Chapter 8. Recording Adjusting and Closing Entries

Transcription

1 Chapter 8 Recording Adjusting and Closing Entries

2 Adjusting Entries Adjusting Entries - journal entries recorded to update general ledger accounts at the end of a fiscal period (Supplies & Prepaid Insurance). Adjusting entries are recorded on the next page following the last daily transaction. You don t have to decide debit and credit parts because that was done on the worksheet. All that needs to be done is to record the entry in the journal. All entries need to be posted before the account balance changes. Once posted accounts will reflect amount on hand.

3 Steps for Adjusting Entries Enter heading Adjusting Entries in the middle of the account title column. Enter in the date. Write the debit account (Supplies Expense or Insurance Expense). Write the credit account (Supplies or Prepaid Insurance.

4 ADJUSTING ENTRY FOR SUPPLIES 1. Write the heading. 2. Write the date. 3. Write the title of the account debited. Record the debit amount Write the title of the account credited. Record the credit amount.

5 ADJUSTING ENTRY FOR PREPAID INSURANCE 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.

6 Section 8.2 Recording Closing Entries Permanent Accounts - accounts used to accumulate information from one fiscal period to the next. Ending balances are used from one fiscal period to the next. Temporary Accounts - accounts used to accumulate information until it is transferred to the owners capital account. Accounts begin with a zero balance at the start of each fiscal period.

7 Recording Closing Entries Closing entries - journal entries used to prepare temporary accounts for a new fiscal period. To close a temporary account, an amount of its equal balance is recorded to the opposite side of its normal balance.

8 Income Summary Income Summary - a temporary account used to summarize the closing entries for revenue and expenses. Closing entries are taken from the Income statement and balance sheet columns of the worksheet. There are four closing entries Sales Expenses Income Summary or net income/loss Drawing

9 NEED FOR THE INCOME SUMMARY ACCOUNT

10 Closing Entries First closing entry = Sales Sales has a normal balance of credit To close sales = debit it and credit Income Summary Second closing entry = Expenses Expenses have a normal balance of debit To close expenses, list all expenses, credit them and debit income summary (total of all expenses)

11 CLOSING ENTRY FOR AN INCOME STATEMENT ACCOUNT WITH A CREDIT BALANCE Write the heading 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.

12 CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES 1. Date 2. Income Summary 3. Credit 4. Debit amount

13 Closing Entries 3rd Closing Entry = Income Summary or Net Income/Loss What is left in income summary should be equal to your net income or loss. If it is net income, Debit Income Summary, Credit - Owners Capital account. 4th Closing Entry = Drawing account The owners drawing account has a normal debit balance. To close drawing, Credit the owners drawing account and Debit the Owners Capital account.

14 CLOSING ENTRY TO RECORD NET INCOME OR LOSS AND CLOSE THE INCOME SUMMARY ACCOUNT 1. Date 2. Debit 3. Credit 1 2 3

15 CLOSING ENTRY FOR THE OWNER S DRAWING ACCOUNT 1. Date 2. Debit 3. Credit 1 2 3

16 Section Preparing a Post Closing Trial Balance After posting your adjusting and closing entries, you need to prepare a post closing trial balance. The only accounts with a balance should be permanent accounts.

17 GENERAL LEDGER ACCOUNTS AFTER ADJUSTING AND CLOSING ENTRIES ARE POSTED

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