Post on 23-Dec-2015
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:
CHAPTER CHAPTER 2 2 THE RECORDING PROCESSTHE RECORDING PROCESSCHAPTER CHAPTER 2 2
THE RECORDING PROCESSTHE RECORDING PROCESS
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.
STUDY OBJECTIVE STUDY OBJECTIVE 22
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
- +
STUDY OBJECTIVE STUDY OBJECTIVE 33
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
STUDY OBJECTIVE STUDY OBJECTIVE 44
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
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.
ILLUSTRATION ILLUSTRATION 2-13 2-13 TECHNIQUE OF TECHNIQUE OF
JOURNALIZINGJOURNALIZING
ILLUSTRATION ILLUSTRATION 2-13 2-13 TECHNIQUE OF TECHNIQUE OF
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.
ILLUSTRATION ILLUSTRATION 2-13 2-13 TECHNIQUE OF TECHNIQUE OF
JOURNALIZINGJOURNALIZING
ILLUSTRATION ILLUSTRATION 2-13 2-13 TECHNIQUE OF TECHNIQUE OF
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.
ILLUSTRATION ILLUSTRATION 2-13 2-13 TECHNIQUE OF TECHNIQUE OF
JOURNALIZINGJOURNALIZING
ILLUSTRATION ILLUSTRATION 2-13 2-13 TECHNIQUE OF TECHNIQUE OF
JOURNALIZINGJOURNALIZING
A brief explanation of the transaction is given.A brief explanation of the transaction is given.
ILLUSTRATION ILLUSTRATION 2-13 2-13 TECHNIQUE OF TECHNIQUE OF
JOURNALIZINGJOURNALIZING
ILLUSTRATION ILLUSTRATION 2-13 2-13 TECHNIQUE OF TECHNIQUE OF
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.
ILLUSTRATION ILLUSTRATION 2-13 2-13 TECHNIQUE OF TECHNIQUE OF
JOURNALIZINGJOURNALIZING
ILLUSTRATION ILLUSTRATION 2-13 2-13 TECHNIQUE OF TECHNIQUE OF
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.
STUDY OBJECTIVE STUDY OBJECTIVE 55
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
STUDY OBJECTIVE STUDY OBJECTIVE 66
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
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.
ILLUSTRATION ILLUSTRATION 2-17 2-17 POSTING A JOURNAL ENTRYPOSTING A JOURNAL ENTRY
ILLUSTRATION ILLUSTRATION 2-17 2-17 POSTING A JOURNAL ENTRYPOSTING A JOURNAL ENTRY
In the reference column of the journal, write the account number to which the debit amount was posted.
ILLUSTRATION ILLUSTRATION 2-17 2-17 POSTING A JOURNAL ENTRYPOSTING A JOURNAL ENTRY
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) credited the date, journal page, and credit amount shown in the journal.
ILLUSTRATION ILLUSTRATION 2-17 2-17 POSTING A JOURNAL ENTRYPOSTING A JOURNAL ENTRY
ILLUSTRATION ILLUSTRATION 2-17 2-17 POSTING A JOURNAL ENTRYPOSTING A JOURNAL ENTRY
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
Debit-CreditAnalysis
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
JOURNAL ENTRYJOURNAL ENTRY
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
Debit-CreditAnalysis
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
JOURNAL ENTRYJOURNAL ENTRY
POSTINGPOSTING
ILLUSTRATION ILLUSTRATION 2-22 2-22 PAYMENT OF MONTHLY RENTPAYMENT OF MONTHLY RENT
ILLUSTRATION ILLUSTRATION 2-22 2-22 PAYMENT OF MONTHLY RENTPAYMENT OF MONTHLY RENT
BasicAnalysis
Debit-CreditAnalysis
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.
ILLUSTRATION ILLUSTRATION 2-22 2-22 PAYMENT OF MONTHLY RENTPAYMENT OF MONTHLY RENT
ILLUSTRATION ILLUSTRATION 2-22 2-22 PAYMENT OF MONTHLY RENTPAYMENT OF MONTHLY RENT
JOURNAL ENTRYJOURNAL ENTRY
POSTINGPOSTING
ILLUSTRATION ILLUSTRATION 2-23 2-23 PAYMENT FOR INSURANCEPAYMENT FOR INSURANCE
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.
Debit-CreditAnalysis
Debits increase assets: debit Prepaid Insurance $600. Credits decrease assets: credit Cash $600.
BasicAnalysis
ILLUSTRATION ILLUSTRATION 2-23 2-23 PAYMENT FOR INSURANCEPAYMENT FOR INSURANCE
ILLUSTRATION ILLUSTRATION 2-23 2-23 PAYMENT FOR INSURANCEPAYMENT FOR INSURANCE
JOURNAL ENTRYJOURNAL ENTRY
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
Debit-CreditAnalysis
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
JOURNAL ENTRYJOURNAL ENTRY
POSTINGPOSTING
ILLUSTRATION ILLUSTRATION 2-25 2-25 HIRING OF EMPLOYEESHIRING OF EMPLOYEES
ILLUSTRATION ILLUSTRATION 2-25 2-25 HIRING OF EMPLOYEESHIRING OF EMPLOYEES
BasicAnalysis
Debit-CreditAnalysis
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
Debit-CreditAnalysis
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
JOURNAL ENTRYJOURNAL ENTRY
POSTINGPOSTING
ILLUSTRATION ILLUSTRATION 2-27 2-27 PAYMENT OF SALARIESPAYMENT OF SALARIES
ILLUSTRATION ILLUSTRATION 2-27 2-27 PAYMENT OF SALARIESPAYMENT OF SALARIES
BasicAnalysis
Debit-CreditAnalysis
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.
ILLUSTRATION ILLUSTRATION 2-27 2-27 PAYMENT OF SALARIESPAYMENT OF SALARIES
ILLUSTRATION ILLUSTRATION 2-27 2-27 PAYMENT OF SALARIESPAYMENT OF SALARIES
JOURNAL ENTRYJOURNAL ENTRY
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
ILLUSTRATION ILLUSTRATION 2-28 2-28 RECEIPT OF CASH FOR FEES EARNEDRECEIPT OF CASH FOR FEES EARNED
BasicAnalysis
Debit-CreditAnalysis
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.
ILLUSTRATION ILLUSTRATION 2-28 2-28 RECEIPT OF CASH FOR FEES EARNEDRECEIPT OF CASH FOR FEES EARNED
ILLUSTRATION ILLUSTRATION 2-28 2-28 RECEIPT OF CASH FOR FEES EARNEDRECEIPT OF CASH FOR FEES EARNED
JOURNAL ENTRYJOURNAL ENTRY
POSTINGPOSTING
STUDY OBJECTIVE STUDY OBJECTIVE 77
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.
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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.
CHAPTER CHAPTER 2 2 THE RECORDING PROCESSTHE RECORDING PROCESSCHAPTER CHAPTER 2 2
THE RECORDING PROCESSTHE RECORDING PROCESS