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Bookkeeping

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Three Parts of an Account

(1) ACCOUNT TITLE

(Left Side)

(2) DEBIT

(Right Side)

(3) CREDIT

Total Debits > Total Credits = Debit Balance

Total Credits > Total Debits = Credit Balance

Total Debits = Total Credits = Zero Balance

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Three Parts of an Account(continued)

CASH

ACCOUNTS PAYABLE

9/1 Balance 12,0009/5 2,0009/30 Balance 11,000

9/10 2,0009/20 1,000

9/6 3,0009/21 2,000

9/1 Balance 6,0009/17 9,0009/30 Balance 10,000

Example:

(Debit Balance)

(Credit Balance)

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Double Entry Recording Rules

ASSETS

DIVIDENDS

EXPENSES

REVENUES

RETAINED EARNINGS

COMMON STOCK

LIABILITIESIncrease

Account by DEBIT

Increase Account by

DEBIT

Increase Account by

DEBIT

Decrease Account by

DEBIT

Decrease Account by

DEBIT

Decrease Account by

DEBIT

Decrease Account by

DEBIT

Increase Account by

CREDIT

Increase Account by

CREDIT

Increase Account by

CREDIT

Increase Account by

CREDIT

Decrease Account by

CREDIT

Decrease Account by

CREDIT

Decrease Account by

CREDIT

Normal Balance

Normal Balance

Normal Balance

Normal Balance

Normal Balance

Normal Balance

Normal Balance

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Double Entry Recording Rules(continued)

Debit Credit

ASSETS Increase (N) Decrease

LIABILITIES Decrease Increase (N)

COMMON STOCK Decrease Increase (N)

RETAINED EARNININGS Decrease Increase (N)

DIVIDENDS Increase (N) Decrease

REVENUES Decrease Increase (N)

EXPENSES Increase (N) Decrease

SUMMARY

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Normal Account Balances

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

Instructions:

Account Normal Balance Increase in Account

1. Cash (EXAMPLE) DR DR

2. Accounts Receivable

3. Rent Expense

4. Service Revenue

5. Accounts Payable

6. Common Stock

7. Dividends

8. Unearned Revenue

9. Insurance Expense

10. Notes Payable

11. Retained Earnings

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Normal Account Balances(continued)

Account Normal Balance Increase in Account

1. Cash (EXAMPLE) DR DR

2. Accounts Receivable DR DR

3. Rent Expense DR DR

4. Service Revenue CR CR

5. Accounts Payable CR CR

6. Common Stock CR CR

7. Dividends DR DR

8. Unearned Revenue CR CR

9. Insurance Expense DR DR

10. Notes Payable CR CR

11. Retained Earnings CR CR

Answer:

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

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The Recording Process

ANALYZE

Business Transactions (for effects on specific

accounts)

RECORD

Transactions entered in a Journal (book of

original entry)

TRANSFER

Journal Information transferred to Ledger Accounts

Business Documents

Journalizing

Posting

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Journalizing

Date Account Titles and Explanation Ref. Debit Credit

2008Sept. 1

Cash 101 15,000

Common Stock 311 15,000

(To record sale of stock)

Key: 1. Enter date in Date Column.

2. Enter debit account title(s) at left margin of Account Titles and Explanation Column and amounts in Debit Column.

3. Enter credit account title(s) [INDENT CREDIT ACCOUNT TITLE(S)] and amounts in Credit Column.

4. Enter explanation under account titles.

5. Ref. Column – account number

1.

2.

3.

4.

5.

General Journal

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Analyzing and JournalizingTransactions

Steps in the Recording Process

Instructions: Analyze and journalize the transactions provided.Sept. 1 Stockholders Invested $5,000 in the video services corporation.

2 The corporation paid $500 cash for the store rent.

5 The corporation purchased video supplies of $1,000.

9 The corporation purchased video equipment for $12,000 paying $2,000 in cash and signed a $10,000 twenty-four month 9% note payable.

12 The corporation provided video services and collected cash of $3,000.

15 Declared and paid a $500 cash dividends to stockholders.

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Analyzing and Journalizing Transactions (continued)

Date Account Titles and Explanation Ref. Debit Credit

2014Sept. 1

Cash Common Stock (Shares of stock issued for cash)

101340

5,0005,000

2 Rent Expense Cash (Paid rent)

560101

500500

5 Supplies Cash (Paid cash for supplies)

129101

1,0001,000

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

157101200

12,0002,00010,000

12 Cash Service Revenue (Collected cash for services provided)

101400

3,0003,000

15 Dividends Cash (Declared and paid a cash dividend)

332101

500500

General Journal J1

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Forms of Accounts and Balances

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

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

Cash

9/1 Bal. 12,0009/5 500

9/10 2,0009/20 1,500

9/30 Bal. 9,000

101Cash

9/1 Bal. + 12,0009/5 + 5009/10 - 2,0009/20 - 1,5009/30 Bal. 9,000

Three-Column Account FormCash No. 101

Date Explanation Ref. Debit Credit Balance

2008Sept. 1

Balance 12,000

5 Jl 500 12,500

10 Jl 2,000 10,500

20 Jl 1,500 9,000

30 Balance 9,000

POSTING

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Steps in Posting

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

Date Account Titles and Explanation Ref. Debit Credit

2014Sept. 1

Cash Common Stock (Issued shares of stock for cash)

101340

5,0005,000

2 Rent Expense Cash (Paid rent)

560101

500500

Cash

Date Explanation Ref. Debit Credit Balance

2014, Sept. 1 Jl 5,000 5,000

2 Jl 500 4,500

Date Explanation Ref. Debit Credit Balance

2014, Sept. 1 Jl 5,000 5,000

General Journal

Common Stock

Rent Expense

Date Explanation Ref. Debit Credit Balance

2014, Sept. 2 Jl 500 500

Jl

No. 101

No. 340

No. 560

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Name of the CompanyTrial Balance

September 31, 2014

Debit Credit

Cash $ 4,000

Supplies 1,000

Equipment 12,000

Notes Payable $ 10,000

Common Stock 5,000

Dividends 500

Service Revenue 3,000

Rent Expense 500 ______

$18,000 $18,000

All balances are taken from the

ledger accounts on Sept 31 after considering all transactions for

the month.

Proves equality of debits and

credits.

Trial Balance

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The Recording Process (recap)

• Double entry bookkeeping– The transactions involve at least two accounts– The journal entry must show at least one debit and one credit entry– The sum of debit and credits must be equal

• General Journal– An accounting record in which transactions are initially recorded in

chronological order• General Ledger

– Shows all the bookkeeping accounts individually including their current balance

• Posting– The procedure of transferring journal entries to the ledger

accounts.• Trial Balance

– A list of accounts an their balances at a given time– To prove equality of debit and credit