Topic 3 - A191 - The Recording Process

CHAPTER 3
THE RECORDING PROCESS

The Recording Process
Characteristic of an account
The rules of debit and credit
The steps in recording process
Preparing of trial balance

Definitions
Journal • Book of first entry
• Separate record showing increases

Account and decreases for each Financial
Statement item
Chart of • A list of the accounts in a ledger

accounts
• A group of accounts for a business
Ledger entity
Characteristics of
an Account
Characteristics of an Account
• An account is an individual accounting
record of increases and decreases in a
specific asset, liability, or owner’s equity
item.
• A company will have separate accounts for
such items as cash, salaries expense,
accounts payable, and so on.
The Rules of Debit
and Credit
Basic Form of an Account
Title of Account
Left or debit side Right or credit side
Debit balance Credit balance
• The alignment of these parts resembles the letter T, and

therefore the account form is called a T account.
• A ‘T’-account represents a ledger account and is a tool used
to understand the effects of one or more transactions.
Double Entry Concept of Accounting
Based on a simple concept: each party in a
business transaction will receive something
and give something in return.
* The two sides of a coin

* Receive & Give
* Left versus Right
Assets Liabilities Equity

Debit & Credit Rule and
Accounts Normal Balances
The Steps in the
Recording Process
Transaction Analysis
Determine which account is affected by the transaction.
Determine whether the account increases or decreases.
Determine whether the account should be debited or credited.
Record the transaction using journal entry.
Post the journal entries to the accounts in the ledger.
Prepare an unadjusted trial balance at the end of the period.

Example Exercise Rules of Debit and Credit and Normal
Balances
State for each account whether it is likely to have (a) debit

entries only, (b) credit entries only, or (c) both debit and credit
entries. Also, indicate its normal balance.
1. Amber Saunders, Drawing 1. Debit entries only; normal debit
balance
2. Accounts Payable 2. Debit and credit entries; normal
credit balance
3. Cash 3. Debit and credit entries; normal
debit balance
4. Fees Earned 4. Credit entries only; normal credit
balance
5. Supplies 5. Debit and credit entries; normal
debit balance
6. Utilities Expense 6. Debit entries only; normal debit
balance
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Journalizing
• A transaction is initially entered in a record called a journal.

• Transactions are recorded in the journal using the following
steps:
o Step 1. The date of the transaction is entered in the Date column.
o Step 2. The title of the account to be debited is recorded in the left-
hand margin under the Description column, and the amount to be
debited is entered in the Debit column.
o Step 3. The title of the account to be credited is listed below and to the
right of the debited account title, and the amount to be credited is
entered in the Credit column.
o Step 4. A brief description may be entered below the credited account.
o Step 5. The Post. Ref. (Posting Reference) column is left blank when
the journal entry is initially recorded. This column is used later when
the journal entry amounts are transferred to the accounts in the ledger.
Journalizing (Cont…)
• The process of recording a transaction in the journal

is called journalizing.
• The entry in the journal is called a journal entry.
Transaction A
• On November 1, Idris Ismail deposited RM25,000 in a bank

account in the name of NetSolutions.
Transaction Terminology and Related Journal
Entry Accounts
Transaction B
• On November 5, NetSolutions paid RM20,000 for the

purchase of land as a future building site.
Transaction C
• On November 10, NetSolutions purchased supplies

on account for RM1,350.
Transaction D
• On November 18, NetSolutions received cash of

RM7,500 from customers for services provided.
Transaction E
• On November 30, NetSolutions incurred the following expenses: wages, RM2,125;

rent, RM800; utilities, RM450; and miscellaneous, RM275.
Transaction F
• On November 30, NetSolutions paid creditors on

account, RM950.
Transaction G
• NetSolutions purchased RM1,350 of supplies on November 10. Idris Ismail

determined that the cost of supplies on hand at November 30 was RM550.
Supplies used = RM1,350 – RM550 =

RM800
Transaction H
• On November 30, Idris Ismail withdrew RM2,000 from NetSolutions for

personal use.
Example Exercise Journal Entry for Asset Purchase
Prepare a journal entry for the purchase of a truck on

June 3 for RM42,500, paying RM8,500 cash and the
remainder on account.
Posting Journal Entries to Accounts (slide 1 of 3)
• The process of transferring the debits and credits

from the journal entries to the accounts is called
posting.
Posting Journal Entries to Accounts (slide 2 of 3)
• On December 1, NetSolutions paid a premium of

RM2,400 for an insurance policy for liability, theft,
and fire. The policy covers a one-year period.
Preparing of Trial
Balance
Trial Balance
A list of all the accounts maintained by the business
A list of
entity, all the
along accounts
with maintained
their respective by the business
balances.
entity, along with their respective balances.
The procedures for preparing a trial balance consist of:

The procedures for preparing a trial balance consist of:
1. List the account titles and their balances.
1. List the account titles and their balances.
2. Total the debit and credit columns.
2. Total the debit and credit columns.
3. Prove the equality of the two columns.
3. Prove the equality of the two columns.
ILLUSTRATION
A Trial Balance
XYZ SDN BHD

Trial Balance
October 31, 2018
Debit Credit
Cash $ 25,200
Advertising Supplies 2,500
Prepaid Insurance 600
Office Equipment 5,000
Notes Payable
Accounts Payable
The total debits $ 5,000
2,500
Unearned Fees
Kamal, Capital
must equal the 1,200
20,000
Kamal, Drawing
Fees Earned
total credits. 500
10,000
Salaries Expense 4,000
Rent Expense 900
$ 38,700 $ 38,700

Topic 3 - A191 - The Recording Process

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CHAPTER 3

THE RECORDING PROCESS

The rules of debit and credit

The steps in recording process

Preparing of trial balance

Journal • Book of first entry

• Separate record showing increases

Chart of • A list of the accounts in a ledger

Debit balance Credit balance

• The alignment of these parts resembles the letter T, and

* The two sides of a coin

Assets Liabilities Equity

Determine whether the account increases or decreases.

Determine whether the account should be debited or credited.

Record the transaction using journal entry.

Post the journal entries to the accounts in the ledger.

Prepare an unadjusted trial balance at the end of the period.

State for each account whether it is likely to have (a) debit

• A transaction is initially entered in a record called a journal.

• The process of recording a transaction in the journal

• On November 1, Idris Ismail deposited RM25,000 in a bank

• On November 5, NetSolutions paid RM20,000 for the

• On November 10, NetSolutions purchased supplies

• On November 18, NetSolutions received cash of

• On November 30, NetSolutions incurred the following expenses: wages, RM2,125;

• On November 30, NetSolutions paid creditors on

• NetSolutions purchased RM1,350 of supplies on November 10. Idris Ismail

Supplies used = RM1,350 – RM550 =

• On November 30, Idris Ismail withdrew RM2,000 from NetSolutions for

Prepare a journal entry for the purchase of a truck on

• The process of transferring the debits and credits

• On December 1, NetSolutions paid a premium of

The procedures for preparing a trial balance consist of:

XYZ SDN BHD

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