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Analyzing and
Recording
Transactions
Chapter
2-1
Study Objectives
Chapter
2-3
The Account
Chapter
2-4 SO 1 Explain what an account is and how it helps in the recording process.
Debits and Credits
Account Name
Debit / Dr. Credit / Cr.
Balance $15,000
Account Name
Debit / Dr. Credit / Cr.
Balance $1,000
Normal Normal
Debit / Dr. Credit / Cr.
Balance Balance
Debit Credit Normal Balance
Assets Chapter
Owner’s Equity
3-24
Normal Balance
Normal Balance
Chapter
Expense
3-23
Revenue
Chapter
3-25
Normal Balance
Normal Balance
Chapter
3-27 Chapter
3-26
Chapter
2-8 SO 2
Debits and Credits Summary
Debit
Credit
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.
Discussion Question
Q2-4. Maria Alvarez, a beginning accounting
student, believes debit balances are favorable
and credit balances are unfavorable. Is Maria
correct? Discuss.
Assets
Debit / Dr. Credit / Cr.
Assets - Debits should
exceed credits.
Normal Balance
Chapter
3-23
Liabilities – Credits
should exceed debits.
Liabilities
Debit / Dr. Credit / Cr.
The normal balance is on
the increase side.
Normal Balance
Chapter
3-24
Chapter Chapter
3-25 3-23
owner(s).
Normal Balance
Expense
is the same as their effect
Debit / Dr. Credit / Cr. on Owner’s Capital.
Expenses have the opposite
Normal Balance
effect: expenses decrease
Chapter
3-27
owner’s equity.
Chapter SO 2 Define debits and credits and explain their
2-14
use in recording business transactions.
Debits and Credits Summary
Review Question
Accounts that normally have debit balances are:
a. assets, expenses, and revenues.
b. assets, expenses, and owner’s capital.
c. assets, liabilities, and owner’s drawings.
d. assets, owner’s drawings, and expenses.
Expanded
Basic
Equation
Illustration 2-12
Chapter
2-17 SO 3 Identify the basic steps in the recording process.
The Journal
Chapter
2-18 SO 4 Explain what a journal is and how it helps in the recording process.
Journalizing
General Journal
Date Account Title Ref. Debit Credit
Oct. 1 Cash 15,000
Hanshew, capital 15,000
(Owner’s investment)
Chapter
2-20 SO 4 Explain what a journal is and how it helps in the recording process.
Journalizing
General Journal
Date Account Title Ref. Debit Credit
Oct. 3 Office furniture 1,900
Accounts payable 1,900
(Purchase on account)
Chapter
2-21 SO 4 Explain what a journal is and how it helps in the recording process.
Journalizing
General Journal
Date Account Title Ref. Debit Credit
Oct. 6 Accounts receivable 3,200
Service revenue 3,200
(Services provided)
Chapter
2-22 SO 4 Explain what a journal is and how it helps in the recording process.
Journalizing
General Journal
Date Account Title Ref. Debit Credit
Oct. 27 Accounts payable 700
Cash 700
(Payment on account)
Chapter
2-23 SO 4 Explain what a journal is and how it helps in the recording process.
Journalizing
General Journal
Date Account Title Ref. Debit Credit
Oct. 30 Salaries expense 2,500
Cash 2,500
(Payment for salaries)
Chapter
2-24 SO 4 Explain what a journal is and how it helps in the recording process.
Journalizing
General Journal
Date Account Title Ref. Debit Credit
Jun. 15 Equipment 15,000
Cash 10,000
Accounts payable 5,000
(Purchase equipment)
Chapter
2-25 SO 4 Explain what a journal is and how it helps in the recording process.
The Ledger
Chapter
2-26 SO 5 Explain what a ledger is and how it helps in the recording process.
Chart of Accounts
Accounts and account numbers arranged in sequence in
which they are presented in the financial statements.
Liabilities Expenses
200 Accounts payable 631 Advertising supplies expense
201 Notes payable 711 Depreciation expense
209 Unearned revenue 722 Insurance expense
212 Salaries payable 726 Salaries expense
230 Interest payable 729 Rent expense
905 Interest expense
Chapter
2-27 SO 6 Explain what posting is and how it helps in the recording process.
Standard Form of Account
Chapter
2-28 SO 5 Explain what a ledger is and how it helps in the recording process.
Chapter
2-29 SO 5 Explain what a ledger is and how it helps in the recording process.
Posting
Posting – the process of transferring amounts from the
journal to the ledger accounts.
General Journal J1
Date Account Title Ref. Debit Credit
Oct. 1 Cash 101 15,000
Hanshew, Capital 15,000
(Owner's investment in business)
General Ledger
Cash Acct. No. 101
Date Explanation Ref. Debit Credit Balance
Oct. 1 J1 15,000 15,000
Chapter
2-30 SO 6 Explain what posting is and how it helps in the recording process.
J1
Posting
101
E2-5 300
General Ledger
Cash Acct. No. 101
Date Explanation Ref. Debit Credit Balance
Oct. 1 J1 15,000 15,000
General Ledger
Hanshew, capital Acct. No. 300
Date Explanation Ref. Debit Credit Balance
Oct. 1 J1 15,000 15,000
Chapter
2-31 SO 6 Explain what posting is and how it helps in the recording process.
J1
Posting
140
E2-5 200
General Ledger
Office Furniture Acct. No. 140
Date Explanation Ref. Debit Credit Balance
Oct. 3 J1 1,900 1,900
General Ledger
Accounts Payable Acct. No. 200
Date Explanation Ref. Debit Credit Balance
Oct. 3 J1 1,900 1,900
Chapter
2-32 SO 6 Explain what posting is and how it helps in the recording process.
J1
Posting
112
E2-5 400
General Ledger
Accounts Receivable Acct. No. 112
Date Explanation Ref. Debit Credit Balance
Oct. 6 J1 3,200 3,200
General Ledger
Service Revenue Acct. No. 400
Date Explanation Ref. Debit Credit Balance
Oct. 6 J1 3,200 3,200
Chapter
2-33 SO 6 Explain what posting is and how it helps in the recording process.
J1
Posting
200
E2-5 101
General Ledger
Cash Acct. No. 101
Date Explanation Ref. Debit Credit Balance
Oct. 1 J1 15,000 15,000
Oct.27 J1 700 14,300
General Ledger
Accounts Payable Acct. No. 200
Date Explanation Ref. Debit Credit Balance
Oct. 3 J1 1,900 1,900
Oct.27 J1 700 1,200
Chapter
2-34 SO 6 Explain what posting is and how it helps in the recording process.
J1
Posting
726
E2-5 101
General Ledger
Cash Acct. No. 101
Date Explanation Ref. Debit Credit Balance
Oct. 1 J1 15,000 15,000
Oct.27 J1 700 14,300
Oct.30 J1 2,500 11,800
General Ledger
Salaries Expense Acct. No. 726
Date Explanation Ref. Debit Credit Balance
Oct.30 J1 2,500 2,500
Chapter
2-35 SO 6 Explain what posting is and how it helps in the recording process.
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.
Chapter
2-36 SO 6 Explain what posting is and how it helps in the recording process.
The Recording Process Illustrated
Illustration 2-19
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.
Chapter
2-37 LO 6 Explain what posting is and how it helps in the recording process.
The Trial Balance
equal credits.
Accounts receivable 3,200
Office furniture 1,900
Accounts payable $ 1,200
Hanshew, Capital 15,000
Service revenue 3,200
Salaries expense 2,500
$ 19,400 $ 19,400
Chapter
2-38 LO 7 Prepare a trial balance and explain its purposes.
The Trial Balance
Chapter
2-39 LO 7 Prepare a trial balance and explain its purposes.
The 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.
Chapter
2-40 LO 7 Prepare a trial balance and explain its purposes.
Recording Process
Discussion Question
Q2-19. Jim Benes is confused about how accounting
information flows through the accounting system. He
believes the flow of information is as follows.
a. Debits and credits posted to the ledger.
b. Business transaction occurs.
c. Information entered in the journal.
d. Financial statements are prepared.
e. Trial balance is prepared.
Is Jim correct? If not, indicate to Jim the proper flow
of the information.
See notes page for discussion
Chapter
2-41 LO 7 Prepare a trial balance and explain its purposes.
Chapter
2-42 LO 7 Prepare a trial balance and explain its purposes.
Debt Ratio
o Describes the relationship between the
amounts of the company’s liabilities and
assets.
Total Liabilities
Debt Ratio =
Total Assets
o Helps to assess the risk that a company will
fail to pay its debts.
Chapter
2-43