Chapter 2

The Recording
Process

Chapter
2-1 Accounting Principles, Ninth Edition
 Study
Study Objectives
Objectives

1. Explain what an account is and how it helps in the

recording process.
2. Define debits and credits and explain their use in
recording business transactions.
3. Identify the basic steps in the recording process.
4. Explain what a journal is and how it helps in the
recording process.
5. Explain what a ledger is and how it helps in the
recording process.
6. Explain what posting is and how it helps in the
recording process.
7. Prepare a trial balance and explain its purposes.
Chapter
2-2
 The
The Recording
Recording Process
Process

Steps in the The Recording

The Account Recording Process The Trial Balance
Process Illustrated

Debits and Journal Summary Limitations of a

credits Ledger illustration of trial balance
Expansion of journalizing and Locating errors
basic equation posting
Use of dollar
signs

Chapter
2-3
 The
The Account
Account
Record of increases and
Accoun decreases in a specific asset,
t liability, equity, revenue, or
expense item.
Debit = “Left”
Credit = “Right”
An Account can Account Name
be illustrated Debit / Dr. Credit / Cr.
in a T-Account
form.

Chapter
2-4 SO 1 Explain what an account is and how it helps in the recording
 Debits
Debits and
and Credits
Credits

Double-entry accounting system

Each transaction must affect two or more
accounts to keep the basic accounting
equation in balance.

Recording done by debiting at least one

account and crediting another.

DEBITS must equal CREDITS.

Chapter SO 2 Define debits and credits and explain

2-5
their use in recording business
 Debits
Debits and
and Credits
Credits

If Debits are greater than Credits, the

account will have a debit balance.

Account Name
Debit / Dr. Credit / Cr.

Transaction #1 $10,000 $3,00 Transaction #2

0
Transaction #3 8,000

Balance $15,000

Chapter SO 2 Define debits and credits and explain

2-6
their use in recording business
 Debits
Debits and
and Credits
Credits

If Credits are greater than Debits, the

account will have a credit balance.

Account Name
Debit / Dr. Credit / Cr.

Transaction #1 $10,000 $3,00 Transaction #2

0
8,000 Transaction #3

Balance $1,000

Chapter SO 2 Define debits and credits and explain

2-7
their use in recording business
 Debits
Debits and
and Credits
Credits
Summary
Summary Liabilities
Debit / Dr. Credit / Cr.
Normal
Normal Normal
Normal
Balance
Balance Balance
Balance
Debit
Debit Credit
Credit Normal Balance

Assets Chapter
3-24

Owner’s Equity
Debit / Dr. Credit / Cr.
Debit / Dr. Credit / Cr.

Normal Balance
Normal Balance

Chapter
3-23

Expense Chapter
3-25
Revenue
Debit / Dr. Credit / Cr.
Debit / Dr. Credit / Cr.

Normal Balance
Normal Balance

Chapter
3-27 Chapter
3-26

Chapter
2-8 SO 2
 Debits
Debits and
and Credits
Credits Summary
Summary

Balance Sheet Income Statement

Asset = Liabilit + Equity Reven - Expen

y ue se

Debit

Credit

Chapter SO 2 Define debits and credits and explain

2-9
their use in recording business
 Debits
Debits and
and Credits
Credits Summary
Summary

Review 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.

Chapter SO 2 Define debits and credits and explain

2-10
their use in recording business
 Debits
Debits and
and Credits
Credits Summary
Summary

Discussion Question
Q2-4: Maria Alvarez, a beginning accounting
student, believes debit balances are
favorable and credit balances are
unfavorable. Is Maria correct? Discuss.

See notes page for discussion

Chapter SO 2 Define debits and credits and explain
2-11
their use in recording business
 Assets
Assets and
and Liabilities
Liabilities

Assets

Assets - Debits should

Debit / Dr. Credit / Cr.

exceed credits.
Normal Balance

Chapter
3-23
Liabilities – Credits
should exceed debits.
Liabilities

The normal balance

Debit / Dr. Credit / Cr.

is on the increase side.

Normal Balance

Chapter
3-24

Chapter SO 2 Define debits and credits and explain

2-12
their use in recording business
 Owners’
Owners’ Equity
Equity

Owner’s Equity Owner’s investments and

Debit / Dr. Credit / Cr.
revenues increase owner’s
equity (credit).

Owner’s drawings and

Normal Balance

Chapter
3-25
expenses decrease owner’s
equity (debit).
Owner’s Capital Owner’s Drawing
Debit / Dr. Credit / Cr. Debit / Dr. Credit / Cr.

Normal Balance Normal Balance

Chapter Chapter
3-25 3-23

Chapter SO 2 Define debits and credits and explain

2-13
their use in recording business
 Revenue
Revenue and
and Expense
Expense

Revenue The purpose of earning

Debit / Dr. Credit / Cr.
revenues is to benefit the
owner(s).
Normal Balance

Chapter
The effect of debits and
credits on revenue
3-26

Expense
accounts is the same as
Debit / Dr. Credit / Cr.
their effect on Owner’s
Capital.

Expenses have the

Normal Balance

Chapter
3-27
opposite effect: expenses
Chapter decrease owner’s equity.
SO 2 Define debits and credits and explain
2-14
their use in recording business
 Debits
Debits and
and Credits
Credits Summary
Summary

Review Question
Accounts that normally have debit balances
are:
a. assets, expenses, and revenues.
b. assets, expenses, and owner’s capital.
c. assets, liabilities, and owner’s drawings.
d. assets, owner’s drawings, and expenses.

Chapter SO 2 Define debits and credits and explain

2-15
their use in recording business
 Expansion
Expansion of
of the
the Basic
Basic Equation
Equation

Relationship among the assets, liabilities and

owner’s equity of a business:
Illustration 2-11
Basic
Assets = Liabilities + Owner’s Equity
Equation

Expanded
Basic
Equation

The equation must be in balance after every

transaction. For every Debit there must be a
Credit.
Chapter SO 2 Define debits and credits and explain
2-16
their use in recording business
 Steps
Steps in
in the
the Recording
Recording Process
Process
Illustration 2-12

Transfer journal
Analyze each Enter transaction in a information to ledger
transaction journal accounts

Business documents, such as a sales slip, a

check, a bill, or a cash register tape, provide
evidence of the transaction.

Chapter
2-17 SO 3 Identify the basic steps in the recording process.
 The
The Journal
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.

3. Helps to prevent or locate errors because the

Chapter
debit and credit amounts can be easily
2-18 SO 4 Explain what a journal is and how it helps in the recording
compared.
 Journalizing
Journalizing
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.
Illustration 2-13

General Journal
Date Account Title Ref . Debit Credit
Sept. 1 Cash 15,000
R. Neal, Capital 15,000

Computer 7,000
equipment
Cash 7,000
Chapter
2-19 SO 4 Explain what a journal is and how it helps in the recording
 Journalizing
Journalizing
Simple and Compound Entries
Illustration: 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. Illustration 2-14

General Journal
Date Account Title Ref . Debit Credit
Sept. 1 Delivery equipment 14,000
Cash 8,000
Accounts 6,000
payable

Chapter
2-20 SO 4 Explain what a journal is and how it helps in the recording
 The
The Ledger
Ledger

A General Ledger contains the entire group of

accounts maintained by a company.

The General Ledger includes all the asset, liability,

owner’s equity, revenue and expense accounts.
Illustration 2-15

Chapter
2-21 SO 5 Explain what a ledger is and how it helps in the recording
Chapter
2-22 SO 5 Explain what a ledger is and how it helps in the recording
 Standard
Standard Form
Form of
of Account
Account

T-account form used in accounting textbooks.

In practice, the account forms used in ledgers are
much more structured.
Illustration 2-16

Chapter
2-23 SO 5 Explain what a ledger is and how it helps in the recording
 Posting
Posting

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

Illustration 2-17

Chapter
2-24 SO 6 Explain what posting is and how it helps in the recording
 Posting
Posting

Review 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.
Chapter
2-25 SO 6 Explain what posting is and how it helps in the recording
 Chart
Chart of
of Accounts
Accounts
Accounts and account numbers arranged in sequence
in which they are presented in the financial
statements.
Illustration 2-18

Chapter
2-26 SO 6 Explain what posting is and how it helps in the recording
 The
The Recording
Recording Process
Process Illustrated
Illustrated
Follow these
steps: Illustration 2-19

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
Chapter
2-27credits. LO 6 Explain what posting is and how it helps in the recording
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-20

Chapter
2-28 LO 6 Explain what posting is and how it helps in the recording
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-21

Chapter
2-29
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-22

Chapter
2-30
 The
The Recording
Recording Process
Process Illustrated
Illustrated
Illustration 2-23

Chapter
2-31
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-24

Chapter
2-32
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-25

Chapter
2-33
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-26

Chapter
2-34
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-27

Chapter
2-35
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-28

Chapter
2-36
 The
The Trial
Trial Balance
Balance
Illustration 2-31

A list of
accounts and
their balances
at a given time.
Purpose is to
prove that
debits equal
credits.

Chapter
2-37 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance

Limitations of a Trial
Balance
The trial balance may balance even when
1. a transaction is not journalized,
2. a correct journal entry is not posted,
3. a journal entry is posted twice,
4. incorrect accounts are used in journalizing or
posting, or
5. offsetting errors are made in recording the
amount of a transaction.

Chapter
2-38 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance

Review Question
A trial balance will not balance if:
a. a correct journal entry is posted twice.
b. the purchase of supplies on account is debited
to Supplies and credited to Cash.
c. a $100 cash drawing by the owner is debited
to Owner’s Drawing for $1,000 and credited to
Cash for $100.
d. a $450 payment on account is debited to
Accounts Payable for $45 and credited to Cash
for $45.
Chapter
2-39 LO 7 Prepare a trial balance and explain its purposes.
 Recording
Recording Process
Process

Discussion Question
Q2-19. Jim Benes is confused about how accounting
information flows through the accounting system. He
believes the flow of information is as follows.
a. Debits and credits posted to the ledger.
b. Business transaction occurs.
c. Information entered in the journal.
d. Financial statements are prepared.
e. Trial balance is prepared.
Is Jim correct? If not, indicate to Jim the proper flow of the
information.

See notes page for discussion

Chapter
2-40 LO 7 Prepare a trial balance and explain its purposes.
Chapter
2-41 LO 7 Prepare a trial balance and explain its purposes.
 Copyright
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Chapter
2-42