1. Recording Business Transactions
Chapter 2

2. Objective 1
Use accounting terms

3. Accounting Terms Account Ledger Journal Trial Balance
The detailed record of the changes in a particular asset, liability, or owner’s equity.
Account
The record holding all the account.
Ledger
The chronological record of transactions
Journal
The list of all the accounts with their balances.
Trial Balance

4. Accounting Terms Cash Individual asset accounts All individual
combined
make up
the ledger.
Accounts
Payable
Ledger
Individual liability accounts
Gay Gillen,
Capital
Individual owner’s equity accounts

5. Classification of Accounts
What are some asset accounts?
Cash
Notes Receivable
Accounts Receivable
Prepaid Expenses
Land
Building
Equipment

6. Classification of Accounts
What are some liability accounts?
Notes Payable
Accounts Payable
Accrued Liabilities (for expenses incurred but not paid)
Long-term Liabilities (bonds)

7. Classification of Accounts
What are some owner’s equity accounts?
Capital or owner’s interest in the business
Withdrawals
Revenues
Expenses

8. Classification of Accounts
In a corporation, the owner’s equity account is called Stockholders’ Equity.
Contributed Capital
Retained Earnings

9. Double-Entry Accounting
Double entry bookkeeping means to record the dual effects of each business transaction.
Assets = Liabilities + Owner’s Equity
Assets are on the left (debit) side.
Liabilities and Equity are on the right (credit) side.

10. DEBIT SIDE CREDIT SIDE The T Account Account name Page: 1 Page: 1 Ref.
Explanation
Debit amount
Credit amount
Account name
DEBIT SIDE
CREDIT SIDE

11. The T-Account
Account Title
Debit
Credit
Left Side
Right Side

12. The Four-Column Account Format
Account: Cash Account No. xxx
Balance
Date Item Ref. Debit Credit Debit Credit

13. Objective 2
Apply the Rules of
Debit and Credit.

14. Rules of Debit and Credit
Assets
Liabilities
Owner’s Equity = +
Debit +
Credit –
Debit –
Credit +
Debit –
Credit +

15. Expense and Revenue accounts
Expenses
Revenues
Debit +
Credit –
Debit –
Credit +

16. The Double-Entry System
Each transaction is recorded with at least:
One debit
One credit
Total debits must equal total credits.

17. Objective 3
Record Transactions
in the Journal.

18. Journals What is a journal?
It is a list in chronological order of all the transactions for a business.
Identify transaction from source documents.
Specify accounts affected.
Apply debit/credit rules.
Record transaction with description.

19. JOURNAL Page Number: 1 Page Number: 2 DEBIT CREDIT DEBIT CREDIT CASH
ACCOUNTS and EXPLANATION
ACCOUNTS and EXPLANATION
DEBIT
CREDIT
DATE
DATE
POST REF.
POST REF.
DEBIT
CREDIT
May 1
CASH
100
950
950
Trasferred total
CAPITAL
100
May 8
CASH
CASH
500
NOTE PAYABLE
500
May 10
ACCOUNTS PAYABLE
300
300
CASH
300
RENT EXPENSES
May 15 50 50
CASH
Total
950
950

20. General Journal

21. General Journal Cash................. 30.000 Capital...............
May 1
Cash
30.000
Capital
30.000
April Cash 30, Capital 30,000

22. Recording Transactions
On April 2, Gay Gillen invested $30, in Gay Gillen eTravel.
What is the journal entry?
April Cash 30, Gay Gillen, Capital 30,000 Received initial investment from owner

23. Objective 4
Post from the Journal
to the Ledger.

24. Posting What is posting?
It is the transfer of information from the journal to the appropriate accounts in the ledger.

25. Post from the Journal to the Ledger.
April Cash 30, Capital 30,000 Dr Dr
Capital
Cash Cr Cr
30.000
30.000

26. The Four-Column Account Format
Account: Cash Account No. xxx
Balance
Date Item Ref. Debit Credit Debit Credit
May
Account: Capital Account No. xxx
Balance
Date Item Ref. Debit Credit Debit Credit
Column

27. Normal Account Balances
Assets = Liabilities + Owner’s Equity
Debits = Credits
The side where we expect increases to be recorded is the normal balance side.

28. Normal Account Balances
Assets
30, ,000
Liabilities
3.000 5,
Bal. 5,000
Bal. 7,000
Owner’s Equity
50.000
Bal

29. Objective 5
Prepare and use a Trial Balance.

30. Trial Balance What is a trial balance? It is an internal document.
It is a listing of all the accounts with their related balances.
Before computers, it provided a check on accuracy by showing whether total debits equal total credits.

31. Trial Balance Format: Two-Column
Account Title
Debit
Credit
Total

32. Trial Balance Format: Four-Column
ACCOUNT TITLE
TOTAL
BALANCE
Debit
Credit
Cash
70.000
25.000
45.000
70.000
25.000
Cash
80.000
80.000
Capital
Bal
Acc. Rec.
40.000
40.000
Acc. Pay.
25.000
30.000
5.000
85.000
85.000

33. End of Chapter 2