The Recording

Process
Learning Objectives
1. Explain what an account is and how it helps in the
recording process.
2. Define debits and credits and explain how they are
used to record economic events.
3. Explain what a journal is and how it helps in the
recording process.
4. Explain what a general ledger is and how it helps
in the recording process.
5. Explain what posting is and how it helps in the
recording process.
6. Explain the purpose and limitations of a trial
balance.

Event Analysis Summary (Review)
An economic event is analysed.

If recognised, the event will be two-sided,
affecting assets, liabilities and/or equity.

Before, during, and after recognition, there is
equality in terms of the accounting equation




Account Name
Debit / Dr. Credit / Cr.
Record of increases and decreases
in a specific asset, liability, equity,
income, or expense item.
Account
An Account can
be illustrated in a
T-Account form.
LO 1: The Account
Debit = Left
Credit = Right
Account Name
Debit / Dr. Credit / Cr.
If Debits are greater than Credits, the account will
have a debit balance.
$10,000 Transaction #2 $3,000
$15,000
8,000 Transaction #3
Balance
Transaction #1
LO 1: The Account
Account Name
Debit / Dr. Credit / Cr.
If Credits are greater than Debits, the account will
have a credit balance.
$10,000 Transaction #2 $3,000
Balance
Transaction #1
LO 1: The Account
$1,000
8,000 Transaction #3
Double entry system:

Each recordable event affects at least two
accounts.

The increase or decrease to an account is
recorded with a debit or a credit, depending
on the account.

For each recordable event, total dollar debits
must equal total dollar credits.

LO 2: Debits and Credits
Rules of double entry bookkeeping:
A = L + OE
A = L + Share Capital + Income Expenses Dividends

Assets are on the left, so increase them with debits.

Liabilities and equity are on the right, so increase them
with credits.
Equity is increased with share capital and income (including
revenues), so increase these accounts with credits.
But expenses and the Dividends account decrease equity, so
increase these accounts with debits.





LO 2: Debits and Credits
Chapter
3-23
Assets Assets
Debit / Dr. Credit / Cr.
Normal Balance Normal Balance
Chapter
3-24
Liabilities Liabilities
Debit / Dr. Credit / Cr.
Normal Balance Normal Balance
Chapter
3-25
Debit / Dr. Credit / Cr.
Normal Balance
Equity
Normal
Balance
Credit
Normal
Balance
Debit
LO 2: Debits and Credits
Issuance of share capital,
reserves, and income increase
equity (credit).
Dividends and expenses
decrease equity (debit).
LO 2: Debits and Credits
Chapter
3-25
Debit / Dr. Credit / Cr.
Normal Balance Normal Balance
Share Capital Share Capital
Chapter
3-23
Dividends Dividends
Debit / Dr. Credit / Cr.
Normal Balance Normal Balance
Chapter
3-25
Debit / Dr. Credit / Cr.
Normal Balance Normal Balance
Equity Equity
Chapter
3-25
Debit / Dr. Credit / Cr.
Normal Balance
Reserves
What is the normal balance of each of the
following accounts?

Advertising Expense.
Dividend Revenue.
Dividends Receivable.
Share Capital.
Dividends.
Dividends Payable.
LO 2: Debits and Credits CreditsBE2-1, p. 78
(adapted)
Debits:
a. increase both assets and liabilities.
b. decrease both assets and liabilities.
c. increase assets and decrease liabilities.
d. decrease assets and increase liabilities.
Review Question
LO 2: Debits and Credits
Summary
Debits:
a. increase both assets and liabilities.
b. decrease both assets and liabilities.
c. increase assets and decrease liabilities.
d. decrease assets and increase liabilities.
Business documents, such as an invoice, a cheque, or a
cash register tape, provide evidence of a recordable
event.
Journal = book of original entry.
Events are recorded in the journal in chronological order.
Journals contributions to the recording process:
1. Discloses the complete effects of an event.
2. Provides a chronological record.
3. Helps to prevent or locate errors because the debit
and credit amounts can be easily compared.
LO 3: Journalising
For each part of a recordable event, first
determine the appropriate account affected
(conceptual framework/residual analysis), then
apply the rules of debit and credit:

1. The ____ account has incr/decr, which incr/decr A,L, or OE.

2. An incr/decr to A,L, or OE is recorded with a DR/CR.

3. Therefore, DR/CR the ____ account.


LO 3: Journalising
Account Title Ref. Debit Credit Date
Share capital
Journalizing Simple journal entries.
On September 1, stockholders invested $15,000 cash in
exchange for ordinary shares, and Softbyte purchased
computer equipment for $7,000 cash.
Cash Sept. 1 15,000
15,000
General Journal
Computer equipment
Cash
7,000
7,000
Illustration 2-14
LO 3: Journalising
Account Title Ref. Debit Credit Date
8,000
Delivery equipment
Cash
14,000
6,000 Accounts payable
Sept. 1
On July 1, Butler Company purchased a delivery truck
costing $14,000. It paid $8,000 cash and agreed to pay the
remaining $6,000 on account.
General Journal
Illustration 2-15
Compound Journal Entry
LO 3: Journalising
The following transactions occurred during August of
the current year. Determine which accounts are
affected, apply the rules of debit and credit, and
journalise the transactions.

4/8 Paid insurance in advance
for 6 months, $1800.

16/8 Received $9000 from clients
for services rendered in
August.

27/8 Paid secretary $500 salary
for August.

LO 3: Journalising
BE2-5, p. 79 (adapted)
General Ledger
Contains all accounts maintained by a business.
All asset, liability, equity, income and expense
accounts.
LO 4: The Ledger
Illustration 2-16
LO 4: The Ledger
Illustration 2-18
Chart of Accounts
T-account form used in accounting textbooks.
Ledger form used in practice.
Illustration 2-17
LO 4: The Ledger
Standard Form of Account
Posting the
process of
transferring
amounts
from the
journal to the
ledger
accounts.
Illustration 2-19
LO 5: Posting
Posting:
a. normally occurs before journalizing.
b. transfers ledger transaction data to the journal.
c. is an optional step in the recording process.
d. transfers journal entries to ledger accounts.
Review Question
LO 5: Posting
Posting:
a. normally occurs before journalising.
b. transfers ledger transaction data to the journal.
c. is an optional step in the recording process.
d. transfers journal entries to ledger accounts.
Katherine Turner recorded the following
transactions during the month of March.
LO 5: Posting
Post these entries to the Cash account.
A list of accounts
and their
balances at a
given time.
Purpose is to
prove that debits
equal credits.
LO 6: The Trial Balance

Illustration 2-32
The accounts
come from the
ledger of
Christel Ltd at
December 31,
2011.
LO 6: The Trial Balance
Christel Ltd
Trial Balance (in thousands)
December 31, 2011
Selected transactions from the journal of Teresa
Gonzales, investment broker, are presented here:
Date Account titles Debit Credit
Aug 1 Cash 5 000
Share Capital 5 000
10 Cash 2 400
Service Revenue 2 400
12 Office Equipment 5 000
Cash 1 000
Notes Payable 4 000
25 Accounts Receivable 1 600
Service Revenue 1 600
31 Cash 900
Accounts Receivable 900
Required
(a) Post the transactions to T accounts.
(b) Prepare a trial balance as at 31 August 2011.
LO 6: The Trial Balance
E2-9, p. 82
Cash
Aug. 1 5,000 Aug. 12 1,000
10 2,400
31 900
Bal. 7,300
Accounts Receivable
Aug. 25 1,600 Aug. 31 900
Bal. 700


Office Equipment
Aug. 12 5,000


Notes Payable
Aug. 12 4,000
Share CapitalOrdinary
Aug. 1 5,000
Service Revenue
Aug. 10 2,400
25 1,600
Bal. 4,000
LO 6: The Trial BalanceE2-9, p. 82
TERESA GONZALEZ, INVESTMENT BROKER
Trial Balance
August 31, 2011


Debit Credit

Cash $7,300
Accounts Receivable
Office Equipment
Notes Payable
Share CapitalOrdinary
Service Revenue 4,000

$13,000 $13,000

LO 6: The Trial BalanceE2-9, p. 82
The trial balance may balance even when
1. a transaction is not journalized,
2. a correct journal entry is not posted,
3. a journal entry is posted twice,
4. incorrect accounts are used in journalizing or
posting, or
5. offsetting errors are made in recording the amount
of a transaction.
LO 6: The Trial Balance
Limitations of a Trial Balance
A bookkeeper made these errors in journalising and posting:

1. A credit posting of $400 to Accounts Receivable was omitted.
2. A debit posting of $750 for Prepaid Insurance was debited to
Insurance Expense.
3. A collection on account of $100 was journalised and posted as a
debit to Cash $100 and a credit to Service Revenue $100.
4. A credit posting of $300 to Property Taxes Payable was made
twice.
5. A cash purchase of supplies for $250 was journalised and posted
as a debit to Supplies $25 and a credit to Cash $25.
6. A debit of $465 to Advertising Expense was posted as $456.

Required:
For each error, indicate (a) whether the trial balance will
balance; if the trial balance will not balance, indicate (b)
the amount of the difference and (c) the trial balance
column that will have the greater total. Consider each
error separately.
LO 6: The Trial Balance--E2-13,
p. 83