 A place where similar transactions

are recorded
The  Record of increases and decreases
in a specific asset, liability, owners’
Account equity, revenue, or expense item.
 Debit = “Left”
 Credit = “Right”

An account can Account Name

be illustrated in a Debit / Dr. Credit / Cr.
T-account form.

2-1 LO 1
 The Account

DEBIT AND CREDIT PROCEDURES

Double-entry system
 Each transaction must affect two or more accounts to
keep the basic accounting equation in balance.
 Recording done by debiting at least one account and
crediting at least one other account.
 DEBITS must equal CREDITS.

2-2 LO 1
 Debits and Credits

If the sum of Debit entries are greater than the sum of

Credit entries, the account will have a debit balance.

Account Name
Debit / Dr. Credit / Cr.

Transaction #1 $10,000 $3,000 Transaction #2

Transaction #3 8,000

Balance $15,000

2-3 LO 1
 Debits and Credits

If the sum of Credit entries are greater than the sum of

Debit entries, the account will have a credit balance.

Account Name
Debit / Dr. Credit / Cr.

Transaction #1 $10,000 $3,000 Transaction #2

8,000 Transaction #3

Balance $1,000

2-4 LO 1
 Debits and Credits

Assets  Assets - Debits should exceed

Debit / Dr. Credit / Cr.
credits.
 Liabilities – Credits should
Normal Balance
exceed debits.
 Normal balance is on the
Chapter
3-23

increase side.
Liabilities
Debit / Dr. Credit / Cr.

Normal Balance

Chapter
3-24

2-5 LO 1
 Debits and Credits

Owner’s Equity  Owner’s investments and

Debit / Dr. Credit / Cr.
revenues increase owner’s equity
(credit).
Normal Balance  Owner’s drawings and expenses
Chapter
3-25 decrease owner’s equity (debit).

Owner’s Capital Owner’s Drawing

Helpful Hint Because
Debit / Dr. Credit / Cr. Debit / Dr. Credit / Cr.
revenues increase
owner’s
equity, a revenue account
has the same debit/credit
Normal Balance Normal Balance rules as the Owner’s
Capital account.
Chapter
3-25
Chapter
3-23
Expenses
have the opposite effect.

2-6 LO 1
 Debits and Credits

Revenue  The purpose of earning revenues

Debit / Dr. Credit / Cr.
is to benefit the owner(s).
 The effect of debits and credits on
Normal Balance
revenue accounts is the same as
Chapter
3-26 their effect on Owner’s Capital.
 Expenses have the opposite
Expense
Debit / Dr. Credit / Cr.
effect: expenses decrease owner’s
equity.

Normal Balance

Chapter
3-27

2-7 LO 1
 Debits/Credits Rules

Balance Sheet Income Statement

Asset = Liability + Equity Revenue - Expense

Debit

Credit

2-8 LO 1
 Debits/Credits Rules

Question
Debits:

a. increase both assets and liabilities.

b. decrease both assets and liabilities.

c. increase assets and decrease liabilities.

d. decrease assets and increase liabilities.

2-9 LO 1
 Debits/Credits Rules

Question
Debits:

a. increase both assets and liabilities.

b. decrease both assets and liabilities.

c. increase assets and decrease liabilities.

d. decrease assets and increase liabilities.

2-10 LO 1
 Debits/Credits Rules

Question
Accounts that normally have debit balances are:

a. assets, expenses, and revenues.

b. assets, expenses, and equity.

c. assets, liabilities, and owner’s drawing.

d. assets, owner’s drawing, and expenses.

2-11 LO 1
 Debits/Credits Rules

Question
Accounts that normally have debit balances are:

a. assets, expenses, and revenues.

b. assets, expenses, and equity.

c. assets, liabilities, and owner’s drawing.

d. assets, owner’s drawing, and expenses.

2-12 LO 1
 Steps in the Recording Process

The Journal
 Book of original entry.
 Transactions recorded in chronological order.
 Contributions to the recording process:
1. Discloses the complete effects of a transaction.

2. Provides a chronological record of transactions.

2-13 LO 2
 Chart of Accounts
Illustration 2-18

2-14 LO 3
 Problem
Pioneer Advertising was started on October 1
by R. Byrd. The following selected events and
transactions occurred during October.
i) October 1, R. Byrd invested $10000 cash in
the business
ii) October 1, Purchased Equipment costing
$5000 by signing a 3- month, 12% , $5000 note
payable
iii) October 2, Received $ 1200 cash advance
from customer for advertising services that are
expected to be completed by December 31
2-15
 Problem
iv) October 3, Pays office rent for October $900
v) October 4, Pioneer pays $600 for a one year
insurance policy that will expire next year on
September 30.
vi) October 5, Purchased supplies on account
from Aero supplies for $2500
vii) October 9, Pioneer hires four employee to
begin work on October 15. Each employee will
receive weekly salary of $500 for 5 day work
week, payable every 2 weeks- first payment will
be made on October 26.
2-16
 problem
viii) October 20, Byrd withdraws $500 cash for
personal use
ix) October 26, Pioneer pays the salary of
employees
x) October 31, Pioneer receives $10000 cash
from Copa company for the advertisement

2-17
Summary Journalizing and Posting
Illustration 2-29

2-18 LO 3
2-19 Illustration 2-29 LO 3
 DO IT! 2 Recording Business Activities

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 persons for the position of hair stylist.

Prepare the entries to record the transactions.

2-20 LO 2
 DO IT! 2 Recording Business Activities

Prepare the entries to record the transactions.

1. Opened a bank account and deposited $20,000.

Bank 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 Payable 4,800

3. Interviewed three persons for the position of hair stylist.

No entry
2-21 LO 2
 LEARNING Explain how a ledger and posting help in the
3
OBJECTIVE recording process.

The Ledger
 General Ledger contains all the asset, liability, and owner’s
equity accounts.
Illustration 2-15

2-22 LO 3
 The Ledger

STANDARD FORM OF ACCOUNT Illustration 2-16

Three-column form
of account

2-23 LO 3
 Ledger

POSTING
Transferring
journal entries
to the ledger
accounts.

Illustration 2-17
Posting a journal
entry

2-24 LO 3
 Posting

Question
Posting:
a. normally occurs before journalizing.
b. transfers ledger transaction data to the journal.
c. is an optional step in the recording process.
d. transfers journal entries to ledger accounts.

2-25 LO 3
 Posting

Question
Posting:
a. normally occurs before journalizing.
b. transfers ledger transaction data to the journal.
c. is an optional step in the recording process.
d. transfers journal entries to ledger accounts.

2-26 LO 3
 The Recording Process Illustrated

Follow these steps:

1. Determine what
type of account is
involved.
2. Determine what
items increased or
decreased and by
how much.
3. Translate the
increases and
decreases into
debits and credits.

Illustration 2-19

2-27 LO 3
 Illustration 2-20
2-28 Purchase of office equipment LO 3
 Illustration 2-21
Receipt of cash
for future service

2-29 LO 3
 Illustration 2-22
2-30 Payment of monthly rent LO 3
 Illustration 2-23
Payment for
insurance

2-31 LO 3
 Illustration 2-24
2-32 Purchase of supplies on credit LO 3
 The Recording Process Illustrated

Illustration 2-25
Hiring of employees

2-33 LO 3
 Illustration 2-26
2-34 Withdrawal of cash by owner LO 3
 Illustration 2-27
2-35 Payment of salaries LO 3
 Illustration 2-28
2-36 Receipt of cash for services performed LO 3
Summary Journalizing and Posting
Illustration 2-29

2-37 LO 3
2-38 Illustration 2-29 LO 3
 Illustration 2-30
2-39
LO 3
 LEARNING
OBJECTIVE
4 Prepare a trial balance.

2-40 Illustration 2-31 LO 4