The Recording Process - Lecture 2 (Chapter 2)
The Journal is referred to as the
book of original entry.
Simple Entry
involves only 2 accounts: one debit and one credit account.
The three-column form of account
is also called the Standard Form of Account.
A trial balance may balance even when
journal entry posted twice.
The Chart of Accounts
lists the accounts and the account numbers that identify their location in the ledger.
Compound Entry
requires three or more accounts.
Currency signs are
shown only for the first item and the total in the column.
For debit/credit rules, asset accounts are
similar to expense and dividend accounts.
For debit/credit rules, liability accounts are
similar to share capital, revenue accounts and retained earnings.
The Numbering System
starts with the statement of financial position accounts and follows with the income statement accounts.
The Ledger
the entire group of accounts maintained by a company.
A trial balance may balance even when
transaction not journalized.
Debit and Credit Rule:
Debit is on the LEFT and credit is on the RIGHT.
A decrease in a dividend or expense account is
a credit.
An decrease in assets is
a credit.
An increase in a revenue account is
a credit.
An increase in a share-capital ordinary account is
a credit.
An increase in liabilities or equity is
a credit.
A decrease in liabilities or equity is
a debit.
An decrease in a revenue account is
a debit.
An decrease in a share-capital ordinary account is
a debit.
An increase in a dividend or expense account is
a debit.
An increase in assets is
a debit.
The Trial Balance
a list of accounts and their balances at a given time.
In the standard format,
all debits must be listed before the credits.
An Account
an individual accounting record of increases and decreases in a specific asset, liability, or equity item.
A trial balance may balance even when
correct journal entry not posted.
In a credit balance (liability or share capital or retained earnings account),
credits to the account should exceed debits to that account.
In an asset account,
debit means coming into the account and credit means leaving the account.
In a liability account,
debit means leaving the account and credit means coming into the account.
In a debit balance (asset account),
debits to the account should exceed credits to that account.
The number of accounts
depends on the amount of detail management desires.
The journal
discloses in one place the complete effects of a transaction.
Currency signs
do not appear in journals or ledgers.
Totals are
double-underlined.
Debit and Credit Rule:
each debit has an equal and opposite credit.
The three-column form of account
has a debit, credit and balance column.
The journal
helps to prevent or locate errors because the debit and credit amounts for each entry can be easily compared.
A trial balance may balance even when
incorrect accounts used in journalizing or posting.
Retained Earnings
net income that is kept in the business. It represents the portion of equity that the company has accumulated through the profitable operation of the business.
A trial balance may balance even when
offsetting errors made in recording the amount of a transaction.
The trial balance
proves the mathematical equality of debits and credits after posting.
The journal
provides a chronological record of transactions.
The ledger
provides the balance in each of the accounts as well as keeps track of changes in these balances.
Currency signs are
typically used only in the trial balance and the financial statements.