The Recording Process

Chapter 2
The Recording
Process
Chapter
2-1
Study 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 Recording 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 Account
Record of increases and decreases

Account in a specific asset, liability, equity,
revenue, or expense item.
Debit = “Left”
Credit = “Right”
An Account can Account Name

be illustrated in a Debit / Dr. Credit / Cr.
T-Account form.
Chapter
2-4
Debits and 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
2-5
Debits and Credits
If Debits are greater than Credits, the account

will have a debit balance.
Account Name
Debit / Dr. Credit / Cr.
Transaction #1 $10,000 $3,000 Transaction #2

Transaction #3 8,000
Balance $15,000
Chapter
2-6
Debits and Credits
If Credits are greater than Debits, the account

will have a credit balance.
Account Name
Transaction #1 $10,000 $3,000 Transaction #2

8,000 Transaction #3
Balance $1,000
Chapter
2-7
Debits and Credits Summary
Liabilities
Normal Normal
Balance Balance
Debit Credit Normal Balance
Assets Chapter
Owner’s Equity
3-24

Normal Balance
Normal Balance
Chapter
Expense
3-23
Revenue
Chapter
3-25

Normal Balance
Normal Balance
Chapter
3-27 Chapter
3-26
Chapter
2-8
Debits and Credits Summary
Balance Sheet Income Statement
Asset = Liability + Equity Revenue - Expense
Debit
Credit
Chapter
2-9
Assets and Liabilities
Assets
Assets - Debits should
exceed credits.
Normal Balance
Chapter
3-23
Liabilities – Credits
should exceed debits.
Liabilities
The normal balance is on
the increase side.
Normal Balance
Chapter
3-24
Chapter
2-10
Owners’ Equity
Owner’s Equity Owner’s investments and

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

Debit / Dr. Credit / Cr. Debit / Dr. Credit / Cr.
Normal Balance Normal Balance
Chapter Chapter
3-25 3-23
Chapter
2-11
Revenue and Expense
Revenue The purpose of earning

revenues is to benefit the
owner(s).
Normal Balance
The effect of debits and

credits on revenue accounts
Chapter
3-26
Expense
is the same as their effect
Debit / Dr. Credit / Cr. on Owner’s Capital.
Expenses have the opposite
Normal Balance
effect: expenses decrease
Chapter
3-27
owner’s equity.
Chapter
2-12
Expansion of the Basic 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
2-13
Steps in the Recording Process
Illustration 2-12
Transfer journal information

Analyze each transaction Enter transaction in a journal to ledger accounts
Business documents, such as a sales slip, a check, a

bill, or a cash register tape, provide evidence of the
transaction.
Chapter
2-14
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.
Chapter
2-15
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 equipment 7,000

Cash 7,000
Chapter
2-16
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 payable 6,000
Chapter
2-17
The 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
2-18
Standard Form of Account
T-account form used in accounting textbooks.

In practice, the account forms used in ledgers are
much more structured.
Illustration 2-16
Chapter
2-19
Posting
Posting – the
process of
transferring
amounts from
the journal to
the ledger
accounts.
Illustration 2-17
Chapter
2-20
Chart of Accounts
Accounts and account numbers arranged in sequence in
which they are presented in the financial statements.
Illustration 2-18
Chapter
2-21
The Recording Process Illustrated
Follow these steps:
1. Determine what Illustration 2-19
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.
Chapter
2-22
Illustration 2-20
Chapter
2-23
Illustration 2-21
Chapter
2-24
Illustration 2-22
Chapter
2-25
Illustration 2-23
Chapter
2-26
Illustration 2-24
Chapter
2-27
Illustration 2-25
Chapter
2-28
Illustration 2-26
Chapter
2-29
Illustration 2-27
Chapter
2-30
Illustration 2-28
Chapter
2-31
The Trial Balance
Illustration 2-31
A list of accounts
and their
balances at a
given time.
Purpose is to
prove that debits
equal credits.
Chapter
2-32
The Trial 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
2-33

The Recording Process

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The Recording Process

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Chapter 2

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

Steps in the The Recording

Debits and Journal Summary Limitations of a

Record of increases and decreases

An Account can Account Name

Double-entry accounting system

If Debits are greater than Credits, the account

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

If Credits are greater than Debits, the account

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

Debit / Dr. Credit / Cr.

Debit / Dr. Credit / Cr.

Balance Sheet Income Statement

Asset = Liability + Equity Revenue - Expense

Owner’s Equity Owner’s investments and

Owner’s Capital Owner’s Drawing

Normal Balance Normal Balance

Revenue The purpose of earning

The effect of debits and

Relationship among the assets, liabilities and

The equation must be in balance after every

Transfer journal information

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

Book of original entry.

2. Provides a chronological record of transactions.

3. Helps to prevent or locate errors because the

Journalizing - Entering transaction data in the journal.

Computer equipment 7,000

Simple and Compound Entries

A General Ledger contains the entire group of accounts

T-account form used in accounting textbooks.

Limitations of a Trial Balance

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