Accounting 211 – Chapter 2 The Recording Process.

Accounting 211 – Chapter 2Accounting 211 – Chapter 2The Recording ProcessThe Recording Process

What you will learn in Chapter 2:What you will learn in Chapter 2:

Basics of the accountSteps in the recording processJournalizing and postingThe trial balance

The AccountThe Account

Individual record of increases or decreases in a specific asset, liability or equity item.

The T-account is a way of illustrating those changes. We will use it in the course to illustrate the effects of events on these specific accounts…

A T-account represents a ledger account and is a tool used to understand the effects of one or more

transactions.

Debits and CreditsDebits and Credits

(Left side) (Right side)Debit Credit

T- Account

Remember: debits on the left, credits on the right!

Double-Entry AccountingDouble-Entry AccountingAn account balance is the difference between the

increases and decreases in an account.

LiabilitiesLiabilities EquityEquityAssetsAssets = +

Double-Entry AccountingDouble-Entry Accounting

Debit Credit Debit Credit Debit Credit

ASSETS

+ - + -

LIABILITIES

- + - +

EQUITIES

- + - +

In an accounting system, the sum of the debits always equals the sum of the credits.

Normal Account BalancesNormal Account BalancesAsset = Increase is a debit

= Decrease is a credit

= Normal balance is a debit

Liability= Increase is a credit

= Decrease is a debit

= Normal balance is a credit

Equity = Increase is a credit

= Decrease is a debit

= Normal balance is a credit

RevenuesRevenues ExpensesExpensesOwner’s Capital

Owner’s Capital

Owner’s Withdrawals

Owner’s Withdrawals

__ ++ __

Debit Credit

Capital

- + - + Debit Credit

Withdrawals

+ - + - Debit Credit

Expenses

+ - + -Debit Credit

Revenues

- + - +

Double-Entry AccountingDouble-Entry AccountingEquityEquity

Exh.3.8

The Recording ProcessThe Recording Process

Steps are:

1. Analyze each transaction and how it affects the accounts.

2. Enter the transaction information in a journal.

3. Transfer (post) the journal information in the ledger (book of accounts).

Analyze each transaction and event form source documents

Analyzing and Recording Analyzing and Recording ProcessProcess

Record relevant transactions and events in a journal

Post journal information to ledger accounts

Prepare and analyze the trial balance

JournalizingJournalizing

A journal is an original book of entry where the transactions are recorded.

It shows the complete record of one transaction.

It provides a chronological record of all transactions.

It helps to find errors by comparing debits and credits.

Sales Tickets

Bank Statement

Purchase Orders

Checks

Source DocumentsSource DocumentsBills from Suppliers

Employee EarningsRecord

Journalizing and Posting Journalizing and Posting TransactionsTransactions

Step 1: Analyze transactions and source

documents.

LiabilitiesLiabilities EquityEquityAssetsAssets = +

Step 2: Apply double-entry accounting

(Left side) (Right side)Debit Credit

T- Account

ACCOUNT NAME: ACCOUNT No.

Date Description PR Debit Credit Balance

Step 4: Post entry to ledger Step 3: Record journal entry

Dollar amount of debits and credits

Dollar amount of debits and credits

General JournalGeneral Journal((Debits on left, credits on right)Debits on left, credits on right)

Transaction Date

Transaction Date

Transaction explanation

Transaction explanation

Titles of Affected Accounts

Titles of Affected Accounts

Simple vs. Compound EntrySimple vs. Compound Entry

A simple entry involves one debit and one credit.

A compound entry involves more than one debit or more than one credit

1/1/2006 Delivery Equipment 100,000Cash 40,000Accounts Payable 60,000

To record purchase of truck on credit with down payment of $40,000.

General LedgerGeneral Ledger

A ledger account contains all the information in one place about changes in a specific account and the account’s balance.

The general ledger contains all the asset, liability and equity accounts maintained by the business.

Let’s look at Ill. 2-15 on p. 54.

11 Identify the account.

Posting Journal EntriesPosting Journal Entries

22 Enter the date.


33Enter the amount and description.


44Enter the journal reference.


55

Compute the balance.


Enter the ledger reference. 66


Chart of AccountsChart of Accounts

A list of accounts identified by a unique account number. III. 2-18 in text

Typical numbering system:– Assets 100-199– Liabilities 200-299– Equity 300-399– Revenues 400-499– Expenses 500-599– More specific revenue/expenses 600-

999

Analyzing Transactions – An Analyzing Transactions – An IllustrationIllustration

Analysis:

(1) Cash 101 30,000 C. Taylor, Capital 301 30,000

Double entry:

(1) 30,000Cash 101

(1) 30,000C. Taylor, Capital 301

Posting:

Analyzing TransactionsAnalyzing Transactions

Analysis:

(2) Supplies 126 2,500 Cash 101 2,500

Double entry:

(2) 2,500Supplies 126

(1) 30,000 (2) 2,500Cash 101

Posting:


Analysis:

(3) Equipment 167 26,000 Cash 101 26,000

Double entry:

(1) 30,000 (2) 2,500(3) 26,000

Cash(3) 26,000

Equipment 167 101

Posting:


Analysis:

(4) Supplies 126 7,100 Accounts payable 201 7,100

Double entry:

(2) 26,000(4) 7,100

Supplies 126

(4) 7,100Accounts Payable 201

Posting:


Analysis:

(5) Cash 101 4,200 Consulting Revenue 403 4,200

Double entry:

(1) 30,000 (2) 2,500(5) 4,200 (3) 26,000

Cash(5) 4,200

Consulting Revenue 403 101

Posting:

The Trial BalanceThe Trial Balance

A trial balance is a list of all accounts and their balances at a specific point in time.

The trial balance is used to prove the equality of debits and credits.

If there are errors, the trial balance can be used to find them.

Steps to Prepare A Trial BalanceSteps to Prepare A Trial Balance1. List the account titles and their balances

2. Total the debit and credit columns

3. Prove the equality of the two columns

Note: the trial balance proves that debits equal credits, but it does not prove that all transactions are correctly record or that the ledger balances are correct.

After processing its remaining transactions for December, FastForward’s Trial Balance is prepared.

After processing its remaining transactions for December, FastForward’s Trial Balance is prepared.

Debits CreditsCash 3,950$ Accounts receivable - Supplies 9,720 Prepaid Insurance 2,400 Equipment 26,000 Accounts payable 6,200$ Unearned consulting revenue 3,000 C. Taylor, Capital 30,000 C. Taylor, Withdrawals 600 Consulting revenue 5,800 Rental revenue 300 Salaries expense 1,400 Rent expense 1,000 Utilities expense 230 Total 45,300$ 45,300$

FastForwardTrial Balance

December 31, 2004

The trial balance lists all account balances in the general ledger.

If the books are in balance, the total

debits will equal the total credits.

The trial balance lists all account balances in the general ledger.

If the books are in balance, the total

debits will equal the total credits.

Finding Errors In A Trial BalanceFinding Errors In A Trial Balance

If the error is $1 or a multiple of $10, 100 or $1,000 re-add the trial balance or re-add the individual account balances.

If the error can be divided by $2, check if an amount equal to half the error was entered in the wrong column.

If the error can be divided by 9, there may be a transposition error.

If the error is some other amount, check to see if that amount was not entered on the trial balance.

If all else fails, go back to the original journal entries and check if they are correct!

Formatting with Dollar SignsFormatting with Dollar Signs

Don’t use dollar signs in the journals and ledgers.

Use them only in the trial balance and on financial statements.

QuestionsQuestions

?

Accounting 211 – Chapter 2 The Recording Process.

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Transcript of Accounting 211 – Chapter 2 The Recording Process.