THE RECORDING PROCESS
Due to the great number of transactions that occur daily in most businesses, accountants do not find it practical to present the cumulative effects of these transactions on the basic accounting equation in tabular form as we did in Exercise 2 in Chapter 1. Instead, they have developed a system by which the effects of transactions and events may conveniently be recorded, sorted, summarized, and stored until financial statements are desired. That system is the focus of this chapter.
SUMMARY OF LEARNING OBJECTIVES
- Explain what an account is and how it helps in the recording process. An account is a record of increases and decreases in specific asset, liability, and owner's equity items.
- Define debits and credits and explain their use in recording business transactions. The terms debit and credit are synonymous with left and right. Assets, drawings, and expenses are increased by debits and decreased by credits. Liabilities, owner's capital, and revenues are increased by credits and decreased by debits.
- Identify the basic steps in the recording process. The basic steps in the recording process are: (a) analyze each transaction in terms of its effect on the accounts, (b) enter the transaction information in a journal, and (c) transfer the journal information to the appropriate accounts in the ledger.
- Explain what a journal is and how it helps ...