2-1 The Recording Process 2 Learning Objectives Describe how accounts, debits, and credits are used to record business transactions. Indicate how a journal is used in the recording process. Explain how a ledger and posting help in the recording process. 3 Prepare a trial balance. 2 1 4
2-2 Record of increases and decreases in a specific asset, liability, owners’ equity, revenue, or expense item. Debit = “Left” Credit = “Right” The Account An account can be illustrated in a T-account form. LEARNING OBJECTIVE Describe how accounts, debits, and credits are used to record business transactions. 1 LO 1
2-3 Double-entry system Each transaction must affect two or more accounts to keep the basic accounting equation in balance. Recording done by debiting at least one account and crediting at least one other account. DEBITS must equal CREDITS . DEBIT AND CREDIT PROCEDURES The Account LO 1
2-4 Transaction #2 Balance Transaction #1 Transaction #3 If the sum of Debit entries are greater than the sum of Credit entries, the account will have a debit balance. Debits and Credits LO 1 Account Name Debit / Dr. Credit / Cr.
2-5 If the sum of Credit entries are greater than the sum of Debit entries, the account will have a credit balance. Transaction #2 Transaction #3 Balance Transaction #1 Debits and Credits LO 1 Account Name Debit / Dr. Credit / Cr.
2-6 Assets - Debits should exceed credits. Liabilities – Credits should exceed debits. Normal balance is on the increase side. Expenses: Normal Balance is Debit Revenue: Normal Balance is credit Debits and Credits LO 1
2-7 Owner’s investments and revenues increase owner’s equity (credit). Owner’s drawings and expenses decrease owner’s equity (debit). Debits and Credits Helpful Hint Because revenues increase owner’s equity, a revenue account has the same debit/credit rules as the Owner’s Capital account. Expenses have the opposite effect. LO 1
2-8 Debits and Credits The purpose of earning revenues is to benefit the owner(s). The effect of debits and credits on revenue accounts is the same as their effect on Owner’s Capital. Expenses have the opposite effect: expenses decrease owner’s equity.
- Winter '17
- Dr. Mahwish Anjum
- Double-entry bookkeeping system, The Journal, s Capital, Lo