WEYGANDT – KIESO - KIMMEL – TRENHOLM – WARREN - NOVAK

ACCOUNTING
PRINCIPLES
VOLUME 1
SEVENTH CANADIAN EDITION

Prepared by:
Debbie Musil, CPA, FCMA
Kwantlen Polytechnic University
 CHAPTER 2:
THE RECORDING PROCESS
 The Recording Process

• The Account
– Debits and credits
– Double-entry accounting
STUDY OBJECTIVES:
• Analyzing and Recording Transactions
– The accounting cycle and steps in the recording process
– The journal
• The Ledger
– Posting
– The recording process illustrated
– Summary illustration of journalizing and posting
• The Trial Balance
– Limitations of a trial balance
– Locating errors
– Some process explanations
3
 Chapter 2: The Recording Process
LEARNING OBJECTIVES

1. Describe how
STUDYaccounts, debits, and credits are
OBJECTIVES:
used to record business transactions.
2. State how a journal is used in the recording
process and journalize transactions.
3. Explain how a ledger helps in the recording
process and post transactions.
4. Prepare a trial balance.

4
 The Account

• An individual accounting record of increases

and decreases in a specific
STUDY OBJECTIVES: asset, liability, or
owner’s equity item
– Examples: cash, accounts payable, service
revenue, salaries expense
• Three parts: title, debit side, credit side
– In its simplest form, these parts are
positioned like the letter T
– Therefore called a T account

5
 Debits & Credits

• Debit (Dr.) indicates left; Credit (Cr.) indicates

right
STUDY OBJECTIVES:
– Entering an amount on the left side is called
debiting the account
– Entering an amount on the right side is crediting the
account
• Debit balance
– Debit amounts exceed the credits
• Credit balance
– Credit amounts exceed the debits

6
Tabular Versus Account Form

STUDY OBJECTIVES:

7
 Debit & Credit Procedure

• Debit does not mean increase or decrease

– Can be either depending on the type account
STUDY OBJECTIVES:
• Credit also does not mean increase or decrease
– also depends on account type
• Assets are on the debit side of the equation
– Increases are also on debit side; decreases on credit
side
• Liabilities are on the credit side of the equation
– Increases are on the credit side; decreases on the
debit side

8
Assets, Liabilities & Owner’s Capital

STUDY OBJECTIVES:

9
Drawings, Revenues, Expenses

STUDY OBJECTIVES:

10
Accounting Equation Expanded

STUDY OBJECTIVES:

11
 Double-Entry Accounting System

• Each transaction is recorded with equal

debits STUDY OBJECTIVES:
and credits
– Total debits always equals total credits
• Accounting equation will always stay in
balance
– Assets = Liabilities + Owner’s Equity
• Every account has a normal balance
– Either debit or credit

12
 Chapter 2:
LEARNING OBJECTIVES

1. Describe how
STUDYaccounts, debits, and credits are
OBJECTIVES:
used to record business transactions.
2. State how a journal is used in the recording
process and journalize transactions.
3. Explain how a ledger helps in the recording
process and post transactions.
4. Prepare a trial balance.

13
The Accounting Cycle — Steps 1 to 3

STUDY OBJECTIVES:

14
 The Recording Process

The first three steps in the accounting cycle:

1. AnalyzeSTUDY
Business Transactions
OBJECTIVES:
– Determine effect on accounts
2. Journalize the Transactions
– The book of original entry
3. Post to Ledger Accounts

15
 The Journal

• Where transactions are first recorded

STUDY has
• Every company OBJECTIVES:
a general journal
• Contributes to recording process:
– Discloses complete effect of a transaction in
one place
– Provides a chronological record
– Helps prevent and locate errors

16
 Journalizing

• Entering transaction data in the journal

STUDY
• Separate OBJECTIVES:
journal entry for each
transaction
• A complete entry consists of
– Transaction date
– Accounts & amounts to be debited and
credited
– Brief explanation of transaction

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 Journalizing Technique

– Transaction date is entered in date column

– Debit account title is entered
STUDY at the left margin of the
OBJECTIVES:
“Account Titles and Explanation” column
– Credit account title is indented on the next line

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 Journalizing Technique (cont’d)

• Debit amounts are recorded in the Debit (left) column

• Credit amountsSTUDY
are recorded in the Credit (right) column
OBJECTIVES:
• A brief explanation of the transaction is provided

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 Journalizing Technique (cont’d)

• Separate entries with a blank line

• Ref column is used later when
STUDY transferred to ledger
OBJECTIVES:
• List all debits in each entry before listing credits

20
 Journalizing Technique (cont’d)

• Simple entry: involves two accounts

• Compound STUDY OBJECTIVES:
entry: involves three or more
accounts

21
 Chapter 2:
LEARNING OBJECTIVES

1. Describe how
STUDYaccounts, debits, and credits are
OBJECTIVES:
used to record business transactions.
2. State how a journal is used in the recording
process and journalize transactions.
3. Explain how a ledger helps in the recording
process and post transactions.
4. Prepare a trial balance.

22
 The Ledger

• Ledger: entire group of accounts

maintained
STUDY by OBJECTIVES:
a company
• General ledger: contains all the assets,
liabilities, and owner’s equity accounts
– Arranged in financial statement order
– Assets, liabilities, owner’s capital, drawings,
revenues and expenses
• Posting: procedure of transferring
journal entries to the ledger accounts
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Standard Form of Account

STUDY OBJECTIVES:

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 Posting

1. Post to debit account:

date, journal page
number, amount
2. Enter debit account STUDY OBJECTIVES:
number in journal
reference column
3. Post to credit account:
journal page number,
amount
4. Enter credit account
number in journal
reference column

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 Chart of Accounts

• List of accounts and their account numbers

– Indicates where
STUDY accounts are found in the ledger
OBJECTIVES:
– Usually starts with balance sheet accounts,
followed by income statement accounts
• Varies by company
– Number of accounts
– Types of accounts
– Numbering system

26
 Chapter 2:
LEARNING OBJECTIVES

1. Describe how
STUDYaccounts, debits, and credits are
OBJECTIVES:
used to record business transactions.
2. State how a journal is used in the recording
process and journalize transactions.
3. Explain how a ledger helps in the recording
process and post transactions.
4. Prepare a trial balance.

27
The Accounting Cycle – Steps 1 to 4

STUDY OBJECTIVES:

28
 The Trial Balance

• List of accounts and their balances at a specific time

• STUDY
Proves that debits OBJECTIVES:
equal credits after posting
• Uncovers errors in journalizing and posting
• To prepare a trial balance:
1. List accounts and their balances
2. Total the debit and credit columns
3. Ensure the two column totals are equal

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Example Trial Balance

STUDY OBJECTIVES:

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 Limitations of a Trial Balance

• Does not prove:

STUDY OBJECTIVES:
– That all transactions have been recorded, or
– That the ledger is correct
• Numerous errors may exist even though the
trial balance columns agree
– Total debits and total credits may be equal, but
may still be posted to the wrong account or in the
wrong amount

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 Locating Errors

• If trial balance does not balance, then:

– If error is an amount
STUDY such as $1, $100 or $1,000,
OBJECTIVES:
re-add and re-calculate account balances
– If divisible by two, look for entry (= ½ of the error )
in the wrong column
– If divisible by nine, look for transposition errors
– Otherwise, scan to see if an account balance has
been omitted

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 COPYRIGHT

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