Accounting Principles, 9th Edition

Weygandt • Kieso • Kimmel

Chapter 2

The Recording Process

Prepared by Naomi Karolinski

Monroe Community College
and
Marianne Bradford
Bryant College

John Wiley & Sons, Inc. © 2005

 CHAPTER 2
THE RECORDING PROCESS
After studying this chapter, you should be able to:

1 Explain what an account is and how it

helps in the recording process
2 Define debits and credits and explain
how they are used to record business
transactions
3 Identify the basic steps in the
recording process
4 Explain what a journal is and how it
helps in the recording process
 CHAPTER 2
THE RECORDING PROCESS
After studying this chapter, you should be able to:

5 Explain what a ledger is and how it

helps in the recording process
6 Explain what posting is and how it helps
in the recording process
7 Prepare a trial balance and explain its
purpose
 THE ACCOUNT
STUDY OBJECTIVE 1

• An account is an individual
accounting record of increases
and decreases in a specific asset,
liability, or owner’s equity item.
• There are separate accounts for
the items we used in transactions
such as cash, salaries expense,
accounts payable, etc.
 BASIC FORM OF ACCOUNT
STUDY OBJECTIVE 2

• The simplest form an account consists of

1 the title of the account
2 a left or debit side
3 a right or credit side
• The alignment of these parts resembles the
letter T = T account
Title of Account

Left or debit side Right or credit side

Debit balance Credit balance

 DEBITS AND CREDITS

• Debit indicates left and Credit indicates right

• Recording $ on the left side of an account is
debiting the account
• Recording $ on the right side is crediting the
account
• If the total of debit amounts is bigger than
credits, the account has a debit balance
• If the total of credit amounts is bigger than
debits, the account has a credit balance
TABULAR SUMMARY COMPARED
TO ACCOUNT FORM
DEBITING AN ACCOUNT

Cash
Debits Credits
15,000

Example: The owner makes an initial

investment of $15,000 to start
the business. Cash is debited
as the owner’s Capital is
credited.
CREDITING AN ACCOUNT

Cash
Debits Credits
7,000

Example: Monthly rent of $7,000 is paid.

Cash is credited as Rent
Expense is debited.
DEBITING / CREDITING AN
ACCOUNT

Cash
Debits Credits
15,000 7,000
8,000

Example: Cash is debited for $15,000

and credited for $7,000, leaving
a debit balance of $8,000.
 DOUBLE-ENTRY SYSTEM

• equal debits and credits made

accounts for each transaction
• total debits always equal the total
credits
• accounting equation always stays
in balance

Assets Liabilities Equity

 NORMAL BALANCE

• every account has a

designated normal balance.
– It is either a debit or credit.

• accounts rarely have an

abnormal balance.
Which of the following is not true of the
terms debit and credit.
a. They can be abbreviated as Dr. and Cr.
b. They can be interpreted to mean increase and
decrease.
c. They can be used to describe the balance of an
account.
d. They can be interpreted to mean left and right.

Chapter 2
Which of the following is not true of the
terms debit and credit.
a. They can be abbreviated as Dr. and Cr.
b. They can be interpreted to mean increase and
decrease.
c. They can be used to describe the balance of an
account.
d. They can be interpreted to mean left and right.

Chapter 2
 THE RECORDING
PROCESS
STUDY OBJECTIVE 3

1 analyze each transaction (+, -)

2 enter transaction in a journal
3 transfer journal information to
ledger accounts
 THE JOURNAL
STUDY OBJECTIVE 4

• Transactions
– Are initially recorded in chronological
order before they are transferred to the
ledger accounts.
• A general journal has
1 spaces for dates
2 account titles and explanations
3 references
4 two amount columns
 THE JOURNAL
A journal makes several contributions to
recording process:
1 discloses in one place the complete effect of a
transaction
2 provides a chronological record of transactions
3 helps to prevent or locate errors as debit and
credit amounts for each entry can be compared
 JOURNALIZING

• Entering transaction data in the journal

is known as journalizing.
• Separate journal entries are made for
each transaction.
• A complete entry consists of:
1 the date of the transaction,
2 the accounts and amounts to be
debited and credited,
3 a brief explanation of transaction.
 TECHNIQUE OF
JOURNALIZING
The date of the transaction is entered into the
date column.

GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2005
Sept. 1 Cash 15,000
R. Neal, Capital 15,000
(Invested cash in business)

1 Computer Equipment 7,000

Cash 7,000
(Purchased equipment for
cash)
 TECHNIQUE OF
JOURNALIZING
The debit account title is entered at the extreme
left margin of the Account Titles and Explanation
column. The credit account title is indented on the
next line.

GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2005
Sept. 1 Cash 15,000
R. Neal, Capital 15,000
(Invested cash in business)

1 Computer Equipment 7,000

Cash 7,000
(Purchased equipment for
cash)
 TECHNIQUE OF
JOURNALIZING
The amounts for the debits are recorded in the
Debit column and the amounts for the credits are
recorded in the Credit column.

GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2005
Sept. 1 Cash 15,000
R. Neal, Capital 15,000
(Invested cash in business)

1 Computer Equipment 7,000

Cash 7,000
(Purchased equipment for
cash)
 TECHNIQUE OF
JOURNALIZING
A brief explanation of the transaction is given.

GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2005
Sept. 1 Cash 15,000
R. Neal, Capital 15,000
(Invested cash in business)

1 Computer Equipment 7,000

Cash 7,000
(Purchased equipment for
cash)
 TECHNIQUE OF
JOURNALIZING
A space is left between journal entries. The
blank space separates individual journal entries
and makes the entire journal easier to read.

GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2005
Sept. 1 Cash 15,000
R. Neal, Capital 15,000
(Invested cash in business)

1 Computer Equipment 7,000

Cash 7,000
(Purchased equipment for
cash)
 TECHNIQUE OF
JOURNALIZING
The column entitled Ref. is left blank at the time
journal entry is made and is used later when the
journal entries are transferred to the ledger
accounts.

GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2005
Sept. 1 Cash 15,000
R. Neal, Capital 15,000
(Invested cash in business)

1 Computer Equipment 7,000

Cash 7,000
(Purchased equipment for
cash)
 SIMPLE AND COMPOUND
JOURNAL ENTRIES

If an entry involves only two accounts, one debit

and one credit, it is considered a simple entry.

GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2005
July 1 Cash 20,000
K. Browne, Capital 20,000
(Invested cash in the
business)
 COMPOUND JOURNAL
ENTRY
When three or more accounts are required in
one journal entry, the entry is referred to as a
compound entry.

GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2005
July 1 Delivery Equipment 14,000
1 Cash 8,000
Accounts Payable 6,000
2 (Purchased truck for cash
with balance on account)
3
 COMPOUND JOURNAL
ENTRY
This is the wrong format; all debits must be listed
before the credits are listed.

GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2005
July 1 Cash 8,000
Delivery Equipment 14,000
Accounts Payable 6,000
(Purchased truck for cash
with balance on account)
 THE LEDGER
STUDY OBJECTIVE 5

A Group of accounts maintained by a

company is called the ledger.
A general ledger contains all the
assets, liabilities, and owner’s
equity accounts
 POSTING A JOURNAL ENTRY

GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2005
Sept. 1 Cash 10 15,000
R. Neal, Capital 25 15,000
(invested cash in business)
GENERAL LEDGER
CASH NO. 10
Date Explanation Ref. Debit Credit Balance
2005
Sept. 1 J1 15,000 15,000

R. NEAL, CAPITAL NO. 25

Date Explanation Ref. Debit Credit Balance
2005
Sept. 1 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.
 POSTING A JOURNAL ENTRY

GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2005
Sept. 1 Cash 10 15,000
R. Neal, Capital 25 15,000
(invested cash in business)

GENERAL LEDGER
CASH NO. 10
Date Explanation Ref. Debit Credit Balance
2005
Sept. 1 J1 15,000 15,000

R. NEAL, CAPITAL NO. 25

Date Explanation Ref. Debit Credit Balance
2005
Sept. 1 J1 15,000 15,000

In the reference column of the journal, write the account

number to which the debit amount was posted.
 POSTING A JOURNAL ENTRY
GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2005
Sept. 1 Cash 10 15,000
R. Neal, Capital 25 15,000
(invested cash in business)

GENERAL LEDGER
CASH NO. 10
Date Explanation Ref. Debit Credit Balance
2005
Sept. 1 J1 15,000 15,000

R. NEAL, CAPITAL NO. 25

Date Explanation Ref. Debit Credit Balance
2005
Sept. 1 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.
 POSTING A JOURNAL ENTRY

GENERAL JOURNAL J1
Date Account Titles and Explanation Ref. Debit Credit
2005
Sept. 1 Cash 10 15,000
R. Neal, Capital 25 15,000
(invested cash in business)

GENERAL LEDGER
CASH NO. 10
Date Explanation Ref. Debit Credit Balance
2005
Sept. 1 J1 15,000 15,000

R. NEAL, CAPITAL NO. 25

Date Explanation Ref. Debit Credit Balance
2005
Sept. 1 J1 15,000 15,000

In the reference column of the journal, write the account number to which the
credit amount was posted.
 INVESTMENT OF CASH BY
OWNER
October 1, C.R. Byrd invests $10,000 cash in an
Transaction advertising business known as:
The Pioneer Advertising Agency.

Basic •The asset Cash is increased $10,000

Analysis •Owner’s equity, C. R. Byrd, Capital is increased
$10,000.

Debits increase assets: debit Cash $10,000.

Debit-Credit
Credits increase owner’s equity: credit C.R. Byrd,
Analysis Capital $10,000.
 PURCHASE OF OFFICE
EQUIPMENT
JOURNAL ENTRY

Date Account Titles and Explanation Ref. Debit Credit

Oct. 1 Cash 101 10,000
C. R. Byrd, Capital 301 10,000
(Owner invests $10,000
In the business)

POSTING

Cash 101 C. R. Byrd, Capital 301

Oct. 1 10,000 Oct. 1 10,000
 INVESTMENT OF CASH BY
OWNER
October 1, C. R. Byrd purchases $5,000 of
Transaction equipment by issuing a 3-month, 12% note
payable.

Basic •The asset Office Equipment is increased $5,000.

Analysis •The liability, Notes Payable is increased $5,000.

Debits increase assets: debit Office Equipment

Debit-Credit
$5,000.
Analysis Credits increase liabilities: credit Notes Payable
$5,000.
 PURCHASE OF OFFICE
EQUIPMENT
JOURNAL ENTRY

Date Account Titles and Explanation Ref. Debit Credit

Oct. 1 Office Equipment 157 5,000
Notes Payable 200 5,000
(Issued 3-month, 12% note
for office equipment)

POSTING

Office 157 Notes Payable 200

Equipment
Oct. 1 5,000
Oct. 1 5,000
 RECEIPT OF CASH FOR
FUTURE SERVICE
October 2, a $1,200 cash advance is received from a
Transaction client, for advertising services expected to be
completed by December 31.

Asset Cash is increased $1,200

Liability Unearned Fees is increased $1,200
Basic •Service has not been rendered yet.
Analysis
Liabilities often have the word “payable” in their
title, Unearned fees are a liability.

Debits increase assets: debit Cash $1,200.

Debit-Credit
Credits increase liabilities: credit Unearned Fees
Analysis $1,200.
 RECEIPT OF CASH FOR
FUTURE SERVICE
JOURNAL ENTRY

Date Account Titles and Explanation Ref. Debit Credit

Oct. 2 Cash 101 1,200
Unearned Fees 209 1,200
(Received advance from R.
Knox for future services)

POSTING

Cash 101 Unearned Fees 209

Oct. 1 10,000 Oct. 2 1,200
2 1,200
 PAYMENT OF MONTHLY
RENT

October 3, office rent for October is paid in cash,

Transaction $900.

Basic The expense Rent is increased $900

Analysis Payment pertains only to the current month
Asset Cash is decreased $900.

Debit-Credit Debits increase expenses: debit Rent Expense $900.

Analysis Credits decrease assets: credit Cash $900.
 PAYMENT OF RENT
EXPENSE
JOURNAL ENTRY

Date Account Titles and Explanation Ref. Debit Credit

Oct. 3 Rent Expense 729 900
Cash 101 900
(Paid $900 for October rent)

POSTING
Cash 101
Rent Expense 729 Oct. 1 10,000 Oct. 3 900
Oct. 3 900 Oct. 2 1,200
PAYMENT FOR INSURANCE

October 4, $600 Paid one-year insurance policy-

Transaction expires next year on September 30.

-Asset Prepaid Insurance increases $600

-Payment extends to more than the current month
Basic -Asset Cash is decreased $600.
Analysis -Payments of expenses benefiting more than one
period are prepaid expenses or prepayments.

Debit-Credit Debits increase assets: debit Prepaid Insurance

Analysis $600. Credits decrease assets: credit Cash $600.
 PAYMENT FOR
INSURANCE
JOURNAL ENTRY

Date Account Titles and Explanation Ref. Debit Credit

Oct. 4 Prepaid Insurance 130 600
Cash 101 600
(Paid one-year policy;
effective date October 1)

POSTING

Cash 101 Prepaid Insurance 130

Oct. 1 10,000 Oct. 3 900 Oct. 4 600
2 1,200 4 600
 PURCHASE OF SUPPLIES
ON CREDIT

October 5, an estimated 3-month supply of

Transaction advertising materials is purchased on account from
Aero Supply for $2,500.

Basic The asset Advertising Supplies is increased $2,500;

Analysis the liability Accounts Payable is increased $2,500.

Debits increase assets: debit Advertising Supplies

Debit-Credit
$2,500. Credits increase liabilities: credit
Analysis Accounts Payable $2,500.
 PURCHASE OF SUPPLIES
ON CREDIT
JOURNAL ENTRY

Date Account Titles and Explanation Ref. Debit Credit

Oct. 5 Advertising Supplies 126 2,500
Accounts Payable 201 2,500
(Purchased supplies on
account from Aero Supply)

POSTING

Advertising Supplies 126 Accounts Payable 201

Oct. 5 2,500 Oct. 5 2,500
 HIRING OF EMPLOYEES

October 9, hire four employees to begin work on

October 15. Each employee is to receive a weekly
Transaction salary of $500 for a 5-day work week, payable every
2 weeks -- first payment made on October 26.

A business transaction has not occurred only an

Basic agreement between the employer and the
Analysis employees to enter into a business transaction
beginning on October 15.

Debit-Credit A debit-credit analysis is not needed because there is

Analysis no accounting entry.
WITHDRAWAL OF CASH BY
OWNER

October 20, C. R. Byrd withdraws $500 cash for

Transaction personal use.

Basic The owner’s equity account C. R. Byrd, Drawing is

Analysis increased $500.
The asset Cash is decreased $500.

Debits increase drawings: debit C. R. Byrd,

Debit-Credit
Drawing $500. Credits decrease assets: credit
Analysis Cash $500.
 WITHDRAWAL OF CASH BY
OWNER
JOURNAL ENTRY

Date Account Titles and Explanation Ref. Debit Credit

Oct. 20 C. R. Byrd, Drawing 306 500
Cash 101 500
(Withdrew cash for personal
use)

POSTING

Cash 101 C. R. Byrd, Drawing 306

Oct. 1 10,000 Oct. 3 900 Oct. 20 500
2 1,200 4 600
20 500
 PAYMENT OF SALARIES

October 26, employee salaries of $4,000 are owed

Transaction and paid in cash. (See October 9 transaction.)

Basic The expense account Salaries Expense is increased

Analysis $4,000; the asset Cash is decreased $4,000.

Debit-Credit Debits increase expenses: debit Salaries Expense

Analysis $4,000. Credits decrease assets: credit Cash $4,000.
 PAYMENT OF SALARIES

JOURNAL ENTRY

Date Account Titles and Explanation Ref. Debit Credit

Oct. 26 Salaries Expense 726 4,000
Cash 101 4,000
(Paid salaries to date)

POSTING

Cash 101 Salaries Expense 726

Oct. 1 10,000 Oct. 3 900 Oct. 26 4,000
2 1,200 4 600
20 500
26 4,000
RECEIPT OF CASH FOR FEES
EARNED
October 31, received $10,000 in cash from
Transaction Larry Company for advertising services
rendered in October.

Basic The asset Cash is increased $10,000; the revenue

Analysis Fees Earned is increased $10,000.

Debit-Credit Debits increase assets: debit Cash $10,000. Credits

Analysis increase revenues: credit Fees Earned $10,000.
RECEIPT OF CASH FOR FEES
EARNED
JOURNAL ENTRY
Date Account Titles and Explanation Ref. Debit Credit
Oct. 31 Cash 101 10,000
Fees Earned 400 10,000
(Received cash for fees
earned)

POSTING
Cash 101 Fees Earned 400
Oct. 1 10,000 Oct. 3 900 Oct. 31 10,000
2 1,200 4 600
31 10,000 20 500
26 4,000
 THE TRIAL BALANCE
STUDY OBJECTIVE 7

• The trial balance is a list of accounts and

their balances at a given time.

• The primary purpose of a trial balance is

to prove debits = credits after posting.

• If debits and credits do not agree, the

trial balance can be used to uncover
errors in journalizing and posting.
 THE TRIAL BALANCE
The Steps in preparing the Trial Balance are:

1.List the account titles and balances

2.Total the debit and credit columns

3.Prove the equality of the two columns

 A TRIAL BALANCE

PIONEER ADVERTISING AGENCY

Trial Balance
October 31, 2005

Debit Credit
Cash $ 15,200
Advertising Supplies 2,500
Prepaid Insurance
The total 600
Office Equipment debits must 5,000
Notes Payable $ 5,000
Accounts Payable
equal the total 2,500
Unearned Fees credits. 1,200
C. R. Byrd, Capital 10,000
C. R. Byrd, Drawing 500
Fees Earned 10,000
Salaries Expense 4,000
Rent Expense 900
$ 28,700 $ 28,700
 LIMITATIONS OF A
TRIAL BALANCE
• A trial balance does not prove all transactions
have been recorded or the ledger is correct.

• Numerous errors may exist even though the

trial balance columns agree. For example, the
trial balance may balance even when:
– a transaction is not journalized
– a correct journal entry is not posted
– a journal entry is posted twice
– incorrect accounts used in journalizing or
posting
– offsetting errors are made in recording
Which one of the following represents the expanded
basic accounting equation?

a. Assets = Liabilities + Owner’s Capital + Owner’s

Drawings – Revenue - Expenses.
b. Assets + Owner’s Drawings + Expenses = Liabilities
+ Owner’s Capital + Revenue.
c. Assets – Liabilities – Owner’s Drawings = Owner’s
Capital + Revenue – Expenses.
d. Assets = Revenue + Expenses – Liabilities.

Chapter 2
Which one of the following represents the expanded
basic accounting equation?

a. Assets = Liabilities + Owner’s Capital + Owner’s

Drawings – Revenue - Expenses.
b. Assets + Owner’s Drawings + Expenses = Liabilities
+ Owner’s Capital + Revenue.
c. Assets – Liabilities – Owner’s Drawings = Owner’s
Capital + Revenue – Expenses.
d. Assets = Revenue + Expenses – Liabilities.

Chapter 2
 COPYRIGHT

Copyright © 2005 John Wiley & Sons, Inc. All rights reserved. Reproduction or
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