Xacc280 Chapter 2

2
Chapter
The Recording
Process
STUDY OBJECTIVES
After studying this chapter, you should be
✓ The Navigator
Scan Study Objectives ■
able to: Read Feature Story ■
1 Explain what an account is and how it
Read Preview ■
helps in the recording process.
2 Define debits and credits and explain their Read text and answer Before You Go On
p. 53 ■ p. 56 ■ p. 66 ■ p. 70 ■
use in recording business transactions.
3 Identify the basic steps in the recording Work Demonstration Problem ■
process. Review Summary of Study Objectives ■
4 Explain what a journal is and how it Answer Self-Study Questions ■
Complete Assignments ■
5 Explain what a ledger is and how it
6 Explain what posting is and how it helps
in the recording process.
7 Prepare a trial balance and
explain its purposes. ✓The Navigator
Feature Story
ACCIDENTS HAPPEN
How organized are you financially? Take a short quiz. Answer yes or no to
each question:
• Does your wallet contain so many cash machine receipts that you’ve been
declared a walking fire hazard?
• Is your wallet such a mess that it is often faster to fish for money in the
crack of your car seat than to dig around in your wallet?
• Was LeBron James playing high school basketball the last time you
balanced your checkbook?
46
If you think it is hard to keep
track of the many transactions
that make up your life, imagine
what it is like for a major corpo-
ration like Fidelity Investments
(www.fidelity.com). Fidelity is
one of the largest mutual fund
management firms in the world.
If you had your life savings
invested at Fidelity Investments,
you might be just slightly dis-
pleased if, when you called to
find out your balance, the rep-
resentative said, “You know, I
kind of remember someone
with a name like yours sending
us some money—now what did we do with that?”
To ensure the accuracy of your balance and the security of your funds,
Fidelity Investments, like all other companies large and small, relies on a
sophisticated accounting information system. That’s not to say that Fidelity
or any other company is error-free. In fact, if you’ve ever really messed up
your checkbook register, you may take some comfort from one accountant’s
mistake at Fidelity Investments. The accountant failed to include a minus
sign while doing a calculation, making what was actually a $1.3 billion loss
look like a $1.3 billion gain! Fortunately, like most accounting errors, it was
detected before any real harm was done.
No one expects that kind of mistake at a company like Fidelity, which has
sophisticated computer systems and top investment managers. In explaining
the mistake to shareholders, a spokesperson wrote, “Some people have
asked how, in this age of technology, such a mistake could be made. While
many of our processes are computerized, accounting systems are complex
and dictate that some steps must be handled manually by our managers
and accountants, and people can make mistakes.”
✓ The Navigator
Inside Chapter 2
• New Xbox Contributes to Profitability (p. 56)
• What Would Sam Do? (p. 58)
• Sarbanes-Oxley Comes to the Rescue (p. 70)
• All About You: Your Personal Annual Report (p. 71)

47
Preview of Chapter 2
In Chapter 1, we analyzed business transactions in terms of the accounting equation, and we presented the
cumulative effects of these transactions in tabular form. Imagine a company like Fidelity Investments (as in
the Feature Story) using the same tabular format as Softbyte to keep track of its transactions. In a single day,
Fidelity engages in thousands of business transactions. To record each transaction this way would be im-
practical, expensive, and unnecessary. Instead, companies use a set of procedures and records to keep track
of transaction data more easily. This chapter introduces and illustrates these basic procedures and records.
The content and organization of Chapter 2 are as follows.
The Recording Process
Steps in the The Recording

The Account The Trial Balance
Recording Process Process Illustrated
• Debits and credits • Journal • Summary illustration of • Limitations of a trial
• Debit and credit • Ledger journalizing and posting balance
procedure • Locating errors
• Stockholders’ equity • Use of dollar signs
relationships
• Expansion of basic
equation
✓ The Navigator
THE ACCOUNT
STUDY OBJECTIVE 1 An account is an accounting record of increases and decreases in a spe-
Explain what an account is and cific asset, liability, or owner’s equity item. For example, Softbyte (the
how it helps in the recording company discussed in Chapter 1) would have separate accounts for Cash,
process. Accounts Receivable, Accounts Payable, Service Revenue, and Salaries
Expense. In its simplest form, an account consists of three parts: (1) a title,
(2) a left or debit side, and (3) a right or credit side. Because the format of an
account resembles the letter T, we refer to it as a T account. Illustration 2-1 shows
the basic form of an account.
Illustration 2-1
Basic form of account
Debit Cred
it
Title of Account
Left or debit side Right or credit side
Debit balance Credit balance
The T account is a standard shorthand in accounting, which helps make clear

the effects of transactions on individual accounts. We will use it often throughout
this book to explain basic accounting relationships.
48
The Account 49
Debits and Credits

The terms debit and credit are directional signals: Debit indicates left, and STUDY OBJECTIVE 2
credit indicates right. They indicate which side of a T account a number Define debits and credits and
will be recorded on. Entering an amount on the left side of an account is explain their use in recording
called debiting the account; making an entry on the right side is crediting business transactions.
the account. We commonly abbreviate debit as Dr. and credit as Cr.
Having debits on the left and credits on the right is an accounting custom, or
rule, like the custom of driving on the right-hand side of the road in the United
States. This rule applies to all accounts.
Illustration 2-2 shows the recording of debits and credits in an account for the
cash transactions of Softbyte. The data are taken from the cash column of the tab-
ular summary in Illustration 1-8 (from page 19), which is reproduced here.
Illustration 2-2
Tabular Summary Account Form Tabular summary compared
to account form
Cash Cash
$15,000 (Debits) 15,000 (Credits) 7,000
–7,000 1,200 1,700
1,200 1,500 250
1,500 600 1,300
–1,700 Balance 8,050
–250
600 (Debit)
–1,300
$ 8,050
In the tabular summary, every positive item represents Softbyte’s receipt of

cash; every negative amount represents a payment of cash. In the account form we
record the increases in cash as debits, and the decreases in cash as credits. Having
increases on one side and decreases on the other helps determine the total of each
side as well as the overall account balance. The balance, a debit of $8,050, indicates
that Softbyte has had $8,050 more increases than decreases in cash.
When the totals of the two sides of an account are compared, an account will
have a debit balance if the total of the debit amounts exceeds the credits. An ac-
count will have a credit balance if the credit amounts exceed the debits. The ac-
count in Illustration 2-2 has a debit balance.
Debit and Credit Procedure

In Chapter 1 you learned the effect of a transaction on the basic accounting equa-
tion. Remember that each transaction must affect two or more accounts to keep
the basic accounting equation in balance. In other words, for each transaction, deb-
its must equal credits in the accounts. The equality of debits and credits provides
the basis for the double-entry system of recording transactions.
In the double-entry system the dual (two-sided) effect of each transaction is
recorded in appropriate accounts. This system provides a logical method for
recording transactions. It also helps ensure the accuracy of the recorded amounts.
The sum of all the debits to the accounts must equal the sum of all the credits.
The double-entry system for determining the equality of the accounting equation
is much more efficient than the plus/minus procedure used in Chapter 1. On the fol-
lowing pages, we will illustrate debit and credit procedures in the double-entry system.
ASSETS AND LIABILITIES
Both sides of the accounting equation (Assets ⫽ Liabilities ⫹ Stockholders’ equity)
must be equal. It follows, then, that we must record increases and decreases in
50 Chapter 2 The Recording Process
assets opposite from each other. In Illustration 2-2, Softbyte entered increases in
cash—an asset—on the left side, and decreases in cash on the right side. Therefore,
we must enter increases in liabilities on the right or credit side, and decreases in
liabilities on the left or debit side. Illustration 2-3 summarizes the effects that debits
and credits have on assets and liabilities.
Illustration 2-3
Debit and credit effects— Debits Credits
assets and liabilities Increase assets Decrease assets
Decrease liabilities Increase liabilities
Debits to a specific asset account should exceed the credits to that account.
Credits to a liability account should exceed debits to that account. The normal bal-
ance of an account is on the side where an increase in the account is recorded. Thus,
asset accounts normally show debit balances, and liability accounts normally show
credit balances. Illustration 2-4 shows the normal balances for assets and liabilities.
Illustration 2-4
Normal balances—assets Assets Liabilities
and liabilities Debit for Credit for Debit for Credit for
increase decrease decrease increase
Normal Normal
balance balance
Knowing the normal balance in an account may help you trace errors. For ex-
ample, a credit balance in an asset account such as Land would indicate a record-
ing error. Similarly, a debit balance in a liability account such as Wages Payable
would indicate an error. Occasionally, though, an abnormal balance may be correct.
The Cash account, for example, will have a credit balance when a company has
overdrawn its bank balance (i.e., written a “bad” check). (Notice that when we are
referring to a specific account, we capitalize its name.)
STOCKHOLDERS’ EQUITY
As Chapter 1 indicated, there are five subdivisions of stockholders’ equity: common
stock, retained earnings, dividends, revenues, and expenses. In a double-entry sys-
tem, companies keep accounts for each of these subdivisions, as explained below.
Common Stock. Companies issue common stock in exchange for the owners’
investment paid into the corporation. Credits increase the Common Stock ac-
count, and debits decrease it. For example, when an owner invests cash in the
business in exchange for shares of the corporation’s stock, the company debits
(increases) Cash and credits (increases) Common Stock.
Illustration 2-5 shows the rules of debit and credit for the Common Stock account.
Illustration 2-5
Debit and credit effects— Debits Credits
common stock Decrease Common Stock Increase Common Stock
We can diagram the normal balance in Common Stock as follows.
Illustration 2-6
Normal balance—common Common Stock
stock Debit for Credit for
decrease increase
Normal
balance
The Account 51
Retained Earnings. Retained earnings is net income that is retained in the busi- HELPFUL HINT
ness. It represents the portion of stockholders’ equity that the company has The rules for debit and
accumulated through the profitable operation of the business. Credits (net income) credit and the normal
increases the Retained Earnings account, and debits (dividends or net losses) de- balance of common
crease it, as Illustration 2-7 shows. stock are the same as
for liabilities.
Illustration 2-7
Retained Earnings Debit and credit effects and
Debit for Credit for normal balance—retained
decrease increase earnings
Normal
balance
Dividends. A dividend is a company’s distribution to its stockholders on a pro

rata (equal) basis. The most common form of a distribution is a cash dividend.
Dividends reduce the stockholders’ claims on retained earnings. Debits increase the
Dividends account, and credits decrease it. Illustration 2-8 shows that this account
normally has a debit balance.
Illustration 2-8
Dividends Debit and credit effect and
Debit for Credit for normal balance—dividends
increase decrease
Normal
balance
REVENUES AND EXPENSES

The purpose of earning revenues is to benefit the stockholders of the business. HELPFUL HINT
When a company earns revenues, stockholders’ equity increases. Revenues are a Because revenues
subdivision of stockholders’ equity that provides information as to why stockholders’ increase stockholders’
equity increased. Credits increase revenue accounts and debits decrease them. equity, a revenue account
Therefore, the effect of debits and credits on revenue accounts is the same as their has the same debit/credit
effect on stockholders’ equity. rules as the Common
Expenses have the opposite effect: expenses decrease stockholders’ equity. Stock account. Expenses
Since expenses decrease net income, and revenues increase it, it is logical that the have the opposite effect.
increase and decrease sides of expense accounts should be the reverse of revenue
accounts. Thus, debits increase expense accounts, and credits decrease them.
Illustration 2-9 shows the effect of debits and credits on revenues and expenses.
Illustration 2-9
Debits Credits Debit and credit effects—
Decrease revenues Increase revenues revenues and expenses
Increase expenses Decrease expenses
Credits to revenue accounts should exceed debits. Debits to expense accounts

should exceed credits. Thus, revenue accounts normally show credit balances, and
expense accounts normally show debit balances. We can diagram the normal bal-
ance as follows.
Illustration 2-10
Revenues Expenses Normal balances—revenues
Debit for Credit for Debit for Credit for and expenses
decrease increase increase decrease
Normal Normal
balance balance
Stockholders’ Equity Relationships

As Chapter 1 indicated, companies report common stock and retained earnings in
the stockholders’ equity section of the balance sheet. They report dividends on the
retained earnings statement. And they report revenues and expenses on the in-
come statement. Dividends, revenues, and expenses are eventually transferred to
retained earnings at the end of the period. As a result, a change in any one of these
three items affects stockholders’ equity. Illustration 2-11 shows the relationships
related to stockholders’ equity.
Illustration 2-11
Stockholders’ equity
relationships Balance Sheet
Stockholders' Equity
Common stock Retained earnings

(Investments by stockholders) (Net income retained in business)
Net income or Net loss

Dividends (Revenues less expenses)
Income Statement
Retained Earnings Statement
Expansion of the Basic Equation

You have already learned the basic accounting equation. Illustration 2-12 expands
this equation to show the accounts that comprise stockholders’ equity. Like the
Illustration 2-12 basic equation, the expanded basic equation must be in balance (total debits equal
Expanded basic equation
and debit/credit rules and
effects
Basic Assets = Liabilities + Stockholders’ Equity

Equation
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Expanded Common Retained

Assets = Liabilities + Stock + Earnings – Dividends + Revenues – Expenses
Basic Equation
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Debit/Credit + – – + – + – + + – – + + –
Effects
Steps in the Recording Process 53
total credits). In addition, it illustrates the debit/credit rules and effects on each
type of account. Study this diagram carefully. It will help you understand the
fundamentals of the double-entry system.
Before You Go On...

REVIEW IT
1. What do the terms debit and credit mean?
2. What are the debit and credit effects on assets, liabilities, and stockholders’
equity?
3. What are the debit and credit effects on revenues, expenses, and dividends?
4. What are the normal balances for PepsiCo’s Cash, Accounts Payable,
and Interest Expense accounts? (The answer to this question appears on
page 90.)
DO IT
Kate Browne, president of Hair It Is, Inc., has just rented space in a shopping
mall in which she will open and operate a beauty salon. A friend has advised
Kate to set up a double-entry set of accounting records in which to record all of
her business transactions.
Identify the balance sheet accounts that Hair It Is, Inc., will likely need to
record the transactions needed to establish and open the business. Also, indicate
whether the normal balance of each account is a debit or a credit.
Action Plan
■ Determine the types of accounts needed: Kate will need asset accounts for
each type of asset she invests in the business, and liability accounts for any
debts she incurs.
■ Understand the types of stockholders’ equity accounts: When Kate begins the
business, she will need only Common Stock. Later, she will need other stock-
holders’ equity accounts.
Solution Hair It Is, Inc., would likely need the following accounts to record
the transactions needed to ready the beauty salon for opening day:
Cash (debit balance) Equipment (debit balance)
Supplies (debit balance) Accounts Payable (credit balance)
Notes Payable (credit balance), Common Stock (credit balance)
if the business borrows money
Related exercise material: BE2-1, BE2-2, BE2-5, E2-1, E2-2, and E2-4.
✓ The Navigator
STEPS IN THE RECORDING PROCESS

In practically every business, there are three basic steps in the recording STUDY OBJECTIVE 3
process: Identify the basic steps in the
1. Analyze each transaction for its effects on the accounts. recording process.
2. Enter the transaction information in a journal.

3. Transfer the journal information to the appropriate accounts in the ledger.
Although it is possible to enter transaction information directly into the accounts

without using a journal, few businesses do so.
The recording process begins with the transaction. Business documents, such as
a sales slip, a check, a bill, or a cash register tape, provide evidence of the transac-
tion. The company analyzes this evidence to determine the transaction’s effects on
specific accounts. The company then enters the transaction in the journal. Finally, it
transfers the journal entry to the designated accounts in the ledger. Illustration 2-13
shows the recording process.
Illustration 2-13
The recording process
The Recording Process

JOURNAL
Invoice LEDGER
JOURNAL ASSETS LIABILITIES
Stockholders’ Equity
Analyze each transaction Enter transaction in a journal Transfer journal information

to ledger accounts
The steps in the recording process occur repeatedly. We illustrated the first
step, the analysis of transactions, in Chapter 1, and will give further examples in this
and later chapters.The other two steps in the recording process are explained in the
next sections.
The Journal
STUDY OBJECTIVE 4 Companies initially record transactions in chronological order (the order
Explain what a journal is and how in which they occur). Thus, the journal is referred to as the book of original
it helps in the recording process. entry. For each transaction the journal shows the debit and credit effects
on specific accounts.
Companies may use various kinds of journals, but every company has the
most basic form of journal, a general journal. Typically, a general journal has
spaces for dates, account titles and explanations, references, and two amount
columns. See the format of the journal in Illustration 2-14 on page 55. Whenever
we use the term “journal” in this textbook without a modifying adjective, we
mean the general journal.
The journal makes several significant contributions to the recording process:
1. It discloses in one place the complete effects 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 easily compared.
JOURNALIZING
Entering transaction data in the journal is known as journalizing. Companies make
separate journal entries 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 2-14 shows the technique of journalizing, using the first two transac-
tions of Softbyte Inc. On September 1, stockholders invested $15,000 cash in the
corporation in exchange for shares of stock, and Softbyte purchased computer
equipment for $7,000 cash. The number J1 indicates that the company records
these two entries on the first page of the general journal. (The boxed numbers
correspond to explanations in the list below the illustration.)
Illustration 2-14
GENERAL JOURNAL J1 Technique of journalizing
Date Account Titles and Explanation Ref. Debit Credit
2008 5
Sept. 1 2 Cash 15,000
1 3 Common Stock 15,000
4 (Issued shares of stock for cash)
1 Computer Equipment 7,000
Cash 7,000
(Purchase equipment for cash)
1 The date of the transaction is entered in the Date column.

2 The debit account title (that is, the account to be debited) is entered first at the
extreme left margin of the column headed “Account Titles and Explanation,”
and the amount of the debit is recorded in the Debit column.
3 The credit account title (that is, the account to be credited) is indented
and entered on the next line in the column headed “Account Titles
and Explanation,” and the amount of the credit is recorded in the Credit
column.
4 A brief explanation of the transaction appears on the line below the credit
account title. A space is left between journal entries. The blank space
separates individual journal entries and makes the entire journal easier to
read.
5 The column titled Ref. (which stands for Reference) is left blank when the
journal entry is made. This column is used later when the journal entries are
transferred to the ledger accounts.
It is important to use correct and specific account titles in journalizing. The
main criterion is that each title must appropriately describe the content of the
account. For example, a company might use Delivery Equipment, Delivery Trucks,
or Trucks as the account title used for the cost of delivery trucks. Once a company
chooses the specific title to use, it should record under that account title all later
transactions involving the account.1
SIMPLE AND COMPOUND ENTRIES

Some entries involve only two accounts, one debit and one credit. (See, for exam-
ple, the entries in Illustration 2-14.) An entry like these is considered a simple entry.
Some transactions, however, require more than two accounts in journalizing. An
entry that requires three or more accounts is a compound entry. To illustrate,
1
In homework problems, you should use specific account titles when they are given. When account
titles are not given, you may select account titles that identify the nature and content of each
account. The account titles used in journalizing should not contain explanations such as Cash Paid
or Cash Received.
assume that 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 (to be
paid later). The compound entry is as follows.
Illustration 2-15
Compound journal entry GENERAL JOURNAL J1
2008
July 1 Delivery Equipment 14,000
Cash 8,000
Accounts Payable 6,000
(Purchased truck for cash with balance on
account)
In a compound entry, the standard format requires that all debits be listed before
the credits.
ACCOUNTING ACROSS THE ORGANIZATION

New Xbox Contributes to Profitability
Bryan Lee is head of finance at Microsoft’s Home and Entertainment Division. In
recent years the division has lost over $4 billion, mostly due to losses on the
original Xbox videogame player. With the new Xbox 360 videogame player, Mr. Lee hopes the
division will become profitable. He has set strict goals for sales, revenue, and profit. “A man-
ager seeking to spend more on a feature such as a disk drive has to find allies in the group to
cut spending elsewhere, or identify new revenue to offset the increase,” he explains.
For example, Microsoft originally designed the new Xbox to have 256 megabytes of
memory. But the design department said that amount of memory wouldn’t support the best
special effects. The purchasing department said that adding more memory would cost $30—
which is 10% of the estimated selling price of $300. But the marketing department
“determined that adding the memory would let Microsoft reduce marketing costs and attract
more game developers, boosting royalty revenue. It would also extend the life of the console,
generating more sales.” Microsoft doubled the memory to 512 megabytes.
Source: Robert A. Guth, “New Xbox Aim for Microsoft: Profitability,” Wall Street Journal, May 24, 2005, p. C1.
In what ways is this Microsoft division using accounting to assist in its effort to become
more profitable?
Before You Go On...

REVIEW IT
1. What is the sequence of the steps in the recording process?
2. How does the journal benefit the recording process?
3. What is the standard form and content of a journal entry in the general
journal?
DO IT
As president and sole stockholder, Kate Browne engaged in the following
activities in establishing her beauty salon, Hair It Is, Inc.
1. Opened a bank account in the name of Hair It Is, Inc. and deposited $20,000
of her own money in this accounting exchange for shares of common stock.
2. Purchased equipment on account (to be paid in 30 days) for a total cost
of $4,800.
3. Interviewed three applicants for the position of beautician.
In what form (type of record) should Hair It Is, Inc., record these three activities?
Prepare the entries to record the transactions.
Action Plan
■ Understand which activities need to be recorded and which do not. Any that
have economic effects should be recorded in a journal.
■ Analyze the effects of transactions on asset, liability, and stockholder’s equity
accounts.
Solution Each transaction that is recorded is entered in the general journal.
The three activities would be recorded as follows.
1. Cash 20,000
Common Stock 20,000
(Issued shares of stock for cash)
2. Equipment 4,800
(Purchase equipment on account)
3. No entry because no transaction has occurred.
Related exercise material: BE2-3, BE2-6, E2-3, E2-5, E2-6, and E2-7.
✓ The Navigator
The Ledger
The entire group of accounts maintained by a company is the ledger. The STUDY OBJECTIVE 5
ledger keeps in one place all the information about changes in specific Explain what a ledger is and how
account balances. it helps in the recording process.
Companies may use various kinds of ledgers, but every company has a
general ledger. A general ledger contains all the asset, liability, and stockholder’s
equity accounts, as shown in Illustration 2-16. Whenever we use the term “ledger”
in this textbook without a modifying adjective, we mean the general ledger.
Illustration 2-16
The general ledger
Individual Individual Individual

Assets Liabilities Stockholders' Equity
Equipment Interest Payable Salaries Expense

Land Salaries Payable Service Revenue
Supplies Accounts Payable Common Stock
Cash Notes Payable Retained Earnings
Companies arrange the ledger in the sequence in which they present the
accounts in the financial statements, beginning with the balance sheet accounts.
First in order are the asset accounts, followed by liability accounts, stockholders’
equity accounts, revenues, and expenses. Each account is numbered for easier
identification.
The ledger provides the balances in various accounts. For example, the Cash
account shows the amount of cash available to meet current obligations. Accounts
Receivable shows amounts due from customers. Accounts Payable shows amounts
owned to creditors.
ACCOUNTING ACROSS THE ORGANIZATION

What Would Sam Do?
In his autobiography Sam Walton described the double-entry accounting sys-
tem he used when Wal-Mart was just getting started: “We kept a little pigeon-
hole on the wall for the cash receipts and paperwork of each [Wal-Mart] store. I had a blue
binder ledger book for each store. When we added a store, we added a pigeonhole. We did
this at least up to twenty stores. Then once a month, the bookkeeper and I would enter the
merchandise, enter the sales, enter the cash, and balance it.”
Source: Sam Walton, Made in America (New York: Doubleday, 1992), p. 53.
Why did Sam Walton keep separate pigeonholes and blue binders? Why bother to keep
separate records for each store?
STANDARD FORM OF ACCOUNT

The simple T-account form used in accounting textbooks is often very useful for
illustration purposes. However, in practice, the account forms used in ledgers are
much more structured. Illustration 2-17 shows a typical form, using assumed data
from a cash account.
Illustration 2-17
Three-column form of CASH NO. 101
account
Date Explanation Ref. Debit Credit Balance
2008
June 1 25,000 25,000
2 8,000 17,000
3 4,200 21,200
9 7,500 28,700
17 11,700 17,000
20 250 16,750
30 7,300 9,450
This is called the three-column form of account. It has three money columns—
debit, credit, and balance. The balance in the account is determined after each
transaction. Companies use the explanation space and reference columns to pro-
vide special information about the transaction.
POSTING
Transferring journal entries to the ledger accounts is called posting. STUDY OBJECTIVE 6
This phase of the recording process accumulates the effects of journal- Explain what posting is and how
ized transactions into the individual accounts. Posting involves the fol- it helps in the recording process.
lowing steps.
1. In the ledger, enter, in the appropriate columns of the account(s) debited, the
date, journal page, and debit amount shown in the journal.
2. In the reference column of the journal, write the account number to which the
debit amount was posted.
3. In the ledger, enter, in the appropriate columns of the account(s) credited, the
date, journal page, and credit amount shown in the journal.
4. In the reference column of the journal, write the account number to which the
credit amount was posted.
Illustration 2-18 shows these four steps using Softbyte Inc.’s first journal entry. The
boxed numbers indicate the sequence of the steps.
Illustration 2-18
Posting a journal entry
GENERAL JOURNAL J1
2008
Sept.1 Cash 101 15,000
Common Stock 311 15,000
(Issued shares of
stock for cash)
4
1 2
GENERAL LEDGER
Cash No.101

3
2008
Sept.1 J1 15,000 15,000
Common Stock No.311
2008
Sept.1 J1 15,000 15,000
Key: 1 Post to debit account–date, journal page number, and amount.

2 Enter debit account number in journal reference column.
3 Post to credit account–date, journal page number, and amount.
4 Enter credit account number in journal reference column.
Posting should be performed in chronological order. That is, the company

should post all the debits and credits of one journal entry before proceeding to the
next journal entry. Postings should be made on a timely basis to ensure that the
ledger is up to date.2
2
In homework problems, you can journalize all transactions before posting any of the journal
entries.
The reference column of a ledger account indicates the journal page from
which the transaction was posted.3 The explanation space of the ledger account is
used infrequently because an explanation already appears in the journal.
CHART OF ACCOUNTS
The number and type of accounts differ for each company. The number of accounts
depends on the amount of detail management desires. For example, the manage-
ment of one company may want a single account for all types of utility expense.
Another may keep separate expense accounts for each type of utility, such as gas,
electricity, and water. Similarly, a small company like Softbyte Inc. will have fewer
accounts than a corporate giant like Dell. Softbyte may be able to manage and re-
port its activities in twenty to thirty accounts, while Dell may require thousands of
accounts to keep track of its worldwide activities.
Most companies have a chart of accounts. This chart lists the accounts and the
account numbers that identify their location in the ledger. The numbering system
that identifies the accounts usually starts with the balance sheet accounts and fol-
lows with the income statement accounts.
In this and the next two chapters, we will be explaining the accounting for
Pioneer Advertising Agency Inc. (a service enterprise). The ranges of the account
numbers are as follows:
• Accounts 101–199 indicate asset accounts
• 200–299 indicate liabilities
• 300–399 indicate stockholder’s equity accounts
• 400–499, revenues
• 500–799, expenses
• 800–899, other revenues
• 900–999, other expenses.
Illustration 2-19 shows the chart of accounts for Pioneer Advertising Inc.
Accounts shown in red are used in this chapter; accounts shown in black are
explained in later chapters.
Illustration 2-19
Chart of accounts for PIONEER ADVERTISING AGENCY INC.
Pioneer Advertising Agency Chart of Accounts
Inc.
Assets Stockholders’ Equity
101 Cash 311 Common Stock
112 Accounts Receivable 320 Retained Earnings
126 Advertising Supplies 332 Dividends
130 Prepaid Insurance 350 Income Summary
157 Office Equipment
158 Accumulated Depreciation—Office Equipment Revenues
400 Service Revenue
Liabilities Expenses
200 Notes Payable 631 Advertising Supplies Expense
201 Accounts 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
3
After the last entry has been posted, the accountant should scan the reference column in the
journal, to confirm that all postings have been made.
The Recording Process Illustrated 61
You will notice that there are gaps in the numbering system of the chart of accounts
for Pioneer Advertising. Gaps are left to permit the insertion of new accounts as
needed during the life of the business.
THE RECORDING PROCESS ILLUSTRATED

Illustrations 2-20 through 2-29 show the basic steps in the recording process, using
the October transactions of Pioneer Advertising Agency Inc. Pioneer’s accounting
period is a month. A basic analysis and a debit-credit analysis precede the journal-
izing and posting of each transaction. For simplicity, we use the T-account form in
the illustrations instead of the standard account form.
Study these transaction analyses carefully. The purpose of transaction analysis
is first to identify the type of account involved, and then to determine whether to
make a debit or a credit to the account. You should always perform this type of
analysis before preparing a journal entry. Doing so will help you understand the
journal entries discussed in this chapter as well as more complex journal entries in
later chapters.
eygand
In addition, an Accounting Cycle Tutorial at the book’s website, www.wiley.com/ /w
llege
t
college/weygandt, provides an interactive presentation of the steps in the account-
www
/co
ing cycle, using the examples in the illustrations on the following pages.
m
.w
i l e y. c o
Illustration 2-20
Investment of cash by
stockholders
On October 1, C. R. Byrd invests $10,000 cash in an advertising
Transaction company to be known as Pioneer Advertising Agency Inc.
Basic The asset Cash increases $10,000, and stockholders’ equity

Analysis (specifically, Common Stock) increases $10,000.
Assets = Liabilities + Stockholders’ Equity

Equation Common
Analysis Cash = Stock
+10,000 +10,000
Debits increase assets: debit Cash $10,000.

Debit – Credit
Credits increase stockholders’ equity: credit Common
Analysis
Stock $10,000.
Journal Oct. 1 Cash 101 10,000

HELPFUL HINT
Entry Common Stock 311 10,000
(Issued shares of stock Follow these steps:
for cash)
1. Determine what type
of account is involved.
Cash 101 Common Stock 311 2. Determine what items
Posting increased or decreased
Oct. 1 10,000 Oct. 1 10,000
and by how much.
3. Translate the increases
and decreases into
debits and credits.
Illustration 2-21
Purchase of office
equipment On October 1, Pioneer purchases office equipment costing
Transaction $5,000 by signing a 3-month, 12%, $5,000 note payable.
Basic The asset Office Equipment increases $5,000, and the

Analysis liability Notes Payable increases $5,000.

Equation Office Notes
Analysis Equipment = Payable
+5,000 +5,000
Debit – Credit Debits increase assets: debit Office Equipment $5,000.

Analysis Credits increase liabilities: credit Notes Payable $5,000.
Journal Oct. 1 Office Equipment 157 5,000

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

Posting Oct. 1 5,000 Oct. 1 5,000
Illustration 2-22
Receipt of cash for future
service On October 2, Pioneer receives a $1,200 cash advance from
Transaction R. Knox, a client, for advertising services that are expected
to be completed by December 31.
The asset Cash increases $1,200; the liability Unearned

Revenue increases $1,200 because the service has not been
provided yet. That is, when Pioneer receives an advance
Basic payment, it should record an unearned revenue (a liability) in
Analysis order to recognize the obligation that exists. Note also that
although many liabilities have the word “payable” in their title,
unearned revenue is considered a liability even though the
word payable is not used.

Equation Unearned
Analysis Cash = Revenue
+1,200 +1,200
Debit – Credit Debits increase assets: debit Cash $1,200.

Analysis Credits increase liabilities: credit Unearned Revenue $1,200.

Entry Unearned Revenue 209 1,200
(Received cash from
R. Knox for future service)
Cash 101 Unearned Revenue 209

Posting Oct. 1 10,000 Oct. 2 1,200
2 1,200
Illustration 2-23
On October 3, Pioneer pays office rent for October in Payment of monthly rent
Transaction
cash, $900.
Basic The expense account Rent Expense increases $900 because

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

Equation Rent
Analysis Cash = Expense
⫺900 ⫺900
Debit – Credit Debits increase expenses: debit Rent Expense $900.

Analysis Credits decrease assets: credit Cash $900.
Journal Oct. 3 Rent Expense 729 900

Entry Cash 101 900
(Paid October rent)
Cash 101 Rent Expense 729

Posting Oct. 1 10,000 Oct. 3 900 Oct. 3 900
2 1,200
Illustration 2-24
Payment for insurance
On October 4, Pioneer pays $600 for a one-year insurance
Transaction
policy that will expire next year on September 30.
The asset Prepaid Insurance increases $600 because the

payment extends to more than the current month; the asset
Basic Cash decreases $600. Payments of expenses that will benefit
Analysis more than one accounting period are prepaid expenses or
prepayments. When a company makes a payment, it debits
an asset account in order to show the service or benefit that
will be received in the future.

Equation Prepaid
Analysis Cash + Insurance
⫺600 +600
Debit – Credit Debits increase assets: debit Prepaid Insurance $600.

Analysis Credits decrease assets: credit Cash $600.
Journal Oct. 4 Prepaid Insurance 130 600

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

2 1,200 4 600
Illustration 2-25
Purchase of supplies on
credit
On October 5, Pioneer purchases an estimated 3-month supply
Transaction
of advertising materials on account from Aero Supply for $2,500.
Basic The asset Advertising Supplies increases $2,500; the liability

Analysis Accounts Payable increases $2,500.

Equation Advertising Accounts
Analysis Supplies = Payable
+2,500 +2,500
Debit – Credit Debits increase assets: debit Advertising Supplies $2,500.

Analysis Credits increase liabilities: credit Accounts Payable $2,500.
Journal Oct. 5 Advertising Supplies 126 2,500

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

Posting Oct. 5 2,500 Oct. 5 2,500
Illustration 2-26
Hiring of employees
On October 9, Pioneer hires four employees to begin work on
Event October 15. Each employee is to receive a weekly 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 only an

Basic agreement between the employer and the employees to enter
Analysis into a business transaction beginning on October 15. Thus, a
debit–credit analysis is not needed because there is no accounting
entry. (See transaction of October 26 for first entry.)
Illustration 2-27
Declaration and payment
On October 20, Pioneer’s board of directors declares and
Transaction of dividend
pays a $500 cash dividend to stockholders.
Basic The Dividends account increases $500; the asset Cash

Analysis decreases $500.

Equation
Analysis Cash = Dividends
⫺500 ⫺500
Debit – Credit Debits increase dividends: debit Dividends $500. Credits

Analysis decrease assets: credit Cash $500.
Journal Oct. 20 Dividends 332 500

Entry Cash 101 500
(Declared and paid a
cash dividend)
Cash 101 Dividends 332

2 1,200 4 600
20 500
Illustration 2-28
Payment of salaries
On October 26, Pioneer owes employee salaries of $4,000
Transaction
and pays them in cash. (See October 9 transaction.)
Basic The expense account Salaries Expense increases $4,000; the

Analysis asset Cash decreases $4,000.

Equation Salaries
Analysis Cash = Expense
⫺4,000 ⫺4,000
Debit – Credit Debits increase expenses: debit Salaries Expense $4,000.

Analysis Credits decrease assets: credit Cash $4,000.
Journal Oct. 26 Salaries Expense 726 4,000

Entry Cash 101 4,000
(Paid salaries to date)
Cash 101 Salaries Expense 726

Oct. 1 10,000 Oct. 3 900 Oct. 26 4,000
Posting 2 1,200 4 600
20 500
26 4,000
Illustration 2-29
Receipt of cash for services
provided
On October 31, Pioneer receives $10,000 in cash from Copa
Transaction
Company for advertising services provided in October.
Basic The asset Cash increases $10,000; the revenue account

Analysis Service Revenue increases $10,000.

Equation Service
Analysis Cash = Revenue
+10,000 +10,000
Debit – Credit Debits increase assets: debit Cash $10,000.

Analysis Credits increase revenues: credit Service Revenue $10,000.

Entry Service Revenue 400 10,000
(Received cash for
services provided)
Cash 101 Service Revenue 400

Oct. 1 10,000 Oct. 3 900 Oct. 31 10,000
Posting 2 1,200 4 600
31 10,000 20 500
26 4,000
Before You Go On...

REVIEW IT
1. How does journalizing differ from posting?
2. What is the purpose of (a) the ledger and (b) a chart of accounts?
3. Why do companies leave gaps in the chart of accounts numbering system?
DO IT
Kate Brown recorded the following transactions in a general journal during the
month of March.
Mar. 4 Cash 2,280

Service Revenue 2,280
Mar. 15 Wages Expense 400

Cash 400
Mar. 19 Utilities Expense 92

Cash 92
Post these entries to the Cash account of the general ledger to determine the
ending balance in cash. The beginning balance in cash on March 1 was $600.
Action Plan
■ Recall that posting involves transferring the journalized debits and credits to
specific accounts in the ledger.
■ Determine the ending balance by netting the total debits and credits.
Solution
Cash
3/1 600 3/15 400
3/4 2,280 3/19 92
3/31 Bal. 2,388
Related exercise material: BE2-7, BE2-8, E2-8, and E2-12.
✓ The Navigator
Summary Illustration of Journalizing

and Posting
Illustration 2-30 shows the journal for Pioneer Advertising Agency for October.
Illustration 2-31, on page 68, shows the ledger, with all balances in color.
Illustration 2-30
GENERAL JOURNAL PAGE J1 General journal entries
2008
Oct. 1 Cash 101 10,000
Common Stock 311 10,000
(Issued shares of stock for cash)
1 Office Equipment 157 5,000
Notes Payable 200 5,000
(Issued 3-month, 12% note for office
equipment)
2 Cash 101 1,200
Unearned Revenue 209 1,200
(Received cash from R. Knox for future service)
3 Rent Expense 729 900
Cash 101 900
(Paid October rent)
4 Prepaid Insurance 130 600
Cash 101 600
(Paid one-year policy; effective date
October 1)
5 Advertising Supplies 126 2,500
Accounts Payable 201 2,500
(Purchased supplies on account from
Aero Supply)
20 Dividends 332 500
Cash 101 500
(Declared and paid a cash dividend)
26 Salaries Expense 726 4,000
Cash 101 4,000
(Paid salaries to date)
31 Cash 101 10,000
Service Revenue 400 10,000
(Received cash for services provided)
GENERAL LEDGER
Cash No. 101 Accounts Payable No. 201
Date Explanation Ref. Debit Credit Balance Date Explanation Ref. Debit Credit Balance
2008 2008
Oct. 1 J1 10,000 10,000 Oct. 5 J1 2,500 2,500
2 J1 1,200 11,200
3 J1 900 10,300 Unearned Revenue No. 209
4 J1 600 9,700
20 J1 500 9,200 Date Explanation Ref. Debit Credit Balance
26 J1 4,000 5,200 2008
31 J1 10,000 15,200 Oct. 2 J1 1,200 1,200
Advertising Supplies No. 126 Common Stock No. 311
2008 2008
Oct. 5 J1 2,500 2,500 Oct. 1 J1 10,000 10,000
Prepaid Insurance No. 130 Dividends No. 332
2008 2008
Oct. 4 J1 600 600 Oct. 20 J1 500 500
Office Equipment No. 157 Service Revenue No. 400
2008 2008
Oct. 1 J1 5,000 5,000 Oct. 31 J1 10,000 10,000
Notes Payable No. 200 Salaries Expense No. 726
2008 2008
Oct. 1 J1 5,000 5,000 Oct. 26 J1 4,000 4,000
Rent Expense No. 729
2008
Oct. 3 J1 900 900
Illustration 2-31
General ledger
THE TRIAL BALANCE

STUDY OBJECTIVE 7 A trial balance is a list of accounts and their balances at a given time.
Prepare a trial balance and Customarily, companies prepare a trial balance at the end of an account-
explain its purposes. ing period. They list accounts in the order in which they appear in the
ledger. Debit balances appear in the left column and credit balances in the
right column.
The primary purpose of a trial balance is to prove (check) that the debits equal
the credits after posting. The sum of the debit balances in the trial balance should
equal the sum of the credit balances. If the debits and credits do not agree, the com-
pany can use the trial balance to uncover errors in journalizing and posting. In
addition, the trial balance is useful in preparing financial statements, as we will
explain in the next two chapters.
The Trial Balance 69
The steps for preparing a trial balance are:

1. List the account titles and their balances.
2. Total the debit and credit columns.
3. Prove the equality of the two columns.
Illustration 2-32 shows the trial balance prepared from Pioneer Advertising’s
ledger. Note that the total debits ($28,700) equal the total credits ($28,700).
Illustration 2-32
PIONEER ADVERTISING AGENCY INC. A trial balance
Trial Balance
October 31, 2008
Debit Credit HELPFUL HINT

Cash $15,200 To sum a column of
Advertising Supplies 2,500 figures is sometimes
Prepaid Insurance 600 referred to as to foot the
Office Equipment 5,000 column. The column is
Notes Payable $ 5,000 then said to be footed.
Unearned Revenue 1,200
Common Stock 10,000
Dividends 500
Salaries Expense 4,000
Rent Expense 900
$28,700 $28,700
HELPFUL HINT
A trial balance is so
named because it is a
A trial balance is a necessary checkpoint for uncovering certain types of errors test to see if the sum of
before you proceed to other steps in the accounting process. For example, if only the debit balances equals
the debit portion of a journal entry has been posted, the trial balance would bring the sum of the credit
this error to light. balances.
Limitations of a Trial Balance

A trial balance does not guarantee freedom from recording errors. Numerous
errors may exist even though the trial balance columns agree. For
example, the trial balance may balance even when (1) a transaction is not ETHICS NOTE
journalized, (2) a correct journal entry is not posted, (3) a journal entry is An error is the result of an
posted twice, (4) incorrect accounts are used in journalizing or posting, or unintentional mistake; it is
(5) offsetting errors are made in recording the amount of a transaction. As neither ethical nor unethical. An
long as equal debits and credits are posted, even to the wrong account or irregularity is an intentional
in the wrong amount, the total debits will equal the total credits. The trial misstatement, which is viewed as
balance does not prove that the company has recorded all transactions or unethical.
that the ledger is correct.
Locating Errors
Errors in a trial balance generally result from mathematical mistakes, incorrect
postings, or simply transcribing data incorrectly. What do you do if you are faced
with a trial balance that does not balance? First determine the amount of the dif-
ference between the two columns of the trial balance. After this amount is known,
the following steps are often helpful:
1. If the error is $1, $10, $100, or $1,000, re-add the trial balance columns and re-
compute the account balances.
2. If the error is divisible by 2, scan the trial balance to see whether a balance
equal to half the error has been entered in the wrong column.
3. If the error is divisible by 9, retrace the account balances on the trial balance
to see whether they are incorrectly copied from the ledger. For example, if a
balance was $12 and it was listed as $21, a $9 error has been made. Reversing
the order of numbers is called a transposition error.
4. If the error is not divisible by 2 or 9, scan the ledger to see whether an account
balance in the amount of the error has been omitted from the trial balance, and
scan the journal to see whether a posting of that amount has been omitted.
Use of Dollar Signs

Note that dollar signs do not appear in journals or ledgers. Dollar signs are typically
used only in the trial balance and the financial statements. Generally, a dollar sign
is shown only for the first item in the column and for the total of that column. A
single line is placed under the column of figures to be added or subtracted; the total
amount is double-underlined to indicate the final sum.
E T H I C S I N S I G H T
Sarbanes-Oxley Comes to the Rescue
While most companies record transactions very carefully, the reality is that mistakes
still happen: Bank regulators fined Bank One Corporation (now Chase) $1.8 million; they felt
that the unreliability of the bank’s accounting system caused it to violate regulatory require-
ments. Also, in recent years Fannie Mae, the government-chartered mortgage association,
announced large accounting errors. These announcements caused investors, regulators, and
politicians to fear larger, undetected problems. Such problems could spill over into the home-
mortgage market, which depends on Fannie Mae to buy hundreds of billions of dollars of
mortgages each year. Finally, before a major overhaul of its accounting system, the financial
records of Waste Management Company were in such disarray that of the company’s 57,000
employees, 10,000 were receiving pay slips that were in error.
The Sarbanes-Oxley Act of 2002 was created to minimize the occurrence of errors like
these by increasing every employee’s responsibility for accurate financial reporting.
In order for these companies to prepare and issue financial statements, their accounting
equations (debits and credits) must have been in balance at year-end. How could these
errors or misstatements have occurred?
Before You Go On...

REVIEW IT
1. What is a trial balance, and what is its primary purpose?
2. How is a trial balance prepared?
3. What are the limitations of a trial balance?
✓ The Navigator
Be sure to read ALL ABOUT YOU: Your Personal Annual Report on the next
* page for information on how topics in this chapter apply to you.

all about Y U
*
Your Personal Annual Report
IIf you haven’t already done so, in the not-too-distant

future you will prepare a résumé. In some ways your *About the Numbers
• A survey by Automatic Data Processing reported that 40% of applicants
résumé is like a company’s annual report. Its purpose
is to enable others to evaluate your past, in an effort misrepresented their education or employment history.
to predict your future. • A survey by the Society for Human Resource Management of human resource
A résumé is your opportunity to create a positive professionals reported the following responses to the question, “When investigating
first impression. It is important that it be impressive— the backgrounds of job candidates, how important or unimportant is the discovery of
but it should also be accurate. In order to increase inaccuracies in the job candidate’s résumé on your decision to extend a job offer?”
their job prospects, some people are tempted to
“inflate” their résumés by overstating the importance
Importance of Résumé Inaccuracies
of some past accomplishments or positions. In fact,
on the Hiring Decision
you might even think that “everybody does it” and that 4%
8% 2%
if you don’t do it, you will be at a disadvantage.
Important or very
important
Do not investigate
applicant
*Some Facts
Before you turn your résumé into a world-class work of
backgrounds
Have not found
inaccuracies
fiction, consider the following: Neither important
86% nor unimportant
* David Edmondson, the president and CEO of well-
known electronics retailer Radio Shack, overstated his
accomplishments by claiming that he had earned a Source: Society for Human Resource Management, press release, August 31, 2004, http://www.shrm.org/
bachelor’s of science degree, when in fact he had not. press/ntu_published/cms_009624.asp.
Apparently his employer had not done a background
check to ensure the accuracy of his résumé.
* A chief financial officer of Veritas Software lied

about having an M.B.A. from Stanford University. *What Do You Think?
Using Radio Shack as an example, what should the company have done when
it learned of the falsehoods on Mr. Edmondson’s résumé? Should Radio
* A former president of the U.S. Olympic Committee, Shack have fired him?
lied about having a Ph.D. from Arizona State
University. When the truth was discovered, she NO: Mr. Edmondson had been a Radio Shack employee for 11 years. He had
resigned. served the company in a wide variety of positions, and had earned the position of
CEO through exceptional performance. While the fact that he lied 11 years
* The University of Notre Dame discovered that its earlier on his résumé was unfortunate, his service since then made this past
football coach, George O’Leary, lied about his
education and football history. He was forced to transgression irrelevant. In addition, the company was in the midst of a massive
resign after only five days. restructuring, which included closing 700 of its 7,000 stores. It could not afford
additional upheaval at this time.
* Jeffrey Papows was chairman of Lotus, a $1.4 billion YES: Radio Shack is a publicly traded company. Investors, creditors,
subsidiary of IBM. When it came out that he had
made up facts about his life, including a Ph.D. and employees, and others doing business with the company will not trust it if its
a black belt in the martial arts, Papows resigned. leader is known to have poor integrity. The “tone at the top” is vital to
creating an ethical organization.
* Quincy Troupe, former California poet laureate, was
well-respected within the California artistic and Sources: E. White and T. Herrick, “Ethical Breaches Pose Dilemma for Boards: When to Fire a
academic communities—until lies about his college CEO?” Wall Street Journal, February 15, 2006; and T. Hanrahan, “Résumé Trouble,” Wall Street
background were exposed. Journal, March 3, 2006.
Tips on resume writing can be found at many websites, such as

http://resume.monster.com/. *
The authors’ comments on this situation appear on page 90. 71
Demonstration Problem
Bob Sample and other student investors opened Campus Laundromat Inc. on
September 1, 2008. During the first month of operations the following transactions
occurred.
Sept. 1 Stockholders invested $20,000 cash in the business.
2 Paid $1,000 cash for store rent for the month of September.
3 Purchased washers and dryers for $25,000, paying $10,000 in cash and
signing a $15,000, 6-month, 12% note payable.
4 Paid $1,200 for a one-year accident insurance policy.
10 Received a bill from the Daily News for advertising the opening of the
laundromat $200.
20 Declared and paid a cash dividend to stockholders $700.
30 Determined that cash receipts for laundry fees for the month
were $6,200.
The chart of accounts for the company is the same as for Pioneer Advertising Agency
Inc. except for the following: No. 154 Laundry Equipment and No. 610 Advertising
Expense.
Instructions
(a) Journalize the September transactions. (Use J1 for the journal page number.)
(b) Open ledger accounts and post the September transactions.
(c) Prepare a trial balance at September 30, 2008.
Solution
action plan (a) GENERAL JOURNAL J1
✔ Make separate journal Date Account Titles and Explanation Ref. Debit Credit
entries for each transaction.
✔ In journalizing, make sure 2008
debits equal credits. Sept. 1 Cash 101 20,000
✔ In journalizing, use Common Stock 311 20,000
specific account titles taken (Stockholders investment of cash in business)
from the chart of accounts.
2 Rent Expense 729 1,000
✔ Provide appropriate
description of journal entry. Cash 101 1,000
(Paid September rent)
✔ Arrange ledger in
statement order, beginning 3 Laundry Equipment 154 25,000
with the balance sheet Cash 101 10,000
accounts. Notes Payable 200 15,000
✔ Post in chronological (Purchased laundry equipment for cash
order. and 6-month, 12% note payable)
✔ Use numbers in the refer-
4 Prepaid Insurance 130 1,200
ence column to indicate the
amount has been posted. Cash 101 1,200
✔ In the trial balance, list (Paid one-year insurance policy)
accounts in the order in 10 Advertising Expense 610 200
which they appear in the Accounts Payable 201 200
ledger. (Received bill from Daily News for
✔ List debit balances in the advertising)
left column, and credit
balances in the right 20 Dividends 332 700
column. Cash 101 700
(Declared and paid a cash dividend)
30 Cash 101 6,200
Service Revenue 400 6,200
(Received cash for laundry fees earned)
Summary of Study Objectives 73
(b) GENERAL LEDGER

Cash No. 101 Notes Payable No. 200
2008 2008
Sept. 1 J1 20,000 20,000 Sept. 3 J1 15,000 15,000
2 J1 1,000 19,000
Accounts Payable No. 201
3 J1 10,000 9,000
4 J1 1,200 7,800 Date Explanation Ref. Debit Credit Balance
20 J1 700 7,100 2008
30 J1 6,200 13,300 Sept. 10 J1 200 200
Prepaid Insurance No. 130 Common Stock No. 311

2008 2008
Sept. 4 J1 1,200 1,200 Sept. 1 J1 20,000 20,000
Laundry Equipment No. 154 Dividends No. 332
2008 2008
Sept. 3 J1 25,000 25,000 Sept. 30 J1 700 700
Service Revenue No. 400 Advertising Expense No. 610

2008 2008
Sept. 30 J1 6,200 6,200 Sept. 10 J1 200 200
Rent Expense No. 729
2008
Sept. 2 J1 1,000 1,000
(c) CAMPUS LAUNDROMAT INC.

Trial Balance
September 30, 2008
Debit Credit
Cash $13,300
Prepaid Insurance 1,200
Laundry Equipment 25,000
Notes Payable $15,000
Accounts Payable 200
Common Stock 20,000
Dividends 700
Advertising Expense 200
Rent Expense 1,000
$41,400 $41,400
✓ The Navigator
SUMMARY OF STUDY OBJECTIVES

1 Explain what an account is and how it helps in the 2 Define debits and credits and explain how they are used
recording process. An account is a record of increases to record business transactions. The terms debit and
and decreases in a specific asset, liability, or stockholders’ credit are synonymous with left and right. Assets, dividends,
equity item. and expenses are increased by debits and decreased by
credits. Liabilities, common stock, retained earnings, and 5 Explain what a ledger is and how it helps in the record-
revenues are increased by credits and decreased by debits. ing process. The ledger is the entire group of accounts
3 Identify the basic steps in the recording process. The maintained by a company. The ledger keeps in one place all
basic steps in the recording process are: (a) analyze each the information about changes in specific account balances.
transaction for its effects on the accounts, (b) enter the 6 Explain what posting is and how it helps in the record-
transaction information in a journal, (c) transfer the journal ing process. Posting is the transfer of journal entries to
information to the appropriate accounts in the ledger. the ledger accounts. This phase of the recording process ac-
4 Explain what a journal is and how it helps in the cumulates the effects of journalized transactions in the in-
recording process. The initial accounting record of a dividual accounts.
transaction is entered in a journal before the data are en- 7 Prepare a trial balance and explain its purposes. A
tered in the accounts. A journal (a) discloses in one place trial balance is a list of accounts and their balances at a
the complete effects of a transaction, (b) provides a given time. Its primary purpose is to prove the equality of
chronological record of transactions, and (c) prevents or debits and credits after posting.A trial balance also uncovers
locates errors because the debit and credit amounts for errors in journalizing and posting and is useful in preparing
✓
each entry can be easily compared. financial statements.
The Navigator
GLOSSARY
Account A record of increases and decreases in specific Journalizing The entering of transaction data in the journal.
asset, liability, or stockholders’ equity items. (p. 48). (p. 54).
Chart of accounts A list of accounts and the account Ledger The entire group of accounts maintained by a com-
numbers that identify their location in the ledger. (p. 60). pany. (p. 57).
Common stock Issued in exchange for the owners’ invest- Normal balance An account balance on the side where an
ment paid in to the corporation. (p. 50). increase in the account is recorded. (p. 50).
Compound entry A journal entry that involves three or Posting The transfer of journal entries to the ledger ac-
more accounts. (p. 55). counts. (p. 59).
Credit The right side of an account. (p. 49). Retained earnings Net income that is kept (retained) in the
Debit The left side of an account. (p. 49). business. (p. 51).
Dividend A distribution by a corporation to its stockholders Simple entry A journal entry that involves only two
on a pro rata (equal) basis. (p. 51). accounts. (p. 55).
Double-entry system A system that records in appropriate T account The basic form of an account. (p. 48).
accounts the dual effect of each transaction. (p. 49). Three-column form of account A form with columns for
General journal The most basic form of journal. (p. 54). debit, credit, and balance amounts in an account. (p. 58).
General ledger A ledger that contains all asset, liability, and Trial balance A list of accounts and their balances at a given
stockholders’ equity accounts. (p. 57). time. (p. 68).
Journal An accounting record in which transactions are ini-
tially recorded in chronological order. (p. 54).
SELF-STUDY QUESTIONS
Answers are at the end of the chapter. 3. A revenue account: (SO 2)
(SO 1) 1. Which of the following statements about an account is true? a. is increased by debits.
a. In its simplest form, an account consists of two parts. b. is decreased by credits.
b. An account is an individual accounting record of c. has a normal balance of a debit.
increases and decreases in specific asset, liability, and d. is increased by credits.
owner’s equity items. 4. Accounts that normally have debit balances are: (SO 2)
c. There are separate accounts for specific assets and lia- a. assets, expenses, and revenues.
bilities but only one account for owner’s equity items. b. assets, expenses, and common stock.
d. The left side of an account is the credit or decrease c. assets, liabilities, and dividends.
side. d. assets, dividends, and expenses.
(SO 2) 2. Debits: 5. Which of the following is not part of the recording process? (SO 3)
a. increase both assets and liabilities. a. Analyzing transactions.
b. decrease both assets and liabilities. b. Preparing a trial balance.
c. increase assets and decrease liabilities. c. Entering transactions in a journal.
d. decrease assets and increase liabilities. d. Posting transactions.
Questions 75
(SO 4) 6. Which of the following statements about a journal is false? 9. A trial balance: (SO 7)
a. It is not a book of original entry. a. is a list of accounts with their balances at a given time.
b. It provides a chronological record of transactions. b. proves the mathematical accuracy of journalized
c. It helps to locate errors because the debit and credit transactions.
amounts for each entry can be readily compared. c. will not balance if a correct journal entry is posted twice.
d. It discloses in one place the complete effect of a d. proves that all transactions have been recorded.
transaction. 10. A trial balance will not balance if: (SO 7)
(SO 5) 7. A ledger: a. a correct journal entry is posted twice.
a. contains only asset and liability accounts. b. the purchase of supplies on account is debited to
b. should show accounts in alphabetical order. Supplies and credited to Cash.
c. is a collection of the entire group of accounts maintained c. a $100 cash withdrawal by the president is debited to
by a company. Dividends for $1,000 and credited to Cash for $100.
d. is a book of original entry. d. a $450 payment on account is debited to Accounts
(SO 6) 8. Posting: Payable for $45 and credited to Cash for $45.
a. normally occurs before journalizing.
b. transfers ledger transaction data to the journal. Go to the book’s website,
c. is an optional step in the recording process. www.wiley.com/college/weygandt,
✓
d. transfers journal entries to ledger accounts. for Additional Self-Study questions.
The Navigator
QUESTIONS
1. Describe the parts of a T account. 10. What are the basic steps in the recording process?
2. “The terms debit and credit mean increase and decrease, 11. What are the advantages of using a journal in the record-
respectively.” Do you agree? Explain. ing process?
3. Jeff Hiller, a fellow student, contends that the double- 12. (a) When entering a transaction in the journal, should the
entry system means each transaction must be recorded debit or credit be written first?
twice. Is Jeff correct? Explain. (b) Which should be indented, the debit or credit?
4. Maria Alvarez, a beginning accounting student, believes 13. Describe a compound entry, and provide an example.
debit balances are favorable and credit balances are unfa- 14. (a) Should business transaction debits and credits be
vorable. Is Maria correct? Discuss. recorded directly in the ledger accounts?
5. State the rules of debit and credit as applied to (a) asset (b) What are the advantages of first recording transac-
accounts, (b) liability accounts, and (c) the stockholders’ tions in the journal and then posting to the ledger?
equity accounts (revenues, expenses, dividends, common 15. The account number is entered as the last step in posting
stock, and retained earnings). the amounts from the journal to the ledger.What is the ad-
6. What is the normal balance for each of the following ac- vantage of this step?
counts? (a) Accounts Receivable. (b) Cash. (c) Dividends. 16. Journalize the following business transactions.
(d) Accounts Payable. (e) Service Revenue. (f) Salaries (a) Hector Molina invests $9,000 cash in the business in
Expense. (g) Common Stock. exchange for shares of common stock.
7. Indicate whether each of the following accounts is an as- (b) Insurance of $800 is paid for the year.
set, a liability, or a stockholders’ equity account and whether (c) Supplies of $2,000 are purchased on account.
it has a normal debit or credit balance: (a) Accounts (d) Cash of $7,500 is received for services rendered.
Receivable, (b) Accounts Payable, (c) Equipment, 17. (a) What is a ledger?
(d) Dividends, (e) Supplies. (b) What is a chart of accounts and why is it important?
8. For the following transactions, indicate the account deb- 18. What is a trial balance and what are its purposes?
ited and the account credited. 19. Jim Benes is confused about how accounting information
(a) Supplies are purchased on account. flows through the accounting system. He believes the flow
(b) Cash is received on signing a note payable. of information is as follows.
(c) Employees are paid salaries in cash. (a) Debits and credits posted to the ledger.
9. Indicate whether the following accounts generally will (b) Business transaction occurs.
have (a) debit entries only, (b) credit entries only, or (c) (c) Information entered in the journal.
both debit and credit entries. (d) Financial statements are prepared.
(1) Cash. (4) Accounts Payable. (e) Trial balance is prepared.
(2) Accounts Receivable. (5) Salaries Expense. Is Jim correct? If not, indicate to Jim the proper flow of
(3) Dividends. (6) Service Revenue. the information.
20. Two students are discussing the use of a trial balance. They (b) Cash collected on account was debited to Cash for
wonder whether the following errors, each considered sep- $900 and Service Revenue was credited for $90.
arately, would prevent the trial balance from balancing. What would you tell them?
(a) The bookkeeper debited Cash for $600 and credited
Wages Expense for $600 for payment of wages.
BRIEF EXERCISES
Indicate debit and credit effects BE2-1 For each of the following accounts indicate the effects of (a) a debit or a credit on the
and normal balance. accounts and (b) the normal balance of the account.
(SO 2) 1. Accounts Payable.
2. Advertising Expense.
3. Service Revenue.
4. Accounts Receivable.
5. Common Stock.
6. Dividends.
Identify accounts to be debited BE2-2 Transactions for Kaustav Sen Company, which provides welding services, for the month
and credited. of June are presented below. Identify the accounts to be debited and credited for each transaction.
(SO 2) June 1 Kaustav Sen invests $4,000 cash in exchange for shares of common stock in a small
welding business.
2 Purchases equipment on account for $900.
3 Pays $800 cash to landlord for June rent.
12 Bills J. Kronsnoble $300 for welding work done on account.
Journalize transactions. BE2-3 Using the data in BE2-2, journalize the transactions. (You may omit explanations.)
(SO 4)
Identify and explain steps in BE2-4 Tim Weber, a fellow student, is unclear about the basic steps in the recording
recording process. process. Identify and briefly explain the steps in the order in which they occur.
(SO 3)
Indicate basic and debit-credit BE2-5 J. A. Motzek Inc. has the following transactions during August of the current year.
analysis. Indicate (a) the effect on the accounting equation and (b) the debit-credit analysis illustrated on
(SO 2) pages 61–66 of the text.
Aug. 1 Opens an office as a financial advisor, investing $5,000 in cash in exchange for common
stock.
4 Pays insurance in advance for 6 months, $1,800 cash.
16 Receives $800 from clients for services provided.
27 Pays secretary $1,000 salary.
Journalize transactions. BE2-6 Using the data in BE2-5, journalize the transactions. (You may omit explanations.)
(SO 4)
BE2-7 Selected transactions for Gilles Company are presented in journal form below. Post the
Post journal entries to T transactions to T accounts. Make one T account for each item and determine each account’s end-
accounts. ing balance.
(SO 6) J1
May 5 Accounts Receivable 6,000
(Billed for services provided)
12 Cash 2,400
Accounts Receivable 2,400
(Received cash in payment of account)
15 Cash 3,000
Exercises 77
BE2-8 Selected journal entries for Gilles Company are presented in BE2-7. Post the transac- Post journal entries to standard
tions using the standard form of account. form of account.
(SO 6)
BE2-9 From the ledger balances given below, prepare a trial balance for P. J. Farve Company
at June 30, 2008. List the accounts in the order shown on page 60 of the text. All account balances Prepare a trial balance.
are normal. (SO 7)
Accounts Payable $9,000, Cash $6,800, Common Stock $20,000, Dividends $1,200,
Equipment $17,000, Service Revenue $6,000, Accounts Receivable $3,000, Salaries Expense
$6,000, and Rent Expense $1,000.
BE2-10 An inexperienced bookkeeper prepared the following trial balance. Prepare a correct Prepare a correct trial balance.
trial balance, assuming all account balances are normal. (SO 7)
CHENG COMPANY
Trial Balance
December 31, 2008
Debit Credit
Cash $16,800
Prepaid Insurance $3,500
Common Stock 13,000
Dividends 4,500
Rent Expense 2,400
$39,600 $52,000
EXERCISES
E2-1 Josh Cephus has prepared the following list of statements about accounts. Analyze statements about
accounting and the recording
1. An account is an accounting record of either a specific asset or a specific liability.
process.
2. An account shows only increases, not decreases, in the item it relates to.
3. Some items, such as Cash and Accounts Receivable, are combined into one account. (SO 1)
4. An account has a left, or credit side, and a right, or debit side.
5. A simple form of an account consisting of just the account title, the left side, and the right
side, is called a T-account.
Instructions
Identify each statement as true or false. If false, indicate how to correct the statement.
E2-2 Selected transactions for D. Reyes, Inc., an interior decorating firm, in its first month of Identify debits, credits, and
business, are as follows. normal balances.
Jan. 2 Invested $10,000 cash in the business in exchange for common stock. (SO 2)
3 Purchased used car for $4,000 cash for use in business.
9 Purchased supplies on account for $500.
11 Billed customers $1,800 for services performed.
16 Paid $200 cash for advertising.
20 Received $700 cash from customers billed on January 11.
23 Paid creditor $300 cash on balance owed.
28 Declared and paid a $1,000 cash dividend.
Instructions
For each transaction indicate the following.
(a) The basic type of account debited and credited (asset, liability, stockholders’ equity).
(b) The specific account debited and credited (cash, rent expense, service revenue, etc.).
(c) Whether the specific account is increased or decreased.
(d) The normal balance of the specific account.
Use the following format, in which the January 2 transaction is given as an example.
Account Debited Account Credited
(a) (b) (c) (d) (a) (b) (c) (d)
Basic Specific Normal Basic Specific Normal
Date Type Account Effect Balance Type Account Effect Balance
Jan. 2 Asset Cash Increase Debit Stock- Common Increase Credit
holders’ Stock
Equity
Journalize transactions. E2-3 Data for D. Reyes, Inc., interior decorating, are presented in E2-2.
(SO 4)
Instructions
Journalize the transactions using journal page J1. (You may omit explanations.)
Analyze transactions and E2-4 Presented below is information related to Hanshew Real Estate Agency.
determine their effect on
accounts. Oct. 1 Pete Hanshew begins business as a real estate agent with a cash investment of $15,000
in exchange for common stock.
(SO 2)
2 Hires an administrative assistant.
3 Purchases office furniture for $1,900, on account.
6 Sells a house and lot for B. Kidman; bills B. Kidman $3,200 for realty services provided.
27 Pays $700 on the balance related to the transaction of October 3.
30 Pays the administrative assistant $2,500 in salary for October.
Instructions
Prepare the debit-credit analysis for each transaction as illustrated on pages 61–66.
Journalize transactions. E2-5 Transaction data for Hanshew Real Estate Agency are presented in E2-4.
(SO 4)
Instructions
Journalize the transactions. (You may omit explanations.)
Analyze transactions and E2-6 Konerko Industries had the following transactions.
journalize. 1. Borrowed $5,000 from the bank by signing a note.
(SO 2, 3, 4) 2. Paid $2,500 cash for a computer.
3. Purchased $700 of supplies on account.
Instructions
(a) Indicate what accounts are increased and decreased by each transaction.
(b) Journalize each transaction.
Analyze transactions and E2-7 Rowand Enterprises had the following selected transactions.
journalize. 1. Aaron Rowand invested $4,000 cash in the business in exchange for common stock.
(SO 2, 3, 4) 2. Paid office rent of $1,100.
3. Performed consulting services and billed a client $5,200.
4. Paid a $700 cash dividend.
Instructions
(a) Indicate the effect each transaction has on the basic accounting equation
(Assets ⫽ Liabilities ⫹ Stockholders’ Equity), using plus and minus signs.
(b) Journalize each transaction.
Analyze statements about the E2-8 Josie Feeney has prepared the following list of statements about the general ledger.
ledger. 1. The general ledger contains all the asset and liability accounts, but no stockholders’ equity
(SO 5) accounts.
2. The general ledger is sometimes referred to as simply the ledger.
3. The accounts in the general ledger are arranged in alphabetical order.
4. Each account in the general ledger is numbered for easier identification.
5. The general ledger is a book of original entry.
Instructions
Identify each statement as true or false. If false, indicate how to correct the statement.
Exercises 79
E2-9 Selected transactions from the journal of Teresa Gonzalez, investment broker, are pre- Post journal entries and
sented below. prepare a trial balance.
(SO 6, 7)
Aug. 1 Cash 5,000
Common Stock 5,000
(Investment of cash for stock)
10 Cash 2,400
12 Office Equipment 5,000
Cash 1,000
Notes Payable 4,000
(Purchased office equipment for cash
and notes payable)
25 Accounts Receivable 1,600
(Billed clients for services provided)
31 Cash 900
Accounts Receivable 900
(Receipt of cash on account)
Instructions
(a) Post the transactions to T accounts.
(b) Prepare a trial balance at August 31, 2008.
E2-10 The T accounts below summarize the ledger of Simon Landscaping Company at the Journalize transactions from
end of the first month of operations. account data and prepare a
trial balance.
Cash No. 101 Unearned Revenue No. 205 (SO 4, 7)
4/1 15,000 4/15 600 4/30 1,000

4/12 900 4/25 1,500
4/29 400
4/30 1,000
Accounts Receivable No. 112 Common Stock No. 311
4/7 3,200 4/29 400 4/1 15,000
Supplies No. 126 Service Revenue No. 400

4/4 1,800 4/7 3,200
4/12 900
Accounts Payable No. 201 Salaries Expense No. 726

4/25 1,500 4/4 1,800 4/15 600
Instructions
(a) Prepare the complete general journal (including explanations) from which the postings to
Cash were made.
(b) Prepare a trial balance at April 30, 2008.
E2-11 Presented below and on the next page is the ledger for Heerey Co. Journalize transactions from
account data and prepare a
Cash No. 101 Common Stock No. 311 trial balance.
10/1 5,000 10/4 400 10/1 5,000 (SO 4, 7)
10/10 650 10/12 1,500 10/25 2,000
10/10 4,000 10/15 250
10/20 500 10/30 300 Dividends No. 332
10/25 2,000 10/31 500 10/30 300
Accounts Receivable No. 112 Service Revenue No. 407

10/6 800 10/20 500 10/6 800
10/20 940 10/10 650
10/20 940
Supplies No. 126 Store Wages Expense No. 628

10/4 400 10/31 500
Furniture No. 149 Rent Expense No. 729
10/3 2,000 10/15 250
Notes Payable No. 200
10/10 4,000
Accounts Payable No. 201

10/12 1,500 10/3 2,000
Instructions
(a) Reproduce the journal entries for the transactions that occurred on October 1, 10, and 20,
and provide explanations for each.
(b) Determine the October 31 balance for each of the accounts above, and prepare a trial
balance at October 31, 2008.
Prepare journal entries and E2-12 Selected transactions for Tina Cordero Company during its first month in business are
post using standard account presented below.
form.
Sept. 1 Invested $10,000 cash in the business in exchange for common stock.
(SO 4, 6)
5 Purchased equipment for $12,000 paying $5,000 in cash and the balance on account.
25 Paid $3,000 cash on balance owed for equipment.
30 Declared and paid a $500 cash dividend.
Cordero’s chart of accounts shows: No. 101 Cash, No. 157 Equipment, No. 201 Accounts Payable,
No. 311 Common Stock, No. 332 Dividends.
Instructions
(a) Journalize the transactions on page J1 of the journal.
(b) Post the transactions using the standard account form.
Analyze errors and their effects E2-13 The bookkeeper for Sam Kaplin Equipment Repair made a number of errors in jour-
on trial balance. nalizing and posting, as described below.
(SO 7) 1. A credit posting of $400 to Accounts Receivable was omitted.
2. A debit posting of $750 for Prepaid Insurance was debited to Insurance Expense.
3. A collection from a customer of $100 in payment of its account owed was journalized and
posted as a debit to Cash $100 and a credit to Service Revenue $100.
4. A credit posting of $300 to Property Taxes Payable was made twice.
5. A cash purchase of supplies for $250 was journalized and posted as a debit to Supplies $25
and a credit to Cash $25.
6. A debit of $475 to Advertising Expense was posted as $457.
Instructions
For each error:
(a) Indicate whether the trial balance will balance.
(b) If the trial balance will not balance, indicate the amount of the difference.
(c) Indicate the trial balance column that will have the larger total.
Consider each error separately. Use the following form, in which error (1) is given as an example.
(a) (b) (c)

Error In Balance Difference Larger Column
(1) No $400 debit
Problems: Set A 81
E2-14 The accounts in the ledger of Sanford Delivery Service contain the following balances Prepare a trial balance.
on July 31, 2008. (SO 2, 7)
Accounts Receivable $ 7,642 Prepaid Insurance $1,968
Accounts Payable 8,396 Repair Expense 961
Cash ? Service Revenue 10,610
Delivery Equipment 49,360 Dividends 700
Gas and Oil Expense 758 Common Stock 40,000
Insurance Expense 523 Salaries Expense 4,428
Notes Payable 18,450 Salaries Payable 815
Retained Earnings 4,636
Instructions
Prepare a trial balance with the accounts arranged as illustrated in the chapter and fill in the
missing amount for Cash.
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EXERCISES: SET B
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Visit the book’s website at www.wiley.com/college/weygandt, and choose the Student

Companion site, to access Exercise Set B.
PROBLEMS: SET A
P2-1A Frontier Park was started on April 1 by C. J. Mendez and associates. The following se- Journalize a series of
lected events and transactions occurred during April. transactions.
(SO 2, 4)
Apr. 1 Stockholders invested $40,000 cash in the business in exchange for common stock.
4 Purchased land costing $30,000 for cash.
8 Incurred advertising expense of $1,800 on account.
11 Paid salaries to employees $1,500.
12 Hired park manager at a salary of $4,000 per month, effective May 1.
13 Paid $1,500 cash for a one-year insurance policy.
20 Received $5,700 in cash for admission fees.
25 Sold 100 coupon books for $25 each. Each book contains 10 coupons that entitle the
holder to one admission to the park.
30 Received $8,900 in cash admission fees.
30 Paid $900 on balance owed for advertising incurred on April 8.
Mendez uses the following accounts: Cash; Prepaid Insurance; Land; Accounts Payable;
Unearned Admission Revenue; Common Stock; Dividends; Admission Revenue; Advertising
Expense; and Salaries Expense.
Instructions
Journalize the April transactions.
P2-2A Jane Kent is a licensed CPA. During the first month of operations of her business, Jane Journalize transactions, post,
Kent, Inc., the following events and transactions occurred. and prepare a trial balance.
(SO 2, 4, 6, 7)
May 1 Stockholders invested $25,000 cash in exchange for common stock.
2 Hired a secretary-receptionist at a salary of $2,000 per month.
3 Purchased $2,500 of supplies on account from Read Supply Company.
7 Paid office rent of $900 cash for the month.
11 Completed a tax assignment and billed client $2,100 for services provided.
12 Received $3,500 advance on a management consulting engagement.
17 Received cash of $1,200 for services completed for H. Arnold Co.
31 Paid secretary-receptionist $2,000 salary for the month.
31 Paid 40% of balance due Read Supply Company.
Jane uses the following chart of accounts: No. 101 Cash, No. 112 Accounts Receivable, No. 126
Supplies, No. 201 Accounts Payable, No. 205 Unearned Revenue, No. 311 Common Stock, No. 400
Service Revenue, No. 726 Salaries Expense, and No. 729 Rent Expense.
Instructions
Trial balance totals $33,300 (a) Journalize the transactions.
(b) Post to the ledger accounts.
(c) Prepare a trial balance on May 31, 2008.
Journalize and post transactions P2-3A Jack Shellenkamp owns and manages a computer repair service, which had the follow-
and prepare a trial balance. ing trial balance on December 31, 2007 (the end of its fiscal year).
(SO 2, 4, 6, 7)
BYTE REPAIR SERVICE INC.
Trial Balance
December 31, 2007
Cash $ 8,000
Accounts Receivable 15,000
Parts Inventory 13,000
Prepaid Rent 3,000
Shop Equipment 21,000
Accounts Payable $19,000
Common Stock 30,000
Retained Earnings 11,000
$60,000 $60,000
Summarized transactions for January 2008 were as follows:

1. Advertising costs, paid in cash, $1,000.
2. Additional repair parts inventory acquired on account $4,000.
3. Miscellaneous expenses, paid in cash, $2,000.
4. Cash collected from customers in payment of accounts receivable $14,000.
5. Cash paid to creditors for accounts payable due $15,000.
6. Repair parts used during January $4,000. (Hint: Debit this to Repair Parts Expense.)
7. Repair services performed during January: for cash $6,000; on account $9,000.
8. Wages for January, paid in cash, $3,000.
9. Dividends paid in January were $3,000.
Instructions
(a) Open T accounts for each of the accounts listed in the trial balance, and enter the opening
balances for 2008.
(b) Prepare journal entries to record each of the January transactions.
(c) Post the journal entries to the accounts in the ledger. (Add accounts as needed.)
Trial balance totals $64,000 (d) Prepare a trial balance as of January 31, 2008.
Prepare a correct trial balance. P2-4A The trial balance of the Sterling Company shown below does not balance.
(SO 7)
STERLING COMPANY
Trial Balance
May 31, 2008
Debit Credit
Cash $5,850
Accounts Receivable $2,750
Prepaid Insurance 700
Equipment 8,000
Property Taxes Payable 560
Common Stock 11,700
Advertising Expense 1,100
Property Tax Expense 800
$26,800 $20,050
Your review of the ledger reveals that each account has a normal balance. You also discover
the following errors (page 83).
Problems: Set B 83
1. The totals of the debit sides of Prepaid Insurance, Accounts Payable, and Property Tax
Expense were each understated $100.
2. Transposition errors were made in Accounts Receivable and Service Revenue. Based on post-
ings made, the correct balances were $2,570 and $6,960, respectively.
3. A debit posting to Salaries Expense of $200 was omitted.
4. A $1,000 cash dividend was debited to Common Stock for $1,000 and credited to Cash for
$1,000.
5. A $520 purchase of supplies on account was debited to Equipment for $520 and credited to
Cash for $520.
6. A cash payment of $450 for advertising was debited to Advertising Expense for $45 and cred-
ited to Cash for $45.
7. A collection from a customer for $210 was debited to Cash for $210 and credited to Accounts
Payable for $210.
Instructions
Prepare a correct trial balance. Note that the chart of accounts includes the following: Trial balance totals $24,930
Dividends, and Supplies. (Hint: It helps to prepare the correct journal entry for the transaction
described and compare it to the mistake made.)
P2-5A The Lake Theater opened on April 1. All facilities were completed on March 31. At this Journalize transactions, post,
time, the ledger showed: No. 101 Cash $6,000; No. 140 Land $10,000; No. 145 Buildings (conces- and prepare a trial balance.
sion stand, projection room, ticket booth, and screen) $8,000; No. 157 Equipment $6,000; No. 201 (SO 2, 4, 6, 7)
Accounts Payable $2,000; No. 275 Mortgage Payable $8,000; and No. 311 Common Stock $20,000.
During April, the following events and transactions occurred.
Apr. 2 Paid film rental of $800 on first movie.
3 Ordered two additional films at $1,000 each.
9 Received $2,800 cash from admissions.
10 Made $2,000 payment on mortgage and $1,000 for accounts payable due.
11 Lake Theater contracted with R. Wynns Company to operate the concession stand.
Wynns is to pay 17% of gross concession receipts (payable monthly) for the right to op-
erate the concession stand.
12 Paid advertising expenses $500.
20 Received one of the films ordered on April 3 and was billed $1,000. The film will be
shown in April.
29 Paid salaries $2,000.
30 Received statement from R. Wynns showing gross concession receipts of $1,000 and
the balance due to The Lake Theater of $170 ($1,000 ⫻ 17%) for April. Wynns paid
one-half of the balance due and will remit the remainder on May 5.
30 Prepaid $900 rental on special film to be run in May.
In addition to the accounts identified above, the chart of accounts shows: No. 112 Accounts
Receivable, No. 136 Prepaid Rentals, No. 405 Admission Revenue, No. 406 Concession Revenue,
No. 610 Advertising Expense, No. 632 Film Rental Expense, and No. 726 Salaries Expense.
Instructions
(a) Enter the beginning balances in the ledger as of April 1. Insert a check mark (✓) in the ref- Trial balance totals $36,170
erence column of the ledger for the beginning balance.
(b) Journalize the April transactions.
(c) Post the April journal entries to the ledger. Assume that all entries are posted from page 1 of
the journal.
(d) Prepare a trial balance on April 30, 2008.
PROBLEMS: SET B
P2-1B Surepar Miniature Golf and Driving Range was opened on March 1 by Jerry Glover. Journalize a series of
The following selected events and transactions occurred during March. transactions.
(SO 2, 4)
Mar. 1 Invested $50,000 cash in the business in exchange for common stock.
3 Purchased Lee’s Golf Land for $38,000 cash. The price consists of land $23,000, build-
ing $9,000, and equipment $6,000. (Make one compound entry.)
5 Advertised the opening of the driving range and miniature golf course, paying adver-
tising expenses of $1,600.
6 Paid cash $1,480 for a one-year insurance policy.
10 Purchased golf clubs and other equipment for $2,600 from Palmer Company payable
in 30 days.
18 Received $800 in cash for golf fees earned.
19 Sold 100 coupon books for $15 each. Each book contains 10 coupons that enable the
holder to play one round of miniature golf or to hit one bucket of golf balls.
30 Paid salaries of $600.
30 Paid Palmer Company in full.
31 Received $500 cash for fees earned.
Jerry Glover uses the following accounts: Cash; Prepaid Insurance; Land; Buildings; Equipment;
Accounts Payable; Unearned Revenue; Common Stock; Dividends; Golf Revenue; Advertising
Expense; and Salaries Expense.
Instructions
Journalize the March transactions.
Journalize transactions, post, P2-2B Rosa Perez is a licensed architect. During the first month of the operation of her busi-
and prepare a trial balance. ness, the following events and transactions occurred.
(SO 2, 4, 6, 7) April 1 Stockholders invested $30,000 cash in exchange for common stock.
1 Hired a secretary-receptionist at a salary of $500 per week payable monthly.
2 Paid office rent for the month $800.
3 Purchased architectural supplies on account from Halo Company $1,500.
10 Completed blueprints on a carport and billed client $1,200 for services.
11 Received $500 cash advance from R. Welk for the design of a new home.
20 Received $1,500 cash for services completed and delivered to P. Donahue.
30 Paid secretary-receptionist for the month $2,000.
30 Paid $600 to Halo Company for accounts payable due.
Rosa uses the following chart of accounts: No. 101 Cash, No. 112 Accounts Receivable, No. 126
Supplies, No. 201 Accounts Payable, No. 205 Unearned Revenue, No. 311 Common Stock, No.
400 Service Revenue, No. 726 Salaries Expense, and No. 729 Rent Expense.
Instructions
Trial balance totals $34,100 (a) Journalize the transactions.
(b) Post to the ledger accounts.
(c) Prepare a trial balance on April 30, 2008.
Journalize transactions, post, P2-3B Slocombe Services was formed on May 1, 2008. The following transactions took place
and prepare a trial balance. during the first month.
(SO 2, 4, 6, 7) Transactions on May 1:
1. Stockholders invested $100,000 cash in the company in exchange for common stock.
2. Hired two employees to work in the warehouse. They will each be paid a salary of $3,000 per
month.
3. Signed a 2-year rental agreement on a warehouse; paid $36,000 cash in advance for the first year.
4. Purchased furniture and equipment costing $60,000. A cash payment of $20,000 was made
immediately; the remainder will be paid in 6 months.
5. Paid $3,000 cash for a one-year insurance policy on the furniture and equipment.
Transactions during the remainder of the month:
6. Purchased basic office supplies for $1,000 cash.
7. Purchased more office supplies for $3,000 on account.
8. Total revenues earned were $30,000—$10,000 cash and $20,000 on account.
9. Paid $800 to suppliers for accounts payable due.
10. Received $5,000 from customers in payment of accounts receivable.
11. Received utility bills in the amount of $400, to be paid next month.
12. Paid the monthly salaries of the two employees, totalling $6,000.
Instructions
Trial balance totals $172,600 (a) Prepare journal entries to record each of the events listed.
Problems: Set B 85
(b) Post the journal entries to T accounts.
(c) Prepare a trial balance as of May 31, 2008.
P2-4B The trial balance of Don Kelso Co. shown below does not balance. Prepare a correct trial balance.
(SO 7)
DON KELSO CO.

Trial Balance
June 30, 2008
Debit Credit
Cash $ 2,840
Accounts Receivable $ 3,231
Supplies 800
Equipment 3,000
Common Stock 9,000
Dividends 800
Office Expense 910
$13,341 $16,886
Each of the listed accounts has a normal balance per the general ledger. An examination of the
ledger and journal reveals the following errors.
1. Cash received from a customer in payment of its account was debited for $470, and Accounts
Receivable was credited for the same amount. The actual collection was for $740.
2. The purchase of a printer on account for $340 was recorded as a debit to Supplies for $340 and
a credit to Accounts Payable for $340.
3. Services were performed on account for a client for $890. Accounts Receivable was debited
for $890, and Service Revenue was credited for $89.
4. A debit posting to Salaries Expense of $600 was omitted.
5. A payment of a balance due for $206 was credited to Cash for $206 and credited to Accounts
Payable for $260.
6. The payment of a $500 cash dividend was debited to Salaries Expense for $500 and credited
to Cash for $500.
Instructions
Prepare a correct trial balance. (Hint: It helps to prepare the correct journal entry for the trans- Trial balance totals $15,581
action described and compare it to the mistake made).
P2-5B The Quinn Theater, owned by Mike Quinn, will begin operations in March. The Quinn Journalize transactions, post,
will be unique in that it will show only triple features of sequential theme movies. As of March 1, and prepare a trial balance.
the ledger of Quinn showed: No. 101 Cash $16,000; No. 140 Land $42,000; No. 145 Buildings (con- (SO 2, 4, 6, 7)
cession stand, projection room, ticket booth, and screen) $18,000; No. 157 Equipment $16,000;
No. 201 Accounts Payable $12,000; and No. 311 Common Stock $80,000. During the month of
March the following events and transactions occurred.
Mar. 2 Rented the three Star Wars movies (Star Wars, The Empire Strikes Back, and The
Return of the Jedi) to be shown for the first 3 weeks of March. The film rental was
$6,000; $3,000 was paid in cash and $3,000 will be paid on March 10.
3 Ordered the first three Star Trek movies to be shown the last 10 days of March. It will
cost $300 per night.
10 Paid balance due on Star Wars movies rental and $4,000 on March 1 accounts payable.
11 Quinn Theater contracted with M. Brewer Company to operate the concession stand.
Brewer is to pay 10% of gross concession receipts (payable monthly) for the right to
operate the concession stand.
12 Paid advertising expenses $800.
20 Received $7,200 cash from customers for admissions.
20 Received the Star Trek movies and paid the rental fee of $3,000.
31 Paid salaries of $4,800.
31 Received statement from M. Brewer showing gross receipts from concessions of $8,000
and the balance due to Quinn Theater of $800 ($8,000 ⫻ 10%) for March. Brewer paid
one-half the balance due and will remit the remainder on April 5.
31 Received $11,000 cash from customers for admissions.
In addition to the accounts identified above, the chart of accounts includes: No. 112 Accounts
Receivable, No. 405 Admission Revenue, No. 406 Concession Revenue, No. 610 Advertising
Expense, No. 632 Film Rental Expense, and No. 726 Salaries Expense.
Instructions
(a) Enter the beginning balances in the ledger. Insert a check mark (✓) in the reference column
of the ledger for the beginning balance.
(b) Journalize the March transactions.
(c) Post the March journal entries to the ledger. Assume that all entries are posted from page 1
of the journal.
Trial balance totals $113,500 (d) Prepare a trial balance on March 31, 2008.
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PROBLEMS: SET C
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Visit the book’s website at www.wiley.com/college/weygandt, and choose the
Student Companion site, to access Problem Set C.
CONTINUING COOKIE CHRONICLE

(Note: This is a continuation of the Cookie Chronicle from Chapter 1.)
CCC2 After researching the different forms of business organization, Natalie Koebel decides
to operate “Cookie Creations” as a corporation. She then starts the process of getting the busi-
ness running.
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to see the completion of this problem.

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BROADENING YOUR PERSPECTIVE

FINANCIAL REPORTING AND ANALYSIS
Financial Reporting Problem
PepsiCo, Inc.
BYP2-1 The financial statements of PepsiCo are presented in Appendix A. The notes accom-
panying the statements contain the following selected accounts, stated in millions of dollars.
Accounts Payable $1,799 Income Taxes Payable $ 546
Accounts Receivable 3,261 Interest Expense 256
Property, Plant, and Equipment 8,681 Inventory 1,693
Instructions
(a) Answer the following questions.
(1) What is the increase and decrease side for each account?
(2) What is the normal balance for each account?
(b) Identify the probable other account in the transaction and the effect on that account when:
(1) Accounts Receivable is decreased.
(2) Accounts Payable is decreased.
(3) Inventory is increased.
Broadening Your Perspective 87
(c) Identify the other account(s) that ordinarily would be involved when:
(1) Interest Expense is increased.
(2) Property, Plant, and Equipment is increased.
Comparative Analysis Problem

PepsiCo, Inc. vs. The Coca-Cola Company
BYP2-2 PepsiCo’s financial statements are presented in Appendix A. Coca-Cola’s financial
statements are presented in Appendix B.
Instructions
(a) Based on the information contained in the financial statements, determine the normal bal-
ance of the listed accounts for each company.
PepsiCo Coca-Cola
1. Inventory 1. Accounts Receivable
2. Property, Plant, and Equipment 2. Cash and Cash Equivalents
3. Accounts Payable 3. Cost of Goods Sold
4. Interest Expense 4. Sales (revenue)
(b) Identify the other account ordinarily involved when:
(1) Accounts Receivable is increased.
(2) Wages Payable is decreased.
(3) Property, Plant, and Equipment is increased.
(4) Interest Expense is increased.
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BYP2-3 Much information about specific companies is available on the World Wide Web.
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Such information includes basic descriptions of the company’s location, activities, industry, fi-
nancial health, and financial performance.
Address: biz.yahoo.com/i, or go to www.wiley.com/college/weygandt
Steps
1. Type in a company name, or use index to find company name.
2. Choose Profile. Perform instructions (a)–(c) below.
3. Click on the company’s specific industry to identify competitors. Perform instructions (d)–(g)
below.
Instructions
Answer the following questions.
(a) What is the company’s industry?
(b) What was the company’s total sales?
(c) What was the company’s net income?
(d) What are the names of four of the company’s competitors?
(e) Choose one of these competitors.
(f) What is this competitor’s name? What were its sales? What was its net income?
(g) Which of these two companies is larger by size of sales? Which one reported higher net income?
CRITICAL THINKING
Decision Making Across the Organization
BYP2-4 Lisa Ortega is president of Ortega Riding Academy, Inc. The academy’s primary
sources of revenue are riding fees and lesson fees, which are paid on a cash basis. Lisa also
boards horses for owners, who are billed monthly for boarding fees. In a few cases, boarders
pay in advance of expected use. For its revenue transactions, the academy maintains the fol-
lowing accounts: No. 1 Cash, No. 5 Boarding Accounts Receivable, No. 27 Unearned Boarding
Revenue, No. 51 Riding Revenue, No. 52 Lesson Revenue, and No. 53 Boarding Revenue.
The academy owns 10 horses, a stable, a riding corral, riding equipment, and office equip-
ment. These assets are accounted for in accounts No. 11 Horses, No. 12 Building, No. 13 Riding
Corral, No. 14 Riding Equipment, and No. 15 Office Equipment.
For its expenses, the academy maintains the following accounts: No. 6 Hay and Feed Sup-
plies, No. 7 Prepaid Insurance, No. 21 Accounts Payable, No. 60 Salaries Expense, No. 61 Ad-
vertising Expense, No. 62 Utilities Expense, No. 63 Veterinary Expense, No. 64 Hay and Feed
Expense, and No. 65 Insurance Expense.
Ortega makes periodic payments of cash dividends to stockholders. To record stockholders’
equity transactions in the business, Ortega maintains three accounts: No. 50 Common Stock, No. 51
Retained Earnings, and No. 52 Dividends.
During the first month of operations an inexperienced bookkeeper was employed. Lisa
Ortega asks you to review the following eight entries of the 50 entries made during the month.
In each case, the explanation for the entry is correct.
May 1 Cash 18,000
Common Stock 18,000
(Invested $18,000 cash in exchange for stock)
5 Cash 250
Riding Revenue 250
(Received $250 cash for lessons provided)
7 Cash 300
Boarding Revenue 300
(Received $300 for boarding of horses
beginning June 1)
14 Riding Equipment 80
Cash 800
(Purchased desk and other office
equipment for $800 cash)
15 Salaries Expense 400
Cash 400
(Issued dividend checks to stockholders)
20 Cash 148
Riding Revenue 184
(Received $184 cash for riding fees)
30 Veterinary Expense 75
Accounts Payable 75
(Received bill of $75 from veterinarian for
services rendered)
31 Hay and Feed Expense 1,700
Cash 1,700
(Purchased an estimated 2 months’
supply of feed and hay for $1,700 on account)
Instructions
With the class divided into groups, answer the following.
(a) Identify each journal entry that is correct. For each journal entry that is incorrect, prepare
the entry that should have been made by the bookkeeper.
(b) Which of the incorrect entries would prevent the trial balance from balancing?
(c) What was the correct net income for May, assuming the bookkeeper reported net income
of $4,500 after posting all 50 entries?
(d) What was the correct cash balance at May 31, assuming the bookkeeper reported a balance
of $12,475 after posting all 50 entries (and the only errors occurred in the items listed above)?
Communication Activity
BYP2-5 Woderson’s Maid Company offers home cleaning service. Two recurring transactions
for the company are billing customers for services rendered and paying employee salaries. For
example, on March 15, bills totaling $6,000 were sent to customers and $2,000 was paid in salaries
to employees.
Broadening Your Perspective 89
Instructions
Write a memo to your instructor that explains and illustrates the steps in the recording process
for each of the March 15 transactions. Use the format illustrated in the text under the heading,
“The Recording Process Illustrated” (p. 61).
Ethics Case
BYP2-6 Mary Jansen is the assistant chief accountant at Casey Company, a manufacturer of
computer chips and cellular phones. The company presently has total sales of $20 million. It is
the end of the first quarter. Mary is hurriedly trying to prepare a general ledger trial balance
so that quarterly financial statements can be prepared and released to management and the
regulatory agencies. The total credits on the trial balance exceed the debits by $1,000. In order
to meet the 4 p.m. deadline, Mary decides to force the debits and credits into balance by adding
the amount of the difference to the Equipment account. She chose Equipment because it is
one of the larger account balances; percentage-wise, it will be the least misstated. Mary “plugs”
the difference! She believes that the difference will not affect anyone’s decisions. She wishes
that she had another few days to find the error but realizes that the financial statements are
already late.
Instructions
(a) Who are the stakeholders in this situation?
(b) What are the ethical issues involved in this case?
(c) What are Mary’s alternatives?
“All About You” Activity

BYP2-7 Every company needs to plan in order to move forward. Its top management must
consider where it wants the company to be in three to five years. Like a company, you need to
think about where you want to be three to five years from now, and you need to start taking
steps now in order to get there. With some forethought, you can help yourself avoid a situation,
like those described in the “All About You” feature in this chapter (p. 71), in which your ré-
sumé seems to need creative writing.
Instructions
Provide responses to each of the following items.
(a) Where would you like to be working in three to five years? Describe your plan for getting
there by identifying between five and 10 specific steps that you need to take in order to get
there.
(b) In order to get the job you want, you will need a résumé. Your résumé is the equivalent of a
company’s annual report. It needs to provide relevant and reliable information about your
past accomplishments so that employers can decide whether to “invest” in you. Do a search
on the Internet to find a good résumé format. What are the basic elements of a résumé?
(c) A company’s annual report provides information about a company’s accomplishments. In or-
der for investors to use the annual report, the information must be reliable; that is, users must
have faith that the information is accurate and believable. How can you provide assurance
that the information on your résumé is reliable?
(d) Prepare a résumé assuming that you have accomplished the five to 10 specific steps you identi-
fied in part (a).Also, provide evidence that would give assurance that the information is reliable.
Answers to Insight and Accounting Across the

Organization Questions
New Xbox Contributes to Profitability, p. 56
Q: In what ways is this Microsoft division using accounting to assist in its effort to become more
profitable?
A: The division has used accounting to set very strict sales, revenue, and profit goals. In addition,
the division managers use accounting to keep a tight rein on product costs. Also, accounting
serves as the basis of communication, so that the marketing managers and product designers
can work with production managers, engineers, and accountants to achieve an exciting product
within specified cost constraints.
What Would Sam Do?, p. 58

Q: Why did Sam Walton keep separate pigeonholes and blue binders?
A: Using separate pigeonholes and blue binders for each store enabled Walton to accumulate and
track the performance of each individual store easily.
Q: Why bother to keep separate records for each store?
A: Keeping separate records for each store provided Walton with more information about per-
formance of individual stores and managers, and greater control. Walton would want and need
the same advantages if he were starting his business today. The difference is that he might now
use a computerized system for small businesses.
Sarbanes-Oxley Comes to the Rescue, p. 70
Q: In order for these companies to prepare and issue financial statements, their accounting
equations (debits and credits) must have been in balance at year-end. How could these errors
or misstatements have occurred?
A: A company’s accounting equation (as expressed in its books) can be in balance yet its financial
statements have errors or misstatements because of the following: entire transactions were not
recorded, transactions were recorded at wrong amounts; transactions were recorded in the
wrong accounts; transactions were recorded in the wrong accounting period. Audits of finan-
cial statements uncover some, but not all, errors or misstatements.
Authors’ Comments on All About You: Your Personal Annual

Report, p. 71
The decision whether to fire Mr. Edmondson was the responsibility of Radio Shack’s board of di-
rectors, which is elected by the company’s shareholders to oversee management. The board ini-
tially announced its support for the CEO. After further investigation, the board encouraged Mr.
Edmondson to resign, which he did. In contrast, when Bausch and Lomb’s CEO offered to resign
in a similar situation, the company’s board refused to accept his resignation. Board members
stated that they felt he was still the best person for the position.
Radio Shack says that although it did a reference check at the time of Mr. Edmondson’s hir-
ing, it did not check his educational credentials. Under the Sarbanes-Oxley Act of 2002, compa-
nies must now perform thorough background checks as part of a check of internal controls. The
bottom line: Your résumé must be a fair and accurate depiction of your past.
Answer to PepsiCo Review It Question 4, p. 53

Normal balances for PepsiCo (or any company) are: Cash—debit; Accounts Payable—credit;
Interest Expense—debit.
Answers to Self-Study Questions

1. b 2. c 3. d 4. d 5. b 6. a 7. c 8. d 9. a 10. c
✓ Remember to go back to the Navigator box on the chapter-opening page and check off your completed work.

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2

• What Would Sam Do? (p. 58)

• Sarbanes-Oxley Comes to the Rescue (p. 70)

• All About You: Your Personal Annual Report (p. 71)

The Recording Process

Steps in the The Recording

Debit balance Credit balance

The T account is a standard shorthand in accounting, which helps make clear

Debits and Credits

In the tabular summary, every positive item represents Softbyte’s receipt of

Debit and Credit Procedure

We can diagram the normal balance in Common Stock as follows.

Dividends. A dividend is a company’s distribution to its stockholders on a pro

REVENUES AND EXPENSES

Credits to revenue accounts should exceed debits. Debits to expense accounts

Stockholders’ Equity Relationships

Common stock Retained earnings

Net income or Net loss

Retained Earnings Statement

Expansion of the Basic Equation

Basic Assets = Liabilities + Stockholders’ Equity

Expanded Common Retained

Before You Go On...

STEPS IN THE RECORDING PROCESS

2. Enter the transaction information in a journal.

Although it is possible to enter transaction information directly into the accounts

The Recording Process

Analyze each transaction Enter transaction in a journal Transfer journal information

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

SIMPLE AND COMPOUND ENTRIES

ACCOUNTING ACROSS THE ORGANIZATION

Before You Go On...

Individual Individual Individual

Equipment Interest Payable Salaries Expense

ACCOUNTING ACROSS THE ORGANIZATION

STANDARD FORM OF ACCOUNT

Date Account Titles and Explanation Ref. Debit Credit

Date Explanation Ref. Debit Credit Balance

Common Stock No.311

Date Explanation Ref. Debit Credit Balance

Key: 1 Post to debit account–date, journal page number, and amount.

Posting should be performed in chronological order. That is, the company

THE RECORDING PROCESS ILLUSTRATED

Basic The asset Cash increases $10,000, and stockholders’ equity

Assets = Liabilities + Stockholders’ Equity

Debits increase assets: debit Cash $10,000.

Journal Oct. 1 Cash 101 10,000

Basic The asset Office Equipment increases $5,000, and the

Assets = Liabilities + Stockholders’ Equity

Debit – Credit Debits increase assets: debit Office Equipment $5,000.

Journal Oct. 1 Office Equipment 157 5,000

Office Equipment 157 Notes Payable 200

The asset Cash increases $1,200; the liability Unearned

Assets = Liabilities + Stockholders’ Equity

Debit – Credit Debits increase assets: debit Cash $1,200.

Journal Oct. 2 Cash 101 1,200

Cash 101 Unearned Revenue 209

Basic The expense account Rent Expense increases $900 because

Assets = Liabilities + Stockholders’ Equity

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