Chapter 3

The Recording Process

Reference Book:
Weygandt Kimmel Keiso (9th Edition)
 Chapter Objective
 Explain what an account?
 Define debits and credits .
 Identify the basic steps in recording process.
 What is a journal and & how it is prepared?
 What is a ledger and & how it is prepared?
 What is a chart of accounts?
 Trial balance.
 What is an Account?
An individual accounting record of
increase & decrease in a specific asset,
liability or owners equity item. An account
consists of three parts:

1. The title of the account.

2. A left or debit side.
3. Right or credit side.
 Format of An Account

Title of Account
Dr. Cr.

Debit balance Credit balance

 Debit and Credit
Debit:
Entering an amount on the left side of an
account is called debiting the account. When the
total of the two sides compared, an account will
have a debit balance if the total of the debit
amount exceeds the credits.
 Example of Debit Balance
Cash Account ( T)
Dr. Cr.
15,000 7,000
1,200 1,700
1,500 250
600 1,300

18,300 18,300
Balance 8050
Credit :

Entering an amount on the right side of an

account is called crediting the account. When
the total of the two sides compared, an account
will have a credit balance if the total of the
credit amount exceeds the debits.
 Example of Credit Balance

Accounts Payable
Dr. Cr.
7,000 15,000
1,700 1,200
250 1,500
1,300 600

18,300 18,300
Credit balance 8050
 Debit and Credit Procedure
Fundamentals of Double Entry systems
For each transaction debits must equal credits in
the accounts. The equality of debits and credits
provides the basis for the double entry systems
of recording transactions.

Under the double entry system the dual (two-

sided) effect of each transaction is recorded in
appropriate accounts.
Debit and Credit Effect
Assets
Debit for increase Credit for decrease

Normal Balance

Liability
Debits for decreases Credits for increases

Normal Balance
 Owners Capital

Debit for decrease Credit for increase

Normal balance

Owners Drawing
Debit for increase Credit for decrease
Normal balance
 Revenues
Debit for decrease Credit for increase
Normal Balance

Expenses
Debit for increase Credit for decrease
Normal Balance
 Steps in Recording Process
The basic steps in recording process are:
1.Analyze each transaction for its effects.

2.Enter the transaction information in a journal

(book of original entry) .

3.Tranfer the journal information to the

appropriate accounts in the ledger.
 Journal
Transactions are initially recorded in chronological
orders in journals. Journal has several significance in the
recording process:

 Disclose complete effect of a transaction.

 Provides a chronological record
 To prevent or locate errors because the debit and
credit amounts for each entry can be readily compared.
 Ledger
Ledger:
The entire group of accounts maintained by a company
called the ledger. The ledger keeps in one place all the
information about changes in specific account balances.

Posting:
The procedure of transferring journal entries
Ledger is called posting.
 Trial Balance
 A trial balance is a list of accounts and their
balances at a given time. A trial balance is
prepared at the end of an accounting period.
The primary purpose of a trial balance is to
prove that the debits equal credits after posting.
 From the following transactions prepare-
1. Journal
2. Ledger
3. Trial Balance.

On October 1, C.R Byrd invests $10,000 cash in

an advertising agency called Pioneer
advertising agency.
 On October1, 2010 Pioneer purchases office
equipment costing $5000 by signing a 3 months,
12% note payable.
 On October 2, Pioneer receives a $1200 cash
advance from R. Knox, a client, for advertising
services that are expected to be completed by
December 31.
 On October 3, Pioneer pays office rent for
October in Cash $900.
 On October 4, Pioneer pays $600 for a one
year insurance policy that will expire next year
on September 30.
 On October 5, Pioneer purchases an estimated
3 months supply of advertising materials on
account from Aero Supply for $2500.
 On October 9, Pioneer hires four employees to
begin work on October 15. Each employee is to
receive a weekly salary of $500 for a five day
work week, payable every 2 weeks- First
payment made on October 26.
 On October 20, C.R Byrd withdraws $500 cash
for personal use.
 On October 26, Pioneer paid employee salaries
of $4000 in cash.
 On October 31, Pioneer receives $10,000 in
cash from a company for advertising services
provided in October.
 Instruction:
a. Give Journal entry from the above
transaction.
b. Prepare Ledger Accounts.
c. Prepare a Trial Balance at October 31,
2010.