Chapter 2

The Recording
Process
Financial Accounting, IFRS Edition
Weygandt Kimmel Kieso
Slide
2-1
 The
The Account
Account
Record of increases and decreases in
Account a specific asset, liability, equity,
revenue, or expense item.
Debit = “Left”
Credit = “Right”

An Account can Account Name

be illustrated in a Debit / Dr. Credit / Cr.
T-Account form.

Slide
2-2 SO 1 Explain what an account is and how it helps in the recording process.
 The
The Account
Account

Debits and Credits

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.

Slide SO 2 Define debits and credits and explain their use

2-3 in recording business transactions.
 Debits
Debits and
and Credits
Credits

If Debits are greater than Credits, the account will

have a debit balance.

Account Name
Debit / Dr. Credit / Cr.

Transaction #1 $10,000 $3,000 Transaction #2

Transaction #3 8,000

Balance $15,000

Slide SO 2 Define debits and credits and explain their use

2-4 in recording business transactions.
 Debits
Debits and
and Credits
Credits

If Credits are greater than Debits, the account will

have a credit balance.

Account Name
Debit / Dr. Credit / Cr.

Transaction #1 $10,000 $3,000 Transaction #2

8,000 Transaction #3

Balance $1,000

Slide SO 2 Define debits and credits and explain their use

2-5 in recording business transactions.
 Debits
Debits and
and Credits
Credits Summary
Summary
Liabilities
Debit / Dr. Credit / Cr.
Normal
Normal Normal
Normal
Balance
Balance Balance
Balance
Debit
Debit Credit
Credit Normal Balance

Assets Chapter
3-24

Equity
Debit / Dr. Credit / Cr.
Debit / Dr. Credit / Cr.

Normal Balance
Normal Balance

Chapter
3-23

Expense Chapter
3-25
Revenue
Debit / Dr. Credit / Cr.
Debit / Dr. Credit / Cr.

Normal Balance
Normal Balance

Chapter
3-27 Chapter
3-26

Slide
2-6 SO 2
 Debits
Debits and
and Credits
Credits Summary
Summary
Balance Sheet Income Statement
Asset = Liability + Equity Revenue - Expense

Debit

Credit

Slide SO 2 Define debits and credits and explain their use

2-7 in recording business transactions.
 Assets
Assets and
and Liabilities
Liabilities

Assets

Assets - Debits should

Debit / Dr. Credit / Cr.

exceed credits.
Normal Balance

Chapter
3-23
Liabilities – Credits
should exceed debits.
Liabilities
Debit / Dr. Credit / Cr. The normal balance is on
the increase side.
Normal Balance

Chapter
3-24

Slide SO 2 Define debits and credits and explain their use

2-8 in recording business transactions.
 Equity
Equity Relationships
Relationships

Equity Issuance of share capital and

Debit / Dr. Credit / Cr.
revenues increase equity
(credit).
Normal Balance
Dividends and expenses
Chapter
3-25 decrease equity (debit).

Share Capital Retained Earnings Dividends

Debit / Dr. Credit / Cr. Debit / Dr. Credit / Cr. Debit / Dr. Credit / Cr.

Normal Balance Normal Balance Normal Balance

Chapter Chapter Chapter

3-25 3-25 3-23

Slide SO 2 Define debits and credits and explain their use

2-9 in recording business transactions.
 Revenue
Revenue and
and Expense
Expense

Revenue The purpose of earning

Debit / Dr. Credit / Cr.
revenues is to benefit the
shareholders.
Normal Balance
The effect of debits and credits
Chapter
3-26
on revenue accounts is the same
as their effect on equity.
Expense
Debit / Dr. Credit / Cr. Expenses have the opposite
effect: expenses decrease equity.

Normal Balance

Chapter
3-27

Slide SO 2 Define debits and credits and explain their use

2-10 in recording business transactions.
 Summary
Summary of
of Debit/Credit
Debit/Credit Rules
Rules

Relationship among the assets, liabilities and equity

of a business:
Illustration 2-12

The equation must be in balance after every transaction. For

every Debit there must be a Credit.

Slide SO 2 Define debits and credits and explain their use

2-11 in recording business transactions.
 Steps
Steps in
in the
the Recording
Recording Process
Process
Illustration 2-13

Transfer journal information to

Analyze each transaction Enter transaction in a journal ledger accounts

Business documents, such as a sales slip, a check, a bill, or

a cash register tape, provide evidence of the transaction.

Slide
2-12 SO 3 Identify the basic steps in the recording process.
 Steps
Steps in
in the
the Recording
Recording Process
Process

Journalizing
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.

Slide
2-13 SO 4 Explain what a journal is and how it helps in the recording process.
 Steps
Steps in
in the
the Recording
Recording Process
Process
Journalizing - Entering transaction data in the journal.
Illustration: On September 1, stockholders invested $15,000
cash in exchange for ordinary shares, and Softbyte
purchased computer equipment for $7,000 cash.
Illustration 2-14

General Journal
Date Account Title Ref . Debit Credit
Sept. 1 Cash 15,000
Share capital 15,000

Computer equipment 7,000

Cash 7,000
Slide Solution on
2-14 notes page
SO 4
 Steps
Steps in
in the
the Recording
Recording Process
Process

Simple and Compound Entries

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.
Illustration 2-15

General Journal
Date Account Title Ref . Debit Credit
Sept. 1 Delivery equipment 14,000
Cash 8,000
Accounts payable 6,000

Slide Solution on
2-15 notes page
SO 4
 Steps
Steps in
in the
the Recording
Recording Process
Process

The Ledger
General Ledger
 All accounts maintained by a company.
 All asset, liability, equity, revenue and expense accounts.

Illustration 2-16

Slide
2-16
SO 5 Explain what a ledger is and how it helps in the recording process.
 The
The Ledger
Ledger
Standard Form of Account
 T-account form used in accounting textbooks.
 Ledger form used in practice.
Illustration 2-17

Slide
2-17
SO 5 Explain what a ledger is and how it helps in the recording process.
 The
The Ledger
Ledger
Chart of Accounts Illustration 2-18

Slide
2-18 SO 5 Explain what a ledger is and how it helps in the recording process.
 Posting
Posting

Posting – the
process of
transferring
amounts from
the journal to
the ledger
accounts.

Illustration 2-19

Slide
2-19 SO 6 Explain what posting is and how it helps in the recording process.
 The
The Recording
Recording Process
Process Illustrated
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
Slide
2-20 SO 6 Explain what posting is and how it helps in the recording process.
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-21

Slide
2-21 SO 6 Explain what posting is and how it helps in the recording process.
 The
The Recording
Recording Process
Process Illustrated
Illustrated
Illustration 2-22

Slide
2-22 SO 6
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-23

Slide
2-23 SO 6
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-24

Slide
2-24 SO 6
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-25

Slide
2-25 SO 6
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-26

Slide
2-26 SO 6 Explain what posting is and how it helps in the recording process.
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-27

Slide
2-27 SO 6
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-28

Slide
2-28 SO 6
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-29

Slide
2-29 SO 6
 The
The Trial
Trial Balance
Balance
Illustration 2-32

A list of accounts
and their
balances at a
given time.
Purpose is to
prove that debits
equal credits.

Slide
2-30 SO 7 Prepare a trial balance and explain its purposes.