The Recording Process

The Account

• Debits and credits • Owner’s equity relationships • Summary of debit/credit rules

Steps in the Recording Process

• Journal • Ledger • Posting • Chart of accounts • The recording process illustrated

The Trial Balance

• Limitations of a trial balance • Locating errors • Use of dollar sign. 

An account is an individual accounting record of increases and decreases in a  specific asset, liability, or owner’s equity item, consists of three parts: a title, a debit side, and a right or credit side, we call it a T-account. For example, a company would have separate accounts for Cash, Accounts Receivable, Accounts Payable, Service Revenue, Salaries and Wages Expense, and so on. 

Debits and Credits

The term debit indicates the left side of an account and the act of entering an amount on the left side of an account is called debiting the account.

The credit indicates the right side and Making an entry on the right side is crediting the account. 

They are commonly abbreviated as Dr; for debit and Cr; for credit, We use the terms debit and credit repeatedly in the recording process to describe where entries are made in accounts.

When comparing the totals of the two sides, if the total of the debit amounts exceeds the credits an account shows a debit balance and account shows a credit balance if the credit amounts exceed the debits.

DEBIT AND CREDIT PROCEDURE __ For each transaction if every transaction is recorded with equal debits and credits, then the sum of all the debits to the accounts must equal the sum of all the credits. The equality of debits and credits provides the basis for the double-entry system of recording transactions, Under the double-entry system, the dual (two-sided) effect of each transaction is recorded in appropriate accounts. This system provides a logical method for recording transactions and also helps ensure the accuracy of the recorded amounts as well as the detection of errors.