The Recording

Process
Dr. Rehana Anwar
 2 The Recording Process

Learning Objectives
Describe how accounts, debits, and credits are used to
1 record business transactions.

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

Explain how a ledger and posting help in the recording

3 process.

4 Prepare a trial balance.

Analysing and Recording Process
LEARNING Describe how accounts, debits, and credits
1
OBJECTIVE are used to record business transactions.

◆ Record of increases and decreases

The in a specific asset, liability, owners’
Account equity, revenue, or expense item.
◆ Debit = “Left”
◆ Credit = “Right”

An account can Account Name

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

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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.

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 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

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 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

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Debits and Credits

Assets ◆ Assets - Debits should exceed

Debit / Dr. Credit / Cr.
credits.

◆ Liabilities – Credits should

Normal Balance
exceed debits.
Chapter

◆ Normal balance is on the

3-23

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

Normal Balance

Chapter
3-24

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 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. Expenses
Chapter
3-25
Chapter
3-23
have the opposite effect.

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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

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 Debits/Credits Rules
Liabilities
Debit / Dr. Credit / Cr.
Normal Normal
Balance Balance
Debit 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

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 Summary of Debit/Credit Rules

Relationship among the assets, liabilities and owner’s equity

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

Expanded
Equation
Debit/Credit
Effects

The equation must be in balance after every transaction. Total

Debits must equal total Credits.

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Summary of Debit/Credit Rules
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.

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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.

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DO IT! 1 Normal Account Balances

Kate Browne has just rented space in a shopping mall. In this space,
she will open a hair salon to be called “Hair It Is.” A friend has advised
Kate to set up a double-entry set of accounting records in which to
record all of her business transactions. Identify the balance sheet
accounts that Kate will likely need to record the transactions needed
to open her business. Indicate whether the normal balance of each
account is a debit or a credit.

Assets Liabilities Equity

Cash (debit) Notes payable (credit) Owner’s Capital (credit)

Supplies (debit) Accounts payable
Equipment (debit) (credit)

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

Steps in the Recording Process

Illustration 2-12

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

ledger accounts

Business documents, such as a sales slip, a check, or a bill,

provide evidence of the transaction.
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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.

3. Helps to prevent or locate errors because the debit

and credit amounts can be easily compared.

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Recording transactions in journal

◆ Transaction= trans (through) +action (to do)…. To do

something through something is a transaction

◆ In business a transaction means that there are always

atleast two parties involved

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Recording transactions in journal

Transaction

Get Give

Debit Credit

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Steps in the Recording Process

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
Owner’s Capital 15,000

Equipment 7,000
Cash 7,000

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Steps in the Recording Process

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. Illustration 2-14
Compound journal entry

GENERAL JOURNAL

Date Account Title Ref. Debit Credit

July 1 Equipment 14,000
Cash 8,000
Accounts payable 6,000

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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 and selected one for the position

of hair stylist which has a salary package of $1000.

Prepare the entries to record the transactions.

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DO IT! 2 Recording Business Activities

Prepare the 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 Payable 4,800

3. Interviewed three persons and selected one for the position

of hair stylist which has a salary package of $1000.
No entry
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DO IT! 2 Recording Business Activities

Prepare the entries to record the transactions.

1. Aydin started business with Cash worth $10,000 and

Laptop worth $50,000

2. MO Co. pays Salary of $20,000 to its employees

3. In order to ensure its employees are happy, FLS Eagle

incur many staff welfare expenses like Food, Snacks, Team
dinners etc. So, this month entity spent around $50,000 on
staff welfare expenses. However, the entity paid only
$40,000 due to the non-availability of Cash. The balance
expenses are outstanding to Biskut Bakery

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DO IT! 2 Recording Business Activities

4. “Ganji Swag” produces stationery items such as pens,

pencils, A4 papers, and books. The company has been in
operation for 20 years. The reach, however, is limited to
national markets. As a result, the company decided to
expand its operations on a global scale. Therefore, plans to
advertise with ABC Publishers were made, with a $500,000
investment.

5. ABC Entity directors incur cab charges of $50 for attending

a business meeting.

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DO IT! 2 Recording Business Activities

6. Cash was received for services performed for customers,

$1,200.

7. Services were performed for customers on account, $4,200

8. Collected cash of $ 4,500 from customers on account

9. Purchased trucks for $ 150,000, paying $ 120,000 cash and

giving a 60-day note to the dealer for $ 30,000

10. Services of $5000 were performed for customers,

customers paid $3000 in cash and rest was added in their
account

11. Company lost its Xerox machine worth $2000 in a fire

accident LO 2
DO IT! 2 Recording Business Activities

12. Economy Laundry Company had the following transactions in

August:
• Aug. 1 Issued capital stock for cash, $ 150,000.

• 3 Borrowed $ 40,000 from the bank on a note.

• 6 Performed services for customers who promised to pay later, $ 16,000.

• 7 Paid this month’s rent on a building, $ 2,800.

• 10 Collections were made for the services performed on August 6, $ 3,200.

• 14 Supplies were purchased on account for use this month, $ 3,000.

• 17 A bill for $ 400 was received for utilities for this month.

• 31 Paid employee salaries, $ 6,000.

• 31 Paid cash dividend, $ 2,000 LO 2

DO IT! 2 Recording Business Activities

Sheeda Burgers received $100 for sale of burgers. What is the

journal entry?

a) Debit Sales Revenue $100, Credit Cash $100

b) Debit Cash $100, Credit Sales Revenue $100

c) Debit Accounts Receivable $100, Credit Sales

Revenue $100

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DO IT! 2 Recording Business Activities

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DO IT! 2 Recording Business Activities

Holz Disc Golf Course was opened on March 1 by Ian Holz.

The following selected events and transactions occurred during
March.
Mar. 1 Invested $20,000 cash in the business.
3 Purchased Rainbow Golf Land for $15,000 cash. The price
consists of land $12,000, shed $2,000, and equipment $1,000.
5 Paid advertising expenses of $900.
6 Paid cash $600 for a one-year insurance policy.
10 Purchased golf discs and other equipment for $1,050 from
Stevenson Company payable in 30 days.
18 Received $1,100 in cash for golf fees

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DO IT! 2 Recording Business Activities

19 Sold 150 coupon books for $10 each. Each book contains 4
coupons that enable the holder to play one round of disc golf.

25 Withdrew $800 cash for personal use.

30 Paid salaries of $250.

30 Paid Stevenson Company in full.

31 Received $2,700 cash for golf fees.

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DO IT! 2 Recording Business Activities

Emily Valley is a licensed dentist. During the first month of the

operation of her business, the following events and
transactions occurred.

April 1 Invested $20,000 cash in her business.

1 Hired a secretary-receptionist at a salary of $700 per week

payable monthly.

2 Paid offi ce rent for the month $1,100.

3 Purchased dental supplies on account from Dazzle Company

$4,000.

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DO IT! 2 Recording Business Activities

10 Performed dental services and billed insurance companies

$5,100.

11 Received $1,000 cash advance from Leah Mataruka for an

implant.

20 Received $2,100 cash for services performed from Michael

Santos.

30 Paid secretary-receptionist for the month $2,800.

30 Paid $2,400 to Dazzle for accounts payable due.

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DO IT! 2 Recording Business Activities

Maq Services was formed on May 1, 2022. The following

transactions took place during the fi rst month.

Transactions on May 1:

1. Jay Bradford invested $40,000 cash in the company, as its

sole owner.

2. Hired two employees to work in the warehouse. They will

each be paid a salary of $3,050 per month.

3. Signed a 2-year rental agreement on a warehouse; paid

$24,000 cash in advance for the first year.

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DO IT! 2 Recording Business Activities

4. Purchased furniture and equipment costing $30,000. A cash

payment of $10,000 was made immediately; the remainder will
be paid in 6 months.

5. Paid $1,800 cash for a one-year insurance policy on the

furniture and equipment.

Transactions during the remainder of the month:

6. Purchased basic office supplies for $420 cash.

7. Purchased more office supplies for $1,500 on account.

8. Total revenues earned were $20,000—$8,000 cash and

$12,000 on account.
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DO IT! 2 Recording Business Activities

9. Paid $400 to suppliers for accounts payable due.

10. Received $3,000 from customers in payment of accounts

receivable.

11. Received utility bills in the amount of $380, to be paid next

month.

12. Paid the monthly salaries of the two employees, totaling

$6,100.

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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

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The Ledger

STANDARD FORM OF ACCOUNT Illustration 2-16

Three-column form
of account

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 Ledger

POSTING
Transferring
journal entries
to the ledger
accounts.

Illustration 2-17
Posting a journal
entry

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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.

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Chart of Accounts
Illustration 2-18

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 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

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

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

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

Illustration 2-25
Hiring of employees

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

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Illustration 2-29 LO 3
Illustration 2-30
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DO IT! 3 Posting

Kate Brown recorded the following transactions in a general journal

during the month of March. Post these entries to the Cash account.

Mar. 4 Cash 2,280

Service Revenue 2,280
Mar. 15 Salaries and Wages Expense 400
Cash 400
Mar. 19 Utilities Expense 92
Cash 92

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 Make Journal entries, Post to Ledger
Debbie Consulting Inc. opened business in January, 2023.
The company had below transactions in January:
1. Jan 3, issues $20,000 shares of common stock for
cash
2. Jan 5, purchases equipment on account for $3,500,
payment due within the month
3. Jan 10, provides $5,500 in services to a customer
who asks to be billed for the services
4. Jan12, pays a $300 utility bill with cash
5. Jan 14, distributed $100 cash in dividends to
stockholders
 Make Journal entries, Post to Ledger

6. Jan17, receives $2,800 cash from a customer for

services
7. Jan 18, paid in full, with cash, for the equipment
purchase on January 5
8. Jan 20, paid $3,600 cash in salaries to employees
9. Jan 23, received cash payment in full from the
customer on the January 10 transaction
11. Jan 27, provides $1,200 in services to a customer
who asks to be billed for the services
12. Jan 30, purchases supplies on account for $500,
payment due within three months.
LEARNING
OBJECTIVE
4 Prepare a trial balance.

Illustration 2-31 LO 4
Trial Balance

Limitations 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.

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Dollar Signs and Underlining

Dollar Signs
◆ Do not appear in journals or ledgers.
◆ Typically used only in the trial balance and the financial
statements.
◆ Shown only for the first item in the column and for the total
of that column.

Underlining
◆ A single line is placed under the column of figures to be
added or subtracted.
◆ Totals are double-underlined.
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Trial Balance

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.

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DO IT! 4 Trial Balance

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DO IT! 4 Trial Balance

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DO IT! Practice…

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Thank You