1. Chapter 2-1 CHAPTER 2 THE RECORDING PROCESS Accounting Principles, Eighth Edition

2. Chapter 2-2 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

3. Chapter 2-3 The Account Debits and credits Expansion of basic equation Steps in the Recording Process The Recording Process Illustrated The Trial Balance Limitations of a trial balance Locating errors Use of dollar signs Summary illustration of journalizing and posting The Recording Process JournalLedger

4. Chapter 2-4 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. See illustration 2-1 page 48 The Account

5. Chapter 2-5 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. LO 2 Define debits and credits and explain their use in recording business transactions. Debits and Credits

6. Chapter 2-6 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 LO 2 Define debits and credits and explain their use in recording business transactions.

7. Chapter 2-7 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 LO 2 Define debits and credits and explain their use in recording business transactions. $1,000 8,000Transaction #3

8. Chapter 2-8 Normal Balance Credit Normal Balance Debit LO 2 The normal balance of an account is on the side where an increase in the account is recorded. See page 50 52

9. Chapter 2-9 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 LO 2 Define debits and credits and explain their use in recording business transactions.

10. Chapter 2-10 Assets - Debits should exceed credits. Liabilities – Credits should exceed debits. The normal balance is on the increase side. LO 2 Define debits and credits and explain their use in recording business transactions. Assets and Liabilities

11. Chapter 2-11 Owner’s investments and revenues increase owner’s equity (credit). Owner’s drawings and expenses decrease owner’s equity (debit). LO 2 Define debits and credits and explain their use in recording business transactions. Owners’ Equity

12. Chapter 2-12 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. LO 2 Define debits and credits and explain their use in recording business transactions. Revenue and Expense

13. Chapter 2-13 Debits and Credits Summary See illustration 2-11 page 52

14. Chapter 2-14 Balance Sheet Income Statement Balance Sheet Income Statement = + - AssetLiabilityEquityRevenueExpense Debit Credit Debits and Credits Summary

15. Chapter 2-15 Accounts that normally have debit balances are: a. assets, expenses, and revenues. b. assets, expenses, and owner’s capital. c. assets, liabilities, and owner’s drawings. d. assets, owner’s drawings, and expenses. Review Question Debits and Credits Summary LO 2 Define debits and credits and explain their use in recording business transactions.

16. Chapter 2-16 Expansion of the Basic Equation Relationship among the assets, liabilities and owner’s equity of a business: The equation must be in balance after every transaction. For every Debit there must be a Credit. Illustration 2-11 AssetsLiabilities = Owner’s Equity Basic Equation Expanded Basic Equation LO 2 Define debits and credits and explain their use in recording business transactions. +

17. Chapter 2-17 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 LO 3 Identify the basic steps in the recording process. Illustration 2-12 Analyze each transactionEnter transaction in a journal Transfer journal information to ledger accounts

18. Chapter 2-18 Book of original entry (General journal). 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 LO 3 Identify the basic steps in the recording process.

19. Chapter 2-19 Journalizing - Entering transaction data in the journal. JournalizingJournalizing E2-4 (Facts) Presented below is information related to Hanshew Real Estate Agency. See page 54 Pete Hanshew begins business as a real estate agent with a cash investment of $15,000. Oct. 1 Purchases office furniture for $1,900, on account.3 Sells a house and lot for B. Kidman; bills B. Kidman $3,200 for realty services provided. 6 Pays $700 on balance related to transaction of Oct. 3.27 Pays the administrative assistant $2,500 salary for Oct.30 E2-5 Instructions - Journalize the transactions for E2-4.

20. Chapter 2-20 JournalizingJournalizing General Journal LO 4 Explain what a journal is and how it helps in the recording process. E2-4 (Facts) Presented below is information related to Hanshew Real Estate Agency. Pete Hanshew begins business as a real estate agent with a cash investment of $15,000. Oct. 1

21. Chapter 2-21 JournalizingJournalizing General Journal LO 4 Explain what a journal is and how it helps in the recording process. E2-4 (Facts) Presented below is information related to Hanshew Real Estate Agency. Purchases office furniture for $1,900, on account. Oct. 3

22. Chapter 2-22 JournalizingJournalizing General Journal LO 4 Explain what a journal is and how it helps in the recording process. E2-4 (Facts) Presented below is information related to Hanshew Real Estate Agency. Sells a house and lot for B. Kidman; bills B. Kidman $3,200 for realty services provided. Oct. 6

23. Chapter 2-23 JournalizingJournalizing General Journal LO 4 Explain what a journal is and how it helps in the recording process. E2-4 (Facts) Presented below is information related to Hanshew Real Estate Agency. Pays $700 on balance related to transaction of Oct. 3. Oct. 27

24. Chapter 2-24 JournalizingJournalizing General Journal LO 4 Explain what a journal is and how it helps in the recording process. E2-4 (Facts) Presented below is information related to Hanshew Real Estate Agency. Pays the administrative assistant $2,500 salary for Oct. Oct. 30

25. Chapter 2-25 Simple Entry – Two accounts, one debit and one credit. Compound Entry – Three or more accounts. JournalizingJournalizing Example – On June 15, H. Burns, purchased equipment for $15,000 by paying cash of $10,000 and the balance on account (to be paid within 30 days). LO 4 Explain what a journal is and how it helps in the recording process. General Journal

26. Chapter 2-26 Review (Do it ) See Page 56 JournalizingJournalizing