IllustratedThe Recording Process IllustratedThe Recording Process IllustratedThe Recording Process Illustrated

SO 6SO 6

Illustration 2-27

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The Recording Process IllustratedThe Recording Process IllustratedThe Recording Process IllustratedThe Recording Process Illustrated

SO 6SO 6

Illustration 2-28

Slide 2-32

The Recording Process IllustratedThe Recording Process IllustratedThe Recording Process IllustratedThe Recording Process Illustrated

SO 6SO 6

Illustration 2-29

Slide 2-33

Katherine Turner recorded the following

transactions during the month of March.

Solution on notes page

The Recording Process IllustratedThe Recording Process IllustratedThe Recording Process IllustratedThe Recording Process Illustrated

Post these entries to the Cash account.

SO 6SO 6

Slide 2-34

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

SO 7 Prepare a trial balance and explain its purposes.

Illustration 2-32

Slide 2-35

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

Limitations of a Trial Balance

SO 7 Prepare a trial balance and explain its purposes.

Slide 2-45

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