Accounting Principles

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CHAPTER 2 THE RECORDING
PROCESS
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BASIC ACCOUNTING EQUATION--REVIEW
Assets
Owners Equity
Liability

• Owners Equity
• Plus Capital/Investment by owners
• Minus Drawings (dividends) by owners
• Plus Revenues
• Minus Expenses
• BUT Revenues and expenses are reported
  separately in the Income Statement

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HOW TO RECORD TRANSACTIONS

• Now the big question How in the world are we
  going to keep track of all this stuff?
• Answer - F. Pacioli and double entry accounting
• What is a debit?
• What is a credit?
• T Accounts

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THE ACCOUNT

• An account is an individual accounting record of
  increases and decreases in a specific asset,
  liability, owners equity, revenue or expense
  item.
• A company will have separate accounts for such
  items as cash, salaries expense, accounts
  payable, sales, payroll, etc.
• All accounts listed together is a chart of
  accounts.

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BASIC FORM OF ACCOUNT
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DEBITING AND CREDITING AN ACCOUNT

• Example Cash is debited for 15,000 and
  credited for 7,000, leaving a debit balance of
  8,000.

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DOUBLE-ENTRY SYSTEM

• In a double-entry system, equal debits and
  credits are made in the accounts for each
  transaction.
• Total debits should always equal total credits
  and the accounting equation will always stay in
  balance.
• Assets Liabilities Equity

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OVERVIEW OF ALL ACCOUNTS NORMAL BALANCES
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STEPS IN THE RECORDING PROCESS

• Basic steps in the recording process are
• Analyze each transaction for its effect on the
  accounts.
• Record transaction information in a journal
  (book of original entry).
• Post transactions from the journal to
  appropriate accounts in the general ledger

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JOURNALIZING

• Entering transaction data in the journal is known
  as journalizing.
• Separate entries are made for each transaction.
• A complete entry consists of
• Date of the transaction,
• Accounts and amounts to be debited and
  credited, and
• Brief explanation

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ILLUSTRATION OF JOURNALIZING
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THE GENERAL LEDGER

• An individual account is called a ledger.
• A general ledger contains all the assets,
  liabilities, and owners equity accounts.

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CHART OF ACCOUNTS

• Chart of Accounts - listing of all of the
  organizations ledger accounts in numerical order
• 1000--Assets
• 2000--Liabilities
• 3000--Owners Equity
• 4000--Revenues
• 5000--Expenses

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RECORDING A JOURNAL ENTRY
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POSTING A JOURNAL ENTRY
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THE TRIAL BALANCE

• A trial balance is a list of accounts and their
  balances at a given time.
• Purpose of a trial balance is to prove that
  debits equal credits after posting the general
  ledger.
• If the debits and credits do not agree, the trial
  balance can be used to uncover errors in
  journalizing and posting.

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SAMPLE TRIAL BALANCE

• The total debits must equal the total credits.

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LIMITATIONS OF A TRIAL BALANCE

• A trial balance does not prove that all
  transactions have been recorded or that the
  ledger is correct.
• Numerous errors may exist even though the trial
  balance columns agree.
• The trial balance may balance even when
• a transaction is not journalized,
• a correct journal entry is not posted,
• a journal entry is posted twice,
• incorrect accounts are used in journalizing or
  posting
• offsetting errors are made in recording the
  amount of the transaction.

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HANDOUT PROBLEM CH 2Bablad Brokerage Services

• Prepare JEs
• Post to T Accounts
• Prepare a Trial Balance
• Prepare the basic F/S