Principle of Accounting Chapter 4 double entry recording process CLC
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Principle of Accounting
Chapter 4
The double-entry Recording Process
BA in International Business
Foreign Trade University
Outline
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An introduction to double-entry accounting
Footing and balancing ledger accounts
The role of trial balance
Detecting errors through a trial balance
Chart of account
Three-column ledger accounts
Accounting for drawings
The Account
Accounting’s main summary device
is the account, the record of changes.
Accounts are grouped in three broad categories,
according to the accounting equation:
Cash
The Account
Assets are the economic resources that
benefit the business now and in the future
Cash
Accounts receivable
Inventory
Notes receivable
Prepaid expenses
Land
Buildings
Equipment,
furniture,
and fixtures
The Account
Liabilities are the debts of the company.
Notes payable
Accounts payable
Accrued liabilities
(for expenses incurred but not paid)
Long-term liabilities (bonds)
The Account
Stockholders’ (owners’) equity is the
owners’ claims to the assets of a corporation.
A proprietorship uses a single account.
A partnership uses separate accounts for each
owner’s capital balance and withdrawals.
A corporation uses separate capital
accounts for each source of capital.
The Account
Accounting
Accounting Transactions
Transactions
Transactions are economic events that
require recording in the financial statements.
May be external or internal.
Not all activities represent transactions.
Each transaction has a dual effect on the
accounting equation.
Double-Entry Accounting
Double-entry bookkeeping means to record
the dual effects of each business transaction.
The T-Account
Account Title
Debit
Credit
LEFT SIDE
Three parts :
1) the Title of the account
2) a left or Debit side
3) a right or Credit side
RIGHT SIDE
Debit
Debit and
and Credit
Credit Procedures
Procedures
Double-entry accounting system
Each transaction must affect two or more
accounts to keep the basic accounting
equation in balance.
Recording done by debiting at least one
account and crediting another.
DEBITS must equal CREDITS.
SO 3 Define debits and credits and explain their use in recording business
transactions.
Debit
Debit and
and Credit
Credit Procedures
Procedures
If Debits are greater than Credits, the
account will have a debit balance.
Account Name
Debit / Dr.
Transaction #1
$10,000
Transaction #3
8,000
Balance
Credit / Cr.
$3,00
0
Transaction #2
$15,000
SO 3 Define debits and credits and explain their use in recording business
transactions.
Debit
Debit and
and Credit
Credit Procedures
Procedures
If Credits are greater than Debits, the
account will have a credit balance.
Account Name
Debit / Dr.
Transaction #1
Balance
$10,000
Credit / Cr.
$3,00
0
8,000
Transaction #2
Transaction #3
$1,000
SO 3 Define debits and credits and explain their use in recording business
transactions.
Ledger Accounts
• T-accounts and the balance sheet
equation:
Assets = Liabilities + Owners’ Equity
Assets
Increases
Decreases
Liabilities
Decreases
Increases
Owners’ Equity
Decreases
Increases
Debits and Credits
• Debit (dr.) - an entry or balance on
the left side of an account
• Credit (cr.) - an entry or balance on
the right side of an account
• Remember:
– Debit is always the left side!
– Credit is always the right side!
Recording entries in ledger
accounts
Identify the transaction and state two ledger accounts
affected by the transaction
Classify the ledger accounts according to
their report classification
Determine whether each account is
increased or decreased by the transaction
State whether the accounts will have
a debit or a credit entry
Recording entries in ledger
accounts
Air & Sea received $50,000 from issuing stock.
Assets
Cash
Debit
for
Increase,
50,000
=
Liabilities
+
Stockholders’
Equity
Common Stock
Credit
for
Increase,
50,000
Recording entries in ledger
accounts
Air & Sea purchased land for $40,000 cash.
Assets
=
Cash
Bal. 50,000 Credit
for
Decrease,
40,000
Land
Debit
for
Increase,
Liabilities
+
Stockholders’
Equity
Common Stock
Bal. 50,000
Recording Transactions
in the Journal
Journal
Date
Accounts and Explanation
April 2 Cash
Common Stock
Issued common stock
Debit
Page 1
Credit
50,000
50,000
General Journal Template
Journalize the April
Events
Journalize the April
Events
Posting from Journal to
Ledger
The journal is a chronological record
of all transactions listed by date.
The ledger is a grouping of all the
accounts; it shows their balances.
Data must be copied to the ledger –
a process called posting.
Posting from Journal to
Ledger
Cash
Cash
Individual asset accounts
Accounts
Accounts
Payable
Payable
Individual liability accounts
Common
Common
Stock
Stock
Individual stockholders’ equity accounts
All individual
accounts
combined
make up
the ledger.
Ledger
Ledger
Flow of Accounting Data
Transaction
Occurs
Transaction
Analyzed
Transaction
Entered in
the Journal
Amounts
Posted to
the Ledger
