CHAPTER
2
The Recording Process
Chapter Preview
In Chapter I , we analyzed business transactions in te rm s of th e accounting eq uation. and we
presented th e cumulative effec ts o r th ese transactions in tabular form. Imagine a compan y like
Bank of Taiwan (TWN) (as in the following Feature Story) using the same tabular format as
Softhyte to keep track o f its transactions. In a single day. Bank of Taiwan e ngages in thou sa nd s of
business transactions . To record each tran saction this way would he impractical. e xpe ns ive . and
unnecessa ry. In stead, companies use a set o f procedures and reco rd s to kee p track of transaction
data more easily. This chapte r introduces and illustrates th ese basic procedures and record s .
Feature Story
• Do yo u w ait until )'llur 1 111.
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Le t L·arL1 ' " Lk niL·d lx·fprt'
checking the statu s ur \' llllr I'Utl I ·)
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Accidents Happen
Huw organi zed arc you financiall y'.' Tah:e a short qui ; .. A nswe r
rc.1 or no to each qu es tion:
• Due s yuur vvallet cuntaill Sll man y dehit L·a rd rcL·e ipt s th a t
yu u\·c hL'L'n declared a walh:ing lire ha;a rd ''
• Was Yao M in g playin g hi g h sc huul ha skL·thall the last tilllL'
you ha lanced yu m hank accuutl t''
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If yuu thin\.: it is ha rd to kee 11 tr·t . 1 1. 1
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• L" u t lL' man\ tr~ll1 -. aL· tiun .., that
mah:c up \D urltlc . ima!!inc \\h· t . . 1. , . . .
cl 1t "' 1"-L' tur a m;qpr L'llll1J1<In)
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2 1
2 -2
CHAPTER 2
T h e Rec ord in g P r ocess
relje<, on a ~ o p hi ~t i cate d acc o u ntin g i nform at i on ~y..,te m . T h at· ..,
not to ..,ay that B OT o r an y o th er co mpan y i '> erro r- f ree . I n fac t.
if you'vt...: eve r o verdraw n y our h an k account h cc au ..,e y ou fai led
to track y ou r dt...:hi t card p u rch a~e .., prope rl y . y o u may tak e ~om e
comfort from om; ac cou n tan t·.., m i ..,take at Fidelity Jnvestmcnb
(U S A) ., o ne o f th t...: l arge~t mutu al fu nd i n vc ~ t m c nt f i r m ~ in th e
world . Tht...: ac c ou ntan t fail ed to i nc l ude a m i nu ~ ~ i g n w hi le do i ng
a calcu lation , m a ki n g w h at wa..., ac tu all y a S 1.3 h il l io n Jo .,.., loo k
like a C::, 1.3 h i l li o n- yc <.,, hillinn-gain ' Fort un ately . li kc m o ..,t
accou n t in g er ror<.,, it w a.<, detected hc fo rc any real h ar m wa ~ do ne .
:\o o ne cxpccl'- tha i 1-.tnd of llll"l;tl-.c
;II
a Ullllp;IIJ~ lil-.c
F id e l i ty. w hi ch ha.., ... ophi-.ticatcd co l liiHIIL'f ..,~ -.tc tn" ;11H i1 o p in ve.., t m c nl m an ager-.. I n L'\plaining the tni..,lal--c Ill "han: IHl ldcr" .
a .., p ok c.., p c r -.on "ro tc . ··some pc,,plc ha\c ;t..,l-.ed IHl\\ . in thi~
age o f tec hn o l og) . -.uch
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mi-.tal-.e undd he Jll;td e. \ \ .h i k lllally
of ou r procc..,-.c-. arc computcri ; ul. ;tcco unt i n_:! ") " lell l" :trc
c omple x and di cl;tlc th ai -.omc -.tcp-. lllll " l he h andled nl;tnu all y hy our m an age r -. an d accnu ni ;J Jll " . :llld p eo ple C lll rn a"L'
111 i ..,, ak e-. ."·
Ch a pter Outline
L EARNIN G OBJECTIVES
LO 1 Describe how accounts
·Th e acco u nt
'
de b its, and credits are used to
record b usin ess transacti o ns.
·D ebi t s a nd c redi t s
LO 2 In d icate how a j o urna l is used
in th e recording p ro cess.
·Th e reco rdin g proc ess
LO 3 Exp lain ho w a led ge r an d
·Th e led ge r
posting he lp in the reco rding
process .
·Postin g
DO IT!
1
Norma l Accou nt Ba lances
DO IT!
2
Recordin g Busin ess
Act ivi t ies
DO IT!
3
Postin g
DO IT!
4
Trial Balance
· Summ ary o f d ebit/ c red it rul es
·Th e journ al
·Chart of accounts
·Th e recordin g proce ss illu strated
·Summary illu stration of journalizin g
and posting
LO 4 Pre pare a tria l balance.
• Limitation s of a trial balance
• Locating errors
·Currency signs and und erlining
Go to the Review and Practice section at the end of the chapter for a review of key concepts
and practice applications with solutions.
Accounts, Debits, and Cred its
LEARNING OBJECTIVE 1
Describe how accounts , debits, and credits are used to record bu sin ess transa ction s.
The Account
A·. nh .l
account
!! record 11f in...
. . ~ dnc
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I · u. .ca~
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.. L· ·t.., '>L'I
_ i ~ an
, .· indi v idu
. al
. acc uuntin
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1 rt y. 1>1 !lWil el " eljLllt y ll c m . .f- or c xalll i11L' · ·So ft hy t L, ( II1c, Lo
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·r I .I
'v\ ou ld ha\c \ Cp ar atc acc o unt '. l!l r Ca .., h · A cc () LJill " I>
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CUl lllll " Pa y ~ thlc . S L' J"\ IL'L'
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Accou nts. Debi ts. and Credits
Ren:nue. Sa lari es and Wages Expe nse . and so o n. (. lo tc that \\·hen e Ye r \\·e arc referring to a
spec ifi c acco unt. \\ ·e capitali ze the nam e.)
In its s impl e st form. an account consis ts of tim~ ~:.' parts: ( I ) a title. (2) a le ft l)r debit s ide .
and (3) a right o r credit s ick. Becau ~e the fo rm at of an acnnmt rese mble s the letter T . \\·e refer
to it as a T -account. Illustration 2 . 1 shm\·s the bas iL· form of an account.
ILLUSTRATION 2.1
Title of Account
Left or debit side
Basic form of account
Right or credit side
We usc thi s form often through ou t thi s book to explain basic accounting re lati o nships.
Debits and Credits
The te rm debit indicat es th e le ft s ide of an account. and uedit indicates th e right side . They
are co mmonl y abbrev iated as 01". for debit and Cr. for credit. They do not m ea n innease or
decrease . as is commonly thought. We use the te rm s debit and credit repe at ed ly in the recording proces s to descr ibe where e ntri es are mad e in accounts. For exa mpl e . the act of ent e rin g
an amount on th e left side of an account is called debiting the account. Mak ing an e ntry o n
the right side is c1·editing th e account.
When comparing th e total s of the two sid es. an account sho\YS a debit balance if the
total ol.the debit amounts excee ds the credits. A n acco unt shm\·s a credit balance if th e credit
amounts exceed the debits. Note the position of th e debit side and credit side in lllustration 2. 1.
The procedure of record ing debits and credit s in an account is shown in lllus tJ·ation 2 . 2
for th e transactions affecting th e Cas h acc o unt of Softbyte . The data are take n from the Cash
column of the tabular summary in Illu stration 1. 8.
ILLUSTRATION 2.2
Tabular Summary
Account Form
Cash
€15,000
-7,000
1,200
1,500
- 1,700
- 250
600
-1 ,300
€ 8,050
(Debits)
Balance
(Debit)
Cash
15,000
(Credits)
1,200
1,500
600
8,050
7,000
1,700
250
1,300
Every positive it e m in the tabular summary represent s a receipt of cash. Eve ry negative
amount represe nt s a payment of cash. Notice that in the account fonn . we •·eco•·d the ine~·eases
in cash as debits and the deueases in cash as c•·edits. For exa mple . the € 15 .000 receipt of cash
(in blue) is debi ted to Cash. and the - €7.000 paymentuf L·as h (in red) is LTL'dited tu Cash .
Having incre ases on une .s ide a nd decrea ses un the other redu L·es rL'L"llrd in g e rrurs <ll ld lll'lps
in determining th e totals of eac h s ide uf the acL·uunt as vv·L·II as thL' ctL'L"OUilt hctLllll'e . ThL' hal<ll1l'L'
is dete rmined hy netting the two s1des (s ubtrac tin g one amount from th e other) . ThL' ctL"L"Ullllt h<li a 1Ke. a deb it of €~.0.'\ 0. ind 1ca te s th at Surtbyte had € ~.0.'\ () nH lrL' 1nLTL'aSl''- than d e nL'~tse" 111 L·,1sh .
In otlll'r wurd;, . Sort byte '> tarlL'd \.\ 1th a halallL"L' uf IL'm and lhl\\ ha" €~. !))!1 111 1t s C·as h aL·L·\ 1unt
Tabular summary and account
form for Softbyte"s Cash
account
2 -3
4
C HAPTEP 2
TheR e co r d i ngP r occss
Debit and Credit Procedure
HE LP F LL HI .V f
Rules for acc ounti n g f o r <.,pt: «.:ific cv~:nh <; ornet i rn t:.<., d if f'~: r
aL'TOS" count. rit:'> . fh: '->p i t ~.: the
diff'crenct:<.,, the d o uh l e- en t ry
accounting " Y"tcm J.<., th e
ba.'>i.'> of acc ounting '>Y'>lt:m'>
world wide .
I n Ch a pt e r I . y o u lea rn ed th e e !'k c t of
<t
tr;tJJ <.,;tction on the h;t-.,ic al·unt llllll 12 equa ti <•n. I ~L' fllL'Ill ·
h e r th a t eac h tran .., act i o n fl1Lf <., t ;tlfc c t t \~,, or m ore ;~ccount' to 1-.eepthe h;t-.,iL· ;tL'c<H flllfll 12 L·qu;t tion in h a l a n ce . In o th e r W() rd " . fo r c<tc h tr;n J.., ac ti on . debit... lllll ' t equ;tl nedih . Th e equ;t lit:
()f d eh i t .., a nd c re d i h p ro v id e.., th e h;t" i " for th e doul>le - cntl·.' " ·' <.,lcm '' ' rn·n rdi11 12 tr;lfl -.,; tL·tilltl'
( <.,ee
Helpful H int ).
Lnd e r th e douhlc - e n tr y ..,y.., te n J.th e du a l (t\\o - .., idnl l e ffect <lf. c;tl· h tr ;lfl-.,; tc ti<lll i -., reL·PrLkd
i n a pprop ri a t e acc <>u nt <., . Thi .., "Y" te m pro \' i ([c ., ;t l<l 12 ica lm cthod !'nr reL·<• rdin 12 tr; tn-.,;tL· ti<lll ' ;tnd
a [.,,, h e l p .., e n sure t h e accu r <tcy o f th e rec ()rded
;~nwt fllt '-
a-. \\e ll ;t-. th e d e tec tion
,,r e rrllr '
If
e v e r y t r an .., ac tion i .., r ec o rd e d w ith equ ;tl debit ' ;tJHI cred it .... . th e -., ulll ,,f ;ti l t he Lkhi t ' to t he
a ccounh mu st e q u u l th e <., LJ Jll o f a ll th e cre di t....
T he do u ble -e n tr y ... y ... te lll fo r d c tc r m i n in g t h e eq u ;tlit )
or th e acuH tlltin 12
equ ;tt l tl ll i-., il lli Lh
more e ffi c i e nt t han th e plu ..,/ lllinu -. pn1cc d u re u -. e d in Chapter I . Th e !'n il '''' i11 12 di -.,L' l' " ' tlll
illu <.,t r a tc .., d e h it a n d cred it p roc e du re-. in t h e douhlc -c n t r ) -.y-. tc nl.
Dr./Cr. Procedures for Assets and Liabilities
I n l i Ju .., tru ti o n
2.2 fo r S o fth y te. in crc< t'- C'- in C;t-. h - ;tn ;t..,-. c t- ;tre e n te red 011 th e IL'I't .., id e . ;tllll
d ecrea ses in Cu .., h ur e e nt e r e d on th e ri 12 ht -. id e. '0/ e 1-; n o\\ th <t t both -., id e-. o f th e ha .., ic l· qu:ttion
( As.,e t s = Li a biliti e s + O w n e r· .., Lquit ; ) mu -. t h e equal. It th e rcf'o re !'u llm\<, th <tt incre ;t<, e<, ;tnd
dec r eu se.., in li a biliti e s h <tv e t o h e r ec< >rd ed opposite r.-om in c re a<,e<, a nd deLTl'< t"e" in ;t <,<, L't ~.
T h u s. i ncrea se.<., in Ji a hiliti c-. ar c e nt ere d on th e ri !.! ht o r credit ... id e . ;tnd d en e<t "e" in liahiliti e..,
ar c en tered o n th e left o r d ebit .., id e . Th e cfkct ; th a t d e hi h <tnd credit " h;t\ e on a..,.., et .., ;tnd
li a biliti e s ar c .., u mmari /e d in Illustrat ion 2 .J .
.
.
'l ILLUSTRATION
2.3"'
~
-
Dehit and cre dit effects- a ssets
and liabilitie s
Debits
Credits
ln c n.: a<,t: a'> <,Cl '>
D cc rca .,c li ahiliti c'>
Dccrc a.,c a.,.,ch
lncrca.,c liahiliti c.,
A sset accounts normally show debit balances. That i s. debit s to a spccilic a~ s ct account
"> h o uld ex ceed credit s to that account. Lil-; ew i se. liability accounts nonnally show
cn.~dit
balances . That i s. credit s to a liability account should e xc eed debit s to that account. The
normal balan c e of an account i s on the side w h e re an incre a se in the account is rcconkd.
Illust r ation 2 .4 show s th e normal balance s for assets and liabilitie s.
[.ILLUSTRATION 2.4
-'ormal halances - a ssets and
1iahi I ities
Assets
Debit fo r Cre dit fo r
increase
d e crease
Normal
balance
l
l
Liabilities
D e bit for Credit for
d ecrease Increase
Normal
balance
Kno w in g th e norm a l balanc e in an account m ay help y ou trace errors. For cx ampk. a
c r e dit b a lan ce In an a sse t account such as Land or a debit bal a nce in a liabilit y account ~uch
<~'> S<tl a n cs Lt nd W ages Payable u su a lly indi c at es an error. Oc c a ~ ionall y . thou g h. an ahnurn1al
h <tlan ce m ay h e co rrec t . Th e C a sh ac count. for ex ample . w ill ha ve a c redit balanc e w hen a
c ompan y h a..., o ve rdra w n it s hank balanc e h y ~ p e ndin g more than it ha s in it s ac c ount.
Dr. / Cr. Procedures for Ow n e r 's Equity
\-.,C
h a pt e r I tnd1 ca t c d . ow ne r ·" in vc -.tnJ Cilh· '·1nd r"'- V''-' IJLI'"
- y. () w ne i-· "
_
'- ·' IIl l' t''"l
'-' ·'' •''- (l""'' ll CI-· \ equtt
d i LlY\ Ill !!'- ;llld e\ p e il '-C' d ClT Ca ... e () Wil e r ' " equit y C olllpa ni e., k ee p acc ount<, for eac h ur thL' " L'
t\ ! 1~· -., "' tr ;lll -.,< lL·ti< llh
Accounts . Debits . nd Cre its
Owner's Capital.
lnYc stmcnt s by 0\\·ncrs arc credited to the 0 \\·ncr· s Ca pit a l account.
C redit s in c rease thi s acc o unt. and debit s decrease it. \\.hen an 0\\·ncr im·cs ts cts h in the'
business . th e c o mpany debit s (increase s) C as h and credit s (increases) 0 \\·ncr· s Cap it a l. \\" hen
the O\\"llcr· s inYestmcnt in the bu s ine ss is reduc ed . 0 \\·ncr·s C apital is debited (ckcrc a scd ).
Illustration 2.5 shO\\"S the rules
debit and cre dit
the 0\\ner's C apital ac c o un t.
or
rnr
Debits
Credits
ILLUSTRATION 2.5
Debit and credit t'tft•ctsOwner's C apital
We can d iagram the no rmal balance in 0\\·ncr· s C apital as shmn1 in Ill ustration 2.6.
ILLUSTRATION 2.6
Owner's Capital
Debit fnr
C n:dit for
d e crea ~e
1ncre ~ 1 ~e
1\ormal
balance
t
:\ormal balance-Owner's
Capital
Ow ner's Drawi ngs. An owner may \\ ithdra\\ cash or other assets for personal usc . \\"ithdrawal s could be de bit ed directl y to Owner's Capital to indicate a decre as e in O\\ ncr's equit y.
Howe ver. it is prckrabk to usc a separate account. L·alkd 0\Yncr·s Ora\\ in gs. Thi s separate
account makes it e asier to determin e total \\·ithdra\\·als for each accounting peri od. 0 \\ner·s
Dravving s is incre ased by debit s and decre ased by credits . formall y. th e dra\\·ing s account \\·ill
have a de bit balance.
lll ustt·ation 2.7 shows the rule s of de bit and credit fo r the 0\\·ner·s Dra\\ings ~ll'count.
Debits
Credits
Increase Own er' s Draw ings
Decrease Owner· s Draw ing s
ILLUSTRATION 2. 7
Debit and credit effectsOwner·s Drawinos
"'
We ca n diagram the normal balance as s hown in Ill ustra tion 2.8.
Ownet·'s Drawings
Debit for
increase
C redit ror
decrease
ILLUSTRATION 2.8
1\onnal balancL'-Owner·s
Drawings
Normal
balance
The Owner's Drawings account deneases ownet·'s equity. It is not an income statement account like •·evenues and expenses.
Revenues and Expenses.
The purpose of e arnin g re venues is to benefit the uwncr( -.)
of thL' busine ss. When a company recog.nite s reve nue-. . owner·" equit y illLTl' che -.. There fore. the eH'ect of debits and ct·edits on •·evenue accounts is the same as their effect on
Owner's Capital. That is . re venu e account s arc inne ascd by crcdih and dccrca -. cd b y debit"
HE I.I'IT I. Ill !\' T
('-e e Helpful Hint).
Ex pen se s ha ve the oppos it e c fkct. Ex pe nses decre a-. c ov.-ncr·s L'quit y. Since e x pe n ses
dc LTCase net incom e and revenues increase it. it is lug iL·al that th e innL' Ll '- L' and d e crc a"e " id es
llf ex pense <.ll'Ullllll s s hould he th e (lppos it e of revenu e acc ount '- . Thu '- . C'< IK' nse ac c ount " arc
irK-rea"ed hy de hit " a nd denc ascd hy ned it " Illu stration 2 .'J -. hm\-. th e ruk -. llf Lkhits and
LTL'dit ~ fur rL'\ e11ll l''- a nd e \ ]1Cll '-.l'S
Bl'l'ause l'l'H'IIU l'S itHTt'aSl'
O\\ lll't··s L'quit~· . a n.'H'IIIIl'
an:ount has the same dehit /
LTedit ntiL's as thl' (hHIL'r·~
Capital accou111. Expt•nst•s
hm t' llw opposite dft•cl.
2-5
2 -6
CHAPT E R 2
Th eRe co rdin g Proces s
l iLLUSTRATION 2.9
Deb it a nd c re dit effectsreve nues an d ex p enses
D e hits
Cre dit.'>
Dcc n:a!-.c n.:,·c nu c "
I nc n.:a '> c ex pc n'> e '>
l n c re~~'>e rc\ e ll liL"'Decre;!'>e e xpe n"e'
C red it s to n .:ve nu c acco unt s sho ul d ex cee d d c hit '> . D ch i t'> to c x rc n ..,c ;tcu lll lll " -, h(l uld L'\l"L'L'd
c red i ts. Thu s. re ve nu e acco unts no r ma ll y sho w c redi t h;tl ance .., . ~tnd c x r c n ..,c ;tL"L"l ll tll h lllli" Jll ;tll:
sh ow de bit b a l ance s. lllustr;.~tion 2 . 10 sho w s the norm a l h ala nce .., fo r rc \ c nu c .., :llld L'\ j1L' Il "L''-.
Re venues
l iLLUSTRATION 2.10
Dc hit fo r
dcc rca!-.c
:'-lcwma l ba la n ces- revenu es
an d expenses
E x p e nscs
C re d it for
in crca"c
C re dit f() r
d ec rc';!'>c
Norm<o~l
Normal
halancc
hahwcc
Investor Insight
Brother Elephants
Keeping Score
Th e Brother Elephants (TW N ) ha!-.c ha ll !ca m pro ba bl y ha !-. th c :-.c m a jo r rc ,·c nu c and c xpc n;, c ;tcu lllltt ;,:
Re venues
Expenses
Ac.l m i;,s io ns (ti cke t sa le s )
C on cc s;, io n;,
Tc lcv i:-. in n a nJ radi o
Advc rti ;, in g
Pl aye rs· sa la ri c :-.
1\dmini stra ti vc.: ;,a la ri c :-.
T ravc l
Stadi um mai n t~..:n a n cc
Do you think that the Manchester United (GBR) foothall (socce•·J cluh would he likcly to ha\l' the
same major re venue and ex pense accounts as B1·other Elephants'? (Go to the hook's companion website for this a ns wer and additional questions.)
'VI and y Che ng/AFP/G ett y I m ages
Summary of Debit/Credit Rules
HELPFUL HINT
Yo u m ay want to bookmark
Illust ra t ion 2. 11. You probably will refer to it often.
:ILLUSTRATION 2.11
Illustration 2.11 sho ws a s umm a r y o f the d e bit/cre dit rul e s a nd e ffe ct s on each ty pe or
acco unt. Study thi s di ag ra m c are fully. It will he lp y o u unde rstand th e fundamental s or the
d o ubl e-e ntry syste m (see He lpful H int) .
Summary of d e bit/credit rules
Basic
Equation
Asset s
= Liabi lit ies
+
Expanded
!Equation
Asse ts
Liabilities
+
Debit I Credit
!Effects
~
-
Owner's Equity
Owner's
C apital
T T
+
+
Owner' s
Drawings
~
-
+
Revenues
T
+
Expenses
~
-
The Jourr a l
DO IT! 1
I
Normal Account Balances
A CT IO~ P LA~
Juli e Loeng ha ~ ju~t re nt ed ~pace in a shopping mall. In thi~ s pace. she ,,·ill open a hair sa lo n to h •
called .. Hair It ~s.·· A friend has ad, · i ~ed Juli e to se t up a clnubk-entry set of ~IL'L'tlunting reL·nrd s in
,,·hich to record all o f her bu s in es~ tran sact ions.
Id e ntify the state me nt of tinancial position accou nt s tlut Julie ,,·ill likely need tu reco rd the
tran sac ti o ns needed to ope n her bu s iness. In d ic ate w hether the norm a l halanL·e of each accuunt is a
debit o r a c red it.
Solu t ion
Julie \Hlu ld likel y need the following accounts in ,,·hi c h to ren1rd the tran sac t in ns IlL'CL'ssary to read '
her hair sal on fo r opening day :
Cas h (debit balance)
Equipm e nt (debit
If she bo rW\\·s m u ney:
(crL·dit balan ce)
bal ~lll L· e )
~otes
Payabk
• Dcr crmint• the type~ of
accounts n e-e ded. Julit• wi ll
n e-t:'d asst't account~ for
t:'ac h dilfc re m typ e of as,, ct
she inYesb in t.he busint•.ss
a nd liabiliry alTounr~ fo r
any debts she in cun- .
• l -nd crs tand the type~ of
owner's cq uir~ acnmnt~.
Only Owner's Capiral
''ill be n e·t•dt'-d when Julie
begins the bu sint\'.!'- Other
owner's t•quity ac coun t~
"ill bt• n et•dt•d latt-r.
0\\·ner·s Cap ital (credit halarK L' )
Supplies (debit balance)
Acco unt s Payable (credit balance )
Re lated exercise· material: llE2.1. llE2.2. DO IT! 2.1. E2.1. E2.2. and E2A.
The Journal
LEARNING OBJECTIVE 2
Indicate how a journal is used in the recording process.
ANALYZE
Journalize the
transactions
POST
TRIAL
ADJUSTING
BALANCE
ENTRIES
ADJUSTED
TRIAL
BALANCE
FI NAN CIAL
CLOS IN G
POST-C LOS ING
STATE M EN TS
EN T RI ES
TRIAL BALAN CE
The Recording Process
Although it is poss ible to enter tran saction information direc tly into th e accounts. few businesses do so. Practically eve ry business use s the basic steps shown in Illustration 2 . 12 in th e
recordin g process (an integ ral part of th e accounting cycle):
I. Analyze eac h transaction in te rm s of its e ffect on th e accounts.
2. Enter the transaction information in a j o urnal.
3. Transfer the journal information to th e appropriat e accounts in the le dge r.
ILLUSTRATION 2.12
The •·ecm·ding pmeess
The Recording Process
I . Analyze transaction
2. Enter transa ction in journal
3 . Transfer jour n a l info r m a tion
to ledge r accounts
2-7
-8
C HAPTE R 2
Th e Re c o rdin g Pr oc ess
E T HIC S :'\OTE
O uts o u r c in ~
Inte rn a t ional
Services , I , I ,C wa s a ccu<.,ed
of '> uh rn i tti n~ fr a udul e nt
sto r e c oupon s t o co rn pan i e_.,
fo r n: irnhur'> cmc nt of <--1'>
mu c h a s ~ 25 0 mi lli o n. Lse of
p r ope r hu si nc '> s d ocum e nt<,
reduce '> the like li h ood of
fr audu lent acti vity.
Th e '> tep '> in th e rcco rdin t! procc <.,'> occur rc p c:t tcd l: h n : E thics :\ oll' l. In Ch :tpiL-r I_ 11c
iliu '> tr<JtC d th e fir'>! '> te p . th e an<.ti y '> i<., of tran .., a c tion " . ;tnd \\ ill g i1·c furth e r C\d lll j)k" in thi --. ;t tlll
1<-J tcr cha pt e r '> . Th e o th e r tw o ...rep" in th e rc u> rdin g pmu: .., .., arc c\ pb in c d in th e ll L'\ l --.cc t il> tl .., _
The Journa
Com p a nie '> init ia ll y rec ord tra n -. ac tion '> in c hronol o g ical orde r (t h e o rucr in " hi l·h the: oc c ur ).
Thu '> . th e journal i'> rek rn.: d to a '> th e hoo k of ori g in a l e ntr y. Fo r c :~ c h tLtn ..,;tc lil>n . th e _jl>um :tl
'> ho w'> th e dchi t an d c re dit e ffect '> on -. p c c ifi c acun tnl '> .
Compani c'> ma y U'> e v a riou -. k ind '> o r journ a l.... h ut c\L' r) co nlp :t ny h:~ ... th e llH >"l h ;t'-. IL'
fo r m ofjourna l. <.t general journal. T y pi ca ll y. :1 gc nc r:tl _joum a l h:t '-> " P<tcc --. r1>r d :~ t c--. . :tn·ount
title '> anu e x p lanat io n -. . re ferenc e -. . anu [\-\'()amount c olumn -. . S ec th e rorlll <ll o r th e _JOUrn :tl in
Illu .., tration 2.\ l . Whc !U '\ 'c r \ t'l' u se !lw !cnn "juunwl" in !l1i.1 !c.r! l ){)u/.:. 11'1 ' 11 1< ' 1111 !Ill' .~ l ' lll ' l"lil
jounw l u nl e ss
\\ 'l'
Sfh'f·ij~\- u!l!cnt ·i sc .
Th e _journ a l mak e-. '> e vc ral -. ig nitic a nt co ntribution -. to the reco ruin g pn>cC'-. '-. :
1. It Ji -.c lo -.e 'o in on e plac e th e complete efl"ects or a tJ·ansaction.
2. It pro v iu c'> a chronological record of tran -.:tct ion -.
3. It h e lp '> to prevent or locate errors h ecau -.e the d c hit <tnu credit <lllH>unt -. lor each en tr y
ca n h e ca-. il y compared.
Journalizing
E nterin g tran ... action data in the _journal i-. kno w n a -. journalizing. C ompanic -. make se p:tr<ttc
JOU rn a l cn tri c-. for e ach tran-.a ction. !\ co nlpletc entr y co n -. i-. h or ( I ) the date or th e tr:tll S: ll'tion. ( 2) the account -. and amount -. to h e dchit c d and credit e d . and (ll a hrid e x pl<tnation l>r
the tra n '>a ction.
lllu '> tra tion 2.1 3 -. ho ws the techniqu e or journali z ing . u s ing the lirs t tw u tran -. actiuns ()r
Sof'thy tc . Recall that on Septc:m her I . Ra y Nea l in vc-.tcd € 15.000 cash in the bu s in ess . ;tnd
Softhy tc purcha'>cd computer equipment I'm € 7.000 cash. The number .II indi ca te -, th :t t these
t w o c ntri e-. arc record ed on the fir-.t page or the _journal. lllust1·ation 2. 13 shows th e s lalllbrd
fo rm o fjournal entries for the se t wo tran sac tion -.. (The ho xcd numbers co rrespond to e x planati o n s in the li s t helow the illustration. J
I
•
,ILLUSTRATION 2.13
GENERALJOURNAL
Jl
T echniqu e of journalizing
Account Titles and Explanation
Date
Ref.
Debit
Credit
!Kl
2020
Se pt.
I 5 ,000
ITJ
I 5.000
Owner's Capita l
(Ow ne r' s in vestme nt of cash in business)
Equipm e nt
Cash
(Purchase of e quipme nt fo r cash)
7.000
7.000
[I] The dat e or the tran s action is entered in the Date column.
rn
The d e bit account title (that is . the account to he debited) is entered lirst at the ex treme
left margin of the column h eaded "Accoun t Titles and Exp lanation." and th e amount of
the dehit is recorded in the Debit column.
The credit accuunt title (that is. the acc ount to he credited ) is indented and entered 011 the
ne x t lin e in the column headed " A ccount Title\ and Ex planatiun." and the :tnH>Uill or tilt:
cre dit is recorded in th e C rc u1t cu lumn .
A bri e f ex planation of th e tran sa ction a11 I1cars· on th e lin e hclow tl1•·.... l'l'"ll.lt
.
....
<Iecount t 1' tl LA s 11ace 1s ldt hetwec n journal entri es . The hl<tnk '> j1'1l'e "'J1'tl·· 1t··' 1·11 ll.1Yll
· 1ua 1 1ourn
·
1
<1
e ntnc s and mak es th e e nllre JOUrnal ea-.icr to read.
·
_
:
_
•
L
·' ' -
L
"
' - ·'
The co lumn titled Rd. ( w hi c h s tand -. for Rde rencel i-, le ft hl a nk w hen thcjournal e ntr y 1--.
lllad e . Th t-, l' l> lu mn I'> u . . c d lat e r w he n th e _Jl>Urn <tl e 111r1 es arc tran s krre u to the indi v idu :tl
dl l' ! >U Ill \ _
The Jo 1rnal
2-9
It is important to use correct and specific account titles in journalizing. Erroncou~
account titles lead to incorrect financial sta tement s. Hm\c\·cr. so me flexibility exi~b initially
in selecting account title s. The main c riterion is that each titk must appropriately de~cribc
th e co nt e nt o f the account. Once a compan y c hooses the spccit ic title to usc. it shouiJ rL'Cl1rU
under that account title all later tran sac tion~ inYoh · in~ the account. I n ho/1/(' ll ·ork Jlrohlcm s.
\DII should use .\}lec i(ic occounr rirles ,,·hen rhn· ure gi 1·en. \:.. ·hen account title~ :lre m1t
given . you may select account title s that identify the nature and content or each ~IL'cnunt. T he
account title s used in journali z ing should not contain e xplanation s such as Cas h Paid or Ca~h
Received.
Simple and Compound Entries
Some entries in vo ln: onl y two accounts. one debit and one credit. (Sec. for example. the
entries in Illustration 2.13.) This ty pe or entr y is called a si mple l'Htry. Sl1 111e tr atbactions. how eve r. require more than t\H) aL·counts in _iournali z in~ ..-\n L'ntry that rL'quirc~
three or more accounts is a compound en tr y. To illu s trate. assume that on July I. Butler
Shipping purchases a delivery truck costing £1-LOOO. It pays UUHlO cas h nm\ and a~rees
to pay th e re maining £6.000 on account (to be paid later). Illustration 2 . 1-t s iW\\ s the
compound e ntr y.
GENERALJOURNAL
Date
2020
Jul y I
Ref.
Account Titles and Explanation
ILLUSTRATION 2.14
Jl
Compound journal e ntry
C redit
Debit
1-l-.000
Equipmen t
Cash
Accounts Payable
(Purchase d truck for cash with balance
o n account)
8.000
6.000
In a compound e ntry. the standard format requires that all debits he list ed before the credits.
l
Accounting Across the Organization
Hain Celestial Group
It Starts with the Transaction
Reco rding financial tran s actions in a company's records should be straightforward. lf a cumpany det e rmines that a tran sac tion in vo lves reve nue . it record s
reve nue. lf it has an expense. then it reco rds an
ex pense . Howeve r. so metimes this is difficult to do.
For exa mple. for more than a year. Hain Celestial
Group (USA) (an organic food company) did not
pro v ide income informatiun to in vcs turs and regula tors. The reaso n gi ven- th e organic food company
discove red revenue irreg ulariti es and said it cuuld
Ke ith Ho111an/
not release financial results until it d e termined when
Shulln, tuck
and ho w tu recurd re ve nue for certain transactiun ~.
Vv" hen Hain mi ssed four deadlines for reporting earnings inl\lrma titln. the fuud company su ffered a .~-1'1, drop in its s hare price . As one
anal)~~ noted. it is hard to fathotn w hy a seemingl y s imple re\ 'L'Jlllc'
rL·cognition iss ue took une year to rL· , uiYe.
ln otllL'r ~ ituatiun ~. uutright fraud may llCL·ur. For c.xa n111k . rL' _c'U lator ~ c harged Obs idian Fnerg~ (CAN) fm fraudulent h JlH )\ 1ng
'
millions of dollars in expenst>s fn1m operating expL'nsc'S 111 c·~lp ital
expenditure account s. B y unders tating repurted UJlL'rating t>\pt'nSL'~.
Obsidian mad e it appt>ar that it \\·as managing ih U1Sl\ t>ffiL·iL'ntl) a,
well as increas ing it s income .
These e x amples demonstrate that ··getttng tilL' ha,ic tran,~tL·t ion
right .. is the foundation f\1r rL'k\ ant and rL'itahle financial s t:tte mcnts. Starting w ith an incorrect ur inapprupriatc tratb~tctitl n lead,
to disturtion s in the financial statL' lllenh .
Soun:es: Shawn Tull y. ··TilL· JVI\, tn\
r ;II -1/III<'.J'ill/1
,,f H a tn
CL·k , tiaJ ·, .-\L·L·ot mllll ~.-·
(A ll ~ ll ' l 20. 2 111 hl : a nd KL· Ih Cr\'tknnan. ··t '.S. Char~L''
I )h,idian. l'ormc·rh PL' llll V'\c· ,t.
i\!ui/ t.ltttlc· 21-1. 20171 .
\1
till .-\L"L' Illllllllt~ 1--r;tud.·- / "11 1 • ( ;{o/>c und
\ ·V hy is it impm·tant fo1· companil's to n•conl hnancia l tnms.K tions t·ompll'ld~ · and accuralt'l~ "? ((;o to lht• hool,·s companion
Wl'hsill' for I his ans\H' r and additional qul'sl ions. l
.- 1 0
c
H r~ P
rEf--'
DO I T! 2
2
Recordin g Bu si n ess Act iv it ies
Jull t: '- •• t: ll)! l: ll )!<tt.>ed
hundred .., , :
Ill
the '" ''" '-'- ill)!
acti\ iti e~
in
e ~ t ;d1 li ~ h i n!-'
\(
h e r '; don. I L1JJ It I ' l<tfll<>t lll h
L ( Jpt:n•·d :, h ,·1r1 '·. · , ., .
~
;ILL IJU!I t
c
<J ',
1 t ·
tl
f' JJ ·
, .., ( (
r • k d l l n 111
1e name''
a 1r I t j .., ;mel d e p c,.... it e d 1 _ (! .)() I
her initia l ill. e'-, tllJefll.
"
t1
1er o\Ul llli!JJ L"~
Ill
tl
l'l'l'OI'Cft-cJ :11J cJ \\ !Jj l'f l cf o
" '
flo !. \ n 1 l h :tl :~fl'l' l'l :t "l'h .
li :~ hifili l'' - Ill' (Il l fl l'l'·,
2. l' urciJ<t <, t:d e quipment'"' <t cc ount I to he pai d i n 3 () da) ' l fu r " l11l ;d c"'l ell Y..J.XIHI .
l'qtli f_\ '-, )]()!1/ c/ hl' J'l'l' OJ'c/ l' c/
in : 1 jotlf'll :t f.
tra n ~ act i " n ~ .
• \ n :d1 n · I h l' df't-c h of'
fi' :Jfl " ll'licll l' on :l "l' l.
liahil i t_l . :~ ncl ll\ l ll l-r· ..,
l' qllif _\ :I('('I)(Jllh .
Solution
;, ~ f( , IJ ,, v. ~ .
.I he th ree act r'. i tr e '> ·;. c,uld he recc Jrd e d
L c ·:"h
r J·;. n c r ·' ( ·;,Jlll : d
r(
2.
) ·;. n c r ·.., lJJ". c..., ruJ c nr
l:P·~ IJ
I
Ill htr
I TJC \ \ J
f ·.tjlllj11 11t: IJI
·\ LLf >IIIJ h
f
- ~-
(Jt
f';>:- :.hlc
l) llrc h(J . ., c qf
_: rJ.IJIJII
I
.: 1/ .IHHI
-l.XIH l
L" (
I
flllj1111t:lll "11 <l l" ll>lll lf l
·" " c nrr:. hcc au , c "" tr· r .
d h .JCI/()fl
l< cbrcd c xcru ..,c llJ<.Jtcn;_,f:
/'/..\ '\
• I nch-r,f :lncl 11 lt iclt
:~cl i 1 if il''> lll'l'cllo ill'
Ill
3 . lnt t: r·-'le'lled t hree pe.,plc for the po.., it ion o f ha ir .., ty fi.., t.
l ' r t:p;t r e the jiJurnal l:lllr le '> to re c "rd t he
--, /()'\,
I
h~l . ., fJCCllrrcd .
2
HI-: .3, BI-:2A, BI-:2. 5 , BE2J1, DO IT! 2.2, I-:2.3. 1-:2.5. L2J>. 1-:2.7. L2.X. and L2.'J.
The Ledger and Posting
LEARNING OBJECTIVE 3
Explain how a ledge r and postin g help in th e recording process.
A N ALY ZE
J O URN AL I ZE
TRIAL
ADJUST ING
BALANCE
ENTRIES
ADJUSTED
TRIAL
BALANCE
FINANCIAL
CLOSING
POST·CLOSING
STATEMENTS
ENTRIES
TRIAL BALANCE
The Ledger
The en tin.: gro u p or :..reco unt -. maintained hy a com pa ny!~ th e ledger·. The ledger provide .~ thL'
balance in each or th e accounts as we ll as keeps tr<~ck ol ch<~ngcs Ill th ese hi!lanccs.
Co rnpun ie s may usc va ri o u-. kinds of l ed ge r.~ . hut eve ry_ com pany hits ~~ gene ral lcdgLT.
A general ledger co nt a im a ll th e asset. liabilit y. and owner .-. cqully accou nt.~. <I S s how n 111
Illustration 2.15. Whenn ·er 11 .e use the ter 111 " /('c/ger" in th is /( '.\!hook . 11 ·e or(' re(erring to t!ti'
f.{ e n e ~0 IL I
ec g e r unless we Sf Jenfv o th en u 'se.
l'he g~ ne ra l ledger, Which
contains all of a l'Oillp·
,
an v s
accounts
·
---------- Asset
Accounts
Liability
Accounts
Owner's Equity
Accounts
Salaries and Wages Expense
Service Revenue
N otes Payable
Owner's Capital
The Led er and P st inc
2-1 1
T he led ge r prov ide s the ba lance in e ac h nf th e an· n u lll s . Fu r e xam p le , th · Cash
ac cou nt s hows th e amou nt u f ca s h aYa ilabk tn m e e t c u r ren t ub li gat iun s. Th e .-\.\.'l'OUnts
Re ce ivab le ac co un t s hm \ s a m o u nts Jue from c us to m e rs . .--\ c cou nt s Payable sh O\\·s anHHtllls
owed to c red it o rs . Eac h acco ulll is num be re d for eas ie r ide nt iticll io n .
Ethics Insight
Credit Suisse Group
A Convenient
Overstatement
S nm~..· time s
0 Nun o S ilva/ iS tnc kph o tu
~~
~..· umpan y · s
in, · ~..·s t­
me nt sen1riti es su tfc r a permanen t
decline in , - ~tl ue bcl nw the ir n ri g ina l cost. \\"h ~..· n th is n c ~..· urs, th e
cu m pa ny is supposed tu reduce the
re~..· n rded Ya lu e nf the sen1ritie s nn
its state me nt uf fi nancia l pos it iun
("\\Til e th em do,,·n" in l'll tn mo n financ ia l lin go ) and r~..· c md ~ ~l o ss . It
appea rs. hm,·cye r_ th at during the
fi nancia l cri sis of 2008, e m p loyees at some fi nancia l in stit ut illll S
chose to look the u ther ,,·ay as the
va lue of the ir inYcstments sk idded .
.-\ num ber nf \\":til Str · ·t tr:td ·r;; th:ll ' ' ,,r · · I ft,r th · in ' ·s 1 1 ' t t
hank C t·edit Suisse G r oup lCH E l '' ·re d1:1rg ·d '' ith int ·n i,>tu ll:
\lYe rs ta ting the Ya lu · nf s ·~..-uriti ·s th:ll h;td su tr ' t ·d d ·'-· !in-.·s cH.
a ppn,:x im:llel ; : 2.S:'i billion. O n · rcts,,n tlut th ·: m ;t; h;l\' l'l' ·n
re l u ~..· t an t tu r~..·curd the losse ,.. i,.. nut,,f ft.• ;1r tlut th ' 1..'\ H 1p;m; ·,..s h a n.· lw ld e rs ~111d di~..·nts \HlU id p;lni'-· if the; S :l\\ the nug n itu,·c ,,f the
ln ss~..· s . Hm,·e,·e r_ perst,nal self-inter ·st mi ght lu\ ' h;..'<.' ll ' JU:dl ;
tn bLtme- ti1L' b,,nuses of the tr:1d~..·r;; \\ere ti ·d ''' th ' \ :tlu ' ,,f th e
in\·est m e n t securities.
S o ut-ct•: S. Pulli:1111 . .1. 1-: ;l~kslum . :md \ I S l,·u t ,, lti . .. L". S. 1 \:tn ,; C h,u ~<>
u n B,llld 1-'r:tu,J. .. \ \ ill/ Srn ·<I .Iournu l () n .' ll :< 1Fc·hr u: r \ I . 201 2\.
\Y h at ince n t i ves mi g ht em p l o y ee ~ han· had to OH' r->tut e the
valu e of thes e in vcs tm t• nt scc uri t il'!>' o n the com pan~ - ~ tinanL·ial
statem e nts '? (G o to t h e book ' s co m panion webs ite for this an s wet· and additional q ue~ t i o ns . l
Standard Form of Account
T he s im p le T-acco unt fo rm use d in acco un tin g tex tbooks is o ft en ve ry useful ror il lustrat io n
p urposes . H owe ve r. in p ract ice . th e acco unt for m s used in ledge rs are mu c h m ore s tru c tu re J.
Illust r a t ion 2.16 shows a typ ica l fo rm , us in g as s um e d d a ta fro m a cash acco unt.
CASH
Expla na tion
Da te
NO.lOl
R ef.
Debit
c.·edit
B a la n ce
2020
June
I
2
3
9
17
20
30
25 ,000
8,000
4 ,200
7.500
I 1. 700
250
7, 300
25.000
17 ,000
2 1,200
28, 700
17 ,000
16.750
9 A 50
T hi s fo rm a t is ca lled th e thn·e -column fonn of account . It ha s lhrce m un cy cu lum n :-.deh it. cred it. an d ba la nce . T he h a lan L·e in th e accou nt i:-. de termin e d a l'tcr ca d 1 tran:-.aL:t ion .
C ompa ni e s usc th e e x p la nat ion :-. pace a nd rc k rc nc L' L·o lunll h to p rm iLk '- PL'Cia l in fu rm ~ ll iu n
abo ut th e tra nsaL· ti o n .
ILLUSTRATION 2.16
T ht·ee -column for m o f ac co un t
2- ~2
C H / ·P rEP 2
Thc:o R<?cording P r occ:os·,
Posting
T h e rn lce du n .: td tr;lll '> fe rrin 1,' j<Hirn;li e nlrJ L' '> Ill th e IL'll~u ;rl'L'IIllllh ,, l ·:tlkd po-.t in g Tlli'
rh a -. e ()f th e r ec c•rdin ;c f11"1ll'e'" :rCCllllllii;II L'" til L' L'fkL' h "' fill llll :tf ll l'l l IJ:lll'•.IL' IIIIil' llllil till'
i nd i \ ·ilf ua l <ICCO l lll l '>. l'o -. ti ll!l i rl \ td \e' t!J L· flllfll\'.111 ~ ' IL'f1 '
I. I n th e ledger . in th e :rppriJ p rr ;ll e L·o lulllll ' "'the :tl.'L'IIl ll ltl' 1 tkhr tL·d . L'lltt·r til L· d:rll' . l•lllrll:tl
r age . and d eh it am o unt -. llo w n in th e jllllf'll<tl.
2. I n t h e r cfl:n.: nce c o l umn
or th e _jou r nal.
\~rite th e ;tl'L'IIllll l lllllllhn Ill \\ lll c ll til L' tkhit
<t ll HIU nl wa-. po -. tc d .
3. I n th e ledger . i n th e ;,p p n,pr i:llc Ul l unln ' <d th e ;rcC<Illlll f'l c redited . entL·r tilL' d :lle. _il lll rn a l r ug e . an d c r edit <rii H llllll -. 11 <''~ 11 11 1 th e i< Hlrn:tl .
4. I n the r e krc nce c o l umn o f t he joun1al. '' ri te the :rLT <H IIll Jllll llhe r
111
''
ll iL·Il the ncdit
amoun t W<l '> r () '> l elf.
Illustration 2 . 17 -. h " w" tll e -.c 1'11u r -. tep -. U'> lll !! Softhy te· -. fir -. t jo um ;tl en t r ). Til L· h <l \L' d rwrn he r '> i nd ic a te th e -.e qu c n ce o f th e -. tep -. .
,1
P o">tin~ <~
j ou rn<JJ e ntr y
I
I
J1
GENERAL JOURNAL
Date
Acco unt Titles a nd Explan a tJ o o
20 20
Sept. I
Cash
Ow n er's Capi ta l
(Ow n e r's inves tm e nt of
cash in bu s in ess)
R e f.
I OJ
_ __.., 30 1
D e bi t
Credit
15,000
15,000
GENERAL LEDGER
Cash
Explanation
Date
2020
No.101
Ref.
Jl
Sept.l
Debit
Credit
15,000
15,000
Owner's Capital
Explanation
Date
2020
No.301
Ref.
11
Sept.l
Key:
Balance
Debit
C1·edit
15 ,000
Balance
15,000
Ll.--
OJ Pos t to d ebit a cco unt- d a te, journal p age number, a nd amount.
III E nter d e bit a ccount number in journal r efere nce column.
ITJ Pos t to credit account- date, jour nal p age number , a nd amount.
~Enter credit account number in journal reference column.
Postin g should h e rerf'ormed in chronolog ical order. That is . the company should pn-.t all
th e d ebit s and credit s of' on e journ al entry b e fore proc eedin g to the ne x t journal entry. p 0 ..,tirl _!2~
should h e mad e on a timel y ha si s to ensure that th e led ger i s up- to-elate. In hon 1c 11 -11 rk l'rol> -
/(> m s.
\ '(1/f
cunjournuli :.c u/1 /IWI .\UC!ions h l! j(Jre ;wsting om· o(tlwjoumo/ entrie s.
Th e re fe renc e c olumn or a led ge r account indi c ate s the journal page from whidl tilL·
tr a n ~ac tion w as po sted . (After th e las t entry has hec n po sted. th e account ant .s hould SL'<IIl tilL'
rc krence c olumn i n th e jou n la l. to l ·onfirnl that all rustin g~ ha ve hecn lllade . ) The l'X pl ;ul ;l
li o n -. pace or th e led ger acc ount i ~ u "e d infrequ entl y h e c a u ~e an ex planatton alread y aplll'< ll"·
i n th e journ a l
Th e Led oer
n
Chart of Accounts
The number and ty pe of accounts d iffe r for eac h co mpan y. The number or account:-; depL'nd:-:
on the amount o f detail manage me nt cksircs. For example. the managL' ment of o ne company
may wa nt a s ingle account for all types of utilit y expe nse . A nother may keep separat e e-xpen:-:e
acco unt s fo r eac h type of utilit y. suc h as gas. elec tri c it y. and \Ya ter. S imil a rly. a small et1mpany
like So rtby te w ill have kwe r accounts than a g iant company like Hyundai ( KOR ). Softhyte
may be abl e to manage and report it s acti,·iti es in 20 to 30 accounts. \Yhik Hyun da i m ay re quire thou sa nd s or accounts to keep track o r it s world\\ ide acti\·iti es.
Mos t companies haYe a chart of account s . This chart li sb the accmmts and the account
numbers that id e ntify th e ir locati o n in th e ledge r. The numbe ring system th a t identi ties the
accounts us uall y starts with th e state me nt o f finan c ial position accounts and fo ll o ,,·s with th e
inc o me stat e me nt accounts .
In thi s and the nex t t\\O chapters. we exp lain the accounting fm Ya Lici ...'l..d\ertising
(a service company). Accounts 101 - 199 indicate asset accounts : :200-299 indicate liabili ties : 301 -3 50 indic a te m,·ner·s equit y accounts: -1-00---+99. rc\enue s : 60 1-799 . e xpensL':':
R00-899. other re ve nues: and 900-999. o the r e xpenses. Illustration 2 . 18 sh o\\ s Yaz ic i ·s c h art nf
account s . Acco unts listed in red are used in thi s chapter: accounts sho\\·n in black are
explained in late r chapters.
ILLUSTRATION 2.18
Yazici Advertising
Chart of accounts
Chart of Accounts
Assets
10 I C ash
112 Acco unt s Recei vable
126 S uppli es
1.\ 0 Prepaid In surance
157 Eq uipment
I SX Accumulated Depreciation- Equipment
Liabilities
200 No tes Payab le
20 I Acco unts Payable
209 U nearned Se r v ice Revenue
212 Salaries and Wages Payable
230 Int erest Payabl e
Owner's Equity
.'1 0 l 0 \\·ner ·s Capi tal
_1 ()6 (),, n er·~ Dr : m i ng ~
350 lnn)mc S ummar v
Revenues
Expenses
6.\ I S upplies Expe nse
7 1 I Depreciat iun Ex penSL'
7 22 In s urance Expe nse
726 Sa lari es and Wages
Ex pe nse
729 Rent Expense
732 U til iti es Ex pe n se
l)()) Intere st E x pen sc
You will notic e that th e re are gaps in the numbe ring sys te m or th e chart or account s fur
Yaz ic i. Companies leave ga ps to pe rmit th e in serti o n of new accounts as need e d during the
life or th e husin ess.
The Recording Process Illustrated
Illustrations 2.19 throu g h 2 .2X s lww the bas ic step s in th e recording pmce ss. u s in~ the
Ouuber transaction s or Ya l. ici Adverti s ing. Ya;ici ' s aL'Cllllnting periud is a 111\lnth . In ~hL'SL'
illustration s. a ba s ic analysis. an equation analysis. and a d e bit -cre dit anal ys is precc d L· th e
juurnal e ntry and postin g or e ach trans ac tiun. Fo r s implicit y. we USL' till' T -aCU)LIIlt rnrm tu
s illl W th e pnstin g ill StL'a d or th e Standard aCCOUil( fnrlll .
Study these tran sac tion anal ysL's L·arL· full y. Tht:> purpost:' of lnmsaction analysis is tit·st
to idt•ntif~ tht' t~pt' of account imoht:'d. and tht:'n to dett•rmint:' wlwtht••· to makt:' a dt•hit
Po st i n ""
2 - 13
-1. 4
C H f,
~
T - t"' /
or <I cn: dit to th c a cc ount. Y<lll o., lll >t d d ; ll \\ ; 1~' p~..·rfl>rll l till '- I ~ J k'l >f ; tll.d ~''' hd<>IL' prc p ar in ~
; 1 j, , u r 11 ; !I c 11 t r ) . I ) , , i 11 ,!..! .., 1 , v. 1II 11 c Ip : 1 , ll 111 H k 1 .., t; 111 d t 11 ~..· 1• , 11 r 11 ; d ~..- 11 t r 1~..· " d 1"~..· 11 ""nl 111 t 11 1" ~..· II ; 1pI cr
;, .., \ '-e ll <t "> !llo r c Cllfllplc x )"Ur11 ;d c rlt fl c' 111 l;~t c r L·ll ;!ptu·,
-
'"LT
In vc ..,t.rn c nt of ·;;s"> h h y o Y'. n t: r
Tra n sact io n
(rr. h f/r.)!J on()/;·.r· ·. ·,h (; •;; rhr ·
Jrn r.~ rF. I r.~f ':(Jrh lrnn ~ ur_I J r~ n fJII
r_rr.h.
Basic
A nal ys is
On O c to be r I . C. R. By rd trwc s t s t I 0. 000 c:~ s h
company c:~ ll c d Y:~ z ,cr Ad vc r rsmg .
Li a bili t ies
+
Equation
A nalysis
Cas h Flows
+t l 0.000
+ t l 0.000
D e b its in c rease assets : d e bi t Cash t I 0,000.
Cre di ts in crease o wn e r 's e quity: c re di t Own e r's
Capi ta l t I 0,000.
D e bi t- Cre di t
A na lys is
lfi:'\T
F ollow thc">e record i n~ ">teps :
I. Dctcrrnine \~hat t_~- pe of
<:~<.:count
i"> in\ohed.
\~ h<:~t item-,
Oct. I
Jou r nal
Entry
Cas h
O wne r-'s Ca pit;J I
(Own e r's inves tm ent of
cas h in busin ess )
in<.:re<:l">ed or delTe<:l">ed
<:~nd hy hoY\ much .
3. Tr<:~n "> l<:~te the increa '-> e'>
<:~nd
Own e r 's Equity
Own er's
CJ p•t ~
- I fJ fJII>
2 . Determine
decre<:t'>c"> i nto deh i h
credit'> .
:~ n :~d v c nr smg
1n
The asset Cash increases i:,l 0,000: owner's equity
(specifically, Owner's Capital) increases t, I 0.000.
A sse t s
lfF LP~T L
I.
~
ILLUSTRATION 2.19
<:~nd
lfl'lpftr l H i nt
Cas h
Posting
Oct. I
10.000
I
101
1 10.000
I 0.000
Own er's Capital
301
I
10,000
/Oct. I
!ILLUSTRATION 2.20
P urcha s e of office e quipment
On October I, Yazici purch as e s o ffic e e quipment co sting
t, S,OOO by signing a 3-month, 12%. t S.OOO note payable.
Transaction
The asset Equipment increases tS ,OOO;
the liability Notes Payable increases tS ,OOO.
Bas ic
Analysis
Equipm ent
Liabilities
Notes
Payabl e
+t- 5.000
+t-5 .000
Assets
C as h Flows
no eft"ed
Equation
Analysis
Debit-Credit
Analysis
+
Owner's Equity
J
Debits increase assets: debit Equipment tS,OOO.
Credits increase liabilities: credit Notes Payable 1/5,000.
[
journal
Entry
O ct
Equipme nt
Notes Paya bl e
(I ss ued 3-month. I 2% note
fo r offi ce equipm ent)
Equipment
Posting
Oct. I
-
---
157
5,0001
- - ---- -- --
--
-
157
200
5.000
5.000
Notes Payable
200
I Oct. I
5,000
The Led ""er an
Post in :::-
ILLUSTRATION 2.21
On October 2. Yazici ,-eceives a 'b l.200 cash advance from
R. Kno x. a client. for advenising se1·vices that are expected
to be completed by December 3 I .
Transaction
R e c eipt of ca s h for futu re
service
\ lany liabilitit'S ha n'
the word "payable" in
their titl e . But. n o t e that
l 'nearne d Scn·ict' R e vcnut'
i~ consid er e d a liability
even though tht' word
pay able i~ not u~ed.
The asset Cash increases 'b l ,200; the liability Unearned Service
Revenue increases 'b l .200 because the service has not been
performed yet. That is, when Yazici receives an advance
payment, it should record an unearned revenue (a liability) in
order to recognize the obligation that exists.
Basic
Analysis
=
C as h
Liabilities
Unearn e d Se rv ice
Reve nu e
+1:, 1.200
+1:, 1.200
Assets
Equation
Analysis
Owner's Equity
+
Debits increase assets: debit Cash t l ,200.
Credits increase liabilities: credit Unearned Service Reven ue t-1.200.
Debit-Credit
Analysis
J
Cash Flo w s
- I .:: t)(l
[
Journal
Entry
Oct. 2
C ash
Unearned Service Rev e nue
(Received cash from
R. Kno x for future servic es)
101
Cash
Posting
Oct. I
2
10.000
1,200
I
I0 I
209
1.200
I .200
Unearned Service Revenue
I
Oct. 2
209
1,200
ILLUSTRATION 2.22
On October 3, Yazici pays office rent for October in
cash, t900.
Transaction
Payment of monthly rent
The expense account Re nt Expense increas es 1;,900 because
the payment pertains on ly to the current month ; t he asset
Cash dec reases {:,900.
Basic
Analysis
=
"---·------
Liabilities
Cash
Owner's Equity
Rent
Ex pense
-t900
-t- 900
Assets
Equation
Analysis
+
Cash Flows
_ l ) ( )l )
Debits increase expenses: debit Rent Expense {:,900.
Credits decrease assets: credit Cash {:,900.
Debit-Credit
Analysis
[
Journal
Entry
Oct 3
Rent Expense
Cash
(Paid cash for O ctober office rent)
Cash
Posting
Oct. I
2
I 0,000
1,200
IOct. 3
900
I0 I
Rent Expense
101
900
729
Oct. 3
729
2 - 15
2-16
CH I F'T E P 2
Payme n t for
T h<2 , e:co rdi ngP ro cc::, ',
in '> ur <.~ n ce
Tra n sa ct ion
Bas ic
Analys is
On October· 4. ( ,1 / ICI p.1y~ t600 fo r :t 0 11 ·-yc.1r r11sur .111cc
p o lrc y h:-t
n il C: / pu·c: nc:x yc.1r· 0 11 Scp crnbc:r 30
The asse Prepard Insurance rncreases !,600 because the
paymem extends co more than the current month: the asset
Cash decreases 1;,600. Payments of expenses that will benefrt
more chan one accouncmg period are prepard expenses or
p re payments. When a company makes a payment. it debits
a n a.sset account in o r der to show the service o r benefit cha t
will b e r eceived in the future.
A ssets
Cas h Flo ws
Debit-Credit
Analysis
Pu rchase of supplies on credit
Transaction
Bas ic
Analysis
Debits increase assets: debit Prepaid Insurance t 600.
Credits decrease assets: credit Cash t 600.
On October 5, Yazici purch ases an es tim ated 3-month suppl y
o f advertis ing materials on acco unt fr om Aero Sup pl y for 1/2.500.
The asset Supplies increases t,2,500; the liability
Accounts Paya ble inc reas es 'b2,500.
Debit-Credit
An alysis
journal
Entry
Li a bilities
Suppli es
+t-2.500
+t-2.500
+
Own er's Equity
Debits increase assets: debit Supplies t,2,500.
C r edits increase liabilities: credit Accounts Payable t,2,500.
Oct. S
Supp li es
Accounts Paya bl e
(Purchased supp li es on
acco unt from Aer·o Supply)
Supplies
Posti ng
=
Accounts
Payab le
Equation
Analysis
n o cl"l"ect
O wn e r 's Equity
+
• t6 00
Assets
Cash Flows
Lia b ili ti es
l n:. u r ~ncc
- t600
_ (,/j()
=
P rcp~rrl
Equation
Analysis
O ct. 5
126
126
201
2.SOO
2.SOO
Accounts Payable
I
Oct. 5
2.5001
----
201
2,500
The Led""er
nd Post ir ""
ILLUSTRATION 2.25
Event
O n O ctobe r 9. Yaz ici hires four em pl oyees t o begin work on
O cto ber IS . Eac h em pl oyee is to rece ive a week ly sa lary of t. SOO
fo r a 5-day work week. paya bl e every 2 weeks- fir st payment
made o n Octo ber 26.
Hiring of e m p l oyt· e~
Cash Flo ws
!Hl l'fTL' l ' t
Basic
Analysis
A business transaction has not occurred. There is on ly an
agreement between the employer and the employees to ente r
into a business t ra nsaction beginning on Octobe r IS. T hus, a
debit-credit analysis is not needed because there is no acco unting
entry (see October 26 t ra nsaction fo r fir-st entry).
ILLUSTRATION 2.26
Transaction
Basic
Analysis
On O ctober 20 . C. R. Byrd w ithd raws '\:, 500 cash for
pe rso nal use.
The owner's equity account Owner's D rawings increases
t. SOO; the asset Cash decreases t.SOO.
Ass e ts
Equation
Analysis
Debit-Cred it
An alysis
Journal
Entry
Posting
\Y it h drawa l of cash by owner
=
Liabilities
+
Owner's Equity
Cas h
Owne r·'s
Dr·awings
-t 5oo
- MOO
Cash Flo ws
- ~ llll
Debits inc rease d raw ings: debit Owne r's D raw ings t.SOO.
C redits decrease assets: cre dit C ash t SOO.
Oc t. 20
Oct. I
2
Owne r's Dr·awings
Cas h
(Withdrew cas h fo r
persona l use)
Cash
101
10.000 Oct. 3
1,200
4
20
900
600
500
306
101
500
O wner's Drawings
Oct. 20
5001
500
306
2-1 7
z- 1 8
CHhPTE P 2
Th e Reco r dingProc e: s s
ILLUSTRATION 2.27
Pay m e n t of -;a lari c s
Tra n sactio n
Basic
Ana lysis
On Octob e r 26. Yazrcr owes employee sala n cs o f t4.000
and pays th em m cash (sec October 9 event)
T he ex pense account Salaries and Wages Expense increases
t 4,000; the asset Cash decreases t 4,000.
=
A ss e t s
Cas h Flows
Equation
Analysis
Li a b ili ti es
+
Ca sh
O wn e r' s Equity
S.11:Jnes .1nd w,ges
Expen se
t 4.000
- t4.000
- -1 (j( )l )
D eb it- Cre d it
Ana lys is
Journal
Entry
Posting
J
D ebits increase expenses: debit Salaries and
W ages Expense t, 4,000.
C redi ts decrease assets : credit Cash t, 4,000.
__O_c_t___2_6-,-S-a-la-r·-rc_s_a_n_d_W
__a_g_c_s_E_x_p_c _ns_c________r 7_2_6-,-4-.0- 0-0-,----Ca sh
(Pard sala n cs w d.1tc)
Oct. I
2
Cas h
I 0,000 Oct. 3
1,200
4
20
26
101
900
600
500
4,000
I0I
4.000
Sa laries and
W ages Expense
726
Oct. 26
I
,ILLUSTRATION 2.28
Re ceipt of cash
.
· f'or serv ices
performed
·
Transaction
Basic
Analysis
On October 3 I, Yazi ci receives t I 0,000 in cash from Cop a
Company for advertising services periormed in October·.
The asset Cash increases tl 0,000; the revenue account
Service Revenue increases t I 0,000.
Cash Flows
+ !()_()( )()
D e bit-Credit
Analysis
Jou r nal
Entry
=
Liabilities
Cash
+'bl 0,000
+t iO,OOO
Debits increase assets: debit Cash tl 0,000.
Credits increase revenues: credit Service Revenue tl 0,000.
Oct. 31
Cash
Se rvi ce Revenue
(Received cash for
services per·formed)
Cash
Posting
+
Owner's Equ ity
Service
Revenue
Assets
Equation
Analysis
Oct. I
2
31
10,000 Oct. 3
1,200
4
10,000
20
26
101
900
600
500
4,000
101
400
10,000
10,000
Service Revenue
I
Ooc 31
400
10,000
The Led ~ er nd P
Summary Illustration of Journalizing and Posting
Illustration 2 .29 sho ws the journal for Ya z ic i .-\(he n isi ng fnr OL· tobcr.
GENERALJOURNAL
Date
2020
Oct.
Account Titles and Explanation
Cash
Owner's Capita l
(Owner's investment of cash in business)
Equi pment
Notes Payabl e
(Issued 3-month. 12'7c note fo r o f'li ce
equipment )
2
3
4
5
20
26
31
PAGEJl
Ref.
Debit
10 1
30 1
10.000
!57
5.000
C r edit
10.000
5.000
200
Cash
Unearned Service ReYenu e
(Rece ived cash from R. Knox fo r
future services)
10 1
209
1.200
Rent Expense
Cash
(Paid cas h fo r October offi ce rent )
729
101
900
Prepaid In surance
Cash
(Paid o ne-year poli cy: e ffecti ve dale
Oct obe r I)
130
10 1
600
Supp lies
Accounts Payabl e
(Purchased suppli es on account fro m
Aero Supp ly)
126
201
2.500
Owner's Drawings
Cash
(Withdrew cash fo r persona l use)
306
\01
500
Salaries and Wages Expense
Cash
(Paid salaries to elate)
726
101
4,000
Cash
Service Reve nue
(Received cash for servi ces perfo rmed )
101
400
10,000
1.200
900
600
2.500
500
4.000
10.000
ILLUSTRATION 2.29
G enera l journa l
entri e ~
in~
2 -19
2-20
r:. H f.
PTE P 2
T h e Reco r di n g Procr,:;s
Illu'>tration 2 . 30 '> h() \\'-. th e ledger.\\ rlh ;til h;d.trl<.. c '
f
r
111
rnl
·~~.
ILLUSTRATION 2.30
( ~ e nera l ledge r
GENERAL LEDGER
.'\lo. J 0 1
Ex planation
D ate
I l<cf.
D e hit
Cn.:d ir
B ~1bnn:
<)( )()
I IJ.OIJIJ
I I .21HJ
I I J.1 1JO
lJ.71J()
l) 200
:\o. 20 1
D ale
~xpla n;al ~~-lll
2020
2()2()
JI
JI
JI
JI
JJ
JJ
JJ
I
2
() ct.
l
4
20
26
11
I 0.000
I ,200
(,()()
5 ()()
Expl a nation
D ate
/ Ref.
I
2020
O ct. 5
D ate
0
5 , 2 ()()
4. 1J(J()
D e hit
Credit
D ate
B a lance
202 0
O c t. I
D ate
Ba lance
2020
O ct. 20
Deb it
.I I
Credit
Explanat io n
Ref.
2020
Oct. J
J1
D eb it
C re d it
Ba la nce
2020
O c t. 1 1
5 000
Notes Paya b le
Exp la na tio n
R e f.
Deb it
Cred it
1
J1
Da te
Ba lance
2020
O c t. 26
5,000
1: x planation
J:x p la na tion
B:danL·t:
I 0.0( HJ
I 0.000
:\o. 306
Cred it
D c h il
Rc f.
E x p lan a t io n
De hit
.J I
N o . .tOO
C re d it
Ba l:llll'L'
I O.CHHJ
I 0.000
C re di t
D e b it
J1
N o. 726
B: da nn :
.t,()()()
4. 000
Re f.
B:!LlllL't:
:'00
) ()()
JJ
Ex p la nat io n
No. 729
C red it
<JOO
Ba lan ce
')()()
ACTION PLAN
2.2XO
2.2XO
Se r v ice Reve n ue
Sa la r ic, and Wages Ex pe nse
-100
Cas h
4 00
U til itie, Ex pe nse
<,12
Cas h
Pos t these e nt r ies to th e Cas h accou nt of the oe ne ra l led ge r to de te rm ine it s e ndin g ba la nce. T he
beg inni ng ba la nce o f' Cas h o n M a rc h I was ¥600.
Solution
C as h
l < v l ;~i< · d
Credi t
Re nt Ex p e n se
I Cas h
.V I H a l.
D eb it
l ~c f.
E x p la na! io n
J uli e Loeng recorde d the fo ll ow ino transacti
. in a ge ne ra l j o urna l d u r ing til e mo nth o f March
(a mo un ts an hund re d s) .
'"'
o ns
I
:\'o. JOI
l khit
.J I
DO IT! 3 I Posting
IY
Rd .
Ret'.
2020
0 ct. 3
I
I .200
0
JJ
5,()0()
Da te
I :1
J 200
Sa laries and W a ges E xp ense
No. 200
2020
lbl:lllL"l:
S e1· vi<.:e R eve nu e
D a le
5,000
( ·n:drt
O w n e r·'s D r a w in gs
J 57
0.
Jkhal
.J J
()00
600
l<cl.
:\0. 209
O w n e r 's Cu pit a l
No. I 2fi
E q u ipm e nt
Oct.
2
o. I30
Re f.
1-..xp lanati'"'
2.:'00
20 20
O ct.
P r e p a id Ins ura n c e
2020
Oct. 4
D ate
D 41 1C
2,500
.I 1
2 .."00
JJ
l .n ea rn ed S e n ic c I< c ' ·n uc
2.500
Explanat io n
Date
S
O ct.
15,200
1() .000
Sup p lies
\11 a r. -i
B.d.llk"t:
6 ()()
V-+
2.2XO
V\ I Ha l.
2 ..1XX
l it 5
l/ l l)
,.".,., ' "' lll; ll c' ' ' "l BF2 .7. BF2.X. DO IT! 2.J . F 2 . 11 , and F2.1-l.
400
92
• Reca ll th a t po.-;ti ng
invol ves t nmsfe JTing t h e
jounu lli zed deh it s a n d
I.Ted its to specific acco unt s
in t h e ledge•··
o
J>etenn ine the e ndin g
h a lance hy nl'lt in g t h e to ta l
dehits and cred its.
The Tri .I Ba lan ce
The Trial Balance
LEARNING OBJECTIVE 4
Prepare a trial balance.
ANALYZE
JOURNALIZE
Prepare a
trial balance
POS
ADJUSTING
ADJUSTED
TRIAL
ENTRIES
BALANCE
FINANCIAL
CLOSI N G
POST- CLOS IN G
STATEMENTS
EN TRIES
TR IA L B A L AN CE
or
A trial balance is a li st
accounh a nd their balances at a giYcn time. Cl1 mpani cs usual ly
prepa re a trial balance at th e e nd of an accounting period. They li st accoums in the orde r in
w hi c h they appear in the ledger. Debi t bala nces appear in the left co lumn and credit ba bnct.'S
in th e right column . The totals of the two columns must equal.
T he tdal balance proves the mathematical equality of debits a nd credits after
posting. U nder the d ou bl e -e ntry sys te m. thi s eq ualit y occurs \Yhen th e s um of the de b it
account balances eq uals the sum of th e cre dit account balances. r\ trial balance may also
uncovet· enors in journalizing and posting. For c xampk. a tri a l ba lan ce may \\ell ha\c
detect ed th e e rror at F idelity Investments (USA) discussed in the Fea ture S tnry. In addition.
a tdal balance is useful in the prepat·ation of financial statements. as \\ e \\·ill ex plain in
the nex t two chapt e rs.
The steps for preparing a trial b a lance arc:
I. List th e account titles a nd th e ir balances in the appropriate debit or credit co lumn.
2. Tota l th e debi t and credit column s.
3. Ver ify the e qualit y of the two co lumn s.
Illustration 2.31 shows th e trial ba lan c e prepared from Yaz ic i Ad ve rtising' s ledge r. N ote
that th e total de bits eq ual th e total c re dit s.
ILLUSTRATION 2.31
Yazici Advertising
Trial Balance
October 31, 2020
A t.-ia l b a lan ce
Debit
C as h
Supp li es
Prepaid In suranc e
Eq u i pmcnt
No te .' Pa yable
Ac ullln ts Paya ble
U nea rn e d Se rv ice Reve nu e
Owner·s Ca pital
0\·Vnt.-r·s Dra w ing s
Sen il·L· Rt.'\ l' llliL'
Salari es ~ 111d Wagl' ' l ·: xpt.' il 'L'
Re nt Lxpl' nst.'
Credit
t l5 .2()()
2.50()
6()()
5. ()()()
t
5. ()()()
2.5()()
I . 200
I O.t HJO
5()()
I O.t H)( l
..L()()(l
l )( )( l
t 2S.700
t2 S.700
2-21
2-22
CH I PTE P 2
Th<::: Pccording Proce ss
1\ tri a l h a la n ce i.., a nece'>'>: tr) c hechpoint f(,r un eo1L·ri11 !,! L'L' ti; 1111 1 ~ Jll'' ., 1 L.,.,,., _ FPr
exa m p le . if o n ly th e d e b it p o rt io n o f :t jou rn :tl entr~ h:t '> lx·en po .., tcd. thL· tn;tl h:ti :111 L·l· 1\Pll !d
hrin c<> thi '> e rror to li )l ht .
Limitations of a Trial Balance
1\ tri a l h a la n c c doc'> no t g ua ra nt ee freedom frot n rcco rdin ~ e rro r .... JH, IInc r t-..cL· E thic-.. .'\ oil' I.
.'\ um c rou '> e r rors may ex i'> t e\·c n th ou g h the to t;tl " o l th e tri :tl h:ti:IIJ L'C u ,J 111 111 1, : t ~ rn·. FPr
exa mple . th e tri a l ba la nce m ay ba la nce ne n v\ he n :
E T H JCS '\;0TJ·:
:\n e r ro r i'> the r e '>u lt o f u n
un in te ntiomtl mi'>t u ke; it i'>
ne it h e r e th ica l n o r u n et hi ca l.
An irreg ul a rity i.'> a n in te n tiona l rni.'> state ment , wh ich i<>
viewed a <; un e thica l.
J. A tran '> ac ti on i'> no t j our na li / e d.
2. A co rre ct journ a l e n try is no t p m tc d.
3. A j o urn a l e ntry i'> p os te d tw ice.
4 . Inc orrec t accou n t.'> a rc U'> e d in journ a li/in g o r p m tin g .
5. Olfsc tti ng e r ro r.'> a rc m ad e in re co rd in g th e ~tm o unt of ~ ~ tr~tn '> : t ct i o n .
A s lon g a .'> e y ua l d cb ih a nd c rc di h a rc p o :-, tc d . c\·c n to th e \\' ron ~ :tCL't lllllt o r in til e \\ n>n ~
a moun t. th e tota l d c bi ts will c yu a lth c to ta l c re dit '> . The trial balance docs not pmvc that thl'
comp:wy has recorded all transactions or that the ledger is correct.
Locating Errors
E r rors in a tr ia l b a la n ce gene ra ll y res ult from m a th c m a ti c :.tl mi :-, t<tKC '>. incorrcl'l pn,till ~" ·
o r s im pl y tra n s c ribin g d<tt a in co r rec tl y . W h <t t d o yo u do if yo u ~Ire f<t cc d \\·ith ~ ~ tri:tl bal a n ce th a t d oc .'> n o t b a la n ce? F ir:-, !. d e te rmine th e a mount o f the differen ce be tw een thL' tl\·o
co lum ns o f th e tri a l b a la nc e. A ft e r thi s amount i:-, kno w n . th e follmv in g :-, tep ~ :trc often
h e lpful:
1. If th e e rror is € I. € I 0. € I 00. o r € 1.000. rc -a dd th e trial bal a nc e column s a nd rec onJplltL'
th e a ccount b a la nc es .
2. If th e e rror is di v is ible by 2. s c a n the trial balanc e to sec w he ther a balance equal to h:tll'
th e e rror ha s he en e nt e re d in th e w ron g column.
3. If the erro r is di v is ible hy CJ . re trace th e ac c ount ba lances on th e trial ba lan c e to se c w hether
th e y a rc in c orre ctl y co pi e d fro m th e led g er. F or e xa mple . if a balan ce wa .~ € 12 a nd Jt
was li ste d as €2 1, a €9 error ha s bee n m a d e. Re ve rsin g the order o f numbers is c all e d a
transposition error.
4
· If the e rro r is no t di v is ibl e by 2 o r 9, sc a n th e le d ge r to see w h e ther an a cco unt balan ce in
th e a m o unt o f th e e rror h a s bee n o mitte d from th e tri a l bal a nce . and sc an th e journal to
se e Whe th er a po stin g o f th a t a m o unt ha s bee n omitt e d .
Currency Signs and Underlining
Note tha t CLt1·1·e nc y Sla
· ns d
.
· .
.·
. 11 Y
·
.
"" · 0 no t dp pca r tn Journ a l.., or lcd ue r.~ . C urren cy st g n .~ a re ty pt c; t
use d
1
.
o n y In th e tr w ! ha l· · . .
.
_.
onl y l'o r th . f . . .
. a nce ctnd th e hn a nc ta l :-, ta te m e nt s. Gc nc r;tll y. a c urre ncy s 1g n ,.., , hP 11 11
c li st tte m In th e co lu
.
. I .
t·tl in u rul e) is 1• • , 1
mn a nd lor th e to tal of th a t c olumn . A s tn g e ltnc (<I to '
P dC<..:<. unde r th e co l
· .
..
dou h le -und e rlin ' It . _,...
umn o l hg ur<..: s to he a J J c d or s ubtra c te d. Tot a l a mounts ; IlL
e<. o tllui Cdtc th e y a re 1.1 . .
n<~ 1 s um s.
L
L
•
.
.
.
The Tri a l 6alance
Investor Insight
2-23
Hypo Real Estate Holding
dt,me:-;tiL· produL·t. Si nL·e the hank lud bee n 11 ' \ it>u~l ~ t:tk ·n ' " "-' r y
the Germ an f"' ·e rnm ·nt. the ' ITUr had n> ult ·d in an ''' · ):tate. 1 ·nt
ur the ll.'de ral debt ,, r € :'1:'1.5 bill inn .
Why Accuracy Matters
Recently. the German Fin anL·e
mini ster. \\"n lt'fa n~ SL'Ilauhle.
sa id that ··qa ti sticll :1nd cu mmu nicati n n prob lem s" ,,·e re to hl:tmL'
for a €55.5 hilli,,n e rro r in the
accnun ts o f n:lt iun:ll i7ed pmperty lender Hypo Real E state
Holding (DELi ). 1\lr. Sc hauble
referred to th e e rrnr :1s "an annn yi n ~ mi stake ... This see ms t''
he a considerable understatL·ment
cnnsiderin~ that the error reprL' sented 2.6"; of the G erman ~wss
In order for thi ~ company to prepare and i~Ul' fi nanci a l
statements. its accounting eq u ation t debi ts a n d cre dit_.; ) mus t
han· been in balanl·e at year-e n d . How nmld this e rror h~n t'
occurred '? lGo to th e book ' s companion \\Tbsite for thb a nS\HT
and additional questions. )
O jJ1a Jl)l)<JiiSI<KJ,.phnlll
DO IT! 4 I Trial Balance
A C TIO:\ PL.-\:\
The foll ow ing accounts come from the ledger of Bali Beach S uppl y at December 31. 2020 .
157
306
201
726
11 2
400
Equipm e nt
Owner's Drawings
Acco unt s Payab le
Salaries and Wages
Expe nse
Accounts Rece ivabl e
Service Reve nue
R $8~. 000
301
8.000
22 .000
2 12
200
-1-2 .000
-1-.000
95.000
732
130
101
Q,,·ne r· s C apital
Sal:!ri es and \Vages
Payable
Nutes Payable (due in 3 months )
Utilities Expe nse
Prepaid In surance
Cas h
RS20.000
2.000
19 .000
3.000
6.000
7.000
Prepare a trial balance in good form.
Bali Beach Supply
Trial Balance
December 31, 2020
Debit
R$
Credit
7.000
-1-0 ()()()
6.000
8~ .000
R$ ll). 000
22.()()()
2.0()()
:2( ).()( )()
~. ()()()
L) ')_( )( )( )
_\. ()()()
-1-.2.()()()
Ri. l )~_ ()()()
l<c· i<II L'd ,. ,,· rci'l' llLII c'I Lii ·
Determine normal
balances and list al·c o u nts
in the order tlw~ appt•a r in
the lt•dger.
• Accounts with debit
balances appear in t h e left
column. and those with
lTedit bal a nces in the righ t
column.
• Total the debit and credi t
columns to prow equalit y.
Solution
C as h
Accounts Rece ivabl e
Prepaid Insurance
Equipment
Notes Paya ble
Account s Payab le
Salarie s and Wages Payable
Owner· ., C apital
0\\ nc r' s Drawin gs
Sen icc Revenu e
Utiliti es Ex pen se
SalariL'" and Wage" Fxpcnse
o
l{ i. l )~.( )()()
BE2 .9. BE2.10. DO IT! 2A. 1-:2.11. L2 . 12. L2.1J. I-:2.15. and L2. 1h.
2-24
CHAPTER 2
TheR eco rdin gP rocess
Rev iew and Practice
Learnin g Obj ect ives Review
"r I< J<.:alc '> crr!IJ<, hcL·arr .., c ril e dehrl :111d unl 11 ;rrll<Hlllh '"' c.r,·h
1
Describe h o w accoun ts , d ebi t s, and cr edits a r e u se d to
r ecord bus i ness tra n sac ti o ns.
c nlr ) c;r n he c;r'-> rl _\ l"" lllpared
3
Ex p la in h o w a led ge r a n d po st i n g h el p in th e r ecord in g
p r o cess .
An account j .., a n ;cord of in c rea<.,c <. and dccrca '-> C'-> in '-> pcc ili c a'->'-><.: 1.
liahi li ty. and o w ner·., eyuity itcm '-> . T he te rm '-> dchit <J nd credit arc
..,y nonymou'-> w ith left and ri ght. A<.'->Ct'-> . draw in g'-> . a nd cx pcmc'-> arc
increa.-.e d by dchit'> and decrca '->cd hy crcdih. l .iah ili tic '-> . ownc r ·.., ca p -
Th e led ger i '-> rh e c nrire ):! roup uf :rccorJJII.., rll ;JJ JJ(; rinc d h: ;r L'<llllp;II J\ .
ital. and re venue<. arc incrca'>c d h y crcd i h and dccrc<J '>t.:d hy dch i h.
Th e ledge r pnl\ id e.., I he h;rlan cc 111 eac h of I he ;rcL-Illllll .., ;r.., \\L'II :1'
kecp .., tr;rck uf c h; u1 ge.., i n rh e..,e h;rl ;uJ ce.., . fJ,J .., Iin g i.., lh L· rr:r rhkr <lf
juurna l c nlri e'-> I<J lh e led ge r ;r cu Jtllll ..,_ T IJi .., ph :l'e of rile rL'L'llrt illl !,!
2
Indicate how a journa l i s used in the recording proces s.
pwc c.., .., ;rcc umul ;rle '-> lh e clkch o l jor rrrJ :r l i;nl lr:ll r.., :rl·lrllrh 111 ih l'
indi , ·idu ;rl acc< Hlll h .
The ha<.ic <.tep'-> i n the recording procc ..,.., are (a) ana ly zc c<Jc h tram a<.:tion for it'> cffe<.:t'> on the accounl\. (h) en ter the tran <., act i o n info r -
4
mation in a journal. and (c) tran <., l(;r the journa l informa ti on to the
appro priate acc o unt <. in the l edgcr.
The initial accounting record of a t r an<.,act ion i .'-> cn tc r ed in
a journa l hei( Jrc thc data arc ent ered in t hc acco unt \ . ;\ journal
Ia) di..,clo..,e<.
in <>ne pl"<.:e
th c· comp Jetc c 1·1·cch o f· a tran '> actron.
·
·
·
u
(h) prov ide<., a chronological record
of trama<.:t ion <.,, and (c) prcvc nt <.
Prepare a trial balance.
;\ rri ;rl h;rl;rn cc i .., ;r Ji .., t o f ;rccou nl '-> ;rml th eir h;rLuJc e.., ;rt
;r
!:' " L' ll liiii L'.
if'> prim ;rr y p u rp<l\C i .., Ill pr<l \ ·e rh c equ ;rlir y of dehi h :urd LTL'drt' :rl'rl-r
po .., tin g. ;\ trial h;rlance a l \ tl un cm·er.., erro r " illj<lllrll :rlr ;i rl !:' :r11d
Jl""'-
in g and i \ U\ c ful in prcp;rrin g lin an c i ;rl .., l ;rl e rll c' rll ..,_
Glossa ry Review
Account A renw' 0 1.. . .
.
..
or
.
. u
rncrea'>e'> and decrca..,e.'> rn '->pcc rlr c a.'->'>e l. liahilir y.
o.w ner .., Clj ur ty i tem<,_ ( p. 2-2)
Chart of acc ount<; A I. .
.. . .
.
tify their
.. .
.
rst ot acco unt.<. and th e acco unl numher <., I hal rdcn 1
,
ocatJon rn the ledge r. ( p. 2-l.lr
Compound entr y A journa l erlt · h .
1 Y t at rn vol ve.., thrcc o r more acco unt\ .
( p. 2-9).
Credit Th
· h
e rr g t side of an a
.
ccount. (p . 2-J).
Debit Th e lef t side of an ac
count. (p. 2 _3
Double-entry syst em A s .
).
.
I
·ft
..
.
.
.
ys
.
.
cJ ua c ee l o l each trans· c · tem th at recor u.
s rn ap pro prrate acco unt\ the
1
•
•
· < 1IOn. ( p . 2 _4 ).
·
C.eneral JOurnal T he most b· ,· .
. asrc to rrn o f .
Gener·al ledue 1- A 1 1
JOUrn al. (p. 2-8).
.
~
eLge r th at cont · . .
c: qut ty acul unt \. lp . 2- 10 ).
atn s all asse t, li abi lity. ancJ ow ner's
.Jour·nal A n
acco untin u rec ·ct
"'
0 !
1-cc orded in chro no log ica l order. (p.
.
.Journ a lizing The enlcring oflran..,;!cli<lll da1:1 intilc _jnurnal . t p . 2 - ~1 Ledger ·rhc c nt ire g roup of accoun h lll :l i 111 ai ned hy ;r curn p;1 n y. I P· 2- I 1) 1·
."Jormal halanc.:e A n acc ount hal;uJCe on rh e .., ide w here an irlL-rL' ;1" ' in
th e account i s rccord ed. ( p. 2-4).
·
·
P ostin g Thc procedure of · trail\ ,.c r-rrn
g _1ourn
;11 en 1rr·e.., ro thc kd !,!L'r
account s. (p. 2- 12).
S imple entr·y A j ournal entry thai invol vcs only l wo acc ounl s. (p. 2-'!
1
T -ac.:c.:ount The basic lixm of an acco unl. consisting of (I) a title. I 2 "
Jc fl or dchit side. and (.lJ a ri g ht or credit \ ide .
8
h' I
(p .
2-.h
. I
I
,., lr Lkhit. LTl·dit.
Thre e-column form of acc.:ount A J(Jrnl w rll co unllL..,
and ha lancc amount\ in an acco unl. ( p . 2- 1 I ).
..·t
T rial balance A ll '
(p.
Ill
111 ·
acu>unl\ ;1nl I tlcrr
I . I1a I ancc ., a I a _!_. ' i ,c n tirll L'.
2-21 ).
2 _ ~- ICl transac ti o ns are initi all y
Practice Mult iple-Choice Qu es t·1ons
I . (LO 1 ) Whi d1 o ! th e f<JI! o w in " ..,l'ttcme ll t
s a 1)O Ut an acco unt i s
"'
•
true ·•
a.
J'hL' rit! ht 'Id e of an acco unt is· the cle- h 1
·t . or . ·r ncrease, st·d e.
h.
\11 <tL·c·ount i -; a n ind i v idua l accou ntin g reco rd of' in c reases and
dL' LTL' <I\L' '
rn '-> pcc ifi c a\set. li ahi lir y. and own er \ equit y item s.
1
C.
· T . . c i s aJHI Jiahilrti c·..,
.
T her e are se pa rat e acco unl s lor .s p ec r l l .~.., _.., ·
but o nl y o ne accou nt I( Jr o w ne r' s eq uit y it c nr ..,.
d · Th e, 1e f t srcl
· e o l · an accou nt rs
· thc c ret 1·rl. or · LI c'L·rc·' 1·sl' · ·-; id e· .
Pract ice l u lt iple-Cho ice
b. assets. liat ilities. own ·r·s ·ap it : I.
2. (LO 1) Debits:
a. inc rease both asse ts and
b. decrease both assets a nd lia b ilities.
ll\\
e\!1CnSL'S .
liabilitic ~ .
2 - 25
n ·r's dr. l\\ i n ~s.
-
ll\\·ner'>· L"lpl.t
· . 't
. .
•
•'l\ • ·1
• :--:-:--. r· ., · ' ntl ·s. ''I · n s ·s. t'1: 1I 1., I!!
drawings.
C.
·n
P '\
·,; .
1
·s.
\\ n c r .:
c. inc rease asse ts and decrea se li abilities.
d. decrease a ssets a nd increa se liabilities.
3. (LO 1) A re \·enue account:
a. is in creased by debits .
b. is d e creased by c redi ts.
c. has a normal balance or a deb it.
d. re,·enues. ass 'ts . '\1 ' llSL'S . liab ili ti ·,.;. '"\ n · r·s ·:11 il:ll. ' ' " n • ··,;
dra\\·ings .
10. (L03) ..~ledg er:
a. L"llntain s unh ass ·t and lia b ili t ~
a. asset s. expe nses. and reYen ue s .
·ounts.
is a Cll\lccti llll Of th' 'llt ir' grt1lll L1f
a cu mpany.
C.
d. is in c re ased by credits.
.t. (LO 1) Acco unt s that normall y ha\·c d ebi t balances a rc :
:1 ·
b. sht1Uld shm\· a· ·nums in a tp hab ·ti ·a t rd · r.
:1 · ·
1l\lll:'
ll. (LO 3) Pnsting:
a. n nrmally lK'L'Urs h e fnr • jL1urna li.ri ng.
c. assets. liabiliti es . and owner's dra\\·in gs.
b. tra n sti:r~ ledge r lr:m:<a ·til1n data It' th • j mtrna l.
d. asse ts. m\·ne r·s drawings. a nd e xpe n ses.
c. is an l1ptil1nal step in th e rcL·urding prnL· ·:-;:-;_
a. Assets + L iabilities = Ow ne r's Capita l+ Om1cr's Dra\\·ings +
Revenue s + Expenses.
b. Assets = Liabi liti es+ Ow ner' s Cap ital + 0 \\·nc r·s Dra\\·ings +
Revenue s- Expe nses.
c. Asse ts = Liabilities - 0\\·ner· s Cap ital - Om1cr's Dra\\·ings Revenues - Expe n ses.
d. Assets = Liabilities + 0 \\·ner·s Capi tal - 0\\·ner·s Dra\\·ings +
Revenu es- Expe n ses.
d.
tran ~krs jt1urn~ll c mries lu
a. A na lyz in g tran sacti o n s .
b. Preparing an inco me stateme nt.
c. E nte ring tran sac tions in a journal.
d. Posting journal e ntri es.
7. (LO 2) Which o f th e 1\J llowing stateme nt s about a journal is false '.'
a. It is not a book or original entry.
I ·dg ·r a · ·uunh.
12. (LO 3) Bcfor~ pL1sl ing a pa~ m c nt L1 f € 5.00 0 . th • . ,x oun t:' Pa~ :1bk u r Gree n G rlll'Crs had a nnrm:ll baLlllL"L' l)f € 16.000 . T h ' t a la n ~·'
after pt1stin g thi s transactil1n ,, · a~:
a. € 21 .000.
c. € I 1.000.
b. €5.000.
d. L·annot b ·Jet · rm in ' LI.
13. (LO 4) r\ tri:ll bal:mcc:
a. is a li st ur aL·L·uunt s \\"ith their balanL·c:--
b. proYc s th e jnurn aliLcd
6. (LO 2 ) Which of th e foll ow ing is not part o f th e recording prncess '.'
!:lit •,j
d. is a bnnk nf nriginal 'llln .
b. assets. expe nse s . a nd ll\\"IKr·s capital.
5. (LO 1) The expanded accounting equatinn is:
Ill:! it
~ll a gi,· ·n time.
tran~actitln:< ar~ L'ntTL'L'l.
c. \\·ill nl1 t balance if a L'lltTeL·t juurnal emr~ i~ pust e d t\YiL·e.
d. prnvcs that a lltr a n ~ aL· tinn s haYe b ee n reL"ordcd.
14. (LO 4) A trial balance \\·ill n ot h ala nL·c if:
a . a corre ct j o urnal en tr y is
pu ~ tcd t\\· iL·~-
b. th ~ purcha se or su pp lie s nn :IL"L'(1Ull! i:-- debited
and cred ited to
\l)
Supplic~
ca~ h .
b. It provides a chronological re cord o r tran sac ti o n s.
c. a f l 00 ca sh draw in g by the ll\\ ncr i:- dcbit~d lL1 0\\ ncr· ~
Dra\\'i n g~ fnr f l .000 and crcd i ted tn C a ~ h fl1r t: I 00 .
c. It he lps to loc a te e rrors becau se the d e bit and credit anwunt s
to r each e ntr y can be readil y compared.
d. a f-1-50 pay m e nt nn acL·n unt i ~ debited ttl AL·L·n unh Pa\ able
for f-J.) and LTeditcd \ll c~l'- h fm t:-J.5 .
d. It di sc loses in on e pl ace the co mpl e te e ffect o r a tran saction .
R. ( LO 2 ) The purchase or s uppli es o n acc ount s hould resu lt in:
a. a debit to Supplies Expe nse and a credit to Cash .
b. a debit to Supplies Expe nse and a c re dit to Account s Payable.
c. a debit to Supplies a nd a c re dit to Ac c o unts Payabl e .
d. a debit to Supplies and a c red it to Acco unt s Re ce iva bl e.
9. (LO 3) The order of th e accounts in th e le d ge r is:
15. (LO 4) _T he tri a l h ala n L'L' nr .lc nng Cn mpall\ h ~Id ~IL'L'l1llll t :> \\"il h
th e tulluwtn ~Q . nn rmal balanL·e~·
. . C '·ts· l'' s
- ·. .,- ·()l)l-l . s
. L'l .\ .IL'L' R C\"C nUC
$85. 000. Sala.rtc s and Wa<>e~
P
·
v·
h!
.
c
'
llllll
S
1 .·
"v' 'al,L''
1 1 L ~)--+.
-='-.
. ~ a a tl L'' ~ til L
l.
Ex pen ~e $-1-0 .000. R_~nt E x pen ~e S 10.000.
1
Owner·" Cap ital S-+2.00li.
Owner s Draw111g s Ji IS.lHlO . and EL!llii) nl e llt <;:t1 1.lll)(l . I
n prL'pari ng a
-"
trial balance . th e tl1lal in the dehit u 11umn i:-- :
a. $ 1:; ! .000 .
b. $ 2!6.000 .
c. SY 1.ll()ll
d. S I I 6.()()()
a. asse ts. revenues . ex pen ses . liabiliti es . o w ne r's capital. owner' s
drawing s.
Solutions
I. h. i\ n an·lH int i ~ a n indi \ idual acuJL llllin g rL'u >rd Pi" iii LTL'<t>L''
a Ill I l IL'L' I.l'~.l ~.l . . _ 1·11 >llCl"l fi L' .-_ ~ ~~L' l. \i ahi lit .\. allll (l\\ .n l'l"· ~ .L'l\lllt\. iiL' lll ~ .
~ Id e ld th e ~ I L· ·
1 . -1 , · · ~ · rc inu>tTL'L"I hcL"all ~e ( ~ II til L· 1"1l2.1ll
~
1 1lL' ll t lL' l L 1( 1LL ' 1
L'll Unt ·I ~ t 1lL. l .,.L·1 11"t ~ ILk · IH> t tilL' LI L·h it ~ idL' . a nd L"~ lll h L· thL· IIILTL' ~ I ~ L· l>r
ihL' Li L'LTL'~ l ~L' >Id e. tkj1 L' I H}i 11 ~ llll ih l· ' \'L'L"ii! L" ,·fa>' j) j,·ati<> il aL·L'll lilll.
tL' i illL'rL' arL' < ll ~ll ~L'Jldi" ~I IL' ~ I L" L" lll lllh illJ" d ilh· rl' lll <l\\ II L' l··, L'LJllil \ ii L'lll .>.
am i t d I tilL· ki t ~ id L· u l tilL· ~ I L" L" l> lil ll ,, til L· tkhit , 1,k . II lli IIll' ,-rctlil ' 1' " ' ·
~ lnd L' ~ lll hL' L' ith L' l til L· L kLTL'~ I'-L' lll iliL· lll LTL';\~L' >ilk . tkflL' ildill g ll ll til L'
~ J1L'L" II i L' L' Lt" ~ i Ii ,.<11 1Pll a L' u 'Lilli
2 - 26
CHAPTER 2
Th e RecordingProc ess
:tL' L. <~L JJ l t ' JJl.t tlt LJJ Jtn l h ~ :1
2. c. Dc.:hil o., incrc.:ao., c.; a o.,o., cl '-> hul thc.: y dc.:crc.:a '> c.: li ah iliti c.: '> . Th e.: "thc.:r
Ill. c. 1\ led ge r i .., a cPIIcc t J< IIl p f :til til L·
c.;ho i u .:o., arc incorrc.:ct hc.:cau '> c dc.:hit o., Ia) dc.:crca '> c . not in cn.:ao.,c.:. l i~th il ­
c t 1mp:111y. T he "th c.: r dt()J CC'> :trL· Ji ll"< JJTL'L·t hcL·;u J' L'
it i c.:-. : lhJ incrc.:a '> c. not dc.:crc.;a o., c.: . a '->'>e h: and ( d) increa '> c.:. n ot dc.:crc.:a '> c.
;til ~ILTOUnt t ~ j!C'>
ao.,o., c.; h a nd d<..:crca '-> c. not incr<..:a'> c . li ahi liti <..: '>
ju '> t :I '>'> Ct and li ahilit;. acL·tlllllt '>: 1h 1 ll '> ll: til ;. , h pv,, :tcc·Pllll h 111 .Jc· ·
3 . d . 1\ r<..: v<..:nuc.: account i o., i nc rca '> n l h y cre di t'>. Th e.: oth c.: r chtJic c.: '>
<tr <..: incorrc.:ct h<..:cau o.,c.; a r<..: vcnuc.: acco unt (a) i '> incrc.:a o.,c.: J h y crc.: dit '> .
no t d <..: hit '> : I h) i '> dccrca o., eJ h y Jchih. not cred i t'>: anJ (c) h a'> a norm al
.1
ln lgc t I .1 1u Jl tt :tlil '
a'>'> Cl. li ;thtflt ) . <ll l tf 11\\ nL'I ·, L'lj llll ) :JL·c·ll l lll! '
n!lt
co unt nunthcr ord er. not ;tlphahctl ca l tlrtkr : ;utd Il l 1 i ' Jl llt :1 h'" ' l-.
of ori g i n;Ji c.; ntr) hCC: lli '> C t: Jl!ri c' m ad e Ill til L· let i).!L'r L.ll lllC fllllll th e·
journ ;Ji .., (the hoo" ' of ori g in;tl c tllr) 1.
II. d. Pt l'> tin g tran .., fcr .., j"urn ;tl L'Jttr ic .., ttl kd gL·r ;tc c· <~ullt ' . T he <~til e r
ha l a ncc.: or a crc.:d i t. not a d<..:hit.
4 . d . 1\ <,<,l:l '> . o w nc.:r· .., draw ing '> . an d c x rJCn '> e'> all ha ve.: normal Jc.:hil
h<t lan<.:<..:'> . The other choice '-> ar<..: incorr<..:ct hecau o., c (a) re venu e.:'> ha ve
n ormal credi t balance '> . (hJ o w ner· -. capital ha-. a norma l cred it hal -
5 . d . The.: expandc.:d acco untin g Ctjuation i '> /\'> '> eh = Liahiliti c.:'> +
O w ner·.., Capital - O w ner·.., Draw in g '> + Re \ ·c nu c - F x pcn '>e'>. Th e.:
(a)
(h) tr;m <.k r'> j()Urna l lran .., action tLtLt 111 the lnl gLT
;utd (L· I 1' 1111! :til
o pti o nal '> tep i n th e rcct1 rdin g pr<JCe".
12. c. Th e halance i .., € 11 .0(}() 1€ 1r1. I HHJ lltlrtll:ti h ;tl ;ttl CL'
<tn cc.: . and I c 1 I iahi I i tie '-> have.: normal crcJi t ba l ance '> .
ot h<..:r choice '-> arc 1nco rrect hecau '> e
c ho ice <. arc i ncorrc.:ct he c atl '> e pt "t i ng 1a 1 " L·c ur' ;tf tLT ftlLJ m:ti 111 11g .
hoth O w ner ·-, Dra w in g'> anJ
E ."i.IHltl
pa y m ent ). not l;t) € 21. 1)()() tlr (hl € :'i.IHHJ . Clttlicc (dl i ' i tt c·"rrL·L·t
heca U'>C th e h;tl anu.: ca n he d etermin ed .
JJ. a. 1\ tri al ha l ;m ce i '> a li '> t of :JCCO llll h \\ ith tft cir h;tf ;t ll l"L'' ;tt
;1
E x pen '> e '-> mu o., t he '>uhtractcJ . not aJJeJ . an J l .i ahiliti c-, '> hould he
g i ve n tim e. Th e oth er choic e'> arc in c orrec t hcc;t li '>L' i h l til L· tri;tl h;tl -
added to the ri ght -,ide or CtjUat ion. not to th e l e ft <. id e : ( hj O w ner' '>
Draw ing '> muo.,t he.: o.,uhtractc.:d . not aJJc J : anJ (c) O w ner ·'> Capital anJ
ancc doc<., not pro \·c that journali; c d tr<lll '>< tc ti Pih ;trL' Jll :JthL'lll:t ti c· :tih
co rrec t: (c) if :1 journal entr y i '> po'> tc d t \\ i cc. th e tri ;tl h;tf ;tJt L·L· \\til
Rc v<..:nue '> mu '> t he addcJ . not <.uhtractcd.
'> lill balance: and ( dJ th e trial ha l:lllcc doc '> not prm c th :tt all tr;tn ,:tL· -
fi . h. Preparing an income <.tatcmc nt i <. not part or th e recordin g
ti on '> h ave bcc.: n rec ord ed .
procc ..,.., . Choice '> (a) ana ly zing tran-,act ion '>. (c) c ntcri n g tran '>action '>
14 . c. Th e trial halan cc w ill not hal :tJK C in thi .., c; t'c hc· L·; tli 'L' tilL'
in a journal. and ldJ poo.,ting journal entric-. arc a ll part or the rccord-
debit of ll.OfHI to O w ner' ~ Dra w in g'> i ~ not eq u al to th e crcd it •1f l l I HI
to Ca'>h. The o th er choice~ arc incorrec t bccau ~c.: (; 1 J if :1 etliTL'ct jllur-
i ng proce'>'->.
7 . a . The journa l i -, a hook or o ri gina l en tr y . Th e o th er cho ic e'> arc
a ll true o.,tatemcnt '> .
nal entry i '> po'> tcd t w ic e. th e trial halanee \\·ill ~ till balance : ( hl if tile·
purcha '>C or '> Upplic '> on account i '> dchitcd to Supplic ~ ;utd LTL·d it c·d
8 . c. The purcha-. c or <.upp lie '> on accou nt re'> ult '> in a Jehit to Sup -
to C a ~ h. C a'> h and Account'> Pa y ahlc \\·ill he utHicr ~ t;ttcd hut til L· tri ;tl
halancc w ill ~ till halancc : ;tnd (dJ ~ incc th e debit and crL·d it <Llllllllllt'
plico., and a cred i t to Acc ount'> Pa ya ble. The other cho ice '> arc incor-
arc the '> alllc. the trial balance w ill ~ till b;dancc hut hlltlt :\cc·llllllh
rect hecau-.e the purcha'>c o r '> upplie -, on accoun t re'>u lt s in (a) a dchit
Paya ble and C.t'> h w ill he o vc r~tatcd.
to Supplie'>. not Suppli c<. Expcn '> c. anJ a crcJi t to Ac count '> Pay able .
not C a'>h : ( hJ a debit to Supplie -, . not Supp li e-, Ex pcn '>e: anJ (JJ a
15. a. The total debit column= S.:'i.l)()() (Ca~h) + S-HUHHI (SalariL''
and Wages Expcmc) + S IO.OOO (Rent E x pcn~c) + S l:'i.()()() (Ch, ncr· ,
credit to Acco unt'> Payab le. not Accou nt '> Recei vable.
Dra w ing'>)+ 5 61 .000 (Equipment) = S l 3 1.000. The nmtnal hal;utcL·
9. h. The cor rect orJe r or the account'> in the l cJgcr i'> a'> sC t'>. liahili -
f{Jr 1\o.,~c h . Expenses. and O w ner· '> Dra w ing ~ i'> a debit. TilL' llthcr
tic'> . o w ner·-, cap i w l. o w ner"-, draw ing '>. reve nue '> . cxpcn'>C'>. The other
choice '> arc incorrect hccau\c (h) re venue of SX:'i.IHHI ~il11uld nut lx
choice'> arc incorrect bccauo.,e the y do not re flect thi s order. Th e order
includ ed in the total of $2 16.000 and it s normal h;d;lllCL' i s a LTL'dit:
of the accou n t\ i n the ledger i -,
(c) the total of $ 9 I .000 i ~ m i'>'> i ng the Salaric'> and W;tgcs E.\ pcn~L· ( 11'
( I ) '>latement or fin ancia l posi tion
account-.: ao.,'>el. l iab ilit y. and o w n er' s eq uit y account'> (ow ner 's cap-
540.000. whic h has a normal balance of a debit: and td) tilL' t(Jt;d uf
ital and ov.,ne r· .., dra w ing o.,J: and th e n ( ~) income '>tatemcn t accoun t'>:
S I I 6.000
re venue'> J.nd cxpen'> C'>.
i s mi ss ing the Owner's Drawing'> of
normal balance of a dchit.
S l.:'i.OOO.
which h;t~ a
Practice Brief Exercises
!denrif.\ · unD IIIII S ro he dehired und
credired
I. (LO 1) Tran sactions f(Jr Potter Designs for th e month or May are presented b elow. Identify the
accounts to be debited and credited for each transac tion.
May
I
Warren Potter in ves ted £22.000 in the business.
6
Paid office rent of £900.
12
Per!(Jrm ed cons ultin g se r v ices and billed client £4.400.
IX
Purchased equipm en t on acco unt for£ 1.200.
So lut ion
Account Oehited
I.
1\11a y
O w ner·" Capit ;tl
,.,
IX
Lquipnt c nl
Acu1un t ~
(o
/ (l u rnu/ 1. r / J"rllf'r/1 !lu ll \
Account Credited
Ca'>h
Rent 1-·: x pcn '>t:
Ac L·ounh Rccc i va hk
c · a~h
Ser v ice l<c,·cmtc
Pa y ahlc
2 . ( LO 2 ) l ·" i ng th e dal <l from PnH:ti<:e B1·ief Exe1-cise I. jou rna I i ;c th e t rathaL·t ion~ ( olll it ex pi ;mat ion " l
Pract ice Brief Exerci es
2-27
Solu t io n
2.
Ca~ h
M ay
~ ~ .000
o,, n c r· ~ Ctpi ta l
Re m
6
~ ~ .000
Expc n ~c
l)l)()
Ca~h
l)(l(}
:\L·cuunt ~
Rccc iYabk
Scn·iL'L' Rc,·cn uc
12
IX
4.-WO
4.400
I.~Otl
Equipment
ALT llU nt,; Payahk
1.:::oo
3. (LO 3) Selected tran saction s fo r Santana Outtittcrs a rc p resented in juurnal form helm\·. Post
the tran sac tio ns toT-acco u n ts . tvlake o ne T-account fo r each and de termine each acc·ount' s ending
ba lance.
Jl
Date
Accou nt Titles and Explanation
Debit
Ca~h
6
June
Ref.
~~- (}()()
Owner·,; C apital
(Ow ner' ,; in YCo< tment nr ca,; h in
1:\
1-+
Credi t
~~ .000
bu ~ in e,;,;)
Accn unt ,; Rcc c i,·abk
Sc r,·icc Rc , ·cnue
( 8 i li ed rnr ,;e n ·icc·,; pcrro rm ed)
x.~on
C a sh
.'\.70ll
x.~n o
3. 700
Accuu nt ~
RccciYahk
( Rccc:i vcd ca,;h in payment <lr ac·L·u untl
Solu t ion
3.
.-\ccounts Recein1ble
Cash
~.200
(1/l_-;
22 .000
3. 700
6/6
6/!4
61!4
:uoo
Bal. 4.500
Ba l. 25.700
Owner's Capi tal
Se1·v ice Reve nu e
I 6/13
6/6
8.200
::22 .000
Bal. 22.000
Bal. 8.200
4 . {LO 3) Selecte d journal en tr ies for Santana Outtiue rs are prese nted
Exercise 3. Post the tra nsact ions us ing the standard form of accuunt.
in P1·actice Bl'ief
t~ ( clCCO/llll.
Solution
-t Cash
Date
.June
Ex planation
6
1-l-
Ref.
Debit
Ba lance
Jl
JI
22.000
2 2 _()()()
25. 7 ()()
_1, _7()()
Accounts Rece ivab le
Date
Explanat ion
Ref.
Crcdt t
Ba la tlc<..'
~.201)
JI
.I l
.Ju ne I _1,
14
3.700
4.50()
Credit
B ;ilan cc
Senice Revenue
Dat e
f:.xp lanation
Ref.
rkhi t
----------~-----------------------------------------------------
.I LII1 L'
I -~
.1 1
X.2 1lll
Owner's Capita l
------=------------------- ---- ---l: \ pLttlat i<lll
Date
.J LII1 C
(l
Rd.
.I I
Posrjourn ulcnrrit' ' ro srundurd f(>nn
lkhit
2 _2_ ()( )()
22. t)()()
.
2-2 8
C H A PTER 2
/ 'rrpflrt' 11
Th eRe co rdin g Pr o cess
trial hululltF.
5 . (LO 4) From th e ledge r
<tCC<Jllnl ~
he lm\. prep;1re ;1 tn;d h;d;lltce f<H l .ec 111\e>llllt:llh .11 I k·,·c1nhc1 31 .
2020. l .i ... t the acco unt ~ in the ord er .,IHJ\\ n in th e te\th<Hlk . :\II ;ln'<Jllllt h;do~nLe" ;11c 11<11111.11 1.1111<'11111'
in thou ~a nd ., J.
1\eeoun t-.
Suppli e ..,
l·~ece i v ah l e
y I IJ.!HHJ
..J. I IHi
1\ecount ., Payab l e
O w ner· ., Dra w ing ~
Ser v ice Hevenue
S;,i;!ric.,
;111d
3 ..') 1)()
I . I ()()
( ';1'-.h
~- '()()
\
\\'age'- l : \j1C11'-e
Rent 1·. \ pcn>c
( h \ ncr'' ( ·;,pit;d
1.~()()
Jtl. ~tHI
( 1, 1 )( )()
I I .I HHi
Solution
5.
Lee Investments
Trial Balance
Decernber31,2020
C r·e d it
D e hit
y
c a ... h
A ccoun t'> R ece i vab l e
( ),( )( )()
I II .!HH J
..J . I ()I J
Supp li e ~
y
A ccou nt .., Pay ah k
O w ne r ·.., Cap it a l
\ ,) ( )()
J II .~ IHI
O w ner ·.., Draw in g "
Se r v i ce Re venu e
1 . 11)()
Sa l ari e.., and W age " E x p en " c:
Ren t E x p en \ e
2.'"\ ()()
I I .IHHI
I . 200
Y2 -U!Hl
Y2..J .71HI
Practi ce Exerci ses
.·\nulv::e undjou rnali:.e trun.1aUirm.1.
I. (LO 2) Pre'>e nted helow i '> inl<>r m ation rela ted to Provence Rea l b l ate Ag ency.
H enri Bos beg i n '> hu '> in ess as a real estate agen t w i th a ca sh in v estm e n t o J' €.'"\0.()( )( ),
Oc t.
2
3
6
27
30
Paid r ent, € 700 . on o ff ice space .
Purchases o ff·ice equ i pm e nt l'or €2. HOO , o n account.
Sell s a ho u se and l o t lo r A mit Das; bil l s A m it Das € 4.400 I(>J· rea l ty ser v ice s pe r l(>nm: d .
Pays € I , I ()0 on th e b a l an ce r el ated to th e tran saction oJ' Oc tobe r 3.
Rece i ves h ill l'or Octobe r uti l i t i es . € 130 ( not pa id at th i s time).
Instructions
Jo urna l i /e th e tran sact ion s. ( You may omit ex pl anation s )
Solution
GENERAL JOURNAL
1.
Accoun t Titl es a nd Ex pl a na ti o n
Date
Ref.
I>ehit
Cr-edit
\ ().( )( )()
O c t.
ca~ h
\ 0.1 )()(I
O w ne r· , Ca rit a !
2
:\
Re nt Ex p e n ~e
Cas h
27
71)(1
~. ;-.( ()()
F qu iprn e nl
Acco u n l ~
()
71)()
:'.X OI I
Pa ya b le
Accuu n h Rece i va h lc
S e r v ice R e ve nu e
Ac c ou n h P aya b le
-l. -11 )(I
-1 .-llll I
I . I I HI
. I I HI
ca ~ h
.1 ( J
U tiliti c ~ F. x p c n ~e
1\ c cu un t ~
Payab le
I \ il
I II I
Pra ct ice Exe rci ses
2. (LO 2, 4) T he T -acc o unt :-; bc km · :-; umm ari 7e the ledge r o f Depnt C n m pan y a t the end n f the
m o nth of o pe ra ti o n:-; ( in .S. do ll ar ~) .
Cash
1.200
Lnearned Senice Rewnu e '\o. 109
700
1.600
-+I 15
-+125
16.000
-+II
-+11 2
-+129
No. 101
t i r ~t
1.600
900
1.600
.+n o
Accounts ReceiYable
2.9oo
-+17
I -+129
Supplies
-+1-+
1.900
Owner's Capital
No. 111
I -+II
YOO
16.000
Se nice Rewnue
No. 126
'\ o. 301
'\o . .tOO
2.900
1
1.200
Accounts Paya ble
l.ooo I -+1-+
-+125
Salades and \Yages Expense '\ o. 726
No. 201
I. 900
7oo
-+11 5
I
Instructions
a. Prepare the Cllmplcte ge ne ra l j o urnal ( including e xp lanati o n:-; ).
b. Prepare a tri a l balanc e a t A pril 30. 20 20.
Solution
2. a.
GENERAL JOURNAL
Account Titles and Explanation
Date
A pr.
I
Ref.
Debit
101
I (1. 0 00
C as h
0\\"J tc r· s C apital
(0 \\·nc r· s i n\·c st mc•nt llf cas h in hu s i nc·ss)
·'0 I
S uppli es
Account s Paya ble
( Purc hase d su p plies o n
20 1
-1
7
12
IS
25
29
.\ 0
126
I b.OOO
I .lJOO
1. 900
~lL"U Hint )
Acc·o unt s Rccc il'a b lc
Se rv ice Re ve nue
( Bille d n tstu mc rs fur sc n ·icc s pe rfo rmed )
-1 00
C as h
Sc n ·icc Reve nu e
(Re ce ived cas h fm ser v ices performe d )
-10 0
11 2
I0 I
Sa lari es a nd Wage s Ex pe nse
C ash
(Pa id s a la ri e s to date )
726
Acco unt s Paya ble
Cash
(Pa id n cdi tors on ac c·ount l
201
Cas h
Ac·u1 unt s Rece iva bl e
(ReL·c ivc d cas h in pa y me nt o f accu unt )
I0 I
II .:'
Cas h
U nea rn e d Ser v ice Rc,·e nu c
( RcL·e i,cd c ash fo r future sen in :s )
2()l)
2 .90 0
2 .lJOO
1. .::' 0 0
I . .::'00
70 0
700
I0 I
1.60 0
I .hO!l
101
I0 I
b.
Depot Company
Trial Balance
April30, 2020
Debit
( "as h
C t·edit
') I 7 ..+00
/\ c'L"\l Unt s R c'L'c' i\ ;t hk
2 . !)()( )
SuppltL''
I -'i t Hl
<) 0()
l)( )( )
1.60()
1.6( )( )
2 -29
Jt,:trn; i::t- ;r; iS!il·:: «,,;_,._ .. il' ; t:~-~·,\:nJJ
f Ih: 011 i pn.·l~ - u~· .; .#r: . ;: i ·.. : ·. : l ;t·t-.
2 - 30
CH I PTER 2
T h e Reco r d i ng P r ocess
,\cc <l ll ll l '> l '; cy;chlc
[ · n c;.~ rm: d Sen rL·c l<c \c rncc
( ) v,
\()(I
.Ill HI
n c r· -, ( ';.p rl ;cl
I 11 .I HHI
-1. I 01 I
Sen i cc l<c' c rnrc
S;cl ;cr i c " ;c nd \\,'; c).!C " 1·. \ p cri " C
"22.1 Jill I
._,22.1111()
Practice Probl e m
./fJU rrttl fl .~: r' / rf /1 / 'J flf / / I JrJ ',, fJf! 'H , 011d
fJr t'f H irr· u l rfft! IHiltll lf r ·.
(LO 1 , 2 , 3 , 4) /1. g rn up o f " lu d c nl '> in I l on g K o n g o p ened I he ( ·am p u-, l .;c u rHi ro rn; ll o n Scp1 c rnhc r I .
21J 2fJ. D u ri n g th e lir-.. 1 nH,nlh o f opc r;rl i"n " . lh c f" llc m in g l r;c n '>;rc li "n" occ LIITc d .
f .il y . o n c CJf lh c o w n e r '> . in vc'> l c d II K 'S~ !J. I )( J() L· ;, -, h in th e hu , in c"'- .
Se pt.
T h e CIJ ill)l LI II Y p ;tid Il K 'S l .IHHI G t'> h f()r ... ,,, rc rc ll l f()r Sc p l c mhc r.
l'u rc h a '>e d w a -, h e r '> ;111 d dr y er'> l o r II K 'S~'i . !J()() , p ;c : in ,l,! II K 'S IIJ.IHHI i n L·:I" h :1 nd ' 1 ~ 11111 ~ :1
.l
If K ') I 'i .IHHJ. (HIIIJillh . I ~'; ''"' c p a: a hie .
...t
l';cid I I K 'S 1.21HJ fCJr ;, c1n c - y e;1r ;c c ud e nl rn '> ur;1ncc poli c: .
l<c c c i v ed a h ill f rom I h e /J ui/ 1 .Vel\
1IJ
1
fc 1r "n l in c ; l < h c n i -, in ~ "' I he "JlL' Ilin ):' of th L·
l a undrom a l II K 'S2 1HJ
2()
r .il y w ilh dn.: w Ir K 'S 7 ()() Cd '> h fllr fl l:r'> llli ;cl lJ <, L' .
l iJ
Th e company deter min ed lh al c1 " h recc ipl " li1 r idur1dr) '> en·icc ' f( ,r lilc ll llll llh ,,·ere
r r K 'S6. 21HJ
Th e c h a rt of acco unt '> for th e c ompan y i -, I h e '> alll c
;c -,
that for Y:1zi ci ,\th erll , ll l ):' pit "
:\ll . h i ()
/l. d ven i -, i n g L x p e n '>e .
Instructions
a. J o urnalize th e Sept e mbe r tran , ac lion ;, . ( u,e .II for th e _journal page lllllllhe r.)
h. Open led g er account;, an d po ;, t th e Sep l c mher tr;l n ;, action;,.
c. P r e pare a tri a l ba l ance a t September .1 0 . 20 2 0 .
Solu t ion
Jl
GENERAL JOURNAL
a.
Date
Account Titles and Explanation
Ref.
lkhil
J()l
21l.lll II I
('n·dit
211211
Scrt .
I
C·a , h
I h1 ncr
, c·<~ri t : tl
21l.t II Hl
·' Ill
t(h\ IIL'r· , ilii C'>illlCIII o f L·;t.'> h in hu , in<.:.'>'>l
2
f~C ill f-: X[lL'n'>C
C·a , h
72LJ
I .I HIll
I .001 l
Jill
11-':cid Scpk·mhc t· rent 1
~
E4uirnH.: nt
Ca,h
N ot<.: ' hcy ahl<.:
1.'1 7
2.'1 .I HIll
I () I
I ().I HHl
21 )(1
l .'i.IHIII
(Pu rL· ha,..:d l aundr y cquipnlL'nl fell· L'<l'> h
anu 6 - m<Jnt h. 12'/, 11< 1IC pay ahk 1
4
Prep aid I nsuran<.: e
Ca sh
I _, 0
I .200
1.200
I0 I
(Pa id o n<.: - year in suranc e po licy l
I()
.. ,..
i\ d v<.: rti -, in t! E x pe n -,<.:
;\ c c\l LIIll ' J>ay ahk
I
R CL"L'i ve d hi ll rr\llll l>ui/ ,· Ne \\ ' \ l'<)r
adve rti ..., ill g )
6 10
2tl I
200
~ Ill
I
Practice Prob ler
...
,..
Oat~
:\ccn unt Ti tl es a n d Ex pl a n a ti on
Ref.
Cn,di t
Dl·b it
:20:20
Se pt
20
30
0\\' n..:r· s Dra\\' in ~s
Cas h
(\\' ithdr..:"· cas h r,,r persona l usl'l
_,0(1
Cas h
S..: n ·iL·..: R<.:VL'nliL'
(R..:c..: i,·..:d cash !'or 'en·ices pcri'ormed )
I0 I
400
700
-oo
101
h.
6.200
6 .2 00
GENERAL LEDGER
Cas h
Ex planatio n
Date:
Rd.
'\ o . 101
Debit
Credit
lblanL·e
2020
:20:20
Sept
JI
JI
JI
JI
JI
JI
I
.,
-
·'
-f
20
30
P r~ p a id
Date
Ex pianal io n
:2 0 .000
I .000
I 0. 000
I .200
700
6.2 00
lns u r:m cl'
Rd.
D..: bi t
:2 0. 000
I 9.000
9.000
7 .~00
7 . I 00
Sept.
l .UOO
Sept.
RaLuKe
JI
-f
I . :200
I .200
Da te
Ex planation
ReL
Debit
Credit
Ba lanCL'
2020
B :!l : m ,·~·
·d ll
:no
200
.I I
'\o. JO I
Da te
E\pbn:lli<ln
Ref.
I
JI
I
:2020
c
Deb it
·dit
20 .000
B:li :m,·<·
2ll.ll00
I
'\n. 30 6
O w n er' s Dra" in gs
Explanatiun
Da te
Ref.
C •·ed it
Se pt.
20
o~ tl~u h.:t..'
Sen·ice
c'\p lanati<l n
Dall'
- l)tl
.I I
R~n· nu l'
RL· f.
'\o. -HlO
Deb it
2020
JI
·'
N ot ~s
Da te
E.'\p lanati un
:2.'\ .000
2.'\.000
Sept
_;o
Jt
'\o . 200
P aya ble
Rd.
D..: b it
C redit
Ba lanL·e
1.'\.000
15. 000
2020
Sept
c
De t>il
O w ner's Capi ta l
'\o . 157
E quipm ~ nt
Sept
I
Ref.
2020
20:20
Se pt
I0
i\o. !Jll
C redit
'\ o . 20 1
Accoun ts Payab le
E\pbnati<Hl
Date:
I
C redit
I
(). 200
BaL!ncc
6 .2 00
.- \ dwr t ising Expe n se
Exp lan atiun
Date
R<.'I..
D L' h ll
'\o. 6 10
C rc<I il
B ~ l l:HlL'C
2020
3
JI
SL'Pl.
JI
10
200
200
'\o. 72 9
Re nt E xp e n se
Dat<'
Exp lanatiun
Rd.
DL·bit
20:20
Sept
c.
JI
2
I .000
Campus La undromat
Trial Ba lance
Septembe r 30,2020
Debit
Cas h
Prepa id In sura nce
Equi pmen t
Note s Payab le
Accou nts Payabk
O w ner's Ca p ita l
Ow ne r's Draw in gs
Se rvice Re ve nu e
Adverti s in g E.\ pe nse
Ren t Ex pe nse
Credit
H K ~ l _, __l.Oll
1 . .20()
.2).()()()
H K), I ).(HHl
,2()()
2ll.l )( )()
71)()
(1_,2()()
,2 ()()
I .I l()()
H K ')...l l -1-! Hl
Il l\. ),-1 I .-1-l Hl
c.·rcdn
B alanc<'
I
I -OOll
2-31
CHAP T E R 2
2 -3 2
Th e Re co r ding Proc ess
Qu e stion s
;t<.<>llip<~t ll l<i cnt1;.. ;111d p1<~\l<k .ti!L'\,IIIIJ'k
I . /Jt.: -,c rih c th l: p<.Jrl '> ()fa T -<.Jcc<JLJ1!1.
Lt l k ..,L JJhc
2 . -- Th l: l l:r m -, <.kh it <.Jnd ern/it lll l:<t 1! in c rl:<t'>l: and tkcn.:a'>c . r c.., p cc ·
1-l . a. '-;itcHtld hii" III L'" " tr ;IIJ ".tdl" ll deh!l' .111d cll'llil' I'<" lc'c<>r,kd
cftl cL·fJ\ Ill lite Jni ,!.CCI <ILLPIIJl l ' '
l l 'll: l y. · · /) ,, j()U C!f!fl:l: .. l :x plain .
1
h. V\it;tl <~re lit e ;~<h<tn la!.Ce" "' f"'' I L'L'" IdJJt .!.C IJ.IIl ' -'''''"h 111lhL·
3 . Pl: tl: 1/a r c iJLJft. a kllcm '>l utknl. c cllltl: l ll l " th;c l th e clccuhlc en try '-Y'> Il:m ml:an -. l:ach lf<Hl '> acti()n llli J'> I h l: reco rd ed t \1. i cc. I " / ' e tc
c iJrrl:ct '.' L 1. plain .
-l . .\.kli -.-.a L '> tl: '> . a h q :innin !:! <tCC ()LJntin g -, tud c nt. h c l i cvc" d c hit h; cl -
fCJIII ll<tl ;11td th e 11 P""'"lC: '" tit L· lni ;.:L·I '
I S. T he ;tcCmliJI lltllllhe l 1' L' llll'J ed ·" tit l · l;c , l ' ' L'I' 111 Jl'""":! the
;tlll!llllll \ frCJilltiJ e f<lllrll ;t/ IO liJ L' kcf _
!.CL' I \\ ll<tl l' fil l ' ,Jt/l.,tlli.I.!.CL' l>f lhi'
ancl:'> arl: fa vqrahk and LTl:dit h;tfa iKl:" a r c unfa\·orahlc. h .Vk l i "" "
" tcp ..'
correc t '.' fJi '>C U'>'> .
lf1 . J<Jllrn;t!i ; c th e lollcm in !-' hll .., tll e"' lt ;lfl \; ll' ll<•ll ' .
5 . Statl: thl: ruk -, of <.khit and c rl:dit
lhJ Jiahi/it y LlCCC JUDh. and
(cj
a '>
a. ,\JhcriCJ l<i ,e r <t i11 'e" t " E7 .1HHI L·;" ll 111 til L· htl , lll l'"
<lp pli l:d to (a) <l ""l: t acc ou n t....
thl: CJV.,nl: r· -, l: t.jUil )' aCC CJLJnt '> ( rl:Vl: JIU C.
h.
ex pl:n '>l:'> . n•;;nl: r ·.., draw in g.., . a nd ow ncr ·., ca pital).
6 . Wh<.JI i -, thl: nCJrrnal halancc f<Jr l:ac h of th e fo i i CJ w in g acc ount < '
(a)
At:t:IJUnh R l:t:l: i V<.Jhk. lhJ c· a..,h.
Payahk. l l:J Su v icc
(c)
Wa g l: '> / ·. x p l: n '> l:.
h.
liability. "r a n CJ W nl:r' " l:l.JUity accCJun t and w huh c r it h a.., ,, nonn a l
dchit CJr crcJit halancc Ia) / \ccounh l<ccl: i \·<.J h lc . ! h) Ac coun t\ Pa y a ble.
lc1 h.juipmcnt. ldJ CJ v.;nc r· .., D raw i ng '> . an d (c) Supp li c.., .
<crL' p11rc h ;I'L'd <Ill ;t l'l' tllllll .
17. a. \A ' h<tt i " a lcd ;cc r'.'
lgJ () ·;.ml:r · .., C ap ital.
7 . Indi cate 'N hl:lhc r l:ach CJf the follow in g acco unt '> i .., a n a.'>..,c l. a
€ 2 .( 1(1()
d. C; 1" h of €X .:'i (l() i ' r e<.·e t \ed lt>r 'L'I \ IL'L' " J>LTI<II' IIJ L'l i
() w nl: r ·.., Draw in g'> . (t/ J Acc o unt ...
R t.:\t.:llUl: . (fJ S <.J i ar i c .., a nd
/ n " ur;llll'C ol €X CI() i ' p<tid l or til e \L';II
c. Stippll e \ (),.
y., ·IJ <t t i " ;c cl l ;t rl cd ;tCC CJllllh ;uJd \\ h ) i " it inlpt>rl ;tlll .,
IX. \V h;ct i " " t ri <t! h ;t/ ;tl tce <tlld \\ h <t l <~re i h Jl'".I" "L, ,. ,
Jl),
Vic l c> r Cir1111 111 ,.., ct> nf'u ..,c d ahCJll l ht> \\ ;tCL' <HIIll in ;c ill lt>J' III <t li c> ll
fl o \\ '-, tiJro tJ ):.' h th e ;t CL'< HIIllin ):.' ")' IL' Ill. Jk h L·JJ e\L' ' til L'
f1 <1\\
<If' illf .<lf'-
lll ;ttiCJn i " " " folio \\ '" ·
X. t-or the fo llow in g lran <.., act ion .., . indi ca te th e account ckhill:d <.J nd
thl: account crcditl:d.
b. Hu .., in e\\ tran -, ac ti o n <JCL'lil'".
a . S uppl il: .., a rc purcha..,cd on acco unt.
c. lnf<>rlllation e nt l: r ed i11 the _joum ;t! .
h . Ca\h
i.., ,.,.,.,.
·\. ·d
·gn 1n
· g a noll: p ay ah lc.
·
~~~ 1 <.:
on '> 1
d. l'inan c i ;t! :-, tat e 111 enh arc pr<.·p;~re d .
c . Emp l uycl:'> ar l: pa1d '> a l a ri l:'> in ca \ h .
IJ. l ndic<.Jtc w hether lh '~· f.u II o w in g acco unh gl: Jll: r a ll y
w ill h<.J v c
!aJ dch it cntril:'> on ly . l hJ c r edi t c ntri l:.., on l y . or ( c) ho th d c hit a nd
credJL entrie'>.
I. Ca:-,h
e. Tria l balan ce i " p r e pared.
I ' V ictor ul1Tec!'.1 If 11< >1. imlic;tl e to V ic lor th L' propL·r fl o\\. o f til l'
in l'orm a t i< 111 .
20. Tw<J -, tudenh
5. S ;cl ar ie:-, an d Wage :-,
2 · Al:co unh R ece i \ ah lc.
3 · O w ner'.., Dra 1.1. in g:-,.
a. U e hit " ;111d n c dit ' po .., ted to th e l n l;c n
;m .: di.., c u -,:-, ill ):! I h e u -,e () / a tri ;Ji ha/;t11L'L'. Til L'\ ''.'
dcr w heth e r the l'ollovvin ):.' crn>r ... . eac h L"<lll:-,idered
1-: x p e n .., e .
'>L'p<~r<~I L'i y.
111
-
11
'' ' Jid
pre\ e nt the tri;tl ba l ance from hai<IIKing.
6. Se r v i ce Re ve n u e.
a.
4 . A cuJunr:-, Pa y ah l c.
The b ookkeeper debited Ca-, h for €() ()() ;111d LTedited
S;~l;~riL· s
and Wage'> E x pen se l'or € 600 fur pa y m e nt ul' ,, ·age'>.
10. What ar e t he h· . . .
.
cl:-, il: step:-, 1n th e recordin g proce:-, <, ·.>
11. What ar c th e . d
pmce:-,:-, ·>
a v antages of u sing a jo urn al in th e recorJing
b. Cas h coll ect ed o n account was debited tu Ca' h fp J· € XOO
;~ nd
Serv ice R eve nue was credit ed for €X O.
Wha t wo uiJ yo u te ll th em''
12 . a .
Wh e n e nterin g a tran s· . .
.
.
.
c r ed11 he w ritt
. · act ion Ill th e Journal. :-, hould th e deh1t o r
e n llrsr l
h . W hi c h :-, h ou l d b .
e Inde nted th , t.l .
.
· e e htt or c r et.l 1r !
21 . What arc th e n orma l balance '> f<>r TSMC 's Ca-, 11. /\cc<H IIll '> f' ;J;. ·
ahlc . a nd lnt e re :-, t 1-:xpen:-,e aLTOLi nt <'
Brief Exe r cises
!ndt,
r~t r
1/( hu
t1 11d
1
, .(' r/11
l'/1( '<1 , und
B E 2 . 1 (LO 1 } For e'tCI'
() 1: I . .
.
..
.
l l c lulluw i!H!. accu unts indi catc th ec llcci.' 'J/ (;~); J
dLcc •unt -, and (c) th e nurlll all . I · . , ~.
..
>d ctn ce ot th e account.
I. /\cc o unl'o Pa y able .
•
1/f ' ' ' " ' "
l> tl/111/1 (
••
c
'
1
· 1· · Iii •> nlit L'
<kh ·JI ; !Il L J (I'<I
L Ll
2. A d ve ni .., in g l'. x p e n ,c.
5. O w 11 c r· , Ca pital.
J . \ e n icc J< c,·c nu c .
6 . O w ner·, Draw i n):.'' ·
Brief Exerc ises
BE2 .2 (LO 1) Transactions for Okf! T horn Cons ultin g for th e m o nth of June arc presented bel o w. !d en til\ the accounts to he dchilL'U ~111d LTeditL'd for L~ ad1 tran sac tion .
fdt "I U ~f\ a
t·n ·ciJ :c·d .
"c"c' :II JJ S ; ( , i ~( -
,:·r.·i ·:cr.\ :·
. ;:r :. :·
O leg Thorn im·c sts €5.000 cash in a sma ll '' L'Id inf! business of ,,·hidl he is the sok
proprietor.
Purchases equipment on acco unt for €3.600.
€ROO cas h is paid to landlord for June rent.
Send s ~~ bi ll to K. John se n for €-HlO aftL' r cumpktillf! ,,·cldin f! \Hlrk done on aL·L· llU il t.
June
12
BE2 .J (LO 2) Us ing the data in BE2 .2. j o urnali 1c the tran sac ti ons. ( Yo u may tlm it explanation s .)
BE2A (LO 2)
S hea .J o na s. a k ll m\· st udent. is unL·kar about the h:tsic steps in the rec o rd inf!
process . Identify and briell y explain the steps in the order in ''hi c h they llL'Cur.
f lt ·nu:r~- anci e".\ f':t; i ;
rc ·,·o i ·n_':..' , ,nl.cc·s .\ .
BE2 .5 (LO 1) M. Go nzales has the follm,·inf! tran sac tion s durinf! .~ u g u s t of th e c urrent year. Ind ic ate
(~t ) the e lfec t tlll the accounting cquatitl ll and (h) the debit-credit analy s is illu strated in the tL'Xthotlk.
cll
Aug.
s r c·t·h· ;1:
l ndit"ti!t"hdSit· u : :· <:·c·i ,::.t.· 1\ :·::
uh·s is.
Ope ns an otlice as a linancial adYi sor. inYesting R SlJ .OOO in cas h.
Pays insurance in ad\ ance fo r 6 llHJnth s. RS2 .1 llll cash.
Rece ives R$3.600 from c li ents for sen·icc s perform ed.
Pays sec re tary R$ 1.000 sa lary.
16
27
BE2 .() (LO 2) Us ing the data in BE2.5. journali1.e th e tran saL·tion s. (Yo u may omit explanations. )
BE2 .7 (LO 3) Selec ted tran saction s for the B. \Va nf! E nt erprises arL' presen ted in jtJurnal form hehm·.
Post the transactions toT-accounts. Make one T- ~IL'C\l unt fur each item and determine eac h acc\lunt ·s
end in g balance.
Jl
Date
May
Acco unt Titles and Explanation
)
12
15
Ref.
Debit
AcL·o unt s Rcn:i,·a hk
SL:r,·ice Re\'enuc
(B illed lill· scn·icL'S pL·rformed)
).400
Cas h
Acco unt s Receivab le
(Rece ived cash in pay ment of acL·ou nt )
-+.200
C as h
Service Revenue
(Received cash fur se rv ices lCrfl lrillL'tl )
·' .000
Credit
:1.400
4.200
·' .000
BE2.8 (LO 3) Se lected journal e ntri es for the B. Wa ng E nterprises are prese nted in BE2.7 . Post the
transactions us in g the standard form of account.
BE2 .9 (LO 4) From the ledger balances given be low. prepare a trial ba lance for the Amaro Cl1mpa ny at
June JO. 2020. List the accounts in the order s hown in the te xtbook. A ll account balances arc normal.
Accoun ts Payable $8. 100. Cash $5.800 . Owner's Capital $ 15.000. Owner's Drawings $ 1.200.
Equipment $ 17.000. Service Reve nue $ 10.000. Accoun ts Rece ivable $3.000 . Sa lari es and Wages
Ex pen se $5. 100. and Rent Ex pen se $1.000.
BE2 . l () (LO 4) A n in expe ri e nced bookkeeper prepared the following trial balanc e . Prepare a cntTt:L·t trial
halanc e. assuming a ll accou nt halances arc normal.
Chang Ltd.
Tl'ial Balan('e
Decembet· Jl, 2020
Debit
Cas h
Prepa id I nsurancc
Account s Payable
Unearned Se rv ice Revenue
Owner' s Capital
Owner' s Drawings
Sen·icL' Re venue
S;il arics ami WagL's I :xpL·nsc
RcJ tl F xpL·nse
Ct·ed it
t:: I 0 .600
[ .'\.50()
_., .00()
2.200
l)_()()()
-L"itHl
25. -HHl
I X.h( Hl
2. -HH l
l \ 1.-HHl
l-1 7 .X(){)
P osT j nl t l'/1<1/ <'II Tr i e s To ST<i ll tl<irtl /( >nll
n(
t l< ' C 0//1/T .
2 -33
2-34
C HAP T E R 2
T h e Reco rdin g Pr oc ess
DO IT! Ex e rci ses
l rlrnlij-, norma l ha lunn· \ _
DO IT ! 2 . 1 (LO 1) T o m l<<l'> t h a-. ju '> l rented -.p;~ce in ;a '>I rip rn;all. In tllr '> 'Jl<ICC. h ..- \\Ill open .1 pho to g raph y -. t ud io . to h e ca ll ed ·· Pi ct ure T hi , , .. ,\friend IJ;a, <lth i,etf T om to '- L"l up .1 tf.,uhk c·ntr ~ 'L'l ot
acc ount i n g rec ord '-. in w hi c h 111 reco rd ;all of hi '> hu'>ille'-' tr;m'>:lcli<lll '- .
I d e ntify t he '-. tal e m ent o r lin a n c i ;~l p<~'>ition ;tCCilllllh lh<il Tom \\ rll lih cl\ llccd
(Ol
l <.' <."<lld tilL'
t ra n -.ac t i on '-. n eed ed to open hi -. hu '> ill <.:'>'>. I ndicate '' heth..:r th e norm ;al h;alan c ..· ol c:~d1 "'-·'-·"utll r'
:1
de hit or cn.: dit.
DO IT! 2 .2 (LO 2) Tum l<a -. t eng aged in the folio\\ ill !,' :~eli\ iti..: ' in n L1hJi , J11n !:-' hi " ph"t"!:-'r:1ph\
'-. tud i o . P ictu re T h i '> 1 :
I. Open ed a h an k acc o u n t in th e nam e o f Pict ure Thi -. ' ;a nd d ep .. , i tc.:d lh.:'i OO .,,-hi'"'' n l lll ll l<-' ~ li l t<>
th i '-. acco u n t a'> h i -. in iti al in ve~ t m e nt.
2. Pu rcha .'-.ed p h o to g raph y ~ uppli e '> at a lol;~ l CO'> l o r l J. 2()() _T he hu -. in e-., p ;~ id [--! ()()in l';t,IJ and the
h ala nce i '> on acc o unt.
3. Ohta in ed t: '-.l i ma te'-. o n th e(.;( )'> ( o r ph o t o ):! r<~ p h y equ i p m ent rrolll three d il'k renl lll :l lllll":t..-lllr<.: l"' Pre p are th e j o urn al <.: ntri t: '> to rt:c ord th <.: tra n -. act i o n '>. ( Yo u rnay 11 m i t ex pl:tn ;t ti "n '-. I
1-'rJ \ /
DO IT! 2 . 3 (LO 3) To m R a ~ t rec ord ed th e fo !J o,,·in g tr:~n ~ :~ct ion -. du r in g th t: 1111111th o f :\ p ri L
lrun \ uUion\.
A pri l l
' _-l [)t)
C' a'> h
.\.--ltltl
Ser vice J<c\'c nu c
A pr i l I n
A pr i l 20
7 1111
J<c nt Ex pcn'c
C'a '> h
I
Sa l ari c~
71)( )
~"""
and Wa ge'> l :x pcn'> c
I
ca ~ h
Po~tth e~e e ntri e~ to th t: ca~h T -acc ount or the gene ral led ger to determine the end in g h:~l:~nCL' 111 ._·;t, ll.
Th e h cg innin g h al ance in c a:-- h on /\ pril I w a ~ l i .600.
P repure u lriul hulunce.
DO IT ! 2 .4 (LO 4) The fi >llo w ing
accoun t ~
,_
l·r·,,rll the lcd _
!.!er of Ch illin· Cornp:t ny ;tt
arc t ar; c n
-
D ece mber 3 1. 202 0.
200
N ote s Pay ah le
J OI
157
306
72 6
O w n er 's C ap i ta l
O w ner' s D raw ing :-Sa l ari es and Wage ~ Ex pen se
400
Ser v i c e R evenue
E quipm e nt
R S20.000
I0 I
2 X.OOO
126
xo.ooo
72 9
l). 000
::l X.OOO
212
201
90 ' 000
11 2
C ash
Supp li es
Ren t Ex pen se
Salari es and Wage s Pa y able
Accoun ts Payab le
Account s Recei v able
R S (l_( )( )()
7. {)()()
-U H)()
'\ _()(){)
I I .000
X.000
Prep are a trial balance in g ood form.
Exercises
\ n u l\ : e ' 1U ien Jen!'l
.
u nd !lu ·
uhrnu ,,, .( o u n rt ng
re c·n rriJIIt:, jJI"f)( 'i' \ \ .
E2 l (LO 1)
.
.
I. . t, Jent :-- ·tbuul aL·'-· uunt ~ .
K im Yt has prep ared the fo ll o w in g lr st ,, ~ t el en
· '
l. A n . . .
.
.. _.
, 1 or .1 ,pecilic li abi lit y.
account 1s an accounting reco rd of e ither a :-- pel'! fi t. c~ :--:-- c
'
2. A n acco unt ·1
· 1 1
-1 . 1 it re l ate' !<'Slows on l y m c rc ases . not dec rea"e" . rn l 1C e ll
3 . Some item · - ·I . . , .
.
.. .
b . . 1 ill tu (lilt.' <l l 'Ulll lll.
s, suc 1 as Cash and Acc ount s R ec e rvahlc . arc t.Oill lllLt
4 . A n account h as ·1 1 1· · · I
• < e l . or c red 1t side, and a ri ~ hl. or dehtl
c.
_
5. A sim p le form of. . . .
- ..~
. . I , I · ft ~ id e . ami th e rt ~ ht , ,lk . ' '
_
an dccuunt con ststm g u l JU St th e ac c oun t ltt lc. llc L
·
c all ed a f -ac.: eount
·
"'l
Instructions
Ide ntify eac h ~ l a t e m e nl a ~ lruc o r fal se_ If fal se. indi ca te how to correc t the ~ l ; !l l' lll L' ti L
Exerc is s
E 2.2 (LO 1) Se lec ted tran sac ti o ns tor M . .-\costa. an int e ri or t.kco rator. in her first month of business.
arc as follows .
Jan.
2
3
9
II
16
20
n
28
ftit '/Ji~ ~- de ·/ ifs . cn. ·(i i : S. l ;U ,i- ! : t l r n ; . ; ,;
h, ; -( ; /]l "( ".\.
lnYcsted € I 0.000 cash in business .
Purchased used car fur €.'\ .000 cash for usc in business.
Purchased supplie s on account fo r €600.
Billed customers €2 .400 fo r sen ices performed.
Paid €350 cash for ad\·enising.
Received €900 cash from custo me rs billed un January I I .
Paid creditor €300 cash on balance O\\·cd.
W ithdrew € 1.000 cash for personal use by m\·ner.
Instructions
For each tran saction . indicate the rollo\\·ing .
a. The basic ty pe or account debited and c redited (asse t. liability. t)\\·ncr· s equit y).
b. Th e s pccitic acco unt debited and cred ited (Cas h. Rent Expe nse. Sc n ·icc RcYcnu c. etc. ).
c. Whether the spec iti c account is increased nr decreased.
d. The normal balance o r th e specitic accu unl.
Usc the follmving format. in \\·hich the January 2 tran saL'lion is gi\·en as an e xample .
Account Debited
(c)
Account Credited
Date
(a)
Basic
Type
(b)
Specific
Account
Effect
(d)
Normal
Balance
Jan. 2
Asset
Cash
I ncrcasc
Debit
Bask
Type
(b)
Specific
Account
0\\·ner· s
Equity
Owner· s
C apital
(a)
(c)
Etrect
(d)
:\ormal
Balance
lnuca sc
C redit
E 2.3 (LO 2 ) Data forM. Acosta. int erior decorator. arc pre se nt ed in E2.2.
./l l l i l "llcJ ! i :< · fl"t l llS( / (" f ic )/ l.\ .
Instructions
Journali ze the transactions us ing juurnal page J I. (You may omit explanation s .)
E 2A (LO 1) The follo w in g in formation re late s to Yansheng Real Estate.
Oct.
2
3
6
27
30
Biao Yan she ng begins business as a real es tate agent with a cash investme nt nf H KS 17 .000 .
Hires a part-lime admini strati ve assistant.
Purchases supplies for HK $ 1.900. o n account.
Sells a house and lot for C. Chow: bills C. Chow HK S3 .800 for realt y se rv ices pcrfurmed.
Pays HK $ 1,300 on the balance related to the tran saction nf October 3.
Pays the administrative assistant HK $2 .500 in salar y for Ocwbcr.
Instructions
Pre pare the de bit-credit analy s is for each transaction as illu strated in th e tex tbouk.
E 2.5 (LO 2 ) Transaction data for Yansh e ng Real Estat e arc pre se nt ed in E 2.4.
Instructions
Journali ze the transactions. (You may omit exp lanation s.)
F2.6 (LO 1, 2 ) Le nnon Indu stri es had the followin g tran saction :--.
1. Burrowed €5.000 from th e bank hy signing a not e .
2. Paid €3. YOO cash for a comput e r.
3. Purcha sed € 650 of s uppli c~ on accuunt .
Instructions
a . Inti ical l' w hat aL·u
lUilh
<lrL' i llLTL'a ~c d ami tkLTL'<I'-L'd h) C<tl'il ! r;~n "ac ! iun .
h . .Journ;~li;c L'al·h tran "a l'lJOil . (0 nlill'X pi <111a!Jlllh . l
A n,llY: <' frwl., u<'fion .' unci dl'f<'rlllill <'
l h t •i r
<:/li'<'f ., 11
u , -, .0101 /., .
2 -35
2 - 36
The Reco rdin g Proc ess
C HI PTE R 2
,\ ul/1 ,:: r·
/rrll " ll' /llt/1 \
1/ Jifi J"Iir lltil r: r·.
E2.7 (LO 1 , 2) ()n )! Lnt e rpri ~ e ~ ll ;td til e l1>ilt•' '· IIH! '-t' lct tn l tl .t ll '- .ttll<lll '1. B o l! ai i;Hb y i ll\e ~ t e d ' T ~-HJ . Ij(J( J L;l'- 11 111 til t· bu , ll tl' '-'
2. Paid offi ce rent 11f . 'T SX.-HHJ
l. fJc rft >r m c d c ()n ~ ultill ).! ~ en i c c ~ ;111d hill ed ;t L ll c llt
-l. Ht > J!;dl aday v. itlalrc\~ .'\'·1 <;, 7 .'i0fl L-; ..,11 l111 pc l '-lllt .tl
Instructions
a. i ndie<tl c th e e ll cc t e ac h t r:tn ~ :tc ll llll II<~ '- 1111 tile acC IIliiiiiJJ _l! t'ljlt.tltlllt
I A ~ ~e l ~ = I . iahi l iti e ~ + ( ) v. JI CI · ~ l ·. qttll~ ). 11'-lll,l! pit~' and 1111111~' '- 1).! 11 'h. Journ a li; e e; tcil tr:~n '> :t C II IIII .
/ fJurnfll t:·r· '' \ r·ru· \
()
/I rtl/1 \{ If
f(
l nnt c'\pla iJ:tllllll '-
1
I/ (I ll \.
Pai d ltHJJII iil y re nt ol <;, 1.2 fHJ .
l ' e rfo nn c d '>e n · icc'> lor .;, I (l () 0 11 ;tccount.
.\1 ar c h
X
l ' c rfornJ c d .,c r v icc'> lor c :t '> ll ol <;, 7'i .
Pu rc h <.t'>cd c qu ipn1 c nt l11r <;,(l fHJ . T il e
12
acco unt.
R ece i ved ca'> h frt llll
~a l ari c '>
and
Clll11p;11J~
c u '> lli i JI Cr~ hi l led 1111
\\a _l!C~ Ill c mp l o )Cn o l
1
p:t ld c :t '- 11 11 1 ')'JIJ :t nd tilL· b;tl ;tll l ·c \\,1' ••1
.\ L trc h 1.
')'i2'i
14
Pai d
22
24
Paid uti liti c~ of <;, 72.
Borrow ed <;, l . .'i fHJ from ( ir;tl tllll Sta te Bank h ) ., i ,l! nill ,l! ;1 not e
27
2X
Paid ') 2 2 0 to rc p;1ir ~e n icc for plulll h in g l'<..: pair-.
l'a iJ balan ce alll o UJJI o v.c d fro111 equip111 CIJ I purc ll ;t-. c 1111 \lard1 X.
30
l'a iJ S I .XOO lor ... i x n1onth '> ol in ~ ur:tn cc.
Instructions
Journa li ; .e th<..: tran '> act ion '>. !Omit ex plan atillll '-. 1
Record Journal
·
e nlrtt' \ .
E2 .9 ( LO 2) On A pcil I . AU w n• n ' " ' T' "'" ' Agenc y hcgccn "P"'"' i• "" Th e
I<'""" ing n·'"'"" """' '""''
compk t<..:J Jurin g th e month .
I. O w ner in vc'> i<..:J S24 .fHHJ in th<..: hu ., in<..:"-
2.
Ohtain eJ a h ank l oan fpr S 7 .fHHJ hy i.,.,uing a nllt c ra y ahlc.
3. PaiJ S 11 .000 ca'>h to bu y equiprncnt.
4. PaiJ S 1.200 ca'>h li> r A pril ollie<..: rent.
5. Paid S 1.4.'i0 l o r ... uppli <..:'>
()
.
I f
6. Purc h a'>cd S600 ol aJ v<..:rt i -. ing in th<..: /Joi/r<l' !-/em/d.
on account.
7. Pt:rli>rtll<..:J sc r v ic<..: '> fo r S I X.OOO: ca-.h of .n2.00
wa'> r<..:c<..: I V<..: L
c u stoiJJCJ''>. ;ulll the
hal~tiJL'l'
r<Jill
S 16.000 w a'> hilkd to cu-.tolllt:rs on account.
8. Cas h w ithJrawa l of $400 hy own<..:r for pcr-.onal u s<..: .
9. Paid th <..: utilit y hill for the 1nonth . $2. 000 .
HI. Paid !Ja il\" !-fe mhlth<..: alllount Ju<..: in tr an sac tion ( 6 ).
11. Paid $ 40 of int<..:r<..:s t on th<..: hank loan ohtain<..:d in tran -.ac tion
(2).
12· Paid employees' salaric'> and wag<..:'>. $ 6.400.
13 · Received $ 12 ,000 c ash fro m cu-.tom<..:r'> hilkd in tran -.ac tion (7).
Instructions
Journ alize th e. ltan
.. sacllon
.. . s. (Om .1t ex planation
. s).
\ u rrl l : r·
'/ tllf ' lllf'/11\
u l>u ll t til c' I (' d ~e r.
£2.10 (LO 3) A im· 0 . .
I
I
t til. ••CIIL' r ·tl icd••LT
a ttl z 1as prepared th e follo w in g li st of -, tal <..: lll Clll.'- a 'lOll
"c
'
"'
"' et a ed ger co lt' · . . II
. . .
.v n ·r·.., eLIU II Y acc· ,HJJL '- ·
I. The "en · 1 1
·
1
atn s .t th e asse t and lt ahtltl y accounto., hu t no O\ c ·
1
23.· TT hhe. o
.
- . - -- ~- .
oeneral
1c~gc
. ..
. t r ·\ S S OITlC l lines
t el ett ed lo as stmply
th <..: ledg<..:r.
.
4 F · e. accoun t s 111
. th e gener al led,
get. ..
ate, .dtran
ged .111 al phabet .ica l ord<..:r.
·
~ dc h
account 111 th e "'
oeneral l ed,get. .ts. numbered
_
l'or eas ier idcntilication .
5 · T he ge neral led ge r i s a hook of or ·t ,o ·tn .d1 entr y.
tlf
Exerci ses
Instructions
Id e ntify each s tatem e nt
a~
E2 . 11 (LO 3, 4) Select e d
bel (m · ( amnunt ~ in ¥
true tlr fahe . If fa he . indiL·ate hn\\. t\l co rre ct th e
tran ~ a c tiun ~
~ t~ltL' ment.
from the journal uf .-\nn \\.un1:! . in\ · e~ tment hrPk e r. a rc prc~cn!c d
thnu ~ and ~) .
Rl'l'.
Account Titles and Expla nati on
Date
Ca~h
Debit
12
, a ;( :· rn·p . . :'r
..
I Credit
:' .Oll()
0\\"ner·s C apit;d
(0 \\·n...: r" s inY<.:Stnl c llt uf c·a, h in hu , inc")
I()
P<).< _.-o :o-,::.1 Cl::r:, · ,
;rid/ b~. : !t in ·c·.
Cash
Scn·icc Rc\·ctlllc
( RcL·ci\·cd cas h fur
.:' .00()
.:' .(100
.:: .ntl!l
~ er, · i c·c:,
pcrf,mn cd )
Equipm e nt
Cash
N<llc s Payahk
:' .Ollll
::.:;no
:'. l Oll
( Purc ha ~ cd
aml n otL·~
25
.1 1
equipment fur cas h
payahk l
.- \ccuunt > Rccci ,·ahk
Scn·icc: Rc , ·cnuc:
( B i Ikd c Ii c:nt ~ for
1. 7tl0
1. 700
~ L· n · icc s
p c: rfurmcd l
<) l)l)
C ash
,-\cuntnt > RcL·ci,·ahk
( RccT ipt uf cash <111 aCL"llltll! )
<)l)l)
Instructions
a. Post the tran s actions to T-accuunts.
b. Prepare a trial ba lance a t
A ugu ~ t
3 I . 2020.
E 2. 12 (LO 2, 4 ) The T-accoun ts be lo w ~ummar i z c the kd1:!er of N c1:!rcte Lambcapin1:! at the end nf the
lirst month of operations (amo unt s in €).
Cash
4/1
cj./12
14.000
4/15
4/25
l)()()
...J./29
-J.OO
-tn o
I .000
3.000
I -+/29
Suppli es
-+!-+
I .~00
1.:'\00
...J./30
1.300
1.500
No . 112
Owne•·'s Capital
I
...J.OO
No. 126
-+!I
Se1·vice Revenue
...J./7
I ...J./1 2
I
Accounts Payable
-+12:'\
Unean1ed Service Revenue
No . 209
I .Ollll
I
Accounts Receivable
...J./7
No. 101
I -+!'"'-
No . 20 1
I . ~00
Salaries and \'Vages Expense
. .J./ 1:'\
No. 301
l ...J..()()()
No . 400
.1. .( )()()
L)()()
No. 726
I ..\00
Instructions
a. Prepare· thL· c· , 11 nplct L' g e tJC ral j(lurnal (inc lu din 1:! c< pianatiun s l !"rutn \\ hic·h tilL' Jh>slttl gs tt> ( ·a s h \\ c' rc·
11l adL'
h . Prc·p ~ trL' a trtal h;tlanc·c· ;tt ;\pril \0 . .:'0 2()
J ournuli::t · lrun .' U< "llOIL' fnHn dct ·ounr
<lulu und f'~"<'f>Urt' u 1riu/ />ulull <"< '.
2-3 7
2-38
CHAPTER 2
/IJurnn! t .~: r ·
Th e Re co rdin g Proc ess
trn rnrt r /tfJ/l \ Jr""l '" r rn111f
rlo ltJ U Jif) f JYr'fHJrr· fl
J-:2 . 1.) (L O 2 , 4) J' n .:'>t: lll c d h c lo v, i '> lil t: Jcd_llt:l fc>r "ifHHll\'.,1 \ ( ·, , l,l lll•otlll! ' Ill ilrc otl, , lllo l ' o•lll
trtul hultlllf r ·.
Ca-.h
3 .1J(J()
I 1!/ I
I 0 / I rJ
I 1!/ I IJ
I IJ/2()
-1()()
I . .') ()()
.') ()()
I IJ/4
I 1!/1 2
I IJ/ I .')
II Ji l l J
2. 1J( j()
IIJ/.1 1
'i iHJ
7.') 1)
4. !J(J(j
I 1!!2.'i
.' \·o. 1111
Acc ounts J< ece iva iJil:
11!/6
X()IJ
lJ4()
11!/2 ()
I
:\o.30 1
Io I
·' .00()
I I J/ _:; ."
2.000
\.''i ll
:\o. 306
~ ( J()
I rJ/
;c J
Sen in · J{n L' lllll'
." \ (). 112
I I J/ f1
I I J/ I I J
:') CJ(J
I 1!/ 21>
:--; o . ~on
I W2 fJ
:\o. 72 6
Supplies
4 1J(,
I IJ/4
I
10/1 1
J·: quipment
2.1HHJ
I IJ/3
I IJ/ I I J
Accounts Pay able
I.SIJI)
I
I IJ/3
72')
-~_') () I
I ()/ l.'i
...... 0 .
:\o.
Rent LxpL'll .'>e
." \o. 157
I
1\iotes Payable
I 1!/ 12
_') ()()
200
-Lf)()(j
.' \·o. 20 I
2. (JI)()
In stru ct ions
a. Reprotluu.: th e journal cnlrie " for the rran ;, action :-- I hal occur-red on ( klohcr I. I IJ. ;trrd 21l. :11rd pru ·
v itl e ex planati o n .'> li >r eac h.
h. Determine the October 3 1 balance li>r each of the account" above. ami prepare
Octohcr
!-'rep
·
. are Journal e ntne \ and {J0\1
U S li7 R \ Ia d
. n wed account j(Jrm.
;1
tri;tl hal ;llrL·c at
3 I . 2020.
E2.1~ (LO 2, 3) Selcctetl tran , action '> f(>r Ann Ling Couture Jurin g it.'> lir;. t lll!lrrth in hu,illL''·" arL' prL'"c ntcd b e l ow.
Sept.
J
I n ves tcd N T S I 0,000 cash in the bu " i ne"".
Purcha,cd equipment /()r N T $ 14 .000 pa y in g NT$4,{){)0 in cash and the habrlL"c on ;tL'L'<HIIll.
5
25
Pa id N T $3. 000 ca"h on balance owcJ for equipment.
30
Withdre w NT'liSIOO c ash f(>r personal u sc.
Lin g's c h art ufaccount.'> , how s N o. 101 C ash. No. 157 E quipment. No. 201 Accoun ts Pay ahk . N<L
-~ ()I
Owner' s Cap it a l , and N o. 306 Owner 's Draw ing s .
Instructions
a. Journalize th e tran sactions on page J I of th e journal. (Omit explanation,.
b. Post th e tra n sac
· ·t·1ons u s1n
· g the stanuaru
.I
- ' acco
· · un t r·
or m ·
\ no/\ : e error.\ und !heir <'[{e u s on
1 rifl l hfllunce.
. I
h
1f error;, in _ journali;in~
E2.IS (LO 4) Th e b ookkeeper for J L. Kan g E quipm e nt Repair mauc a nurn cr'
an d
··
posttng, as d esc rib ed b e low.
I. A c red it p ost in o
·
o
0
f $
52 5 to A cco unt s R ece ivable wa;, omrttcu
· .I.
- ·
2. A debit postino or $75() r·01. p
. In su rance was d c h1t
. c d to I n sur,tnc
. ., .c'Fx
o
·
repa1d
- J>Cil ·SC ·
A ~o ll ect ion from a cu sto m er of $ 100 in payme nt of iu.. account o we d was _journali;cd and Jl<"IL'd
c1s d d ehn to Cas h $ 100 and . . _ .
.
a credtt to Se r v tce R eve nu e $ 100 .
4 . A c red it p os tin g of $ 4 15 top 1_
.
.
ope1ty Tax es Payahlc wa~ m ad e t w tc c .
5. A cas h purc h ase of suppli es for $250 , . .
.
~, s· t.-d as a d c hil t<> ."iupplt L'~ 1-2 ..:; and : 1
c red it to Cas h '£2.'1 .
, - was Journ a ll ;r.ed and ' 1 ~
3.
1
6.
A d ehir o f 'l>n25 lo Adver t i sin g Expense was pos·t Cu
··· ' ciS
. . .on
u· " _,
"' /__
Pr bien s
Instructions
For e ac h crrnr:
a. lnui ca tc \\·hctllL' r the trial balanc e ,,·ill balan c e.
h. If th e trial balance ,,·ill nnt balanc e. ind ica te the a nHlUnl o f tilL' ditlcrc nc c.
c. lnui ca tc the trial balance cn lumn that wi ll ha \c the
C nn s idcr eac h error scparatL'i y. Usc the folhm
in~
lar~c r
tntal.
fnrm. in ,,·hi c h crrnr ( I ) is
~ i ,·c n
as
~m C '\~ unpk.
(a)
(b)
(c)
Error
In Balance
Diffl'rl'llC('
Larger Column
(I)
No
dL•hi l
F 2. 16 (l04) The accoun ts in the led~crnfO\ c rnit c De li very Scn·icc cnnta in the fnlhl\\· in~ balance~ nn
Jul y 3 I. 2020 (amnunt s in thou sand s ).
Accounh Rccei,·able
Acco unt s Payable
C a sh
Eq uipment
Gaso lin e Ex pL·n se
U tiliti e s E xpen se
No te s Payab le
y 7. 640
~U lJ 4
·)
45.360
75~
52 3
17.000
Prepaid ln suran CL'
l\ la int cnancc and Repa irs Ex pc nSL'
SL·n ·icc Re venue
Q ,,·ncr" s Dra\\ · in~ s
(),,·ner· s C apita l
Sa lari e s and \\·a ~e s Expe nse
S a lari e s and \\ ·a~es Payabk
Y 1.96X
l)(-,1
10. 6 10
700
.> x.onn
4. -L2 X
~ 15
Instructions
Prepa re a tri al ba la nce wi th the acL·n unt s arran~cd as illu strat e d in the c ha pter a nd till in the mi ssi n ~
amo unt for C ash.
E2 . 17 (LO 2, 3, 4 ) Beye rs Secur it y pnl\'idcs securit y sen ice s . Sckcted tran saction s fl1r Beyers arc pre sented be low.
.lt)/1/"llcili: c· rnznsa,·Tion .' . pt>s r rrun., u{·tion .' 10 T-oc ·,·ounl.,_ and f'rt'{Jcin· u ·1(:i
ha!clll<'< ·.
Oc t.
2
4
7
R
I0
12
16
21
24
27
31
In vested $ 66 .000 cash in the bu s in es s .
Hired pan-time sec urit y consu ltant. Sa lar y ,,·ill be S2.000 per mnnth. F irst day of \\nrk ,,·ill
be Oc tobe r 15.
Paiu nne month of rent for buildin~ for S2.000 .
Purchased equipmen t for $ 1~.000 .-pay in~ S4 .000 cash and the ba lance on accnunl.
Pa id $ 500 for ad ve rti s in ~ .
Received bill for equ ipme nt repa ir cost or $3lJO.
Prov ided se curi ty se r vice s for eve nt fnr $3.200 nn account.
Purchased supp li es for $4 10 o n account.
Paid ba lance due from Oc tober 7 purchase or equipmen t.
Rccciveu and paid utility bill for $ 148.
Received paymen t from customer for Oc tobe r 12 serv ices pe rforme d .
Paid emp loyee sa lar ies and wage s u r $ 5.100.
Instructions
a . Journa li ze the tran sac ti ons. Do not prov id e e x planations .
b. Post th e transactions to T-accnunts.
c. Pre pare a trial balance at October 3 I. 2020 . (f-lint : C ompute e nd in~ balances ofT-account s tirst . l
Prob lems
P2 . 1 (LO 1, 2 ) Fen~ Disc Go lf C ourse was opened on March I by Lee
and transactions occu rred durin~ Ma rch (amuunl s in th (>U s and s ).
Fe n ~ .
The follu w in~ ~L'kL· t e d
c\"l~ Jll s
Ma r.
.\
5
6
10
In vL·ste d ¥ 20 .000 cash in th e bu s iness .
Purchased Rai nbu\\ Clo l f I "a nd for ¥ I 5 .()()() cas h . T ill' price u >n s i ~I s <1f l ~ tnd Y I 2 .I)()( l. hu JILl
in ~ Y2. 000. ami equ ipm e nt YI.OOO . ( MakL' l1nL' n>l llJ1l1llnd L'n ln .
p ,~id ad \'L' rli s in ~ e x pL'll S L'~ l11 Yl)()(l.
p,1id L· a ~ h Yfl()(l l11r ~ ~ l1nL· -yca r in s ur ~tllL'l' pu li n ·
PurL· h~t .~ e d ~ ~,11 di~L·~ a nd l1thn L'quip ntL' lll fllr Y 1.0'\() frl1 Jil \\ · a n ~ ( ·t \lllp ~ tn \ p ~ l ) ahk 111
."lO da:
~
2-39
2-40
CH /--. PTER 2
The Reco rding Proc ess
l<ecc i \e d Y l . f( J( J 111 ~·; 1 ' h lor :.:oil kt- , den ~· ll'<"r.J , ~-,,JJ Jn · , ·" ,,.1\1 ,. l <'\ t"l lll<' 1
.V Ltr. I X
I IJ
'icdd f .') IJ Cllllflllll h'"'" ' (111
f(l
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fll:J )
(lfJC
I IJIIIIlf <J! di ' l
)
f(J
,-.~tf 1 f ,1,
11 '" ... ~ , ,. 11 1.1111
1 , " 'lj "' il
111 . 11
,-,~.d•k til,· ltt~ldcr
_:.!11((
V.. 'ithdre\', YX CH J l:I'h l"r fll"l ' "rJ.d Ll ' <"
1(J
I ' ;1 Jd ..,a l:u 1e.., 111
.1 1!
f':1id V., ';lflj.! ( . lllllfl:lll ~ Ill ftlff
11
l<e<.·e i ve d Y~. 71HJ l :1' h l1 11
Y~ 'i iJ
:.:•
d I In·
I Tfl!! f )l ..,c (i oll 1/ ..,e.., th e lollll \'.111 ;.' :JlL"LJJII '
I .111d . llu ildlll~''· I <Jlllf'illl'lll.
Ill"! ·, I >1.<\'· 111 ;-" . .._, ,., \ ,,,· I<<'H'Illll'.
( .1 II . l'l <'fl.Jill f n , lll.lfl L< '
,\ ccou nt .., / ':J):Jhk . I 'n e;, rn ed \ c 1\ Il l' l<l'\l"lllll'. I 1\•. Ill' I· , ( ·.qllt.il. I
) v.
;\<.he rti .., in !! l ·.x p e n ..,e . :uJ d \;d;JJ 1c .., :111d \\.1 ,:.:~· , l · \fll'lh~·
Instructions
/o!frll td t :·r· lrrJII 'dlr /lOll \, fl'J ', / .
1'2.2 (LO 1 , 2 , 3 , 4) 1·. 111il y 'i t;uJ .., hllr ) 1'
nnrl Jlrf'fJttrr· n tn fiiiHiltlltt r·
hu .., ine "' · the l"ll"v. ill !! e\'e ill ' :111d t r:lll .., :t~· tll>fl ' I>CL'l llicd
:1 li c·e l i "c d dcnll't
I Ju1 Ill )! th e 111 ' ' 111"111 I 1 111
I I ll'
"I'' 'I ·i lit111
o
>I ftt'l
l n \·e.., ted € 2 CJ .CJ(J(J c :1 .., ll 111 h e 1 h u '-.tfl e..,..,
I f i r e d ;1 ..,ec r e t ary - rece pti on,...l :11:1 ..,: 11:ir: '" C7 ()(J pe r \\cd, p :1:.1hk lllllllillh
2
3
/' a i d oll 1ce r e nt l or th e lllolllh € 1. 1(JCJ .
f'urc ha ..,e d d e nt a l .., upp l1 e.., till acco unt ln 1JJI / ):JI/k ( ·l,lllfl:lll : ( -I .CJIJIJ
I IJ
f'erlor 111 ed <.k n ta l ..,en·ic e.., a nd hilkd in .., ur;I JIL'C L' <llllfl:t lll c' " C:'i . IIHJ
11
f( ece i vc <.l € I.I HH J ca' h :tlh:III C<.: ln >JJI l .c: d1 .\ l; Jt:Jrtl "-:• lor
2()
l< cce i ve <.l € 2. 1IHJ c a .., l i I<IJ' ..,en icc.., p erlorlli c d ln•111 .\ 1Jdi :IL·I S:llll< " .
3 1!
l'cti <.l ..,e c r et ar y - r ece p t io ni .., t l o r th e lllllllth € 2 .XI JIJ.
3()
l'a i <.l € 2. -H HJ ' " D a;;k l o r :~ cc "llilh p: l) :J hk dtl l' .
: 111
lllifll:iil l.
. I I . -.,; , '· I ~ ~~
f : mil y U,e._, tfl e f'o ii i JWin t,! cha rt I!!' :JCL'I! ll lll ': '\11 . 1{) 1 (';J ... h. '\11 . 11 2 :\L'l' ll lllll ' l<c'L'L' I \ .l l l .. ·(' ·qlit:!i.
Supp li e'> . '\!J. 2 () 1 Acco unt .., I ' ;Jy ahk. ~~ .. 2() 1) l ' nea rn c d Sen 1ce l<nc llLI C. :"'•• · .\ IJI ( )\\ Ji c' l '
·
·"o. --! I HJ Sc:r v i ce Re v e n ue. :\1J. 72 (] Sa l a ri c .., :111d \\'a _!!e' l ·.x pe n ..,e. :tnd '\11 . 7 2' J l<c lll 1·. \ jlL' ii 'L· .
In structions
a. Journa li ; .e th e tra n -. ae ti o n ,.
h. Po '> l to th e kcl ge r acco u n t-..
c. Tr ia l balanc e totals €29,800
./ournuli::e /rWJ\l/! /J0/1 \ . {J0\1 .
a nJ
{Jrepure a rrwl holwJ< ·t·.
c. Prc: rar<.: a tri a l h a l a n c<.: o n Apri I l O. 2 0 20 .
.
( )( )(.; ll l;il'L'
P2 .3 (LO 1, 2, 3, 4 ) Ko c hi Se r v i ce-. wa-. J'o r111 e<.l on M ay I . 2 0 2 0 . Th e J'"ll()\\·in _!! tr:tn '>; JCII" 11" '
<.lu rin g th e fi r '> l mo nth (a n i() LJnl '> i n th "u-.a ncl -.J.
T r an-.ac: tio n-. o n May I :
I. Ra hul Sh a h in v e <., ted I N R--!0 .000 c a-. h in th e comp any . a-. it'> -. ok I> Wil e r.
2. Hire<.! t w o emrl oyee-. to work in th e wa reho use. Th ey w ill eaeh he pa id ; 1sal ar y "J' I N I< .'\. O.'iO per JIHll l th .
3 . Si g ned a 2 -yea r r e nt a l ag ree m en t " n a wa r e h o u se: p a id I N R2 4 .000 cas h i n ad va llL'L' li> r t he· l ir'> t YL' ;IL
,
-..
p
.
.
.
.
urc ha'>ccl lu r n1ture a nd equ1pn1Cnl co -. tlll g I N R ."\ 0 .000 . i\ ca-. h p ay 111e111 •>I I N I< I 0 .
imm c <.li ate ly: th e rema incl er w ill h e p a id in () m o nth '> .
()(){) , .. 1, 1n adc
\ ··
5. Pai<.l I N R I .XOO ca'> h li> r a o ne-year in suran ce poli cy o n th e J'urniture and equipm c 11t.
T r a n sac ti o n -. <.lu r in g t he r e m a ind er o!' th e m o nth :
6.
Purc h a'>ed h a'>ie o ffi ce '> Uppli e'> J'or I N R 42 0 c a'> h .
7. Purc h ase <.! more offi ce -. u p pli cs !'or INR I.SOO on account .
R. To ta l revc nu eo.; earn ed we re I N R 2<UHJO- I N R X.OOO ca-. h a nd I N R 12. <HHJ
9 . Pa id I
"ll
al'C t>LJJ I I.
R--!00 It> -. up p li e r -. I'm ace ounh r aya hl e du e .
10. R ece i ved I NR .'\ .000 !'rom c u -. tom er '> in pay m e nt oJ' acu> un h recc i , ·ah lc .
I I. R ece i ve d utilit y hill.' in th e amount o !' I N R .1XO. to he paid nex t llH>nth .
12. Paid t h e Jll () nthl y 'a la ri c '> " J' th e t wo c m p l"y ce ., . to tali ng JN R 6 .100.
Instructio ns
a. l'rq>arc· j" um a l c ntri e' to rec "rd eac h " !' th e c\ ·c 11 t, li , ted . ( ()mit cx plan ati"" " · '
h. l'o't t he I" Li r n:tl l· ntri e' It > T -acc ount '>.
[ 1 i<-11 h.-ll.ll l
C( ' t o t ,ll <, INR H 1.4HO
l'.
l 'r L' Jl <~ re
;1 tr J;tl h;tl:t llL'L' <I' " ' Ma \ \ I . 20 2 0 .
P rob le m s
P 2 A (LO 4) The tr ia l balance of De B0rtoli Co. show n below docs not bal ance.
De Bortoli Co.
Trial Balance
June 30. 2020
Debit
Cas h
Account s Receivabl e
Supplies
E4uipment
Accounts Paya ble
Unearned Service RcYc nue
Owncr"s Capital
Ow ner' s Drawings
Service Re ve nue
Salaries and Wages Expense
Utilities Ex pen se
s
Credit
s :u . w
2.~12
1.200
2.600
3.666
1.100
~\.()()()
800
3.200
~ 10
s 12.522
$ 17.-l-86
Each of the listed account s has a normal balance per the general ledge r. An examinati o n of the ledger
and journal re veals the followin g e rrors.
I. Cash received from a customer in payme nt of its account was debit ed for $5~ 0 . and Accounts
Rece ivable was cred ited for th e sa me amount. The actua l co llection was for $~5 0 .
2. The purchase of a computer on account for $7 10 was recorded as a deb it to Supplies for $7 10 and a
credit to Accounts Payable for $710.
3. Services were performed on accoun t for a cli e nt for $980. Account s Receivable was debited for
$980 . and Service Reve nue was credited for $9~ .
4. A debit posting to Sa laries and Wages Expense of $700 was omitted.
5. A payment of a balance due fo r $306 was credited to C ash for $306 and credited to Accounts
Paya ble for $360 .
6. The withdrawal of $600 cash for De Bortoli's persona l use was debited to Sa lari es and Wages
Ex pense for $600 and credited to Cash for $600.
Instructions
Pre pare a correct tri a l ba lance . (Hint: It helps to prepare the correc t journal e ntry for the transaction
desc ribed and compare it to the mi stake m ade .)
Trial balance to tals Sl5,462
P2 .5 ( LO 1 , 2 , 3 , 4 ) The Sun Theate r. owned by Ha Ji-Won. wi ll beg in operations in March. The Sun will
be uni4uc in that it will show only trip le features o f sequentia l the me movies . As of March I. the ledger of
Sun showed No. I0 I Cash W 3,000. No . 140 Land W24.000. No . 145 Bui ldings (concession stand. proj ec ti o n room. ticket booth, and scree n) WI 0 ,000, No . 157 Equipm e nt W I 0.000. No . 20 I Accounts Payabl e
W7 .000. and No. 30 I Owner' s Capital W40.000 . During the month of Ma rch , the followin g e ve nts and
transac tions occurred (amounts in thou sands).
J o lln w l i ::.e rrunsacriuns. pusr. allll
Mar.
2
3
l)
10
II
12
20
20
.\ I
\I
.\ 1
Rent ed the three Kun g Fu Panda movi es to be shown for the tirst 3 weeks of March. The
film re ntal was W3.500; W I ,500 was pa id in cash and W 2.000 wi ll be paid on Marc h I 0.
Orde red three Batman movi es to be shown the last I0 days of Ma rch . It will cost W 200
per night.
Received W4 ,300 cash from admissions.
Pa id balance due on Kung Fu Panda movi es re ntal and W2 . 100 on March I account s payable .
Sun Theater con trac ted with So Bin to operate the concession stand . Bin is to pay IYX of
gross concession rece ipts . payabl e month ly. for the re nta l of th e concess ion stand .
Paid adve rtising ex pe nses W900.
R e n~ ivcd W5 .000 cas h from custome rs for admissions .
Recei ved the Hot11wn movi es a nd paid the re ntal fee of W 2.000 .
Paid sa lari es of Wl . I O!l
Rcu: ive d stat e me nt from So Bin show in g g ross rece ipt s from cnnccssinns nf Wh .!l()() and
the ba lance due to Starr Theater of Wl)()() (W6 .0()() x l ."i 'X ) for Marc h . Bin paid on e -ha lf
the halam·e du e and w ill remit the re mainde r on April 5 .
ReL·e iw d WLJ .()()() ca~ h fnllll L· u s tom e r~ fm adrni ssiun s .
f11"l'[>llre a rriul hu l un c <' .
2-41
2-42
CHAPTER 2
The Recording Proces s
I n aJJi t ion to th e aCC <lUnl ., id c ntii H.:J aho \c . th ~: d1:1 rl <I I .tll<lllllh lnlltllk'
.'\o. -HHJ Ser v ice l<c vc nu c . .'\o . -1 ~ ') !< ~.: 1 11 l< ~o:H· I H i c .. ·,,
(,f (J
,, I I~ \ c, 1111111, l< cc.·cl\ ,thk' .
\ d\t' l ll ... ln:: I \f't·n ... ,·.
"
-~ ~ ~ \ .d.lrtt' ' .tnJ
Wa g e., F x pcn .,c. an d .' \o. 7~ 1) J<c nl 1-. .\ p c r h~.:
Instructions
a . Ent er the beg i nn i ng balan c e., i n th e kd ;!~: r Jn ... c rl .. d 1nk 111.11!. t .l , 111 t ill· Jt'lt"tctltt' ,ldtllllfl t>l l ht'
lcug er /(Jr th e beg in nin g ha i :11J u .:.
h. Journal i1.e the .V/ an.: h tran .,;tc lion .,. Sun rec o rd ., :•drrJI .,., Jon rc\t' lll lc .....
"L' I
\Ill' l t'\t'I Hil' . lt' IJI. d " 'the
co ncc .,., ion ., l anJ a., rent reve nu e . :111d lilr n rc nt :d c\ p c n .,c ..... l t'lll t' \ f' t·n ... l ·
c. Po ., t the .V /arc h journ a l c ntri c ., to lit e k d t-!t: r :\ .,., ttrrt c t h ;tl .dl c nlll l'' .l i t' l'"' tn l 111 111 1 1' ·•:-:t· I 11 1 th e
jou rn al.
d. Trial balance totals W64 100
'
d. Prepare a tri a l ha l :tn cc on .V/ arc h 3 1.
~ (J2(J .
Expand Your Critical Thinking
Financial Reporting Problem : TSMC, Ltd. (TWN)
111
CT2. l The fin ancial ., talemcnl ., of' TS MC arc prc .,c nt cd in Appc ndi ' :\ . Til e IH •Ie '- :1t., ... lllj 1 ; 111 ~ 111 ~ ''
fl • Ill J(L''
.
statement., co ntain th e f( >l/ow in g .,e lected account .... Th e co mplet e an11 t1 al rep< •rt. III L· Iu t I 111 ~ l l
th e fin anci al >. tat cme nt >. . i >. ava ilabl e at th e co n1pan y ·., wc h -.. it c.
Account... (Trade) Paya hl e
Acco unt., (Tr ade) R ece i vable
(I l
'L1 x P:ty ahk
lnt ere ., t L x p e n .,e 1f'in :lll t't' t'll't l
ln ve nt<lri c ...
Property . Plant. and Lquipment
Instructions
a. A m w er th e f( JI/o w in g LJLH.:., ti on ....
l. Wh at i >. the in c re a.,<..: anJ Lkcrca.,c ., jJc l(,r eac h :tcco unt''
2. What i s the normal balance f(Jr each account '-'
h. Id en tify the prohahlc other account in the tran saction am/the elfecl on th;tl :tLT<IU IJt " ·hL' IL
I. Acco unt s (Trade)
2.
l~c c<..: i v ahk i s Lkc r<..:a .,cd.
Acco unt s (Trau e) Payable;., decrca.,ed.
3. In ve ntories arc increa.,eJ.
c. Iden tify th e ot h er account(s) thai ordinarily wo uld h<..: in vo l ved w he n :
1. Inter es t Expense i s increased .
2. Property, Plant , and E quipment is increased.
Compa r at ive Analysis Problem: Nestle SA (CHE) vs. Delfi Limited (SGP)
CT2.2 Nestle' s financial state ments arc presented in Ap p end i x B . Financial .,ta lement :-. fnr Delli
Limited are prese nted in App endi x C.
Instructions
· 1 stat eme nt... . tetcrnJine
· 1h e normal 11a 1aiiL.t· nt' till'
a. Based
on the inform·<1t·10 n c o ntaJn
. · e d ·tnt h e 1nanc1a
.
1.
1
lt sted accounts for each company.
Nestle
Oelfi Limited
2. Property. Pl ant , and Eq uipm ent
:1 . Accounts (Trad e) Payabl e
4. Int erest Ex pen se ( fi nancc cost)
I . Accounts (Trad e J Recei v:th le
2. Cas h and C ash Equivale nt;,
~- C o st of Sales (expen ... e J
4 . Sa l es ( reven ue)
I . In ven to ry
h. ld <..: ntify th<..: ot her acco unt o rdina ril y in vo l ved w he n :
l. Acc ounts (Trad e) Rece i vabl e i s increased .
2. Sa lari c .., and W age" Paya bl e i s d ec reased .
Expand our Critica l Th inkin
3. Property. Plant. and Equipmt'nl
.t. Intere st
Expc n ~c
i~
increased .
is increased.
Real-World Focus
CT2.3 Much information about spec ific nHnpanics i ~ :1\·ailahk on the Int e rnet. S uch inform ation Illeludes basic dc~criptiun s uf the cumpany·s lucation . aL"li,·itic s. indu str y. finan cial hc:llth. and financial
pcrfurmancc.
Instructions
Gu to the Yahoo! Finance \\·cbs itc and then type in a L·u mpany name. ur usc the index to tim! cumpany
name. C house Profile and then perform in ~ truction s (a)-( c) helm,·. Nex t. dick nn the L"Llmpany·s specitic
indu str y tu identify cumpctiturs. Pcrfurm in stru c t inn s (d\- (g\ bcltm·.
a. \.Y hal is the cumrany ·s
indu ~ llf .'
b. \.Y hat \\·as the cumpany· s ltllal sa k <-'
c. vVhat was the company ·s net incume ·-'
d. What are the names of fuur of th t' company·s competitor<'
c. C huusc unc of the se competitors.
f. What is thi s compctitor·s name·> \\' hat were ih sa k <.' \\.hat \\·as ih ne t inco me ·.>
g. Which of these l\Hl cumpanics is larger by size uf sa le <.' \\1 hich one rcpnrtcd higher net ir1L·nmc·.'
Decision-Making Across the Organization
CT2.4 A my Tnrhert operates Hollin s Riding Academy. The aL·adcmy·s primary so urc e~ t>f rL'YL'IlUC arc
riding tees and lesson fees. which are paid on a cash basis. A my also huards horses for m\·ne rs. ,,·hu are
hill ed monthl y for boarding fee s. In are,~. cases. hoarders pay in advance uf cxpcL·ted usc . Fnr it s rc,·enuc transactions. the acad e my maintains the fLliiLm ing accounts: Nu. I Cas h. Nn. 5 Bnarding Accn ums
Receivable. No. 27 Unearned Boarding Re,enuc. Nu. 51 Riding Revenue. No. 52 Lcssnn Rc,cnuc. and
Nn . 53 Boarding Revenue.
The academy nwn s I 0 horses . a stabl e. a riding L"llrTal. riding equipment. and uthcc equipment. These
assets are accounted for in accnunts Nu. II Horses . No. 12 Building. Nn. 13 Riding Corra l. Nn. 14 Riding Equipment. and No. 15 Office Equipment.
For its expenses. the acade my maintains the follm,·ing accounts: No. 6 Hay and Feed Supplies. No. 7
Prepaid In surance. No. 21 Accounts Payable. No. 60 Sal:u~ies Expense. No. 61 Advertising Ex pense. No. 62
Utilities Expense. No. 63 Veterinary Expense. No. 6-J. Hay and Feed Expense. and No. 65 Insurance Expense.
Torbe rt maintains two accounts: No. 50 Owner·s Capital and No. 51 Owner·s Draw ings.
During the tirst mo nth o f operations. an inexpe ri e nced bonkkee pe r was employed . A my Torbe rt asks
you to review th e follo w ing eight entries of the 50 e ntri es made during the mnnth. In each case. the
explanation fo r th e entry is correct.
Cas h
Own e r' s Cap iral
(ln vcs tcJ f I ~.000 cash in business)
May
5
7
1-1
15
211
1 ~. 000
I ~.tltltJ
Cas h
RiLling Reve nu e
( Rece ive J t250 cash fm less un s pcrl(>rme d )
250
Cas h
Boarding Reve nu e
( Received t500 for hoa rdin g uf hurscs
beg inning June I I
500
25 0
50()
Riding Equipm e nt
Cas h
(Purchased desk and uihL·r o11ic·e
equipmcnl rm l~lltl c·ashl
~()()
Sa la ri c' E'pcn,t'
Ca., fl
1Rcc·mdc·d \1 i!hdr <l" al h\ "" nn l
-+-+I l
( ·a, h
Rtclin g Rc'\c'llliC
!Rc·L·,·t\c·d ( I X-I ca' h f,,r rtdtng il-L"' I
I-I X
XI HI
-I-III
IX-I
2-43
2 -44
CHAPTER 2
The Record i ng Proc ess
V..:t<.:r i n a r ) 1-. x pcrl ' <.:
1\ccounh l' ;•yahk
l l<..:u.:i v..: d hi ll ol i7) lro11 1 \ <.: l<.: nnan;m h>1
' <.:f\ ic..: ' r..: m.kr..:d 1
l l
l b ) and h .: <.: d 1-. x p..: n ' <.:
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o l f<.:<.:d and h <JY on ;ICC< llllll lo r i J . .'i WIJ
Instructions
With the c i a ..,.., <J i v i d c d in to g n ntp<., . an ... w c r th e li, JI< m in g.
a . I <J c ntify each jo urn a l e nt r y th a t i .., cor-rcc l. / ·or eac h journ;tl e ntry th a t i .., in c orreL·t. prq);JrL· I Il L· L'J l lr\
tha t <., hou l <J ha v e hcc n ma<Jc hy th e bookk eepe r.
h. Which of th e inco r rec t c ntric .., w ou i <J p re\·e nt t h e tri a l h;thncc fwm h;t/ ;Jn c i ng ·•
c. What w a <., the co rrect nc l i ncome li1 r .VIay . a<.,<., Un lin g th e h<HI/..k cepc r r eport ed net i nc ii JII L' 111' t.:-l .(,(ll l
a ft er p o'> tin g a ll .')() cntr i L:'> (and the on ly c rwr .., occ u rn:d in th e it e m " Ji .., tcd ahll\ el ' '
d . What '-"<.!'> the correc t ca..,h balance a t .V Iay .l l . a<.,<., u min g th e ho11l--kee pcr re port ed
;1
h; d;!I! L'c· ol
.l / 2.475 after po;, t i n g a ll .') () c ntri c ;, (and th e on ly e rT<Ir.., occ u rred in t he i lc nJ .., Ji , tc d ah<l\cl ''
Communica t ion Ac t ivit y
C T2 .5 Shand l er·;, Ma i d Compa ny o lfn .., h o m L: -c lca nin g ..,L: n ·icc. Two rec urrin g tr;uh; !c· t io n ' f, H. til L·
compan y a r c h illi ng c u ;, tomc r ;, li11· ..,cn·icc .., rcn <J cn.:d and p ay in g e mpl o y ee .,; 1hri e'. h >r e.\ a tnpk . <> II
.VI arch 15 . hill " to t alin g €f).(J(J0 w e r e ..,L: nl to cu .., lo mc r .., a nd € 2. 000 wa.., pa id in .., ;tl ;11·ie.., to c' II!Jll <>)c'L''·
Instructions
Write a memo to y ou r i n ;, truc to r t h a t exp l a in " an d illu ... tra te.., th e ... tep.., in th e r eco rdin g pmce ... .... li >r c· ac il o l
th e .\1ar ch I 5 tra n ;,act i o n ;, . u..,e the fo r ma t illu ;, trated in th e tc x tb o o k und c r th e il cad in!.! . " Th e· R eco rd i ng
Procc ..,.., lll u ;,tratc d .".
,
Ethi cs Cases
CT2.6 E ll y nn K o l e i ;, th e as ... i ..,ta nt c hi e f acco un ta nt at D oma n Ci rcui t ... . a n1anufa c turc r of c otnput c r
c hi p;, and ce llul a r ph o n e;,. Th e co mpa ny p r ese ntl y h a.<., to ta l ... a le ... o f €2 0 million . It i.., th e e nd <If tile'
l ir<., t q u art e r. E JJ y nn j .., hurri edl y tr y in g to p re p ar e a tr ial b a lan c e .~ o th at qu art e rl y finan c ia l .., Uii L'Jli L' ill '
can he pre p ar L:d an d r e lcasc <J to m an age m e nt a nd the r eg ul atory age n c ie .... Th e to ta l ucd i t ... 1111 th e trial
b a l a n ce ex cee d th e d e bi ts by € 1.000 . In ord e r to m ee t t h e 4 p .m . de ad lin e. Ul y nn dec id e ... to li >rce til e·
de bi t <., and c r edit s int o b a l a n ce hy addin g th e a m o unt of th e differe n c e to t he Equipment acc ount. SilL·
c h oo..,c;, E quipm e nt beca u ..,e i t i .., o n e o f th e l ar g er acc ount b a l a nces: p er ce ntage - w i ... e. it w ill he th e· Jc a;, t
m i ..,'> ta ted . E ll y nn ··plu g<· th e d i ffere nce ' Sh e beli eve.., th at th e dilfcre nce w ill not afkc t an y one· .... dc·L·i... i o n <,. S h e w i .\ h C'> th a t ;, h e h ad ano ther k w d ay.., to lind th e ermr hut r ea li zes th at th e linan c ial ... tat e Jll eJII S
ar c a l rea d y l a te.
Instructions
a . W h o arc t he '>take h o ld e r .., in thi .., situ a tion ' '
b. W h at ar e t h e ethi ca l i ;,.., u e ... i n vo l ve d in thi s ca..,e'.'
c. Wh at arc E ll y nn ·, a lter n a ti ve, ·.'
~~- 2· 7
I f you h ave n ·t a lready don e .., 0 _ i n th e n o t - too - di .., tant future yo u w ill pre pare a rC· ... um c . In .... l lllL'
. ays . yo ur r es um e i s lik e a c omJia n y·.., annu a l repo rt. ft .., purpo..,e i.., to en a hlc oth e r.., to c va lu <Jie y our p;i <., l.
111 an e tl
·
.
0 1110
predi c t yo ur f utu re.
i m )J' ~• r es um e i s yo ur o p po rtunit y to c r ea te a p tl<., ili ve lir ... l i nt pre ...... i o n . It i ... illlp(lr!alll th a i it hL'
· LT ea'e 11"Je tr
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· ·t ·" · -" <llll e· pu>
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tc 1 I ess l ve- hut I· t s·h o u ld a l so he accu r ate. In ord e r to lll
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pt ·o<., pcL
llpted
to " in
fl ate" tll e ·!l. JeS
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- hy OVC r <., l a! .Jn<> th e lmpo
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·you m i g h t even th111 k th at "evc r y h o d y d! >e<., it .. and th at Jl y o u d o n I t " 11. } t>IJ " I
'L
d l t ~c..t d v a nt age.
Expand Yo ur Crit ica l Thinkir ,
Jay Ling. th e pres ide nt a nd CEO of a 1\·e ll- k nm,·n elec tro ni cs rL'ta ile r. (l\'L'rs taiL'd h is acuHnplishme nt s by c la imin g that he had earn ed a bachel or's u f sc ie nce deg ree. ,,·hen in faL"I hL' had not. .-\ppare ntl y. hi s e mpl oye r had not do ne a bac kg ro un d L· hcck tu e nsure th L' acL"Lt racy of h is r0sumc. Slllluld the
co mpa ny ha,·e tired him '.'
YES : The co m pan y is a pub licl y traded com pany. Jn,·cstors . cred it ors. emp loyees. a nd u thcrs duing
bu s in ess w ith th e co m pan y ,,·iiln nt tru st it if it s leade r is k nmn1 10 h aYc poo r imcg r ity. The ''tone at
th e lOp· · is v it a l to c reatin g an ethi ca l o rga ni zati u n.
N O : M r. L in g had bee n a co mpa ny e m p loyee for II yca rs. H e h ad sc n ·cd th e L·n m pa ny in a ,,·ide
va ri ety o f po s iti o ns. a nd had ea rn e d th e plls iti o n of CEO th roug h c:\ccp ti o na l perfor m a nce. \\ 'hile
th e fa c t th a t he li ed II years earli e r u n hi s res ume ,,·as un fo rt u na te . hi s sc n ·icc s ince then made
thi s past tran sg ress io n ir reicY anl. In add iti on. th e cn m pa ny \\as in th e mi ds t of a m ass i,·c rc struL· turin g . w hi ch in c lud ed c los in g 700 n f it s 7 .000 stn rc s . II cu ul d no t a lfo rd add itill na l u phca,·al :11
thi s tim e.
Instructions
W rite a respo nse indi catin g yo ur pusi ti o n reg ardin g thi s s itu ati o n. Prm ·idc support fo r yu ur , ·ic\\·.
All About You
CT2. 8 Eve ry co m pan y need s to p lan in ord er tn nw, ·c f,ll·\\·ard. li s top m a nage m e nt m u q co n sider
w he re it want s th e cu m pa ny to be in thre e to ti \ c years. L ike a co m pa ny. yo u need Ill thi nk ab\l Ul
w here you want to be th ree to li ve ye ars fro m tHl\\·. an d yo u ne ed to slarl la kin g ste ps tlll\\. in \ll·dc r lo
ge t there .
Instructions
Provide rcspunscs tu each o f the fo ll o\\·in g ite m s.
a. W here would yo u like tube working in three tu ti , ·e ye ars".' Dcscribc yo ur p lan fo r ge lling the re by
id e ntify ing between li ve and 10 spec iti c ste ps th a t yo u nccd to take.
b. In o rd e r to ge t th e j o b yu u want. yo u \\'ill need a re sum e . Yo ur res ume is !he cqui Yaicnt o f a L'llmpan y"s annua l rep urt. It need s to proY ide rele , ·a nt and reliable info rma!i u n abo ut yu ur pa st accn m pli shme nt s so th at e mpl uyc rs ca n dec id e \\·heth c r to "in , ·cst· · in )\lll. o,, a search o n !he lntc rn c t tn
lind a good res ume fo rmat. \\1hat arc th e b as ic cl e m e nt s o f a res ume''
c. A cu mpan y"s annual re port prov ides infnrmalion ab n ut a co m pan y's acL·o mpli shmc nt s. In o rd c r fu r
in ves tors to usc th e annu a l re po rt. th e info r mati o n mu st be re liable : that is. users mu sl han: t"a ith that
th e information is acc urate and be lievabl e . H m\· can yo u pro,·idc ass ura nce !hal 1hc infn rma!i o n l lll
yo ur res ume is re liabl e')
d. Prepare a res ume ass umin g that yo u have acco m p li shcd the live to 10 spec iti c ste ps yo u idc ntiticd
in pan (a ). A lso. prov ide ev ide nce that wo uld g i, ·e a ss uran ce th a tth c int"nrma!ion is re liable .
Considering People, Planet, and Profit
CT2.9 Audito rs provide a type o f ce rtifi catio n o f com pany fin a nc ial state m e nt s . Certifi c ati o n is used in
m any o th e r as pec ts o f bu siness as welL Fo r exa mpl e. it p lays a c riti cal ro le in the su stain ab ilit y m ove me nt. The Febru ary 7. 20 12, iss ue o f th e Ne ll· Yo rk Ti111 es co nt a ined an a rti c le by S . A m a nda Caud ill
entitled " Better Li ves in Bette r Co ffee." w hi ch di sc usses th e ro le o f certifi cati o n in the co ffee bu s iness.
Instructions
C onduct an Int e rn et search to loc at e and reaclthc arti c le. and th e n answe r th e fo ll ow in g qu est i n n ~.
a. Th e a rticl e me nti o ns three di tle re nl ce rti ti cation ty pes that c o ffee g ru we rs L·an o bt a in frum three di fferc nt cc rtih ca tiun bodi es. u~ in g tin an cial rcpurtin g as a n exa mpl e. w ha t pote nti a l pru hlem ~ mi g ht
th e cx istc ncc uf multipl e ce rtific ati o n types prese nt to co ffee purchase rs'-'
b . .A L·L·u rdin g to th e author. w hi ch ce rtifi c ati o n is mus t comm o n a m o ng co ffee gru wc r-. ·.> \\.' h a t ~trl' the
poss ible reaso ns for thi s'.'
c. W hat soc ia l and e nv ironm e nt a l hc nL'Ii ts arc co tfce cc rtiti c atiott ~ tr y in g Ill al· ht c , ·c ·.' Are tllL'rL' al s()
pot e ntial tinatlL' ial he ne tit s tuth L' p < trti e~ in,·oh·e d ''
2 -4 5
Z- 46
CHAPT ER 2
Th eReco rdin g Process
A Look at U .S . GAAP
LEARNING OBJECTIVE 5
Compare the procedures for th e accountin g process un d er I FRS and U.S. GAAP.
Cnm panie>. th at u >.e GAA P f(> llow th e >.;Jllle ~e t o f proce dun..: " ~111t l record " to hcc p tr:I L'h "' tr;''' " ;IL·tinn d :1L1
;J>. do I FRS co mpanie>. . Thu ". th e mat erial in Chapt er 2 d ea l in _!! '' ith th e :tCu llll l t. !CL'Il c r;d ruk ' "' <khll
an d c r edit. and " tep " in th e n.:cordin g pro ce"~ - th e J<>urnal. lcd _!!c r. a11d c h:1 rt <>f acc<H IIlh
i' til L· ': lill L'
und er h o th G AA P and / FRS.
Key Poin t s
Both th e I A SB and F AS /3 g o hey ond th e ha " ic d e fini t io11 ~ pro , ·id eJ in tili ' IL" ' th<H>h for til L· hn de -
•
m ent" o f financial " tatement '- . that i ". a'"eh. l i ahiliti e>. . equit y. rc \·e nu c>.. :11HI L'' Jk' ll " e' . Til L' lllllrc
:-, uh" t anti ve d e fin i tion ", u " in g th e F A SB d c finit J on~d " tructure . :1re prm id ed in til e C'il ;q)IL·r I . I / .on~
a t U.S. C!\1\P " ection.
I n d ec id i n g w h et h er the U nited Statc " " hould adop t I FRS. >.ome of th e i "" II L' " til e l . S. S L·l· uriti L·~
•
and Ex chan g e Com mi ss ion ( SECJ " aiJ " hou ld h c c1>n " idcred arc :
+ Whcth er / F RS i :-. :-. ufficicntl y dc vc loped and ulll >. i >. tcn t in :tpp l ic: ltion .
+ Whether the /AS/3 i " :-. uffici e ntl y imlcpcndcnt.
+ Whether /FRS i s e"tahli:-.hed f( >r th e hcnclit of in vo tm >..
+ The i ss ue :-. in vo l ve d in educating in vc"tor" ahout II . RS.
+
Th e impact of a sw itch to / FRS on U. S. l aw\ and rc g u l ation >..
+ Th e impact
011
companie' inc l udin g chang e>- to thcir accounting " Y'- tL' Ill >-. L"<llltr:IL'III :il ;uTangL' -
m e nts, company gove rnance: . and liti ga t i on.
•
"fh
· 11 educttino accountant s. '-I> the y can prepare " talcll l elll >- under Jl ·l {S .
·
·
lved 1
e Js:-. ue:-, Jll VO
L
"'
Similarities
.
d,. GAAJ:> f<>llows the s;Jme formal a" shown in the tcxthook.
A trJa l ba 1ance un et
·
.
h
h
k ·urrenc y sions are typ ica l ly used onl y in thc trial ba l ance ~llld thL' finan .
. c
.. ,
~
. '
.
.
. . : . . ..
.
• A s shown tnt e text oo , c
.
. Th , ..
. practtce ts fo ll o we d undc1 C1AAI. u:-,111~ the U.S. Jo l l,u . I 01 c,,t111pk.
· · 1 statements.
c same
.
.
. .
ua .·
. , .
h
n he l ow for Apple Inc . ( U SA) JS Jcnomtnatcd 111 tl s I> Wnl'liiTL' nL·y - thL'
th e tncome statements ow
•
U. S . dollar.
Apple Inc.
Consolidated statements of Operations
For the Year Ended September 24, 2016
(in millions except per share data)
$ 2 I 'i .6 'lJ
N e t sa l es
Cost of sa les
Gross margin
Operatin g expenses:
R esea rch and Je ve lopmcnl
Se llin g. ge neral and aJmin i "trati v c
Tota l operatin g cx p c n'e"
Operatin g incom e
Other income/( ex pcn se ). net
I nco m e be fore pro v i sion for i n c om e ta x e>.
Provi sion for in c om e ta xes
N et incom e
I 'I ..\76
X..f.26.\
I 0.0-l'i
I ..f. J<J..f
h0.02..f
I . \..fX
h 1..~72
I ~ J,X :"
Loo k at U.S. G
P
2 -4 7
Diff'erences
• T he state me nt o f financi al pos it inn is o ft e n call ed the bala nce sheet in the Unit ed State:-; .
• Rul es li1r acco unting fo r spec ifi c e\·ent s so met imes d iffe r across cnuntrics. Fur exam ple . !FRS cmn panies re ly less o n hi sto ri cal cost and more o n fai r \"alue than U.S . compani es . Despite the dilfc rcnces .
the do uble-entry accounting syste m is the basis of acco untin g sys tem s ,,·m id \\·ide.
Looking to the Future
T he bas ic reco rd in g process shm,·n in thi s textbook is fo llm\·cd by co mpani es acmss the g lobe . It is
unli kel y to cha nge in the futu re . Th e clc tiniti o nal struc ture o f assch . liabiliti es. equity. rc\·cnues. and
expe nses may chan ge ove r time as th e IASB and FASB e , - ~_llu a t c the ir O\"erall conceptu a l framC \H1rk !~1r
es ta bli shing acco untin g stand ard s.
GAAP Practice
c. pron's that all transactions ha\"e teen r>cnrdcd.
GAAP Self-Test Questions
d. \\·illnnt bal ance if a L"lltTect jnurnal
I. Whi ch state me nt is correct regard in g GAAP")
a. GAA P reverses the rul es o f de bit s and c red it s. that is. Lkbit s
are o n the ri ght and c red it s are o n the left.
b. GAA P uses the same process fi..1r record ing tr ansac ti ons as !FRS .
c. The chart o f acco unt s un de r GAA P is di!Tere nt because ren :nues fo ll ow assets.
d. No ne o f the above state me nt s arc correc t.
2. The expanded acco untin g equati o n un de r GAA P is as li.1ll ows :
a. Assets= Liabiliti es + Ow ne r's Capital - 0 \\·ner·s Dra\\·ing s +
Reve nu es + Ex pe nses.
~.
elllr~
is postc'd {\\·ic
O ne d ilk re ncc be tween G.-\AP and I FRS is that:
a. I FRS use s accrua 1-accoulll i ng cnncept s and G .-\ .-\ P us •s
pr imaril y the cash bas is nr accouming.
b. GAAP uses a diffe re nt posting process than lFRS.
c. !F RS uses mo re fair \"alue meas uremems than GAA.P.
d. the limit ati o ns o f a tri al balance <u·e different bet \\·een G .-\ .-'\P
ancli FRS .
5. The ge neral pnli cy for th in g proper currency signs (dnll<u·. yen .
etc. ) is the same
pnlic y is as fn llt)\\ s:
p ll UIKL
t~)l-
btlt h GA .-'\P and this textbonk. T his
b. Assets + Liabilities = Owner· s Capital - Ow ner's Dra\\·ing s +
Reve nue s- Ex pe nses.
a. C urre nc y sig ns n nl y appea r in ledgers a nd _inurn al emries.
c. As sets = Liabiliti es + Ow ne r's Capital - Ov,·ner· s Dra,,·ing s +
Reve nu es - Expe nses.
c. C urre ncy sig ns arc sllll\\·n fnr all co m poun d jnurnal emries.
d. Assets = Li abilities + Owner's C apital - Ow ner's Draw ingsReve nues- Ex pe nse s.
b. C urrenc y s ig ns arc onl y sho,,·n in the tria l balance.
d. C urrency sig ns arc shll\\·n in tr ia l b ~1 Lmc e~ and financial
state me nt s.
3. A trial ba lance :
a. is the sam e un de r GAAP and I F RS.
b. proves th at tran sacti o ns are recorded co rrectl y.
GAAP Exercises
GAA P 2 .1 Desc ribe some of the iss ues the U.S. S EC mu st con side r in dec id in g w heth e r th e United
States should ad o pt !F RS.
GAAP Financial Reporting Problem: Apple Inc. (USA)
G AAP2 .2 T he fin anc ia l stat e me nt s of Apple Inc. arc prese nt e d in A ppe ndi x D. T hL' c un1plct e a nnu a l
re port. in c ludin g the no tes to it s fin a nci a l state me nt s. is avail able a l th e cu m p an y'~ \\e h:-- tt e
2-48
CHAPTER 2
T h e Reco rdin g Process
Instructions
a. A pflk h a~ th e f( >I low in g "<.: k c l<.: d accou n l ~:
/\cco un h Paya h l<.:
Acco unt ~ Rece i va hk
Buildin g~
I n\·en lr >ric"
:\cl Sale "
J(<.: ..,carch and Dc\·clopmc rll
1. W h a t i ~ the in c r<.:a"e a nd d cc rea ~e " ide of each ;r cco unl ..'
2. W h a t is th e norm a l ha la nce f(>r each acco u nl'.'
h. Id e ntify th e r ro ha hk o th e r account in 1he lran ..,ac lion and I he clfccl on I hal
I. Acco unt ~ R <.:c<.: i va hle i ~ d ec re a ~<.: d .
2. Acco un t... Paya hle is d ecrea..,t:d .
3.
ln vc nt o ri e ~ i ~
in c reas<.:d .
Answers to GAAP Self-Test Questions
1. h
2. c
3. a
4. c
S.d
;rcc<~trrll ''hen :