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The Recording
Process
The
The Account
Account
Account
An Account can be
illustrated in a TAccount form.
Account Name
Debit / Dr.
Credit / Cr.
Debits
Debits and
and Credits
Credits
Debits
Debits and
and Credits
Credits
If Debits are greater than Credits, the account will have a
debit balance.
Account Name
Debit / Dr.
Transaction #1
$10,000
Transaction #3
8,000
Balance
$15,000
Credit / Cr.
$3,00
0
Transaction #2
Debits
Debits and
and Credits
Credits
If Credits are greater than Debits, the account will have a
credit balance.
Account Name
Debit / Dr.
Transaction #1
Balance
$10,000
Credit / Cr.
$3,00
0
8,000
$1,000
Transaction #2
Transaction #3
Debits
Debits and
and Credits
Credits Summary
Summary
Normal
Normal
Balance
Balance
Debit
Debit
Normal
Normal
Balance
Balance
Credit
Credit
Owners Equity
Debit / Dr.
Credit / Cr.
Normal Balance
Chapter
3-25
Debits
Debits and
and Credits
Credits Summary
Summary
Balance Sheet
Asset
Debit
Credit
= Liability
Income Statement
+ Equity
Revenue - Expense
Assets
Assets and
and Liabilities
Liabilities
Assets
Debit / Dr.
Credit / Cr.
Normal Balance
Liabilities Credits
should exceed debits.
Chapter
3-23
Liabilities
Debit / Dr.
Credit / Cr.
Normal Balance
Chapter
3-24
Owners
Owners Equity
Equity
Owners investments and
revenues increase owners
equity (credit).
Owners Equity
Debit / Dr.
Credit / Cr.
Normal Balance
Chapter
3-25
Owners Capital
Debit / Dr.
Chapter
3-25
Owners Drawing
Credit / Cr.
Debit / Dr.
Normal Balance
Normal Balance
Chapter
3-23
Credit / Cr.
Revenue
Revenue and
and Expense
Expense
The purpose of earning revenues
is to benefit the owner(s).
The effect of debits and credits on
revenue accounts is the same as
their effect on Owners Capital.
Expenses have the opposite effect:
expenses decrease owners equity.
Expansion
Expansion of
of the
the Basic
Basic Equation
Equation
Relationship among the assets, liabilities and
owners equity of a business:
Basic
Equation
Assets = Liabilities +
Owners Equity
Illustration 211
Expanded
Basic
Equation
Steps
Steps in
in the
the Recording
Recording Process
Process
Illustration 212
Analyze each
transaction
Enter transaction in a
journal
Transfer journal
information to ledger
accounts
The
The Journal
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
Journalizing
Journalizing
Journalizing - Entering transaction data in the journal.
E2-4 (Facts) Presented below is information related to
Hanshew Real Estate Agency.
Oct.
1
Journalizing
Journalizing
E2-5 (Facts) Journalize the transactions related to Hanshew Real
Estate Agency.
Oct. 1
General Journal
Oct. 1
Cash
Hanshew, capital
(Owners investment)
15,000
15,000
Journalizing
Journalizing
E2-5 (Facts) Journalize the transactions related to Hanshew Real
Estate Agency.
Oct. 3
General Journal
Oct. 3
Office furniture
Accounts payable
(Purchase on account)
1,900
1,900
Journalizing
Journalizing
E2-5 (Facts) Journalize the transactions related to Hanshew Real
Estate Agency.
Oct. 6
General Journal
Oct. 6
Accounts receivable
Service revenue
(Services provided)
3,200
3,200
Journalizing
Journalizing
E2-5 (Facts) Journalize the transactions related to Hanshew Real
Estate Agency.
Oct.
27
General Journal
Oct. 27
Accounts payable
Cash
(Payment on account)
700
700
Journalizing
Journalizing
E2-5 (Facts) Journalize the transactions related to Hanshew Real
Estate Agency.
Oct.
30
General Journal
Oct. 30
Salaries expense
Cash
(Payment for salaries)
2,500
2,500
Journalizing
Journalizing
Simple Entry Two accounts, one debit and one credit.
Compound Entry Three or more accounts.
Example On June 15, H. Burns, purchased
equipment for $15,000 by paying cash of $10,000
and the balance on account (to be paid within 30
days).
General Journal
Jun. 15
Equipment
Cash
Accounts payable
(Purchase equipment)
15,000
10,000
5,000
The
The Ledger
Ledger
A General Ledger contains the entire
group of accounts maintained by a
company.
The General Ledger includes all the asset,
liability, owners equity, revenue and
expense accounts.
Chart
Chart of
of Accounts
Accounts
Accounts and account numbers arranged in sequence in which they
are presented in the financial statements.
Standard
Standard Form
Form of
of Account
Account
T-account form used in accounting textbooks.
In practice, the account forms used in ledgers are
much more structured.
Cash
Date
Oct.
Explanation
1
27
30
Ref.
No. 101
Debit
Credit
15,000
700
2,500
Balance
15,000
14,300
11,800
Posting
Posting
Posting the process of transferring amounts from
the journal to the ledger accounts.
Date
Oct. 1
General
Journal
Account Title
Cash
J1
Ref.
101
Debit
Credit
15,000
Hanshew, Capital
15,000
General
Ledger
Cash
Date
Oct. 1
Explanation
Ref.
J1
15,000
Credit
Balance
15,000
J1
Postin
Postin
g
g
101
300
General Ledger
Cash
Oct. 1
J1
15,000
General Ledger
Hanshew,
capital
Oct. 1
J1
J1
Posting
Posting
140
200
General Ledger
Office Furniture
Oct. 3
J1
General Ledger
Accounts
Payable
Oct. 3
J1
1,900
1,900
J1
Postin
Postin
g
g
112
400
General Ledger
Accounts
Receivable
Oct. 6
J1
3,200
General Ledger
Service Revenue
Oct. 6
J1
3,200
J1
Postin
Postin
g
g
200
101
General Ledger
Cash
Oct. 1
Oct.2
7
J1
J1
15,000
700
General Ledger
Accounts
Payable
Oct. 3
Oct.27
J1
J1
15,000
14,300
1,900
1,200
J1
Postin
Postin
g
g
726
101
General Ledger
Cash
Oct. 1
Oct.2
7
Oct.3
0
J1
J1
J1
15,000
700
2,500
General Ledger
Salaries
Expense
Oct.30
J1
2,500
15,000
14,300
11,800
The
The Trial
Trial Balance
Balance
A list of accounts and
their balances at a
given time.
Purpose is to prove
that debits equal
credits.
The
The Trial
Trial Balance
Balance
Limitations of a Trial
Balance
The
trial balance may balance even when
1.
2.
3.
4.
5.