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CHAPTER 2
The Recording Process
LEARNING OBJECTIVES
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.
THE RECORDING PROCESS.
THE RECORDING PROCESS.
RECORDING PROCESS.
7. PREPARE A TRIAL BALANCE AND EXPLAIN ITS
PURPOSES.
CHAPTER REVIEW
The Account
1. (L.O. 1) An account is an individual accounting record of increases and decreases in a specific
asset, liability, or stockholders’ equity item.
2. In its simplest form, an account consists of (a) the title of the account, (b) a left or debit side, and (c) a
form is called a T-account.
Debits and Credits
3. (L.O. 2) The terms debit and credit mean left and right, respectively.
is true, the account has a credit balance.
4. In a double-entry system, equal debits and credits are made in the accounts for each transaction.
5. The effects of debits and credits on assets and liabilities and the normal balances are:
Accounts Debits Credits Normal Balance
Assets Increase Decrease Debit
Liabilities Decrease Increase Credit
6. Accounts are kept for each of the five subdivisions of stockholders’ equity: Common Stock, Retained
Earnings, Dividends, Revenues, and Expenses.
7. The effects of debits and credits on the stockholders’ equity accounts and the normal balances are:
Accounts Debits Credits Normal Balance
Common Stock Decrease Increase Credit
Retained Earnings Decrease Increase Credit
Dividends Increase Decrease Debit
Revenues Decrease Increase Credit
Expenses Increase Decrease Debit
8. The expanded basic equation is:
The Recording Process
9. (L.O. 3) The basic steps in the recording process are:
a. Analyze each transaction for its effect on the accounts.
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The Journal
11. The journal makes several significant contributions to the recording process:
readily compared.
12. Entering transaction data in the journal is known as journalizing. When three or more accounts are
The Ledger
13. (L.O. 5) The ledger is the entire group of accounts maintained by a company. It keeps in one place
management.
14. The standard form of a ledger account has three columns and the balance in the account is
determined after each transaction.
15. (L.O. 6) Posting is the procedure of transferring journal entries to the ledger accounts. The following
steps are used in posting:
posted.
c. Perform the same steps in a. and b. for the credit amount.
The Chart of Accounts
16. A chart of accounts is a listing of the accounts and the account numbers which identify their location
the income statement accounts.
The Basic Steps
17. The basic steps in the recording process are illustrated as follows:
Transaction On September 4, Fesmire Inc. pays $3,000 cash to a creditor in full payment of the
balance due.
decreased $3,000.
Debit-credit Debits decrease liabilities: debit Accounts Payable $3,000.
analysis Credits decrease assets: credit Cash $3,000.
Journal
entry
Sept. 4
Accounts Payable
Cash
(Paid creditor
in full)
201
101
3,000
3,000
Cash 1
Accounts Payable 201
Sept. 4 3,000
Sept. 4 3,000
The Trial Balance
18. (L.O. 7) A trial balance is a list of accounts and their balances at a given time. The trial balance
19. A trial balance does not prove that the company has recorded all transactions or that the ledger is
correct because the trial balance may still balance when
a. a transaction is not journalized.
c. an entry is posted twice.
d. incorrect accounts are used in journalizing or posting.
e. offsetting errors are made in recording the amount of a transaction.
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LECTURE OUTLINE
A. The Account.
asset, liability, or stockholders’ equity item.
An account consists of three parts:
1. A title.
2. A left or debit side.
3. A right or credit side.
B. Debits and Credits.
indicates right.
1. Assets, dividends, and expenses are increased by debits and decreased by
credits.
credits and decreased by debits.
C. Steps in the Recording Process.
D. The General Journal/Journalizing.
Entering transaction data in the general journal is called journalizing.
The general journal:
2. Provides a chronological record of transactions.
3. Helps to prevent or locate errors because the debit and credit amounts for
each entry can be easily compared.
4. A simple journal entry involves only two accounts (one debit and one credit)
whereas a compound journal entry involves three or more accounts.
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E. The Ledger.
track of changes in these balances.
2. Companies arrange the ledger in the sequence in which they present the
accounts in the financial statements, beginning with the balance sheet
accounts.
F. Posting/Chart of Accounts.
2. Posting involves the following steps:
a. In the ledger, in the appropriate columns of the account(s) debited,
enter the date, journal page, and debit amount shown in the journal.
which the debit amount was posted.
c. In the ledger, in the appropriate columns of the account(s) credited,
enter the date, journal page, and credit amount shown in the journal.
which the credit amount was posted.
3. A chart of accounts lists the accounts and the account numbers that identify
their location in the ledger. Accounts are usually numbered starting with the