Account Name
Debit / Dr.
Credit / Cr.
2-*
Assets - Debits should exceed credits.Liabilities Credits should
exceed debits. Normal balance is on the increase side.Debits and
CreditsLO 2 Define debits and credits and explain their use in
recording business transactions.
Chapter 3-*
Assets
Debit / Dr.
Credit / Cr.
Normal Balance
Chapter 3-*
Liabilities
Debit / Dr.
Credit / Cr.
Normal Balance
2-*
Issuance of share capital and revenues increase equity (credit).
Dividends and expenses decrease equity (debit).Debits and CreditsLO
2
Chapter 3-*
Debit / Dr.
Credit / Cr.
Normal Balance
Share Capital
Chapter 3-*
Dividends
Debit / Dr.
Credit / Cr.
Normal Balance
Chapter 3-*
Debit / Dr.
Credit / Cr.
Normal Balance
Equity
Chapter 3-*
Debit / Dr.
Credit / Cr.
Normal Balance
Retained Earnings
2-*
Debits and CreditsLO 2 Define debits and credits and explain
their use in recording business transactions.The purpose of earning
revenues is to benefit the shareholders.The effect of debits and
credits on revenue accounts is the same as their effect on
equity.Expenses have the opposite effect: expenses decrease
equity.
Chapter 3-*
Debit / Dr.
Credit / Cr.
Normal Balance
Expense
Chapter 3-*
Debit / Dr.
Credit / Cr.
Normal Balance
Revenue
2-*
Normal Balance CreditNormal Balance DebitDebit/Credit RulesLO
2
Chapter 3-*
Assets
Debit / Dr.
Credit / Cr.
Normal Balance
Chapter 3-*
Debit / Dr.
Credit / Cr.
Normal Balance
Expense
Chapter 3-*
Liabilities
Debit / Dr.
Credit / Cr.
Normal Balance
Chapter 3-*
Debit / Dr.
Credit / Cr.
Normal Balance
Equity
Chapter 3-*
Debit / Dr.
Credit / Cr.
Normal Balance
Revenue
2-*
Income
Statement=+-AssetLiabilityEquityRevenueExpenseDebitCreditDebit/Credit
RulesLO 2 Define debits and credits and explain their use in
recording business transactions.Statement of Financial Position
2-*
Debits:increase both assets and liabilities.decrease both assets
and liabilities.increase assets and decrease liabilities.decrease
assets and increase liabilities.Debit/Credit RulesQuestionLO 2
Define debits and credits and explain their use in recording
business transactions.
2-*
Accounts that normally have debit balances are:assets, expenses,
and revenues.assets, expenses, and equity.assets, liabilities, and
dividends.assets, dividends, and expenses.Debit/Credit
RulesQuestionLO 2 Define debits and credits and explain their use
in recording business transactions.
2-*
2-*
Equity RelationshipsLO 2Illustration 2-11
2-*
Illustration 2-12Summary of Debit/Credit RulesRelationship among
the assets, liabilities and equity of a business: The equation must
be in balance after every transaction. For every Debit there must
be a Credit.LO 2 Define debits and credits and explain their use in
recording business transactions.
2-*
Kate Browne, president of Hair It Is, Inc., has just rented
space in a shopping mall in which she will open and operate a
beauty salon. A friend has advised Kate to set up a double-entry
set of accounting records in which to record all of her business
transactions. Identify the balance sheet accounts that Hair It Is,
Inc., will likely need to record the transactions needed to
establish and open the business. Also, indicate whether the normal
balance of each account is a debit or a credit.LO 2AssetsCash
(debit)Supplies (debit)Equipment (debit)
LiabilitiesNotes payable (credit)Accounts payable
(credit)EquityShare capital (credit)
2-*
Business documents, such as a sales slip, a check, a bill, or a
cash register tape, provide evidence of the transaction.LO 3
Identify the basic steps in the recording process.Illustration
2-13Analyze each transactionEnter transaction in a journalTransfer
journal information to ledger accountsSteps in the Recording
Process
2-*
Book of original entry.Transactions recorded in chronological
order.Contributions to the recording process:Discloses the complete
effects of a transaction.Provides a chronological record of
transactions.Helps to prevent or locate errors because the debit
and credit amounts can be easily compared.LO 4 Explain what a
journal is and how it helps in the recording process.Steps in the
Recording ProcessThe Journal
2-*
Journalizing - Entering transaction data in the journal.LO 4
Explain what a journal is and how it helps in the recording
process.Illustration: On September 1, shareholders invested 15,000
cash in the corporation in exchange for share of stock, and
Softbyte purchased computer equipment for 7,000 cash.CashShare
capital-ordinarySept. 115,00015,000General
JournalEquipmentCash7,0007,000Illustration 2-14Steps in the
Recording Process
Sheet1
DateAccount TitleRef.DebitCredit
2-*
Simple and Compound EntriesLO 4 Explain what a journal is and
how it helps in the recording process.Illustration: On July 1, Tsai
Company purchases a delivery truck costing NT$420,000. It pays
NT$240,000 cash now and agrees to pay the remaining NT$180,000 on
account.EquipmentCashJuly 1420,000240,000General
Journal180,000Accounts payableIllustration 2-15Steps in the
Recording Process
Sheet1
DateAccount TitleRef.DebitCredit
2-*
General Ledger contains the entire group of accounts maintained
by a company. LO 5 Explain what a ledger is and how it helps in the
recording process.Illustration 2-16The LedgerSteps in the Recording
Process
2-*
2-*
LO 5 Explain what a ledger is and how it helps in the recording
process.Illustration 2-17Steps in the Recording ProcessStandard
Form of Account
2-*
Posting process of transferring amounts from the journal to the
ledger accounts. Illustration 2-18LO 6 Explain what posting is and
how it helps in the recording process.Steps
2-*
Posting:normally occurs before journalizing.transfers ledger
transaction data to the journal.is an optional step in the
recording process.transfers journal entries to ledger accounts.LO 6
Explain what posting is and how it helps in the recording
process.PostingQuestion
2-*
Accounts and account numbers arranged in sequence in which they
are presented in the financial statements.LO 6 Explain what posting
is and how it helps in the recording process.Illustration 2-19Chart
of Accounts
2-*
LO 6Follow these steps:1. Determine what type of account is
involved.2. Determine what items increased or decreased and by how
much.3. Translate the increases and decreases into debits and
credits.Illustration 2-20The Recording Process Illustrated
2-*
The Recording Process IllustratedLO 6Illustration 2-21
2-*
The Recording Process IllustratedLO 6Illustration 2-22
2-*
The Recording Process IllustratedLO 6Illustration 2-23
2-*
The Recording Process IllustratedLO 6Illustration 2-24
2-*
The Recording Process IllustratedLO 6Illustration 2-25
2-*
The Recording Process IllustratedIllustration 2-26LO 6
2-*
The Recording Process IllustratedLO 6Illustration 2-27
2-*
The Recording Process IllustratedLO 6Illustration 2-28
2-*
The Recording Process IllustratedLO 6Illustration 2-29
2-*
Basel Company recorded the following transactions in a general
journal during the month of March. Post these entries to the Cash
account.Mar. 4 Cash 2,280Service Revenue 2,280Mar. 15 Salaries and
Wages Expense 400Cash 400Mar. 19 Utilities Expense 92Cash 92LO
6
2-*
Illustration 2-31
2-*
LO 7 Prepare a trial balance and explain its purposes.
Illustration 2-32Trial Balance
2-*
The trial balance may balance even when a transaction is not
journalized, a correct journal entry is not posted, a journal entry
is posted twice, incorrect accounts are used in journalizing or
posting, or offsetting errors are made in recording the amount of a
transaction.LO 7 Prepare a trial balance and explain its
purposes.Trial BalanceLimitations of a Trial Balance
2-*
2-*
Key PointsRules for accounting for specific events sometimes
differ across countries. For example, IFRS companies rely less on
historical cost and more on fair value than U.S. companies. Despite
the differences, the double-entry accounting system is the basis of
accounting systems worldwide. Both the IASB and FASB go beyond the
basic definitions provided in this textbook for the key elements of
financial statements, that is, assets, liabilities, equity,
revenues, and expenses. The more substantive definitions, using the
FASB definitional structure, are provided in the Chapter 1 Another
Perspective section on page 48. A trial balance under GAAP follows
the same format as shown in the textbook.Another Perspective
2-*
Key PointsIn the United States, equity is often referred to as
either shareholders equity or stockholders equity, and Share
CapitalOrdinary is referred to as Common Stock. The statement of
financial position is often called the balance sheet in the United
States. As shown in the textbook, currency signs are typically used
only in the trial balance and the financial statements. The same
practice is followed under GAAP, using the U.S. dollar.Another
Perspective
2-*
Key PointsIn February 2010, the U.S. Securities and Exchange
Commission (SEC) expressed a desire to continue working toward a
single set of high-quality standards. In deciding whether the
United States should adopt IFRS, some of the issues the SEC said
should be considered are:Whether IFRS is sufficiently developed and
consistent in application.Whether the IASB is sufficiently
independent.Whether IFRS is established for the benefit of
investors.Issues involved in educating investors about IFRS.Impact
of a switch to IFRS on U.S. laws and regulations.Impact on
companies including changes to their accounting systems,
contractual arrangements, corporate governance, and litigation.The
issues involved in educating accountants.Another Perspective
2-*
Looking to the FutureThe basic recording process shown in this
textbook is followed by companies across the globe. It is unlikely
to change in the future. The definitional structure of assets,
liabilities, equity, revenues, and expenses may change over time as
the IASB and FASB evaluate their overall conceptual framework for
establishing accounting standards.Another Perspective
2-*
A trial balance:is the same under GAAP and IFRS.proves that
transactions are recorded correctly.proves that all transactions
have been recorded.will not balance if a correct journal entry is
posted twice.GAAP Self-Test QuestionsAnother Perspective
2-*
One difference between GAAP and IFRS is that:IFRS uses
accrual-accounting concepts, and GAAP uses primarily the cash basis
of accounting.GAAP uses a different posting process than IFRS.IFRS
uses more fair value measurements than GAAP.the limitations of a
trial balance are different between GAAP and IFRS.GAAP Self-Test
QuestionsAnother Perspective
2-*
The general policy for using proper currency signs (dollar, yen,
pound, etc.) is the same for both GAAP and this textbook. This
policy is as follows:Currency signs only appear in ledgers and
journal entries.Currency signs are only shown in the trial
balance.Currency signs are shown for all compound journal
entries.Currency signs are shown in trial balances and fi nancial
statements.GAAP Self-Test QuestionsAnother Perspective
2-*
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