Accounting Principles, 9th Edition

Weygandt • Kieso • Kimmel

Chapter 2

The Recording Process

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 THE ACCOUNT
 An account is an individual accounting record of
increases and decreases in a specific asset, liability,
or owner’s equity item.
 An account is an element in an accounting system
that is used to classify and summarize
measurements of business activity
 There are separate accounts for the items we used
in transactions such as cash, salaries expense,
accounts payable, etc.

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 BASIC FORM OF ACCOUNT

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

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 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

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 DOUBLE-ENTRY SYSTEM
 Double entry is a system in which two-fold
aspect of every transactions is recorded.
 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

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9/8/21 6
 EXPANDED BASIC EQUATION
AND DEBIT/CREDIT RULES AND
EFFECTS
Assets = Liabilities + Owner’s Equity

Owner’s Owner’s
Assets = Liabilities + -
Capital Drawing
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
+ - - + - + + -

+ Revenues - Expenses

Dr. Cr. Dr. Cr.

- + + -
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 THE JOURNAL

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
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 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

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 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.

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 TECHNIQUE OF
JOURNALIZING

The
Thedate
dateof
ofthe
thetransaction
transactionisisentered
enteredinto
intothe
thedate
datecolumn.
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)

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 TECHNIQUE OF
JOURNALIZING
The
Thedebit
debitaccount
accounttitle
titleisisentered
enteredat
atthe
theextreme
extremeleft
left
margin
marginof
ofthe
theAccount
AccountTitles
Titlesand
andExplanation
Explanationcolumn.
column.
The
Thecredit
creditaccount
accounttitle
titleisisindented
indentedon
onthe
thenext
nextline.
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)

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 TECHNIQUE OF
JOURNALIZING
AAbrief
briefexplanation
explanationof
ofthe
thetransaction
transactionisisgiven.
given.

G
ENE
RALJ
OUR
NAL J
1
Da te AccountTitle
s a
n dExp
la
n a
tio
n Re
f. Deb
it C
redit
200 5
S
ept. 1 C
as
h 1
5,0
00
R.N e
al,Ca p
ita
l 1
5,0
0 0
(In
ve s
te dca
sh inb
usin
e s
s)

1C
omp
ute
rEqu
ip
m e
nt 7
,0
00
Ca
sh 7
,0
00
(Pu
rch
ase
dequip
men
tfo
r
cas
h)

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SIMPLE AND COMPOUND JOURNAL
ENTRIES

If
If an
an entry
entry involves
involves only only two
two accounts,
accounts, one
one debit
debit
and
and one
one credit,
credit, itit isis considered
considered aa simple
simple entry.
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)

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 COMPOUND JOURNAL
ENTRY
When
Whenthree
threeor
ormore
moreaccounts
accountsare
arerequired
requiredin
inone
onejournal
journal
entry,
entry,the
theentry
entryisisreferred
referredto
toas
asaacompound
compoundentry.
entry.

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

3
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 THE LEDGER

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

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 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. 17
 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.

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 PURCHASE OF OFFICE
EQUIPMENT
JOURNAL
JOURNALENTRY
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
POSTING

Cash 101 C. R. Byrd, Capital 301

Oct. 1 10,000 Oct. 1 10,000

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THE TRIAL BALANCE

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.

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 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

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 LIMITATIONS OF A TRIAL
BALANCE
A trialbalance 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
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