CHAPTER 2

THE RECORDING
PROCESS
 Chapter 2 Recording Process
Learning Objectives
1. Describe how accounts, debits, and credits are
used to record business transactions.
2. State how a journal is used in the recording
process and journalize transactions.
3. Explain how a ledger helps in the recording
process and post transactions.
4. Prepare a trial balance.

2
 Week 2 Assignment

 Problem 2 – 5A (page 2-45)

 Problem 2 – 7A (page 2-46)
 Wiley Plus – due before next class.
 The Ledger Account

 A separate record or account is kept for

each asset, liability or owner’s equity item.
 A company will have separate accounts for
such items as cash. These accounts in the
general ledger.
 T Account
 In its simplest form, an account consists of
1. the title,
2. a left or debit side, and
3. a right or credit side.
 This is called a T account.

Title of Account
Left or debit side Right or credit side

Debit balance Credit balance

 Debits and Credits

 Debit means left and credit means right.

 Debiting – enter an amount on the left side.
 Crediting – enter an amount on the right side.
 Total debit amounts > total credits, an account has a
debit balance.
 Total debits amounts < total credits, an account has
a credit balance.
DR CR
Sample T Account

7
Assets, Liabilities & Owner’s
Capital

8
Drawings, Revenues & Expenses

9
Debits & Credits YouTube Videos

Rules of Debits and Credits (14 minutes,

1M views)
Tricks to remember Debits and Credits
(3 minutes, 861K views)
Debits and Credits (7 minutes, 250K
views)
Debits and Credits (49 minutes, 132K
views)
Double Entry Accounting System
 Equal debits and credits are made to
accounts for each transaction.
 Total debits = total credits
 The accounting equation will always stay in
balance.
Accounting Rap Song

Assets Liabilities Equity

 Normal Account Balances

 Every account has a normal balance, either debit or

credit.
 Assets – have a normal debit balance.
 Liabilities & owner’s capital – have a normal credit
balance.
 Revenues cause equity to rise – have a normal credit
balance.
 Expenses & drawings cause equity to fall – normal
debit balance.
 Accounting Cycle
1. Analyze each transaction.
2. Journalize – enter transactions into General Journal.
3. Post – transfer journal entry balances into ledger accounts.
4. Prepare trial balance – a list of all accounts and their balances.
5. Prepare financial statements from the trial balance.
 General Journal
 Transactions are recorded by date into the
general journal, also called the book of original
entry. The process is called journalizing.
 Every company has a general journal which
contains spaces for
1. dates,
2. account titles & description
3. references, and
4. two money columns.
 Process of Journalizing

The
The date
date ofof the
the transaction
transaction is
is entered
entered in
in the
the date
date
column. IfIf an
column. an entry
entry involves
involves only
only two
two
accounts,
accounts, itit is
is aa simple
simple entry.
entry.
GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2005
Sept. 1 Cash 15,000
M. Doucet, Capital 15,000
Invested cash in business.

1 Equipment 7,000
Cash 7,000
Purchased equipment for cash.
 Compound Journal Entry

Compound entry: involves three or more accounts

16
 Lynk Software Services
Prepare journal entries for the following transactions:
1.T. Jacobs invested $10,000 cash into the business on
October 1.
2.Buy $5,000 in Equipment with a 3 month, 6% note payable,
Oct. 2.
3.A $1,200 cash advance from a client, R. Knox, is received for
services to be completed by December 31, on Oct. 3.
4.On Oct. 3, office rent for October is paid in cash, $900.
5.October 3, $600 is paid for a 1-year insurance policy, effective
October 1st.
6.A supply of materials is purchased on account from Aero
Supply for $2,500 on Oct. 4.
7.Four employees are to begin work on October 14. Each will
receive a weekly salary of $500 with the first payroll made on
October 25.
 Lynk Software Services
Prepare journal entries for the following transactions:

8.T. Jacobs withdrew $500 on October 20 for personal

use.
9.October 22, Copa Company is billed $10,000 for
advertising services rendered.
10.Oct 25, $800 in services provided to a customer, who
paid in cash.
11.October 25, employee salaries of $4,000 are paid.
12.Copa Company (customer) pays $9,000 in cash in
payment of its account, Oct. 31 (see Oct. 22 transaction)
13.Oct 31, paid Aero Supply $750 as partial payment of its
account payable (see Oct. 4 transaction).
 Lynk Software Services
Prepare journal entries for the month of
September
Brief Exercice 2-13 (page 2-35)
 Brief Exercice 2-13 (page 2-35)
Jan. 2 Cash ..................................................... 10,000
M. Acosta, Capital .......................... 10,000
Oct.1 Cash Invested cash in business. 30,000
L. Berge, Capital 30,000
3 Vehicles ............................................... 3,000
InvestedCashin business
................................................
Purchased a used car for cash.
3,000

2 Rent Expense 700

9 Supplies............................................... 600
CashAccounts Payable ..........................
Purchased supplies on account.
700
600

Paid rent expense

11 Accounts Receivable .......................... 2,400
3 Equipment
Service Revenue ............................
Performed services on account.
2,800 2,400

Accounts Payable 2,800

16 Advertising Expense .......................... 350
Purchased equipment on account 350
Cash ................................................
Paid for advertising expense.
6 Accounts Receivable 4,400
20 Cash ..................................................... 900
Service Revenue
Accounts Receivable ..................... 4,400 900
Collection on account.
Sale on account
• Accounts
28 M. Acosta,payable
Drawings ........................... 1,000 1,100
Cash ................................................ 1,000
Cash Withdrew cash for personal use 1,100 by owner.
 Journalizing Videos

General journal entries (8 minutes, 1.7M

views)
General journal entries (15 minutes, 426K
views)
 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
23
Standard Form of Account

24
 Chart of Accounts
• A Chart of Accounts is a list of all the accounts in
the General Ledger and their account codes.
• Accounts are usually numbered in the order they
appear on the balance sheet:
1. Assets
2. Liabilities
3. Owners Equity
4. Revenues
5. Expenses
Sample Chart of Accounts
Pioneer Advertising Agency
Chart of Accounts
Number Title
101 Cash
112 Accounts Receivable
129 Advertising Supplies
130 Prepaid Insurance
151 Office Equipment
200 Notes Payable
201 Accounts Payable
209 Unearned Revenue
301 C.R. Byrd, Capital
306 C.R. Byrd, Drawings
400 Service Revenue
722 Insurance Expense
726 Salaries Expense
729 Rent Expense
Process of Posting a Journal Entry

General Journal J1
Date Account Title and Explanation Ref Debit Credit
2005
1-Sep Cash 101 15,000
M. Doucet, Capital 301 15,000
Invested cash in business.
General Ledger
Cash 101
Date Account Title and Explanation Ref Debit Credit Balance
2005
1-Sep J1 15,000 15,000

In the ledger, enter in the appropriate columns of the account(s)

debited the date, journal page, and debit amount shown in the
journal and the account number to which the journal was posted.
 POSTING A JOURNAL ENTRY
Illustration 2-6
General Journal J1
Date Account Title and Explanation Ref Debit Credit
2005
1-Sep Cash 101 15,000
M. Doucet, Capital 301 15,000
Invested cash in business.

General Ledger
M. Doucet, Capital 301
Date Account Title and Explanation Ref Debit Credit Balance
2005
1-Sep J1 15,000 15,000

In the ledger, enter in the appropriate columns of the account(s)

credited the date, journal page, and credit amount shown in the
journal and the account number to which the journal was posted.
 Practice Posting Journal Entries

 Lynk Software Services

 Posting Process Videos

Posting to a Ledger (14 minutes, 334K

views)
Posting to the General Ledger (17
minutes, 194K views)
 Trial Balance
 A trial balance is a list of accounts and their balances at a
given time.
 The main purpose of a trial balance is to prove that total
debits equals total credits after posting.
 A trial balance also uncovers errors in journalizing and
posting.
 The procedures for preparing a trial balance consist of
1. listing the account titles and their balances,
2. totaling the debit and credit columns, and
3. proving the equality of the two columns.
Example Trial Balance

32
 Limitations of Trial Balances

 A trial balance does not prove that there are no errors.

 Numerous errors may exist even though the balances
are the same.
 The trial balance may balance even when
1. a transaction is not journalized,
2. a correct journal entry is not posted,
3. a journal entry is posted twice,
4. incorrect accounts are used in journalizing or
posting,
5. offsetting errors are made in recording the
amount of the transaction.
Preparing a Trial Balance Video

Creating a trial balance (6 minutes, 596K

views)
 Locating Errors

 If the trial balance does not balance, recalculate both

columns to look for a math error.
 If the error is dividable by 2, check the trial balance if a
balance equal to this amount was added to the wrong
column.
 If the error is dividable by 9, you likely made a
transposition error.
 Scan the ledger to see whether the amount was
transferred properly to the trial balance, re-add the G/L
balances and, finally, check the amounts posted from
the journal entries.
 Preparation of Financial Statements

 Trial balance is used to prepare financial

statements.
1. Income Statement
2. Statement of owner’s equity
3. Balance sheet
 Class Practice

 Demonstration Problem – page 2-28