2-16

(1) ACCOUNT TITLE

Example:

ILLUSTRATION 2-1THREE PARTS OF AN ACCOUNT

(Right Side)

(3) CREDIT

(Left Side)

(2) DEBIT

Total Debits > Total Credits = Debit Balance

Total Credits > Total Debits = Credit Balance

Total Debits = Total Credits = Zero Balance

CASH

9/1 Balance9/59/30 Balance

12,0002,000

11,000

9/109/20

2,0001,000

(Debit Balance)

ACCOUNTS PAYABLE

9/69/21

3,0002,000

9/1 Balance9/179/30 Balance

6,0009,000

10,000

(Credit Balance)

2-17

ILLUSTRATION 2-2DOUBLE ENTRY RECORDING RULES

Increase Accountby DEBIT

NormalBalance

Increase Accountby CREDIT

NormalBalance

Decrease Accountby CREDIT

Decrease Accountby DEBIT

ASSETS LIABILITIES

Increase Accountby DEBIT

NormalBalance

Increase Accountby CREDIT

NormalBalance

Decrease Accountby CREDIT

Decrease Accountby DEBIT

OWNER'S DRAWING OWNER'S CAPITAL

Increase Accountby DEBIT

NormalBalance

Increase Accountby CREDIT

NormalBalance

Decrease Accountby CREDIT

Decrease Accountby DEBIT

EXPENSES REVENUES

SUMMARY

ASSETSLIABILITIESOWNER'S CAPITALOWNER'S DRAWINGREVENUESEXPENSES

DebitIncrease (N)DecreaseDecreaseIncrease (N)DecreaseIncrease (N)

CreditDecreaseIncrease (N)Increase (N)DecreaseIncrease (N)Decrease

2-18

ILLUSTRATION 2-3NORMAL ACCOUNT BALANCES

Instructions: (a) For each account, indicate the normal balance (Debit/Credit).

(b) For each account, indicate how an increase in the account is recorded (DR/CR).

1. Cash (EXAMPLE) 2. Accounts Receivable 3. Rent Expense 4. Service Revenue 5. Accounts Payable 6. Owner’s Capital 7. Owner’s Drawing 8. Unearned Revenue 9. Insurance Expense10. Notes Payable

AccountNormalBalance

DR

Increase inAccount

DR

1. (given) 2. 3. 4. 5. 6. 7. 8. 9. 10.

AccountNormalBalance

DR

Increase inAccount

DRDRCRCRCRDRCRDRCR

DRDRDRCRCRCRDRCRDRCR

Note: The normal balance is the same as increase in the account.

Answer:

Review the normal balances of accounts introduced in Chapters One and Two. Review how an increase in the account would be recorded (DR/CR).

2-19

ILLUSTRATION 2-4THE RECORDING PROCESS

PostingTRANSFER

Journal Information toAccounts

JournalizingRECORD

Transactions in a Journal(book of original entry)

Source DocumentsANALYZE

Business Transactions(for effects on accounts)

2-20

ILLUSTRATION 2-5JOURNALIZING

General Journal

Date Account Titles and Explanation Ref. Debit Credit

1.

2.

3.

4.

5.

2002Sept. 1

Cash 15,000

C. Mann, Capital 15,000

(Owner’s investment of cashin business)

Key: 1.2.

3.

4.5.

Enter date in Date Column.Enter debit account title(s) at left margin of Account Titlesand Explanation Column and amounts in Debit Column.Enter credit account title(s) [ INDENT CREDITACCOUNT TITLE(S)] and amounts in Credit Column.Enter explanation under account titles.Ref. Column is left blank until posting.

2-21

ILLUSTRATION 2-6ANALYSIS AND JOURNALIZING TRANSACTIONS

General Journal

Date Account Titles and Explanation Ref. Debit Credit2002Sept. 1

Rent Expense Cash (Paid rent)

5,000

2

Cash Ed Boggs, Capital (Owner’s investment of cash in business)

5,000

500500

Supplies Cash (Paid cash for supplies)

5 1,0001,000

Equipment Cash Notes Payable (Purchased equipment, paying cash and issuing notes payable)

9 12,0002,000

10,000

Cash Service Revenue (Received cash for services provided)

12 3,0003,000

Answer:

Steps in the Recording ProcessInstructions: Analyze and journalize the transactions provided.

Sept. 1259

12

Ed Boggs invested $5,000 in his video services business.Paid $500 cash for the store rent.Purchased video supplies of $1,000.Purchased video equipment for $12,000 paying $2,000 in cashand signed a $10,000 twenty-four month 9% note payable.Provided video services and collected cash of $3,000.

J1

2-22

Cash

ILLUSTRATION 2-7FORMS OF ACCOUNTS AND BALANCES

9/109/20

9/1 Bal.9/59/30 Bal.

2,0001,500

12,000500

9,000

101

Cash9/1 Bal.9/59/109/209/30 Bal.

12,000500

2,0001,5009,000

++––

1. Tabular2. Account (or T-Account)3. Three-Column

All forms must show increases and decreases to the account in orderto determine the account balances (amounts are assumed).

Date Explanation Ref. Debit Credit

2002Sept. 1

5

10

20

30

Balance

Balance

Balance

J1

J1

J1

500

2,000

1,500

12,000

12,500

10,500

9,000

9,000

Three-Column Account FormCash No. 101

2-23

ILLUSTRATION 2-8STEPS IN POSTING

General Journal

Date Account Titles and Explanation Ref. Debit Credit2002Sept. 1

Rent Expense Cash (Paid rent)

5,000

2

Cash Ed Boggs, Capital (Owner’sinvestment of cash in business)

5,000

500500

J1

101340

Instructions: Post the first two entries recorded in the General Journal.

Cash

Date Account Titles and Explanation Ref. Debit Credit2002Sept. 1 5,000

500

No. 101

J1

560101

Balance

5,0002 J1 4,500

Ed Boggs, Capital

Date Account Titles and Explanation Ref. Debit Credit2002Sept. 1 5,000

No. 340

J1

Balance

5,000

Rent Expense

Date Account Titles and Explanation Ref. Debit Credit2002Sept. 2 500

No. 560

J1

Balance

500