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COURSE OUTLINE
Two aims of this course (1) Understanding of a general accounting system (2)
Instructor: Nguyễn Thị Thu, PhD, MBA, MA. Introducing the Uniform accounting system in Vietnamese enterprises

ACC5070 PRINCIPLES OF ACCOUNTING Chapter 1

Source
Accounting in Action

Chapter 2: Chapter 5: Accounting for

The Recording Process Merchandising Operations

Chapter 3: Chapter 6:
Adjusting the Accounts Inventories

Chapter 4: Completing the

Accounting Cycle

Chapter 7
The Vietnamese Accounting System

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CHAPTER 2 CHAPTER OUTLINE

ANALYZING AND RECORDING TRANSACTIONS
Chapter Preview
§ Companies use a set of procedures and records to keep track of transaction
data more easily than in tabular format presented in Chapter 1.
§ This chapter introduces and illustrates these basic procedures and records.

Analyze each transaction and Record relevant transactions

event from source documents and events in a journal

Prepare and analyze the trial Post journal information to

balance ledger accounts

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Source Documents (LO1) LEARNING OBJECTIVE 2.1
DESCRIBE HOW ACCOUNTS, DEBITS, AND CREDITS
ARE USED TO RECORD BUSINESS TRANSACTIONS
Bills from
Checks Suppliers Purchase Nợ Có

Orders
Employee
Earnings
Records Bank
Statements
An account is an individual accounting record of increases and
decreases in a specific asset, liability, or equity item.
Sales In its simplest form, an account consists of three parts: (1) a title,
Tickets (2) a left or debit side (Dr.), and (3) a right or credit side (Cr.).
Note: Whenever we are referring to a specific account, we
capitalize the name.

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ACCOUNTS, DEBITS, AND CREDITS DEBIT/CREDIT RULE
(Chapter 1) (this Chapter)

Both sides of the basic equation (Assets = Liabilities + Equity) must be equal.

Account balance (Bal.): the difference between debit Increases and decreases in liabilities & equities have to be recorded opposite from
amounts and credit amounts of an account increases and decreases in assets.
Thus, increases in liabilities & equities are entered on the right or credit side, and
decreases in liabilities are entered on the left or debit side.

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ACCOUNTS, DEBITS, AND CREDITS EQUITY RELATIONSHIPS
Asset accounts normally show debit balances. That is, debits to a specific asset
account should exceed credits to that account.
Liability accounts normally show credit balances. That is, credits to a liability account
should exceed debits to that account.
Share capital—ordinary, retained earnings and liabilities: Same rules apply for debit
and credit and the normal balances
Retained earnings: Credits (net income) increase the Retained Earnings
account, and debits (dividends or net losses) decrease it.
Dividend: Dividends reduce the shareholders’ claims on retained earnings.
Debits increase the Dividends account, and credits decrease it.
Revenue accounts are increased by credits and decreased by debits.
Expense accounts are increased by debits and decreased by credits.
Because revenues increase equity, a revenue account has the same debit/credit rules
as the Retained Earnings account. Expenses have the opposite effect.

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LEARNING OBJECTIVE 2.2 THE JOURNAL
INDICATE HOW A JOURNAL IS USED IN THE
RECORDING PROCESS Companies initially record transactions in chronological order.
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Thus, the journal is referred to as the book of original entry.

The journal makes several significant contributions to the

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Determine its effect on
Assets, Liabilities, and
E. Supported by a
source document.
recording process:
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1. It discloses in one place the complete effects of a
transaction.
2. It provides a chronological record of transactions.
3. It helps to prevent or locate errors because the debit
and credit amounts for each entry can be easily
Apply the rules of Post the entry to the
double entry: Dr. proper accounts compared.
increases an asset; Cr.
increases an equity.

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JOURNALIZING JOURNALIZING

Assume: On September 1, Softbyte SA shareholders invested

€15,000 cash in the corporation in exchange for ordinary
shares, and Softbyte purchased computer equipment for
€7,000 cash.

Demonstrate: How do you enter the transaction data in the

journal?
Date of the transaction.
Debit account title.
Credit account title.
Brief explanation of the transaction.
Reference column, which is left blank when the journal
entry is made. This column is used later when the journal
entries are transferred to the individual accounts.
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SIMPLE AND COMPOUND ENTRIES EXAMPLE OF SIMPLE & COMPOUND ENTRIES
Bút toán
Simple entry: Involves one debit and one credit account. A simple entry involves A compound entry involves
only two accounts three or more accounts
Compound entry: An entry that requires three or more
accounts. To illustrate: On July 1, Binh An Company purchases a delivery truck costing
$140,000. It pays $80,000 cash now and agrees to pay the remaining $60,000 on
The standard format requires that all debits be listed before account (to be paid later).The compound entry is as follows.
the credits.
Truck 80,000
Cash 80,000

Truck 60,000
Accounts Payable 60,000

Truck 140,000
Cash 80,000
Accounts Payable 60,000

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LEARNING OBJECTIVE 2.3 THE GENERAL LEDGER
EXPLAIN HOW A LEDGER AND POSTING HELP IN THE
RECORDING PROCESS The general ledger contains all of a company’s accounts

Ledger: The entire group of accounts maintained by a

company. Provides the balance in each of the accounts as
well as keeps track of changes in these balances.

Companies may use various kinds of ledgers, but every

company has a general ledger. Sổ cái tài khoản

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CLASSIFICATION ISSUE
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CHART OF ACCOUNTS 2-20

Lists the accounts and the account numbers that identify

Economic Accounting
Accounts their location in the ledger.
Resources transactions à
Which categories?
Numbering system: Usually starts with the statement of
financial position accounts and follows with the income
Managerial Statements
Accounting statement accounts.
Information Financial Statements
A list of accounts Number of accounts: Depends on the amount of detail
(number and name) management desires.
Chart of Accounts
Companies leave gaps to permit the insertion of new
accounts as needed during the life of the business.

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CHART OF ACCOUNTS STANDARD FORM OF ACCOUNT

(Lists the accounts and the account numbers that identify their location in the ledger) This format is called the three-column form of account. It
has three money columns—debit, credit, and balance.

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THE RECORDING PROCESS ILLUSTRATED
Follow these steps:
1 - Determine what type of account is involved.
2 - Determine what items increased or decreased and by how
much.
3 - Translate the increases and decreases into debits and credits.
POSTING

Illustrating October transactions of Yazici Advertising A.Ş.

Accounting period: One month
Monatery Unit: ₺
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THE RECORDING PROCESS ILLUSTRATED
vOct. 1, C. R. Yazici invests 10,000 cash in an advertising company to be

RECORDING PROCESS ILLUSTRATED

known as Yazici Advertising A.S.
vOct. 1, Yazici Advertising purchases office equipment costing 5,000 by
signing a 3-month, 12%, 5,000 note payable.
vOct. 2, Yazici Advertising receives a 1,200 cash advance from R. Knox, a
client, for advertising services that are expected to be completed by Dec. 31.
vOct. 3, Yazici Advertising pays office rent for October in cash, 900.
vOct. 4, Yazici Advertising pays 600 for a one-year insurance policy that will
expire next year on September 30.
vOct. 5, 3-month Yazici Advertising purchases an estimated the supply of
advertising materials on account from Aero Supply for 2,500.
vOct. 9, Yazici Advertising hires four employees to begin work on October 15.
Each employee is to receive a weekly salary of 500 for a 5-day work week,
payable every 2 weeks— rst payment made on October 26.
vOct. 20, Yazici Advertising’s board of directors declares and pays a 500 cash
dividend to shareholders.
vOct. 26, Yazici Advertising owes employee salaries of 4,000 and pays them in
cash. (See October 9 event.) ???
vOct. 31, Yazici Advertising receives 10,000 in cash from Copa Company for
advertising services performed in October.
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SUMMARY ILLUSTRATION OF JOURNALIZING SUMMARY ILLUSTRATION OF JOURNALIZING (CONT)

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Assets =
| LIABILITIES + EQUITY 2-29 2-30
Cash Notes Payable Dividends Sal. & Wag. Expense LEARNING OBJECTIVE 2.4
1) 10,000 3) 900 1) 5,000 20) 500 26) 4,000
2) 1,200 4) 600 Accounts Payable Income Summary
PREPARE A TRIAL BALANCE
31) 10,000 20) 500 5) 2,500
26) 4,000 Unearned Ser. Rev. Rent Expense
21,200 6,000 2) 1,200
Bal.15,200 Service Revenue Interest Expense
Accounts Receivable Sal. & Wag. Payable 31) 10,000
A list of accounts and their balances at a given time.
Supplies Interest Payable Proves the mathematical equality of debits and credits after
5) 2,500 posting.
Share Cap.—Ordinary Supplies Expense
Prepaid Insurance 1) 10,000 Three steps of preparation:
4) 600 Retained Earnings Depreciation Expense 1. List the account titles and their balances in the appropriate
debit or credit column.
Equipment Insurance Expense 2. Total the debit and credit columns.
1) 5,000 3. Verify the equality of the two columns.
Acc. Dep.—Equipment

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THE TRIAL BALANCE LIMITATIONS OF A TRIAL BALANCE

A trial balance may balance even when:

1 - Transaction not journalized.
The trial
balance lists 2 - Correct journal entry not posted.
all account
balances in
the general
3 - Journal entry posted twice.
ledger. If the
books are in 4 - Incorrect accounts used in journalizing or posting.
balance, the
total debits
will equal the
5 - Offsetting errors made in recording the amount of
total credits.
a transaction.

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TRIAL BALANCE - LOCATING ERRORS CURRENCY SIGNS AND UNDERLINING
1. Determine the amount of the difference between the two columns
of the trial balance.
2. Take one of the commonly useful steps as follows: Currency Signs
• Do not appear in journals or ledgers.
If the error is Then …
• Typically used only in the trial balance and the financial
€1, €10, €100, Re-add the trial balance columns and recompute the statements.
or €1,000: account balances.
• Shown only for the first item and the total in the column.
Divisible by 2: Scan the trial balance to see whether a balance equal to half
the error has been entered in the wrong column.
Underlining
Divisible by 9: Retrace the account balances on the trial balance to see • A single line is placed under the column of figures to be
whether they are incorrectly copied from the ledger. For added or subtracted.
example, €12 instead of €21, called a transposition error. • Totals are double-underlined.
Not divisible by Scan the ledger to see whether an account balance in the
2 or 9: amount of the error has been omitted from the trial balance,
and scan the journal to see whether a posting of that
amount has been omitted.

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