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Lecture Accounting principles – Chapter 2: The recording process

In this chapter students will be able to: Define debits and credits and illustrate how they are used to record transactions; explain the recording process and analyze, journalize, and post transactions; explain the purpose of a trial balance, and prepare one. | Chapter 2: The Recording Process Define debits and credits and illustrate how they are used to record transactions. Explain the recording process and analyze, journalize, and post transactions. Explain the purpose of a trial balance, and prepare one. Copyright John Wiley & Sons Canada, Ltd. 2 The Recording Process The account Debits and credits Double-entry accounting Analyzing and Recording Transactions The accounting cycle and steps in the recording process The journal The ledger The Trial Balance Limitations Locating errors Some process explanations Copyright John Wiley & Sons Canada, Ltd. 3 The Account An individual accounting record of increases and decreases in a specific asset, liability, or owner’s equity item Examples: cash, accounts payable, service revenue, salaries expense Three parts: title, debit side, credit side In its simplest form, these parts are positioned like the letter T Therefore called a T account Copyright John Wiley & Sons Canada, Ltd. 4 4 Debits & Credits Debit (Dr.) indicates left; Credit (Cr.) indicates right Entering an amount on the left side is called debiting the account Entering an amount on the right side is crediting the account Debit balance Debit amounts exceed the credits Credit balance Credit amounts exceed the debits Copyright John Wiley & Sons Canada, Ltd. 5 5 Tabular Versus Account Form Account Form Tabular Summary Copyright John Wiley & Sons Canada, Ltd. 6 CASH $15,000 -7,000 1,200 1,500 -600 -900 -200 -250 600 -1,300 $8,050 CASH Debit Credit 15,000 7,000 1,200 600 1,500 900 600 200 250 1,300 Balance 8,050 Debit & Credit Procedure Debit does not mean increase or decrease Can be either depending on the type account Credit also does not mean increase or decrease also depends on account type Assets are on the debit side of the equation Increases are also on debit side; decreases on credit side Liabilities are on the credit side Increases are on the credit side; decreases on the debit side Copyright John Wiley & Sons . | Chapter 2: The Recording Process Define debits and credits and illustrate how they are used to record transactions. Explain the recording process and analyze, journalize, and post transactions. Explain the purpose of a trial balance, and prepare one. Copyright John Wiley & Sons Canada, Ltd. 2 The Recording Process The account Debits and credits Double-entry accounting Analyzing and Recording Transactions The accounting cycle and steps in the recording process The journal The ledger The Trial Balance Limitations Locating errors Some process explanations Copyright John Wiley & Sons Canada, Ltd. 3 The Account An individual accounting record of increases and decreases in a specific asset, liability, or owner’s equity item Examples: cash, accounts payable, service revenue, salaries expense Three parts: title, debit side, credit side In its simplest form, these parts are positioned like the letter T Therefore called a T account Copyright John Wiley & Sons Canada, Ltd. 4 4 Debits & Credits