Slide

2-1

Chapter

The Recording
Process
Financial Accounting, IFRS Edition
Weygandt Kimmel Kieso
Slide
2-2

Study
Study Objectives
Objectives

Slide
2-3

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.

The
The Recording
Recording Process
Process

The Account

Debits and
credits
Debit and credit
procedure
Equity
relationships
Summary of
debit/credit
rules

Slide
2-4

Steps in the
Recording
Process
Journal
Ledger
Posting

The Recording
Process
Illustrated
Summary
illustration of
journalizing and
posting

The Trial Balance

Limitations of a
trial balance
Locating errors
Use of currency
signs

The Recording Process

Journal

Documents

General

Ledger

Trial Balance

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2-5

Income
Retained Earnings
Statement
Statement
of
Cash
Flow
Statement
Financial
Statement
Position

The Accounts
Assets

Liabilities

Equity

Share Capital + Revenues Expenses - Devidends

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2-6

The Rules of Recording to The Accounts

Dr

Assets

Cr

Dr Share Capital Cr

Dr Revenues Cr

Slide
2-7

Dr Liabilities Cr

Dr Devidends Cr

Dr Expenses Cr

The
The Account
Account
Account

Record of increases and decreases in

a specific asset, liability, equity,
revenue, or expense item.
Debit = Left
Credit = Right

An Account can
be illustrated in a
T-Account form.

Slide
2-8

Account Name
Debit / Dr.

Credit / Cr.

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

The
The Account
Account
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.

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2-9

SO 2 Define debits and credits and explain their use

in recording business transactions.

Debits
Debits and
and Credits
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 #3

8,000

Balance

Slide
2-10

Transaction #2

$15,000

SO 2 Define debits and credits and explain their use

in recording business transactions.

Debits
Debits and
and Credits
Credits
If Credits are greater than Debits, the account will
have a credit balance.
Account Name
Transaction #1

Balance

Slide
2-11

Debit / Dr.

Credit / Cr.

$10,000

$3,000

Transaction #2

8,000

Transaction #3

$1,000

SO 2 Define debits and credits and explain their use

in recording business transactions.

Debits
Debits and
and Credits
Credits Summary
Summary
Normal
Normal
Balance
Balance
Debit
Debit

Liabilities
Debit / Dr.

Normal
Normal
Balance
Balance
Credit
Credit

Assets

Credit / Cr.

Normal Balance

Chapter
3-24

Credit / Cr.

Debit / Dr.

Normal Balance

Chapter
3-23

Expense
Debit / Dr.

Revenue

Credit / Cr.

Debit / Dr.

Normal Balance

Chapter
3-27

Slide
2-12

Credit / Cr.

Normal Balance

Chapter
3-26

SO 2

Debits
Debits and
and Credits
Credits Summary
Summary
Balance Sheet
Asset = Liability + Equity

Income Statement
Revenue - Expense

Debit

Credit

Slide
2-13

SO 2 Define debits and credits and explain their use

in recording business transactions.

Debits
Debits and
and Credits
Credits Summary
Summary

Review 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.

Slide
2-14

Solution
notes page

SO 2 Define debits and credits and explain their use

in recording business transactions.

Assets
Assets and
and Liabilities
Liabilities
Assets
Debit / Dr.

Credit / Cr.

Assets - Debits should

exceed credits.

Normal Balance

Liabilities Credits
should exceed debits.

Chapter
3-23

Liabilities
Debit / Dr.

Credit / Cr.

The normal balance is on

the increase side.

Normal Balance

Chapter
3-24

Slide
2-15

SO 2 Define debits and credits and explain their use

in recording business transactions.

Equity
Equity Relationships
Relationships
Issuance of share capital and
revenues increase equity
(credit).
Dividends and expenses
decrease equity (debit).

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2-16

SO 2 Define debits and credits and explain their use

in recording business transactions.

Revenue
Revenue and
and Expense
Expense
Revenue
Debit / Dr.

Credit / Cr.

Normal Balance

Chapter
3-26

Expense
Debit / Dr.

Credit / Cr.

The purpose of earning

revenues is to benefit the
shareholders.
The effect of debits and credits
on revenue accounts is the same
as their effect on equity.
Expenses have the opposite
effect: expenses decrease equity.

Normal Balance

Chapter
3-27

Slide
2-17

SO 2 Define debits and credits and explain their use

in recording business transactions.

Summary
Summary of
of Debit/Credit
Debit/Credit Rules
Rules
Relationship among the assets, liabilities and equity
of a business:
Illustration 2-12

The equation must be in balance after every transaction. For

every Debit there must be a Credit.
Slide
2-18

SO 2 Define debits and credits and explain their use

in recording business transactions.

Summary
Summary of
of Debit/Credit
Debit/Credit Rules
Rules

Review Question
Accounts that normally have debit balances are:
a. assets, expenses, and revenues.
b. assets, expenses, and retained earnings.
c. assets, liabilities, and dividends.
d. assets, dividends, and expenses.

Slide
2-19

Solution
notes page

SO 2 Define debits and credits and explain their use

in recording business transactions.

Summary
Summary of
of Debit/Credit
Debit/Credit Rules
Rules
Kathy Renee Browne, president of Hair It Is
Company has just rented space in a shopping
mall in which she will open and operate a beauty salon. A friend
has advised Kathy to set up a double-entry set of accounting
records in which to record all of her business transactions.
Following are the accounts that Hair It Is Company, will likely
need to record the transactions. Indicate whether the normal
balance of each account is a debit or a credit.

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2-20

Cash

Debit

Equipment

Debit

Supplies

Debit

Accounts payable

Credit

Notes payable

Credit

Share capital

Credit

Solution on
notes page

SO 2 Define debits and credits and explain their use

in recording business transactions.

Steps
Steps in
in the
the Recording
Recording Process
Process
Illustration 2-13

Analyze each transaction

Enter transaction in a journal

Transfer journal information to

ledger accounts

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

a cash register tape, provide evidence of the transaction.

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2-21

SO 3 Identify the basic steps in the recording process.

Steps
Steps in
in the
the Recording
Recording Process
Process
Journalizing
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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2-22

SO 4 Explain what a journal is and how it helps in the recording process.

Steps in the Recording Process

1.
2.
3.

Slide
2-23

Analyze each transaction for its effects on

the accounts.
Enter the transaction information in a
journal (book of original entry).
Transfer the journal information to the
appropriate accounts in the ledger
(posting).

The Recording to the Journal

Documents

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2-24

Journal

The Journal
It

discloses in one place the complete effects

of a transaction.
It provides a chronological record of
transactions.
It helps to prevent or locate errors because
the debit and credit amounts for each entry
can be readily compared.

Slide
2-25

General Journal
Date
2002
Sept
1

Account Title and

Explanation
Cash
Shared Capital
(Owners cash investment in
Business)

2 Computer Equipment
Cash
(Purchase of equipment for cash)

Slide
2-26

Re Debit Credi
f
t
15,000
--

7,000
--

-15,00
0

-7,000

Steps
Steps in
in the
the Recording
Recording Process
Process
Journalizing - Entering transaction data in the journal.
Illustration: On September 1, stockholders invested $15,000
cash in exchange for ordinary shares, and Softbyte
purchased computer equipment for $7,000 cash.
Illustration 2-14

General Journal

Sept. 1

Cash

15,000

Share capital
Computer equipment
Cash
Slide
2-27

Solution on
notes page

15,000
7,000
7,000
SO 4

Steps
Steps in
in the
the Recording
Recording Process
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 2-15

General Journal

Sept. 1

Slide
2-28

Solution on
notes page

Delivery equipment

14,000

Cash

8,000

Accounts payable

6,000

SO 4

Illustration
September 1:
Ray Neal decides to open a computer programming service which
he names Softbyte. On September 1, 2002 he invests $15,000 cash
in the business.
September 2:
Softbyte purchases computer equipment for $7,000 cash.
September 5:
Softbyte purchases for $1,600 from Acme Supply Company
computer paper and other supplies on account.
September 10:
Softbyte receives $1,200 cash from customers for programming
services it has provided.
September 12:
Softbyte receives a bill for $250 from the Dailly News for advertising
but postpones payment until a later date.
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2-29

Illustration (Cont.)
September 14:
Softbyte provides $3,500 of programming services for customer. Cash
of $1,500 is received from customers, and the balance of $2,000 is
billed on account.
September 15:
Expenses paid in cash for September are store rent $600, salaries of
employees $900, and utilities $200.
September 16:
Softbyte pays its $250 Daily News advertising bill in cash.
September 20:
The sum of $600 in cash is received from customer who have
previously been billed for service (in transaction Sept. 14).
September 30:
Ray Neal withdraws $1,300 in cash from the business for his personal
use.
Slide
2-30

Steps
Steps in
in the
the Recording
Recording Process
Process
The Ledger
General Ledger
All accounts maintained by a company.
All asset, liability, equity, revenue and expense accounts.

Illustration 2-16
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2-31

SO 5 Explain what a ledger is and how it helps in the recording process.

Recording to The General Ledger

Documents

Slide
2-32

Journal

General
Ledger

The Ledger

Slide
2-33

The entire group of accounts maintained by a

company is called the ledger. The ledger keeps in
one place all the information about changes in
specific account balance.
General Ledger
Individual

Individual

Individual

Assets

Liabilities

Owners Equity

Equipment
Land
Supplies
Cash

Interest
Payable
Salaries
Payable
Accounts

Salaries
Expenses
Service
Revenue
Dividend

Notes
Payable
Payable

Share Capital

The
The Ledger
Ledger
Standard Form of Account
T-account form used in accounting textbooks.
Ledger form used in practice.
Illustration 2-17

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2-34

SO 5 Explain what a ledger is and how it helps in the recording process.

The
The Ledger
Ledger
Chart of Accounts

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2-35

Illustration 2-18

SO 5 Explain what a ledger is and how it helps in the recording process.

Posting
Posting
Posting the
process of
transferring
amounts from
the journal to
the ledger
accounts.

Illustration 2-19

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2-36

SO 6 Explain what posting is and how it helps in the recording process.

The
The Recording
Recording Process
Process Illustrated
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 2-20
Slide
2-37

SO 6 Explain what posting is and how it helps in the recording process.

The
The Recording
Recording Process
Process Illustrated
Illustrated
Illustration 2-21

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2-38

SO 6 Explain what posting is and how it helps in the recording process.

The
The Recording
Recording Process
Process Illustrated
Illustrated
Illustration 2-22

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2-39

SO 6

The
The Recording
Recording Process
Process Illustrated
Illustrated
Illustration 2-23

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2-40

SO 6

The
The Recording
Recording Process
Process Illustrated
Illustrated
Illustration 2-24

Slide
2-41

SO 6

The
The Recording
Recording Process
Process Illustrated
Illustrated
Illustration 2-25

Slide
2-42

SO 6

The
The Recording
Recording Process
Process Illustrated
Illustrated
Illustration 2-26

Slide
2-43

SO 6 Explain what posting is and how it helps in the recording process.

The
The Recording
Recording Process
Process Illustrated
Illustrated
Illustration 2-27

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2-44

SO 6

The
The Recording
Recording Process
Process Illustrated
Illustrated
Illustration 2-28

Slide
2-45

SO 6

The
The Recording
Recording Process
Process Illustrated
Illustrated
Illustration 2-29

Slide
2-46

SO 6

Posting
Posting

Review 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.

Solution on
notes page
Slide
2-47

SO 6 Explain what posting is and how it helps in the recording process.

The
The Recording
Recording Process
Process Illustrated
Illustrated
Katherine Turner recorded the following
transactions during the month of March.

Post these entries to the Cash account.

Slide
2-48

Solution on
notes page

SO 6

The
The Trial
Trial Balance
Balance
Illustration 2-32

A list of accounts
and their
balances at a
given time.
Purpose is to
prove that debits
equal credits.

Slide
2-49

SO 7 Prepare a trial balance and explain its purposes.

The
The Trial
Trial Balance
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.

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2-50

SO 7 Prepare a trial balance and explain its purposes.

Posting
1.

2.

3.

4.

Slide
2-51

In the ledger, enter in the appropriate columns of the

account(s) debited the date, journal page, and debit
amount shown in the journal.
In the reference column of the journal, write the
account number to which the debit amount was
posted.
In the ledger, enter in the appropriate columns of the
account(s) credited the date, journal page, and debit
amount shown in the journal.
In the reference column of the journal, write the
account number to which the credit amount was
posted.

J 1
Date
2002
Sept
1

Account Title and

Explanation
Cash
Share Capital
(Owners cash investment in
Business)

Re Debit Cred
f
it
10
1
30
6

2 Computer Equipment
15
Cash
(Purchase of equipment for cash) 7
10
1

Slide
2-52

15,000
--

7,000
--

-15,00
0

-7,000

Trial Balance
A trial

balance is a list of accounts and their

balances at a given date ( at the end of an
accounting period).

Documents

Journal

General
Ledger

Trial
Balance
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2-53

Illustration
Date

Account Title and Explanation

Ref

Debit

Credit

101
301

10,000
--

-10,000

1 Office Equipment
Note Payable
(Purchase of equipment on notes payable)

157
200

5,000
--

-5,000

2 Cash
Unearned Revenue
(received cash for future services)

101
209

1,200
--

-1,200

3 Rent Expense
Cash
(Paid October rent)

729
101

900
--

-900

4 Prepaid Insurance
Cash
(Paid one-year insurance policy)

130
101

600
--

-600

5 Advertising Supplies
Accounts Payable
(Purchased Advertising Supllies on
account)

126
201

2,500
--

-2,500

2002
Oct 1 Cash
Share Capital
(Owners cash investment in Business)

Slide
2-54

J-1

Date

Account Title and Explanation

Ref

2002
Oct Dividend
20
Cash
(Withdrew cash for personal use)

306
101

500
--

-500

Salaries Expense
Cash
(Paid salaries to date)

726
101

4,000
--

-4,000

Cash

101
400

26
31

Slide
2-55

Service Revenue
(Received cash for services
provided)

Debit

J-2

Credit

10,000
--10,000

PIONER ADVETISING AGENCY

Trial Balance, October 31, 2002
Acc.
No.
101
126
130
157
200
201
209
301
306
400
726
729

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2-56

Account Title

Debit

Cash
Advertising
Supplies
Prepaid
Insurance
Office Equipment
Notes Payable
Accounts Payable
Unearned
Revenue
C.R. Byrd, Capital
C.R. Byrd,
Drawing
Service Revenue
Salaries Expense
Rent Expense

$ 15,200
2,500
600
5,000
500
4,000
900

Credit
$ 5,000
2,500
1,200
10,000
10,000
-

Slide
2-57

Answer on
notes page

SO 7 Prepare a trial balance and explain its purposes.

The
The Trial
Trial Balance
Balance

The accounts
come from the
ledger of
Christel
Corporation at
December 31,
2011.

Slide
2-58

Solution on
notes page

Christel Corporation
Trial Balance (in thousands)
December 31, 2011

SO 7

Understanding
Understanding U.S.
U.S. GAAP
GAAP
Key Differences

The Recording Process

Rules for accounting for specific events sometimes differ

across countries. For example, IFRS companies rely less on
historical cost and more on fair value than U.S. companies.
Despite the differences, the double-entry accounting system is
the basis of accounting systems worldwide.
Both the IASB and FASB go beyond the basic definitions
provided in this textbook for the key elements of financial
statements, that is, assets, liabilities, equity, revenues, and
expenses. The more substantive definitions, using the FASB
definitional structure, are provided in the Chapter 1
Understanding U.S. GAAP section.
Slide
2-59

Understanding
Understanding U.S.
U.S. GAAP
GAAP
Key Differences

The Recording Process

A trial balance under GAAP follows the same format as shown

in the textbook.
In the United States, equity is often referred to as either
shareholders equity or stockholders equity, and Share Capital
Ordinary is referred to as Common Stock. The statement of
financial position is often called the balance sheet in the United
States.

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2-60

Understanding
Understanding U.S.
U.S. GAAP
GAAP
Looking to the Future

The Recording Process

The basic recording process shown in this textbook is followed by

companies across the globe. It is unlikely to change in the future.
The definitional structure of assets, liabilities, equity, revenues,
and expenses may change over time as the IASB and FASB
evaluate their overall conceptual framework for establishing
accounting standards.

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2-61

Copyright
Copyright
Copyright 2011 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Copyright Act without the
express written permission of the copyright owner is unlawful.
Request for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. The purchaser
may make back-up copies for his/her own use only and not for
distribution or resale. The Publisher assumes no responsibility for
errors, omissions, or damages, caused by the use of these
programs or from the use of the information contained herein.

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2-62