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 Chapter 2

The Recording
Process
Financial Accounting, IFRS Edition
Weygandt Kimmel Kieso
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 Study
Study Objectives
Objectives
1. Explain what an account is and how it helps in the recording
process.
2. Define debits and credits and explain their use in recording
business transactions.
3. Identify the basic steps in the recording process.
4. Explain what a journal is and how it helps in the recording
process.
5. Explain what a ledger is and how it helps in the recording
process.
6. Explain what posting is and how it helps in the recording
process.
7. Prepare a trial balance and explain its purposes.
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2-3
 The
The Recording
Recording Process
Process

Steps in the The Recording

The Account Recording Process The Trial Balance
Process Illustrated

Debits and Journal Summary Limitations of a

credits Ledger illustration of trial balance
Debit and credit journalizing and Locating errors
Posting
procedure posting
Use of currency
Equity signs
relationships
Summary of
debit/credit
rules

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 The
The Account
Account
Record of increases and decreases in
Account a specific asset, liability, equity,
revenue, or expense item.
Debit = Left
Credit = Right

An Account can Account Name

be illustrated in a Debit / Dr. Credit / Cr.

T-Account form.

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2-5 SO 1 Explain what an account is and how it helps in the recording process.
 The
The Account
Account

Debits and Credits

Double-entry accounting system
Each transaction must affect two or more accounts to
keep the basic accounting equation in balance.

Recording done by debiting at least one account and

crediting another.

DEBITS must equal CREDITS.

Slide SO 2 Define debits and credits and explain their use

2-6 in recording business transactions.
 Debits
Debits and
and Credits
Credits

If Debits are greater than Credits, 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

Slide SO 2 Define debits and credits and explain their use

2-7 in recording business transactions.
 Debits
Debits and
and Credits
Credits

If Credits are greater than Debits, 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

Slide SO 2 Define debits and credits and explain their use

2-8 in recording business transactions.
 Debits
Debits and
and Credits
Credits Summary
Summary
Liabilities
Debit / Dr. Credit / Cr.
Normal
Normal Normal
Normal
Balance
Balance Balance
Balance
Debit
Debit Credit
Credit Normal Balance

Assets Chapter
3-24

Debit / Dr. Credit / Cr.

Normal Balance

Chapter

Expense
3-23

Revenue
Debit / Dr. Credit / Cr.
Debit / Dr. Credit / Cr.

Normal Balance
Normal Balance

Chapter
3-27 Chapter
3-26

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2-9 SO 2
 Debits
Debits and
and Credits
Credits Summary
Summary
Balance Sheet Income Statement
Asset = Liability + Equity Revenue - Expense

Debit

Credit

Slide SO 2 Define debits and credits and explain their use

2-10 in recording business transactions.
 Debits
Debits and
and Credits
Credits Summary
Summary

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.

Slide
Solution SO 2 Define debits and credits and explain their use
notes page in recording business transactions.
2-11
 Assets
Assets and
and Liabilities
Liabilities

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

Slide SO 2 Define debits and credits and explain their use

2-12 in recording business transactions.
 Equity
Equity Relationships
Relationships
Issuance of share capital and
revenues increase equity
(credit).

Dividends and expenses

decrease equity (debit).

Slide SO 2 Define debits and credits and explain their use

2-13 in recording business transactions.
 Revenue
Revenue and
and Expense
Expense

Revenue The purpose of earning

Debit / Dr. Credit / Cr.
revenues is to benefit the
shareholders.

The effect of debits and credits

Normal Balance

Chapter
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on revenue accounts is the same
as their effect on equity.
Expense
Debit / Dr. Credit / Cr. Expenses have the opposite
effect: expenses decrease equity.

Normal Balance

Chapter
3-27

Slide SO 2 Define debits and credits and explain their use

2-14 in recording business transactions.
 Summary
Summary of
of Debit/Credit
Debit/Credit Rules
Rules

Relationship among the assets, liabilities and equity

of a business:

Illustration 2-12

The equation must be in balance after every transaction. For

every Debit there must be a Credit.

Slide SO 2 Define debits and credits and explain their use

2-15 in recording business transactions.
 Summary
Summary of
of Debit/Credit
Debit/Credit Rules
Rules

Review Question
Accounts that normally have debit balances are:
a. assets, expenses, and revenues.
b. assets, expenses, and retained earnings.
c. assets, liabilities, and dividends.
d. assets, dividends, and expenses.

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Solution SO 2 Define debits and credits and explain their use
notes page in recording business transactions.
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 Summary
Summary of
of Debit/Credit
Debit/Credit Rules
Rules
Kathy Renee Browne, president of Hair It Is
Company has just rented space in a shopping
mall in which she will open and operate a beauty salon. A friend
has advised Kathy to set up a double-entry set of accounting
records in which to record all of her business transactions.
Following are the accounts that Hair It Is Company, will likely
need to record the transactions. Indicate whether the normal
balance of each account is a debit or a credit.

Cash Debit Equipment Debit

Supplies Debit Accounts payable Credit
Notes payable Credit Share capital Credit

Slide
Solution on SO 2 Define debits and credits and explain their use
notes page in recording business transactions.
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 Steps
Steps in
in the
the Recording
Recording Process
Process
Illustration 2-13

Transfer journal information to

Analyze each transaction Enter transaction in a journal
ledger accounts

Business documents, such as a sales slip, a check, a bill, or

a cash register tape, provide evidence of the transaction.

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2-18 SO 3 Identify the basic steps in the recording process.
 Steps
Steps in
in the
the Recording
Recording Process
Process
Journalizing
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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2-19 SO 4 Explain what a journal is and how it helps in the recording process.
 Steps
Steps in
in the
the Recording
Recording Process
Process
Journalizing - Entering transaction data in the journal.
Illustration: On September 1, stockholders invested $15,000
cash in exchange for ordinary shares, and Softbyte
purchased computer equipment for $7,000 cash.
Illustration 2-14

General Journal

Sept. 1 Cash 15,000

Share capital 15,000

Computer equipment 7,000

Cash 7,000
Slide Solution on
2-20 notes page
SO 4
 Steps
Steps in
in the
the Recording
Recording Process
Process
Simple and Compound Entries
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.
Illustration 2-15

General Journal

Sept. 1 Delivery equipment 14,000

Cash 8,000
Accounts payable 6,000

Slide Solution on
2-21 notes page
SO 4
 Steps
Steps in
in the
the Recording
Recording Process
Process
The Ledger
General Ledger
All accounts maintained by a company.
All asset, liability, equity, revenue and expense accounts.

Illustration 2-16

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SO 5 Explain what a ledger is and how it helps in the recording process.
 Answer on
notes page

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SO 5 Explain what a ledger is and how it helps in the recording process.
 The
The Ledger
Ledger
Standard Form of Account
T-account form used in accounting textbooks.
Ledger form used in practice.
Illustration 2-17

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SO 5 Explain what a ledger is and how it helps in the recording process.
 The
The Ledger
Ledger
Chart of Accounts
Illustration 2-18

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2-25 SO 5 Explain what a ledger is and how it helps in the recording process.
 Posting
Posting

Posting the
process of
transferring
amounts from
the journal to
the ledger
accounts.

Illustration 2-19

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2-26 SO 6 Explain what posting is and how it helps in the recording process.
 The
The Recording
Recording Process
Process Illustrated
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.

Illustration 2-20
Slide
2-27 SO 6 Explain what posting is and how it helps in the recording process.
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-21

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2-28 SO 6 Explain what posting is and how it helps in the recording process.
 The
The Recording
Recording Process
Process Illustrated
Illustrated
Illustration 2-22

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 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-23

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 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-24

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 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-25

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 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-26

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2-33 SO 6 Explain what posting is and how it helps in the recording process.
 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-27

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 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-28

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 The
The Recording
Recording Process
Process Illustrated
Illustrated

Illustration 2-29

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2-36 SO 6
 Posting
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.

Solution on
notes page

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2-37 SO 6 Explain what posting is and how it helps in the recording process.
 The
The Recording
Recording Process
Process Illustrated
Illustrated
Katherine Turner recorded the following
transactions during the month of March.

Post these entries to the Cash account.

Solution on
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2-38 notes page SO 6
 The
The Trial
Trial Balance
Balance
Illustration 2-32

A list of accounts
and their
balances at a
given time.

Purpose is to
prove that debits
equal credits.

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2-39 SO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance

Limitations of a Trial Balance

The 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, or
5. offsetting errors are made in recording the amount
of a transaction.

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2-40 SO 7 Prepare a trial balance and explain its purposes.
 Answer on
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2-41 notes page SO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance

The accounts
come from the
ledger of Christel Corporation
Trial Balance (in thousands)
Christel December 31, 2011

Corporation at
December 31,
2011.

Solution on
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2-42 notes page SO 7
 Understanding
Understanding U.S.
U.S. GAAP
GAAP

Key Differences The Recording Process

Rules for accounting for specific events sometimes differ
across countries. For example, IFRS companies rely less on
historical cost and more on fair value than U.S. companies.
Despite the differences, the double-entry accounting system is
the basis of accounting systems worldwide.
Both the IASB and 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
Understanding U.S. GAAP section.

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 Understanding
Understanding U.S.
U.S. GAAP
GAAP

Key Differences The Recording Process

A trial balance under GAAP follows the same format as shown
in the textbook.
In the United States, equity is often referred to as either
shareholders equity or stockholders equity, and Share Capital
Ordinary is referred to as Common Stock. The statement of
financial position is often called the balance sheet in the United
States.

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 Understanding
Understanding U.S.
U.S. GAAP
GAAP

Looking to the Future The Recording Process

The basic recording process shown in this textbook is followed by
companies across the globe. It is unlikely to change in the future.
The definitional structure of assets, liabilities, equity, revenues,
and expenses may change over time as the IASB and FASB
evaluate their overall conceptual framework for establishing
accounting standards.

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 Copyright
Copyright

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programs or from the use of the information contained herein.

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