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Accounting Principles
Thirteenth Edition
Weygandt Kimmel Kieso

Chapter 2 Chapter 2
The Recording Process The Recording Process
Prepared by
Coby Harmon
University of California, Santa Barbara
Westmont College

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Chapter Outline Accounts, Debits, and Credits

Learning Objectives The Account
LO 1 Describe how accounts, debits, and credits are • Record of increases and decreases in a specific asset,
used to record business transactions. liability, owner’s equity, revenue, or expense item.
LO 2 Indicate how a journal is used in the recording • Debit = “Left”
process. Account Name
• Credit = “Right” Debit / Dr. Credit / Cr.
LO 3 Explain how a ledger and posting help in the
recording process. An account can be
illustrated in a
LO 4 Prepare a trial balance. T-account form.

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Debits and Credits Debits and Credits

If the sum of Debit entries are greater than the sum of If the sum of Credit entries are greater than the sum of
Credit entries, the account will have a balance. Debit entries, the account will have a balance.

Account Name Account Name

Debit / Dr. Credit / Cr. Debit / Dr. Credit / Cr.
Transaction #1 €10,000 €3,000 Transaction #2 Transaction #1 €10,000 €3,000 Transaction #2
Transaction #3 8,000 8,000 Transaction #3

Balance €15,000 Balance €1,000

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Debits and Credits Accounts, Debits, and Credits

Debit and Credit Procedure Assets Liabilities
Debit / Dr. Credit / Cr. Debit / Dr. Credit / Cr.
Double-entry system
• Each transaction must affect two or more accounts to
keep basic accounting equation in balance Normal Balance Normal Balance
• Recording done by debiting at least one account and
crediting at least one other account • Assets - Debits should exceed credits
• DEBITS must equal CREDITS • Liabilities – Credits should exceed debits
• Normal balance is on the increase side

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Accounts, Debits, and Credits Accounts, Debits, and Credits

Owner’s Capital Owner’s Drawings Revenues Expenses
Debit / Dr. Credit / Cr. Debit / Dr. Credit / Cr. Debit / Dr. Credit / Cr. Debit / Dr. Credit / Cr.

Normal Balance Normal Balance Normal Balance Normal Balance

• Owner’s investments and revenues increase owner’s • Earning revenues is to benefit owner(s)
equity (credit) • Effect of debits and credits on revenue accounts is
• Owner’s drawings and expenses decrease owner’s the same as effect on Owner’s Capital
equity (debit) • Expenses have opposite effect
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Summary of Debit / Credit Rules Summary of Debit / Credit Rules

Balance Sheet Income Statement Debit/credit rules and effects on each type of account.
Assets = Liabilities + Equity Revenue - Expense Assets = Liabilities + Owner’s Equity ILLUSTRATION 2.11

Debit Owner's Owner's

Assets = Liabilities + Capital - Drawing + Revenue - Expense
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Credit + - - + - + + - - + + -

Equation must be in balance after every transaction.

Total Debits must equal total Credits.

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Debit / Credit Rules Debit / Credit Rules

Debits: Accounts that normally have debit balances are:
a. increase both assets and liabilities a. assets, expenses, and revenues
b. decrease both assets and liabilities b. assets, expenses, and owner's capital
c. increase assets and decrease liabilities c. assets, liabilities, and owner’s drawings
d. decrease assets and increase liabilities d. assets, owner’s drawings, and expenses

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DO IT! 1 Normal Account Balances The Journal

Julie Loeng has just rented space in a shopping mall. She will Journalize
open a hair salon to be called “Hair It Is.” A friend has advised Analyze the Post
Trial Adjusting
Julie to set up a double-entry set of accounting records in which Balance Entries
transactions
to record all of her business transactions. Identify the statement
of financial position accounts that Julie will likely need to record Adjusted
Financial Closing Post-Closing
Trial
the transactions needed to open her business. Indicate whether Balance Statements Entries Trial Balance
the normal balance of each account is a debit or a credit.
Assets Liabilities Equity The Recording Process
Cash (debit) Notes payable (credit) Owner's Capital (credit) • Analyze transaction
Supplies (debit) Accounts payable (credit) • Enter transaction in journal
Equipment (debit)
• Transfer journal information to ledger accounts
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The Journal Journalizing

• Book of original entry Journalizing - Entering transaction data in the journal.
• Transactions recorded in chronological order Illustration: On September 1, Ray Neal invested €15,000 cash in the
business, and Softbyte purchased computer equipment for €7,000
• Contributions to the recording process: cash.
ILLUSTRATION 2.13

1. Discloses the complete effects of a transaction GENERAL JOURNAL J1

2. Provides a chronological record of transactions Date Account Titles and Explanations Ref. Debit Credit
3. Helps to prevent or locate errors because the Sept. 1 Cash 15,000
Owner's Capital 15,000
debit and credit amounts can be easily
compared Equipment 7,000
Cash 7,000
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Journalizing DO IT! 2 Recording Business Activities

Simple and Compound Entries Julie Loeng engaged in the following activities in establishing her
Illustration: On July 1, Butler Shipping purchases a delivery truck salon, Hair It Is:
costing £14,000. It pays £8,000 cash now and agrees to pay the 1. Opened a bank account in the name of Hair It Is and
remaining £6,000 on account (to be paid later). deposited ¥20,000 of her own money in this account as her
ILLUSTRATION 2.14
initial investment.
GENERAL JOURNAL J1
Date Account Titles and Explanations Ref. Debit Credit 2. Purchased equipment on account (to be paid in 30 days) for
a total cost of ¥4,800.
July 1 Equipment 14,000
Cash 8,000 3. Interviewed three people for the position of hair stylist.
Accounts Payable 6,000 Prepare the journal entries to record the transactions.

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DO IT! 2 Recording Business Activities The Ledger and Posting

Prepare the journal entries to record the transactions. Post to
Trial Adjusting
1. Opened a bank account and deposited ¥20,000. Analyze Journalize ledger
Balance Entries
accounts
Cash 20,000
Owner’s Capital 20,000 Adjusted
Financial Closing Post-Closing
Trial
Balance Statements Entries Trial Balance
2. Purchased equipment on account (to be paid in 30 days) for a
total cost of ¥4,800.
Equipment 4,800
The Ledger
Accounts Payable 4,800 • Entire group of accounts maintained by a company
3. Interviewed three persons for the position of hair stylist. • Provides the balance in each account
No entry • Keeps track of changes in account balances

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The Ledger The Ledger

General ledger contains all asset, liability, and owner’s equity Standard Form of Account
accounts ILLUSTRATION 2.15
ILLUSTRATION 2.16

CASH NO. 101

Liability Owner's Equity
Asset Accounts Date Explanation Ref. Debit Credit Balance
Accounts Accounts
2020
Cash Notes Payable Owner's Capital June 1 25,000 25,000
2 8,000 17,000
Supplies Accounts Payable Owner's Drawings 3 4,200 21,200
Salaries and Wages 9 7,500 28,700
Equipment Service Revenue 17 11,700 17,000
Payable
Salaries and Wages 20 250 16,750
Land Interest Payable
Expense 30 7,300 9,450
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The GENERAL JOURNAL

Date Account Titles and Explanation Ref. Debit
J1
Credit Posting
Ledger 2020
Sept. 1 Cash 101 15,000 Posting:
Owner’s Capital 301 15,000
a. normally occurs before journalizing
GENERAL LEDGER
b. transfers ledger transaction data to the journal
Cash NO. 101
Date Explanation Ref. Debit Credit Balance c. is an optional step in the recording process
2020
Sept. 1 J1 15,000 15,000 d. transfers journal entries to ledger accounts

Owner’s Capital NO. 301

Date Explanation Ref. Debit Credit Balance
ILLUSTRATION 2.17
Posting a journal 2020
entry
Sept. 1 J1 15,000 15,000

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Chart of Accounts Accounts in Red are used in this chapter.

The Recording Process Illustrated
Assets Owner's Equity
101 Cash 301 Owner’s Capital Follow these steps:
112 Accounts Receivable 306 Owner’s Drawings
126 Supplies 350 Income Summary 1. Determine what type of account is involved.
130 Prepaid Insurance
157 Equipment Revenues 2. Determine what items increased or decreased and
158 Accumulated Depreciation—Equipment 400 Service Revenue by how much.
Liabilities Expenses
3. Translate the increases and decreases into debits
200 Notes Payable 631 Supplies Expense
201 Accounts Payable 711 Depreciation Expense and credits.
209 Unearned Service Revenue 722 Insurance Expense
212 Salaries and Wages Payable 726 Salaries and Wages Expense
230 Interest Payable 729 Rent Expense
732 Utilities Expense
ILLUSTRATION 2.18 905 Interest Expense
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On October 1, C. R. Byrd invests ₺10,000 cash in an advertising On October 1, Yazici purchases office equipment costing
Transaction Transaction
company called Yazici Advertising. ₺5,000 by signing a 3-month, 12%, ₺5,000 note payable.

Basic The asset Cash increases ₺10,000; owner’s equity (specifically, Basic The asset Equipment increases ₺5,000;
Analysis Owner's Capital) increases ₺10,000. Analysis the liability Notes Payable increases ₺5,000.

Assets = Liabilities + Owner's Equity Assets = Liabilities + Owner's Equity

Equation Equation
Analysis Cash = Owner's Capital Analysis Equipment = Notes Payable
+₺10,000 +₺10,000 +₺5,000 +₺5,000
Debit-Credit Debits increase assets: debit Cash ₺10,000. Debit-Credit Debits increase assets: debit Equipment ₺5,000.
Analysis Credits increase owner's equity: credit Owner's Capital ₺10,000. Analysis Credits increase liabilities: credit Notes Payable ₺5,000.

Date Titles Ref. Debit Credit Date Titles Ref. Debit Credit
Journal Journal
Oct. 1 Cash 101 10,000 Oct. 1 Equipment 157 5,000
Entry Entry
Owner's Capital 301 10,000 Notes Payable 200 5,000

Cash 101 Owner's Capital 301 Equipment 157 Notes Payable 200
Posting Posting
Oct. 1 10,000 Oct. 1 10,000 Oct. 1 5,000 Oct. 1 5,000

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On October 2, Yazici receives a ₺1,200 cash for advertising services

Transaction Transaction On October 3, Yazici pays office rent for October in cash of ₺900.
that are expected to be completed by December 31.
Basic The asset Cash increases ₺1,200; Basic The expense account Rent Expense increases ₺900;
Analysis the liability Unearned Revenue increases ₺1,200. Analysis the asset Cash decreases ₺900.

Assets = Liabilities + Owner's Equity Assets = Liabilities + Owner's Equity

Equation Equation
Cash = Unearned Revenue Analysis Cash = Rent Expense
Analysis
+₺1,200 +₺1,200 -₺900 -₺900

Debit-Credit Debits increase assets: debit Cash ₺1,200. Debit-Credit Debits increase expenses: debit Rent Expense ₺900.
Analysis Credits increase liabilities: credit Unearned Revenue ₺1,200. Analysis Credits decrease assets: credit Cash ₺900.

Date Titles Ref. Debit Credit Date Titles Ref. Debit Credit
Journal Journal
Oct. 2 Cash 101 1,200 Oct. 3 Rent Expense 729 900
Entry Entry
Unearned Revenue 209 1,200 Cash 101 900

Cash 101 Unearned Revenue 209 Cash 101 Rent Expense 729
Posting Posting
Oct. 1 10,000 Oct. 2 1,200 Oct. 1 10,000 Oct. 3 900 Oct. 3 900
2 1,200 2 1,200

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On October 4, Yazici pays ₺600 for a one-year insurance policy that On October 5, Yazici purchases a 3-month supply
Transaction Transaction
will expire next year on September 30. of advertising materials on account from Aero Supply for ₺2,500.

Basic The asset Prepaid Insurance increases ₺600; Basic The asset Supplies increases ₺2,500;
Analysis the asset Cash decreases ₺600. Analysis the liability Accounts Payable increases ₺2,500.

Assets = Liabilities + Owner's Equity Assets = Liabilities + Owner's Equity

Equation Equation
Analysis Cash + Prepaid Insurance Analysis Supplies = Accounts Payable
-₺600 +₺600 +₺2,500 +₺2,500
Debit-Credit Debits increase assets: debit Prepaid Insurance ₺600. Debit-Credit Debits increase assets: debit Supplies ₺2,500.
Analysis Credits decrease assets: credit Cash ₺600. Analysis Credits increase liabilities: credit Accounts Payable ₺2,500.

Date Titles Ref. Debit Credit Date Titles Ref. Debit Credit
Journal Journal
Oct. 4 Prepaid Insurance 130 600 Oct. 5 Supplies 126 2,500
Entry Entry
Cash 101 600 Accounts Payable 201 2,500

Cash 101 Prepaid Insurance 130 Supplies 126 Accounts Payable 201
Posting Posting
Oct. 1 10,000 Oct. 3 900 Oct. 4 600 Oct. 5 2,500 Oct. 5 2,500
2 1,200 4 600

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On October 20, C. R. Byrd withdraws ₺500 cash for

On October 9, Yazici hires four employees to begin work on Transaction
Transaction personal use.
October 15. Each employee is to receive a weekly salary of ₺500.
Basic The owner’s equity account Owner’s Drawings increases ₺500;
Basic A business transaction has not occurred, there is no need to record
Analysis the asset Cash decreases ₺500.
Analysis an accounting entry.
Assets = Liabilities + Owner's Equity
Assets = Liabilities + Owner's Equity Equation
Equation Cash = Owner’s Drawings
= Analysis
Analysis -₺500 -₺500
Debit-Credit Debits increase drawings: debit Owner's Drawings ₺500.
Debit-Credit
Analysis Credits decrease assets: credit Cash ₺500.
Analysis
Date Titles Ref. Debit Credit
Date Titles Ref. Debit Credit Journal
Journal Oct. 20 Owner’s Drawings 306 500
Entry
Entry Cash 101 500

Cash 101 Owner’s Drawings 306

Posting
Posting Oct. 1 10,000 Oct. 3 900 Oct. 20 500
2 1,200 4 600
20 500
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On October 26, Yazici owes employee salaries of ₺4,000 On October 31, Yazici receives ₺10,000 in cash from Copa
Transaction Transaction
and pays them in cash (see October 9 event). Company for advertising services performed in October.
Basic Expense account Salaries and Wages Expense increases ₺4,000; Basic The asset Cash increases ₺10,000; the revenue account
Analysis the asset Cash decreases ₺4,000. Analysis Service Revenue increases ₺10,000.

Assets = Liabilities + Owner's Equity Assets = Liabilities + Owner's Equity

Equation Equation
Cash = Sal. & Wages Expense Cash = Service Revenue
Analysis Analysis
-₺4,000 -₺4,000 +₺10,000 +₺10,000

Debit-Credit Debits increase expenses: debit Salaries and Wages Expense Debit-Credit Debits increase assets: debit Cash ₺10,000.
Analysis ₺4,000. Credits decrease assets: credit Cash ₺4,000. Analysis Credits increase revenues: credit Service Revenue ₺10,000.
Date Titles Ref. Debit Credit Date Titles Ref. Debit Credit
Journal Journal
Oct. 26 Salaries and Wages Expense 726 4,000 Oct. 31 Cash 101 10,000
Entry Entry
Cash 101 4,000 Service Revenue 400 10,000

Cash 101 Salaries & Wages Expense 726 Cash 101 Service Revenue 400
Posting Posting
Oct. 1 10,000 Oct. 3 900 Oct. 26 4,000 Oct. 1 10,000 Oct. 3 900 Oct. 31 10,000
2 1,200 4 600 2 1,200 4 600
20 500 31 10,000 20 500
26 4,000 26 4,000
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Journalizing and Posting Summary GENERAL JOURNAL Page J1

Date Explanation Ref. Debit Credit
GENERAL JOURNAL Page J1 2020
Date Explanation Ref. Debit Credit Oct. 4 Prepaid Insurance 130 600
Cash 101 600
2020
Oct. 1 Cash 101 10,000 5 Supplies 126 2,500
Owners’ Capital 301 10,000 Accounts Payable 201 2,500
1 Equipment 157 5,000 20 Owner’s Drawings 306 500
Notes Payable 200 5,000 Cash 101 500
2 Cash 101 1,200 26 Salaries and Wages Expense 726 4,000
Unearned Revenue 209 1,200 Cash 101 4,000
3 Rent Expense 729 900 31 Cash 101 10,000
Cash 101 900 Service Revenue 400 10,000

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DO IT! 3 Posting
Post these entries to the Cash account.
Mar. 4 Cash 2,280
Service Revenue 2,280
15 Salaries and Wages Expense 400
Cash 400
19 Utilities Expense 92
Cash 92
Cash
3/1 Bal. 600 3/15 400
3/4 2,280 3/19 92
3/31 Bal. 2,388
ILLUSTRATION 2.30
General Ledger
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Yazici Advertising
Trial Balance
October 31, 2020 Limitations of a Trial Balance
Debit Credit Trial balance may balance even when:
Cash ₺15,200
Supplies 2,500 1. A transaction is not journalized.
Prepaid Insurance 600
Equipment 5,000 2. A correct journal entry is not posted.
Notes Payable ₺ 5,000 3. A journal entry is posted twice.
Accounts Payable 2,500
Unearned Service Revenue 1,200 4. Incorrect accounts are used in journalizing or
Owner’s Capital 10,000 posting.
Owner’s Drawings 500
Service Revenue 10,000 5. Offsetting errors are made in recording the amount
Salaries and Wages Expense 4,000 of a transaction.
Rent Expense 900
ILLUSTRATION 2.31 ₺28,700 ₺28,700
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Trial Balance Trial Balance

Locating Errors Currency Signs
Errors in a trial balance generally result from • Do not appear in journals or ledgers
• mathematical mistakes, • Typically used only in trial balance and financial
• incorrect postings, statements
• or simply transcribing data incorrectly. • 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
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Trial Balance DO IT! 4 Posting

A trial balance will not balance if: The following accounts come from the ledger of Bali Beach Supply at December 31,
2020.
a. a correct journal entry is posted twice. 157 Equipment R$88,000 301 Owner’s Capital R$20,000
b. the purchase of supplies on account is debited to 306 Owner’s Drawings 8,000 212 Salaries and Wages 2,000
Payable
Supplies and credited to Cash. 201 Accounts Payable 22,000
726 Salaries and Wages 200 Notes Payable
c. a £100 cash drawing by the owner is debited to Expense 42,000 (due in 3 months) 19,000
Owner’s Drawings for £1,000 and credited to Cash 112 Accounts Receivable 4,000 732 Utilities Expense 3,000
for £100. 400 Service Revenue 95,000 130 Prepaid Insurance 6,000
101 Cash 7,000
d. a £450 payment on account is debited to Accounts Prepare a trial balance in good form.
Payable for £45 and credited to Cash for £45.

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Bali Beach Supply

Trial Balance
December 31, 2020 A Look at U.S. GAAP
Debit Credit Key Points
Cash R$ 7,000
Accounts Receivable 4,000 Similarities
Prepaid Insurance 6,000 • Transaction analysis is the same under IFRS and GAAP.
Equipment 88,000 • Both the IASB and the FASB go beyond the basic definitions provided
Notes Payable R$ 19,000 in this textbook for the key elements of financial statements, that is
Accounts Payable 22,000 assets, liabilities, equity, revenues, and expenses. The more
Salaries and Wages Payable 2,000 substantive definitions, using the FASB definitional structure, are
Owner’s Capital 20,000 provided in the Chapter 1 A Look at U.S. GAAP section.
Owner’s Drawings 8,000 • As shown in the textbook, currency signs are typically used only in
Service Revenue 95,000 the trial balance and the financial statements. The same practice is
Utilities Expense 3,000 followed under GAAP, using the U.S. dollar.
Salaries and Wages Expense 42,000
R$158,000 R$158,000
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A Look at U.S. GAAP A Look at U.S. GAAP

Key Points Looking to the Future
Similarities The basic recording process shown in this textbook is followed by
companies across the globe. It is unlikely to change in the future. The
• A trial balance under GAAP follows the same format as shown in the definitional structure of assets, liabilities, equity, revenues, and expenses
textbook. may change over time as the IASB and FASB evaluate their overall
Differences conceptual framework for establishing accounting standards.
• IFRS relies less on historical cost and more on fair value than U.S.
companies.
• The statement of financial position is often called the balance sheet
in the United States.

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Copyright
Copyright © 2019 John Wiley & Sons, Inc.
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or from the use of the information contained herein.

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