LESSON 8-1. Recording Adjusting Entries. CENTURY 21 ACCOUNTING Thomson/South-Western

Transcription

1 LESSON 8-1 Recording Adjusting Entries

2 2 TERM REVIEW page 205 Adjusting Entries journal entries recorded to update general ledger accounts at the end of a fiscal period Adjustments must be journalized so they can be posted to the general ledger accounts Adjusting entries are recorded on the next journal page following the page on which the last daily transactions for the month are recorded Information needed to journalize the adjustment entries for Supplies/Supplies Expense and Prepaid Insurance/Insurance Expense are found on the worksheet in the adjustments columns The entry must be recorded in a journal and posted to the general ledger accounts affected by the entry LESSON 8-1

3 3 ADJUSTING ENTRY FOR SUPPLIES page 202 No source document is prepared for adjusting entries 1. Write the heading. 2. Write the date. 3. Write the title of the account debited. Record the debit amount. 4. Write the title of the account credited. Record the credit amount.. LESSON 8-1

4 ADJUSTING ENTRY FOR PREPAID INSURANCE page Write the date. 2. Write the title of the account debited. Record the debit amount. 3. Write the title of the account credited. Record the credit amount. 4 No source document is prepared for adjusting entries LESSON 8-1

5 LESSON 8-2 Recording Closing Entries

6 6 TERMS REVIEW page 212 Permanent Accounts ( real accounts ) accounts to accumulate information from one fiscal period to the next (Assets, Liabilities, Owner s Capital) LESSON 8-2

7 7 TERMS REVIEW Continued: Temporary Accounts ( nominal accounts ) accounts used to accumulate information until it is transferred to the owner s capital account (Revenue {Sales}, Expenses, Drawing, Income Summary) Show changes in the owner s capital for a single fiscal period At the end of a fiscal period, the balances of temporary accounts are summarized and transferred to the owner s capital account The temporary accounts begin a new fiscal period with zero balances To close a temporary account an amount equal to its balance is recorded in the account on the side opposite to its balance LESSON 8-2

8 8 TERMS REVIEW Continued: Closing Entries journal entries used to prepare temporary accounts for a new fiscal period Temporary account balances must be reduced to zero at the end of each fiscal period This procedure prepares the temporary accounts for recording information about the next fiscal period Similar to a trip odometer on a car that must be reset to zero to begin recording the miles for the next trip The net income would be difficult to calculate because several amounts from several fiscal periods remain in the accounts how would you know what income you made for each individual fiscal (year) period? LESSON 8-2

9 9 TERMS REVIEW Continued: Income Summary a temporary account used to summarize the closing entries for the revenue and expense accounts (used as a holding area ) The Income Summary is unique because it does not have a normal balance side The balance of this account is determined by the amounts posted to the account at the end of a fiscal period When revenue is greater than total expenses, resulting in a net income, the Income Summary account has a credit balance When total expenses are greater than revenue, resulting in a net loss, the Income Summary account has a debit balance The Income Summary is also closed at the end of the fiscal period when the net income or net loss is recorded LESSON 8-2

10 NEED FOR THE INCOME SUMMARY ACCOUNT page LESSON 8-2

11 11 CLOSING ENTRY FOR AN INCOME STATEMENT ACCOUNT WITH A CREDIT BALANCE page Write the heading. 2. Write the date Write the title of the account debited. Record the debit amount. 4. Write the title of the account credited. Record the credit amount. LESSON 8-2

12 CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES page Date 2. Income Summary 3. Credit 4. Debit amount LESSON 8-2

13 CLOSING ENTRY TO RECORD NET INCOME OR LOSS AND CLOSE THE INCOME SUMMARY ACCOUNT page Date 2. Debit 3. Credit LESSON 8-2

14 CLOSING ENTRY FOR THE OWNER S DRAWING ACCOUNT page Date 2. Debit 3. Credit LESSON 8-2

15 15 Sequence of the Closing Process: 1. Close the revenue (sales) account to Income Summary 2. Close the expense accounts to Income Summary 3. Close Income Summary to Capital Account (this amount should be equal to the net income in the work sheet) 4. Close Drawing Account to Capital Account LESSON 8-2

16 LESSON 8-3 Preparing a Post-Closing Trial Balance

17 GENERAL LEDGER ACCOUNTS AFTER ADJUSTING AND CLOSING ENTRIES ARE POSTED page LESSON 8-3

18 18 Post-closing Trial Balance page 219 After closing entries are recorded and posted, a business is almost ready to start recording transactions for the new accounting period, however, before this is done--it is important to check if debits equals credits post-closing trial balance a trial balance prepared after the closing entries are posted Only ledger accounts with balances are included on a postclosing trial balance (assets, liabilities, and owner s capital) The total of all debits must equal the total of all credits in a general ledger LESSON 8-3

19 19 POST-CLOSING TRIAL BALANCE page Heading 2. Account titles 3. Account balances 4. Single rule 5. Compare totals 6. Totals 7. Record totals 8. Double rule LESSON 8-3

20 ACCOUNTING CYCLE FOR A SERVICE BUSINESS **See page 217 page Analyzes transactions 2. Journalize 3. Post (to ledgers accounts) 4. Prepare work sheet 5. Prepare financial statements (income statement and balance sheet) 6. Journalize adjusting and closing entries 7. Post adjusting and closing entries (to ledgers) 8. Prepare post-closing trial balance (all ledger accounts with balances) LESSON 8-3