WEYGANDT . KIESO . KIMMEL . TRENHOLM . KINNEAR . BARLOW . ATKINS
PRINCIPLES OF
FINANCIAL ACCOUNTING
CANADIAN EDITION
Chapter 2
The Recording Process
Prepared by:
Debbie Musil
Kwantlen Polytechnic University
1
Chapter 2: The Recording Process
Study Objectives
1. Define debits and credits and illustrate
how they are used to record
transactions.
2. Explain the recording process and
analyze, journalize, and post
transactions.
3. Explain the purpose of a trial balance,
and prepare one.
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The Recording Process
• The account
– Debits and credits
– Double-entry accounting
• Analyzing and Recording
Transactions
– The accounting cycle and steps in the
recording process
– The journal
– The ledger
• The Trial Balance
– Limitations
– Locating errors
– Some process explanations
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The Account
• An individual accounting record of
increases and decreases in a
specific asset, liability, or owner’s
equity item
– Examples: cash, accounts payable,
service revenue, salaries expense
• Three parts: title, debit side, credit
side
– In its simplest form, these parts are
positioned like the letter T
– Therefore called a T account
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Debits & Credits
• Debit (Dr.) indicates left; Credit (Cr.)
indicates right
– Entering an amount on the left side is called
debiting the account
– Entering an amount on the right side is
crediting the account
• Debit balance
– Debit amounts exceed the credits
• Credit balance
– Credit amounts exceed the debits
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Tabular Versus Account Form
Tabular Summary
Account Form
CASH
$15,000
CASH
-7,000
1,200
Debit
Credit
1,500
15,000
7,000
-600
1,200
600
-900
1,500
900
-200
600
200
-250
250
600
1,300
-1,300
Balance
8,050
$8,050
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Debit & Credit Procedure
• Debit does not mean increase or
decrease
– Can be either depending on the type account
• Credit also does not mean increase or
decrease
– also depends on account type
• Assets are on the debit side of the
equation
– Increases are also on debit side; decreases
on credit side
• Liabilities are on the credit side
– Increases are on the credit side; decreases
on the debit side
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Assets, Liabilities & Owner’s Capital
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Drawings, Revenues, Expenses
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Accounting Equation Expanded
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Double-Entry Accounting System
• Each transaction is recorded with
equal debits and credits
– Total debits always equals total
credits
• Accounting equation will always
stay in balance
– Assets = Liabilities + Owner’s Equity
• Every account has a normal
balance
– Either debit or credit
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Chapter 2: The Recording Process
Study Objectives
1. Define debits and credits and
illustrate how they are used to
record transactions.
2. Explain the recording process and
analyze, journalize, and post
transactions.
3. Explain the purpose of a trial
balance, and prepare one.
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12
The Accounting Cycle
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The Recording Process
The first three steps in the accounting
cycle:
1. Analyze business transactions
– Determine effect on accounts
2. Enter transactions in a journal
– The book of original entry
3. Transfer journal information to
ledger accounts
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The Journal
• Where transactions are first
recorded
• Every company has a general
journal
• Contributes to recording process:
– Discloses complete effect of a
transaction in one place
– Provides a chronological record
– Helps prevent and locate errors
– Provides explanation and identifies
the source document
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Journalizing
• Entering transaction data in the
journal
• Separate journal entry for each
transaction
• A complete entry consists of
– Transaction date
– Accounts & amounts to be debited
and credited
– Brief explanation of transaction
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Journalizing Technique
– Transaction date is entered in date column
– Debit account title is entered at the left margin of the
“Account Titles and Explanation” column
– Credit account title is indented on the next line.
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Journalizing Technique 2
• Debit amounts are recorded in the Debit (left) column
• Credit amounts are recorded in the Credit (right) column
• A brief explanation of the transaction is provided
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Journalizing Technique 3
• Separate entries with a blank line
• Ref. column is used later when transferred to ledger
• List all debits in each entry before listing credits
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Journalizing Technique 4
• Simple entry: involves two accounts
• Compound entry: involves three or more
accounts
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The Ledger
• Ledger: entire group of accounts
maintained by a company
• General ledger: contains all the
assets, liabilities, and owner’s
equity accounts
– Arranged in financial statement order
– Assets, liabilities, owner’s capital,
drawings, revenues and expenses
• Posting: procedure of transferring
journal entries to the ledger
accounts
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Standard Form of Account
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Posting
1.
2.
3.
4.
Post to debit account: date, journal page number, amount
Enter debit account number in journal reference column
Post to credit account: journal page number, amount
Enter credit account number in journal reference column
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Chart of Accounts
• List of accounts and their account
numbers
– Indicates where accounts are found
in the ledger
– Usually starts with balance sheet
accounts, followed by income
statement accounts
• Varies by company
– Number of accounts
– Types of accounts
– Numbering system
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Chapter 2: The Recording Process
Study Objectives
1. Define debits and credits and
illustrate how they are used to
record transactions.
2. Explain the recording process and
analyze, journalize, and post
transactions.
3. Explain the purpose of a trial
balance, and prepare one.
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25
The Trial Balance
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The Trial Balance
•
•
•
•
List of accounts and their balances at
a specific time
Proves that debits equal credits after
posting
Uncovers errors in journalizing and
posting
To prepare a trial balance:
1. List accounts and their balances
2. Total the debit and credit columns
3. Ensure the two columns are equal
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Example Trial Balance
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Limitations of a Trial Balance
• Does not prove:
– That all transactions have been
recorded, or
– That the ledger is correct
• Numerous errors may exist even
though the trial balance columns
agree
– Total debits and total credits may be
equal, but may still be posted to the
wrong account or in the wrong
amount
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Locating Errors
• If trial balance does not balance,
then:
– If error is an amount such as $1, $100
or $1,000, re-add and re-calculate
account balances
– If divisible by two, look for entry (= ½
of the error ) in the wrong column
– If divisible by nine, look for
transposition errors
– Otherwise, scan to see if an account
balance has been omitted
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Copyright
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by the use of these programs or from the use of the
information contained herein.
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