review of Chapter 2
In Chapter 1, we analyzed business transactions in terms of the accounting equation, and we presented the
cumulative effects of these transactions in tabular form. Imagine a company like Fidelity Investments (as in
the Feature Story) using the same tabular format as Softbyte to keep track of its transactions. In a single day,
Fidelity engages in thousands of business transactions. To record each transaction this way would be im-
practical, expensive, and unnecessary. Instead, companies use a set of procedures and records to keep track
of transaction data more easily. This chapter introduces and illustrates these basic procedures and records
The content and organization of Chapter 2 are as follows.
Piece eects
Boat The Recording
Recording Process eee reat
'* Debits and credits * Journal ‘+ Summary illustration of * Limitations of atrial
‘= Debit and credit * Ledger journalizing and posting balance
procedure + Posting * Locating errors
‘+ Equity relationships * Use of currency signs
+ Summary of debit/credit
rules
a ee Le
STUDY OBJECTIVE 1 MAWEROUU
an accounting record of increases and decreases in a specific
Explain what an accountis and asset, liability, or equity item. For example, Softbyte Inc. (the company
how it helps in the recording discussed in Chapter 1) would have separate accounts for Cash, Accounts
process. Receivable, Accounts Payable, Service Revenue, and Salaries Expense. In
its simplest form, an account consists of three parts: (1) a title, (2) a left or
debit side, and (3) a right or credit side. Because the format of an account resem-
bles the letter T, we refer to it as a T account. Illustration 2-1 shows the basic form
ofan account.
Ilustration 2-1
Basic form of account
Title of Account
Left or det
side | Right or credit side
The T account is a standard shorthand in accounting, which helps make clear
the effects of transactions on individual accounts. We will use it often throughout
this book to explain basic accounting relationships.
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