السبت، 19 مارس، 2016
Summarization chapter 2 -the recording process
the recording process
An account is an individual accounting record of increases and decreases in a specific asset, liability, or owner’s equity item In its simplest form, an account consists of three parts: (1) a title, (2) a left or debit side, and (3) a right or credit side. Because the format of an account resembles
the letter T, we refer to it as a T-account. Illustration 2-1 shows the basic
form of an account.
Steps in the Recording Process
Although it is possible to enter transaction information directly into the accounts without using a journal, few businesses do so. Practically every business uses three basic steps in the recording process:
1. Analyze each transaction for its effects on the accounts.
2. Enter the transaction information in a journal.
3. Transfer the journal information to the appropriate accounts in the ledger
The recording process begins with the transaction. Business documents, such as a sales slip, a check, a bill, or a cash register tape, provide evidence of the transaction. The company analyzes this evidence to determine the transaction’s effects on specifi c accounts. The company then
enters the transaction in the journal. Finally, it transfers the journal entry to the designated accounts in the ledger.
Summary Illustration of Journalizing and Posting
Illustration 2-29 shows the journal for Pioneer Advertising Agency for October
The Trial Balance
A trial balance is a list of accounts and their balances at a given time. Customarily,
companies prepare a trial balance at the end of an accounting period. They list
accounts in the order in which they appear in the ledger. Debit balances appear
in the left column and credit balances in the right column
The trial balance proves the mathematical equality of debits and credits
after posting. Under the double-entry system, this equality occurs when the sum
of the debit account balances equals the sum of the credit account balances. A
trial balance may also uncover errors in journalizing and posting. For example,
a trial balance may well have detected the error at MF Global discussed in the
Feature Story. In addition, a trial balance is useful in the preparation of
fi nancial statements, as we will explain in the next two chapters.
The steps for preparing a trial balance are:
1. List the account titles and their balances in the appropriate debit or credit
2. Total the debit and credit columns.
3. Prove the equality of the two columns.
Limitations of a Trial Balance
A trial balance does not guarantee freedom from recording errors, however.
Numerous errors may exist even though the totals of the trial balance
columns agree. For example, the trial balance may balance even when:
1. A transaction is not journalized.
2. A correct journal entry is not posted.
3. A journal entry is posted twice.
4. Incorrect accounts are used in journalizing or posting.
5. Offsetting errors are made in recording the amount of a transaction.
As long as equal debits and credits are posted, even to the wrong account or in the
wrong amount, the total debits will equal the total credits. The trial balance
does not prove that the company has recorded all transactions or that the
ledger is correct.
Errors in a trial balance generally result from mathematical mistakes, incorrect
postings, or simply transcribing data incorrectly. What do you do if you are faced
with a trial balance that does not balance? First, determine the amount of the
difference between the two columns of the trial balance. After this amount is
known, the following steps are often helpful:
1. If the error is $1, $10, $100, or $1,000, re-add the trial balance columns and
recompute the account balances.
2. If the error is divisible by 2, scan the trial balance to see whether a balance
equal to half the error has been entered in the wrong column.
3. If the error is divisible by 9, retrace the account balances on the trial balance
to see whether they are incorrectly copied from the ledger. For example, if a
balance was $12 and it was listed as $21, a $9 error has been made. Reversing
the order of numbers is called a transposition error.
4. If the error is not divisible by 2 or 9, scan the ledger to see whether an account
balance in the amount of the error has been omitted from the trial balance,
and scan the journal to see whether a posting of that amount has been