CILO 2: Apply the Recording Process

Marieta G. Tabasondra, CPA, MMBM

STARTER ACTIVITY

INCREASES AND DECREASES

IN OWNER’S EQUITY
 ACTIVITY
Calculate the Owner’s
Equity #1

Expenses Drawings
(9,800) (2,200)

Revenues Capital
15,400 35,200

Owner’s Equity =
38,600
 ACTIVITY
Calculate the
Profit or Loss #2

Expenses Drawings
(31,700) (1,375)

Revenues Capital
30,850 215,000

Loss
(850)
 Study Objectives
TOPIC 4: Analysing and Recording Process

1.Familiarise of the Accounting Cycle

2.Analyse the transactions: Source
Documents
3.Describe the Account and Its Analysis
4.Explain Ledger and Chart of Accounts
5.Explain the rule of Debit and Credit
6.Describe the Double-Entry Accounting
 The
BOOKKEEPI Accountin
NG

I
g Cycle

N T
O
Ratio analysis;
Decision-
U BOOKKEEPI
C
making
Closing the
NG Journa
C
books Adjustments

G
l

A
Trial Balance
Financial
Statements
N BOOKKEEPING
Ledger
Accounting Source Documents
The source document is the first
document that exists relating to
the transaction. 
Sales and Purchase
Invoices – a document
issued upon sales; the
seller enters the
document into their
system as a sales
invoice and the buyer
will enter it into their
system as a purchase
invoice.
Credit and Debit Notes - a
document issues for returns
to show the amount to be
refunded; recorded by the
supplier as a credit note
(reduces the amount owed by
the customer), and by the
customer as a debit note
(reduces how much they owe
to the seller)
Checks (Cheques) - a
special bank note that
represents the cash that is
being paid by the customer
 Study Objectives
TOPIC 4: Analysing and Recording Process

1.Familiarise of the Accounting Cycle

2.Analyse the transactions: Source
Documents
3.Describe the Account and Its Analysis
4.Explain Ledger and Chart of Accounts
5.Explain the rule of Debit and Credit
6.Describe the Double-Entry Accounting
 The Recording
Process

Steps in the
The Account
Recording
 
Process
Debits and credits Journal
 Expansion of basic  Ledger
equation
 THE
THE JOURNAL
JOURNAL
 journal is a chronological record of the
entity’s transactions.
 Every company has a general journal which
contains:
1 Date,
2 Account titles and explanations,
3 Posting references
4 Debit, and
5 Credit.
 THE
THE JOURNAL
JOURNAL
The journal makes several significant contributions to the
recording process:
1 It discloses in one place the complete effect 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 readily compared.
 Example
Assume that Maryam established her own
wedding consultancy with an initial
investment of BD25,000 on 1 May 2020.
Date Account titles and explanation PR Debit Credit
2020
01-05 Cash 25,000
Maryam, capital 25,000
Initial investment made by Maryam
 THE
THE ACCOUNT
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 chart of accounts
• A listing of all the accounts and their account numbers in
the ledger. Balance sheet accounts Income statement Accounts
ASSETS Income
110 Cash 410 consulting revenues
120 Accounts receivable 420 referral revenues
130 Supplies
140 Prepaid rent Expenses
150 Prepaid insurance 510 Salaries expense
160 Service vehicle 520 Supplies expense
170 Office equipment 530 Rent expense
175 Accumulated depreciation 540 Insurance expense
LIABILITIES 550 utilities expense
210 Notes payable 560 Depreciation expense
220 Accounts payable 570 Miscellaneous expense
230 Salaries payable 580 Interest expense
240 Utilities payable
250 Interest payable
OWNER's EQUITY
310 Maryam, capital
320 Maryam, withdrawals
330 Income Summary
 BASIC
BASIC FORM
FORM OF
OF ACCOUNT
ACCOUNT
 In its simplest form, an account consists of:
1 Title of the account,
2 Left or debit side, and
3 Right or credit side.
 The alignment of these parts resembles the letter T,
and therefore the account form is called a T
account.

Title of Account
Left or debit side Right or credit side

Debit balance Credit balance

 DEBITING
DEBITING AND
AND CREDITING
CREDITING
AN
AN ACCOUNT
ACCOUNT
Cash
Debits Credits
15,000 7,000
8,000

Example:
Example: Cash
Cashisisdebited
debitedfor
for BD15,000
BD15,000and
and
credited
creditedfor
forBD7,000,
BD7,000,leaving
leavingaadebit
debit
balance
balanceofofBD8,000.
BD8,000.
 DOUBLE-ENTRY
DOUBLE-ENTRY SYSTEM
SYSTEM
Double-entry system – dual effects of
business transactions is recorded.
Debit side entry must have a
corresponding credit side entry.
It’s a mirror-image.

Assets Liabilities Equity

 STEPS
STEPS IN
IN THE
THE
RECORDING
RECORDING PROCESS
PROCESS
Basic steps in the recording process:
1.Analyze each transaction for its effect
on the accounts.
2.Enter the transaction information in a
journal (book of original entry).
3.Transfer the journal information to the
appropriate accounts in the ledger
(book of accounts).
 THE
THE RECORDING
RECORDING
PROCESS
PROCESS
JOURNAL

LEDGER
JOURNAL

1 Analyze each transaction

2 Enter transaction in a journal
3 Transfer journal information to ledger accounts
ACTIVITY 1
 ACTIVITY
State what account is
debited/credited for each of the
following transactions:

Cash
DEBIT? Capital
CREDIT?
1. Haifa invested BD45,000
to start the business
 ACTIVITY
State what account is
debited/credited for each of the
following transactions:

Accounts
Supplies
DEBIT? CREDIT?
Payable
2. Purchased on account
supplies costing BD350.
 ACTIVITY
State what account is
debited/credited for each of the
following transactions:

Accounts
3. Paid BD100 on the DEBIT?
Payable Cash
CREDIT?
account created from
previously purchased
supplies.
 ACTIVITY
State what account is
debited/credited for each of the
following transactions:

Land
DEBIT? Cash
CREDIT?
4. Haifa paid BD30,000 cash
to acquire land as future site
for building.
 ACTIVITY
State what account is
debited/credited for each of the
following transactions:

Utilities
DEBIT?
Expense Cash
CREDIT?
5. Paid office rent BD400
and utilities BD100.
Rent
DEBIT?
Expense
 ACTIVITY
State what account is
debited/credited for each of the
following transactions:

Service
Cash
DEBIT? CREDIT?
Income
6. Haifa rendered services
for cash, BD150.
 ACTIVITY
State what account is
debited/credited for each of the
following transactions:

Accounts
Accounts Service
DEBIT?
Receivable CREDIT?
Income
7. Haifa rendered services
on account, BD1,900.
 ACTIVITY
State what account is
debited/credited for each of the
following transactions:

Accounts
Accounts
Cash
DEBIT? CREDIT?
Receivable
8. Haifa collected the full
amount due from customers
on account (transaction #7).
 ACTIVITY
State what account is
debited/credited for each of the
following transactions:

DEBIT?
Drawings Cash
CREDIT?
8. Withdrew cash for
personal use BD2,000.
 JOURNALIZING
JOURNALIZING
Entering transaction data in the journal is known
as journalizing.
Separate journal entries are made for each
transaction.
A complete entry consists of:
1. Date of the transaction,
2. Accounts and amounts to be debited and credited,
and
3. Brief explanation of the transaction.
 TECHNIQUE
TECHNIQUE OF
OF JOURNALIZING
JOURNALIZING

The
Thedate
dateof
of the
thetransaction
transactionis
isentered
enteredin
inthe
thedate
date
column.
column.

Date Account titles and explanation PR Debit Credit

2020
01-05 Cash 25,000
Maryam, capital 25,000
Initial investment made by Maryam
 TECHNIQUE
TECHNIQUE OF
OF JOURNALIZING
JOURNALIZING
The
Thedebit
debit account
account title
titleis
isentered
enteredat atthe
theextreme
extremeleft
left
margin
marginofof the
theAccount
Account Titles
Titlesand
andExplanation
Explanation
column.
column. TheThe credit
creditaccount
account title
titleis
isindented
indented on
on the
the
next
nextline.
line.

Date Account titles and explanation PR Debit Credit

2020
01-05 Cash 25,000
Maryam, capital 25,000
Initial investment made by Maryam
 TECHNIQUE
TECHNIQUE OF
OF JOURNALIZING
JOURNALIZING

The
Theamounts
amountsforforthe
the debits
debitsare
arerecorded
recorded inin the
the
Debit
Debitcolumn
columnandandthe
theamounts
amountsforforthe
the credits
creditsareare
recorded
recordedin
inthe
theCredit
Credit column.
column.

Date Account titles and explanation PR Debit Credit

2020
01-05 Cash 25,000
Maryam, capital 25,000
Initial investment made by Maryam
 TECHNIQUE
TECHNIQUE OF
OF JOURNALIZING
JOURNALIZING

AAbrief
brief explanation
explanationof
ofthe
thetransaction
transactionis
isgiven.
given.

Date Account titles and explanation P Debit Credit

2020 R
01-05 Cash 25,000
Maryam, capital 25,000
Initial investment made by Maryam
 SIMPLE
SIMPLE AND
AND COMPOUND
COMPOUND
JOURNAL
JOURNAL ENTRIES
ENTRIES

IfIf an
anentry
entryinvolves
involves onlyonlytwo
twoaccounts,
accounts, one
onedebit
debit
and
and oneonecredit,
credit, ititis
isconsidered
considered aa simple
simpleentry.
entry.

Date Account titles and explanation PR Debit Credit

2020
01-05 Cash 25,000
Maryam, capital 25,000
Initial investment made by Maryam
 COMPOUND
COMPOUND JOURNAL
JOURNAL ENTRY
ENTRY

When
Whenthree
threeor
ormore
moreaccounts
accountsare
arerequired
required
in
in one
onejournal
journal entry,
entry, the
theentry
entryis
isreferred
referredto
to
as
asaacompound
compound entry.
entry.

3
COMPOUND
COMPOUND JOURNAL
JOURNAL ENTRY
ENTRY

This
Thisis thewrong
isthe wrongformat;
format;all
alldebits
debitsmust
mustbe
be
listed
listedbefore
beforethe
thecredits
creditsare
arelisted.
listed.
ACTIVITY 2
 Transaction Recording
Transacti On October 1, Maryam invested BD10,000
on cash in a company called “Wedding R Us”

Basic The asset (Cash) increases BD10,000.

Analysis Owner’s equity (Capital) increases BD10,000.

Debit-Credit Debit increased asset (Cash) BD10,000

Analysis Credit increased Owner’s Equity (Capital) BD10,000

Date Account Debit Credit

Oct. 1 Cash 10,000
Journal Capital 10,000
Entry
 Transaction Recording
Transacti On October 1, Maryam bought Equipment
on costing BD5,000 from Almanar Co. on account.

Basic The asset (Equipment) increases BD5,000.

Analysis The Liability (Payables: Almanar co.) increases BD5,000.

Debit-Credit Debit increased asset (Equipment) BD5,000

Analysis Credit increased liability (Payables) BD5,000

Date Account Debit Credit

Oct. 1 Equipment 5,000
Journal Payables 5,000
Entry
 Transaction Recording
Transacti On October 3, Maryam paid office rent for
on October in cash BD900.

Basic The expense account (Office Rent) increases BD900.

Analysis The asset (Cash) decreases BD900.

Debit-Credit Debit increased expense (Office Rent) BD900

Analysis Credit decreased asset (Cash) BD900

Date Account Debit Credit

Oct. 3 Office Rent 900
Journal Cash 900
Entry
 Transaction Recording
Transacti On October 7, Maryam takes a loan of BD25,000
on from BBK, the amount was deposited in
“Wedding R Us”’s bank account.
Basic The asset (Bank) increases BD25,000.
Analysis The liability (Loan) increases BD25,000.

Debit-Credit Debit increased asset (Bank) BD25,000

Analysis Credit increased liability (Loan) BD25,000

Date Account Debit Credit

Oct. 7 Bank 25,000
Journal Loan 25,000
Entry
 Transaction Recording
Transacti On October 15, Mayram sold goods for
on BD170 to a customer and receives cash.

Basic The asset (Cash) increases BD170.

Analysis The revenue account (Sales) increases BD170.

Debit-Credit Debit increased asset (Cash) BD170

Analysis Credit increased revenue account (Sales) BD170

Date Account Debit Credit

Oct. 15 Cash 170
Journal Sales 170
Entry
 Transaction Recording
Transacti On October 17, Maryam sold goods for
on BD200 to Alfaisal co. on account.

Basic The asset (Receivables: Alfaisal co.) increases BD200.

Analysis The revenue account (Sales) increases BD200.

Debit-Credit Debit increased asset (Receivables) BD200

Analysis Credit increased revenue account (Sales) BD200

Date Account Debit Credit

Oct. 17 Receivables 200
Journal Sales 200
Entry
ACTIVITY 3
 ACTIVITY
State what account is
debited/credited for each of the
following transactions:

1. Murtada invested Cash 45,000

JE?
BD45,000 to start the CapitalJE? 45,000
business.
 ACTIVITY
State what account is
debited/credited for each of the
following transactions:

Supplies 350
2. Purchased on account Accounts payable
JE?
350
supplies costing BD350.
 ACTIVITY
State what account is
debited/credited for each of the
following transactions:

3. Paid BD100 on the Accounts payable 100

account created from Cash
JE?
100
previously purchased
supplies.
 ACTIVITY
State what account is
debited/credited for each of the
following transactions:

4. Murtada paid BD30,000 Land 30,000

cash to acquire land as Cash JE? 30,000
future site for building.
 ACTIVITY
State what account is
debited/credited for each of the
following transactions:

Rent expense 400

Utilities expense 100
5. Paid office rent BD400 Cash JE? 500
and utilities BD100.
 ACTIVITY
State what account is
debited/credited for each of the
following transactions:

Cash 150
Service income 150
6. Murtada rendered JE?
services for cash, BD150.
 ACTIVITY
State what account is
debited/credited for each of the
following transactions:

Accounts receivable 1,900

7. Murtada rendered Service income 1,900
services on account, JE?
BD1,900.
 ACTIVITY
State what account is
debited/credited for each of the
following transactions:

8. Murtada collected the full Cash 1,900

amount due from customers JE?
Accounts receivable 1,900

on account (transaction #7).

 ACTIVITY
State what account is
debited/credited for each of the
following transactions:

Drawings 1,900
8. Withdrew cash for Cash JE? 1,900
personal use BD2,000.
 What have you learned so far?

• How can you relate them to your

workplace or personal life?

• Recapitulation
PLENARY ACTIVITY
 PLENARY ACTIVITY
Classify the below into Assets, Liabilities or Owner’s Equity

Assets Liabilities Owner’s Equity

Accounts Accounts
Payable Bank Loans Supplies
Receivable
Cash Salaries Service Income Interest Payable

Capital Equipment EWA Drawings