Chapter 2 - Recording Process

Accounting Principles
Thirteenth Edition
Weygandt Kimmel Kieso
Chapter 2
The Recording Process

Prepared by
Coby Harmon
University of California, Santa Barbara
Westmont College
Chapter 2

Chapter Outline
Learning Objectives
LO 1 Describe how accounts, debits, and credits are
used to record business transactions.
LO 2 Indicate how a journal is used in the recording
process.
LO 3 Explain how a ledger and posting help in the
recording process.
LO 4 Prepare a trial balance.
Copyright ©2019 John Wiley & Son, Inc. 3

Accounts, Debits, and Credits
The Account
• Record of increases and decreases in a specific asset,
liability, owner’s equity, revenue, or expense item.
• Debit = “Left”
Account Name
• Credit = “Right” Debit / Dr. Credit / Cr.

An account can be
illustrated in a
T-account form.

LO 1 Copyright ©2019 John Wiley & Son, Inc. 4

Debits and Credits
If the sum of Debit entries are greater than the sum
of Credit entries, the account will have a debit
balance.
Account Name
Debit / Dr. Credit / Cr.
Transaction #1 €10,000 €3,000 Transaction #2
Transaction #3 8,000

Balance €15,000

Debits and Credits
If the sum of Credit entries are greater than the sum
of Debit entries, the account will have a credit
balance.
Account Name
Debit / Dr. Credit / Cr.
Transaction #1 €10,000 €3,000 Transaction #2
8,000 Transaction #3

Balance €1,000

Debits and Credits
Debit and Credit Procedure
Double-entry system
• Each transaction must affect two or more accounts to
keep basic accounting equation in balance
• Recording done by debiting at least one account and
crediting at least one other account
• DEBITS must equal CREDITS

Assets Liabilities
Debit / Dr. Credit / Cr. Debit / Dr. Credit / Cr.

Normal Balance Normal Balance
• Assets - Debits should exceed credits

• Liabilities – Credits should exceed debits
• Normal balance is on the increase side

Owner’s Capital Owner’s Drawings

• Owner’s investments and revenues increase owner’s

equity (credit)
• Owner’s drawings and expenses decrease owner’s
equity (debit)

Revenues Expenses

• Earning revenues is to benefit owner(s)

• Effect of debits and credits on revenue accounts is
the same as effect on Owner’s Capital
• Expenses have opposite effect
Summary of Debit / Credit Rules
Balance Sheet Income Statement
Assets = Liabilities + Equity Revenue - Expense
Debit
Credit

Summary of Debit / Credit Rules
Debit/credit rules and effects on each type of
account.
Assets = Liabilities + Owner’s Equity ILLUSTRATION 2.11
Owner's Owner's
Assets = Liabilities + Capital - Drawing + Revenue - Expense
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
+ - - + - + + - - + + -
Equation must be in balance after every transaction.

Total Debits must equal total Credits.
The Journal
Journalize
Trial Adjusting
Analyze the Post
Balance Entries
transactions
Adjusted
Financial Closing Post-Closing
Trial
Balance Statements Entries Trial Balance

a. Analyze transaction
b. Enter transaction in journal
c. Transfer journal information to ledger accounts
The Journal
• 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

Journalizing
Journalizing - Entering transaction data in the journal.
Illustration: On September 1, Ray Neal invested €15,000 cash in the
business, and Softbyte purchased computer equipment for €7,000
cash.
ILLUSTRATION 2.13
GENERAL JOURNAL J1
Date Account Titles and Explanations Ref. Debit Credit
Sept. 1 Cash 15,000
Owner's Capital 15,000
Equipment 7,000
Cash 7,000

Journalizing
Simple and Compound Entries
Illustration: On July 1, Butler Shipping purchases a delivery truck
costing £14,000. It pays £8,000 cash now and agrees to pay the
remaining £6,000 on account (to be paid later). ILLUSTRATION 2.14
GENERAL JOURNAL J1
Date Account Titles and Explanations Ref. Debit Credit
July 1 Equipment 14,000
Cash 8,000
Accounts Payable 6,000

The Ledger and Posting
Post to
Trial Adjusting
Analyze Journalize ledger
Balance Entries
accounts
Adjusted
Financial Closing Post-Closing
Trial
Balance Statements Entries Trial Balance
The Ledger
a. Entire group of accounts maintained by a company
b. Provides the balance in each account
c. Keeps track of changes in account balances

The Ledger
General ledger contains all asset, liability, and owner’s equity
accounts ILLUSTRATION 2.15
Asset Accounts Liability Owner's Equity

Accounts Accounts
Cash Notes Payable Owner's Capital
Supplies Accounts Payable Owner's Drawings
Equipment Salaries and Wages Service Revenue

Payable
Land Interest Payable Salaries and Wages

Expense

The Ledger
Standard Form of Account ILLUSTRATION 2.16
CASH NO. 101

Date Explanation Ref. Debit Credit Balance
2020
June 1 25,000 25,000
2 8,000 17,000
3 4,200 21,200
9 7,500 28,700
17 11,700 17,000
20 250 16,750
30 7,300 9,450
The Date
GENERAL JOURNAL
Account Titles and Explanation Ref. Debit
J1
Credit
Ledger 2020
Sept. 1 Cash 101 15,000
Owner’s Capital 301 15,000
GENERAL LEDGER
Cash NO. 101
2020
Sept. 1 J1 15,000 15,000
Owner’s Capital NO. 301

ILLUSTRATION 2.17
Posting a journal 2020
entry
Sept. 1 J1 15,000 15,000

Chart of Accounts Accounts in Red are used in this chapter.
Assets Owner's Equity

101 Cash 301 Owner’s Capital
112 Accounts Receivable 306 Owner’s Drawings
126 Supplies 350 Income Summary
130 Prepaid Insurance
157 Equipment Revenues
158 Accumulated Depreciation—Equipment 400 Service Revenue
Liabilities Expenses
200 Notes Payable 631 Supplies Expense
201 Accounts Payable 711 Depreciation Expense
209 Unearned Service Revenue 722 Insurance Expense
212 Salaries and Wages Payable 726 Salaries and Wages Expense
230 Interest Payable 729 Rent Expense
732 Utilities Expense
ILLUSTRATION 2.18 905 Interest Expense
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.

Transaction On October 1, C. R. Byrd invests ₺10,000 cash in an advertising
company called Yazici Advertising.
Basic The asset Cash increases ₺10,000; owner’s equity (specifically,

Analysis Owner's Capital) increases ₺10,000.
Assets = Liabilities + Owner's Equity

Equation
Analysis Cash = Owner's Capital
+₺10,000 +₺10,000
Debit-Credit Debits increase assets: debit Cash ₺10,000.

Analysis Credits increase owner's equity: credit Owner's Capital ₺10,000.
Date Titles Ref. Debit Credit
Journal Oct. 1 Cash 101 10,000
Entry
Owner's Capital 301 10,000
Cash 101 Owner's Capital 301

Posting
Oct. 1 10,000 Oct. 1 10,000

LO 3 ILLUSTRATION 2.19 Copyright ©2019 John Wiley & Son, Inc. 23

On October 1, Yazici purchases office equipment costing
Transaction
₺5,000 by signing a 3-month, 12%, ₺5,000 note payable.
Basic The asset Equipment increases ₺5,000;
Analysis the liability Notes Payable increases ₺5,000.
Equation
Analysis Equipment = Notes Payable
+₺5,000 +₺5,000
Debit-Credit Debits increase assets: debit Equipment ₺5,000.
Analysis Credits increase liabilities: credit Notes Payable ₺5,000.
Journal Oct. 1 Equipment 157 5,000
Entry Notes Payable 200 5,000
Equipment 157 Notes Payable 200

Posting
Oct. 1 5,000 Oct. 1 5,000


On October 2, Yazici receives a ₺1,200 cash for advertising services
Transaction
that are expected to be completed by December 31.
Basic The asset Cash increases ₺1,200;
Analysis the liability Unearned Revenue increases ₺1,200.
Equation
Analysis Cash = Unearned Revenue
+₺1,200 +₺1,200
Analysis Credits increase liabilities: credit Unearned Revenue ₺1,200.
Entry Unearned Revenue 209 1,200
Cash 101 Unearned Revenue 209

Posting
Oct. 1 10,000 Oct. 2 1,200
2 1,200

Transaction On October 3, Yazici pays office rent for October in cash of ₺900.
Basic The expense account Rent Expense increases ₺900;

Analysis the asset Cash decreases ₺900.
Equation Cash = Rent Expense
Analysis
-₺900 -₺900
Debit-Credit Debits increase expenses: debit Rent Expense ₺900.
Analysis Credits decrease assets: credit Cash ₺900.
Journal Oct. 3 Rent Expense 729 900
Entry Cash 101 900
Cash 101 Rent Expense 729

Posting
Oct. 1 10,000 Oct. 3 900 Oct. 3 900
2 1,200

On October 4, Yazici pays ₺600 for a one-year insurance policy that
Transaction
will expire next year on September 30.
Basic The asset Prepaid Insurance increases ₺600;
Equation
Analysis Cash + Prepaid Insurance
-₺600 +₺600
Debit-Credit Debits increase assets: debit Prepaid Insurance ₺600.
Journal Oct. 4 Prepaid Insurance 130 600
Entry Cash 101 600
Cash 101 Prepaid Insurance 130

Posting
Oct. 1 10,000 Oct. 3 900 Oct. 4 600
2 1,200 4 600

On October 5, Yazici purchases a 3-month supply
Transaction
of advertising materials on account from Aero Supply for ₺2,500.
Basic The asset Supplies increases ₺2,500;
Analysis the liability Accounts Payable increases ₺2,500.
Equation
Analysis Supplies = Accounts Payable
+₺2,500 +₺2,500
Debit-Credit Debits increase assets: debit Supplies ₺2,500.
Analysis Credits increase liabilities: credit Accounts Payable ₺2,500.
Journal Oct. 5 Supplies 126 2,500
Entry Accounts Payable 201 2,500
Supplies 126 Accounts Payable 201

Posting
Oct. 5 2,500 Oct. 5 2,500


On October 9, Yazici hires four employees to begin work on
Transaction
October 15. Each employee is to receive a weekly salary of ₺500.
Basic A business transaction has not occurred, there is no need to record
Analysis an accounting entry.
Equation =
Analysis
Debit-Credit
Analysis
Journal
Entry
Posting


On October 20, C. R. Byrd withdraws ₺500 cash for
Transaction
personal use.
Basic The owner’s equity account Owner’s Drawings increases ₺500;
Equation
Cash = Owner’s Drawings
Analysis
-₺500 -₺500
Debit-Credit Debits increase drawings: debit Owner's Drawings ₺500.
Journal Oct. 20 Owner’s Drawings 306 500
Entry Cash 101 500
Cash 101 Owner’s Drawings 306

Posting
Oct. 1 10,000 Oct. 3 900 Oct. 20 500
2 1,200 4 600
20 500

On October 26, Yazici owes employee salaries of ₺4,000
Transaction
and pays them in cash (see October 9 event).
Basic Expense account Salaries and Wages Expense increases ₺4,000;
Analysis the asset Cash decreases ₺4,000.
Equation
Analysis Cash = Sal. & Wages Expense
-₺4,000 -₺4,000
Debit-Credit Debits increase expenses: debit Salaries and Wages Expense
Analysis ₺4,000. Credits decrease assets: credit Cash ₺4,000.
Journal Oct. 26 Salaries and Wages Expense 726 4,000
Entry Cash 101 4,000
Cash 101 Salaries & Wages Expense 726

Posting
Oct. 1 10,000 Oct. 3 900 Oct. 26 4,000
2 1,200 4 600
20 500
26 4,000

On October 31, Yazici receives ₺10,000 in cash from Copa
Transaction
Company for advertising services performed in October.
Basic The asset Cash increases ₺10,000; the revenue account
Analysis Service Revenue increases ₺10,000.
Equation
Analysis Cash = Service Revenue
+₺10,000 +₺10,000
Analysis Credits increase revenues: credit Service Revenue ₺10,000.
Entry Service Revenue 400 10,000
Cash 101 Service Revenue 400

Posting
Oct. 1 10,000 Oct. 3 900 Oct. 31 10,000
2 1,200 4 600
31 10,000 20 500
26 4,000

Journalizing and Posting Summary
GENERAL JOURNAL Page J1
Date Explanation Ref. Debit Credit
2020
Oct. 1 Cash 101 10,000
Owners’ Capital 301 10,000
1 Equipment 157 5,000
Notes Payable 200 5,000
2 Cash 101 1,200
Unearned Revenue 209 1,200
3 Rent Expense 729 900
Cash 101 900

GENERAL JOURNAL Page J1
Date Explanation Ref. Debit Credit
2020
Oct. 4 Prepaid Insurance 130 600
Cash 101 600
5 Supplies 126 2,500
Accounts Payable 201 2,500
20 Owner’s Drawings 306 500
Cash 101 500
26 Salaries and Wages Expense 726 4,000
Cash 101 4,000
31 Cash 101 10,000
Service Revenue 400 10,000

ILLUSTRATION 2.30
General Ledger
Yazici Advertising
Trial Balance
October 31, 2020
Debit Credit
Cash ₺15,200
Supplies 2,500
Prepaid Insurance 600
Equipment 5,000
Notes Payable ₺ 5,000
Unearned Service Revenue 1,200
Owner’s Capital 10,000
Owner’s Drawings 500
Service Revenue 10,000
Salaries and Wages Expense 4,000
Rent Expense 900
ILLUSTRATION 2.31 ₺28,700 ₺28,700
Limitations of a Trial Balance
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.
5. Offsetting errors are made in recording the amount
of a transaction.

Trial Balance
Locating Errors
Errors in a trial balance generally result from
mathematical mistakes,
incorrect postings,
or simply transcribing data incorrectly.

Trial Balance
Currency Signs
Do not appear in journals or ledgers
Typically used only in trial balance and financial
statements
Shown only for first item in column and for the total of
that column
Underlining
Single line is placed under column of figures to be added
or subtracted
Totals are double-underlined
Bali Beach Supply
Trial Balance
December 31, 2020
Debit Credit
Cash R$ 7,000
Accounts Receivable 4,000
Prepaid Insurance 6,000
Equipment 88,000
Notes Payable R$ 19,000
Salaries and Wages Payable 2,000
Owner’s Capital 20,000
Owner’s Drawings 8,000
Service Revenue 95,000
Utilities Expense 3,000
Salaries and Wages Expense 42,000
R$158,000 R$158,000
A Look at U.S. GAAP
Key Points
Similarities
Transaction analysis is the same under IFRS and GAAP.
Both the IASB and the FASB go beyond the basic definitions provided in
this textbook for the key elements of financial statements, that is
assets, liabilities, equity, revenues, and expenses. The more
substantive definitions, using the FASB definitional structure, are
provided in the Chapter 1 A Look at U.S. GAAP section.
As shown in the textbook, currency signs are typically used only in the
trial balance and the financial statements. The same practice is
followed under GAAP, using the U.S. dollar.

A Look at U.S. GAAP
Key Points
Similarities
A trial balance under GAAP follows the same format as shown in the
textbook.
Differences
IFRS relies less on historical cost and more on fair value than U.S.
companies.
The statement of financial position is often called the balance sheet in
the United States.

Copyright
Copyright © 2019 John Wiley & Sons, Inc.
All rights reserved. Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States 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
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responsibility for errors, omissions, or damages, caused by the use of these programs or
from the use of the information contained herein.
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Accounting Principles

The Recording Process

The Recording Process

Copyright ©2019 John Wiley & Son, Inc. 3

LO 1 Copyright ©2019 John Wiley & Son, Inc. 4

LO 1 Copyright ©2019 John Wiley & Son, Inc. 5

LO 1 Copyright ©2019 John Wiley & Son, Inc. 6

LO 1 Copyright ©2019 John Wiley & Son, Inc. 7

• Assets - Debits should exceed credits

LO 1 Copyright ©2019 John Wiley & Son, Inc. 8

• Owner’s investments and revenues increase owner’s

LO 1 Copyright ©2019 John Wiley & Son, Inc. 9

• Earning revenues is to benefit owner(s)

LO 1 Copyright ©2019 John Wiley & Son, Inc. 11

Equation must be in balance after every transaction.

The Recording Process

LO 2 Copyright ©2019 John Wiley & Son, Inc. 14

LO 2 Copyright ©2019 John Wiley & Son, Inc. 15

LO 2 Copyright ©2019 John Wiley & Son, Inc. 16

LO 3 Copyright ©2019 John Wiley & Son, Inc. 17

Asset Accounts Liability Owner's Equity

Cash Notes Payable Owner's Capital

Supplies Accounts Payable Owner's Drawings

Equipment Salaries and Wages Service Revenue

Land Interest Payable Salaries and Wages

LO 3 Copyright ©2019 John Wiley & Son, Inc. 18

CASH NO. 101

Owner’s Capital NO. 301

LO 3 Copyright ©2019 John Wiley & Son, Inc. 20

Assets Owner's Equity

LO 3 Copyright ©2019 John Wiley & Son, Inc. 22

Basic The asset Cash increases ₺10,000; owner’s equity (specifically,

Assets = Liabilities + Owner's Equity

Debit-Credit Debits increase assets: debit Cash ₺10,000.

Cash 101 Owner's Capital 301

LO 3 ILLUSTRATION 2.19 Copyright ©2019 John Wiley & Son, Inc. 23

Equipment 157 Notes Payable 200

LO 3 ILLUSTRATION 2.20 Copyright ©2019 John Wiley & Son, Inc. 24

Cash 101 Unearned Revenue 209

LO 3 ILLUSTRATION 2.21 Copyright ©2019 John Wiley & Son, Inc. 25

Basic The expense account Rent Expense increases ₺900;

Cash 101 Rent Expense 729

LO 3 ILLUSTRATION 2.22 Copyright ©2019 John Wiley & Son, Inc. 26

Cash 101 Prepaid Insurance 130

LO 3 ILLUSTRATION 2.23 Copyright ©2019 John Wiley & Son, Inc. 27

Supplies 126 Accounts Payable 201

LO 3 ILLUSTRATION 2.24 Copyright ©2019 John Wiley & Son, Inc. 28

LO 3 ILLUSTRATION 2.25 Copyright ©2019 John Wiley & Son, Inc. 29

Cash 101 Owner’s Drawings 306

LO 3 ILLUSTRATION 2.26 Copyright ©2019 John Wiley & Son, Inc. 30

Cash 101 Salaries & Wages Expense 726

LO 3 ILLUSTRATION 2.27 Copyright ©2019 John Wiley & Son, Inc. 31

Cash 101 Service Revenue 400

LO 3 ILLUSTRATION 2.28 Copyright ©2019 John Wiley & Son, Inc. 32

LO 3 ILLUSTRATION 2.29 Copyright ©2019 John Wiley & Son, Inc. 33

LO 3 ILLUSTRATION 2.29 Copyright ©2019 John Wiley & Son, Inc. 34

LO 4 Copyright ©2019 John Wiley & Son, Inc. 37

LO 4 Copyright ©2019 John Wiley & Son, Inc. 38

LO 5 Copyright ©2019 John Wiley & Son, Inc. 41

LO 5 Copyright ©2019 John Wiley & Son, Inc. 42

Copyright ©2019 John Wiley & Son, Inc. 43

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