Chapter 2: The Recording Process
DO IT!
1
Normal Account Balances
Kate Browne has just rented space in a shopping mall. In this space, she will open a hair
salon to be called “Hair It Is.” A friend has advised Kate to set up a double-entry set of
accounting records in which to record all of her business transactions.
Identify the balance sheet accounts that Kate will likely need to record the transactions needed to open her business. Indicate whether the normal balance of each account
is a debit or a credit.
Solution
Kate would likely need the following accounts in which to record the transactions
necessary to ready her hair salon for opening day:
Cash (debit balance)
Equipment (debit balance)
If she borrows money: Notes Payable
(credit balance)
Supplies (debit balance)
Owner’s Capital (credit balance)
Accounts Payable (credit balance)
Related exercise material: BE2-1, BE2-2, E2-1, E2-2, E2-4, and
DO IT!
2
DO IT!
2-1.
Action Plan
✔ Determine the types
of accounts needed.
Kate will need asset
accounts for each
different type of asset
she invests in the
business and liability
accounts for any debts
she incurs.
✔ Understand the types
of owner’s equity
accounts. Only
Owner’s Capital will
be needed when Kate
begins the business.
Other owner’s equity
accounts will be
needed later.
Recording Business Activities
Kate Browne engaged in the following activities in establishing her salon, Hair It Is:
1. Opened a bank account in the name of Hair It Is and deposited $20,000 of her own
money in this account as her initial investment.
2. Purchased equipment on account (to be paid in 30 days) for a total cost of $4,800.
3. Interviewed three people for the position of hair stylist.
Prepare the entries to record the transactions.
Solution
Action Plan
The three activities would be recorded as follows.
1. Cash
Owner’s Capital
(Owner’s investment of cash in business)
2. Equipment
Accounts Payable
(Purchase of equipment on account)
✔ Understand which
20,000
20,000
4,800
4,800
3. No entry because no transaction has occurred.
Related exercise material: BE2-3, BE2-4, BE2-5, BE2-6, E2-3, E2-5, E2-6, E2-7, and
DO IT!
2-2.
activities need to be
recorded and which
do not. Any that affect
assets, liabilities, or
owner’s equity should
be recorded in a
journal.
✔ Analyze the effects of
transactions on asset,
liability, and owner’s
equity accounts.
D-1
D-2
DO IT!
DO IT!
3
Posting
Kate Browne recorded the following transactions in a general journal during the month
of March.
Mar. 4
Action Plan
✔ Recall that posting
involves transferring
the journalized debits
and credits to specific
accounts in the ledger.
✔ Determine the ending
balance by netting
the total debits and
credits.
Cash
Service Revenue
2,280
2,280
15
Salaries and Wages Expense
Cash
19
Utilities Expense
Cash
400
400
92
92
Post these entries to the Cash account of the general ledger to determine its ending
balance. The beginning balance of Cash on March 1 was $600.
Solution
Cash
3/1 Bal.
3/4
600
2,280
3/31 Bal.
2,388
3/15
3/19
Related exercise material: BE2-7, BE2-8, E2-8, E2-12, and
400
92
DO IT!
2-3.
DO IT!
DO IT!
4
D-3
Trial Balance
The following accounts come from the ledger of SnowGo Company at December 31,
2017.
157
306
201
726
Equipment
Owner’s Drawings
Accounts Payable
Salaries and Wages
Expense
112 Accounts Receivable
400 Service Revenue
$88,000
8,000
22,000
42,000
4,000
95,000
301 Owner’s Capital
$20,000
212 Salaries and Wages
Payable
2,000
200 Notes Payable (due in 3 months) 19,000
732 Utilities Expense
3,000
130 Prepaid Insurance
6,000
101 Cash
7,000
Prepare a trial balance in good form.
Solution
Action Plan
✔ Determine normal
SNOWGO COMPANY
Trial Balance
December 31, 2017
Debit
Cash
Accounts Receivable
Prepaid Insurance
Equipment
Notes Payable
Accounts Payable
Salaries and Wages Payable
Owner’s Capital
Owner’s Drawings
Service Revenue
Utilities Expense
Salaries and Wages Expense
$
Credit
7,000
4,000
6,000
88,000
$ 19,000
22,000
2,000
20,000
8,000
95,000
3,000
42,000
$158,000
$158,000
Related exercise material: BE2-9, BE2-10, E2-9, E2-10, E2-11, E2-13, E2-14, and
DO IT!
2-4.
balances and list accounts in the order
they appear in the
ledger.
✔ Accounts with debit
balances appear in the
left column, and those
with credit balances in
the right column.
✔ Total the debit and
credit columns to
prove equality.
D-4
DO IT!
DO IT!
Exercises
Identify normal balances.
(LO 1)
Record business activities.
(LO 2)
DO IT! 2-1 Tom Rast has just rented space in a strip mall. In this space, he will open
a photography studio, to be called “Picture This!” A friend has advised Tom to set up a
double-entry set of accounting records in which to record all of his business transactions.
Identify the balance sheet accounts that Tom will likely need to record the transactions needed to open his business. Indicate whether the normal balance of each account is
a debit or credit.
DO IT! 2-2 Tom Rast engaged in the following activities in establishing his photography
studio, Picture This!:
1. Opened a bank account in the name of Picture This! and deposited $6,300 of his own
money into this account as his initial investment.
2. Purchased photography supplies at a total cost of $1,100. The business paid $400 in
cash and the balance is on account.
3. Obtained estimates on the cost of photography equipment from three different manufacturers.
In what form (type of record) should Tom record these three activities? Prepare the entries
to record the transactions.
Post transactions.
DO IT! 2-3
(LO 3)
Tom Rast recorded the following transactions during the month of April.
April 3
April 16
April 20
Cash
Service Revenue
Rent Expense
Cash
Salaries and Wages Expense
Cash
3,400
3,400
700
700
250
250
Post these entries to the Cash T-account of the general ledger to determine the ending
balance in cash. The beginning balance in cash on April 1 was $1,600.
Prepare a trial balance.
(LO 4)
DO IT! 2-4 The following accounts are taken from the ledger of Carland Company at
December 31, 2017.
200
301
157
306
726
400
Notes Payable
$20,000 101 Cash
Owner’s Capital
28,000 126 Supplies
Equipment
80,000 729 Rent Expense
Owner’s Drawings
8,000 212 Salaries and Wages Payable
Salaries and Wages Expense 38,000 201 Accounts Payable
Service Revenue
88,000 112 Accounts Receivable
Prepare a trial balance in good form.
$ 6,000
6,000
4,000
3,000
11,000
8,000
DO IT!
CONTINUING PROBLEM
COOKIE CREATIONS: AN ENTREPRENEURIAL JOURNEY
(Note: This is a continuation of the Cookie Creations problem from Chapter 1.)
CC2 After researching the different forms of business organization, Natalie Koebel decides to operate
“Cookie Creations” as a proprietorship. She then starts the process of getting the business running. In
November 2016, the following activities take place.
Nov. 8
8
11
13
14
16
17
20
25
30
Natalie cashes her U.S. Savings Bonds and receives $520, which she deposits in her
personal bank account.
She opens a bank account under the name “Cookie Creations” and transfers $500 from
her personal account to the new account.
Natalie pays $65 for advertising.
She buys baking supplies, such as flour, sugar, butter, and chocolate chips, for $125 cash.
(Hint: Use Supplies account.)
Natalie starts to gather some baking equipment to take with her when teaching the
cookie classes. She has an excellent top-of-the-line food processor and mixer that
originally cost her $750. Natalie decides to start using it only in her new business. She
estimates that the equipment is currently worth $300. She invests the equipment in the
business.
Natalie realizes that her initial cash investment is not enough. Her grandmother lends her
$2,000 cash, for which Natalie signs a note payable in the name of the business. Natalie
deposits the money in the business bank account. (Hint: The note does not have to be
repaid for 24 months. As a result, the note payable should be reported in the accounts as
the last liability and also on the balance sheet as the last liability.)
She buys more baking equipment for $900 cash.
She teaches her first class and collects $125 cash.
Natalie books a second class for December 4 for $150. She receives $30 cash in advance as
a down payment.
Natalie pays $1,320 for a one-year insurance policy that will expire on December 1, 2017.
Instructions
(a) Prepare journal entries to record the November transactions.
(b) Post the journal entries to general ledger accounts.
(c) Prepare a trial balance at November 30.
© leungchopan/
Shutterstock
D-5