A231 Topic 3

TOPIC
3 Recording Process
Accounting
A Malaysian
Perspective
5e
Learning Objectives
• LO1: Describe the characteristics of an account and a

chart of accounts.
• LO2: The rules of debit and credit
• LO3: Steps in recording process.
• LO4: Prepare an unadjusted trial balance and explain
how it can be used to discover errors.
©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Using Accounts to Record Transactions
• Accounting systems are designed to show the

increases and decreases in each accounting equation
element as a separate record. This record is called an
account.
Using Accounts to Record
Transactions
Definitions
Journal • Book of first entry
• Separate record showing increases

Account and decreases for each Financial
Statement item
Chart of • A list of the accounts in a ledger

accounts
• A group of accounts for a business
Ledger entity
Characteristics of an Account
• An account is an individual accounting

record of increases and decreases in a
specific asset, liability, or owner’s equity
item.
• A company will have separate accounts for
such items as cash, salaries expense,
accounts payable, and so on.
Types of Accounts
7
• Assets
• Liabilities
• Revenues
• Expenses
• Capital
• Withdrawals
Using Accounts to Record
Transactions
The T Account
The T Account
The T Account
The T Account
NetSolution’ s November Transactions
Total Debit
25,000 + 7,500 = 32,500
Total Credit
20,000 + 3,650 + 950 + 2,000 = 26,600
Balance cash = 32,500 – 26,600

= 5,900
Ending balance on 30 Nov 2017 = 5,900

Beginning balance on 1 Dec 2017 = 5,900
Chart of Accounts
• A group of accounts for a business entity is called a

ledger.
• A list of the accounts in the ledger is called a chart of
accounts.
Chart of Accounts for NetSolutions
Normal Balances
• The sum of the increases in an account is usually

equal to or greater than the sum of the decreases in
the account. Thus, the normal balance of an account
is either a debit or a credit depending on whether
increases in the account are recorded as debits or
credits.
Rules of Debit and Credit, Normal Balances of
Accounts
RULES of DEBIT & CREDIT
Double-Entry Accounting System
• All businesses use what is called the double-entry

accounting system. This system is based on the
accounting equation and requires:
o Every business transaction to be recorded in at least two
accounts.
o The total debits recorded for each transaction to be equal to
the total credits recorded.
• The double-entry accounting system has specific
rules of debit and credit for recording transactions
in the accounts.
Statement of Financial Position Accounts
• The debit and credit rules for Statement of Financial

Position accounts are as follows:
Statement of Profit or Loss
• The debit and credit rules for Statement of Profit or

Loss accounts are based on their relationship with
owner’s equity.
Owner Withdrawals
• The debit and credit rules for recording owner

withdrawals are based on the effect of owner
withdrawals on owner’s equity.
Example Exercise Rules of Debit and Credit and Normal
Balances
State for each account whether it is likely to have (a) debit

entries only, (b) credit entries only, or (c) both debit and credit
entries. Also, indicate its normal balance.
1. Amber Saunders, Drawing 1. Debit entries only; normal debit
balance
2. Accounts Payable 2. Debit and credit entries; normal
credit balance
3. Cash 3. Debit and credit entries; normal
debit balance
4. Fees Earned 4. Credit entries only; normal credit
balance
5. Supplies 5. Debit and credit entries; normal
debit balance
6. Utilities Expense
6. Debit entries only; normal debit
balance
The Steps in the
Recording Process
Transaction Analysis
Determine which account is affected by the transaction.
Determine whether the account increases or decreases.
Determine whether the account should be debited or credited.
Record the transaction using journal entry.
Post the journal entries to the accounts in the ledger.
Prepare an unadjusted trial balance at the end of the period.

Journal entries
• Every transaction would first be recorded in a journal

• The process of recording a transaction in the journal is
called journalizing
• The entry in the journal is called a journal entry.
Journalizing
• A transaction is initially entered in a record called a journal.

• Transactions are recorded in the journal using the following
steps:
o Step 1. The date of the transaction is entered in the Date column.
o Step 2. The title of the account to be debited is recorded in the left-
hand margin under the Description column, and the amount to be
debited is entered in the Debit column.
o Step 3. The title of the account to be credited is listed below and to the
right of the debited account title, and the amount to be credited is
entered in the Credit column.
o Step 4. A brief description may be entered below the credited account.
o Step 5. The Post. Ref. (Posting Reference) column is left blank when
the journal entry is initially recorded. This column is used later when
the journal entry amounts are transferred to the accounts in the ledger.
Journalizing steps
1. Record the date.

2. Record the title of the account debited in the
Description column.
3. Enter the amount in the Debit column.
4. Record the title of the account credited in the
Description column.
5. Enter the amount in the Credit column.
Journalizing Transactions

Transaction
Transaction Date
Date 
Titles
Titles of
ofAffected
AffectedAccounts
Accounts
GENERAL JOURNAL G1
Da te De scription REF De bit Cre dit
2019
De c. 1 Ca sh 30,000
C. Ta ylor, Ca pita l 30,000
Investment b y owner
De c. 2 Supplie s 2,500
Ca sh 2,500
Purchased store supplies
for cash

Dollar
Dollar amount
amount of
of

Transaction
Transaction explanation
explanation debits
debits and
and credits
credits
Transaction A
• On November 1, Idris Ismail deposited RM25,000 in a bank

account in the name of NetSolutions.
Transaction Terminology and Related Journal
Entry Accounts
Transaction B
• On November 5, NetSolutions paid RM20,000 for the

purchase of land as a future building site.
Transaction C
• On November 10, NetSolutions purchased supplies

on account for RM1,350.
Transaction D
• On November 18, NetSolutions received cash of

RM7,500 from customers for services provided.
Transaction E
• On November 30, NetSolutions incurred the following expenses: wages, RM2,125;

rent, RM800; utilities, RM450; and miscellaneous, RM275.
Transaction F
• On November 30, NetSolutions paid creditors on

account, RM950.
Transaction G
• NetSolutions purchased RM1,350 of supplies on November 10. Idris Ismail

determined that the cost of supplies on hand at November 30 was RM550.
Transaction G
• NetSolutions purchased RM1,350 of supplies on November 10. Idris Ismail

determined that the cost of supplies on hand at November 30 was RM550.
Supplies used = RM1,350 – RM550 =

RM800
Transaction H
• On November 30, Idris Ismail withdrew RM2,000 from NetSolutions for

personal use.
Example Exercise Journal Entry for Asset Purchase
Prepare a journal entry for the purchase of a truck on

June 3 for RM42,500, paying RM8,500 cash and the
remainder on account.
Posting Journal Entries to Accounts (slide 1 of 3)
• The process of transferring the debits and credits

from the journal entries to the accounts is called
posting.
Posting Journal Entries
GE N E R AL JOU R N AL G 1
Da te De scription
GENER REF De bit Cre
G dit
GE N E R AL JOU R
RNAL
N AL 1
2006
Da te De scription REF De bit Cre
dit
De c.
2019 1 Ca sh 30.000
2006
De c. 1 Ca sh C. Ta ylor, Ca pita l 30,000 30.000
De c. 1 Ca sh 30.000
Inves tm ent
C. Tab y owner
C. Ta ylor,
ylor, Ca
Ca pita
pita ll 30,000
30.000
Inves tment
Inves tm ent bbyy owner
owner
De c. 2 S upplie s 2.500
De c. 2 Supplie Ca sh 2.500
De c. 2 S upplie s s 2,500
2.500
P urc hasCaed
shs tore s upplies 2,500
Ca sh 2.500
for
Purcc as h
P urc has
has ed
ed s
s tore
tore s
s upplies
upplies
for c
for c as
as h
h
2-1
POSTING TO THE LEDGER
Cash Capital
Dec 1 30,000 Dec 1 30,000

Balance Column Account
T-accounts are useful illustrations, but balance column

ledger accounts are used in practice (refer pp. 71)
CASH ACCOUNT No. 101
Date Description REF Debit Credit Balance

2019
Nov. 1 Investment by owner 30,000 30,000
Nov. 5 Purchased land 20,000 10,000
Nov. 18 Reveived fees from customer 7,500 17,500
Nov. 30 Paid expenses 3,650 13,850
GENER AL JOU RNAL G 1

2019
Nov. 1 Ca sh 101 30,000
Chris Cla rk, Ca pita l 30,000
Inves tment b y owner
Nov. 5 La nd 20,000
Ca sh 20,000
Purc has ed land
CASH ACCOUNT No. 101

2019
Nov. 1 Capital G1 30,000 30,000
CAPIT AL ACCOUNT No. 101

2019
Nov. 1 Cash G1 30,000 30,000
• On December 1, NetSolutions paid a premium of

RM2,400 for an insurance policy for liability, theft,
and fire. The policy covers a one-year period.
• The debits and credits for each journal entry are posted to the
accounts in the order in which they occur in the journal.
• The debit portion of the December 1 journal entry on the
previous slide is posted to the prepaid insurance account using
the following four steps:
o Step 1. The date (Dec. 1) of the transaction is entered in the Date
column of Prepaid Insurance and Cash.
o Step 2. The amount (2,400) is entered into the Debit column of Prepaid
Insurance and the amount (2,400) is entered into the Credit column of
Cash.
o Step 3. The journal page number (2) is entered in the Posting
Reference (Post. Ref.) column of Prepaid Insurance and Cash.
o Step 4. The account numbers (15) and (11) are entered in the Posting
Reference (Post. Ref.) column in the journal.
Diagram of the Recording and Posting of a
Debit and a Credit
POSTING JOURNAL ENTRIES
• EXAMPLES
Refer textbook pages 64-72
Transaction – Paid Rent
• On December 1, NetSolutions paid rent for December, RM800.

The company from which NetSolutions is renting its office
space now requires the payment of rent on the first of each
month, rather than at the end of the month.
Transaction – Purchased Office Equipment
• On December 4, NetSolutions purchased office

equipment on account from Executive Supply Co. for
RM1,800.
Transaction – Paid for Advertisement
• On December 6, NetSolutions paid RM180 for a

newspaper advertisement.
Transaction – Paid Creditors, Part 1
• On December 11, NetSolutions paid creditors

RM400.
Accounting Equation Impact

Assets = Liabilities + Owner’s Equity
decrease decrease
Transaction – Paid Wages, Part 1
• On December 13, NetSolutions paid a receptionist and a

part-time assistant RM950 for two weeks’ wages.

Assets = Liabilities + Owner’s Equity (Expense)
decrease increase
Transaction – Received Fees, Part 1
• On December 16, NetSolutions received RM3,100

from fees earned for the first half of December.

Assets = Liabilities + Owner’s Equity (Revenue)
increase increase
Transaction – Fees Earned on Account (slide 1 of 2)
• When a business agrees that a customer may pay for

services provided at a later date, an account
receivable is created.
• An account receivable is a claim against the customer.
• An account receivable is an asset, and the revenue is
earned even though no cash has been received.
Transaction – Fees Earned on Account (slide 2 of 2)
• Fees earned on account totaled RM1,750 for the first

half of December.

Assets = Liabilities + Owner’s Equity (Revenue)
increase increase
EXERCISE - Journal Entry for Fees Earned
Prepare a journal entry on August 7 for the

fees earned on account, RM115,000.
©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
Transaction – Paid Creditors, Part 2
• On December 20, NetSolutions paid RM900 to

Executive Supply Co. on the RM1,800 debt owed
from the December 4 transaction.
Transaction – Received Payment on Account
• On December 21, NetSolutions received RM650

from customers in payment of their accounts.
Transaction – Paid for Supplies
• On December 23, NetSolutions paid RM1,450 for

supplies.
Transaction – Paid Wages, Part 2
• On December 27, NetSolutions paid the receptionist

and the part-time assistant RM1,200 for two weeks’
wages.
Transaction – Paid Telephone Bill
• On December 31, NetSolutions paid its RM310

telephone bill for the month.
Transaction – Paid Electric Bill
• On December 31, NetSolutions paid its RM225

electric bill for the month.
Transaction – Received Fees, Part 2
• On December 31, NetSolutions received RM2,870

from fees earned for the second half of December.
Transaction – Fees Earned on Account
• On December 31, fees earned on account totaled

RM1,120 for the second half of December.
Transaction – Withdrew Cash
• On December 31, Idris Ismail withdrew RM2,000 for

personal use.
EXERCISE - Journal Entry for Owner’s Withdrawal
Prepare a journal entry on December 29 for

the payment of RM12,000 to the owner of
Smartstaff Consulting Services, Dominique
Walsh, for personal use.
part.
EXERCISE - Missing Amount from an Account
On March 1, the cash account balance was

RM22,350. During March, cash receipts
totaled RM241,880, and the March 31
balance was RM19,125. Determine the cash
payments made during March.
part.
Ledger Accounts for a Merchandising
Business (slide 1 of 3)
Trial Balance (slide 1 of 2)
• The equality of debits and credits in the ledger should

be proven at the end of each accounting period by
preparing a trial balance.
• The steps in preparing a trial balance are as follows:
o Step 1. List the name of the company, the title of the trial
balance, and the date the trial balance is prepared.
o Step 2. List the accounts from the ledger, and enter their
debit or credit balance in the Debit or Credit column of the
trial balance.
o Step 3. Total the Debit and Credit columns of the trial
balance.
o Step 4. Verify that the total of the Debit column equals the
total of the Credit column.
Trial Balance (slide 2 of 2)
• An unadjusted trial balance is distinguished from

an adjusted trial balance and a post-closing trial
balance. (The latter two are prepared in later chapters
and include additional information.)
Trial Balance
Errors Affecting the Trial Balance
• A transposition occurs when the order of the digits is

copied incorrectly, such as writing RM542 as RM452
or RM524.
• In a slide, the entire number is copied incorrectly one
or more spaces to the right or the left, such as writing
RM542.00 as RM54.20 or RM97.50 as RM975.00.
Example Exercise Trial Balance Errors (slide 1 of 2)
For each of the following errors, considered individually, indicate

whether the error would cause the trial balance totals to be
unequal. If the error would cause the trial balance totals to be
unequal, indicate whether the debit or credit total is higher and
by how much.
a. Payment of a cash withdrawal of RM5,600 was journalized
and posted as a debit of RM6,500 to Salary Expense and a
credit of RM6,500 to Cash.
b. A fee of RM2,850 earned from a client was debited to
Accounts Receivable for RM2,580 and credited to Fees
Earned for RM2,850.
c. A payment of RM3,500 to a creditor was posted as a debit of
RM3,500 to Accounts Payable and a debit of RM3,500 to
Cash.
part.
Example Exercise Trial Balance Errors (slide 2 of 2)
part.
Errors Not Affecting the Trial Balance (slide 1 of 2)
• Errors that do not cause the trial balance totals to be

unequal may be discovered when preparing the trial
balance or may be indicated by an unusual account
balance. For example, since a business cannot have
“negative” supplies, a credit balance in the supplies
account indicates an error has occurred.
• If an error has already been journalized and posted to
the ledger, a correcting journal entry is normally
prepared.
Errors Not Affecting the Trial Balance (slide 2 of 2)
• Assume that on May 5 a RM12,500 purchase of

office equipment on account was incorrectly
journalized and posted as a debit to Supplies and a
credit to Accounts Payable for RM12,500.
• The entry to correct the error is:
Example Exercise Correcting Entries (slide 1 of 2)
The following errors took place in journalizing and

posting transactions:
a. A withdrawal of RM6,000 by Cheri Ramey, owner of
the business, was recorded as a debit to Office
Salaries Expense and a credit to Cash.
b. Utilities Expense of RM4,500 paid for the current
month was recorded as a debit to Miscellaneous
Expense and a credit to Accounts Payable.
Journalize the entries to correct the errors. Omit
explanations.
part.
Example Exercise Correcting Entries (slide 1 of 2)
part.
Example Exercise 84
Self-study
*** Please refer to Illustrative Problem on page 77 and its

solutions on page 78
SELF-EXAMINATION QUESTIONS ON PAGE 80
...... Good Luck! 

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TOPIC

• LO1: Describe the characteristics of an account and a

• Accounting systems are designed to show the

Journal • Book of first entry

• Separate record showing increases

Chart of • A list of the accounts in a ledger

• An account is an individual accounting

Balance cash = 32,500 – 26,600

Ending balance on 30 Nov 2017 = 5,900

• A group of accounts for a business entity is called a

• The sum of the increases in an account is usually

• All businesses use what is called the double-entry

• The debit and credit rules for Statement of Financial

• The debit and credit rules for Statement of Profit or

• The debit and credit rules for recording owner

State for each account whether it is likely to have (a) debit

Determine which account is affected by the transaction.

Determine whether the account increases or decreases.

Determine whether the account should be debited or credited.

Record the transaction using journal entry.

Post the journal entries to the accounts in the ledger.

Prepare an unadjusted trial balance at the end of the period.

• Every transaction would first be recorded in a journal

• A transaction is initially entered in a record called a journal.

1. Record the date.

• On November 1, Idris Ismail deposited RM25,000 in a bank

• On November 5, NetSolutions paid RM20,000 for the

• On November 10, NetSolutions purchased supplies

• On November 18, NetSolutions received cash of

• On November 30, NetSolutions incurred the following expenses: wages, RM2,125;

• On November 30, NetSolutions paid creditors on

• NetSolutions purchased RM1,350 of supplies on November 10. Idris Ismail

• NetSolutions purchased RM1,350 of supplies on November 10. Idris Ismail

Supplies used = RM1,350 – RM550 =

• On November 30, Idris Ismail withdrew RM2,000 from NetSolutions for

Prepare a journal entry for the purchase of a truck on

• The process of transferring the debits and credits

Dec 1 30,000 Dec 1 30,000

T-accounts are useful illustrations, but balance column

CASH ACCOUNT No. 101

Date Description REF Debit Credit Balance

GENER AL JOU RNAL G 1

CASH ACCOUNT No. 101

CAPIT AL ACCOUNT No. 101

• On December 1, NetSolutions paid a premium of

Refer textbook pages 64-72

• On December 1, NetSolutions paid rent for December, RM800.

• On December 4, NetSolutions purchased office

• On December 6, NetSolutions paid RM180 for a

• On December 11, NetSolutions paid creditors

Accounting Equation Impact

• On December 13, NetSolutions paid a receptionist and a

Accounting Equation Impact

• On December 16, NetSolutions received RM3,100

Accounting Equation Impact

• When a business agrees that a customer may pay for

• Fees earned on account totaled RM1,750 for the first

Accounting Equation Impact

Prepare a journal entry on August 7 for the

• On December 20, NetSolutions paid RM900 to

• On December 21, NetSolutions received RM650

• On December 23, NetSolutions paid RM1,450 for

• On December 27, NetSolutions paid the receptionist

• On December 31, NetSolutions paid its RM310