a ccounting principles, 6e weygandt, kieso, & kimmel john wiley & sons, inc. prepared by...

AAccounting Principles, ccounting Principles, 6e6e Weygandt, Kieso, & KimmelWeygandt, Kieso, & Kimmel

John Wiley & Sons, Inc.

Prepared byMarianne Bradford, Ph. D.

Bryant College

After studying this chapter, you should be able to:

CHAPTER CHAPTER 2 2 THE RECORDING PROCESSTHE RECORDING PROCESSCHAPTER CHAPTER 2 2

THE RECORDING PROCESSTHE RECORDING PROCESS

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.

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.

After studying this chapter, you should be able to:



Trial Balance

PREVIEW OF CHAPTER PREVIEW OF CHAPTER 22PREVIEW OF CHAPTER PREVIEW OF CHAPTER 22

The Recording Process

Steps in the Recording Process

Journal

Ledger

The Account

Debits and credits

Expansion of basic equation

PREVIEW OF CHAPTER PREVIEW OF CHAPTER 22PREVIEW OF CHAPTER PREVIEW OF CHAPTER 22

The Recording Process

The Trial Balance

Limitations of a trial balance

Locating errors

Use of dollar signs

The Recording Process Illustrated

Summary illustration of journalizing and posting

STUDY OBJECTIVE STUDY OBJECTIVE 11

Explain what an account is and how it helps in the recording process.Explain what an account is and how it helps in the recording process.

THE ACCOUNTTHE ACCOUNTTHE ACCOUNTTHE ACCOUNT

An account is an individual accounting record of increases and decreases in a specific asset, liability, or owner’s equity item.

A company will have separate accounts for such items as cash, salaries expense, accounts payable, and so on.


Define debits and credits and explain how they are used to record business transactions.Define debits and credits and explain how they are used to record business transactions.

ILLUSTRATION ILLUSTRATION 2-1 2-1 BASIC FORM OF ACCOUNTBASIC FORM OF ACCOUNT

ILLUSTRATION ILLUSTRATION 2-1 2-1 BASIC FORM OF ACCOUNTBASIC FORM OF ACCOUNT

Left or debit side

Title of Account

Right or credit side

Debit balance Credit balance

In its simplest form, an account consists of

1 the title of the account,

2 a left or debit side, and

3 a right or credit side. The alignment of these parts resembles the letter T, and

therefore the account form is called a T account.

DEBITS AND CREDITSDEBITS AND CREDITSDEBITS AND CREDITSDEBITS AND CREDITS

The term debit means left and credit means right respectively.

The act of entering an amount on the left side of an account is called debiting the account and making an entry on the right side is crediting the account.

When the debit amounts exceed the credits, an account has a debit balance; when the reverse is true, the account has a credit balance. DR CR

ILLUSTRATION ILLUSTRATION 2-2 2-2 TABULAR SUMMARY COMPARED TO TABULAR SUMMARY COMPARED TO

ACCOUNT FORMACCOUNT FORM

ILLUSTRATION ILLUSTRATION 2-2 2-2 TABULAR SUMMARY COMPARED TO TABULAR SUMMARY COMPARED TO

ACCOUNT FORMACCOUNT FORM

Tabular Summary

Cash

$15,000- 7,000

1,2001,500

- 1,700- 250

600- 1,300

CashDebit Credit

15,0001,2001,500

600

7,0001,700

1,300250

Balance

Account Form

$ 8,050

$8,050(Debit)

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.

Example: The owner makes an initial investment of $15,000 to start the business. Cash is debited as the owner’s Capital is credited.

DEBITING AN ACCOUNTDEBITING AN ACCOUNTDEBITING AN ACCOUNTDEBITING AN ACCOUNT

Example: Monthly rent of $7,000 is paid. Cash is credited as Rent Expense is debited.

Example: Monthly rent of $7,000 is paid. Cash is credited as Rent Expense is debited.

CREDITING AN ACCOUNTCREDITING AN ACCOUNTCREDITING AN ACCOUNTCREDITING AN ACCOUNT

Cash

Debits Credits

7,000

DEBITING AND DEBITING AND CREDITING AN ACCOUNTCREDITING AN ACCOUNT

DEBITING AND DEBITING AND CREDITING AN ACCOUNTCREDITING 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.

Example: Cash is debited for $15,000 and credited for $7,000, leaving a debit balance of $8,000.

DOUBLE-ENTRY SYSTEMDOUBLE-ENTRY SYSTEMDOUBLE-ENTRY SYSTEMDOUBLE-ENTRY SYSTEM

In a double-entry system, equal debits and credits are made in the accounts for each transaction.

Thus, the total debits will always equal the total credits and the accounting equation will always stay in balance.

Assets Liabilities Equity

ILLUSTRATION ILLUSTRATION 2-3 2-3 DEBIT AND CREDIT EFFECTS — DEBIT AND CREDIT EFFECTS —

ASSETS AND LIABILITIESASSETS AND LIABILITIES

ILLUSTRATION ILLUSTRATION 2-3 2-3 DEBIT AND CREDIT EFFECTS — DEBIT AND CREDIT EFFECTS —

ASSETS AND LIABILITIESASSETS AND LIABILITIES

Debits CreditsIncrease assets Decrease assets

Decrease liabilities Increase liabilities

NORMAL BALANCENORMAL BALANCENORMAL BALANCENORMAL BALANCE

Every account classification has a normal balance, whether it is a debit or credit.

For that particular account, the opposite side entries should never exceed the normal balance.

ILLUSTRATION ILLUSTRATION 2-4 2-4 NORMAL BALANCES — ASSETS AND LIABILITIESNORMAL BALANCES — ASSETS AND LIABILITIES

ILLUSTRATION ILLUSTRATION 2-4 2-4 NORMAL BALANCES — ASSETS AND LIABILITIESNORMAL BALANCES — ASSETS AND LIABILITIES

AssetsIncrease Decrease Debit CreditDecrease Increase Debit Credit

Liabilities

Normal Balance

Normal Balance

ILLUSTRATION ILLUSTRATION 2-5 2-5 DEBIT AND CREDIT EFFECTS — OWNER’S CAPITALDEBIT AND CREDIT EFFECTS — OWNER’S CAPITAL

ILLUSTRATION ILLUSTRATION 2-5 2-5 DEBIT AND CREDIT EFFECTS — OWNER’S CAPITALDEBIT AND CREDIT EFFECTS — OWNER’S CAPITAL

Debits CreditsDecrease owner’s capital Increase owner’s capital

ILLUSTRATION ILLUSTRATION 2-6 2-6 NORMAL BALANCE — OWNER’S CAPITALNORMAL BALANCE — OWNER’S CAPITALILLUSTRATION ILLUSTRATION 2-6 2-6

NORMAL BALANCE — OWNER’S CAPITALNORMAL BALANCE — OWNER’S CAPITAL

Owner’s Capital

Decrease Increase Debit Credit

Normal Balance

ILLUSTRATION ILLUSTRATION 2-7 2-7 DEBIT AND CREDIT EFFECTS — OWNER’S DRAWINGDEBIT AND CREDIT EFFECTS — OWNER’S DRAWING

ILLUSTRATION ILLUSTRATION 2-7 2-7 DEBIT AND CREDIT EFFECTS — OWNER’S DRAWINGDEBIT AND CREDIT EFFECTS — OWNER’S DRAWING

Debits CreditsIncrease owner’s drawing Decrease owner’s drawing

ILLUSTRATION ILLUSTRATION 2-8 2-8 NORMAL BALANCE — OWNER’S DRAWINGNORMAL BALANCE — OWNER’S DRAWING

ILLUSTRATION ILLUSTRATION 2-8 2-8 NORMAL BALANCE — OWNER’S DRAWINGNORMAL BALANCE — OWNER’S DRAWING

Owner’s Drawing

Normal Balance

Increase Decrease Debit Credit

ILLUSTRATION ILLUSTRATION 2-9 2-9 DEBIT AND CREDIT EFFECTS — REVENUES AND EXPENSESDEBIT AND CREDIT EFFECTS — REVENUES AND EXPENSES

ILLUSTRATION ILLUSTRATION 2-9 2-9 DEBIT AND CREDIT EFFECTS — REVENUES AND EXPENSESDEBIT AND CREDIT EFFECTS — REVENUES AND EXPENSES

Decrease revenues Increase revenues

Increase expenses Decrease expenses

Debits Credits

ILLUSTRATION ILLUSTRATION 2-10 2-10 NORMAL BALANCES — REVENUES AND EXPENSESNORMAL BALANCES — REVENUES AND EXPENSES

ILLUSTRATION ILLUSTRATION 2-10 2-10 NORMAL BALANCES — REVENUES AND EXPENSESNORMAL BALANCES — REVENUES AND EXPENSES

Increase Decrease Debit Credit

Expenses

RevenuesDecrease Increase Debit Credit

NormalBalance

NormalBalance

ILLUSTRATION ILLUSTRATION 2-11 2-11 EXPANDED BASIC EQUATION AND EXPANDED BASIC EQUATION AND

DEBIT/CREDIT RULES AND EFFECTSDEBIT/CREDIT RULES AND EFFECTS

ILLUSTRATION ILLUSTRATION 2-11 2-11 EXPANDED BASIC EQUATION AND EXPANDED BASIC EQUATION AND

DEBIT/CREDIT RULES AND EFFECTSDEBIT/CREDIT RULES AND EFFECTS

LiabilitiesAssets Owner’s Equity

= + -

+=

+ -

Assets

Dr. Cr.+ -

Liabilities

Dr. Cr.- +

Dr. Cr.

Owner’s Drawing

+ -

Dr. Cr.

Revenues

- +Dr. Cr.

Expenses

+ -

Dr. Cr.

Owner’s Capital

- +


Identify the basic steps in the recording process.Identify the basic steps in the recording process.

The basic steps in the recording process are:

1 Analyze each transaction for its effect on the accounts.

2 Enter the transaction information in a journal (book of original entry).

3 Transfer the journal information to the appropriate accounts in the ledger (book of accounts).

STEPS IN THE STEPS IN THE RECORDING PROCESSRECORDING PROCESS

STEPS IN THE STEPS IN THE RECORDING PROCESSRECORDING PROCESS

ILLUSTRATION ILLUSTRATION 2-12 2-12 THE RECORDING THE RECORDING

PROCESSPROCESS

ILLUSTRATION ILLUSTRATION 2-12 2-12 THE RECORDING THE RECORDING

PROCESSPROCESS

1 Analyze each transaction

2 Enter transaction in a journal

3 Transfer journal information to ledger accounts

JOURNAL

JOURNAL

LEDGER


Explain what a journal is and how it helps in the recording process.Explain what a journal is and how it helps in the recording process.

THE JOURNALTHE JOURNALTHE JOURNALTHE JOURNAL

Transactions are initially recorded in chronological order in a journal before being transferred to the accounts.

Every company has a general journal which contains:

1 spaces for dates,

2 account titles and explanations,

3 references, and

4 two amount columns.

The journal makes several significant contributions to the recording process:

1 It discloses in one place the complete effect of a transaction.

2 It provides a chronological record of transactions.

3 It helps to prevent or locate errors because the debit and credit amounts for each entry can be readily compared.

THE JOURNALTHE JOURNALTHE JOURNALTHE JOURNAL

JOURNALIZINGJOURNALIZINGJOURNALIZINGJOURNALIZING

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, and

3 a brief explanation of the transaction.

ILLUSTRATION ILLUSTRATION 2-13 2-13 TECHNIQUE OF TECHNIQUE OF

JOURNALIZINGJOURNALIZING



The date of the transaction is entered in the date column.The date of the transaction is entered in the date column.




JOURNALIZINGJOURNALIZINGThe 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.

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.




JOURNALIZINGJOURNALIZINGThe amounts for the debits are recorded in the Debit column and the amounts for the credits are recorded in the Credit column.

The amounts for the debits are recorded in the Debit column and the amounts for the credits are recorded in the Credit column.





A brief explanation of the transaction is given.A brief explanation of the transaction is given.




JOURNALIZINGJOURNALIZINGA space is left between journal entries. The blank space separates individual journal entries and makes the entire journal easier to read.

A space is left between journal entries. The blank space separates individual journal entries and makes the entire journal easier to read.




JOURNALIZINGJOURNALIZINGThe 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.

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.

If an entry involves only two accounts, one debit and one credit, it is considered a simple entry.

If an entry involves only two accounts, one debit and one credit, it is considered a simple entry.

SIMPLE AND COMPOUND SIMPLE AND COMPOUND JOURNAL ENTRIESJOURNAL ENTRIES

SIMPLE AND COMPOUND SIMPLE AND COMPOUND JOURNAL ENTRIESJOURNAL ENTRIES

When three or more accounts are required in one journal entry, the entry is referred to as a compound entry.

When three or more accounts are required in one journal entry, the entry is referred to as a compound entry.

ILLUSTRATION ILLUSTRATION 2-14 2-14 COMPOUND JOURNAL ENTRYCOMPOUND JOURNAL ENTRY

ILLUSTRATION ILLUSTRATION 2-14 2-14 COMPOUND JOURNAL ENTRYCOMPOUND JOURNAL ENTRY

2

1

3

COMPOUND JOURNAL ENTRYCOMPOUND JOURNAL ENTRYCOMPOUND JOURNAL ENTRYCOMPOUND JOURNAL ENTRY

This is the wrong format; all debits must be listed before the credits are listed.

This is the wrong format; all debits must be listed before the credits are listed.


Explain what a ledger is and how it helps in the recording process.Explain what a ledger is and how it helps in the recording process.

THE LEDGERTHE LEDGERTHE LEDGERTHE LEDGER

The entire group of accounts maintained by a company is called the ledger.

A general ledger contains all the assets, liabilities, and owner’s equity accounts.

GENERAL LEDGER

Individual Liabilities

Individual Assets

Individual Owner’s Equity

ILLUSTRATION ILLUSTRATION 2-15 2-15 THE GENERAL LEDGERTHE GENERAL LEDGER

ILLUSTRATION ILLUSTRATION 2-15 2-15 THE GENERAL LEDGERTHE GENERAL LEDGER

Equipment

Land

Supplies

Cash

Interest Payable

Salaries Payable

Accounts Payable

Notes Payable

Salaries Expense

Fees Earned

J. Lind, Drawing

J. Lind, Capital


Explain what posting is and how it helps in the recording process.Explain what posting is and how it helps in the recording process.

ILLUSTRATION ILLUSTRATION 2-17 2-17 POSTING A JOURNAL ENTRYPOSTING A JOURNAL ENTRY


In the ledger, enter in the appropriate columns of the account(s) debited the date, journal page, and debit amount shown in the journal.



In the reference column of the journal, write the account number to which the debit amount was posted.



In the ledger, enter in the appropriate columns of the account(s) credited the date, journal page, and credit amount shown in the journal.



In the reference column of the journal, write the account number to which the credit amount was posted.

Most companies have a chart of accounts that lists the accounts and the account numbers which identify their location in the ledger.

Most companies have a chart of accounts that lists the accounts and the account numbers which identify their location in the ledger.

ILLUSTRATION ILLUSTRATION 2-18 2-18

CHART OF CHART OF ACCOUNTSACCOUNTS

ILLUSTRATION ILLUSTRATION 2-18 2-18

CHART OF CHART OF ACCOUNTSACCOUNTS

ILLUSTRATION ILLUSTRATION 2-19 2-19 INVESTMENT OF CASH BY OWNERINVESTMENT OF CASH BY OWNERILLUSTRATION ILLUSTRATION 2-19 2-19 INVESTMENT OF CASH BY OWNERINVESTMENT OF CASH BY OWNER

BasicAnalysis

Debit-CreditAnalysis

TransactionOctober 1, C.R. Byrd invests $10,000 cash in an advertising venture to be known as the Pioneer Advertising Agency.

The asset Cash is increased $10,000, and owner’s equity C. R. Byrd, Capital is increased $10,000.

Debits increase assets: debit Cash $10,000.Credits increase owner’s equity: credit C.R. Byrd, Capital $10,000.

ILLUSTRATION ILLUSTRATION 2-19 2-19 INVESTMENT OF CASH BY OWNERINVESTMENT OF CASH BY OWNERILLUSTRATION ILLUSTRATION 2-19 2-19 INVESTMENT OF CASH BY OWNERINVESTMENT OF CASH BY OWNER

JOURNAL ENTRYJOURNAL ENTRY

POSTINGPOSTING

ILLUSTRATION ILLUSTRATION 2-20 2-20 PURCHASE OF OFFICE EQUIPMENTPURCHASE OF OFFICE EQUIPMENTILLUSTRATION ILLUSTRATION 2-20 2-20 PURCHASE OF OFFICE EQUIPMENTPURCHASE OF OFFICE EQUIPMENT

BasicAnalysis


TransactionOctober 1, office equipment costing $5,000 is purchased by signing a 3-month, 12%, $5,000 note payable.

The asset Office Equipment is increased $5,000, and the liability Notes Payable is increased $5,000.

Debits increase assets: debit Office Equipment $5,000. Credits increase liabilities: credit Notes Payable $5,000.

ILLUSTRATION ILLUSTRATION 2-20 2-20 PURCHASE OF OFFICE EQUIPMENTPURCHASE OF OFFICE EQUIPMENTILLUSTRATION ILLUSTRATION 2-20 2-20 PURCHASE OF OFFICE EQUIPMENTPURCHASE OF OFFICE EQUIPMENT


POSTINGPOSTING

ILLUSTRATION ILLUSTRATION 2-21 2-21 RECEIPT OF CASH FOR FUTURE SERVICERECEIPT OF CASH FOR FUTURE SERVICEILLUSTRATION ILLUSTRATION 2-21 2-21

RECEIPT OF CASH FOR FUTURE SERVICERECEIPT OF CASH FOR FUTURE SERVICE

BasicAnalysis


TransactionOctober 2, a $1,200 cash advance is received from R. Knox, a client, for advertising services that are expected to be completed by December 31.

The asset Cash is increased $1,200; the liability Unearned Fees is increased $1,200 because the service has not been rendered yet. Note that although many liabilities have the word “payable” in their title, unearned fees are considered a liability even though the word payable is not used.

Debits increase assets: debit Cash $1,200. Credits increase liabilities: credit Unearned Fees $1,200.

ILLUSTRATION ILLUSTRATION 2-21 2-21 RECEIPT OF CASH FOR FUTURE SERVICERECEIPT OF CASH FOR FUTURE SERVICEILLUSTRATION ILLUSTRATION 2-21 2-21

RECEIPT OF CASH FOR FUTURE SERVICERECEIPT OF CASH FOR FUTURE SERVICE


POSTINGPOSTING

ILLUSTRATION ILLUSTRATION 2-22 2-22 PAYMENT OF MONTHLY RENTPAYMENT OF MONTHLY RENT


BasicAnalysis


Transaction October 3, office rent for October is paid in cash, $900.

The expense Rent is increased $900 because the payment pertains only to the current month; the asset Cash is decreased $900.

Debits increase expenses: debit Rent Expense $900. Credits decrease assets: credit Cash $900.




POSTINGPOSTING

ILLUSTRATION ILLUSTRATION 2-23 2-23 PAYMENT FOR INSURANCEPAYMENT FOR INSURANCE


The asset Prepaid Insurance is increased $600 because the payment extends to more than the current month; the asset Cash is decreased $600. Note that payments of expenses that will benefit more than one accounting period are identified as prepaid expenses or prepayments. When a payment is made, an asset account is debited in order to show the service or benefit that will be received in the future.

TransactionOctober 4, $600 is paid for a one-year insurance policy that will expire next year on September 30.


Debits increase assets: debit Prepaid Insurance $600. Credits decrease assets: credit Cash $600.

BasicAnalysis




POSTINGPOSTING

Prepaid Insurance 130 Oct. 4 600

ILLUSTRATION ILLUSTRATION 2-24 2-24 PURCHASE OF SUPPLIES ON CREDITPURCHASE OF SUPPLIES ON CREDITILLUSTRATION ILLUSTRATION 2-24 2-24

PURCHASE OF SUPPLIES ON CREDITPURCHASE OF SUPPLIES ON CREDIT

BasicAnalysis


TransactionOctober 5, an estimated 3-month supply of advertising materials is purchased on account from Aero Supply for $2,500.

The asset Advertising Supplies is increased $2,500; the liability Accounts Payable is increased $2,500.

Debits increase assets: debit Advertising Supplies $2,500. Credits increase liabilities: credit Accounts Payable $2,500.

ILLUSTRATION ILLUSTRATION 2-24 2-24 PURCHASE OF SUPPLIES ON CREDITPURCHASE OF SUPPLIES ON CREDITILLUSTRATION ILLUSTRATION 2-24 2-24

PURCHASE OF SUPPLIES ON CREDITPURCHASE OF SUPPLIES ON CREDIT


POSTINGPOSTING

ILLUSTRATION ILLUSTRATION 2-25 2-25 HIRING OF EMPLOYEESHIRING OF EMPLOYEES

ILLUSTRATION ILLUSTRATION 2-25 2-25 HIRING OF EMPLOYEESHIRING OF EMPLOYEES

BasicAnalysis


Transaction

October 9, hire four employees to begin work on October 15. Each employee is to receive a weekly 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. There is only an agreement between the employer and the employees to enter into a business transaction beginning on October 15.

A debit-credit analysis is not needed because there is no accounting entry.

ILLUSTRATION ILLUSTRATION 2-26 2-26 WITHDRAWAL OF CASH BY OWNERWITHDRAWAL OF CASH BY OWNERILLUSTRATION ILLUSTRATION 2-26 2-26 WITHDRAWAL OF CASH BY OWNERWITHDRAWAL OF CASH BY OWNER

BasicAnalysis


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

The owner’s equity account C. R. Byrd, Drawing is increased $500; the asset Cash is decreased $500.

Debits increase drawings: debit C. R. Byrd, Drawing $500. Credits decrease assets: credit Cash $500.

ILLUSTRATION ILLUSTRATION 2-26 2-26 WITHDRAWAL OF CASH BY OWNERWITHDRAWAL OF CASH BY OWNERILLUSTRATION ILLUSTRATION 2-26 2-26 WITHDRAWAL OF CASH BY OWNERWITHDRAWAL OF CASH BY OWNER


POSTINGPOSTING

ILLUSTRATION ILLUSTRATION 2-27 2-27 PAYMENT OF SALARIESPAYMENT OF SALARIES


BasicAnalysis


TransactionOctober 26, employee salaries of $4,000 are owed and paid in cash. (See October 9 transaction.)

The expense account Salaries Expense is increased $4,000; the asset Cash is decreased $4,000.

Debits increase expenses: debit Salaries Expense $4,000. Credits decrease assets: credit Cash $4,000.




POSTINGPOSTING

Salaries Expense 726 Oct. 26 4,000

ILLUSTRATION ILLUSTRATION 2-28 2-28 RECEIPT OF CASH FOR FEES EARNEDRECEIPT OF CASH FOR FEES EARNED


BasicAnalysis


TransactionOctober 31, received $10,000 in cash from Copa Company for advertising services rendered in October.

The asset Cash is increased $10,000; the revenue Fees Earned is increased $10,000.

Debits increase assets: debit Cash $10,000. Credits increase revenues: credit Fees Earned $10,000.




POSTINGPOSTING


Prepare a trial balance and explain its purposes.Prepare a trial balance and explain its purposes.

THE TRIAL BALANCETHE TRIAL BALANCETHE TRIAL BALANCETHE TRIAL BALANCE

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

The primary purpose of a trial balance is to prove (check) that the debits equal the credits after posting.

If the debits and credits do not agree, the trial balance can be used to uncover errors in journalizing and posting.

The procedures for preparing a trial balance consist of:

1 List the account titles and their balances.

2 Total the debit and credit columns.

3 Prove the equality of the two columns.

The total debits must equal the total credits.

The total debits must equal the total credits.

ILLUSTRATION ILLUSTRATION 2-31 2-31 A TRIAL BALANCEA TRIAL BALANCE

ILLUSTRATION ILLUSTRATION 2-31 2-31 A TRIAL BALANCEA TRIAL BALANCE

LIMITATIONS OF A LIMITATIONS OF A TRIAL BALANCETRIAL BALANCE

LIMITATIONS OF A LIMITATIONS OF A TRIAL BALANCETRIAL BALANCE

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.

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.

COPYRIGHTCOPYRIGHTCOPYRIGHTCOPYRIGHT

Copyright © 2002 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written consent of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.

Copyright © 2002 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written consent of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.

a ccounting principles, 6e weygandt, kieso, & kimmel john wiley & sons, inc. prepared by...

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