CHAPTER 22
THE
THE RECORDING
RECORDING PROCESS
PROCESS
STUDY OBJECTIVES
After studying this chapter, you should understand:
Accounts
Ledgers
Debits and
credits
The recording
process
Posting
Journals
Trial balance
STUDY
STUDYOBJECTIVE
OBJECTIVE 22
DEBITS
DEBITS AND
AND CREDITS
CREDITS
Debit means left
Credit means right
When the debit amounts exceed the credits,
an account has a debit balance; when the
reverse is true, the account has a credit
balance. DR
CR
DEBIT
DEBIT&
& CREDIT
CREDITEFFECTS
EFFECTS
ON
ONASSETS
ASSETS &
&LIABILITIES
LIABILITIES
Debits
Increase assets
Decrease liabilities
Credits
Decrease assets
Increase liabilities
NORMAL
NORMALBALANCE
BALANCEOF
OF
ASSET
ASSET&
& LIABILITY
LIABILITYACCOUNTS
ACCOUNTS
Assets
Increase
Normal
Decrease
Balance
LiabilitiesDebit
Credit Increase
Decrease
Normal
Balance
DEBIT
DEBIT&
& CREDIT
CREDITEFFECTS
EFFECTS
ON
ON STOCKHOLDERS
STOCKHOLDERSEQUITY
EQUITY
COMMON STOCK/RETAINED EARNINGS
Debits
Decrease equity
Credits
Increase equity
NORMAL
NORMALBALANCE
BALANCEOF
OF
STOCKHOLDERS
STOCKHOLDERS EQUITY
EQUITY
COMMON STOCK/RETAINED EARNINGS
Decrease
Increase
Debit
Normal
Balance
Credit
DEBIT
DEBIT&
& CREDIT
CREDITEFFECTS
EFFECTS
ON
ON DIVIDENDS
DIVIDENDS
DIVIDENDS
Increase
Decrease
Normal
Balance
Debit
Credit
DEBIT
DEBIT&
& CREDIT
CREDITEFFECTS
EFFECTS
ON
ON REVENUES
REVENUES
Debits
Decrease revenues
Increase expenses
Credits
Increase revenues
Decrease expenses
NORMAL
NORMALBALANCES
BALANCES OF
OF
REVENUES
REVENUES &
& EXPENSES
EXPENSES
Revenues
Decrease
Increase
Normal
Balance
ExpensesDebit
Credit Decrease
Increase
Normal
Balance
EXPANDED
EXPANDEDACCOUNTING
ACCOUNTING EQUATION
EQUATION
Assets
Assets
Dr.
+
Cr.
-
= Liabilities
= Liabilities
Dr.
-
Stockholders Equity
Cr.
+
Common
Stock
Dr.
-
Cr.
+
Revenues
Dr.
-
Cr.
+
Dividends
Dr.
+
Cr.
-
Expenses
Dr.
+
Cr.
-
STUDY
STUDYOBJECTIVE
OBJECTIVE 33
THE
THE RECORDING
RECORDING PROCESS
PROCESS
Illustration2-13
2-13
Illustration
JOURNAL
JOURNAL
LEDGER
STUDY
STUDYOBJECTIVE
OBJECTIVE 44
JOURNALS
JOURNALS
Transactions are initially recorded in chronological order in
a journal before being transferred to the accounts.
The journal records the complete effect of each
transactions, making errors easy to locate
Every company has a general journal which contains
1.
2.
3.
4.
Transaction dates
Account titles
References
Two amount columns
SIMPLE
SIMPLE JOURNAL
JOURNALENTRY
ENTRY
IfIf an
an entry
entryinvolves
involves only
onlytwo
two accounts,
accounts, one
one debit
debit
and
and one
one credit,
credit, itit is
is considered
considered aa simple
simple entry.
entry.
GENERAL JOURNAL
Date
2006
July 1
Ref.
Debit
J1
Credit
20,000
20,000
COMPOUND
COMPOUND JOURNAL
JOURNALENTRY
ENTRY
When
When three
three or
or more
more accounts
accounts are
are required
required in
in
one
one journal
journal entry,
entry,the
the entry
entryis
is referred
referred to
to as
as aa
compound
compound entry.
entry.
GENERAL JOURNAL
Date
2006
July 1
1
2
3
Ref.
J1
Debit
Credit
14,000
8,000
6,000
STUDY
STUDYOBJECTIVE
OBJECTIVE 66
POSTING
POSTING
Posting is the process of transferring entries
from the journals to specific accounts in the
General Ledger
J1
GENERAL JOURNAL
Date
2006
July 1
Ref.
Debit
Credit
20,000
20,000
GENERAL
LEDGER
POSTING
POSTING A
AJOURNAL
JOURNALENTRY
ENTRY
J1
GENERAL JOURNAL
InDate
the ledger,Account
enter in
the and
appropriate
Titles
Explanation
columns
of the account(s) debited
2006
the date,
Sept.
1 journal
Cash page, and debit
amount shown
in the Stock
journal.
Common
Ref.
10
25
Debit
Credit
15,000
15,000
GENERAL LEDGER
CASH
Date
2006
Sept. 1
Explanation
NO. 10
Ref.
J1
Debit
Credit
15,000
15,000
COMMON STOCK
Date
2006
Sept. 1
Explanation
Balance
NO. 25
Ref.
J1
Debit
Credit
Balance
15,000
15,000
Transaction
Transactioninformation
informationisistransferred
transferredtotothe
theindividual
individualledger
ledgeraccounts
accountsaffected.
affected.
CHART
CHART OF
OFACCOUNTS
ACCOUNTS
Most
Mostcompanies
companieshave
haveaachart
chartof
ofaccounts
accountsthat
thatlists
liststhe
theaccounts
accounts
and
andthe
theaccount
accountnumbers
numberswhich
whichidentify
identifytheir
theirlocation
locationin
inthe
the
ledger.
ledger.
INVESTMENT
INVESTMENTOF
OFCASH
CASH
BY
BYSTOCKHOLDERS
STOCKHOLDERS
Transaction
Basic
Analysis
Debit-Credit
Analysis
INVESTMENT
INVESTMENTOF
OFCASH
CASH
BY
BYSTOCKHOLDERS
STOCKHOLDERS
JOURNAL
JOURNALENTRY
ENTRY
Date
Oct. 1
Ref.
101
311
Debit
10,000
Credit
10,000
POSTING
POSTING
Cash
Oct. 1
101
10,000
Common Stock
Oct. 1
311
10,000
PURCHASE
PURCHASEOF
OF
OFFICE
OFFICEEQUIPMENT
EQUIPMENT
Transaction
Basic
Analysis
Debit-Credit
Analysis
PURCHASE
PURCHASE OF
OF
OFFICE
OFFICE EQUIPMENT
EQUIPMENT
JOURNAL
JOURNALENTRY
ENTRY
Date
Oct. 1
Ref.
157
200
Debit
5,000
Credit
5,000
POSTING
POSTING
Office Equipment
Oct. 1
5,000
157
Notes Payable
Oct. 1
200
5,000
RECEIPT
RECEIPTOF
OFCASH
CASH
FOR
FOR FUTURE
FUTURE SERVICES
SERVICES
Transaction
Basic
Analysis
Debit-Credit
Analysis
RECEIPT
RECEIPTOF
OFCASH
CASH
FOR
FOR FUTURE
FUTURE SERVICES
SERVICES
JOURNAL
JOURNALENTRY
ENTRY
Date
Oct. 2
Ref.
101
209
Debit
1,200
Credit
1,200
POSTING
POSTING
Oct. 1
2
Cash
10,000
1,200
101
Unearned Fees
Oct. 2
209
1,200
PAYMENT
PAYMENTOF
OF
MONTHLY
MONTHLYRENT
RENT
Transaction
Basic
Analysis
Debit-Credit
Analysis
PAYMENT
PAYMENTOF
OF
MONTHLY
MONTHLYRENT
RENT
JOURNAL
JOURNALENTRY
ENTRY
Date
Oct. 3
Ref.
729
101
Debit
900
Credit
900
POSTING
POSTING
Oct. 1
2
Cash
10,000 Oct. 3
1,200
101
900
Rent Expense
Oct. 3
900
729
PAYMENT
PAYMENT FOR
FOR INSURANCE
INSURANCE
Transaction
Basic
Analysis
Debit-Credit
Analysis
PAYMENT
PAYMENT FOR
FOR INSURANCE
INSURANCE
JOURNAL
JOURNALENTRY
ENTRY
Date
Oct. 4
Ref.
130
101
Debit
600
Credit
600
POSTING
POSTING
Oct. 1
2
Cash
10,000 Oct. 3
1,200
4
101
900
600
Prepaid Insurance
Oct. 4
600
130
PURCHASE
PURCHASEOF
OFSUPPLIES
SUPPLIES
ON
ON CREDIT
CREDIT
Transaction
Basic
Analysis
Debit-Credit
Analysis
PURCHASE
PURCHASEOF
OFSUPPLIES
SUPPLIES
ON
ON CREDIT
CREDIT
JOURNAL
JOURNALENTRY
ENTRY
Date
Oct. 5
Ref.
126
201
Debit
2,500
Credit
2,500
POSTING
POSTING
Advertising Supplies
Oct. 5
2,500
126
Accounts Payable
Oct. 5
201
2,500
REVIEW
REVIEWQUESTION
QUESTION
PURCHASE
PURCHASEOF
OFSUPPLIES
SUPPLIESFOR
FORCASH
CASH
What are the journal/ledger entries if the $2,500 of
advertising supplies was purchased with cash?
HIRING
HIRING EMPLOYEES
EMPLOYEES
Transaction
Basic
Analysis
Debit-Credit
Analysis
DECLARATION
DECLARATIONAND
AND PAYMENT
PAYMENT
OF
OFDIVIDEND
DIVIDEND
Transaction
Basic
Analysis
Debit-Credit
Analysis
DECLARATION
DECLARATIONAND
AND PAYMENT
PAYMENT
OF
OFDIVIDEND
DIVIDEND
JOURNAL
JOURNALENTRY
ENTRY
Date
Oct. 20
Ref.
332
101
Debit Credit
500
500
POSTING
POSTING
Oct. 1
2
Cash
10,000 Oct. 3
1,200
4
20
101
900
600
500
Oct. 20
Dividends
500
332
PAYMENT
PAYMENT OF
OFSALARIES
SALARIES
Transaction
Basic
Analysis
Debit-Credit
Analysis
PAYMENT
PAYMENT OF
OFSALARIES
SALARIES
JOURNAL
JOURNALENTRY
ENTRY
Date
Oct. 26
Ref.
726
101
Debit
4,000
Credit
4,000
POSTING
POSTING
Oct. 1
2
Cash
10,000 Oct. 3
1,200
4
20
26
101
900
600
500
4,000
Salaries Expense
Oct. 26
4,000
726
RECEIPT
RECEIPTOF
OFCASH
CASH
FOR
FOR SERVICES
SERVICES PROVIDED
PROVIDED
Transaction
Basic
Analysis
Debit-Credit
Analysis
RECEIPT
RECEIPTOF
OFCASH
CASH
FOR
FOR SERVICES
SERVICES PROVIDED
PROVIDED
JOURNAL
JOURNALENTRY
ENTRY
Date
Oct. 31
Ref.
101
400
Debit
10,000
Credit
10,000
POSTING
POSTING
Oct. 1
2
31
Cash
10,000 Oct. 3
1,200
4
10,000
20
26
101
900
600
500
4,000
Fees Earned
Oct. 31
400
10,000
STUDY
STUDYOBJECTIVE
OBJECTIVE 77
THE
THE TRIAL
TRIALBALANCE
BALANCE
1. A trial balance is a list of accounts and their balances at a
given time.
2. The primary purpose of a trial balance is to prove (check)
that the debits equal the credits after posting.
3. If the debits and credits do not agree, the trial balance can
be used to uncover errors in journalizing and posting.
4. The procedures for preparing a trial balance consist of:
1 List the account titles and their balances.
2 Total the debit and credit columns.
3 Prove the equality of the two columns.
TRIAL
TRIALBALANCE
BALANCE
PIONEER ADVERTISING AGENCY
Trial Balance
October 31, 2006
Cash
Advertising Supplies
Prepaid Insurance
Office Equipment
Notes Payable
Accounts Payable
Unearned Fees
Common Stock
Dividends
Fees Earned
Salaries Expense
Rent Expense
Debit
$ 15,200
2,500
600
5,000
Credit
$ 5,000
2,500
1,200
10,000
500
10,000
4,000
900
$ 28,700
$ 28,700