Chapter 2

The Recording Process

1
Chapter Outline p.2

2
Learning Objective 1
Describe how accounts, debits, and
credits are used to record business
transactions.

3
Accounts, Debits, and Credits (p.2-p.3)
The Account 會計科目
An account is an individual accounting record of increases and
decreases in a specific asset, liability, or equity item.
In its simplest form, an account consists of three parts: (1) a title (
標題), (2) a left or debit side (Dr.) (借), and (3) a right or credit side
(Cr.) (貸).

Note: Whenever we are referring to a specific account, we

capitalize the name.
ex. Cash, Accounts Receivable, Accounts Payable, Service Revenue,
Salaries and Wages Expense
4
 Accounting Equation

+Assets = +Liabilities +Equity

Increase

-Liability -Equity = -Assets

Decrease

Equity
+Share Capital-Ordinary +Retained Earnings

Increase

+Share Capital-Ordinary +Retained Earnings

Decrease
5
 Equity—Retained Earnings

Revenue Expense Dividend

Increase

Decrease

Retained Earnings=+ σ Revenue- σ Expense -σ Dividend

6
Accounts, Debits, and Credits (p.3)
Debits (借) and Credits(貸)
Tabular Summary (Chapter 1) and Account Form (this Chapter)

Debit balance 借方餘額

Credit balance 貸方餘額

7
 Origin of Debit and Credit
•Debit: Originates from the Latin word "debere" which means "to owe." This
aligns with the accounting notion where a debit in an account
shows what a business owns.

•Credit: Comes from the Latin word "credere" which means "to trust" or "to
believe." In the context of , it signifies an
amount the business is entrusted to others (creditors or owners).

8
Luca Pacioli's Influence:
• Luca Pacioli, an Italian mathematician, is often called the
“ .” In 1494, he wrote a book that
included a section on .
• In this work, Pacioli detailed the bookkeeping system,
which is the basis of modern accounting.
• He described the use of "debit" and "credit" as a means to record
business transactions in such a system.

9
Debit and Credit Procedures (p.4)
Debits (借) and Credits(貸)
❖For each transaction, debits must credits.
❖The equality of debits and credits provides the basis for the
double-entry system (複式簿記) of recording transactions.
❖The sum of all the debits to the account must
the sum of all the credits.

10
Dr./Cr. Procedures for Assets and Liabilities (p.4)

正常餘額:借方 正常餘額:貸方

Asset accounts normally show balances.

That is, debits to a specific asset account should exceed credits to that account.

Liability accounts normally show balances.

That is, credits to a liability account should exceed debits to that account.

11
Dr./Cr. Procedures for Equity (p.5)
Share Capital—Ordinary.

12
Dr./Cr. Procedures for Equity (p.5)
Dividends.

13
Dr./Cr. Procedures for Assets and Liabilities
(p.4)
❖ Knowing the normal balance in account may help you trace errors.
Examples Correct/Incorrect
A credit balance in Land
A debit balance in Salaries and Wages Payable

❖ Occasionally, an abnormal balance may be correct. E.g. .

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Example- double-entry system
1. Starting a Business
Scenario: John invests $10,000 to start his own business.
Accounts Debit/Credit Effect on Assets Effect on Liabilities Effect on Equity

2. Purchasing Inventory on Credit

Scenario: The business buys inventory worth $5,000 on credit terms.
Accounts Debit/Credit Effect on Assets Effect on Liabilities Effect on Equity

15
Example- double-entry system
3. Making a Sale for Cash
Scenario: The business sells inventory that cost $1,000 for $1,500 cash.
Accounts Debit/Credit Effect on Assets Effect on Liabilities Effect on Equity

4. Paying Rent
Scenario: The business pays monthly rent of $800.
Accounts Debit/Credit Effect on Assets Effect on Liabilities Effect on Equity

16
Example- double-entry system
5. Receiving a Utility Bill
Scenario: The business receives a utility bill for $300 but will pay it later.
Accounts Debit/Credit Effect on Assets Effect on Liabilities Effect on Equity

6. Paying off a Debt

Scenario: The business pays off $2,500 of its outstanding loan.
Accounts Debit/Credit Effect on Assets Effect on Liabilities Effect on Equity

17
Equity Relationships (p.6)
損益表

保留盈餘表

資產負債表

18
Summary of Debit/Credit Rules (p.7)

19
Learning Objective 2
Indicate how a journal is used in the
recording process.

20
The Journal p.7 日記簿
分析 過帳
1 2 3 調整分錄 財務報表 結帳後試算表

試算表 調整後試算表 結帳
Chapter 2 將交易做分錄
Chapter 3 Chapter 4

1 2 3

將交易記錄到日記簿 將日記簿的資訊過帳到分類帳

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The Journal p.8
Companies initially record transactions in chronological order (按時間順續).
Thus, the journal is referred to as the book of original entry.

The journal makes several significant contributions to the recording process:

1. It discloses in one place the of a transaction.
2. It provides a of transactions.
3. It helps to because the debit and credit
amounts for each entry can be easily compared.

General Journal

22
Journalizing (p.8)
Assume: On September 1, Softbyte SA shareholders
invested €15,000 cash in the corporation in exchange for
ordinary shares, and Softbyte purchased computer
equipment for €7,000 cash.

Demonstrate: How do you enter the transaction data in the

journal?

23
Journalizing p.8-p.9

Date of the transaction.

Debit account title.
Credit account title.
Brief explanation of the transaction.
Reference column, which is left blank when the journal entry is made. This column is used
later when the journal entries are transferred to the individual accounts.

24
Simple and Compound Entries (p.9)
Simple entry: Involves one debit and one credit account.

Compound entry: An entry that requires accounts.

The standard format requires that all debits be listed before the credits.

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Learning Objective 3
Explain how a ledger and posting help
in the recording process.

26
 The Ledger and Posting p.10 分類帳及過帳

➢ Ledger: The entire group of maintained by a company.

分類帳記錄各個會計科目的餘額

➢ Provides the balance in each of the accounts as well as keeps track of

changes in these balances.

➢ Companies may總分類帳
use various kinds of ledgers, but every company has a
general ledger.
27
The Ledger p.11
The General Ledger

28
Standard Form of Account

This format is called the three-column form of account. It has

three money columns—debit, credit, and balance.

29
Posting
p.12

30
Chart of Accounts p.13 會計科目表

31
Chart of Accounts p.13

➢ Lists the accounts and the that identify their location in

the ledger.

Numbering system: Usually starts with the accounts

and follows with the accounts.

Number of accounts: Depends on the amount of detail management desires.

Companies leave gaps to permit the insertion of new accounts as needed

during the life of the business.

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The Recording Process Illustrated p.13
October transactions of Yazici Advertising A.Ş.
Accounting period: One month

HELPFUL HINT
Follow these steps:
1 - Determine what type of account is involved.
2 - Determine what items increased or decreased and by how much.
3 - Translate the increases and decreases into debits and credits.

33
p.14

34
p.14

35
p.15

Unearned Service
Revenue is considered a
liability even though the
word payable is not used. 36
p.15

37
p.16

38
p.16

39
p.17

40
p.17

41
p.18

42
p.18

43
Summary Illustration of Journalizing and Posting
p.19

44
Summary Illustration of Journalizing and Posting p.20

45
Learning Objective 4
Prepare a trial balance.

46
The Trial Balance p.21 試算表

A list of accounts and their balances at a given time.

Proves the mathematical of debits and credits after
posting.

Three steps of preparation:

1. List the account titles and their balances in the appropriate debit
or credit column.
2. Total the debit and credit columns.
3. Verify the equality of the two columns.
47
The Trial Balance p.21

48
Limitations of a Trial Balance p.22
A trial balance may balance even when:
1 - Transaction not journalized.
2 - Correct journal entry not posted.
3 - Journal entry posted twice.
4 - Incorrect accounts used in journalizing or posting.
5 - Offsetting errors made in recording the amount of a transaction.

ETHICS NOTE
Error: Irregularity:
The result of an unintentional mistake An intentional misstatement
Neither ethical nor unethical Viewed as unethical

49
Currency Signs and Underlining p.22
Currency Signs
• Do not appear in journals or ledgers.
• Typically used only in the trial balance and the financial
statements.
• Shown only for the first item and the total in the column.

Underlining
• A single line is placed under the column of figures to be added
or subtracted.
• Totals are double-underlined.

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