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Chapter 2 Recording Process
Chapter 2 Recording Process
RECORDING PROCESS
1
Outlines
2.1 Accounting Equation-Elements of Financial Statements
2.2 Double Entry Rules
2.3 Accounting Cycle
2
The Elements of Financial Statements
3
The Account and Its Analysis
Double-Entry Accounting
Equity
Owner’s _ Owner’s _
Capital Withdrawals + Revenues Expenses
Debit
Credit
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The Accounting Equation
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Double-Entry System Illustration
+ 40,000 + 40,000
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Double-Entry System Illustration
- 600 - 600
(expense)
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Double-Entry System Illustration
+ 4,000 + 4,000
(revenue)
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THE ACCOUNTING CYCLE
Transactions
Work
Statement preparation Sheet
Adjustments
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THE ACCOUNTING CYCLE
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Journalizing
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Posting
Posting – The process of transferring amounts from the
journal to the ledger accounts.
ILLUSTRATION 3-7
ILLUSTRATION 3-8
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Posting – Transferring amounts from journal to ledger.
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Posting
An Expanded Example
The purpose of transaction analysis is
(1) to identify the type of account involved, and
(2) to determine whether a debit or a credit is required.
Keep in mind that every journal entry affects one or more of the
following items: assets, liabilities, equity, revenues, or expense.
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Posting
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Posting
ILLUSTRATION 3-10
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Posting
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Posting
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Trial Balance
A Trial Balance
List of each account and its balance in the order in
which they appear in the ledger.
Debit balances listed in the left column and credit
balance in the right column.
Used to prove the mathematical equality of debit and
credit balances.
Uncovers errors in journalizing and posting.
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Adjusting Entries
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Adjusting Accounts
An adjusting entry is recorded to bring an asset or liability account
balance to its proper amount.
Prepaid Unearned
(Deferred) (Deferred) Accrued Accrued
expenses* revenues expense revenues
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*including depreciation
Adjusting Entries
Prepayment/Deferrals Accruals
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Adjusting Entries for Deferrals
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Adjusting Entries for Prepaid Expenses
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Adjusting Entries for Prepaid Expenses
Supplies Cash
Debit Credit Debit Credit
25,000 25,000
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Adjusting Entries for Prepaid Expenses
10,000
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Adjusting Entries for
Prepaid Expenses
Statement
Presentation:
Supplies identifies that
portion of the asset’s
cost that will provide
future economic benefit.
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Adjusting Entries for Prepaid Expenses
Statement
Presentation:
Supplies expense
shows a balance of
₺15,000, which
equals the cost of
supplies used in
October
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Adjusting Entries for Prepaid Expenses
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Adjusting Entries for
Prepaid Expenses
Statement
Presentation:
Accumulated
Depreciation—is a
contra asset
account.
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Adjusting Entries for Prepaid Expenses
Statement
Presentation:
Depreciation
expense identifies
that portion of the
asset’s cost that
expired in
October.
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Adjusting Entries for Unearned Revenues
3-39
Adjusting Entries for Unearned Revenues
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Adjusting Entries for Unearned Revenues
Statement
Presentation:
Unearned service
revenue represents the
remaining advertising
services expected to be
performed in the future.
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Adjusting Entries for Unearned Revenues
Statement
Presentation:
Service revenue
shows total revenue
recognized in
October.
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Adjusting Entries for Accruals
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3-45
Adjusting Entries for Accrued Revenues
3-46
Adjusting Entries for Accrued Revenues
Adjusting Entries
for Accrued
Revenues
Rent Taxes
Interest Salaries
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Adjusting Entries for Accrued Expenses
1 2 3
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Adjusting Entries for Accrued Expenses
3-51
Adjusting Entries
for Accrued
Expenses
46,000
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ILLUSTRATION 3-35
Adjusting Entries
for Accrued
Expenses
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Adjusting Entries for Accrued Expenses
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ILLUSTRATION 3-35
Adjusting Entries
for Accrued
Expenses
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Preparing Financial Statements
Retained Statement
Income
Earnings of Financial
Statement
Statement Position
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Preparation of the Income Statement and Retained
Earnings Statement from the Adjusted Trial
Balance
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Preparation of the Statement of Financial Position from the Adjusted Trial Balance
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Closing Entries
Basic Process
Reduce the balance of nominal (temporary) accounts to zero
in preparation for the next period’s transactions.
Transfer all revenue and expense account balances (income
statement accounts) to Retained Earnings.
Statement of financial position (asset, liability, and equity)
accounts are not closed.
Dividends are closed directly to Retained Earnings.
Income Summary account may be used however it has no
effect on the financial statements.
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Closing Entries
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64
Recording Closing Entries
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Closing Entries
ILLUSTRATION 3-33
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Post-Closing Trial Balance
List of permanent
accounts and their
balances after posting
closing entries.
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Illustration 3-38
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Accounting Cycle Summarized
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Sources:
Weygandt, J. J., Kimmel, P. D., and Kieso, D. E., (2011). Financial Accounting,
IFRS edition, John Wiley & Sons Inc., USA.
Picker, R. Leo, K.J, Loftus, J. Wise, V., Clark, K., and Alfredson, K., (2012).
Applying International Financial Reporting Standards, 3rd Edition, John Wiley &
Sons Inc. , USA.
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