Accounting Principles

Fourteenth Edition
Weygandt Kimmel Mitchell

Chapter 2
The Recording Process

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Copyright ©2021 John Wiley & Sons, Inc.

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 ©2021 John Wiley & Sons, Inc. 2

Accounts, Debits, and Credits

LEARNING OBJECTIVE 1
Describe how accounts, debits, and credits are used to
record business transactions.
• Record of increases and decreases in a specific asset,
liability, owner’s equity, revenue, or expense item.
• Debit = “Left”
• Credit = “Right”

ILLUSTRATION 2.1

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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

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Debit and Credit Procedure
Tabular Summary and Account Form for
Softbyte’s Cash Account

ILLUSTRATION 2.2

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Accounts, Debits, and Credits
Normal Balances—Assets and Liabilities

ILLUSTRATION 2.4

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Accounts, Debits, and Credits
Normal Balances—Owner’s Capital and
Owner’s Drawings

ILLUSTRATION 2.6 ILLUSTRATION 2.8

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Accounts, Debits, and Credits
Normal Balances—Revenues and Expenses

ILLUSTRATION 2.10

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Summary of Debit/Credit Rules

ILLUSTRATION 2.11

Equation must be in balance after every transaction.

Total Debits must equal total Credits.

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Debit / Credit Rules
Review Question
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

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Debit / Credit Rules
Review Answer
Debits:
a. increase both assets and liabilities
b. decrease both assets and liabilities
c. Answer: increase assets and decrease liabilities
d. decrease assets and increase liabilities

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Debit/Credit Rules
Another Review Question
Accounts that normally have debit balances are:
a. assets, expenses, and revenues
b. assets, expenses, and equity
c. assets, liabilities, and owner’s drawing
d. assets, owner’s drawing, and expenses

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Debit/Credit Rules
Another Review Answer
Accounts that normally have debit balances are:
a. assets, expenses, and revenues
b. assets, expenses, and equity
c. assets, liabilities, and owner’s drawing
d. Answer: assets, owner’s drawing, and expenses

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DO IT! 1: Normal Account Balances
Kate Browne, has just rented space in a shopping mall in
which she will open and operate a beauty salon called “Hair It
Is”. A friend has advised Kate to set up a double-entry set of
accounting records in which to record all of her business
transactions.

Identify the balance sheet accounts that Kate will likely use to
record the transactions needed to establish and open her
business. Also, indicate whether the normal balance of each
account is a debit or a credit.

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DO IT! 1: Normal Account Balances
Solution
Assets
• Cash (debit balance)
• Supplies (debit balance)
• Equipment (debit balance)
Liabilities
• Notes Payable (credit balance)
• Accounts Payable (credit balance)
Owner’s Equity
Owner’s Capital (credit balance)
Owner’s Withdrawals (debit balance)
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The Journal

LEARNING OBJECTIVE 2
Indicate how a journal is used in the recording process.

The Recording Process

• Analyze transaction
• Enter transaction in journal
• Transfer journal information to ledger accounts

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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

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The Three Steps in the Recording
Process

ILLUSTRATION 2.12

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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

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Journalizing Compound Entries
Compound Entries—Entries requiring more than one debit or
credit
Illustration: On July 1, Butler Company 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

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DO IT! 2: Recording Business Activities
Kate Browne engaged in the following activities in establishing
her salon, Hair It Is:
1. Opened a bank account in the name of Hair It Is and
deposited $20,000 of her own money in this account as
her initial investment.
2. Purchased equipment on account (to be paid in 30 days)
for a total cost of $4,800.
3. Interviewed three people for the position of hair stylist.
Prepare the journal entries to record the transactions.

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DO IT! 2: Recording Business Activities
Solution
Prepare the journal entries to record the transactions.
1. Opened a bank account and deposited $20,000.
Cash 20,000
Owner’s Capital 20,000

2. Purchased equipment on account (to be paid in 30 days) for a

total cost of $4,800.
Equipment 4,800
Accounts Payable 4,800

3. Interviewed three persons for the position of hair stylist.

No entry because no transaction has occurred.
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The Ledger and Posting

LEARNING OBJECTIVE 3
Explain how a ledger and posting help in the recording process.

The Ledger
• Entire group of accounts maintained by a company
• Provides the balance in each account
• Keeps track of changes in account balances

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The General Ledger
General ledger contains all asset, liability, and owner’s equity
accounts.

ILLUSTRATION 2.15

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The Ledger
Three-Column Form of Account

ILLUSTRATION 2.16

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Posting a Journal Entry

ILLUSTRATION 2.17

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Posting
Review Question
Posting:
a. normally occurs before journalizing
b. transfers ledger transaction data to the journal
c. is an optional step in the recording process
d. transfers journal entries to ledger accounts

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Posting
Review Answer
Posting:
a. normally occurs before journalizing
b. transfers ledger transaction data to the journal
c. is an optional step in the recording process
d. Answer: transfers journal entries to ledger accounts

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Chart of Accounts Accounts in Red are used in this chapter.

ILLUSTRATION 2.18

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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.

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Investment of Cash by Owner

ILLUSTRATION 2.19

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Purchase of Office Equipment

ILLUSTRATION 2.20

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Receipt of Cash for Future Service

ILLUSTRATION 2.21

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Payment of Monthly Rent

ILLUSTRATION 2.22

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Payment of Insurance

ILLUSTRATION 2.23

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Purchase of Supplies on Credit

ILLUSTRATION 2.24

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Hiring of Employees

On October 9, Pioneer hires four employees to begin work

on October I 5. Each employee is to receive a weekly salary
Event of $500 for a 5-day work week, payable every 2 weeks—first
payment made on October 26.

This is a business event; a business transaction has not

occurred. There is only an agreement between the employer
and the employees to enter into a business transaction
Basic Analysis beginning on October I 5. Thus, a debit—credit analysis is
not needed because there is no accounting entry (see
October 26 transaction for first entry).

ILLUSTRATION 2.15

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Receipt of Cash for Services Performed

ILLUSTRATION 2.26

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Payment of Salaries

ILLUSTRATION 2.27

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Withdrawal of Cash by Owner

ILLUSTRATION 2.28

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Journalizing and Posting Summary
Oct. 1-5

ILLUSTRATION 2.29

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Journalizing and Posting Summary
Oct. 20-31

ILLUSTRATION 2.29

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An Example of the General Ledger

ILLUSTRATION 2.30

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DO IT! 3: Posting
Kate Browne recorded the following transactions in a general
journal; during the month of March. Post these transactions to the
Cash account.
Mar. 4 Cash 2,280
Service Revenue 2,280
15 Salaries and Wages Expense 400
Cash 400
19 Utilities Expense 92
Cash 92

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The Trial Balance
LEARNING OBJECTIVE 4
Prepare a trial balance.

Steps for a trial balance are:

1. List the account titles and their balances in the
appropriate debit or credit column.
2. Total the debit and credit columns.
3. Verify the equality of the two columns.

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A Trial Balance

ILLUSTRATION 2.31
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Limitation 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.

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Locating Errors in the Trial Balance

Errors in a trial balance generally result from

• mathematical mistakes,
• incorrect postings,
• or simply transcribing data incorrectly.

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Dollar Signs and Underlining
Dollar 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

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Trial Balance
Review Question
A trial balance will not balance if:
a. a correct journal entry is posted twice.
b. the purchase of supplies on account is debited to
Supplies and credited to Cash.
c. a $100 cash drawing by the owner is debited to
Owner’s Drawing for $1,000 and credited to Cash for
$100.
d. a $450 payment on account is debited to Accounts
Payable for $45 and credited to Cash for $45.

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Trial Balance
Review Answer
A trial balance will not balance if:
a. a correct journal entry is posted twice.
b. the purchase of supplies on account is debited to
Supplies and credited to Cash.
c. Correct: a $100 cash drawing by the owner is debited
to Owner’s Drawing for $1,000 and credited to Cash for
$100.
d. a $450 payment on account is debited to Accounts
Payable for $45 and credited to Cash for $45.

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DO IT! 4: Trial Balance
The following accounts come from the ledger of SnowGo Company
at December 31, 2022.
157 Equipment $88,000 301 Owner’s Capital $20,000
306 Owner’s Drawings 8,000 212 Salaries and Wages Payable 2,000
201 Accounts Payable 22,000
726 Salaries and Wages 200 Notes Payable (due in 3
Expense 42,000 months) 19,000
112 Accounts Receivable 4,000 732 Utilities Expense 3,000
400 Service Revenue 95,000 130 Prepaid Insurance 6,000
101 Cash 7,000

Prepare a trial balance in good form.

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DO IT! 4: Trial Balance
Solution

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