Slide 2-1
Slide 2-2
Chapter 2
The Recording Process
Financial Accounting, IFRS EditionWeygandt Kimmel Kieso
Slide 2-3
1. Explain what an account is and how it helps in the recording
process.
2. Define debits and credits and explain their use in recording
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 purposes.
Study ObjectivesStudy Objectives
Slide 2-4
The AccountThe Account
Debits and credits
Debit and credit procedure
Equity relationships
Summary of debit/credit rules
Limitations of a trial balance
Locating errors
Use of currency signs
Summary illustration of journalizing and posting
Journal
Ledger
Posting
Steps in the Recording Process
Steps in the Recording Process
The Recording Process
Illustrated
The Recording Process
IllustratedThe Trial BalanceThe Trial Balance
The Recording ProcessThe Recording Process
Slide 2-5
Account Name
Debit / Dr. Credit / Cr.
Record of increases and decreases in a specific asset, liability, equity, revenue, or expense item.
Debit = “Left”
Credit = “Right”
Account
An Account can be illustrated in a
T-Account form.
SO 1 Explain what an account is and how it helps in the recording process.
The AccountThe Account
Slide 2-6
Double-entry accounting system
Each transaction must affect two or more accounts to keep the basic accounting equation in balance.
Recording done by debiting at least one account and crediting another.
DEBITS must equal CREDITS.
SO 2 Define debits and credits and explain their use in recording business transactions.
The AccountThe Account
Debits and Credits
Slide 2-7
Account Name
Debit / Dr. Credit / Cr.
If Debits are greater than Credits, the account will have a debit balance.
$10,000 Transaction #2$3,000
$15,000
8,000Transaction #3
Balance
Transaction #1
Debits and CreditsDebits and Credits
SO 2 Define debits and credits and explain their use in recording business transactions.
Slide 2-8
Account Name
Debit / Dr. Credit / Cr.
If Credits are greater than Debits, the account will have a credit balance.
$10,000 Transaction #2$3,000
Balance
Transaction #1
Debits and CreditsDebits and Credits
$1,000
8,000 Transaction #3
SO 2 Define debits and credits and explain their use in recording business transactions.
Slide 2-9
Chapter 3-23
AssetsAssets
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter 3-27
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
ExpenseExpense
Chapter 3-24
LiabilitiesLiabilities
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter 3-25
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
EquityEquity
Chapter 3-26
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
RevenueRevenue
Normal Balance Credit
Normal Balance Credit
Normal Balance
Debit
Normal Balance
Debit
Debits and Credits SummaryDebits and Credits Summary
SO 2
Slide 2-10
Balance Sheet Income Statement
= + -Asset Liability Equity Revenue Expense
Debit
Credit
Debits and Credits SummaryDebits and Credits Summary
SO 2 Define debits and credits and explain their use in recording business transactions.
Slide 2-11
Debits:
a. increase both assets and liabilities.
b. decrease both assets and liabilities.
c. increase assets and decrease liabilities.
d. decrease assets and increase liabilities.
Review Question
Debits and Credits SummaryDebits and Credits Summary
Solution notes page
Debits:
a. increase both assets and liabilities.
b. decrease both assets and liabilities.
c. increase assets and decrease liabilities.
d. decrease assets and increase liabilities.
SO 2 Define debits and credits and explain their use in recording business transactions.
Slide 2-12
Assets - Debits should exceed credits.
Liabilities – Credits should exceed debits.
The normal balance is on the increase side.
Assets and LiabilitiesAssets and Liabilities
Chapter 3-23
AssetsAssets
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter 3-24
LiabilitiesLiabilities
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
SO 2 Define debits and credits and explain their use in recording business transactions.
Slide 2-13
Issuance of share capital and revenues increase equity (credit).
Dividends and expenses decrease equity (debit).
Equity RelationshipsEquity Relationships
Chapter 3-25
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Share CapitalShare Capital
Chapter 3-23
DividendsDividends
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Chapter 3-25
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
EquityEquity
Chapter 3-25
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
Retained EarningsRetained Earnings
SO 2 Define debits and credits and explain their use in recording business transactions.
Slide 2-14
The purpose of earning revenues is to benefit the shareholders.
The effect of debits and credits on revenue accounts is the same as their effect on equity.
Expenses have the opposite effect: expenses decrease equity.
Revenue and ExpenseRevenue and Expense
Chapter 3-27
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
ExpenseExpense
Chapter 3-26
Debit / Dr. Credit / Cr.
Normal BalanceNormal Balance
RevenueRevenue
SO 2 Define debits and credits and explain their use in recording business transactions.
Slide 2-15
Summary of Debit/Credit RulesSummary of Debit/Credit Rules
Relationship among the assets, liabilities and equity of a business:
The equation must be in balance after every transaction. For every Debit there must be a Credit.
SO 2 Define debits and credits and explain their use in recording business transactions.
Illustration 2-12
Slide 2-16
Accounts that normally have debit balances are:
a. assets, expenses, and revenues.
b. assets, expenses, and retained earnings.
c. assets, liabilities, and dividends.
d. assets, dividends, and expenses.
Review Question
Solution notes page
SO 2 Define debits and credits and explain their use in recording business transactions.
Summary of Debit/Credit RulesSummary of Debit/Credit Rules
Accounts that normally have debit balances are:
a. assets, expenses, and revenues.
b. assets, expenses, and retained earnings.
c. assets, liabilities, and dividends.
d. assets, dividends, and expenses.
Slide 2-17
Debit
Debit
Credit
Debit
Credit
Credit
Solution on notes page
mall in which she will open and operate a beauty salon. A friend
has advised Kathy to set up a double-entry set of accounting
records in which to record all of her business transactions.
Following are the accounts that Hair It Is Company, will likely
need to record the transactions. Indicate whether the normal
balance of each account is a debit or a credit.
Summary of Debit/Credit RulesSummary of Debit/Credit Rules
Cash
Supplies
Notes payable
Equipment
Accounts payable
Share capital
SO 2 Define debits and credits and explain their use in recording business transactions.
Kathy Renee Browne, president of Hair It Is
Company has just rented space in a shopping
Slide 2-18
Business documents, such as a sales slip, a check, a bill, or a cash register tape, provide evidence of the transaction.
Steps in the Recording ProcessSteps in the Recording Process
SO 3 Identify the basic steps in the recording process.
Analyze each transaction Enter transaction in a journalTransfer journal information to
ledger accounts
Illustration 2-13
Slide 2-19
Book of original entry.
Transactions recorded in chronological order.
Contributions to the recording process:
1. Discloses the complete effects of a transaction.
2. Provides a chronological record of transactions.
3. Helps to prevent or locate errors because the debit
and credit amounts can be easily compared.
SO 4 Explain what a journal is and how it helps in the recording process.
Steps in the Recording ProcessSteps in the Recording Process
Journalizing
Slide 2-20
Account Title Ref. Debit CreditDate
Share capital
Journalizing - Entering transaction data in the journal.
SO 4
Illustration: On September 1, stockholders invested $15,000 cash in exchange for ordinary shares, and Softbyte purchased computer equipment for $7,000 cash.
CashSept. 1 15,000
15,000
General Journal
Computer equipment
Cash
7,000
7,000
Illustration 2-14
Solution on notes page
Steps in the Recording ProcessSteps in the Recording Process
Slide 2-21
Account Title Ref. Debit CreditDate
8,000
Delivery equipment
Cash
14,000
6,000Accounts payable
Sept. 1
Illustration: On July 1, Butler Company purchases a delivery truck costing $14,000. It pays $8,000 cash now and agrees to pay the remaining $6,000 on account.
General Journal
Illustration 2-15
SO 4Solution on notes page
Simple and Compound Entries
Steps in the Recording ProcessSteps in the Recording Process
Slide 2-22
General Ledger
All accounts maintained by a company.
All asset, liability, equity, revenue and expense accounts.
SO 5 Explain what a ledger is and how it helps in the recording process.
The Ledger
Steps in the Recording ProcessSteps in the Recording Process
Illustration 2-16
Slide 2-23
SO 5 Explain what a ledger is and how it helps in the recording process.
Answer on notes page
Slide 2-24
T-account form used in accounting textbooks.
Ledger form used in practice.
SO 5 Explain what a ledger is and how it helps in the recording process.
Illustration 2-17
The LedgerThe Ledger
Standard Form of Account
Slide 2-25
The LedgerThe Ledger
Illustration 2-18
SO 5 Explain what a ledger is and how it helps in the recording process.
Chart of Accounts
Slide 2-26
Posting – the process of transferring amounts from the journal to the ledger accounts.
Illustration 2-19
SO 6 Explain what posting is and how it helps in the recording process.
PostingPosting
Slide 2-27
The Recording Process IllustratedThe Recording Process Illustrated
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.
Illustration 2-20
SO 6 Explain what posting is and how it helps in the recording process.
Slide 2-28
The Recording Process IllustratedThe Recording Process Illustrated
Illustration 2-21
SO 6 Explain what posting is and how it helps in the recording process.
Slide 2-29
The Recording Process IllustratedThe Recording Process Illustrated
Illustration 2-22
SO 6
Slide 2-30
The Recording Process IllustratedThe Recording Process Illustrated
Illustration 2-23
SO 6
Slide 2-31
The Recording Process IllustratedThe Recording Process Illustrated
SO 6
Illustration 2-24
Slide 2-32
The Recording Process IllustratedThe Recording Process Illustrated
SO 6
Illustration 2-25
Slide 2-33
The Recording Process IllustratedThe Recording Process Illustrated
Illustration 2-26
SO 6 Explain what posting is and how it helps in the recording process.
Slide 2-34
The Recording Process IllustratedThe Recording Process Illustrated
SO 6
Illustration 2-27
Slide 2-35
The Recording Process IllustratedThe Recording Process Illustrated
SO 6
Illustration 2-28
Slide 2-36
The Recording Process IllustratedThe Recording Process Illustrated
SO 6
Illustration 2-29
Slide 2-37
Posting:
a. normally occurs before journalizing.
b. transfers ledger transaction data to the journal.
c. is an optional step in the recording process.
d. transfers journal entries to ledger accounts.
Review Question
PostingPosting
SO 6 Explain what posting is and how it helps in the recording process.
Solution on notes page
Posting:
a. normally occurs before journalizing.
b. transfers ledger transaction data to the journal.
c. is an optional step in the recording process.
d. transfers journal entries to ledger accounts.
Slide 2-38
Katherine Turner recorded the following
transactions during the month of March.
Solution on notes page
The Recording Process IllustratedThe Recording Process Illustrated
Post these entries to the Cash account.
SO 6
Slide 2-39
A list of accounts
and their
balances at a
given time.
Purpose is to
prove that debits
equal credits.
The Trial BalanceThe Trial Balance
SO 7 Prepare a trial balance and explain its purposes.
Illustration 2-32
Slide 2-40
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, or
5. offsetting errors are made in recording the amount of a transaction.
The Trial BalanceThe Trial Balance
Limitations of a Trial Balance
SO 7 Prepare a trial balance and explain its purposes.
Slide 2-41 SO 7 Prepare a trial balance and explain its
purposes.
Answer on notes page
Slide 2-42
The accounts
come from the
ledger of
Christel
Corporation at
December 31,
2011.
Solution on notes page
The Trial BalanceThe Trial Balance
SO 7
Christel CorporationTrial Balance (in thousands)
December 31, 2011
Slide 2-43
Rules for accounting for specific events sometimes differ
across countries. For example, IFRS companies rely less on
historical cost and more on fair value than U.S. companies.
Despite the differences, the double-entry accounting system is
the basis of accounting systems worldwide.
Both the IASB and FASB go beyond the basic definitions
provided in this textbook for the key elements of financial
statements, that is, assets, liabilities, equity, revenues, and
expenses. The more substantive definitions, using the FASB
definitional structure, are provided in the Chapter 1
“Understanding U.S. GAAP” section.
The Recording Process
Understanding U.S. GAAPUnderstanding U.S. GAAP
Key Differences
Slide 2-44
A trial balance under GAAP follows the same format as shown
in the textbook.
In the United States, equity is often referred to as either
shareholders’ equity or stockholders’ equity, and Share Capital
—Ordinary is referred to as Common Stock. The statement of
financial position is often called the balance sheet in the United
States.
Understanding U.S. GAAPUnderstanding U.S. GAAP
Key Differences The Recording Process
Slide 2-45
Looking to the Future
Understanding U.S. GAAPUnderstanding U.S. GAAP
The basic recording process shown in this textbook is followed by
companies across the globe. It is unlikely to change in the future.
The definitional structure of assets, liabilities, equity, revenues,
and expenses may change over time as the IASB and FASB
evaluate their overall conceptual framework for establishing
accounting standards.
The Recording Process
Slide 2-46
Copyright © 2011 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 permission 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.
CopyrightCopyright