1. Slide 2-1 Opener Sit in your NEW TEAMS, delegate a note taker Sit in your NEW TEAMS, delegate a note taker Get your outlines for Chapter 1 out—turn in to me as a group Get your outlines for Chapter 1 out—turn in to me as a group NAME, Email, phone #, cell phone # NAME, Email, phone #, cell phone # One person, send me and your teammates an email BEFORE next class with the above info. Confirm receipt of email. One person, send me and your teammates an email BEFORE next class with the above info. Confirm receipt of email. Assign homework chapter 1 (give me their names) Assign homework chapter 1 (give me their names) Give transparency to these people Give transparency to these people Dim Sum activity Dim Sum activity Finish Statements from Ch 1 Finish Statements from Ch 1 Finish Ch 1 Finish Ch 1 Begin Ch 2 Begin Ch 2

2. Slide 2-2 Chapter 2 The Recording Process Financial Accounting, Seventh Edition Accounting 201, Instructor: Judith Paquette

3. Slide 2-3 So now we go into the land of DEBITS DEBITS & CREDITS CREDITS

4. Slide 2-4 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

5. Slide 2-5 The Account Debits and credits Debit and credit procedure Stockholders’ equity relationships Summary of debit/credit rules Limitations of a trial balance Locating errors Use of dollar signs Summary illustration of journalizing and posting JournalLedgerPosting Steps in the Recording Process The Recording Process Illustrated The Trial Balance The Recording Process

6. Slide 2-6 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

7. Slide 2-7 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

8. Slide 2-8 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.

9. Slide 2-9 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 SO 2 Define debits and credits and explain their use in recording business transactions. $1,000 8,000Transaction #3

10. Slide 2-10 Normal Balance Credit Normal Balance Debit Debits and Credits Summary SO 2

11. Slide 2-11 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.

12. Slide 2-12 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 SO 2 Define debits and credits and explain their use in recording business transactions. 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.

13. Slide 2-13 Assets - Debits should exceed credits. Liabilities – Credits should exceed debits. The normal balance is on the increase side. SO 2 Define debits and credits and explain their use in recording business transactions. Assets and Liabilities

14. Slide 2-14 Issuance of stock and revenues increase equity (credit). Dividends and expenses decrease equity (debit). SO 2 Define debits and credits and explain their use in recording business transactions. Stockholders’ Equity

15. Slide 2-15 The purpose of earning revenues is to benefit the owner(s). The effect of debits and credits on revenue accounts is the same as their effect on Owner’s Capital. Expenses have the opposite effect: expenses decrease owner’s equity. SO 2 Define debits and credits and explain their use in recording business transactions. Revenue and Expense

16. Slide 2-16 ASSETSLIABILITIES STOCKHOLDERS' EQUITYRevenueExpense Debit to IncreaseCredit to Increase Debit to Increase CashNotes PayableCommon StockService RevenueSalaries Expense Accounts ReceivableAccounts PayableAdditional Paid in CapitalSales RevenueAdvertising Expense Prepaid Rent Current Portion of Long term debt Preferred Stock Consulting Fees EarnedUtilities Expense Prepaid Insurance Unearned Revenue Commissions EarnedRent Expense LandLong Term Debt Retained Earnings Ticket SalesSupplies Expense Building Interest IncomeTravel Expense Equipment Interest Expense

17. Slide 2-17 Accounts that normally have debit balances are: a. assets, expenses, and revenues. b. assets, expenses, and retained earnings. c. assets, liabilities, and dividends declared. d. assets, dividends declared, and expenses. Review Question Debits and Credits Summary SO 2 Define debits and credits and explain their use in recording business transactions. Solution notes page Accounts that normally have debit balances are: a. assets, expenses, and revenues. b. assets, expenses, and retained earnings. c. assets, liabilities, and dividends declared. d. assets, dividends declared, and expenses.

18. Slide 2-18 Debits & Credits This is called: DOUBLE ENTRY accounting system. For every transaction, there is at least one debit and one credit or the accounting equation won’t balance. For every transaction, there is at least one debit and one credit or the accounting equation won’t balance. DEBITS must equal CREDITS DEBITS must equal CREDITS

19. Slide 2-19 Summary of Debit/Credit Rules Relationship among the assets, liabilities and stockholders’ 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.

20. Slide 2-20 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

21. Slide 2-21 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. The Journal – see your coursepack journal SO 4 Explain what a journal is and how it helps in the recording process.

22. Slide 2-22 Journalizing - Entering transaction data in the journal. JournalizingJournalizing SO 4 Illustration: On September 1, stockholders invested $15,000 cash in exchange for shares of stock, and Softbyte purchased computer equipment for $7,000 cash. Cash Common stock Sept. 1 15,000 General Journal Computer equipment Cash 7,000 Illustration 2-14 Solution on notes page

23. Slide 2-23 Delivery equipment Cash 14,000 8,000 6,000 Accounts payable Simple and Compound Entries JournalizingJournalizing Illustration: Assume that 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. Sept. 1 General Journal Illustration 2-15 SO 4 Solution on notes page

24. Slide 2-24 A General Ledger contains the entire group of accounts maintained by a company. The General Ledger includes all the asset, liability, stockholders’ equity, revenue and expense accounts. The Ledger – see coursepack – T accts SO 5 Explain what a ledger is and how it helps in the recording process. Illustration 2-16

25. Slide 2-25 T-account form used in accounting textbooks. In practice, the account forms used in ledgers are much more structured. Standard Form of Account SO 5 Explain what a ledger is and how it helps in the recording process. Illustration 2-17

26. Slide 2-26 Accounts and account numbers arranged in sequence in which they are presented in the financial statements. Chart of Accounts Illustration 2-18 SO 5 Explain what a ledger is and how it helps in the recording process.

27. Slide 2-27 Posting Posting – the process of transferring amounts from the journal to the ledger accounts. PostingPosting Illustration 2-19 SO 6 Explain what posting is and how it helps in the recording process.

28. Slide 2-28 Coursepack - 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. #1: On October 1, CR Byrd invests $10,000 cash in an advertising company to be known as Pioneer Advertising Agency, Inc. #DATEAccount Titles AND DescriptionDebitCredit 110/1 To record owner’s investment. #DATEAccount Titles AND DescriptionDebitCredit 110/1Cash10,000 Common Stock10,000 To record owner’s investment.

29. Slide 2-29 Use coursepack: The Recording Process Illustrated Illustration 2-21 SO 6 Explain what posting is and how it helps in the recording process. #2: On October 1, Pioneer purchases office equipment costing $5,000 by signing a 3-month, 12% note payable. 210/1Office Equipment5,000 Notes Payable5,000 To record purchase of equipments, 3 month note, 12% 210/1 To record purchase of equipments, 3 month note, 12%

30. Slide 2-30 Use coursepack: The Recording Process Illustrated Illustration 2-21 SO 6 Explain what posting is and how it helps in the recording process. #3: On October 2, Pioneer receives a $1,200 cash advance from R. Knox, a client, for advertising services that are expected to be completed by December 31. 310/2Cash1,200 Unearned Revenue1,200 To record cash advance

31. Slide 2-31 Use coursepack: The Recording Process Illustrated Illustration 2-21 SO 6 Explain what posting is and how it helps in the recording process. #4: On October 3, Pioneer pays $900 office rent for October in cash. 410/3Rent Expense900 Cash900 To record paying rent.

32. Slide 2-32 Use coursepack: The Recording Process Illustrated Illustration 2-21 SO 6 Explain what posting is and how it helps in the recording process. #5: On October 3, Pioneer pays $600 for a one- year insurance policy that will expire next year on September 30. 510/4Prepaid Insurance600 Cash600 To record purchase of one year insurance policy

33. Slide 2-33 Use coursepack: The Recording Process Illustrated Illustration 2-21 SO 6 Explain what posting is and how it helps in the recording process. #6: On October 5, Pioneer purchases an estimated 3-month supply of advertising materials on account from Aero Supply for $2,500. 610/5Advertising Supplies2,500 Accounts Payable2,500 Purchased supplies on account.

34. Slide 2-34 Use coursepack: The Recording Process Illustrated Illustration 2-21 SO 6 Explain what posting is and how it helps in the recording process. #7: On October 9, Pioneer hires 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. 710/9No entry

35. Slide 2-35 Use coursepack: The Recording Process Illustrated Illustration 2-21 SO 6 Explain what posting is and how it helps in the recording process. #8: On October 20, Pioneer’s board of directors declares and pays a $500 cash dividend to stockholders. 810/20Dividends500 Cash500 To pay dividend.

36. Slide 2-36 Use coursepack: The Recording Process Illustrated Illustration 2-21 SO 6 Explain what posting is and how it helps in the recording process. #9: On October 26, Pioneer owes employee salaries of $4,000 and pays them in cash. 910/26Salaries Expense4,000 Cash4,000 Paid salaries to employees.

37. Slide 2-37 Use coursepack: The Recording Process Illustrated Illustration 2-21 SO 6 Explain what posting is and how it helps in the recording process. #10: On October 31, Pioneer receives $10,000 in cash from Copa Company for advertising services provided in October. 1010/31Cash10,000 Service Revenue10,000 To record payment for advertising services.

38. Slide 2-38 Use Course pack -Next steps – T Accounts Post to your T Accounts Post to your T Accounts Total your T Accounts – remember which side to put the total Total your T Accounts – remember which side to put the total Assets, Expenses – Debit side Assets, Expenses – Debit side Liabilities, Stockholders’ Equity, Revenues – Credit Side Liabilities, Stockholders’ Equity, Revenues – Credit Side Dividends – Debit Side Dividends – Debit Side

39. Slide 2-39 Use Coursepack - Next steps – Trial Balance List Accounts and their balances List Accounts and their balances

40. Slide 2-40 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.

41. Slide 2-41 A list of accounts and their balances at a given time. Purpose is to prove that debits equal credits. The Trial Balance SO 7 Prepare a trial balance and explain its purposes. Illustration 2-32

42. Slide 2-42 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. The Trial Balance Limitations of a Trial Balance SO 7 Prepare a trial balance and explain its purposes.

43. Slide 2-43 A trial balance will not balance if: a. a correct journal entry is posted twice. b. the purchase of supplies on account is debited to Supplies and credited to Cash. c. a $100 cash drawing by the owner is debited to Owner’s Drawing for $1,000 and credited to Cash for $100. d. a $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45. Review Question The Trial Balance SO 7 Prepare a trial balance and explain its purposes. Solution on notes page A trial balance will not balance if: a. a correct journal entry is posted twice. b. the purchase of supplies on account is debited to Supplies and credited to Cash. c. a $100 cash drawing by the owner is debited to Owner’s Drawing for $1,000 and credited to Cash for $100. d. a $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45.

44. Slide 2-44 Use coursepack: Statements Income Statement Income Statement Retained Earnings Retained Earnings Balance Sheet Balance Sheet DO IT!

45. Slide 2-45 End of Chapter 2

46. Slide 2-46 The accounts come from the ledger of Christel Corporation at December 31, 2011. Solution on notes page The Trial Balance SO 7

47. Slide 2-47  David Edmondson, the president and CEO of well-known electronics retailer Radio Shack, overstated his accomplishments by claiming that he had earned a bachelor ’ s of science degree, when in fact he had not. Apparently his employer had not done a background check to ensure the accuracy of his r é sum é.  A chief financial officer of Veritas Software lied about having an M.B.A. from Stanford University. Your Personal Annual Report

48. Slide 2-48  A former president of the U.S. Olympic Committee lied about having a Ph.D. from Arizona State University. When the truth was discovered, she resigned.  The University of Notre Dame discovered that its football coach, George O ’ Leary, lied about his education and football history. He was forced to resign after only five days.

49. Slide 2-49  A survey by Automatic Data Processing reported that 40% of applicants misrepresented their education or employment history.  A survey by the Society for Human Resource Management of human resource professionals reported the following responses to the following question.

50. Slide 2-50 Using Radio Shack as an example, what should the company have done when it learned of the falsehoods on Mr. Edmondson ’ s r é sum é ? Should Radio Shack have fired him? YES: Radio Shack is a publicly traded company. Investors, creditors, employees, and others doing business with the company will not trust it if its leader is known to have poor integrity. The “ tone at the top ” is vital to creating an ethical organization. NO: Mr. Edmondson had been a Radio Shack employee for 11 years. He had served the company in a wide variety of positions, and had earned the position of CEO through exceptional performance. While the fact that he lied 11 years earlier on his r é sum é was unfortunate, his service since then made this past transgression irrelevant. In addition, the company was in the midst of a massive restructuring, which included closing 700 of its 7,000 stores. It could not afford additional upheaval at this time.

51. Slide 2-51 Copyright © 2010 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 permission 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. CopyrightCopyright

52. Slide 2-52 Debit Credit Debit Credit Kathy Browne, president of Hair It Is, Inc., has just rented space in a shopping mall in which she Solution on notes page 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 balance sheet accounts that Hair It Is, Inc., 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 SO 2 Define debits and credits and explain their use in recording business transactions. Cash Supplies Notes payable Equipment Accounts payable Common stock

53. Slide 2-53 SO 5 Explain what a ledger is and how it helps in the recording process.

54. Slide 2-54 Kate Turner recorded the following transactions in a general journal during the month of March. Solution on notes page The Recording Process Illustrated Post these entries to the Cash account. SO 6

55. Slide 2-55 SO 7 Prepare a trial balance and explain its purposes.