Chapter 2 The Recording Process I The Recording Process A The Account 1 Debits Credits 2 Debit Credits Procedurer 3 Stockholders Equity relationship 4 Summary of Debit Credit Rules B Steps in Recording Process 1 Journal 2 Ledger 3 Posting C Recording Process Illustrated 1 Summary illustrating of Journalizing and posting D Trial Balance 1 Limitations of Trial Balance 2 Locating Errors 3 Use of Dolar Sign II Account record of increases and decreases in a specific asset liability or owners equity Debits Title of Account Credits DEBIT LEFT CREDIT RIGHT Account Form Cash Credits Debits 15 000 7 000 1 200 1 700 250 1 500 600 1 300 Balance 8 050 Debit Tubular Form Cash 15 000 7 000 1 200 1 500 1 700 250 600 1 300 8 050 READ PAGES 54 56 Debit and Credit System is Double Entry Meaning that it effects at least 2 accounts i e normal balance for cash and liabilities would change based on a transaction Normal Balance is on the side where an increase in the account is recorded III Share Holders Equity A Common Stock companies issue common stock in exchange for owners investment into company 1 Credits increase account and debits decrease account 2 Credit Normal Balance Credit Debit B Retained Earnings portion of stockholders equity that the company has accumulated through profitable operations net income that is retained in the business represents 1 Credits increase with net income 2 Debits dividends or net loss decrease account C dividend company distribution of dividend on a equal basis 1 Debits increase the dividend account 2 Credit Decreases the account IV Revenue Expenses A The effect of debit and credits on revenue is the same as their effect on stockholders equity B Revenue account 1 credit increases revenue account 2 debits decrease revenue account C Expense account 1 expense decrease stockholders equity 2 debits increase expense account 3 credits decrease expense account V Journal a book of original entry that A Purposes of Journal 1 Discloses in one place the complete effect of a transaction 2 Chronological record of transactions 3 helps prevent and or locate errors because the debit and credit amounts for each can be easily located B Parts of a journal entry 1 date of transaction 2 accounts and amounts to be debited and or credited 3 brief explanation of transaction Account Title and Explanation Date 7 1 2011 Delivery equipment Cash Account payable Ref Debit 14 000 Credit 8 000 6 000 VI Ledger the entire group of accounts maintained by a company A General Ledger contains all the asset liabilities and stock holders equity Individual Assets a Equipment b Land c Supplies d Cash 1 2 Individual Liabilities a Interest Payment b Salaries Payable c Accounts Payable d Notes Payable 3 Individual Stockholders Equity a Salaries Expense b Service Revenue c Common Stock d Retained Earnings B Charts of Accounts their location in the ledger lists the accounts and the account number that identify VII Posting transfering journal entries from the journal to the ledger A Steps in Posting 1 2 3 In ledger enter in the appropriate columns of the accounts debited the date debited amount and journal page In reference column of journal write account account number In the ledger enter in the appropriate columns of the accounts credited the date journal page and credit amount shown in the journal In reference amount of the journal write the account number to which the credited amount was posted VIII Trial Balance list of accounts and their balances at any given time 4 A Purpose to show that the debits equal the credits B Steps of Trial Balance list account titles and balance 1 2 total debit and credit column 3 prove equality of 2 columns
View Full Document
Unlocking...