Accounting Principles

Twelfth Edition
Weygandt ● Kimmel ● Kieso

Lecture 2
The Recording Process
Chapter 2
Accounts, Debits, and Credits (1 of 4)

LEARNING OBJECTIVE 1
Describe how accounts, debits, and credits are used to
record business transactions.
The Account
• Record of increases and decreases in a specific asset, liability,
owner’s equity, revenue, or expense item.
• Debit = “Left.”
• Credit = “Right.”

LO 1 2
Debits and Credits (3 of 3)
Debit and Credit Procedure
Double-entry system
• Each transaction must affect two or more accounts to
keep basic accounting equation in balance
• Recording done by debiting at least one account and
crediting at least one other account
• DEBITS must equal CREDITS

LO 1 3
Summary of Debit / Credit Rules (1 of 2)

LO 1 4
Summary of Debit / Credit Rules (2 of 2)
Debit/credit rules and effects on each type of account.

Equation must be in balance after every transaction.

Total Debits must equal total Credits.
LO 1 5
Accounts, Debits, and Credits (2 of 4)

• Assets - Debits should exceed credits

• Liabilities – Credits should exceed debits

LO 1 6
Accounts, Debits, and Credits (3 of 4)

• Owner’s investments and revenues increase owner’s

equity (credit)
• Owner’s drawings and expenses decrease owner’s
equity (debit)
LO 1 7
Accounts, Debits, and Credits (4 of 4)

• Earning revenues is to benefit owner(s)

• Effect of debits and credits on revenue accounts is the
same as effect on Owner’s Capital
• Expenses have opposite effect
LO 1 8
The Journal

LEARNING OBJECTIVE 2
Indicate how a journal is used in the recording process.

The Recording Process

• Analyze transaction
• Enter transaction in journal
• Transfer journal information to ledger accounts
LO 2 9
The Journal
• Book of original entry
• Transactions recorded in chronological order
• Contributions to the recording process:
2. Discloses the complete effects of a transaction
3. Provides a chronological record of transactions
4. Helps to prevent or locate errors because the
debit and credit amounts can be easily compared

LO 2 10
Journalizing (1 of 2)
Journalizing - Entering transaction data in the journal.
Illustration: On September 1, Ray Neal invested $15,000 cash in
the business, and Softbyte purchased computer equipment for
$7,000 cash.

General Journal J1
Date Account Titles and Explanations Ref. Debit Credit
Sept. 1 Cash 15,000
Owner's Capital 15,000
Blank
Equipment 7,000
Cash 7,000
LO 2 11
Journalizing (2 of 2)
Simple and Compound Entries
Illustration: On July 1, Butler Company purchases a delivery truck
costing $14,000. It pays $8,000 cash now and agrees to pay the
remaining $6,000 on account (to be paid later).

General Journal J1
Date Account Titles and Explanations Ref. Debit Credit
July 1 Equipment 14,000
Cash 8,000
Accounts Payable 6,000
Blank

LO 2 12
Do It! 1: Recording Business Activities (1 of 2)

Kate Browne engaged in the following activities in

establishing her salon, Hair It Is:
1. Opened a bank account in the name of Hair It Is and
deposited $20,000 of her own money in this account as
her initial investment.
2. Purchased equipment on account (to be paid in 30 days)
for a total cost of $4,800.
3. Interviewed three people for the position of hair stylist.
Prepare the journal entries to record the transactions.
LO 2 13
Do It! 1: Recording Business Activities (2 of 2)
Prepare the journal entries to record the transactions.
1. Opened a bank account and deposited $20,000.
Cash 20,000
Owner’s Capital 20,000
2. Purchased equipment on account (to be paid in 30 days) for a
total cost of $4,800.
Equipment 4,800
Accounts 4,800
Payable
3. Interviewed three persons for the position of hair stylist.
No entry
LO 2 14
The Journal and Posting

LEARNING OBJECTIVE 3
Explain how a ledger and posting help in the recording
process.

The Ledger
• Entire group of accounts maintained by a company
• Provides the balance in each account
• Keeps track of changes in account balances
LO 3 15
The Ledger (1 of 3)
General ledger contains all asset, liability, and owner’s
equity accounts.

LO 3 16
The Ledger (2 of 3)
Standard Form of Account
Cash NO. 101
Date Explanation Ref. Debit Credit Balance
2020 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

LO 3 17
The Ledger (3 of 3)

LO 3 18
The Recording Process Illustrated (1 of 11)
Follow these steps:
1. Determine what type of account is involved.
2. Determine what items increased or decreased and by
how much.
3. Translate the increases and decreases into debits and
credits.

LO 3 19
The Recording Process Illustrated (2 of 11)

LO 3 20
The Recording Process Illustrated (3 of 11)

LO 3 21
The Recording Process Illustrated (4 of 11)

LO 3 22
The Recording Process Illustrated (5 of 11)

LO 3 23
The Recording Process Illustrated (6 of 11)

LO 3 24
The Recording Process Illustrated (7 of 11)

LO 3 25
The Recording Process Illustrated (8 of 11)

LO 3 26
The Recording Process Illustrated (9 of 11)

LO 3 27
The Recording Process Illustrated (10 of 11)

LO 3 28
The Recording Process Illustrated (11 of 11)

LO 3 29
Journalizing and Posting Summary (1 of 3)
General journal Page J1
Date Explanation Ref. Debit Credit
2020
Oct. 1 Cash 101 10,000
Owners’ Capital 301 10,000
1 Equipment 157 5,000
Notes Payable 200 5,000
2 Cash 101 1,200
Unearned Revenue 209 1,200
3 Rent Expense 729 900
Cash 101 900
LO 3 30
Journalizing and Posting Summary (2 of 3)
General journal Page J1
Date Explanation Ref. Debit Credit
2020
Oct. 4 Prepaid Insurance 130 600
Cash 101 600
5 Supplies 126 2,500
Accounts Payable 201 2,500
20 Owner’s Drawings 306 500
Cash 101 500
26 Salaries and Wages Expense 726 4,000
Cash 101 4,000
31 Cash 101 10,000
Service Revenue 400 10,000
LO 3 31
Journalizing and Posting Summary (3 of 3)

LO 3 32
Do It! 3: Posting
Post these entries to the Cash account. The beginning balance of cash on
March 1 was $600.
Mar. 4 Cash 2,280
Service Revenue 2,280
15 Salaries and Wages Expense 400
Cash 400
19 Utilities Expense 92
Cash 92

LO 3 33
Limitation of a Trial Balance

LEARNING OBJECTIVE 4
Prepare a trial balance.

LO 4 34
Limitation of a Trial Balance
Trial balance may balance even when:
1. A transaction is not journalized.
2. A correct journal entry is not posted.
3. A journal entry is posted twice.
4. Incorrect accounts are used in journalizing or posting.
5. Offsetting errors are made in recording the amount
of a transaction.

LO 4 35
Trial Balance (1 of 4)
Locating Errors
Errors in a trial balance generally result from
• mathematical mistakes,
• incorrect postings,
• or simply transcribing data incorrectly.

LO 4 36
Trial Balance (2 of 4)
Dollar Signs
• Do not appear in journals or ledgers
• Typically used only in trial balance and financial statements
• Shown only for first item in column and for the total of that
column
Underlining
• Single line is placed under column of figures to be added or
subtracted
• Totals are double-underlined

LO 4 37
Do It! 4: Posting (1 of 2)
The following accounts come from the ledger of SnowGo Company
at December 31, 2020.
157 Equipment $88,000 301 Owner’s Capital $20,000
306 Owner’s Drawings 8,000 212 Salaries and Wages 2,000
Payable
201 Accounts Payable 22,000 200 Notes Payable
(due in 3 months) 19,000
726 Salaries and Wages 732 Utilities Expense 3,000
Expense 42,000
112 Accounts Receivable 4,000 130 Prepaid Insurance 6,000
400 Service Revenue 95,000 101 Cash 7,000
Prepare a trial balance in good form.
LO 4 38
Do It! 4: Posting (2 of 2)

LO 4 39
Practice Exercise

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Solution

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Solution

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Solution

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Trial Balance

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Practice Problem

46
Solution

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Ledger

48
Trial Balance

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Exercise

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Exercise

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