You are on page 1of 3

THE RECORDING PROCESS

I. The Account

- individual accounting record in specific asset, liability or owner's equity item


- T-account = consists of a title, debit side, credit side
A. Debits and Credits

- debit = left side of account


- credit = right side of account
- they do not mean increase or decrease, only where entries are made
- debit balance = debit total exceeds credit
- credit balance = credit total exceeds debit
1. Debit and Credit Procedure

- douuble-entry system = debits must equal credits


- ensures accuracy and detection of errors
2. Debit/Credit Procedures for Assets and Liabilities

- assets = debit/increase, credit/decrease


- liabilities = debit/decrease, credit/increase
- asset accounts = usually debit balance
- liability accounts = usually credit balance
- normal balance = side where an increase is recorded
3. Debit/Credit Procedures for Owner's Equity

- owner's capital = debit/decrease, credit/increase; normal balance is credit balance


- owner's drawings = debit/increase, credit/decrease; normal balance is debit balance
- revenues = same as owner's capital
- expenses = same as owner's drawings
II. Steps in the Recording Process

- analyze each transaction for its effects on account


- enter info in journal
- transfer journal info to ledger
A. The Journal

- book of original entry


- most basic form is general journal
- space for dates, account titles and explanations, references, two amount columns
a. discloses complete effects of transaction
b. chronological record of transactions

c. prevent or locate errors


1. Journalizing

- date, account titles and explanations, references, debit, credit


2. Simple and Compound Entries

- simple entry = two accounts (e.g. depositing 1000 investment)


- compound entry = three or more accounts
- all debits must be listed before credits
B. The Ledger

- entire group of accounts maintained by company


- provides balance of each account and tracks changes in balance
- general ledger = contains all asset, liability, and owner's equity accounts
- order is same as balance sheet = assets, liabilities, owner's capital, owner's drawings,
revenues, expenses
1. Standard Form of Account

- three-column form of account = 3 money columns, debit/credit/balance


2. Posting

- transferring journal entries to ledger accounts


a. enter date, journal page, debit amount
b. write account number in reference column, to which debit amount was posted
c. enter date, journal, page, credit amount
d. same as (b) but for credit account page
3. Chart of Accounts

- lists accounts and account numbers that identify location in the ledger
III. The Trial Balance

- list of accounts and balances at a given time, usually prepared at end of accounting period
- accounts listed in order they appear in ledger
- proves mathematical equality of debits and credits after posting
a. list account titles and balances in debit/credit columns
b. total debit/credit columns
c. prove equality of columns
A. Limitations of a Trial Balance

- not proof that it is 100% correct, just that the numbers are equal
B. Locating Errors

- if error is $1/10/100, re-add columns

- if divisible by 2, see if a balance equal to half the error was entered in wrong column
- if divisible by 9, look for transposition error ($12 written instead of $21)
- see if error amount was omitted from trial balance
C. Use of Dollar Signs
- only used in trial balance and financial statements, not journals or ledgers
- only shown for first item in column, and for total of column
- single line = to be added or subtracted
- double line = final sums