Recording Process

Accounts
• Accounting system include a separate record for
each item that appear in the balance sheet.
• For example, a separate record is kept for the
asset Cash, showing all the increase and
decreases in cash which result in the many
transactions in which cash is received or paid.
• The form of record used to record increases and
decreases in a single balance sheet item is
called an account. The entire group of accounts
is called a ledger
 Ledgers
• Ledger account are a means of accumulating
information needed by management in directing
the business. For example by maintaining a
Cash account, management can keep track the
amount of cash available.
• In its simplest form, an acount has only three
elements: (1) a title the name of particular
assets, liability or owner’s equity, (2) a left side
called the debit side; and (3) a right side , called
the credit side. The form called a T Account
 Debit and Credit Entries
• An amount recorded on the left side is called a
debit, or a debit entry. An amount recorded on
the right side is called a credit, or a credit entry.
• The act of recording a debit in an account is
called debiting the account, the act of recording
a credit in an account is called crediting the
account.
• Debit is an entry on the left hand side, credit is
an entry on the right hand side.
 Debit Balances
• Debit balances in asset account. All assets
account normally have debit balances.

Any Asset Account

(Debit) (Credit)
Increase Decrease
 Credit Balances
• Credit balances in liability and owner’s
equity account. All liability or owner’s
equity account normally have credit
balance.
Any Liability Account or
Owner’s Equity Account
(Debit) (Credit)
Decrease Increase
 Standard Form of the Ledger Account
Title of Account
Account No.
Date Explanation Ref Amount Date Explanation Ref Amount

(Ref) Reference column record the page number of the Journal

Account are usually arranged in the ledger in “financial
statement order”, that is asset first, followed by liabilities and
owner’s equity, revenue and expenses.
A chart of account is a listing of the title account titles and
account numbers being used by a given business.
 Equality of debits and credits
• Every transaction affect two or more
accounts. The double entry system means
that equal debit and credit entries are
made for every transaction.
• The total of all debit entries in the ledger is
equal to the total of all credit entries
 The Journal
• It is more efficient and convenient to record
transactions first in a journal and later to transfer
the debit and credit to ledger account
• A transaction is an event causing a dollar
change in the assets, liabilities, and owner’s
equity in a business entity.
• The journal shows all information about a
transaction in one place. Journal provide
chronological record of all events. The use of
journal help to prevent errors.
 Standard Form of A Journal

General Journal
Page 1
Date Account title and Ref Debit Credit
explanation

Ref: Reference column shows left blank at the time of

making journal entry. When the debits and credits later
transferred to ledger account the ladger account number
are listed in this column to provide convenient cross
reference.
 Illustration
Transaction (a) the sum of $ 20.000 cash was invested
in the business on September 1, and 200 shares of
capital stock were issued.
Transaction (b) On Sept 3, Greenhill Real Estate
Company (GRE) purchased land for cash in the
amount of $ 7000.
Transaction (c) On Sept 5, The GRE purchased a
building from X Company at a total price of $ 12.000.
The term of purchase required a cash payment of $
5.000, the remainder of $ 7000 payable in 90 days.
Transaction (d) On Sept 10, the GRE sold a portion of
its land on credit to Carter’s Drugstore for a price of $
2000. The land was sold at cost, so there was no
gain or loss.
 Illustration (2)
Transaction (e) On Sept 14, the GRE purchased office
equipment on credit from General Equipment, Inc. in
the amount of $ 1800
Transaction (f) On Sept 20, cash of $ 500 was
received as partial collection of the account
receivable from Carter’s Drugstore
Transaction (g) A cash payment of $ 1000 was made
on Sept 30 in partial settlement of the amount owing
to General Equipment.
 General Journal
Page 1
Date Account title and Ref Debit Credit
explanation
Sep Cash 1 20.000
1 Capital Stock 50 20.000
Issued 2000 shares of capital
stock in exchange for cash
invested in business
Sep Land 7.000
3 Cash 7.000
Purchased land for office site
Sep Building 12.000
5 Cash 5.000
Account payable 7.000
Purchased building. Paid part
cash, balance payable within 90
days
 General Journal
Page 1
Date Account title and Ref Debit Credit
explanation
Sep Account Receivable 2.000
10 Land 2.000
Sold unused part of land to
Carter. Due in three months
Sep Office equipment 1.800
14 Account payable 1.800
Purchased off equipment on
credit from General Eq Inc
Sep Cash 500
20 Account Receivable 500
Collected part of receivable
Sep Account Payable 1.000
30 Cash 1.000
Made partial payment to
General Equipment Inc
 Posting
• The process of transferring the debits and
credits from the general journal to the proper
ledger accounts.
• Each amount listed in the debt column of the
journal is posted by entering it on the debit
side of the acount in the ledger
• Each amount listed in the credit column of
the journal is posted by entering it on the
credit side of the acount in the ledger
 Steps
1. Locate in the ledger the first account named in the
journal entry
2. Enter the debit column in the ledger account the amount
of the debit as shown in the journal
3. Enter the date of the transaction in the ledger account
4. Enter in the reference column of the ledger account the
number of the journal page
5. The recording of the debit in the ledger account is now
complete; return to the journal and enter in the ledger
page column the number of the ledger account or page
to which the debit was posted
6. Repeat the posting process described for the credit side
of the journal entry.
 Cash
Account No. 1
Sep 1 1 20.000 Sep 3 1 7000

Sep 20 1 500 Sep 5 1 5000

Sep 30 1 1000

20.500 13,000

7.500
 Account Receivable
Account No.2
Sep 10 1 2000 Sep 20 1 500

1.500

Land
Account No 20
Sep 3 1 7000 Sep 10 1 2000

5.000
 Building
Account No. 22

Sept 5 1 12000

Office Equipment
Account No. 25
Sept 14 1 1800
 Account Payable
Account No. 30

Sep 30 1 1000 Sep 5 1 7000

Sep 14 1 1800

1.000 8.800

7.800

Capital Stock
Account No. 50
Sept 1 1 20000
 The Trial Balance
• Before using the account balances to prepare the
balance sheet, it is desirable to prove that the
total of accounts with debit balances is equal to
the total of accounts with credit balances.
• A trial balance is a two column schedule listing
the names and balances of the accounts in the
order in which they appear in the ledger; the
debit balance is listed in the left hand column and
the credit balances in the right-hand column
• The total of each column should agree.
Measuring Business Income
 Concepts
• Earning of profits is a major goal of a business.
Operating profitably increases both total assets
and total stockholder’s equity
• Increase in equity recorded in account called
Retained Earning (Laba Ditahan atau Saldo
Laba).
• Distribution of profits to stockholders called
Dividends, decrease both cash and equity.
Balance of retained Earning represent earning
which have not been distributed.
 Concept
• Economist define profit as the amount by which
the entity become better-off during a period.
Need more objective measurement.
• Accountant provide objective evidence, term is
Net Income
• Net income is the excess of the price of goods
sold and services rendered over the cost of
goods and services used up during a given time
period.
• Net income equals revenue minus expenses.
 Revenue
• Revenue is the price of goods sold and services
rendered during a given time period.
• A business receive immediate payment in cash
or acquire an account receivable which will be
collected and become cash.
• Not all receipt of cash represent revenue (i.e
loans, collection of receivable)
• Revenue cause an increase in owner’s equity.
Not all increase in equity come from revenue.
 Expenses
• Expenses are all the cost of goods and services
used up in the process of obtaining revenue.
Example: employee salaries, telephone
services, depreciation of building etc.
• Referred also as “cost of doing business”.
• Expenses in a given month are incurred in order
to generate revenue in the same period
• Expenses cause the owner’s equity to decrease.
Expenses and cash payments are not the same.
 Dividends
• Dividends is a distribution of assets
(usually cash) by a corporation to its
stockholders. Dividend is not an expense.
• Dividends recorded by debiting the
Retained Earning account. Or by debiting
an account called Dividends.
 Relating Revenue and Expense to
Time Period
• A balance sheet shows the financial position of
the business at a given date. An income
statement shows the result of operations over a
period of time.
• The accounting period: the span of time covered
by an income statement ( a month, a quarter, a
half year, or a year).
• Fiscal year: any 12 months period adopted by a
business.
• Transactions affecting two or more accpunting
period.
 Rules of Debit and Credit for
Revenue and Expenses
• Revenue increases owner’s equity, therefore
recorded by credit
• Expenses decreases owner’s equity, therefore
recorded by debit.
• A separate ledger account is maintained for
each major type of revenue and expenses.
• Example Greenhill Real Estate (GRE) has two
revenue account: Sales Commissions Earned
and Rental Commissions Earned.
• Expense account usually more numerous than
revenue accounts.
 Illustration
Continue with GRE (Greenhill Real Estate) case.
Oct 1 Paid $ 120 for publication of newspaper advertising
describing houses for sale.
Oct 6. Earned and collected a commission of $ 2.750 by
selling a house previously listed by client.
Oct 16. Newspaper advertising was ordered at price of $
90, payment to made within 30 days.
Oct 20. A commission of $ 1.130 was earned by selling a
house. The sales agreement provided that the
commission would be paid in 60 days.
Oct 30. Paid salaries of $ 1.700 to office employees for
services rendered during October.
Oct 30. A telephone bill for October amounting $ 48 was
received. Payment was required by November 10
Oct 30. A dividends of $ 0,30 per share or a total of $ 600
was declared and paid.
 Cash
Account No. 1
Sept 1 1 20000 Sept 3 1 7000

20 1 500 5 1 5000

7500 20500 30 1 1000

13000

Oct 6 2 2750 Oct 1 2 120

7830 23250 30 2 1700

30 2 600

15420
 Account Receivable
Account No.2
Sept 10 1500 1 2000 Sept 20 1 500

Oct 20 2 1130 Oct

2630 3130

Land
Account No 20
Sept 3 5000 1 7000 Sept 10 1 2000
 Building
Account No. 22

Sept 5 1 12000 Sept

Office Equipment
Account No. 25
Sept 14 1 1800
 Account Payable
Account No. 30

Sept 30 1 1000 Sept 5 1 7000

14 1 1800

7800 8800

Oct 16 2 90

30 2 48

7938 8938

Capital Stock
Account No. 50
Sept 1 1 20000
 Dividends
Account No. 50

Oct 30 2 600

Sales Commission Earned

Account No. 61
Oct 6 2 2750

20 2 1130

3880
 Advertising Expense
Account No. 70

Oct 1 2 120

16 2 90

210

Office Salaries Expense

Account No. 72
Oct 30 2 1700

Telephone Expense
Account No. 74
Oct 30 2 48
 GRE Company
Trial Balance
October 31, ..
Cash $ 7830
Account Receivable 2630
Land 5000
Building 12000
Office Equipment 1800
Account Payable $ 7938
Capital Stock 20000
Dividends 600
Sales commission earned 3880
Advertising expense 210
Office Salaries expense 1700
Telephone expense 48
$ 31818 $ 31818
 Depreciation
• Expense is cost of goods and services used up
in the process of obtaining revenue.
• Some of the goods are purchased in advance
and used up gradually over a long period of
time.
• Cost should recognize Depreciation Expense,
portion of assts that expires.
• Example in GRE are: Building and Office
Equipment.
• Building estimated to have useful lifa of 20 years
(240 months), office equipment 10 years (120
months)
 Adjusted Trial Balance October 31, ..
Cash $ 7830
Account Receivable 2630
Land 5000
Building 12000
Accumulated depreciation bldg $ 50
Office Equipment 1800
Accumulated depreciation off eqmnt 15
Account Payable $ 7938
Capital Stock 20000
Dividends 600
Sales commission earned 3880
Advertising expense 210
Office Salaries expense 1700
Telephone expense 48
Depreciation expense: building 50
Depreciation expense: offce eqmnt 15
$ 31883 $ 31883
 GRE Company
Income Statement
for The Month Ending October 31,…

Sales commission earned $ 3880

Expenses

Advertising expense $ 210

Office salaries expense 1700

Telephone expense 48

Depreciation expense: building 50

Depreciation expense: offc eqmnt 15 2023

Net Income $ 1857

 GRE Company
Statement of Retained Earning
for the month ended Oct 31, ..

Retained earning Oct 1 $ 0

Net Income for the month 1857
Subtotal 1857
Dividends 600
Retained earning Oct 31 $ 1257
 GRE Company Balance Sheet - October 31,…
Assets
Cash $ 7830
Account receivable 2630
Land 5000
Building $ 12000
Less: Accumulated depreciation 50 11950
Office equipment 1800
Less: accumulated depreciation 15 1785
Total assets $ 29195
Liabilities & Stockholder’s Equity
Liabilities
Account payable $ 7938
Stockholder’s equity
Capital stock $ 20000
Retained earning 1257 21257
Total liabilities & stockholder’s equity $ 29195
 Closing the Accounts
• Revenue and expense account are closed at the
end of each accounting period by transferring
their balances to a summary account called
Income Summary.
• The balance of the Income Summary will be the
net income or nat loss for the period.
• Closing of the account has the effect of “wiping
the slate clean” and preparing the account for
the recording of revenue and expenses during
the succeeding accounting period.
 Adjusting Entries
Transactions need adjustment:
1. Recorded cost which must be apportioned
between two or more accounting periods
2. Recorded revenue which must be apportioned
between two or more accounting periods
3. Unrecorded expense Ex: wages earned by
employees after the last payday after accounting
period
4. Unrecorded revenue. Ex: commissions earned but
not yet collected or billed to customers.