Question

Please answer in your own words.

1) List the basic steps in the recording process

2) What’s a journal and how does it contribute in the recording process

3) What’s a ledger and how does it help in the recording process

4) What’s a simple entry?

5) What’s a compound entry?

6) What is the normal balance for the assets, owner’s drawings and expenses accounts

7) What is the normal balance for the liabilities, owner’s capital and revenues accounts

Answer 1

• List the basic steps in the recording process

Basic steps of a recording process involves:

1.Transaction happening.
2. Recording of that transaction the Journal.
3. All transactions are first recorded in Journal.
4. From Journal, entries are posted to respective Ledger accounts (T Accounts)
5. At the end of period, Ledger accounts are balanced out to find out their balances (if any) whether debit or credit.
6. These balances are posted to Unadjusted Trial Balance on the debit or credit side, as the case may be.
7. Adjustment entries required are recorded and then Adjusted Trial Balance is prepared.
8. From Adjusted Trial Balance, Income Statement, Statement of Owner’s Equity/Retained Earnings, Balance Sheet are prepared.
9. Temporary accounts are then closed through closing entries.
10. Post closing Trial Balance is prepared.

• What’s a journal and how does it contribute in the recording process

Journal is a book of original entry where transactions are recorded for the FIRST time when they happen. These transactions are recorded in a chronological order, following the principal of accrual concept and double entry system.

• What’s a ledger and how does it help in the recording process

Ledger preparation and updation comes after the transactions are recorded in Journal. From journal, entries are posted to Ledger accounts. At the period end, these Ledger accounts are balanced out to calculate debit or credit balance (if any).

• What’s a simple entry?

Simple entry is a normal journal entry where only 2 accounts are being affected. One account gets debited, and other account gets credited. For example, journal entry for Transaction of Wages paid in Cash $ 20,000 will be a Simple Entry where Wages account will be debited and Cash will be credited.

• What’s a compound entry?

Compound journal Entry is that entry where more than 2 accounts are affected. Some accounts are debited, while some are credited, assuring that debit and credit columns totals. For example, issuance of $ 10 par value common stock for $ 12 per share will affect 3 accounts:

---Cash account (debited by total proceeds)
---Common Stock account (credited by amount of ‘par’ value)
---Paid in capital in excess of Par (credited by amount received in excess of par value)

• What is the normal balance for the assets, owner’s drawings and expenses accounts

Normal balance for Assets, Drawings and Expense accounts is DEBIT BALANCE.

• What is the normal balance for the liabilities, owner’s capital and revenues accounts

Normal Balance for Capital, Liabilities and revenue accounts is CREDIT BALANCE.