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:
1. Discloses the complete effects of a
transaction
2. Provides a chronological record of
transactions
3. 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.
Cas 20,
h 000 20,
Owner’s
Capital
2. Purchased 000
equipment on account (to be paid in 30 days)
for a total cost of $4,800.
Equipmen 4,
t Accounts 800 4,800
3. InterviewedPayable
three persons for the position of hair
stylist.
No
LO 2
entry 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 Cas 2,280
h Service 2,280
15 Revenue
Salaries and Wages 400
Expense
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, 301 Owner’s Capital $20,
000 000
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 4,000 130 Prepaid Insurance 6,000
Receivable
Prepare a trial
400 Service balance in95,000
Revenue good 101 Cash 7,000
form.
LO 4 38
Do It! 4: Posting (2 of 2)

LO 4 39
Practice Exercise

40
Solution

41
Solution

42
Solution

43
44
Trial Balance

45
Practice Problem

46
Solution

47
Ledger

48
Trial Balance

49
Exercise

50
Exercise

51