Chapter 2: Overview
Analyzing and Recording Business Transactions
The chapter introduces the account and briefly describes specific asset, liability, and stockholders’ equity
accounts. The concept of double-entry accounting and the rules of debit and credit for assets, liabilities,
and stockholders’ equity are described. The “T-account” is illustrated. The accounting equation is tied to
the rules of debit and credit. Normal balance of accounts is discussed.
The journal is introduced and the process of recording (journalizing) transactions is illustrated. Details of
journals, ledgers, and the posting process are presented, including an illustration of a 4-column account
with a running balance. The five-step transactional analysis process is described and demonstrated. .A
series of transactions are analyzed, journalized, and posted to T-accounts in the ledger. Balancing the
accounts is explained.
The trial balance is defined and illustrated. Some errors that would not be revealed by a trial balance are
described. The preparation of the financial statements from the trial balance is illustrated.
A Demo Doc problem reviews opening accounts, journalizing, posting, and balancing T-accounts. The
chapter concludes with Decision Guidelines that assist the student in understanding the decisions required
as transactions are recorded and summarized.
Learning Objectives
After studying Chapter 2, your students should be able to:
1. Define accounts and describe how they are used in accounting.
2. Explain debits, credits, and the double entry system of accounting.
3. Demonstrate the use of the general journal and the general ledger to record business transactions.
4. Use a trial balance to prepare financial statements.
2-1
, Teaching Outline
1) Define accounts and discuss their uses in accounting.
a) Numbering of accounts
b) Chart of accounts
2) Explain debits, credits, and the double-entry system of accounting.
a) The T-account
b) Increases and decreases in the accounts
c) Identify the normal balance for each type of account
d) Exhibit 2-1 The Accounting Equation and the Rules of Debit and Credit
3) Demonstrate the use of the general journal and general ledger to record business transactions.
a) Exhibit 2-2 Making a Journal Entry and Posting to the Ledger
b) Four-column ledger account
4) Discuss the five steps in analyzing business transactions.
a) Identify the accounts involved
b) Determine the type of account for each account involved
c) Determine whether the account increases or decreases
d) Debit or Credit the account
e) Journalize the transaction and post to the ledger
f) Balance the T-Accounts
5) Depict the use of a trial balance to prepare financial statements.
a) Exhibit 2-3 Trial Balance
b) Correcting errors
c) Exhibit 2-4 Financial Statements
d) Review accounting cycle
2-2
Analyzing and Recording Business Transactions
The chapter introduces the account and briefly describes specific asset, liability, and stockholders’ equity
accounts. The concept of double-entry accounting and the rules of debit and credit for assets, liabilities,
and stockholders’ equity are described. The “T-account” is illustrated. The accounting equation is tied to
the rules of debit and credit. Normal balance of accounts is discussed.
The journal is introduced and the process of recording (journalizing) transactions is illustrated. Details of
journals, ledgers, and the posting process are presented, including an illustration of a 4-column account
with a running balance. The five-step transactional analysis process is described and demonstrated. .A
series of transactions are analyzed, journalized, and posted to T-accounts in the ledger. Balancing the
accounts is explained.
The trial balance is defined and illustrated. Some errors that would not be revealed by a trial balance are
described. The preparation of the financial statements from the trial balance is illustrated.
A Demo Doc problem reviews opening accounts, journalizing, posting, and balancing T-accounts. The
chapter concludes with Decision Guidelines that assist the student in understanding the decisions required
as transactions are recorded and summarized.
Learning Objectives
After studying Chapter 2, your students should be able to:
1. Define accounts and describe how they are used in accounting.
2. Explain debits, credits, and the double entry system of accounting.
3. Demonstrate the use of the general journal and the general ledger to record business transactions.
4. Use a trial balance to prepare financial statements.
2-1
, Teaching Outline
1) Define accounts and discuss their uses in accounting.
a) Numbering of accounts
b) Chart of accounts
2) Explain debits, credits, and the double-entry system of accounting.
a) The T-account
b) Increases and decreases in the accounts
c) Identify the normal balance for each type of account
d) Exhibit 2-1 The Accounting Equation and the Rules of Debit and Credit
3) Demonstrate the use of the general journal and general ledger to record business transactions.
a) Exhibit 2-2 Making a Journal Entry and Posting to the Ledger
b) Four-column ledger account
4) Discuss the five steps in analyzing business transactions.
a) Identify the accounts involved
b) Determine the type of account for each account involved
c) Determine whether the account increases or decreases
d) Debit or Credit the account
e) Journalize the transaction and post to the ledger
f) Balance the T-Accounts
5) Depict the use of a trial balance to prepare financial statements.
a) Exhibit 2-3 Trial Balance
b) Correcting errors
c) Exhibit 2-4 Financial Statements
d) Review accounting cycle
2-2
