Uploaded by Virginia Townzen

Unit II Study Guide

The Recording Process
Course Learning Outcomes for Unit II
Upon completion of this unit, students should be able to:
2. Identify business transactions.
2.1 Define recording transactions as they apply to accounting.
2.2 Prepare a trial balance.
Learning Outcomes
2.1, 2.2
Learning Activity
Unit Lesson
Chapter 2, pp. 2-1 to 2-23
Video: Intro to Recording Accounting Transactions (DR/CR)
Video: Normal Balances in Accounting
Video: Journalizing, Posting, and Preparing a Trial Balance
Unit II Case Study
Required Unit Resources
Chapter 2: The Recording Process, pp. 2-1 to 2-23
In order to access the following resources, click the links below.
A transcript and closed captioning are available once you access the videos.
Acct Simplified. (2015, March 18). Intro to recording accounting transactions (DR/CR) [Video].
Finance & Accounting Videos by Prof Coram. (2015, March 25). Journalizing, posting, and preparing a trial
balance [Video]. https://c24.page/gqe83c969hcqjvef88tzygxuh
Newhart, B. (2016, February 16). Normal balances in accounting [Video].
Transcript for Normal Balances in Accounting video.
Unit Lesson
The Recording Process
The accounting of financial information is based on business transactions. These transactions are recorded
from source documents (e.g., invoices, contracts, agreements, sales receipts). For transactions involving
cash, a bank reconciliation will allow the accountant to be assured that all transactions have been recorded.
In other words, debits to the bank account (increases in cash) will generally be from deposits due to sales
revenue, receipts on accounts receivable, interest earned on the account balance, loan proceeds, or
investments from the owner or shareholders. Credits to the bank account (decreases in cash) will generally
be from checks issued for invoices, payroll to employees, loan payments, distributions to the shareholders, or
bank charges.
When the bank account is reconciled, all transactions are accounted for by reconciling the bank’s balance to
the checking account balance and the cash account in the general ledger. When all three of these balances
BBA 2201, Principles of Accounting I
are equal (reconciled), then the accountant can be reasonably assured that allUNIT
have been
recorded. For this reason, recording financial transactions from source documents
Title is extremely important, and
it helps to prevent fraud and theft of cash. Also, recording financial transactions is the first step in the
accounting process.
When recording transactions, it is important to remember that the accounting equation must remain in
balance: Assets = Liabilities + Equity. Assets, liabilities, and equity are the three main categories in the
accounting process. Each category contains accounts, and the transactions will increase or decrease various
account balances within these categories. However, the transaction, if properly recorded, will always maintain
the balance of the accounting equation (Weygandt et al., 2018).
Assets are economic resources owned by the company that have either current benefit to the business or are
expected to have some future benefit to the business. To view a list of common assets that most business es
report, review Illustration 2.15, which is located on p. 2-10 of your textbook.
Liabilities are a debt of the business that will require an asset of the business to satisfy either currently or in
the future. To view a list of common liability accounts that most businesses report, review Illustration 2.15,
which is located on p. 2-10 of your textbook.
The owner’s equity of a business represents the owner or the owner’s claims to the assets of the business. It
is much easier to understand the equity of business if you view the accounting equation as Assets – Liabilities
= Equity. As you can see, the equity balance will be the balance of the assets of the business after all
liabilities have been satisfied. To view a list of common equity accounts that most businesses report, review
Illustration 2.15, which is located on p. 2-10 of your textbook.
A list of all of a company’s accounts with their respective account numbers is referred to as a chart of
accounts. The assignment of account numbers to the accounts helps to identify each account and organizes
them by groups or categories (i.e., assets, liabilities, equity, revenues, and expenses). Please review
Illustration 2.18 on p. 2-13 of your textbook to review an example of a chart of accounts.
BBA 2201, Principles of Accounting I
Debits versus Credits
All assets normally have a normal debit balance. A debit increases an asset account, and a credit decreases
an asset account. Cash is an asset to the company; therefore, debits increase cash, and credits decrease
cash. All liability and equity accounts have a normal credit balance; a credit increases a liability and equity
account, and debit decreases these accounts.
One common mistake made by students is to assume that a credit will increase the cash balance and that
debits decrease the cash balance. This mistake is because banks refer to bank deposits as credits and refer
to bank drafts, such as checks, as debits. The reason for this is that the money that we (i.e., the bank
customers) deposit in the bank does not belong to the bank. In fact, our money is a deposit to the bank. The
deposit is a liability to the bank because we can demand that our funds be repaid to us at any given time;
therefore, when the bank discusses our bank accounts, the debits and credits are from the bank’s point of
view. Because our bank accounts represent a liability to the bank, a credit does increase the account, and a
debit does decrease the account.
However, as discussed previously, the cash account is an asset to the company. Therefore, a debit increases
the cash account, and a credit decreases the cash account. It is very important that you learn this concept so
that you will not confuse the debits and credits for cash accounts.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Accounting principles (13th ed.) [VitalSource Bookshelf
version]. https://online.vitalsource.com/#/books/978119411017
BBA 2201, Principles of Accounting I
Learning Activities (Nongraded)
Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.
This is an opportunity for you to express your thoughts about the material you are studying by writing about it.
Conceptual thinking is a great way to study because it gives you a chance to process what you have learned,
and it increases your ability to remember it.
In order to practice what you have learned, please attempt the exercises below, which can be found in your
DO IT! 1
DO IT! 2
DO IT! 3
DO IT! 4
| Normal Account Balances, p. 2-7
| Recording Business Activities, p. 2-10
| Posting, p. 2-20
| Trial Balance, p. 2-23
You are also encouraged to complete the following end-of-chapter exercises and problems, which can be
found in your textbook.
Practice Multiple Choice Questions and Solutions, pp. 2-24 to 2-26
Practice Brief Exercises, pp. 2-26 to 2-28
Practice Problem, pp. 2-20 to 2-31
Ethics Cases, pp. 2-42 to 2-43
If you have any questions or do not understand a concept, contact your professor for clarification. Completing
these practice exercises and problems will give you practice, which will be helpful as you complete the
assignment for this unit.
BBA 2201, Principles of Accounting I