CH.

2
The Recording Process

Chapter
2-1
Steps in the Recording Process
Illustration 2-12

Transfer journal information

Analyze each transaction Enter transaction in a journal to ledger accounts

Chapter
2-2
 Economic Events
documented
Documents
recorded
General Journal
(Journal Entries)
posting
Ledger (T-Account)
prepare
Trial Balance

Chapter
Financial Statements
2-3
 The Accounts

To keep a company's financial data

organized, accountants developed
a system that sorts transactions into
accounts.

Chapter
2-4
 The Account
Title of Account
(Dr.) (Cr.)

Debit Side Credit Side

Left side Right side

Chapter
2-5
•The balance of an account is the difference between the total
amount recorded on both sides.

•If Debit side is greater than Credit side,

the account will have a Debit balance.

•If Credit side is greater than Debit side,

the account will have a Credit balance.
Chapter
2-6
Chart of accounts:
•The chart of accounts is a listing of all accounts used
in the general ledger of an organization.

•Within the chart of accounts you will find that the

accounts are typically listed in the following order

Chapter
2-7
 The Double-Entry System

Because every business transaction

affects at least two accounts, our
accounting system is known as a
double-entry system.

Chapter
2-8
For example,
If a company pays the rent for the
current month:
Rent Expense and Cash are affected.

If a company provides a service and

gives the client 30 days in which to pay:
Revenues and Accounts Receivable are
affected.
Chapter
2-9
After you have identified the two accounts
involved in a business transaction,

you must Debit at least one account and Credit

at least one account.

To debit an account means to enter an amount

on the left side of the account.

To credit an account means to enter an

amount on the right side of an account.
Chapter
2-10
In the Double-Entry System:
The total amount of the DEBITS must
equal the total amount of the CREDITS.
The question now is:
Which account is Debit and which one
is Credit???
Chapter
2-11
 The Debit and Credit Rules

Chapter
2-12
 Assets = Liabilities + Owner’s equity
Normal Balance

Debit Credit Credit

(Dr.) (Cr.) (Cr.)

+ - + - + -
Dr. Cr. Cr. Dr. Cr. Dr.

Chapter
2-13
 Owner’s equity accounts
Owner’s capital Revenues Expenses Drawings
Normal Balance

Credit Credit Debit Debit

Cr. Cr. Dr. Dr.

+ - + - + -
Cr. Dr. Cr. Dr. Dr. Cr.

Chapter
2-14
Normal Balances of the Accounts:

Assets Liabilities

Drawings Debit Capital Credit

Expenses Revenue

Dead Clic
Chapter
2-15
Q1:
For each of the following accounts indicate
the normal balance:
1. Salary expense.
2. Accounts receivable.
3. Service revenue.
4. Smith, Capital.
5. Smith, Drawing.
6. Equipment.
7. Accounts payable.
8. Cash
Chapter
2-16
Q2:For the accounts listed below, indicate if the
normal balance of the account is a debit or credit.
Normal Balance
Accounts Debit or Credit
1. Service Revenue
2. Rent Expense
3. Accounts Receivable
4. Accounts Payable
5. Owner’s Capital
6. Supplies
7. Insurance Expense
8. Owner’s Drawings
9. Buildings
10.Notes Payable
Chapter
2-17
Q3:
For each of the following accounts indicate
the effect of increase (+) or decrease (-)
Normal balance Increase(+) Decrease(-)
_______ _______ ______
1. Salary expense.
_______ _______ ______
2. Accounts receivable.
3. Service revenue. _______ _______ ______
4. Smith, Capital. _ _______ ______ ______
5. Smith, Drawing. _______ _______ ______
6. Equipment. _______ _______ _______
7. Accounts payable. _______ _______ _______
8. Cash _______ _______ _______
Chapter
2-18
Q4:
For each of the following transactions of Mayar Inc.,
identify the account to be debited and the account to be
credited:
1. Invested $10,000 cash in business.
2. Purchased used car for $ 4,000 cash for use in business.
3. Purchased supplies on account for $ 500.
4. Billed customers $ 2,100 for services performed.
5.Paid $ 350 cash for advertising.
6. Received $ 700 cash from customers billed in no.(4).
7. Paid creditor $ 300 cash on balance owed.
8.Withdrew $ 1,000 cash for personal use by owner.
Chapter
2-19
 Transaction Debit Credit

1. Cash Capital
2.
3.
4.
5.

Chapter
2-20
 Journalizing
A journal entry is used to record each transaction.
The journal entry consists of:
1- The date of the transaction.
2- The accounts and amounts to be debited and
credited.
3- A brief explanation of the transaction.

Chapter
2-21
 For Example
Oct. 1 Ahmed begins business with a cash investment
of $15,000. What is the journal entry?

Chapter
2-22
The journal entry:
Date Account & Explanation .Ref .Dr .Cr
Oct. 1 Cash 15,000
Ahmed Capital 15,000
)Owner’s investment(

Chapter
2-23
 Oct. 3 Purchases office furniture for $1,900,
on account. What is the journal entry?

Chapter
2-24
The journal entry:
Date Account & Explanation .Ref .Dr .Cr
Oct. 2 Office furniture 1,900
Accounts payable 1,900
)Purchases furniture(

Chapter
2-25
Oct. 30 Pays $2,500 salary for Oct.
What is the journal entry?

Chapter
2-26
The journal entry:
Date Account & Explanation .Ref .Dr .Cr
Oct. Salary Expense 2,500
30 Cash 2,500
)Payment of Salaries(

Chapter
2-27
 Q5:
Journalize the following transactions for Tanaka
Company for June 2016, the company’s first month of
operations. You may omit explanations for the
transactions.
1. Purchased equipment on account for $9,800.
2. Billed customers $5,600 for services performed.
3. Made payment of $2,400 on account for equipment

purchased earlier in month.

4. Collected $3,900 on customer accounts.

Chapter
2-28
 Solution
1. Equipment 9,800
Accounts Payable 9,800

2. Accounts Receivable 5,600

Service Revenue 5,600

3. Accounts Payable 2,400

Cash 2,400

4. Cash 3,900
Chapter
2-29
Accounts Receivable 3,900
Q6:
Journalize the following business transactions in general
journal
1)Ali invested $20,000 cash to start business.
2)Hired an employee to be paid $400 per week, starting
tomorrow
3)Paid $7,200 for rent
4)Paid the worker’s weekly wage.
5)Recorded revenue earned and received for the week,
$1,500.
6)Borrowed $5,000 from the bank by signing a note.
7)Paid $3,100 cash for a computer.
8)Withdrew $750 cash for personal use.
Chapter
2-30
 Post the transactions to T accounts.
Posting:
the process of transferring amounts from the
general journal to the general ledger.

Contains all the company accounts

Chapter
2-31
Q7:
The transactions of the Litehouse Realty are recorded in the
general journal below. You are to post the journal entries to T-
accounts.
General Journal
Date Account Titles Debit Credit

Aug.5 Accounts Receivable 4,600

Service Revenue 4,600

10 Cash 3,200
Service Revenue 3,200

19 Rent Expense 1,300

Cash 1,300

25 Cash
1,500
Accounts Receivable 1,500
Chapter
2-32
 General Ledger
Cash Accounts Receivable

Service Revenue Rent Expense

Chapter
2-33
Prepare a trial balance at the end of the
accounting period
A list of accounts and their balances at a
given time.

Purpose is to prove that debits equal credits.

Chapter
2-34
Q8:
Prepare a trial balance from the ledger accounts of Black
Diamond Express as of January 31, 2019.
Accounts Payable $ 1,100
Rent Expense 500
Accounts Receivable 1,700
Service Revenue 3,000
Cash 1,400
Supplies 200
Owner’s Capital 2,000
Salaries and Wages Expense 1,300
Owner’s Drawings 1,000
Chapter
2-35
 Solution
BLACK DIAMOND EXPRESS
Trial Balance
January 31, 2019
Debit Credit
Cash $ 1,400
Accounts Receivable 1,700
Supplies 200
Accounts Payable $ 1,100
Owner’s Capital 2,000
Owner’s Drawings 1,000
Service Revenue 3,000
Rent Expense 500
Salaries and Wages Exp. 1,300
$6,100 $6,100

Chapter
2-36
Q9:
Noha had the following transactions:
Aug. 1 Started her business with a cash investment of
$5,000.
Aug. 10 Purchased equipment for $5,000 paid $1,000 cash
and signing a note for the rest.
Aug. 12 Received $2,400 cash for performing consulting
services
Aug. 25 Billed customers $ 1,700 for services performed.
Aug. 31 Collected $900 of accounts receivables.
Instructions:
1)Journalize each transactions.
2)Post the transactions to T accounts.
3)Prepare
Chapter
a trial balance at August 31, 2015
2-37
1) The journal entries:
Date Account & Explanation .Ref .Dr .Cr
Aug. 1 Cash 5,000
Noha, Capital 5,000
)Owner’s investment(
Aug. Equipment 5,000
10 Cash 1,000
Notes payable 4,000
)Purchases equipment(
Aug. Cash 2,400
12 Service revenue 2,400
)received cash(
Chapter
2-38
 Date Account & Explanation .Ref .Dr .Cr
Aug. Accounts receivable 1,700
25 Service revenue 1,700
billed clients for services(
)provided
Aug. Cash 900
31 Accounts Receivable 900
receipt of cash on(
)account

Chapter
2-39
We’ll prepare T account for each account in the
previous journal entries

We have 6 accounts, so we’ll prepare

6 (T accounts) as follows:

Chapter
2-40
3) Prepare a trial balance at August 31,
2015

Chapter
2-41
 P2-2A P.74

Chapter
2-42
Chapter
2-43
 P2-3A P.75

Chapter
2-44
Chapter
2-45