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Chapter 2 The Recording Process Prepared by Chih-Liang Julian Liu Department of Industrial and Business Management Chang Gung University.

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Presentation on theme: "Chapter 2 The Recording Process Prepared by Chih-Liang Julian Liu Department of Industrial and Business Management Chang Gung University."— Presentation transcript:

1 Chapter 2 The Recording Process Prepared by Chih-Liang Julian Liu Department of Industrial and Business Management Chang Gung University

2 Chapter 2 The Recording Process Learning Objectives After studying this chapter, you should be able to: [1] Explain what an account ( 帳戶 ) is and how it helps in the recording process ( 記錄程序 ). [2] Define debits ( 借方 ) and credits ( 貸方 ) and explain their use in recording business transactions. [3] Identify the basic steps in the recording process. [4] Explain what a journal ( 日記簿 ) is and how it helps in the recording process.

3 Chapter 2 The Recording Process Learning Objectives [5] Explain what a ledger ( 分類帳 ) is and how it helps in the recording process. [6] Explain what posting ( 過帳 ) is and how it helps in the recording process. [7] Prepare a trial balance ( 試算表 ) and explain its purposes.

4 Preview of Chapter 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. ( 帳戶;會計科目 ) The Account ( 帳戶;會計科目 )

6 Debit (left) and credit (right) are directional signals. They indicate which side of a T account a number will be recorded on. Entering an amount on the left side of an account (debiting the account; 借記該帳戶 ) Making an entry on the right side is crediting the account ( 貸記該帳戶 ) Debit (Dr.) and Credit (Cr.) ( 帳戶;會計科目 ) The Account ( 帳戶;會計科目 )

7 If Debit amounts are greater than Credit amounts, the account will have a debit balance. $10,000Transaction #2$3,000 $15,000 8,000Transaction #3 Balance Transaction #1 Debits and Credits

8 Debits on the left and credits on the right are an accounting rule. The rule applies to all accounts. Cash $15,000  7,000 1,200 1,500  1,700   1,300 $8,050 Cash (Debits)(Credits) 15,000 1,200 1, ,000 1, ,300 Balance 8,050 Debits and Credits (Cont.)

9 $10,000Transaction #2$3,000 Balance Transaction #1 $1,000 8,000Transaction #3 If Debit amounts are less than Credit amounts, the account will have a credit balance. Debits and Credits (Cont.)

10 Debit balance ( 借餘 ) Credit balance( 貸餘 ) Account Name (Debits)(Credits) Account Name (Debits)(Credits) Debit balance Credit balance >< Debits and Credits (Cont.)

11  Assets - Debits should exceed credits.  Liabilities – Credits should exceed debits.  Normal balance is on the increase side. Debits and Credits (Cont.)

12 Equity – Credits should exceed debits. Debits and Credits (Cont.)

13  Issuance of share capital, retained earnings and revenues increase equity (credit). Debits and Credits (Cont.)

14  Dividends and Expenses have the opposite effect: decrease equity (debit). Debits and Credits (Cont.)

15 Normal Balance Credit Normal Balance Debit Debit/Credit Rules

16 Income Statement = + - AssetLiabilityEquityRevenueExpense Debit Credit Debit/Credit Rules (Cont.) Statement of Financial Position

17 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. Debit/Credit Rules Question

18 Accounts that normally have debit balances are: a.assets, expenses, and revenues. b.assets, expenses, and equity. c.assets, liabilities, and dividends. d.assets, dividends, and expenses. Debit/Credit Rules Question

19 Equity Relationships Illustration 2-11

20 Illustration 2-12 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.

21 Double-entry Double-entry system ( 複式簿記制度 ) 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 The sum of all the debits must equal the sum of the credits. This system is much more efficient than procedure used in Chapter 1. Debit and Credit Procedure

22 Steps in the Recording Process Transactions ( 交易 ) Accounting Equation Journal ( 日記簿 ) Ledger ( 分類帳 ) Analysis Journalizing ( 記錄 ) Posting ( 過帳 ) Double Entry (Debit/Credit)

23 Business documents ( 交易憑証 ),, such as a sales slip, a check, a bill, or a cash register tape, provide evidence of the transaction. Illustration 2-13 Analyze each transactionEnter transaction in a journal Transfer journal information to ledger accounts Steps in the Recording Process

24  Book of original entry ( 原始分錄簿 ).  Transactions recorded in chronological order ( 時間順序 ).  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. The Journal ( 日記簿 ) Steps in the Recording Process

25 Entry ( 分錄 ) Companies make separate journal entries for each transaction. A complete entry consists of (1) the date of the transaction (2) the accounts and amounts to be debited and credited (3) a brief explanation of the transaction.

26 Entry (Cont.) A simple entry ( 簡單分錄 ) includes only two accounts, one debit and one credit. A compound entry ( 複合分錄 ) requires three or more accounts (1) three accounts, two debits and one credit, (2) three accounts, one debit and two credits, (3) four accounts, two debits and two credits.

27 Journalizing - Entering transaction data in the journal. Illustration: On September 1, shareholders’ invested €15,000 cash in the corporation in exchange for share of stock, and Softbyte purchased computer equipment for €7,000 cash. Cash Share capital-ordinary Sept. 1 15,000 General Journal Equipment Cash 7,000 Illustration 2-14 Steps in the Recording Process

28 Transaction Analysis Transaction (1). Investment by Shareholders. Ray and Barbara Neal decides to open a computer programming service which he names Softbyte. On September 1, 2014, they invest €15,000 cash in exchange for €15,000 of ordinary shares. Illustration 1-10

29 Transaction Analysis Illustration 1-10 Transaction (2). Purchase of Equipment for Cash. Softbyte purchases computer equipment for €7,000 cash.

30 Simple and Compound Entries Illustration: On July 1, Tsai Company purchases a delivery truck costing NT$420,000. It pays NT$240,000 cash now and agrees to pay the remaining NT$180,000 on account. Equipment Cash July 1 420, ,000 General Journal 180,000 Accounts payable Illustration 2-15 Steps in the Recording Process

31  General Ledger ( 總分類帳 ) contains the entire group of accounts (asset, liability, equity, revenue and expense ) maintained by a company. Illustration 2-16 The Ledger ( 分類帳 ) Steps in the Recording Process

32 Illustration 2-17 Steps in the Recording Process Standard Form of Account  T-account form used in accounting textbooks.  Ledger form used in practice (three-column form of account; 三欄式格式 ).

33 Posting ( 過帳 ) – process of transferring amounts from the journal to the ledger accounts. Illustration 2-18

34 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. Posting Question

35 Accounts and account numbers arranged in sequence in which they are presented in the financial statements. Illustration 2-19 Chart of Accounts ( 會計科目表 )

36 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 The Recording Process Illustrated

37 Illustration 2-21

38 The Recording Process Illustrated Illustration 2-22

39 The Recording Process Illustrated Illustration 2-23

40 The Recording Process Illustrated Illustration 2-24

41 The Recording Process Illustrated Illustration 2-25

42 The Recording Process Illustrated Illustration 2-26

43 The Recording Process Illustrated Illustration 2-27

44 The Recording Process Illustrated Illustration 2-28

45 The Recording Process Illustrated Illustration 2-29

46 Basel Company recorded the following transactions in a general journal during the month of March. Post these entries to the Cash account. Mar. 4 Cash 2,280 Service Revenue 2,280 Mar. 15 Salaries and Wages Expense 400 Cash 400 Mar. 19 Utilities Expense 92 Cash 92

47 Illustration 2-31

48 Illustration 2-32 Trial Balance ( 試算表 ) A list of accounts and their balances at a given time. Purpose is to prove that debits equal credits. =

49 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. Trial Balance Limitations of a Trial Balance


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