CH 02

29/01/2024
Learning objectives
• Explain accounts, journals and ledgers as they relate to recording
transactions, and describe common accounts
Chapter 2 • Define debits, credits and normal account balances, and use
double-entry accounting and T-accounts
• List the steps of the transaction recording process
Recording business transactions • Post transactions from the journal to the ledger
• Prepare the trial balance from the T-accounts
1/29/2024 201044 - Recording business transactions 1 1/29/2024 201044 - Recording business transactions 2
2.1. The account, the ledger and the

2.1. The account, the ledger and the
journal
journal
• An account is the detailed record of all the changes that have
occurred in a particular asset, liability or owners’ equity during a
period
• The journal is the chronological record of the transactions Record
Copy (post) to Prepare the
transactions in
The ledger is the record holding all accounts the ledger trial balance
• the journal
• A list of all the ledger accounts, along with their balances, is
called a trial balance
Copyright © 2013 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781442551923/Horngren, Best, Fraser,
29/01/2024
2.1. The account, the ledger and the 2.1. The account, the ledger and the
journal journal
Assets Liabilities
An asset is a resource controlled by an entity as a result of past A liability is a present obligation of the entity arising from past
events that is expected to provide future economic benefits to the events, the settlement of which is expected to result in an outflow
entity in the future from the entity of resources embodying economic benefits
• Accounts payable
• Cash • Prepaid expenses
• Bills payable
• Accounts receivable • Land
• Accrued liabilities
• Bills receivable • Buildings
(Note receivable) • Plant and equipment
• Inventories
2.1. The account, the ledger and the 2.1. The account, the ledger and the
journal journal
Owners’ equity Chart of accounts
The financial estimate of owners’ claims to the value in a business
is called owners’ equity. It is the residual interest in the assets of
an entity after deducting all liabilities
•Capital
•Drawings
•Income
•revenue
•expenses
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2.2. Debits, credits and double-entry 2.2. Debits, credits and double-entry
accounting accounting
• Accounting is based on a double-entry system • The account category determines how increases and
• Each transaction affects at least two accounts decreases in the account are recorded as debits and credits
• A popular account format is called T-account • The pattern of recording debits and credits is based on the
accounting equation
Debit Account Title Credit
2.3. Recording transactions in the

journal 2.3. Recording transactions in the journal
Ex: The Smart Touch business received of Sheena Bright’s $30,000
cash investment in the business.
Specify Determine
1. The source documents:
each whether Enter the
Identify the account each transaction 2. The accounts affected:
transaction affected by account is in the 3. The accounts increased/decreased:
from the increased journal,
4. Date Accounts and explanation Debit Credit
source transaction or including a
documents and decreased brief
classify it by the explanation
by type transaction
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2.4. Transactions analysis, journalizing 2.4. Transactions analysis, journalizing

and posting to the accounts and posting to the accounts
Copying information (posting) from the journal The normal balance of an account (Expanding
to the ledger the accounting equation to account for
revenues and expenses)
2.4. Transactions analysis, journalizing 2.4. Transactions analysis, journalizing

and posting to the accounts and posting to the accounts
Flow of accounting information
Ex: Practice journalizing and posting with specific examples:
Details of transactions occurred at Smart Touch business
(1) Sheena Bright invested $30,000 cash in the business.
(2) Paid $20,000 cash for land.
(3) Bought $500 of office supplies on credit.
(4) Received $5,500 cash from clients for service revenue earned.
(5) Performed training service for clients on credit, $3,000.
(6) Paid cash expenses: computer lease, $600; office rent, $1,100;
employee salary, $1,200; electricity and gas, $400.
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2.4. Transactions analysis, journalizing 2.5. The trial balance

• A trial balance summarises the ledger by listing all the
and posting to the accounts accounts with their balances
• Throughout the accounting process, total debits should
Ex: Practice journalizing and posting with specific examples: always equal total credits. If not, there is an error
Details of transactions
• Errors can be detected by calculating the difference between
(7) Paid $300 on the account payable created in transaction 3.
total debits and total credits on the trial balance
(8) Remodelled Sheena Bright’s personal residence. This is not a
transaction of the business.
(9) Collected $1,000 on the account receivable created in transaction Ex: prepare the trial balance of Smart Touch as at 31 May
5. 201N
(10) Sold land for cash at its cost of $9,000.
(11) Withdrew $2,000 cash for personal expenses.
2.5. The trial balance 2.5. The trial balance

SMART TOUCH LEARNING
TRIAL BALANCE
AS AT 31 MAY 201N
SMART TOUCH LEARNING
TRIAL BALANCE ACCOUNT TITLE BALANCE
AS AT 31 MAY 201N DEBIT CREDIT
ACCOUNT TITLE BALANCE Cash $ 20,900 $
Accounts Receivable $
DEBIT CREDIT Land
Office Supplies
Cash $ $ Accounts payable
Accounts Receivable Service Revenue
. Lease expense
. Rent expense
. Salary expense
Total $ $
E&G expense
Drawings, Sheena
Capital, Sheena
Total $ $
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Summary: Chapter 2 Tasks in class

• The accounting equation must always balance after each Textbook: Chapter 2
transaction is recorded. To achieve this balance, we record
transactions using a double-entry accounting system • Quick Check
• A transaction occurs and is recorded on a source document
• Starters
• Then, we identify the account names affected by the transaction and
determine whether the accounts increased or decreased using the • Exercises
rules of debit and credit
• Next, we record the transaction in the journal, listing the debits first.
We then post all transactions to the ledger
• Once the ledger balances are calculated, the ending balance for
each account is transferred to the trial balance
Tasks at home
1/ Homework:
Textbook: Chapter 2
• Problems
The end of Chapter 2
• Apply
Recording business transactions
2/ Self-study:
Key References [2]: Chapter 3

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29/01/2024

2.1. The account, the ledger and the

Debit Account Title Credit

2.3. Recording transactions in the

2.4. Transactions analysis, journalizing 2.4. Transactions analysis, journalizing

2.4. Transactions analysis, journalizing 2.4. Transactions analysis, journalizing

2.4. Transactions analysis, journalizing 2.5. The trial balance

2.5. The trial balance 2.5. The trial balance

Summary: Chapter 2 Tasks in class

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