CHAPTER 2

THE RECORDING
PROCESS

Accounting Principles, Kieso

Chapter
2-1
 Study
Study Objectives
Objectives
1. Explain what an account is and how it helps in the
recording process.
2. Define debits and credits and explain their use in
recording business transactions.
3. Identify the basic steps in the recording process.
4. Explain what a journal is and how it helps in the
recording process.
5. Explain what a ledger is and how it helps in the
recording process.
6. Explain what posting is and how it helps in the
recording process.
7. Prepare a trial balance and explain its purposes.
Chapter
2-2
 The
The Recording
Recording Process
Process

Steps in the The Recording

The Trial
The Account Recording Process
Balance
Process Illustrated

Debits and Journal Summary Limitations of a

credits Ledger illustration of trial balance
Expansion of journalizing Locating errors
basic equation and posting

LO 1 - 2 LO 3 - 5 LO 6 LO 7
Chapter
2-3
 The
The Recording
Recording Process
Process

Steps in the The Recording

The Trial
The Account Recording Process
Balance
Process Illustrated

Debits and Journal Summary Limitations of a

credits Ledger illustration of trial balance
Expansion of journalizing Locating errors
basic equation and posting
Use of dollar
signs

LO 1 - 2 LO 3 - 5 LO 6 LO 7
Chapter
2-4
 The
The Trial
Trial Balance
Balance
List account balances
A list of accounts and
their balances at a Hanshew Real Estate Agency
Trial Balance
given time.
October 31, 2008
Purpose is to prove Account # Account Title Debit Credit
that debits equal 101 Cash $ 11,800
112 Accounts receivable 3,200
credits. 156 Office furniture 1,900
201 Accounts payable $ 1,200
Accounts listed in 301 Hanshew, Capital 15,000
ledger sequence 400 Service revenue 3,200
726 Salaries expense 2,500
Debit balances in the $ 19,400 $ 19,400
left column and Total
credit balances on
Balance
the right column
Chapter
2-5 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance

Limitations of a Trial Balance

The trial balance may balance even when
1. a transaction is not journalized,
2. a correct journal entry is not posted,
3. a journal entry is posted twice,
4. incorrect accounts are used in journalizing or
posting, or
5. offsetting errors are made in recording the
amount of a transaction.

Chapter
2-6 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance
Locating errors in a Trial Balance

Chapter
2-7 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance –– Reconciling
Reconciling differences
differences
P2-4A – Adapted. Reconciling errors in a Trial Balance
Debit Credit
Step # 1 - Cash $ 2,840
Determine Accounts Receivable $ 3,231
the trial
balance Supplies 800

difference. Equipment 3,000

Accounts Payable 2,666
Unearned Revenue 1,200
Difference is D. Khan, Capital 9,000
$3,545 D. Khan, Drawing 800
($16,886 - Service Revenue 2,380
$13,341) Salaries Expense 3,400
Office Expense 910
$ 13,341 $ 16,886
Chapter
2-8 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance –– Reconciling
Reconciling differences
differences
P2-4A – Adapted.
Debit Credit
Step # 2 – Cash $ 2,840
Record the Accounts Receivable $ 3,231
trial
balance Supplies 800
Equipment 3,000
difference
Accounts Payable 2,666
as
Unearned Revenue 1,200
Suspense D. Khan, Capital 9,000
account. D. Khan, Drawing 800
Service Revenue 2,380
Salaries Expense 3,400
Office Expense 910
Suspense account 3,545
Chapter $ 16,886 $ 16,886
2-9 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance –– Reconciling
Reconciling differences
differences
P2-4A – Adapted.
Debit Credit
Step # 3 – Cash $ 2,840

Identify Accounts Receivable $ 3,231

balances in Supplies 800

wrong Equipment 3,000
columns. Accounts Payable 2,666
Unearned Revenue 1,200
D. Khan, Capital 9,000
D. Khan, Drawing 800
Service Revenue 2,380
Salaries Expense 3,400
Office Expense 910
Suspense account 3,545
Chapter $ 16,886 $ 16,886
2-10 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance –– Reconciling
Reconciling differences
differences
Reconciling errors in a Trial Balance
Step # 4 – Correct the balances in wrong columns.

Date Account Title & Ref, Debit Credit

Explanation
20xx
Dec 31 Cash - TB 5,680
Suspense account 5,680

Dec 31 Suspense account 2,400

Unearned revenue - TB 2,400

Chapter
2-11 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance –– Reconciling
Reconciling differences
differences
P2-4A
Now, the
difference is
$265 as
appearing in
suspense
account

Chapter
2-12 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance –– Reconciling
Reconciling differences
differences
Step # 5 – Make corrections for errors
1. Cash received ($740) from a customer in payment of its account was debited
for $470 and Accounts Receivable was credited for the same amount.

Date Account Title & Explanation Ref, Debit Credit

20xx
Dec 31 Cash 740
Accounts receivable 740
CORRECT ENTRY
Dec 31 Cash 470
Accounts receivable 470
ENTRY WRONGLY MADE
Dec 31 Cash 270
Accounts receivable 270
CORRECTING ENTRY
Chapter
2-13 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance –– Reconciling
Reconciling differences
differences
P2-4A
The difference
is still $265 as
appearing in
the suspense
account

Chapter
2-14 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance –– Reconciling
Reconciling differences
differences
Step # 5 – Make corrections for errors
2. The purchase of a printer on account for $ 340 was recorded as a debit to
Supplies for $340 and a credit to Accounts Payable for $340

Date Account Title & Explanation Ref, Debit Credit

20xx
Dec 31 Equipment 340
Accounts payable 340
CORRECT ENTRY
Dec 31 Supplies 340
Accounts payable 340
ENTRY WRONGLY MADE
Dec 31 Equipment 340
Supplies 340
CORRECTING ENTRY
Chapter
2-15 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance –– Reconciling
Reconciling differences
differences
P2-4A
Difference is
still $265 as
appearing in
the suspense
account

Chapter
2-16 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance –– Reconciling
Reconciling differences
differences
Step # 5 – Make corrections for errors
3. Services were performed on account for a client for $890. Accounts
Receivable was debited for $890, and Service Revenue was credited for $89

Date Account Title & Explanation Ref, Debit Credit

20xx
Dec 31 Accounts receivable 890
Service revenue 890
CORRECT ENTRY
Dec 31 Accounts receivable 890
Service revenue 89
ENTRY WRONGLY MADE
Dec 31 Suspense account 801
Service revenue 801
CORRECTING ENTRY
Chapter
2-17 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance –– Reconciling
Reconciling differences
differences
P2-4A
Now the
difference is
$1,066 as
appearing in
the suspense
account.

Chapter
2-18 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance –– Reconciling
Reconciling differences
differences
Step # 5 – Make corrections for errors
4. A debit posting to Salaries Expense of $600 was omitted

Date Account Title & Explanation Ref, Debit Credit

20xx
Dec 31 Salaries expense 600
Cash 600
CORRECT ENTRY
Dec 31 Salaries expense 600
Cash 600
ERROR: POSTING OMITTED
Dec 31 Salaries expense 600
Suspense account 600
CORRECTING ENTRY
Chapter
2-19 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance –– Reconciling
Reconciling differences
differences
P2-4A
Now the
difference is
$466 as
appearing in
the suspense
account.

Chapter
2-20 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance –– Reconciling
Reconciling differences
differences
Step # 5 – Make corrections for errors
5. A payment of a balance due for $206 was credited to Cash for $206 and
credited to Accounts Payable for $260

Date Account Title & Explanation Ref, Debit Credit

20xx
Dec 31 Accounts payable 206
Cash 206
CORRECT ENTRY
Dec 31 Accounts payable 260
Cash 206
ENTRY WRONGLY MADE
Dec 31 Accounts payable 466
Suspense account 466
CORRECTING ENTRY
Chapter
2-21 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance –– Reconciling
Reconciling differences
differences
P2-4A

Now TB is
balanced as
suspense
account has
zero balance.

Chapter
2-22 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance –– Reconciling
Reconciling differences
differences
Step # 5 – Make corrections for errors
6. The withdrawal of $500 cash for Kelso’s personal use was debited to Salaries
Expense for $500 and credited to Cash for $500

Date Account Title & Explanation Ref, Debit Credit

20xx
Dec 31 Khan Drawings 500
Cash 500
CORRECT ENTRY
Dec 31 Salaries expense 500
Cash 500
ENTRY WRONGLY MADE
Dec 31 Khan Drawings 500
Salaries expense 500

Chapter
2-23 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance –– Reconciling
Reconciling differences
differences
P2-4A Debit Credit
Cash $ 3,110
Accounts Receivable 2,961
Supplies 460
TB is
balanced and Equipment 3,340
all Accounts Payable 2,200
corrections Unearned Revenue 1,200
made. D. Khan, Capital 9,000
D. Khan, Drawing (800 1,300
+500)
Service Revenue 3,181
Salaries Expense (4,000 - 3,500
500
Office Expense 910
$ 15,581 $ 15,581

Chapter
2-24 LO 7 Prepare a trial balance and explain its purposes.
 The
The Trial
Trial Balance
Balance

Review Question 2 - 14
A trial balance will not balance if:
a. a correct journal entry is posted twice.
b. the purchase of supplies on account is debited to
Supplies and credited to Cash.
c. a $100 cash drawing by the owner is debited to
Owner’s Drawing for $1,000 and credited to
Cash for $100.
d. a $450 payment on account is debited to
Accounts Payable for $45 and credited to Cash
for $45.
Chapter
2-25 LO 7 Prepare a trial balance and explain its purposes.
 Recording
Recording Process
Process

Discussion Question
Q2-19. Jim Benes is confused about how accounting
information flows through the accounting system. He
believes the flow of information is as follows.
a. Debits and credits posted to the ledger.
b. Business transaction occurs.
c. Information entered in the journal.
d. Financial statements are prepared.
e. Trial balance is prepared.
Is Jim correct? If not, indicate to Jim the proper flow
of the information.

Chapter
2-26 LO 7 Prepare a trial balance and explain its purposes.
 Recording
Recording Process
Process

Answer to Discussion Question

1. No, Jim is not correct.
2. The proper sequence is as follows :
( b ) Business transaction occurs.
( c ) Information entered in the journal.
( a ) Debits and credits are posted to the ledger.
( e ) Trial balance is prepared.
( d ) Financial statements are prepared.

Chapter
2-27 LO 7 Prepare a trial balance and explain its purposes.
 Recording
Recording Process
Process

QUESTIONS

Accounting Principles, Kieso

Chapter
2-28
 Back-up
Slides

Chapter
2-29
 Chart
Chart of
of Accounts
Accounts
Chart of Accounts – Example
Accounts relating Begins with
Assets 1
Liabilities & Owners’ Equity 2
Non-operating expenses 3
Operating expenses 4
Allocation of Operating expenses 5
Cost of Sales 8
Revenues 9

Chapter
2-30 LO 6 Explain what posting is and how it helps in the recording process.