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Slide 2-1 Slide 2 Slide 2-2 Chapter 2 The Recording Process Financial Accounting, IFRS Edition Weygandt Kimmel Kieso Slide 3 Slide 2-3 1. 1.Explain what an account is and how it helps in the recording process. 2. 2.Define debits and credits and explain their use in recording business transactions. 3. 3.Identify the basic steps in the recording process. 4. 4.Explain what a journal is and how it helps in the recording process. 5. 5.Explain what a ledger is and how it helps in the recording process. 6. 6.Explain what posting is and how it helps in the recording process. 7. 7.Prepare a trial balance and explain its purposes. Study Objectives Slide 4 Slide 2-4 The 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 JournalLedgerPosting Steps in the Recording Process The Recording Process Illustrated The Trial Balance The Recording Process Slide 5 Slide 2-5 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 Account Slide 6 Slide 2-6 Double-entry 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. must equal DEBITS must equal CREDITS. SO 2 Define debits and credits and explain their use in recording business transactions. Debits and Credits Slide 7 Slide 2-7 greater than If Debits are greater than Credits, the account will have a debit balance. $10,000Transaction #2$3,000 $15,000 8,000Transaction #3 Balance Transaction #1 Debits and Credits SO 2 Define debits and credits and explain their use in recording business transactions. Slide 8 Slide 2-8 greater than If Credits are greater than Debits, the account will have a credit balance. $10,000Transaction #2$3,000 Balance Transaction #1 Debits and Credits $1,000 8,000Transaction #3 SO 2 Define debits and credits and explain their use in recording business transactions. Slide 9 Slide 2-9 Normal Balance Credit Normal Balance Debit Debits and Credits Summary SO 2 Slide 10 Slide 2-10 Balance Sheet Income Statement Balance Sheet Income Statement = + - AssetLiabilityEquityRevenueExpense Debit Credit Debits and Credits Summary SO 2 Define debits and credits and explain their use in recording business transactions. Slide 11 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 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 12 Slide 2-12 Assets - Debits should exceed credits. Liabilities Credits should exceed debits. The normal balance is on the increase side. Assets and Liabilities SO 2 Define debits and credits and explain their use in recording business transactions. Slide 13 Slide 2-13 Issuance of share capital and revenues increase equity (credit). Dividends and expenses decrease equity (debit). Equity Relationships SO 2 Define debits and credits and explain their use in recording business transactions. Slide 14 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 Expense SO 2 Define debits and credits and explain their use in recording business transactions. Slide 15 Slide 2-15 Summary 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 16 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 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 17 Slide 2-17 Debit Credit Debit 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 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 18 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 Process SO 3 Identify the basic steps in the recording process. Analyze each transactionEnter transaction in a journal Transfer journal information to ledger accounts Illustration 2-13 Slide 19 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. Journalizing Slide 20 Slide 2-20 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. Cash Sept. 1 15,000 General Journal Computer equipment Cash 7,000 Illustration 2-14 Solution on notes page Steps in the Recording Process Slide 21 Slide 2-21 8,000 Delivery equipment Cash 14,000 6,000 Accounts 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 4 Solution on notes page Simple and Compound Entries Steps in the Recording Process Slide 22 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 Illustration 2-16 Slide 23 Slide 2-23 SO 5 Explain what a ledger is and how it helps in the recording process. Answer on notes page Slide 24 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 Standard Form of Account Slide 25 Slide 2-25 The Ledger Illustration 2-18 SO 5 Explain what a ledger is and how it helps in the recording process. Chart of Accounts Slide 26 Slide 2-26 Posting 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 27 Slide 2-27 The 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 28 Slide 2-28 The Recording Process Illustrated Illustration 2-21 SO 6 Explain what posting is and how it helps in the recording process. Slide 29 Slide 2-29 The Recording Process Illustrated Illustration 2-22 SO 6 Slide 30 Slide 2-30 The Recording Process Illustrated Illustration 2-23 SO 6 Slide 31 Slide 2-31 The Recording Process Illustrated SO 6 Illustration 2-24 Slide 32 Slide 2-32 The Recording Process Illustrated SO 6 Illustration 2-25 Slide 33 Slide 2-33 The Recording Process Illustrated Illustration 2-26 SO 6 Explain what posting is and how it helps in the recording process. Slide 34 Slide 2-34 The Recording Process Illustrated SO 6 Illustration 2-27 Slide 35 Slide 2-35 The Recording Process Illustrated SO 6 Illustration 2-28 Slide 36 Slide 2-36 The Recording Process Illustrated SO 6 Illustration 2-29 Slide 37 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 38 Slide 2-38 Katherine Turner recorded the following transactions during the month of March. Solution on notes page The Recording Process Illustrated Post these

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