Journal Ledger and Trial

Recording Business Transactions
Chapter 2
Copyright 2007 Prentice-Hall. All rights reserved
The Accounting Process

Record Transactions in the Journal
Copy (post) to the Ledger
Prepare the Trial Balance

Copyright 2007 Prentice-Hall. All rights reserved 2
Account
Basic summary device Detailed record of increases and decreases in specific assets, liabilities, or owners equity during a period
Ledger
Book or printout holding all the accounts
Accounting Equation
Accounts are grouped in 3 broad categories:
Assets
Liabilities
Equity
All Individual Accounts Combined Make Up the Ledger

Cash Accounts Receivable Ledger Accounts Notes Payable Payable
C. Lapp, Revenues Capital
Chart of Accounts
List of all accounts used by a company along with the account numbers
Objective 2
Apply the rules of debit and credit
Double Entry System

Record dual effects of each transaction Each transaction affects at least two accounts Each transaction is recorded with at least
One debit One credit
Total debits must equal total credits
T-Account
Simple tool for analyzing and determining the balance in a given account
Account Name (Left Side) (Right Side)
Debit
Credit
10
Rules of Debit and Credit

Assets
Debit
Credit
Liabilities
Debit
Credit
Equity
Debit
Credit
11
Rules of Debit and Credit

Owners Equity
Debit
Owners Withdrawals Debit
Credit
+
Debit
Credit
Owners Capital Debit Credit
Expenses Credit
Revenues Debit Credit
12
Expanding the Rules of Debit and Credit

Owners Equity
Owners _ Owners Capital Withdrawals Debit Credit Debit Credit
Revenues Debit
Expenses
Credit Debit
Credit
13
The first and the last are increased with a debit
The middle three Remember: Just askareALICE! increased with credits
Debit + +
A = Assets L = Liabilities I = Income* C = Capital E = Expenses
Credit + + + -
* Really, this is revenues, but r just doesnt fit in!

Normal Balances
Assets
Debit Credit
Liabilities
Debit Credit
Equity
Debit Credit
Normal Balance
Normal Balance
Normal Balance
15
Normal Balances
Owners Equity
Owners Capital
Debit
Owners Withdrawals
Debit Credit
Revenues
Debit Credit
_ Expenses
Debit Credit
Credit
Normal Balance
Normal Balance
Normal Normal Balance Balance
16
Objective 3
Record transactions in the journal
17
Journal
Chronological record of the transactions Consists of at least one debit and one credit
18
Journalizing Transactions
Identify each account affected and its type Determine whether each account is increased or decreased. Use the rules of debit and credit Record transaction in journal, including a brief explanation
Debit side of entry is entered first Total debits should always equal total credits
19
General Journal
Style conventions that must be followed: Year is entered at the top of each page The month is only entered for the first entry on a page unless the month changes in the middle of the page. The month may be abbreviated Enter numerical date for each transaction, even if there are many entries on same date
General Journal
Debits are ALWAYS entered first in an entry. Use the EXACT account title and do not abbreviate Credits are INDENTED and listed second Do not use dollar signs SKIP A LINE between each entry Never split an entry between two pages
21
Exercise 2-5 2Analysis of June 1 transaction: Cash is increasing Cash is an asset account Increase an asset with a debit
GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
Jun 1 Cash
25,000
22
Exercise 2-5 2Analysis of June 1 transaction: M. Brown, Capital is increasing Capital is an owners equity account Increase owners equity with a credit
GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
Jun 1 Cash M. Brown, Capital Owner invested in business

25,000 25,000
23
Exercise 2-5 2Analysis of June 2 transaction: Medical Supplies is increasing Medical Supplies is an asset account Increase an asset with a debit
GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
Jun 2 Medical Supplies
10,000
24
Exercise 2-5 2Analysis of June 2 transaction: Accounts Payable is increasing Accounts Payable is a liability account Increase a liability with a credit
GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
Jun 2 Medical Supplies Accounts Payable Purchased medical supplies

10,000 10,000
25
Exercise 2-5 2Analysis of June 2 transaction: Rent Expense is increasing Rent Expense is an expense account Increase an expense with a debit
GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
Jun 2 Rent Expense
4,000
26
Exercise 2-5 2Analysis of June 2 transaction: Cash is decreasing Cash is an asset account Decrease an asset with a credit
GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
Jun 2 Rent Expense Cash Paid rent for the month

4,000 4,000
27
Exercise 2-5 2Analysis of June 3 transaction: Accounts Receivable is increasing Accounts Receivable is an asset account Increase an asset with a debit
GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
Jun 3 Accounts Receivable
12,000
28
Exercise 2-5 2Analysis of June 3 transaction: Service Revenue is increasing Service Revenue is a revenue account Increase a revenue with a credit
GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
Jun 3 Accounts Receivable Service Revenue Performed services

12,000 12,000
29
Objective 4
Post from the journal to the ledger
30
Posting
Periodically, journal entries are posted to ledger accounts to determine balances in each account Posting copying amounts from the journal to the ledger
31
Exercise 2-9 2Cash Accounts Payable Service Revenue
25,000
Accounts Receivable
M. Brown, Capital
Rent Expense
25,000
GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
Jun 1 Cash Medical Supplies M. Brown, Capital Owner invested in business

25,000 25,000
32
25,000
10,000
GENERAL JOURNAL
DATE
DESCRIPTION
REF
DEBIT
CREDIT
Accounts Receivable
Jun 2 Medical Supplies 25,000 Accounts Payable Purchased medical supplies

Medical Supplies
M. Brown, Capital
10,000
Rent Expense
10,000
10,000
33
25,000 4,000
10,000
Accounts Receivable
M. Brown, Capital
Rent Expense
25,000
GENERAL JOURNAL
DATE DESCRIPTION
REF
4,000
DEBIT CREDIT
Medical Supplies Jun 2 Rent Expense 10,000 Cash
4,000 4,000
34
Paid rent for the month

25,000 4,000
10,000
12,000
Accounts Receivable
M. Brown, Capital
Rent Expense
12,000
DATE DESCRIPTION
25,000
GENERAL JOURNAL
REF
4,000
DEBIT CREDIT
Medical Supplies Receivable Jun 3 Accounts
12,000 12,000
35
10,000
Service Revenue Performed services

25,000 4,000
Bal 21,000
10,000
Bal 10,000
12,000
Bal 12,000
Accounts Receivable
M. Brown, Capital
Rent Expense
12,000
Bal 12,000
25,000
Bal 25,000
4,000
Bal 4,000
Medical Supplies
10,000
Bal 10,000
Flow of Accounting Data

Transaction Occurs
Source Documents Prepared
Transaction Analyzed
Transaction Journalized & Posted

Objective 5
Prepare and use a trial balance
38
Trial Balance
List of all accounts with their balances
39
Exercise 2-9 (part 3) 2Mike Brown, M.D. Trial Balance June 30, 2008 Cash 21,000 Accounts Receivable 12,000 Medical Supplies 10,000 Accounts Payable M. Brown, Capital Service Revenue Rent Expense 4,000 Totals 47,000
10,000 25,000 12,000 47,000

40
Exercise 2-18 2DATE
Aug 1 Cash R. Woodward, Capital
Cash increases. It is an asset. Increase assets with debits. Capital increases. GENERAL JOURNAL Owners equity is REF DESCRIPTION DEBIT increased with a credit.
CREDIT
60,000
60,000
To record investment by owner

Supplies, an asset, increases. Increase Supplies 200 assets with debits. Accounts Payable Accounts Payable 200 increases. It is a Purchased supplies on account liability. Increase liabilities with a credit
DATE
Aug 4 Building Cash
Cash, of these is Both an asset, increasing. assets. accounts are Increase assets with debits. Building is increasing. Revenue accounts are Increase assets with GENERAL JOURNAL increased Cashcredits debits. with is REF DESCRIPTION DEBIT decreasing. Decrease CREDIT assets with credits.
Exercise 2-5 2-
50,000
50,000
Purchased building
6 Cash Service Revenue Performed service

3,000 3,000
42
Exercise 2-18 2DATE
Aug 9 Accounts Payable Cash

Paid on account
Accounts Payable, which is decreasing, is a liability. Decrease liabilities by debiting GENERAL JOURNAL Decrease the them. DESCRIPTION asset, REF Cash, DEBITa with credit.
CREDIT
100
100
17 Accounts Receivable these Both of

accounts are assets. Service Revenue increasing. Building is Increase Performed services assets with debits. Cash is decreasing. Decrease Copyright 2007 Prentice-Hall. credits assets with All rights reserved
2,100 2,100
43
Exercise 2-18 2DATE DESCRIPTION
Both of these accounts are assets. Cash is increasing debit. Accounts Receivable is GENERAL JOURNAL decreasing - credit
REF
DEBIT
CREDIT
Aug 23 Cash Accounts Receivable

Received payment on account
1,200 1,200
44
Both Exercise 2-18these 2- of involve transactions recognizing expenses. GENERAL JOURNAL expenses Since decrease owners REF DESCRIPTION DEBIT equity, and owners Salary Expense 1,200 equity is decreased with a debit, debit Cash expenses. Cash is decreasing credit Paid salaries
DATE
CREDIT
Aug 31
1,200
31 Rent Expense Cash

Paid rent for the month
500 500
45
Aug 1 Aug 6 Aug 23
Cash 60,000 Aug 4 50,000 3,000 Aug 9 100 1,200 Aug 31 1,200 Aug 31 500
Exercise 2-19 2-
Accounts Payable Aug 2 200 Aug 9 100

Bal. 100
R. Woodward, Capital Aug 1 60,000 Take the difference Service Revenue between total debits Aug 6 and total credits to3,000 Aug 17 2,100 determine the balance Bal. 5,100 in each account. If debits are greater than Rent Expense credits, the account Aug 31 a debit balance has 500 and vice versa Salary Expense Aug 31 1,200
46
Bal. 12,400
Accounts Receivable Aug 17 2,100 Aug 23 1,200

Bal. 900
Supplies Aug 2 200
Building Aug 4 50, 000
Exercise 2-19 2Woodward Technology Solutions Trial Balance August 31, 2008 Cash Accounts Receivable Supplies Building Accounts Payable R. Hawk, Capital Service Revenue Salary Expense Rent Expense Totals 12,400 900 200 50,000 100 60,000 5,100 1,200 500 65,200
65,200
47
End of Chapter 2
48

Journal Ledger and Trial

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Journal Ledger and Trial

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Recording Business Transactions

Copyright 2007 Prentice-Hall. All rights reserved

The Accounting Process

Copy (post) to the Ledger

Prepare the Trial Balance

Copyright 2007 Prentice-Hall. All rights reserved

Copyright 2007 Prentice-Hall. All rights reserved

Copyright 2007 Prentice-Hall. All rights reserved

All Individual Accounts Combined Make Up the Ledger

C. Lapp, Revenues Capital

Copyright 2007 Prentice-Hall. All rights reserved

Copyright 2007 Prentice-Hall. All rights reserved

Copyright 2007 Prentice-Hall. All rights reserved

Double Entry System

Total debits must equal total credits

Copyright 2007 Prentice-Hall. All rights reserved

Account Name (Left Side) (Right Side)

Copyright 2007 Prentice-Hall. All rights reserved

Rules of Debit and Credit

Copyright 2007 Prentice-Hall. All rights reserved

Rules of Debit and Credit

Owners Capital Debit Credit

Revenues Debit Credit

Copyright 2007 Prentice-Hall. All rights reserved

Expanding the Rules of Debit and Credit

Copyright 2007 Prentice-Hall. All rights reserved

The first and the last are increased with a debit

The middle three Remember: Just askareALICE! increased with credits

A = Assets L = Liabilities I = Income* C = Capital E = Expenses

* Really, this is revenues, but r just doesnt fit in!

Copyright 2007 Prentice-Hall. All rights reserved

Normal Normal Balance Balance

Copyright 2007 Prentice-Hall. All rights reserved

Copyright 2007 Prentice-Hall. All rights reserved

Copyright 2007 Prentice-Hall. All rights reserved

Copyright 2007 Prentice-Hall. All rights reserved

Copyright 2007 Prentice-Hall. All rights reserved

Copyright 2007 Prentice-Hall. All rights reserved

Jun 1 Cash M. Brown, Capital Owner invested in business

Jun 2 Medical Supplies

Copyright 2007 Prentice-Hall. All rights reserved

Jun 2 Medical Supplies Accounts Payable Purchased medical supplies

Jun 2 Rent Expense

Copyright 2007 Prentice-Hall. All rights reserved

Jun 2 Rent Expense Cash Paid rent for the month

Jun 3 Accounts Receivable

Copyright 2007 Prentice-Hall. All rights reserved

Jun 3 Accounts Receivable Service Revenue Performed services

Copyright 2007 Prentice-Hall. All rights reserved

Copyright 2007 Prentice-Hall. All rights reserved

Exercise 2-9 2Cash Accounts Payable Service Revenue

Jun 1 Cash Medical Supplies M. Brown, Capital Owner invested in business

Exercise 2-9 2Cash Accounts Payable Service Revenue

Jun 2 Medical Supplies 25,000 Accounts Payable Purchased medical supplies

Copyright 2007 Prentice-Hall. All rights reserved

Exercise 2-9 2Cash Accounts Payable Service Revenue

Medical Supplies Jun 2 Rent Expense 10,000 Cash

Paid rent for the month

Exercise 2-9 2Cash Accounts Payable Service Revenue

Medical Supplies Receivable Jun 3 Accounts

Service Revenue Performed services

Exercise 2-9 2Cash Accounts Payable Service Revenue

Flow of Accounting Data