The Recording Process

The Account – is an accounting record of increases and decreases in a specific asset, liability, or owner’s equity item.

The Journal – is the book where the transactions are initially recorded in chronological order. It is referred to as the book of original entry.

The ledger – is the entire group of accounts maintained by a company.

The Account

The account consists of three parts:

1. A title

2. A left or debit side

3. A right or credit side

Assets and Liabilities

Debits and Credits

Stockholders’ Equity – Common Stock

Debits and Credits

Stockholders’ Equity – Retained Earnings

Debits and Credits

Stockholder’s Equity - Dividends

Debits and Credits

Revenue and Expenses

Debit / Credit Rule Summary

Stockholders’ Equity Relationships

Steps in the Recording Process

1. Analyze each transaction for its effects on the accounts.

2. Enter the transaction information in a journal – called journalizing. The primary journal we will use is the general journal.

3. Transfer the journal information to the appropriate accounts in the ledger – called posting.

Journalizing

Simple and Compound Entries

Simple entries are those that involve only two accounts, one debit and one credit.

An entry that requires more than two accounts is called a compound entry.

The Ledger

The ledger is the entire group of accounts maintained by a company.

A general ledger contains all the asset, liability, and stockholder’s equity accounts.

The Chart of AccountsThe chart of accounts is a listing of all the individual accounts used in the operation of a business. It is structured in accounting equation order –

Assets

Liabilities

Stockholders’ Equity

Revenues

Expenses

The Chart of Accounts

The Posting Process

Posting is the transferring of the information in the journal entries to the General Ledger

The Posting Process

Recording Transaction 1

Recording Transaction 2

Recording Transaction 3

Recording Transaction 4

Recording Transaction 5

Recording Transaction 6

Recording Transaction 7

Recording Transaction 8

Recording Transaction 9

Recording Transaction 10

The General Journal

Posted Transactions

Trial Balance

The Trial Balance is a list of all of the accounts in the general ledger and their balances at a given time.

Preparing the Trial Balance

1. List the account titles and their balances.

2. Total the debit and credit columns.

3. Prove the equality of the two columns.

A Trial Balance

Limitations

The Trial Balance does not prove that all the transactions have been recorded or that the entries have been made to the proper accounts.