PRINCIPLES OF ACCOUNTING

The
Recording
Process

2
REVIEW
KEY
LEARNING
S
Debit vs
Ledger
Credit

Journal

Double entry
system Trial balance
 Debit vs Credit Account

Liabilities + Owner’s Capital – Owner’s Drawings + Revenue –

Assets =
Expenses
Normal Debit Credit Credit Debit Credit Debit
Balance

Debit Effect Increase Decrease Decrease Increase Decrease Increase

Credit Effect Decrease Increase Increase Decrease Increase Decrease
Double entry system

Total
Total
Credit
Debits
s

• Account 101 • Account 400

• Account 112 • …...
• …...
 The Recording Process

Transfer the journal

information to the
Enter transaction
Analyze each appropriate
in a journal
transaction accounts in the
(Journalizing)
ledger
(Posting)
The Journal

• Book of original entry.

• Show the debit
& credit effects on specific
account => complete
effect of a transaction.
• Provide a chronological
record of transactions.
The Ledger

• The entire group of

accounts
• Provides the balance in
each of the accounts --
> keeps track of changes
Limitations of
Trial Balance

Cannot detect:
• A transaction is not journalized.
• A correct journal entry is not posted.
• A journal entry is posted twice.
• Incorrect accounts are used in
journalizing or posting.
• Offsetting errors are made in
recording the amount of a Balance
transaction.
QUICK
EXERCISES
 Practice BE2-2

Transactions for the Tage Oslo Company for the month of June are presented below. Identify
the accounts to be debited and credited for each transaction.

June 1 Tage Oslo invests $5,000 cash in a small welding business of which he is the sole
proprietor.
» Dr. Cash – Cr. Owner’s Capital

2»Purchases equipment
Dr. Equipment on account
– Cr. Account for $2,400.
Payable

3»$800 cashExpense
Dr. Rent is paid to– landlord
Cr. Cash for June rent.

12»Sends a bill toReceivable

Dr. Account J. Kronsnoble forService
– Cr. $300 for welding work performed on account.
Revenue
 Practice E2-1

Kim Yi has prepared the following list of statements about accounts.

1. An account is an accounting record of either a specific asset or a specific liability.
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.
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.
1. An account is an accounting record of either a specific asset or a specific liability.
» FALSE  An account is an accounting record of either a specific asset, liability
or owner’s equity item.
2. An account shows only increases, not decreases, in the item it relates to.
» FALSE  An account shows all the increases and decreases in the item it
relates
3. Some to. such as Cash and Accounts Receivable, are combined into one
items,
account.
» FALSE  Each asset, liability, and owner’s equity item has a separate account.
4. An account has a left, or credit side, and a right, or debit side.
» FALSE  An account has a left – debit side, and a right – credit 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.
» TRUE
PRACTICE
PROBLEMS
 Practice E2-5

The following information relates to Sanculi Real Estate Agency.

Oct. 1 Alan Sanculi begins business as a real estate agent with a cash investment of
$15,000.
2 Hires an administrative assistant.
3 Purchases office furniture for $1,900, on account.
6 Sells a house and lot for R. Craig; bills R. Craig $3,800 for realty services performed.
27 Pays $1,100 on the balance related to the transaction of October 3.
30 Pays the administrative assistant $2,500 in salary for October.
Instructions
Journalize the transactions.
 Date Account Titles and Ref. Debit Credit
Explanation
Oct. 1 Cash ………………………………. 101 15,000
Owner’s Capital ……………. 301 15,000

2 No entry

3 Equipment ………………………. 157 1,900

Accounts Payable …………. 201 1,900

6 Accounts Receivable …………... 112 3,800

Service Revenue …………... 400 3,800

27 Accounts Payable ………………. 201 1,100

Cash ………………………… 101 1,100

Salaries and Wages Expense

30 ….. 726 2,500
Cash ………………………… 101 2,500
 Practice E2-11

Presented below is the ledger for Shumway Co.

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, 2017.
 Date Account Titles and Explanation Ref. Debit Credit
(a)
Oct. 1 Cash ………………………………. 101 3,000
Owner’s Capital ……………. 301 3,000
(Owner's investment of cash in the
business)

10 Cash ………………………………. 101 750

Service Revenue……………. 400 750
(Receive cash for service performed)

10 Cash ………………………………. 101 4,000

Notes Payable ………….…... 200 4,000
(Obtain loan from bank)

20 Cash ………………………………. 101 500

Accounts Receivable ……… 112 500
(Receive cash in payment of account)

20 Accounts Receivable …..………. 112 940

Service Revenue……………. 400 940
(Billed client for service performed)
Practice P2-5A
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.
Starr records admission revenue as
service revenue, rental of the concession
stands as rent revenue, and film rental
expense as rent expense.
(c) Post the March journal entries to the
ledger. Assume that all entries are posted
from page 1 of the journal.
(d) Prepare a trial balance on March 31,
2017.
 The Starr Theater
Chart of Accounts

Assets Owner's Equity

101 Cash 301 Owner's Capital
112 Accounts Receivable
140 Land Revenues
145 Buildings 400 Service Revenue
157 Equipment 429 Rent Revenue

Liabilities Expenses
201 Accounts Payable 610 Advertising Expense
726 Salaries & Wages Expense
729 Rent Expense
 General Journal J1
Date Account Titles and Explanations Ref. Debit Credit
Mar. 2 Rent Expense 729 3,500
Cash 101 1,500
Accounts Payable 201 2,000
(Rented movies for cash and on account)
3 No entry
9 Cash 101 4,300
Service Revenue 400 4,300
(Received cash for services performed)
10 Accounts Payable 201 4,100
Cash 101 4,100
(Paid creditors on account)
11 No entry
12 Advertising Expense 610 900
Cash 101 900
(Paid advertising expenses)
20 Cash 101 5,000
Service Revenue 400 5,000
(Received cash for services performed)
Rent Expense 729 2,000
Cash 101 2,000
(Paid movie rental fee)
31 Salaries & Wages Expense 726 3,100
Cash 101 3,100
(Paid salaries)
Cash 101 450
Account Receivable 112 450
Rent Revenue 429 900
(Received cash and balance on account for rent revenue)
Cash 101 9,000
Service Revenue 400 9,000
(Received cash for services performed)
Cash No.101
Date Explanation Ref. Debit Credit Balance
P 3,000
Mar. 2 Movie rental J1 1,500 1,500
Owner's Capital No.301
9 Customer paid for service performed J1 4,300 5,800
Date Explanation Ref. Debit Credit Balance
10 Paid creditors J1 4,100 1,700
P 40,000
12 (Paid advertising expenses) J1 900 800
20 Customer paid for service performed J1 5,000 5,800
Service Revenue No.400
20 Movie rental J1 2,000 3,800
Date Explanation Ref. Debit Credit Balance
31 Paid salaries J1 3,100 700
Mar. 9 Customer paid for service performed J1 4,300 4,300
31 Rent Revenue J1 450 1,150
20 Customer paid for service performed J1 5,000 9,300
31 Customer paid for service performed J1 9,000 10,150
31 Customer paid for service performed J1 9,000 18,300
Accounts Receivable No.112
Rent Revenue No.429
Date Explanation Ref. Debit Credit Balance
Date Explanation Ref. Debit Credit Balance
31 Rent Revenue J1 450 450
31 Rent Revenue J1 900 900
Land No.140
Date Explanation Ref. Debit Credit Balance
Advertising Expense No.610
24,000 Date Explanation Ref. Debit Credit Balance
P
Mar. 12 (Paid advertising expenses) J1 900 900
Buildings No.145
Date Explanation Ref. Debit Credit Balance Salaries & Wages Expense No.726
P 10,000 Date Explanation Ref. Debit Credit Balance
31 Paid salaries J1 3,100 3,100
Equipment No.157
Date Explanation Ref. Debit Credit Balance Rent Expense No.729
P 10,000 Date Explanation Ref. Debit Credit Balance
Mar. 2 Movie rental J1 3,500 3,500
20 Movie rental J1 2,000 5,500
Accounts Payable No.201
Date Explanation Ref. Debit Credit Balance
P 7,000
Mar. 2 Movie rental J1 2,000 9,000
10 Paid creditors J1 4,100 4,900
 The Starr Theater
Trial Balance
On March 31, 2017

The Starr Theater Debit Credit

Trial Balance
Cash On March 31, 2017 $10,150
Accounts Receivable Debit 450
Credit
Cash $12,150
Land Accounts Receivable 450 24,000

Buildings Land
Buildings 10,000 10,000
24,000

Equipment Equipment
Accounts Payable
10,000
10,000
$6,900

Accounts Payable
Owner's Capital
Service Revenue
40,000
18,300 $4,900
Owner's CapitalAdvertising Expense
Rent Revenue
900
900
40,000
Service RevenueSalaries & Wages Expense
Rent Expense
3,100
5,500
18,300
Rent Revenue 66,100 66,100
900
Advertising Expense 900
Salaries & Wages Expense 3,100
Rent Expense 5,500
64,100 64,100