Chapter 2 – The Recording Process
The Account
 is a detailed record of the changes that have occurred for a particular asset,
liability or item of owner’s equity during a period of time

accounts are grouped together in a record called the ledger:
The Ledger

“book of accounts”, the accounts normally are found in the ledger book
o
now a days, this is normally in the format of a computer
listing
Double Entry Bookkeeping

recording the dual effects of the business transaction

each transaction affects at least two accounts
Chart of Accounts
 lists all the accounts (in numerical order) and their accounts numbers
o accounts numbers used as posting reference

structure to account numbering
 (normally account numbers are three or more digits long)
Assets
Liabilities
Owner’s Equity
Revenues
Expenses
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100 – 199
200 – 299
300 – 399
400 – 499
500 – 999
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Chapter 2 – The Recording Process
The T Account


abbreviated form of the ledger account used to help illustrate the effect of a
transaction
debits and credits keep the accounting equation in balance
Increases and Decreases in the Accounts

the type of account determines how increases and decreases are recorded

normal balance of an account is on the side an increase is recorded
Debits/Credits for Assets
Debits - increase
Credits - decrease
ASSETS
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Chapter 2 – The Recording Process
Debits/Credits for Liabilities and Owners’ Equity
Debits – decrease
Credits – increase
OWNER’S EQUITY
LIABILITIES
Owners’ Equity Expanded
Capital
CAPITAL

owner’s claims to the assets of the business

amounts received from owner’s investments recorded directly in the owner’s capital
account

balance equals investments plus net income minus net losses and owner’s
withdrawals


Net Income = Total Revenues exceeding Total Expenses
Net Loss = Total Expenses exceeding Total Revenues
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Chapter 2 – The Recording Process
Revenues
REVENUES
Debits - decrease Revenues
Credits - increase Revenue

Revenues created by delivering goods or services to clients or customers
Expenses and Drawings
Debits - increase
Credits - decrease
EXPENSES
WITHDRAWALS

Expenses use up assets or create liabilities in the course of operating a business

Withdrawals/Drawings are withdrawals of cash or other assets by the owner for
personal use.
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Chapter 2 – The Recording Process
Recording Transactions in the JOURNAL
General Journal

Can be used to record any economic transactions

Process of recording the transaction in the journal is called journalizing
Journalizing Process
Date
1.
Identify transactions from source documents.
2.
Identify the accounts affected by the transactions.
3.
Determine whether each account increases or decreases. Using the rules of
debits and credits, determine whether to debit or credit the accounts.
4.
Enter the transaction in the journal, including a brief description. The
debit side of the entry is always entered first, the credit side last.
Account Name and Description
PR
Debit
Credit
Example:
Record the following transaction in the general journal provided above.
Sept. 1
Nadine Barrett, owner of AIF, invested $30,000 into the business.
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Chapter 2 – The Recording Process
Transferring Information
Posting

process of transferring data from the book of original entry (journal) to the
accounts in the ledger
 each account will have its own ledger card – see below
o balance of ledger card kept after each transaction entered
Account Name:
Date Explanation

PR
Account Number:
Debit
Credit
Balance
T-accounts are often used as a substitute for the ledger card

balance of the account calculated after all transactions have been
posted
Trial Balance

lists of all accounts and their balances

provides a check that debits equal credits

aids in preparation of financial statements

at this point the trial balance is considered to be “unadjusted”
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Chapter 2 – The Recording Process
Errors in a Trial Balance

Unequal column totals indicates at least ONE error
Common Errors:
1.
Omitting or entering account balance in the wrong column of the trial balance.
2.
Transposition error
 digits written in wrong order
o error always divisible by 9
3.
Slide error
 one or more zeroes are added to a number
o errors always divisible by 9
4.
Posting Incorrectly
Examples:
 posting transactions as two debits
 posting only one side of transaction
Note: An equal trial balance only proves that debits posted to accounts equal credits
posted to accounts
Examples of errors that will not cause the trial balance to be out of balance


Prepared by Nadine Barrett – Summer 2019
not posting an entire journal entry
posting one or both sides of the entry to the wrong account
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Chapter 2 – The Recording Process
Example – September transactions for AIF
September 10
Nadine Barrett invests $80,000 into her new business, AIF’s bank account.
September 12
AIF purchases $200 of office supplies on account from Staples.
September 15
AIF pays $750 cash for September’s rent of their current office space.
September 17
AIF invoiced (#101) a customer $1,000 for services provided, invoice due
in 30 days.
September 18
AIF hired a receptionist to start work on September 23.
September 21
AIF received $800 cash from customer for services just completed,
(invoice #102)
September 25
AIF purchased parcel of land for $45,000 cash to house their future office.
The construction of the office is to begin in October.
September 26
AIF purchased a $150 newspaper advertisement to be printed in the
September 29th paper, payment due on October 7.
September 28
AIF paid Staples $200 for the purchase made on September 12.
September 30
AIF paid the receptionist $400 for the previous week’s work.
Requirement #1 -
Record the above noted transactions in the journal provided on the
following page.
Requirement #2 -
Post the transactions from the journal to the ledgers provided.
Requirement #3 -
Prepare a Trial Balance on the pages provided.
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Chapter 2 – The Recording Process
General Journal
Page 1
Date
Sep 10
Sep 12
Account Name and Description
PR
Debit
Credit
Cash
Barrett Capital
101
301
80,000
To record investment by Barret
Office supplies
Account payable
120
205
200
534
101
750
107
402
1,000
80,000
200
To record purchase of office supplies
Sep 15
Rent expense
Cash
750
To record payment of rent for September
Sep 17
Account receivable
Service revenue
1,000
To record service revenue on account (inv#101)
Sep 18
Sep 21
No Entry
800
800
Sep 25
45,000
45,000
Sep 26
150
150
Sep 28
200
200
Sep 30
400
400
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Chapter 2 – The Recording Process
Ledger Cards
Account Name:
Cash
Date
Explanation
PR
Account Number:
101
Debit
Credit
Balance
PR
Account Number:
107
Debit
Credit
Balance
Account Name:
Office Supplies
Date
Explanation
PR
Account Number:
120
Debit
Credit
Balance
Account Name:
Land
Date
Explanation
PR
Account Number:
130
Debit
Credit
Balance
Account Name:
Accounts Payable
Date
Explanation
PR
Account Number:
205
Debit
Credit
Balance
Account Name:
Accounts Receivable
Date
Explanation
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Chapter 2 – The Recording Process
Account Name:
Barrett, capital
Date
Explanation
PR
Account Number:
301
Debit
Credit
Balance
Account Name:
Service Revenue
Date
Explanation
PR
Account Number:
402
Debit
Credit
Balance
Account Name:
Advertising Expense
Date
Explanation
PR
Account Number:
509
Debit
Credit
Balance
Account Name:
Rent Expense
Date
Explanation
PR
Account Number:
534
Debit
Credit
Balance
Account Name:
Salary Expense
Date
Explanation
PR
Account Number:
546
Debit
Credit
Balance
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Chapter 2 – The Recording Process
AIF Enterprises
Trial Balance
September 30, 201X
Debit
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Credit
12