chapter 10 • planning guide - mcgraw-hill...

CHAPTER 10 • PLANNING GUIDE

SECTION RESOURCESSection College & Career Readiness Professional Development

SECTION 10.1 PREPARING CLOSING ENTRIES Reading Strategy, pp. 253, 255, 257Critical Thinking, pp. 253, 254, 255, 256, 257, 258, 259, 260, 261Writing Support, pp. 254, 256, 257Math Skill Practice, pp. 255, 258, 259, 260Differentiated Instruction, p. 260

21st Century Skills, p. 254Teacher to Teacher, p. 255Extended Skill Practice, pp. 257, 258, 259, 261Common Mistakes, p. 260

Closing entries transfer the temporary account balances to the owner’s capital account.

SECTION 10.2 POSTING CLOSING ENTRIES AND PREPARING A POST-CLOSING TRIAL BALANCE Reading Strategy, p. 263

Critical Thinking, pp. 263, 264, 265Writing Support, p. 265

Extending the Content, p. 264H.O.T. Audit, p. 27621st Century Skills, p. 276Career Wise, p. 277Spotlight on Personal Finance, p. 277Analyzing Financial Reports, p. 277

After the closing entries are posted, a post-closing trial balance is prepared to verify that debits equal credits.

PACING YOUR LESSONS

Chapter Introduction Section 1 Section 2 Chapter Assessment

½ period 2 periods 2 periods ½ period

P

*This pacing guide is based on a traditional 36-week course. See pp. TM38–TM39 for complete pacing guide information.

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STANDARDS AND SKILLS • CHAPTER 10

STANDARDS-BASED LESSON PLANNational Standards for Business Education

StandardsI.B.1 Identify student and professional accounting organizations and associations

VI.A.9 Evaluate company performance by applying standard costing and variance analysis

V.A.11 Describe the relationship between the closing process, the fi nancial statements, and the post-closing trial balance

VI.A.2 Identify and apply appropriate information technology to the accounting system

PROFESSIONALDEVELOPMENT

Targeted professional development is correlated throughout Glencoe Accounting. The McGraw-Hill Professional Development Mini Clip Video Library provides teaching strategies to strengthen academic and learning skills. Log on to glencoe.com.

In this Chapter, you will fi nd these Mini Clips:• ELL: Modeling Reading Strategies, p. 256• Reading: Obstacles to Achievement, p. 258• Math: Classroom and Instructional Management, p. 261

*Highlighted blocks indicate areas covered in the chapter. Additional skills are also covered throughout the Teacher Edition.

Resources: Allocating Time Allocating Money Allocating Material and Facility Resources

Allocating Human Resources

Information:Acquiring and

Evaluating Information

Organizing and Maintaining Information

Interpreting and Communicating

Information

Using Computers to Process Information

Interpersonal Skills: Participating as a Member of a Team Teaching Others Serving Clients/

Customers Exercising Leadership Negotiating to Arrive at a Decision

Working With Cultural Diversity

Systems: Understanding Systems

Monitoring and Correcting Performance

Improving and Designing Systems

Technology: Selecting Technology Applying Technology to Task

Maintainingand Troubleshooting

Technology

21st Century Skills Correlations

*See pp. TM33–TM35 for detailed NBEA standards and correlations.

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CORRELATIONS TO NATIONAL STANDARDS FOR BUSINESS EDUCATION

See p. TM33 for a detailed correlation chart.Standards: I.B.1, I.C.2, I.C.3, I.C.4, I.C.5, I.C.6, I.C.7, V.A.9, V.A.11, VI.A.2

glencoe.com Get podcasts, videos, and accounting forms.

REAL-WORLD Business Connection

FOCUS ON THE PHOTOEmployees of a small business such as Trainz.com need to be well organized and prepared at the close of an accounting cycle when fi nancial statements are completed. As an employee,how would you handle the hectic close of an accounting cycle?

BIG IDEAFor accounting purposes the

life of a business is divided into specifi c periods of time.

COMPLETING THE ACCOUNTING CYCLE FOR A SOLE PROPRIETORSHIP

CHAPTER

10 Trainz.comThe story of Scott Griggs and Trainz.com is a model example of dedication and hard work in business. Over 20 years ago, Griggs opened his fi rst train store in Georgia while working a full-time job. Sales were strong, but the long hours and high business costs led Griggs to sell his company. A few years later, the Internet gave new life to his train dreams. Trainz.com is an auction Web site for model trains and accessories. Tens of thousands of trains move through the company’s warehouses each year.

Connect to the BusinessAt the end of the accounting period, sole proprietorships such as Trainz.com close balances in temporary accounts, summarize revenue and expenses, and make sure that total debits equal total credits heading into the next accounting period.

AnalyzeWhy would Trainz.com employees want to compare sales of diff erent types of model trains from one accounting period to another?

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INTRODUCING CHAPTER 10

At the end of every accounting period, a business transfers the balances in its temporary accounts to the owner’s capital account. This provides an opportunity to recheck all the transactions from that period and to “start fresh” in the new accounting period. Ask: What are the specific advantages of reviewing the accounts from one period and then beginning again with the new accounting period?

BIG IDEA

FOCUS

Like many other successful entrepreneurs, Scott Griggs has developed his personal enthusiasm into a business. Trainz.com offers model trains and supplies to committed hobbyists and collectors, as well as to those just beginning to learn about model trains. The company buys and repairs older model trains and sells both new and refurbished model trains.

Analyze Possible answer: Comparing sales of different types of model trains from one accounting period to another would help employees recognize trends. This would help them have on hand the kinds of model trains customers are most likely to want.

FOCUS ON THE PHOTO Visual LiteracyPossible answer: Employees can handle busy times by being organized, knowing their own and others’ responsibilities, knowing their products or services well, and pitching in to help. Ask: Why is it important for a company such as Trainz.com to be prepared at the end of an accounting cycle? Possible answer: Trainz.com handles a large volume of merchandise. Closing its accounts properly allows the owners to analyze revenues and expenses accurately for the next cycle.

Lik h f l

REAL-WORLD Business Connection

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TEACH Previewing the Main IdeasUse these questions and activities at the beginning of the sections to focus on the Main Ideas.

SECTION 10.1 PREPARING CLOSING ENTRIESAsk: When you refer to the close of a period, what do you mean? end of the period Ask: What do you think closing entries would do? prepare the accounting records when one period is ending to get ready for the next period Tell students that they will learn to prepare closing entries in this section.

SECTION 10.2 POSTING CLOSING ENTRIES AND PREPARING A POST-CLOSING TRIAL BALANCEAsk: What do you think is the purpose of preparing a post-closing trial balance? to verify that accounts are in balance (debits � credits) after the closing entries have been recorded and posted Tell students that they will learn how to prepare a post-closing trial balance in this section.

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The interactive student text and working papers can be found on McGraw-Hill Connect.

Online Learning CenterGet activity and game ideas, reproducible forms, and links to additional accounting resources.

Glencoe Technology Solutions

glencoe.com

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Before You Read

READING GUIDE STANDARDS

Chapter Objectives

Concepts

C1 Explain why it is necessary to update accounts through closing entries. (p. 253)

C2 Explain the purpose of the Income Summary account. (p. 256)

C3 Explain the relationship between the Income Summary account and the capital account. (p. 259)

Analysis

A1 Analyze and journalize the closing entries. (p. 253)

Procedures

P1 Post the closing entries to the general ledger. (p. 263)

P2 Prepare a post-closing trial balance. (p. 265)

Main IdeaClosing entries transfer the temporary account balances to the owner’s capital account. After the closing entries are posted, a post-closing trial balance is prepared to verify that debits equal credits.

CHAPTER 10

The Essential Question What activities have to be done at the end of an accounting period?

ACADEMIC

English Language ArtsNCTE 2 Read literature to build an understanding of the human experience. (p. 268)

MathematicsNCTM Number and Operations Understand the meanings of operations and how they relate to one another. (p. 268)

NCTE National Council of Teachers of EnglishNCTM National Council of Teachers of Mathematics

Common Core

Reading Determine what is meant by words and phrases in context, including connotative meanings and figurative language.

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FOCUS READING GUIDE

Before You ReadThe Essential Question The essential question encourages students to inquire about the underlying purpose of accounting. Use the essential question as a discussion starter, emphasizing to students that there are no right or wrong answers.

Main IdeaHave students review The Essential Question and Main Idea. Ask: Why is it important to transfer the temporary account balances to the permanent owner’s capital account? to bring the capital account balance up to date.

Chapter Objectives Have students review the objectives to set expectations for what they’ll learn in Chapter 10.

Academic StandardsHelp students see cross-curricular connections whenever possible.

College and Career Readiness standards emphasize skills and concepts students will need beyond high school.

Connect to the Reading Guide Use these questions to help students connect to the reading.1. What does the chapter title tell you?

Predict2. What do you already know about this

subject from personal experience? Activate Prior Knowledge

3. What have you learned about this in the earlier chapters? Make Connections

4. What gaps exist in your knowledge of this subject? Set a Purpose for Reading

Print• Chapter Study Guides and

Working Papers pp. 183–214 • Fast File Chapter 10 ResourcesDigital Transparencies(TeacherWorks Plus)• Section 10.1: Transparencies 10-1

to 10-9

• Section 10.2: Transparencies 10-10 to 10-12

Technology• Presentation Plus! • TeacherWorks Plus• Peachtree Accounting Software

and Applications

• Using QuickBooks® with Glencoe Accounting

Online• McGraw-Hill Connect• Glencoe Accounting Online

Learning Center

CHAPTER 10 RESOURCES MANAGER

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Content VocabularyAfter reviewing the defi nition of all the content vocabulary words, ask students these questions:

How are the terms closing entries and Income Summary account related?

What are the differences between them?

When are compound entries used?

Academic VocabularyWrite the following sentences on the board. Have students rewrite

each sentence, using an academic vocabulary word in place of the underlined phrase.1. All the team members follow the

same set of steps for fi lling an order. procedure

2. The process of unlocking the safe necessarily involves two separate keys. requires

3. The students appeared to pay very close attention; in the same way, the teachers seemed to listen to every word. similarly

PRETEACHING SECTION VOCABULARY

SECTION VOCABULARY

Content Vocabulary• closing entries

• Income Summary account

• compound entry

Academic Vocabulary• similarly

• procedure

• requires

In Chapter 9 you learned how to prepare three financial statements:

• The income statement reports revenue, expenses, and net income or net loss for the accounting period.

• The statement of changes in owner’s equity summarizes the impact of the business transactions on the owner’s capital account.

• The balance sheet reports the financial position of the business at the end of the period.

Accountants for a company like Mattel prepare financial statements and then journalize and post the closing entries. They prepare a post-closing trial balance to verify that the accounting records still balance.

Completing the Accounting CycleWhat Are the Last Two Steps of the Accounting Cycle?

During the accounting period, the accountant records transactions involving revenue, expenses, and withdrawals in temporary accounts. At the end of the period, the accountant transfers the balances in the temporary accounts to the owner’s capital account to bring it up to date and to prepare the accounting records for the next period.

Closing entries are journal entries made to close, or reduce to zero, the balances in the temporary accounts and to transfer the net income or net loss for the period to the capital account.

After the closing entries have been journalized and posted, a trial balance is prepared to prove the equality of the general ledger after the closing process. The trial balance prepared after closing is called a post-closing trial balance. As you can see in Figure 10–1 on page 254, the closing process and the post-closing trial balance complete the accounting cycle.

Starting the Eighth Step in the Accounting Cycle: Journalizing the Closing EntriesWhat Is the Purpose of Closing Entries?

Preparing financial records for the start of a new period is a little like keeping stats for a basketball team. For basketball stats, individual and team scores are recorded for every game, but each new game starts with a score of zero. Similarly, in keeping the stats or accounting for a business, entries are posted to the accounts during the accounting period (game), but the temporary accounts (Rent Expense, Maintenance Expense, Revenue, etc.) start each new accounting period (game) with zero balances.

PREPARING CLOSING ENTRIES SECTION 10.1

glencoe.com

• Show Me tutorials • Let Me Try interactive

activities.

Section 10.1 Preparing Closing Entries 253

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SECTION 10.1

FOCUSBell Ringer • Creating Analogies: Point out to

students that they clean out their lockers at the end of the school year, leaving them ready for the next students to use. Tell them that closing entries are the accountant’s way of cleaning out the temporary capital accounts for the next fi scal period.

• Digital Transparency 10-1 focuses students’ attention on the topics covered in Section 10.1.

Bell Ringer

TEACHR Reading Strategy

Activating Prior Knowledge Ask: Why are revenue, expense, and owner’s withdrawals accounts temporary accounts? They need to have zero balances at the end of a period. OL

C Critical ThinkingConnecting to Financial Literacy Ask: What personal fi nancial activities involve “closing”? Answers will vary and may include closing a checking or credit card account, researching a stock’s closing price, etc. BL

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CULTURAL DIVERSITY

The income statement, you’ll remember, reports the net income or net loss for one accounting period. The statement is prepared from information recorded and accumulated in the revenue and expense accounts. At the end of the period, the accountant records entries to close, or reduce to zero, the revenue and expense accounts because their balances also apply to only one accounting period. These closing entries also transfer the net income or net loss for the period to the capital account.

The closing process is shown in Figure 10–2.

• Prior to the closing process, you know that net income or net loss is calculated on the work sheet. A

• The net income or net loss amount then appears on the income statement. B

• On the statement of changes in owner’s equity, the ending balance of the capital account includes net income or net loss. C

• The ending balance of the capital account then appears on the balance sheet. D

• At this point, however, the balance of the capital account in the general ledger does not equal the amount on the balance sheet because the closing entries need to be journalized and posted. E

For example, the balance on the work sheet for Crista Vargas, Capital is $25,400, but on the balance sheet, it is $26,050. These two amounts differ because the withdrawals and the net income have not been recorded in the capital account in the general ledger. The closing process updates accounts through closing entries and brings the balance of the general ledger capital account up to date.

22 3344

55667788

99

11

Collect and verify source documents

Analyze eachtransaction

Journalizeeach transaction

Post to the ledger

Prepare a trial balance

Prepare a work sheet

Prepare financialstatements

Journalize and postclosing entries

Prepare apost-closingtrial balance

INVOICE

RECEIPT

MEMORANDUM

LEDGER

GENERALJOURNAL

TRIALBALANCE

WORK SHEETINCOME

STATEMENTSTATEMENT OF

CHANGES INOWNER’S EQUITY

BALANCESHEET

POST-CLOSINGTRIAL BALANCE

GENERALJOURNAL

LEDGER

ACCOUNT

DEBIT CREDIT

ACCOUNT

DEBIT CREDIT

Figure 10 –1 The Accounting Cycle with Steps 8 and 9 Highlighted


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Reading: Standards-Based Instruction Emily M. Schell, EdD, educator and author, discusses standards-based instruction.

SECTION 10.1

TEACHC1 Critical ThinkingSynthesizing Have students examine Figure 10-1 (Digital Transparency 10-2). Ask: In Step 8 of the accounting cycle, where do you fi nd the data to journalize the closing entries? Data for closing entries comes from Step 6, the work sheet. OL

W Writing SupportUsing Parts of Speech Have students look up the defi nition of close as a verb in their dictionaries. Have them list defi nitions that apply to the term to close in accounting. Answers will vary but should have these meanings: to suspend or stop operations; to bring to an end or a period; to reduce to zero. Have students explain how each of these applies to accounting. OL

C2 Critical ThinkingContrasting Ask: How is closing a bank account different from closing the accounting period? When a bank account is closed, it ceases to exist. When the accounting period is closed, the temporary account balances are reduced to zero, but the accounting cycle continues in the next period. OL

Setting Deadlines Divide the class into small groups and assign each group one of the following countries: Canada, Japan, Ireland, Belgium, Germany, Brazil, and South Korea. Ask groups to use the library and the Internet to research the work culture of the assigned country and describe the average workday, average number of hours worked per week, and average amount of vacation time taken each year. As a class, discuss the work culture in the United States and then have groups share their findings about their assigned country.

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TE RTEACHER

TEACHERTEACHER

TOTOAACCHH

TRIAL BALANCE

DEBIT CREDIT

INCOME STATEMENT

DEBIT CREDIT

BALANCE SHEET

DEBIT CREDITACCOUNT NAME

ACCT.NO.

Zip Delivery ServiceWork Sheet

For the Month Ended October 31, 20--

16

17

18

19

20

125 0039 775 00 37 125 00

1 150 0038 275 00

38 275 00

38 275 00

2 650 00

2 650 00

125 001 500 001 150 002 650 00

39 775 00515 Utilities Expense

Net Income

16

17

18

19

20

7 5 006 0 0 007 0 0 001 2 5 00

2 6 5 0 00

1 5 0 0 00

1 1 5 0 00

Zip Delivery ServiceIncome Statement


Revenue:Delivery Revenue

Expenses:Advertising ExpenseMaintenance ExpenseRent ExpenseUtilities Expense

Total Expenses

Net Income

Zip Delivery ServiceStatement of Changes in Owner’s EquityFor the Month Ended October 31, 20--

Beginning Capital, October 1, 20--Add: Investments by Owner

Net IncomeTotal Increase in CapitalSubtotalLess: Withdrawals by OwnerEnding Capital, October 31, 20--

26 5 5 0 0026 5 5 0 00

5 0 0 0026 0 5 0 00

25 4 0 0 001 1 5 0 00

Ending Capital, October 31, 20g p 26 0 5 0 00

Zip Delivery ServiceBalance Sheet

October 31, 20--

37 7 7 5 00

11 7 2 5 00

26 0 5 0 0037 7 7 5 00

21 1 2 5 001 4 5 0 00

3 0 0 0 002 0 0 00

12 0 0 0 00

7 5 0011 6 5 0 00

AssetsCash in BankAccounts Receivable—City NewsAccounts Receivable—Green CompanyComputer EquipmentOffice EquipmentDelivery Equipment Total Assets

LiabilitiesAccounts Payable—Rockport AdvertisingAccounts Payable—Coast to Coast Auto Total Liabilities

Owner’s EquityCrista Vargas, Capital Total Liabilities and Owner’s Equityq yq y

TRIAL BALANCE INCOME STATEMENT BALANCE SHEET


ACCT.NO.

Zip Delivery ServiceWork Sheet


DEBIT CREDIT DEBIT CREDIT

9

10

9

10500 0025 400 00

500 0025 400 00301

302Crista Vargas, CapitalCrista Vargas, Withdrawals

A

B

C

D

E

Figure 10 –2 The Closing Process


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SECTION 10.1

TEACHC Critical Thinking

Separating Parts Refer students to the red letter E in Figure 10-2 (Digital Transparency 10-3). Point out that before the closing process, the Crista Vargas, Capital amount on the balance sheet and work sheet are different. Ask: What is the difference? $650 ($26,050 � $25,400) Ask: What two components make up this amount? Net Income $1,150 � Withdrawals $500 � $650. Explain that the closing process will bring the general ledger capital account up to date. OL

R Reading StrategyReading Accounting Forms Have students examine Figure 10-2. Ask: What are the temporary accounts shown here? Delivery Revenue, all expense accounts (Advertising, Maintenance, Rent, and Utilities), and Maria Sanchez, Withdrawals OL

M Math Skill PracticeCalculating Balances Assume the following: The capital account work sheet balance is $20,000; revenue, $8,000; expenses, $5,000; and withdrawals made by the owner, $2,000. Ask: What is the balance of the capital account reported on the balance sheet? $20,000 � $8,000 � $5,000 � $2,000 � $21,000 BL

S-E-N-D Away At the end of the accounting cycle, closing entries are prepared to get the temporary accounts ready for the next accounting period. The temporary accounts are closed in a specifi c order. To remember the order of the closing entries, use the acronym S-E-N-D (Sales – Expenses – Net Income/Loss – Drawing) to send the accounts away to the next accounting period.

Melonie McBride HazeltonSummerville High School, Summerville, South Carolina

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The Income Summary AccountWhat Is the Purpose of the Income Summary Account?

Before the closing entries are journalized and posted, no single account in the general ledger shows all of the revenue and expenses for the period. This information is scattered among the individual revenue and expense accounts. There is, however, one general ledger account that, until this point, has not been used. That is the Income Summary account.

The Income Summary account is used to accumulate and summarize the revenue and expenses for the period. This account serves as a simple income statement in the ledger. Expenses, which have debit balances, are transferred as debits to Income Summary. Revenues, which have credit balances, are transferred as credits to Income Summary. The balance of the account equals the net income or net loss for the fiscal period.

Refer to the chart of accounts for Zip Delivery Service on page 82. Notice that Income Summary is in the Owner’s Equity section of the general ledger. It is located there because of its relationship to the owner’s capital account. Remember that the revenue and expenses transferred to the Income Summaryaccount actually represent increases and decreases to owner’s equity. The balance of Income Summary (the net income or net loss for the period) is transferred to the capital account at the end of the closing process.

Like the withdrawals account, Income Summary is a temporary account. However, it is quite different from the other temporary accounts.

• Income Summary is used only at the end of the accounting period to summarize the balances from the revenue and expense accounts.

• Income Summary does not have a normal balance, which means that it does not have an increase or a decrease side. As shown in the following T account, the debit and credit sides of the account are simply used to summarize the period’s revenue and expenses.

• The balance of the Income Summary account before and after the closing process is zero.

• The Income Summary account does not appear on any financial statement.

Reading Check Interpret How is the Income Summary account different from other temporary accounts?

Preparing Closing EntriesHow Do You Journalize Closing Entries?

Four journal entries are prepared to close Zip’s temporary accounts:

If Revenue � Expenses

If Revenue � Expenses Balance is net loss

Income Summary

Credit

Revenue

Balance is net income

Debit

Expenses


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ELL: Modeling Reading Strategies A teacher models fl uent reading strategies.

TEACHC1 Critical ThinkingMaking Inferences Ask: Based on the title of the account, what do you think the purpose of the Income Summary account is? to summarize revenue and expense accounts for the period OL

W Writing SupportWriting Clearly Have students write a paragraph explaining the relationship between the Income Summary and owner’s capital account. Income Summary is the account in which revenue and expenses are summarized before being transferred to owner’s capital as net income or loss. AL

C2 Critical ThinkingApplying Prior Knowledge Remind students that revenue and expense account balances must be reduced to zero at the end of the accounting period by using the Income Summary account. Ask: What temporary account balances are transferred to the credit side of the Income Summary account? revenue To the debit side? expenses OL

Reading CheckThe Income Summary account does not have a normal balance.

SECTION 10.1

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1. Transfer the balances of all revenue accounts to the credit side of the Income Summary account.

2. Transfer all expense account balances to the debit side of the Income Summary account.

3. Transfer the balance of the Income Summary account to the capital account (net income to the credit side; net loss to the debit side).

4. Transfer the balance of the withdrawals account to the debit side of the capital account.

Closing Revenue to Income SummaryThe first step in the closing procedure is to transfer the balance of the

revenue account to Income Summary. The balance for the revenue account is found in the Income Statement section of the work sheet. (Refer to the work sheet in Figure 9–3 on page 225 when reading about closing entries.)

To record closing entries in the general journal, follow these steps:

1. Enter Closing Entries in the center of the Description column.

1. Zip has only one revenue account, Delivery Revenue. The accounts affected are Delivery Revenue and Income Summary.

2. Delivery Revenue is a revenue account. Income Summary is a temporary owner’s equity account.

3. The Delivery Revenue account balance is decreased by $2,650 to zero. That amount, $2,650, is transferred to the Income Summary account.

7.JOURNAL ENTRY

First Closing Entry—Close Revenue to Income Summary

6.T ACCOUNTS

4. Decreases in revenue accounts are recorded as debits. Debit Delivery Revenue for $2,650.

5. To transfer the revenue to the Income Summary account, credit Income Summary for $2,650.

ANALYSIS Identify

Classify

�/�

DEBIT-CREDIT RULE

C l o s i n g E n t r y

Delivery Revenue

Credit�

Balance 2,650

Debit�

Closing 2,650

Income Summary

Credit

Closing 2,650

Debit

GENERAL JOURNAL PAGE

1

2

3

4

1

2

3

4

DEBIT CREDITDESCRIPTIONDATEPOST.REF.

3

20--Oct.

Closing EntriesDelivery Revenue

Income Summary31 2 650 00

2 650 00


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TEACHW Writing SupportWriting Clearly Call students’ attention to the Closing Entry analysis model (Digital Transparency 10-4). Have them list the seven steps of the transaction analysis model as a review. 1. Identify accounts affected. 2. Classify each account. 3. Determine whether each account is increasing or decreasing. 4. Determine which account is debited. 5. Determine which account is credited. 6. Show the entry with T accounts. 7. Make the journal entry. OL

R Reading StrategyActivating Prior Knowledge Ask: How many revenue accounts does Zip have and why? It has only one revenue account because it has only one source of revenue: providing delivery services. OL

C Critical ThinkingSynthesizing Refer students to the Closing Entry analysis model. Ask: Which temporary capital account is closed to Income Summary? Delivery Revenue What account is credited? Income Summary OL

Extended Skill PracticeClosing the Balance of the Revenue Account into Income SummaryUse Demonstration Problem 10-1 in Chapter 10 Fast File for step-by-step practice closing the balance of the Revenue account into Income Summary. The problem also appears on TeacherWorks Plus.

SECTION 10.1

Chapter 10 257

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2. Enter the date (the last day of the accounting period). 3. Enter the name(s) of the account(s) to be debited and the debit

amount(s). 4. Enter the name of the account, Income Summary, to be credited

and the amount to be credited.

Closing Expenses to Income SummaryThe second closing entry transfers the balances of the expense accounts

to Income Summary. The balances of the expense accounts are found in the Income Statement section of the work sheet.

It is not necessary to use a separate closing entry for each expense account. As you can see, Zip’s entry has one debit and four credits.

1. The accounts affected by the second closing entry are Advertising Expense, Maintenance Expense, Rent Expense, Utilities Expense, and Income Summary.

2. Advertising Expense, Maintenance Expense, Rent Expense, and Utilities Expense are expense accounts. Income Summary is a temporary owner’s equity account.

3. The balances of the four expense accounts are decreased to zero; the total decrease is $1,500. The total amount, $1,500, is transferred to the Income Summary account.

Second Closing Entry—Close Expenses to Income Summary

6.T ACCOUNTS

4. To transfer the expenses to the Income Summary account, debit Income Summary for $1,500.

5. Decreases in expense accounts are recorded as credits. Credit Advertising Expense, $75; Maintenance Expense, $600; Rent Expense, $700; Utilities Expense, $125.

ANALYSIS Identify

Classify

�/�

DEBIT-CREDIT RULE


Advertising Expense

Credit�

Closing 75

Debit�

Balance 75

Maintenance Expense

Credit�

Closing 600

Debit�

Balance 600

Rent Expense

Credit�

Closing 700

Debit�

Balance 700

Utilities Expense

Credit�

Closing 125

Debit�

Balance 125

Income Summary

Debit

Closing 1,500

Credit


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Reading: Obstacles to Achievement Teachers work together to determine why their students are struggling with mastery of a particular standard.

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TEACHC1 Critical ThinkingApplying Procedures Refer students to the steps to journalize closing entries. Ask: How many steps are required? four Ask: What one account title do you know will be used? Income Summary BL

M Math Skill PracticeCalculating Balances Refer students to the Closing Entry analysis model (Digital Transparency 10-5). Ask: What is the balance of the Advertising Expense T account after its closing entry has been posted? zero BL

C2 Critical ThinkingSynthesizing Ask: Why are the revenue and expense accounts shown here closed to Income Summary? They are all temporary accounts, so they must be closed to Income Summary at the end of the period. OL

Extended Skill PracticeClosing Expense Account Balances Into Income SummaryUse Demonstration Problem 10-2 in Chapter 10 Fast File for step-by-step practice closing expense account balances into Income Summary. The problem also appears on TeacherWorks Plus.

SECTION 10.1

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A journal entry with two or more debits or two or more credits is called a compound entry. A compound entry saves both space and posting time. For example, each of Zip’s expense accounts could be closed to Income Summary separately. That, however, requires four entries and postings to the Income Summary account instead of one entry and posting.

Closing Income Summary to CapitalThe third closing entry transfers the balance of the Income Summary

account to the capital account. As shown in the T account, after closing Zip’s revenue and expense accounts, Income Summary has a credit balance of $1,150. A credit balance indicates net income for the period. It is the same amount that appears on the work sheet.

7.JOURNAL ENTRYGENERAL JOURNAL PAGE

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DEBIT CREDITDESCRIPTIONDATEPOST. REF.

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Income Summary

1 Closing entry for revenue 2,650

Balance 1,150

2 Closing entry for expenses 1,500

1. The accounts Income Summary and Crista Vargas, Capital are affected.2. Income Summary is a temporary owner’s equity account. Crista Vargas,

Capital is an owner’s capital account.3. The Income Summary account balance is reduced to zero by

transferring $1,150, the net income amount, to the capital account. Crista Vargas, Capital is increased by $1,150.

Third Closing Entry—Close Income Summary to Capital

4. To reduce the Income Summary balance to zero, debit Income Summary for $1,150.

5. Net income is recorded as a credit to the owner’s capital account. Credit Crista Vargas, Capital for $1,150.

ANALYSIS IdentifyClassify

�/�

DEBIT-CREDIT RULE



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TEACHC Critical Thinking

Applying Prior Knowledge Point out that one total is recorded in the Income Summary account for all expense accounts that are closed. Ask: What is a journal entry called if it has two or more debits or credits? a compound entry Ask: Why do accountants use this type of entry in the journal? to save both space and posting time OL

M Math Skill PracticeThinking Algebraically Give students an example of an “if, then” statement: If 2 � 2 � 4, then 4 � 2 � 2. Have students describe the entry to close Income Summary using “if, then” statements. If credit [revenue] � debit [expense] then debit Income Summary. If debit [expense] � credit [revenue] then credit Income Summary. OL

R Reading StrategyActivating Prior Knowledge Ask: What is the normal balance of the capital account? credit Ask: If the Income Summary account has a credit balance, will the capital account be increased or decreased when the Income Summary is closed? increased with a credit and a corresponding debit to Income Summary OL

Extended Skill PracticeClosing Income Summary Into Capital Use Demonstration Problem 10-3 in Chapter 10 Fast File for step-by-step practice closing Income Summary into Capital. The problem also appears on TeacherWorks Plus.

SECTION 10.1

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After the third closing entry has been posted, the Income Summaryaccount appears in T-account form as follows.

If a business has a net loss, Income Summary has a debit balance. In that case, the third closing entry debits the capital account and credits Income Summary for the amount of the net loss. Figure 10–3 shows this general journal entry.

Closing Withdrawals to CapitalThe fourth and last closing entry transfers the balance of the withdrawals

account to the capital account. As you recall, withdrawals decrease owner’s equity. The balance of the withdrawals account is transferred to the capital account to reflect the decrease in owner’s equity. The balance of the with-drawals account is found in the Balance Sheet section of the work sheet.

7.JOURNAL ENTRY

6.T ACCOUNTS Income Summary

Credit

Balance 1,150

Debit

Closing 1,150

Crista Vargas, Capital

Credit

Balance 25,400Closing 1,150

Debit


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Income Summary

1 Closing entry for revenue 2,6502 Closing entry for expenses 1,500

3 Closing balance to owner’scapital account 1,150


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Closing EntriesCrista Vargas, Capital Income Summary

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Closing the Withdrawals Account A mistake frequently made during the closing procedure is the closing of the Withdrawals account into the Income Summary account. The Income Summary account should be used to record the closing of the revenue and expense accounts, thus having a summary income statement in the Income Summary account. A withdrawal of cash or other assets by the owner for personal use is not an operating expense but a withdrawal of Owner’s Equity (Capital). Remember that the Withdrawals account is closed directly into the Capital account.

CommonMistakes

Figure 10 –3 Closing Income Summary for the Amount of Net Loss


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TEACHD Diff erentiated

InstructionVisual-Spatial Learning Refer to the Closing Entry analysis model (Digital Transparency 10-6) to analyze the closing of Income Summary to the capital account. Have students explain the process of entering the ending balances of the Income Summary account and the capital account in the general journal. The explanation should include concepts discussed in the chapter, including the different entries for both net income and net loss situations. OL

M Math Skill PracticeCalculating Balances Refer students to the Income Summary T account. Ask: If the debit for closing expenses is $2,350 and the credit for closing revenue is $1,900, what is the amount closed to the capital account? $450 Ask: Is the capital account debited or credited? debited because there is a net loss, with a corresponding credit to Income Summary OL

C Critical ThinkingApplying Procedures Refer students to Figure 10-3 (Digital Transparency 10-7). Ask: What does a debit balance in the Income Summary account represent? a loss, since expense (debits) � revenue (credits) Ask: What effect does a debit balance have on the capital account balance? decreases it OL

Common Mistakes Understanding the use of these terms in the context of accounting is critical. Discuss and demonstrate with examples until all students have a clear understanding.

SECTION 10.1

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Figure 10–4 summarizes the closing entries for Zip.

7.JOURNAL ENTRY

6.T ACCOUNTS

4. Decreases in owner’s capital accounts are recorded as debits. Debit Crista Vargas, Capital for $500.

5. Decreases in owner’s withdrawal accounts are recorded as credits. Credit Crista Vargas, Withdrawals for $500.

DEBIT-CREDIT RULE

Crista Vargas, Capital

Credit�

Balance 26,550

Debit�

Closing 500

Crista Vargas, Withdrawals

Credit�

Closing 500

Debit�

Balance 500


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Closing EntriesDelivery Revenue Income Summary

Income Summary Advertising Expense Maintenance Expense Rent Expense Utilities Expense

Income Summary Crista Vargas, Capital

Crista Vargas, Capital Crista Vargas, Withdrawals

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1. The accounts affected by the fourth closing entry are Crista Vargas, Withdrawals and Crista Vargas, Capital.

2. Crista Vargas, Withdrawals is a temporary owner’s equity account. Crista Vargas, Capital is an owner’s capital account.

3. Crista Vargas, Withdrawals is decreased by $500. Crista Vargas, Capital is decreased by $500.

Fourth Closing Entry—Close Withdrawals to Capital

ANALYSIS Identify

Classify

�/�


Figure 10–4 Journalizing the Closing Entries


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TEACHC1 Critical ThinkingSynthesizing Refer to the Closing Entry analysis model (Digital Transparency 10-8). Have students look at the seven numbered steps. Ask: Which temporary capital account is closed to the permanent capital account? Crista Vargas, Withdrawals OL

C2 Critical ThinkingApplying Procedures Have students examine Figure 10-4 (Digital Transparency 10-9). Point out that it is not necessary to skip a line between closing entries. Ask: How many accounts were credited to close the expense account? four Ask: What was the total of these four accounts? $1,500 Ask: Are the words closing entries repeated for each closing entry? no Ask: Is there an explanation after each entry? no BL

C3 Critical ThinkingMaking Inferences Refer students to the Closing Entry analysis model and Figure 10-4. Ask: What is the ending capital balance if the withdrawals amount is $1,000 instead of $500? $25,550 ($26,550 � $1,000) AL

Extended Skill PracticeClosing the Withdrawals AccountUse Demonstration Problem 10-4 in Chapter 10 Fast File for step-by-step practice closing the withdrawals account. The problem also appears on TeacherWorks Plus.

SECTION 10.1


Math: Classroom and Instructional Management Dr. Gilbert Cuevas discusses issues of classroom and instructional management.

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SECTION 10.1

ASSESSSECTION 10.1 ASSESSMENT RESOURCES Use these resources to assess mastery of section content.• Chapter Study Guides and Working

Papers (Problems 10-1, 10-2)• Presentation Plus!

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Online Learning Center: Click on Student Center. Click on Self-Assessment Quizzes and select Chapter 10.

SECTION 10.1 ASSESSMENT ANSWERS

Reinforce the Main Idea1) Dr. Revenue, Cr. Inc. Summary 2) Dr. Inc. Summary, Cr. all expense accts. 3) Income: Dr. Inc. Summary, Cr. Capital; loss: Dr. Capital, Cr. Inc. Summary 4) Dr. Capital, Cr. Withdrawals

Math for AccountingThe net income is $4,000. Owner’s capital decreased by $1,000.

PROBLEM 10–11. Dr. Ticket Revenue $6,000; Cr. Income

Summary $6,0002. Dr. Income Summary $3,100; Cr. Gas

and Oil Exp. $700, Misc. Exp. $600, Utilities Exp. $1,800

PROBLEM 10–21. Dr. Utilities Expense $129; Cr. Cash in

Bank $1293. Dr. Income Summary $129; Cr. Utilities

Expense $129

CLOSESynthesizing Write the following sentence on the board: Closing entries for revenue and expense accounts must be recorded. Ask: What is the reason for this? to reduce the balances to zero and prepare these temporary accounts for the next period

General Journal Entry Description Account Debited Account Credited

After You Read

PROBLEM 10–1 Preparing Closing Entries INSTRUCTIONS Prepare closing entries for the following in your working papers.1. A closing entry must be made for the account Ticket Revenue, which

has a balance of $6,000.2. A business has three expense accounts: Gas and Oil Expense (balance,

$700), Miscellaneous Expense (balance, $600), and Utilities Expense (balance, $1,800). The end of the fiscal year is June 30.

PROBLEM 10–2 Analyzing a Source Document INSTRUCTIONS Using the source document:1. Journalize the transaction in a general journal in your working papers.2. Post the entry to the appropriate T accounts.3. Assume it is the end of the accounting period. Record the closing entry

for this account in the general journal.4. Post the closing entry to the appropriate T accounts.

Math for AccountingUsing these general ledger account balances, calculate the net income or net loss for the period. Then calculate the increase or decrease in owner’s capital. Anna Zarian, Capital $25,000 Anna Zarian, Withdrawals 5,000 Accounting Fees Revenue 9,000 Advertising Expense 1,000 Miscellaneous Expense 2,000 Rent Expense 1,500 Utilities Expense 500

Reinforce the Main IdeaUse a table like this one to describe the closing entries that are made at the end of each accounting period.

SECTION 10.1 • ASSESSMENT

TO

ACCOUNT NO.:INVOICE NO.:

DATESUSAGE RATE

AMOUNT DUETOFROM

Gulfview Tropical Fish and Supplies4524 West Palm Bay AvenueSarasota, FL 34222

00384843848-33932004

455 Main StreetSarasota, FL 34230

DEPARTMENT OF WATER & POWER

March 15, 20-- April 14, 20-- 1,000 kWh $.129 per kWh $129.00


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QUIZ 1. In what step in the accounting cycle are closing entries made? eight

2. What is the normal balance of the Income Summary account? It does not have one.

3. What is the debit side of the Income Summary account used for? closing expense accounts

4. What is the credit side of the Income Summary account used for? closing revenue accounts

5. What is an entry called that has two or more debits or two or more credits? compound entry

SEC TION 10.1

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PRETEACHING SECTION VOCABULARY

SECTION VOCABULARY

Content Vocabulary• post-closing trial balance

In Section 10.1 you learned how to journalize the closing entries. In this section you will complete the accounting cycle.

Completing the Eighth Step in the Accounting Cycle: Posting the Closing Entries to the General LedgerWhat Is Special About Posting the Closing Entries?

The next step in the closing process is to post the closing entries to the general ledger accounts. The posting procedure is the same as for any other general journal entry, with one exception. The words Closing Entries are written in the Description column of the general ledger account. The posting of the closing entries for Zip is shown in Figure 10–5. Note that Closing Entries can be abbreviated as Clos. Ent.

POSTING CLOSING ENTRIES AND PREPARING A POST-CLOSING TRIAL BALANCE

SECTION 10.2

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• Show Me tutorials • Let Me Try interactive

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Income Summary Advertising Expense Maintenance Expense Rent Expense Utilities Expense

Income Summary Crista Vargas, Capital

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Figure 10–5 Closing Entries Posted to the General Ledger

Reading Check Recall How is the posting procedure different from the procedure to record general journal entries?

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SECTION 10.2

FOCUSBell Ringer • Responding Orally: Write trial

balance on the board. Ask students to identify its purpose and when it is prepared. Write the answers on the board. Note that a trial balance prepared at the end of the accounting period is a post-closing trial balance. It also ensures that ledger accounts are in balance.

• Digital Transparency 10-10 focuses students’ attention on the topics covered in Section 10.2.

Bell Ringer

TEACHR Reading Strategy

Activating Prior Knowledge Ask: Why do you think closing entries in the general ledger need to have a special description added? so they can be quickly and easily identifi ed as closing entries, not other entries BL

C Critical ThinkingApplying Prior Knowledge Highlight the Description column in Figure 10-5 (Digital Transparency 10-11a). Ask: Are the words closing entries repeated for each closing entry? no Ask: Is there an explanation after each entry? no Ask: To what do the numbers in the Post Ref. column refer? Each is the number of the account in the Description column. OL

Reading CheckIn the posting procedure, the words Closing Entries are written in the Description column of the general ledger account.

Content Vocabulary To help students understand this content vocabulary term, guide them in discussing the prefi x post-. Remind them that a prefi x is a word part that is added before a base word and that changes the meaning of the word. The prefi x post- adds the meaning “after.” Ask students to suggest other words that begin with the prefi x, such as postwar and postdate. Point out that this use of the prefi x is unusual because it includes a hyphen. Be sure students recognize the difference between the prefi x post-, used in post-closing trial balance, and the verb post, to transfer information from the journal to individual general ledger accounts.

Chapter 10 263

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DEBIT CREDIT

BALANCEDEBIT CREDITDESCRIPTIONDATE

POST.REF.

ACCOUNT NO.ACCOUNT

20--Oct. 25 0 0 0 00

25 4 0 0 0026 5 5 0 0026 0 5 0 005 0 0 00

25 0 0 0 004 0 0 00

1 1 5 0 00Clos. Ent.Clos. Ent.

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3131

G1G1G3G3

Crista Vargas, Capital 301

DEBIT CREDIT


POST.REF.

ACCOUNT NO.ACCOUNT

20--Oct. 5 0 0 005 0 0 00

5 0 0 00Clos. Ent.3131

G1G3

Crista Vargas, Withdrawals 302

DEBIT CREDIT


POST.REF.

ACCOUNT NO.ACCOUNT

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Income Summary 303

DEBIT CREDIT


POST.REF.

ACCOUNT NO.ACCOUNT

20--Oct. 1 2 0 0 00

2 6 5 0 002 6 5 0 00

1 2 0 0 001 4 5 0 00

Clos. Ent.

152031

G1G1G3

Delivery Revenue 401

DEBIT CREDIT


POST.REF.

ACCOUNT NO.ACCOUNT

20--Oct. 7 5 007 5 00

7 5 00Clos. Ent.1831

G1G3

Advertising Expense 501

DEBIT CREDIT


POST.REF.

ACCOUNT NO.ACCOUNT

20--Oct. 6 0 0 006 0 0 00

6 0 0 00Clos. Ent.2931

G1G3

Maintenance Expense 505

Figure 10–5 Closing Entries Posted to the General Ledger (continued)


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TEACHC1 Critical ThinkingDifferentiating Refer students to Figure 10-5 (Digital Transparency 10-11 a and b). Ask: Which account in Figure 10-5 is a permanent account? Crista Vargas, Capital Ask: What was the balance of the capital account after the October 2 transaction? $25,400 Ask: What does the $1,150 credit to capital on October 31 represent? net income AL

C2 Critical ThinkingMaking Inferences Refer students to the Income Summary account in Figure 10-5. Ask: Based on the closing entries, what was the total revenue for the month of October? $2,650 Ask: What were the total expenditures for October? $1,500 AL

C3 Critical ThinkingApplying Prior Knowledge Refer students to Figure 10-5. Ask: After locating the Delivery Revenue account in the ledger, what is the fi rst step in the posting procedure? record the date Ask: What is the posting procedure once the date has been recorded in the ledger? post left to right (Description, Posting Reference, Debit or Credit, Balance). OL

Extended Skill PracticeJournalizing Closing Entries from the Work SheetUse Demonstration Problem 10-5 in Chapter 10 Fast File for step-by-step practice journalizing closing entries from the work sheet. The problem also appears on TeacherWorks Plus.

SECTION 10.2

Identifying and Classifying Revenue and Expense Accounts Write two headings on the chalkboard: Revenue and Expenses. Have students brainstorm the temporary accounts for a pizza delivery service business. As students name an account, ask them to classify the account as a revenue or an expense. Then list the account on the chalkboard under the appropriate heading. Accept all responses, and do not stop to evaluate whether they are correct. After all responses have been offered, ask students to review the lists. Edit the lists as needed so that only temporary accounts are included.

EXTENDING THE CONTENT

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The Ninth Step in the Accounting Cycle: Preparing a Post-Closing Trial BalanceIf We Already Have a Trial Balance, Why Do We Need a Post-Closing Trial Balance?

The last step in the accounting cycle is to prepare a post-closing trial balance. The post-closing trial balance is prepared to make sure total debits equal total credits after the closing entries are posted. This last step in the accounting cycle gives you the opportunity to correct any errors that might have been made after the trial balance was prepared. For example, a closing entry could have been posted to the wrong general ledger account, or an entire closing entry may not have been posted. In preparing the post-closing trial balance, all the balances in the ledger accounts are checked. The post-closing trial balance for Zip is shown in Figure 10–6.

Notice that only accounts with balances are listed on the post-closing trial balance. After the closing process, only permanent accounts have balances. Temporary accounts have zero balances, so there is no need to list those accounts on the post-closing trial balance.

DEBIT CREDIT


POST.REF.

ACCOUNT NO.ACCOUNT

20--Oct. 7 0 0 007 0 0 00

7 0 0 00Clos. Ent.1631

G1G3

Rent Expense 510

DEBIT CREDIT


POST.REF.

ACCOUNT NO.ACCOUNT

20--Oct. 1 2 5 001 2 5 00

1 2 5 00Clos. Ent.2831

G1G3

Utilities Expense 515

Figure 10–5 Closing Entries Posted to the General Ledger (continued)

Figure 10–6 Post-Closing Trial Balance

Zip Delivery ServicePost-Closing Trial Balance

October 31, 20--

7 5 0011 6 5 0 0026 0 5 0 0037 7 7 5 00

21 1 2 5 001 4 5 0 003 0 0 0 00

2 0 0 0012 0 0 0 00

37 7 7 5 00

Cash in BankAccounts Receivable—City NewsComputer EquipmentOffice EquipmentDelivery EquipmentAccounts Payable—Rockport AdvertisingAccounts Payable—Coast to Coast AutoCrista Vargas, Capital Total

Reading Check Explain How is the post-closing trial balance similar to the trial balance? How is it different?

Section 10.2 Posting Closing Entries and Preparing a Post-Closing Trial Balance 265

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SECTION 10.2

TEACHC1 Critical ThinkingDrawing Conclusions Ask: Why should you prepare a post-closing trial balance? to make sure that total debits equal total credits after the closing entries have been posted BL

C2 Critical ThinkingApplying Prior Knowledge Have students examine Figure 10-6 (Digital Transparency 10-12). Ask: How do you know that these accounts are permanent accounts? Only permanent accounts have balances after the closing entries (post-closing) have been made. OL

W Writing SupportCommunicating Procedures Have students review Figure 10-6. Tell them that in preparing a post-closing trial balance, they would go through the ledger after the closing entries had been posted and list all accounts with balances. The debits should equal the credits. Ask: What are some possible errors that could have occurred if the debits did not equal the credits? A closing entry may not have been posted correctly or at all, or a math error could have been made. AL

Reading CheckSimilar: Both list debit and credit balances. Different: The post-closing trial balance is prepared after the closing entries have been posted.

CHAPTER 10 ENRICHMENT RESOURCES

Fast File Chapter 10 Resources• Concept Assessment• Chapter Quiz• Chapter Test

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Chapter 10 265

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SECTION 10.2

ASSESSSECTION 10.2 ASSESSMENT RESOURCES Use these resources to assess mastery of section content.• Chapter Study Guides and Working

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Online Learning Center: Click on Student Center. Click on Self-Assessment Quizzes and select Chapter 10.

SECTION 10.2 ASSESSMENT ANSWERS

Reinforce the Main IdeaAsset, liability, and owner’s capital accounts carry a balance into the next accounting period.

Math for AccountingThe post-closing trial balance is $141,800.

PROBLEM 10–3Accts. Rec.—L. Brown, Bal. Sh., No, YesAdv. Exp., Inc. St., Yes, NoCash in Bank, Bal. Sh., No, YesExer. Class Rev., Inc. St., Yes, NoExercise Equip., Bal. Sh., No, YesIncome Summary, N/A, Yes, NoLaundry Equip., Bal. Sh., No, YesMaintenance Exp., Inc. St., Yes, NoMembership Fees, Inc. St., Yes, NoMiscellaneous Exp., Inc. St., Yes, NoOffice Furniture, Bal. Sh., No, YesRent Exp., Inc. St., Yes, NoRepair Tools, Bal. Sh., No, YesT. Chapman, Cap., Bal. Sh., Yes, YesT. Chapman, With., Bal. Sh., Yes, NoUtilities Exp., Inc. St., Yes, No

CLOSESynthesizing Write the following sentence on the board: Temporary account balances equal zero at the beginning of an accounting period. Ask: Why do temporary accounts need zero balances to start a new accounting period? because their balances apply to only one accounting period

OVERSET

Account Type Appears on Post-Closing Trial Balance

Asset

Liability

Owner’s Capital

Owner’s WithdrawalsRevenue

Expenses

After You Read

PROBLEM 10–3 Determining Accounts Affected by Closing Entries

The following list contains some of the accounts used by Living Well Health Spa.

General Ledger Accts. Pay.—The Fitness Shop Accts. Rec.—Linda Brown Advertising Expense Cash in Bank Exercise Class Revenue

Exercise Equipment Income Summary Laundry Equipment Maintenance Expense Membership Fees Miscellaneous Expense

Office Furniture Rent Expense Repair Tools Ted Chapman, Capital Ted Chapman, Withdrawals Utilities Expense

INSTRUCTIONS Using the form in your working papers:1. In the first column, indicate the financial statement where each

account appears: balance sheet or income statement.2. In the next column, indicate whether or not the account is affected by

a closing entry.3. In the last column, indicate whether or not the account appears on the

post-closing trial balance.The first account is shown as an example.

Do the MathYou work for a company with a large accounting department, and every accounting clerk has specific duties. Your co-worker responsible for preparing the post-closing trial balance is ill today. Your supervisor asked you to prepare the post-closing trial balance. Using your computer or lined paper, draft the post-closing trial balance using the following account balances: Cash, $27,800; Accounts Receivable, $33,000; Equipment, $81,000; Accounts Payable, $24,500; and Owner’s Capital, $117,300.

Reinforce the Main IdeaCreate a table like this one to list the general ledger account classifications. In the column titled “Appears on Post-Closing Trial Balance,” place an X next to each account that carries a balance into the next accounting period.

SECTION 10.2 • ASSESSMENT

Account Name FinancialStatement

Is the account affected by a closing entry?

Does the account appear on the post-

closing trial balance?

Accts. Pay.—The Fitness Shop Balance Sheet No Yes


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QUIZ 1. Which ledger accounts do not appear on the post-closing trial balance? temporary capital

accounts2. Is the post-closing trial balance dated for a point in time or for a period of time? Why? for a

point in time—one date—because it identifi es ledger balances at the specifi c date named on the form

3. What is the eighth step in the accounting cycle? to journalize and post closing entries

SEC TION 10.2

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The Income Summary account has TWO purposes.

First Purpose: To accumulate the revenue and expenses for an accounting period.

Second Purpose: To summarize the revenue and expenses for an accounting period.

CHAPTER 10 • VISUAL SUMMARY

glencoe.com Download the vocabulary review, i-Summary, and i-Quiz for Chapter 10.mm D

Co

nce

pts

An

alys

is

Analyze and journalize the closing entries.1. Close the revenue account(s) to Income Summary

2. Close the expense accounts to Income Summary

3. Close Income Summary to the owner’s capital account.

4. Close the owner’s withdrawals account to the owner’s capital account.

Pro

ced

ure

s

Prepare a post-closing trial balance.

Stan’s DonutsPost-Closing Trial Balance

April 30, 20___

Cash in Bank 45 7 2 5 00 Accts Rec.—Jerry’s Catering 2 5 0 0 00Kitchen Equipment 4 5 0 0 00Office Equipment 5 0 0 00Tableware 2 5 0 00Accts. Pay.—Staunch Staffing 1 3 2 5 00Accts. Pay.—USA Baking Supply 7 3 5 0 00Joanne Chen, Capital 45 0 0 0 00 Totals 53 4 7 5 00 53 6 7 5 00

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CHAPTER 10

Visual SummaryAfter students have looked at the Visual Summary, challenge them to create their own diagrams that detail the steps from the Analysis section. Tell them these diagrams can help them remember the steps to analyze and journalize closing entries.

English Language LearnersStudents whose primary language is not English might benefit from extra review or tutoring at this point. Have students make audio tapes of this chapter for English Language Learners to use. Have different volunteers record several pages or a section. Students using the tapes should write a summary of each main heading.

Student Edition• Reading Check, pp. 256, 263, 265• Section Assessments 1, 2: pp. 262, 266• Review and Activities, p. 268• Standardized Test Practice, p. 269• Chapter 10 Problems, pp. 271–275• Real-World Applications and Connections,

pp. 276–277

Teacher Edition• Section Quizzes 1, 2: pp. 262, 266

Fast File Chapter 10 Resources (on TeacherWorks Plus)• Concept Assessment• Quick Quiz• Chapter Quiz

• Chapter Test• Performance Task Assessment List• Rubric

ExamView Assessment SuiteConnect Assignment Builder

CHAPTER 10 ASSESSMENT RESOURCES Use these resources to review, assess, or reteach the chapter.

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CHAPTER 10 • REVIEW AND ACTIVITIES

1. What activities have to be done at the end of an accounting period? Just as you might have certain tasks that you need to do on a regular basis, there are tasks accountants need to do at the end of an accounting cycle. Why it is important that these tasks be done on a regular basis?

Vocabulary Check2. Content Vocabulary Write a short essay about completing the accounting cycle using each of the

content vocabulary words. You may use a word more than once. Underline each vocabulary word each time it is used.

• closing entries (p. 253)• Income Summary account (p. 256)

• compound entry (p. 259)• post-closing trial balance (p. 265)

3. Academic Vocabulary Find each academic vocabulary word in a dictionary and write its part of speech and the first definition. Then write the definition in your own words.

• similar (p. 253) • procedure (p. 257) • require (p. 259)

Concept Check4. Analyze Which accounts are considered temporary accounts? Why are they closed at the end of the fiscal

year?5. What is the purpose of the Income Summary account? How is it different from other temporary accounts?6. How does the Income Summary account affect the capital account?7. List and explain the steps for journalizing the closing entries.8. Classify What kind of account is the Income Summary account: asset, liability, owner’s equity, revenue,

or expense? Justify your answer.9. Compare and contrast How is the post-closing trial balance similar to the trial balance? How is it

different?

English Language Arts 11. Research the economic events that led

up to the Great Depression of the 1930s. Tell what factors conspired to cause the collapse, what factors helped to rebuild the economy, and that government policy changes that resulted. Give your results in a two-page essay.

NCTE 2 Read literature to build an understanding of the human experience.

Math 10. Jai is having a small warehouse built for

his business. The warehouse measures 125 feet wide and 200 feet long. The height of the ceiling is 25 feet. Heating the building will cost $1.13 for every 1,500 cubic feet per day. What will it cost to heat the ware house for a year?

NCTM Number and Operations Understand the meanings of operations and how they relate to one another.

Answering the Essential QuestionAfter You Read

268 Chapter 10 Review and Activities

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CHAPTER 10

Review and Activities

After You ReadAnswering the Essential Question

1. The intent of this essential question is to help students use inquiry to arrive at an understanding of the basic role of accounting.

Vocabulary Check 2, 3. See the glossary for the defi nitions

of these terms. Have students share and discuss their defi nitions.

Concept Check4. revenue, expense, and withdrawals.

Because they apply to only one fi scal year, they cannot be carried over to the following year.

5. to summarize the revenue and expenses for the period. Income Summary is used only at the end of the period and does not have a normal balance side as other temporary capital accounts do.

6. Income Summary is a temporary capital account that records net income or net loss. If Income Summary has a debit balance (loss), capital decreases; if it has a credit balance (income), capital increases.

7. Step 1: Transfer revenue balance to the credit side of the Income Summary account; Step 2: Transfer expense account balances to the debit side of the Income Summary account; Step 3: Transfer the balance of the Income Summary account to the capital account; Step 4: Transfer the balance of the withdrawals account to the debit side of the capital account.

8. owner’s equity9. Similar: Both list debit and credit

balances. Different: The post-closing trial balance is prepared after the closing entries have been posted.

Math10. 125 � 200 � 25 � 625,000 cubic

feet; 625,000 � 1,500 � 416.67 � $1.13 � $470.83 a day, $470.83 � 365 � $171,854.17 to heat the building for a year.

English Language Arts11. Answers should note the factors of

real estate and stock price infl ation during the late 1920s caused by

overspeculation. There was high consumer debt, malfeasance by banks and investors, lack of high-growth new industries. Students should note the role of World War II and the New Deal policies that helped rebuild the economy, and should further note the resulting policies that remain in place today.

268 Chapter 10

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CHAPTER 10 • STANDARDIZED TEST PRACTICE

Multiple Choice1. The purpose of the Income Summary account is

a. to close the temporary accounts.b. to accumulate and summarize the revenue and expenses for the period.c. to transfer the balance of the Income Summary account to the capital account.d. to report the net income or net loss for the accounting period.

2. Closing entries help ensure thata. balances of the temporary accounts are reduced to zerob. the net income or net loss for the period is transferred to the capital accountc. accounts are prepared for the trial balanced. All of these

3. Transactions involving revenue, expenses, and withdrawals are recorded in thea. permanent accountsb. financial statementsc. general journald. temporary capital accounts

4. After adjusting and closing entries have been posted, aa. balance sheet is prepared. b. trial balance is prepared. c. post-closing balance sheet is prepared.d. post-closing trial balance is prepared.

5. The Capital account balance minus the net loss minus the withdrawals account balance equalsa. net lossb. total liabilitiesc. the capital amount shown on a balance sheet.d. the capital amount shown on an income statement.

Short Answer6. A journal entry with two or more debit or credit entries is called a ____________ .

Extended Response7. Why is it necessary to prepare a post-closing trial balance?

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Standardized Test Practice

Multiple Choice1. b2. d3. d4. d5. c

Short Answer6. compound entry

Extended Response7. to make sure that total debits equal

total credits after the closing entries have been posted

CHAPTER 10

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CHAPTER 10 • COMPUTERIZED ACCOUNTING

Closing EntriesMaking the Transition from a Manual to a Computerized System

MANUAL METHODSMANUAL METHODS COMPUTERIZED METHODS

• Using a general journal form, prepare closing entries for revenue, expense, income summary, and withdrawals accounts. Post the closing entries in the general ledger accounts.

• It is not necessary to journalize closing entries. Closing entries are performed by the computerized system.

For detailed instructions, see your Glencoe Accounting Chapter Study Guides and Working Papers.

QuickBooks®

Q What is the diff erence between changing the accounting period and closing the fi scal year in QuickBooks?

A • In QuickBooks the accounting period refers to the month used to record transactions. Changing the accounting period is as simple as entering the first day of the next month. The software does not require that you manually adjust accounting periods.

• The fiscal year should be closed only when you are sure that all entries have been recorded and all reports have been printed for the year.

Q How do I close the fi scal year?

A • Record all journal entries before closing the fiscal year.

• From the Edit menu, select Preferences.• Choose the Accounting preference and

click the Company Preferences tab.• In the Date field, enter the closing date

and click the Set Password button.• Enter and confirm the password, and

click OK.

Q What is the diff erence between changing the accounting period and closing the fi scal year in Peachtree?

A • In Peachtree the accounting period refers to the period used to record transactions. At the end of an accounting period (usually at month-end), you should change to the next accounting period. For example, at March 31, you would select the next accounting period, April 1, 20-- through April 30, 20--.

• The fiscal year should be closed only when you are sure that all entries have been recorded and all reports have been printed for the year.

Q How do I close the fi scal year?

A • Post and print all journal entries before closing the fiscal year. Closing the fiscal year cannot be reversed.

• From the Tasks menu, select System.• Select Year-End Wizard.• You will be prompted to complete

Year-End closing procedures.

270 Chapter 10 Computerized Accounting

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Computerized Accounting

Peachtree will allow you to change the accounting period. The new period will appear in the status bar at the bottom of the screen. Closing the fiscal year will zero all income and expense accounts and post them to the Retained Earnings account, essentially preparing and posting all closing entries.

QuickBooks®

QuickBooks does not require you to close your books. If you choose to close your books at the end of the year, enter the closing date and set the password in the Accounting Company Preferences tab from the Edit menu. QuickBooks adjusts your income and expense accounts at year-end to zero them out. Therefore, you will start your new fiscal year with a zero net income.

CHAPTER 10

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CHAPTER 10 • PROBLEMS

PROBLEM 10–4 Preparing Closing EntriesA portion of the work sheet for Wilderness Rentals for the period ended December 31 follows. INSTRUCTIONS Using the information from the work sheet, prepare the journal entries to close the temporary accounts. 1. Record the closing entry for the revenue account. 2. Record the closing entry for the expense accounts. 3. Record the closing entry for the Income Summary account. 4. Record the closing entry for the withdrawals account.

INCOME STATEMENT

DEBIT CREDIT

BALANCE SHEET


ACCT.NO.

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

101105110115120125201203205301305310401501505515525

Cash in BankAccts. Rec.—Helen KatzAccts. Rec.—Polk and Co.Office SuppliesOffice EquipmentCamping EquipmentAccts. Pay.—Adventure Equip. Inc.Accts. Pay.—Digital Tech ComputersAccts. Pay.—Greg MollaroRonald Hicks, CapitalRonald Hicks, WithdrawalsIncome SummaryEquipment Rental RevenueAdvertising ExpenseMaintenance ExpenseRent ExpenseUtilities Expense

Net Income

Wilderness RentalsWork Sheet

For the Period Ended December 31, 20--

1 500 001 560 001 000 001 230 005 290 009 675 00

14 965 00

14 965 00

14 965 00

14 965 00

7 000 002 000 001 000 00

900 0012 000 00

6 000 00

2 350 00

31 250 00

31 250 00

900 00400 00500 00

19 775 00

21 575 009 675 00

31 250 00

PROBLEM 10–5 Preparing a Post-Closing Trial Balance

INSTRUCTIONS Use the accounts shown on the next two pages to prepare a Dec. 31 post-closing trial balance for Hot Suds Car Wash.

PROBLEMS CAN BE SOLVED USING:

Manual Methods• Manual Glencoe

Working Papers

Computerized Methods• Spreadsheet• Templates

Step–by–Step Instructions:Problem 10–4

1. Select the problem set for Wilderness Rentals (Prob. 10–4).

2. Rename the company and set the system date.

3. Select System from the Tasks menu and then choose Year-End Wizard.

4. Complete the Analyze activity.

5. End the session.

TIP: Print the General Ledger or General Ledger Trial Balance report to find an account balance.

SMART GUIDE

Predict the balance of the capital account after the closing entries are posted.

Analyze

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CHAPTER 10

PROBLEM 10–4Preparing Closing Entries1. Dr. Equipment Rental Revenue

$14,965; Cr. Income Summary $14,965

2. Dr. Income Summary $5,290; Cr. Advertising Expense $1,500, Maintenance Expense $1,560, Rent Expense $1,000, Utilities Expense $1,230

3. Dr. Income Summary $9,675; Cr. Ronald Hicks, Capital $9,675

4. Dr. Ronald Hicks, Capital $2,350; Cr. Ronald Hicks, Withdrawals $2,350

$27,100 (Ronald Hicks, Capital $19,775 � Net Income $9,675 � Ronald Hicks, Withdrawals, $2,350)

Analyze

PROBLEMS CAN BE SOLVED USING:

Manual Methods• McGraw-Hill Connect• Manual Glencoe

Working Papers

Computerized Methods• Peachtree®• QuickBooks®• Spreadsheet

Chapter 10 271

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Cash in Bank

Credit�

Debit�

Balance 8,000

Accounts Receivable—Linda Brown

Credit�

Debit�

Balance 875

Accounts Receivable—Valley Auto

Credit�

Debit�

Balance 5,050

Office Equipment

Credit�

Debit�

Balance 6,000

Office Furniture

Credit�

Debit�

Balance 9,000

Car Wash Equipment

Credit�

Debit�

Balance 65,000

Accounts Payable—Allen Vacuum Systems

Debit�

Credit�

Balance 41,000

Accounts Payable—O’Brian’s Office Supply

Debit�

Credit�

Balance 2,500

Regina Delgado, Capital

Debit�

Closing 1,500

Credit�

35,925Closing 16,000

Regina Delgado, Withdrawals

Debit�

Balance 1,500

Credit�

Closing 1,500

Income Summary

Debit

Closing 19,000Closing 16,000

Credit

Closing 35,000

Wash Revenue

Debit�

Closing 15,000

Credit�

Balance 15,000

Wax Revenue

Debit�

Closing 8,000

Credit�

Balance 8,000

Interior Detailing Revenue

Debit�

Closing 12,000

Credit�

Balance 12,000

Advertising Expense

Debit�

Balance 2,500

Credit�

Closing 2,500

Equipment Rental Expense

Debit�

Balance 3,000

Credit�

Closing 3,000


1. Restore the Problem10–5.QBB file.

2. Print a Post-Closing Trial Balance.


4. Back up your work.

PROBLEM GUIDE

QuickBooks®


1. Select the problem set for Hot Suds Car Wash (Prob. 10–5).


3. Print a post-closing Trial Balance.


5. End the session.

TIP: Print the General Ledger Trial Balance after you complete the closing process to generate a post-closing trial balance.

SMART GUIDE

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CHAPTER 10

PROBLEM 10–5Preparing a Post-Closing Trial BalancePost-closing trial balance total: $93,925

Zero (temporary accounts are closed to Income Summary)

Analyze

272 Chapter 10

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Maintenance Expense

Debit�

Balance 5,000

Credit�

Closing 5,000

Rent Expense

Debit�

Balance 5,000

Credit�

Closing 5,000

Utilities Expense

Debit�

Balance 3,500

Credit�

Closing 3,500

PROBLEM 10–6 Journalizing Closing EntriesThe following account names and balances appear on the work sheet for Kits & Pups Grooming for the month ended December 31.

INCOME STATEMENT

DEBIT CREDIT

BALANCE SHEET


ACCT.NO.

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

Cash in BankAccts. Rec.—Juan AlvarezAccts. Rec.—Nathan CarlsbadAccts. Rec.—Martha GilesOffice EquipmentOffice FurnitureComputer EquipmentGrooming EquipmentKennel EquipmentAccts. Pay.—Able Store Equip.Accts. Pay.—Dogs & Cats Inc.Accts. Pay.—Pet Gourmet Abe Shultz, CapitalAbe Shultz, WithdrawalsIncome SummaryBoarding RevenueGrooming RevenueAdvertising ExpenseEquipment Repair ExpenseMaintenance ExpenseRent ExpenseUtilities Expense

Kits & Pups GroomingWork Sheet

For the Month Ended December 31, 20--

700 001 200 00

500 001 700 00

20 000 008000 00

9 300 003 000 00

10 000 005 000 008 000 00

10 000 009 000 00

15 000 0021 000 00

7 000 00

5 000 001 500 00

15 000 0052 700 00

00800

INSTRUCTIONS Using this information, record the closing entries for Kits & Pups Grooming. Use general journal page 11.


1. Select the problem set for Kits & Pups Grooming (Prob. 10–6).


3. Close the current fiscal year.


5. End the session.

SMART GUIDE

Predict the balance of the temporary accounts after the closing entries are posted.

Analyze

Calculate the change in the capital account for the period.Analyze


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CHAPTER 10

PROBLEM 10–6Journalizing Closing Entries1. Dr. Boarding Revenue $20,000,

Grooming Revenue $8,000; Cr. Income Summary $28,000

2. Dr. Income Summary $4,900; Cr. Advertising Expense $700, Equipment Repair Expense $1,200, Maintenance Expense $500, Rent Expense $1,700, Utilities Expense $800

3. Dr. Income Summary $23,100; Cr. Abe Schultz, Capital $23,100

4. Dr. Abe Schultz, Capital $7,000; Cr. Abe Schultz, Withdrawals $7,000

$16,100 increase (income, $23,100 � withdrawals, $7,000)

Analyze

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PROBLEM 10–7 Posting Closing Entries and Preparing a Post-Closing Trial Balance

Period ending December 31 closing entries for Outback Guide Service are:


1

2

3

4

5

6

7

8

9

10

11

12

13

1

2

3

4

5

6

7

8

9

10

11

12

13


1

20--Dec. 16 3 0 0 00

10 0 0 0 00

6 3 0 0 00

4 0 0 0 00

16 3 0 0 00

3 0 0 0 001 1 0 0 004 0 0 0 001 9 0 0 00

6 3 0 0 00

4 0 0 0 00

Closing EntriesGuide Service Revenue Income SummaryIncome Summary Advertising Expense Maintenance Expense Rent Expense Utilities ExpenseIncome Summary Juanita Ortega, CapitalJuanita Ortega, Capital Juanita Ortega, Withdrawals

31

31

31

31

INSTRUCTIONS Using your working papers, post the closing entries to the appropriate general ledger accounts and prepare a post-closing trial balance.

PROBLEM 10–8 Completing Period-End Activities

The general ledger for Show biz Video shows the following at December 31:

General Ledger 101 Cash in Bank 12,000 207 Accts. Pay.—105 Accts. Rec.—G. Cohen 3,000 New Media Suppliers 3,000110 Accts. Rec.—J. Coletti 900 209 Accts. Pay.—Palace Films 14,000113 Accts. Rec.—S. Flannery 1,800 301 Greg Failla, Capital 33,775115 Accts. Rec.—Spring 305 Greg Failla, Withdrawals 4,000 Branch School District 1,500 310 Income Summary —130 Office Equipment 5,000 401 DVD Rental Revenue 9,600135 Office Furniture 8,000 405 HD Projector Rental140 Computer Equipment 10,000 Revenue 3,500145 Blu-ray discs 20,000 501 Advertising Expense 1,600150 Video Equipment 9,000 505 Equipment Repair201 Accts. Pay.—Broad Street Expense 1,200 Office Supply 400 510 Maintenance Expense 400205 Accts. Pay.— 520 Rent Expense 1,000 Computer Horizons 15,500 530 Utilities Expense 375


1. Restore the Problem10–8.QBB file.

2. Print a Trial Balance, a Profit & Loss report, and a Balance Sheet.

PROBLEM GUIDE

QuickBooks®


1. Select the problem set for Outback Guide Service (Prob. 10–7).


3. Close the fiscal year.4. Print a post-closing Trial

Balance.5. Complete the Analyze

activity.6. End the session.

SMART GUIDE


1. Select the problem set for Showbiz Video (Prob. 10–8).


3. Print a General Ledger Trial Balance.

4. Print an Income State-ment, Balance Sheet, and Statement of Changes in Owner’s Equity.

5. Close the fiscal year.6. Print a post-closing Trial

Balance.7. Complete the Analyze

activity.8. End the session.

SMART GUIDE

Calculate the balance of the capital account after closing.Analyze

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CHAPTER 10

PROBLEM 10–7Posting Closing Entries and Preparing a Post-Closing Trial BalancePost-closing trial balance total: $79,500

$52,500 (Pre-closing balance $50,200 � Income, $6,300 � withdrawals $4,000)

PROBLEM 10–8Completing Period-End ActivitiesWork sheet trial balance total: $79,775Net Income: $8,525Ending Capital: $38,300Total Assets: $71,200

Closing entries:1. Dr. Video Rental Revenue $9,600, VCR

Rental Revenue $3,500; Cr. Income Summary $13,100

2. Dr. Income Summary $4,575; Cr. Advertising Expense $1,600, Equipment Repair Expense $1,200, Maintenance Expense $400, Rent Expense $1,000, Utilities Expense $375

3. Dr. Income Summary $8,525; Cr. Greg Failla, Capital $8,525

4. Dr. Greg Failla, Capital $4,000; Cr. Greg Failla, Withdrawals $4,000

Post-closing trial balance total: $71,200

Analyze

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INSTRUCTIONS Using the preceding account names and balances: 1. Prepare the six-column work sheet. The period covered is one month. 2. Prepare the financial statements. Greg Failla invested $10,000 during

the month. 3. Record the closing entries on page 12 of the general journal. 4. Post the closing entries. 5. Prepare a post-closing trial balance.

PROBLEM 10–9 Completing End-of-Period Activities

At the end of December, the general ledger for Job Connect showed the following account balances:

General Ledger 101 Cash in Bank 6,000 207 Accts. Pay.—Wildwood 105 Accts. Rec.— Furniture Sales 2,000 CompuRite Systems 1,000 301 Richard Tang, Capital 23,600110 Accts. Rec.— 302 Richard Tang, Marquez Manufact. 500 Withdrawals 3,000113 Accts. Rec.—Roaring 303 Income Summary — Rivers Water Park 600 401 Placement Fees Revenue 6,900115 Accts. Rec.—M. Spencer 200 405 Technology Classes130 Office Equipment 7,000 Revenue 2,400135 Office Furniture 5,000 501 Advertising Expense 3,000140 Computer Equipment 8,500 505 Maintenance Expense 800201 Accts. Pay.—Micro 510 Miscellaneous Expense 800 Solutions Inc. 2,800 520 Rent Expense 2,000205 Accts. Pay.—Vega 530 Utilities Expense 900 Internet Services 1,600

INSTRUCTIONS Using the preceding account names and balances: 1. Prepare the six-column work sheet. The period covered is one month. 2. Prepare the financial statements. 3. Record the closing entries on page 28 of the general journal. 4. Post the closing entries. 5. Prepare a post-closing trial balance.

3. Close the fiscal year and print a Trial Balance.


5. Back up your work.

PROBLEM GUIDE

QuickBooks®

CHALLENGEPROBLEM


1. Select the spreadsheet template for Problem 10–9.

2. Enter your name and the date.

3. Complete the spreadsheet using the instructions in your working papers.

4. Print the spreadsheet and proof your work.


6. Save your work and exit the spreadsheet program.

SPREADSHEETSMART GUIDE

Calculate the total amount of all the accounts receivable accounts on December 31.

Analyze

Identify the largest expenditure for the period.Analyze


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CHAPTER 10

PROBLEM 10–8Completing Period-End Activities (cont’d)

$7,200 (Accts. Rec.—G. Cohen, $3,000 � Accts. Rec.—J. Coletti, $900 � Accts. Rec.—S. Flannery, $1,800 � Accts. Rec.—Spring Branch School District, $1,500)

PROBLEM 10–9Completing Period-End ActivitiesWork sheet trial balance totals: $39,300Net Income: $1,800Ending Capital: $22,400Total Assets: $28,800

Closing entries:1. Dr. Placement Fees Revenue $6,900,

Technology Classes Revenue $2,400; Cr. Income Summary $9,300

2. Dr. Income Summary $7,500; Cr. Advertising Expense $3,000, Maintenance Expense $800, Miscellaneous Expense $800, Rent Expense $2,000, Utilities Expense $900

3. Dr. Income Summary $1,800; Cr. Richard Tang, Capital $1,800

4. Dr. Richard Tang, Capital $3,000; Cr. Richard Tang, Withdrawals $3,000

Post-closing trial balance total: $28,800

Advertising Expense, $3,000

Analyze

Analyze

CHALLENGEPROBLEM

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CHAPTER 10 H.O.T.

H.O.T. Audit

WITHHIGHER ORDER THINKINGREAL-WORLD Applications & Connections

Job StressMany otherwise exciting jobs can also be quite stressful. For instance, police officers and air traffic controllers have very stressful jobs. Studies have found that a machine-controlled pace can also lead to job stress. Working alone at a monotonous job can be stressful. Over time, job stress can lead to serious health concerns, including high blood pressure and heart attacks. There is plenty of research into what a healthy career looks like, and stress researchers hope to offer solutions that will enhance both productivity and worker health.

RESEARCH AND WRITE a. Use the Internet to research what

makes a healthy career. Look for ways researchers can gauge stress levels in people and the ways they determine the stress levels of different jobs.

b. Write a paragraph about what you find.

Auditing the Work SheetThe worksheet and financial statements for Jones Company for December are complete. The balances of the revenue, expenses, and equity accounts on the financial statements are:

Fees Revenue $ 3,000 Utilities Expense 100 Rent Expense 500 Gas Expense 700 Miscellaneous Expense 400 Bob Jones, Capital 16,400 Bob Jones, Withdrawals 600

INSTRUCTIONS Answer the following questions about the closing entries that will be prepared: 1. What account was credited to close the Fees

Revenue account?2. What was the amount of the debit to Income

Summary to close all expense accounts?3. What was the amount of the net income?4. What was the amount that withdrawals decreased

Bob Jones, Capital account?

276 Chapter 10 Real-World Applications and Connections

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276 Chapter 10

H.O.T. Audit Auditing the Work Sheet

1. Income Summary

2. $1,700

3. $1,300

4. $600

Job StressAnswers will vary but might describe things such as using employee questionnaires to judge stress levels. Paragraphs could also discuss the use of data such as the amount of sick time an employee takes.

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CHAPTER 10

FinancialAnalyzing

Reports

AuditorLike accountants, auditors help make sure that organizations are run effectively and that their financial statements are accurate. Several different kinds of auditors exist. Internal auditors evaluate their company’s performance, management, and monitor activities for potential fraud. External auditors are typically hired by an organization to verify whether or not an organization’s financial statements are free of errors. Government auditors evaluate companies that are subject to government regulations or taxation to determine the accuracy of the companies’ records. Auditors may have any of several specializations.

RESEARCH AND SHARE a. Use the Internet to

locate three sources of information on auditors.

b. What level of education is required to be an auditor? What are the roles and responsibilities of auditors?

Closing Activities You PerformIn your personal life, you perform certain activities for a period of time. You often bring closure to an activity and start another.

ACTIVITY In your personal life, you have experienced “closing activities” without realizing it. Have you set a personal financial goal and achieved it through a financial planning process? When you achieved the goal, you actually brought closure to the financial activity. Have you ever saved money to buy something you wanted? When you bought it, that was a “closing activity”. Did you make plans to attend an entertainment event with a friend and actually attended the event? Attending the event brought closure to your plans.Create a table that lists a few of your personal goals, how you went about achieving the goals and in closing, what benefit(s) you received.

Calculating Return on Owner’s EquityOne measure of business success is the return on owner’s equity (ROE):

Net Income/Beginning Owner’s Equity � Withdrawals � $3,600/$34,500 � $2,500 � 11.25%

The resulting percentage shows the amount earned during the period on each dollar invested by the owner.

INSTRUCTIONS Use Zip’s income statement (page 225) and statement of changes in owner’s equity (page 229) to calculate October’s ROE. How does this return compare with a bank savings account that pays 2 percent interest per year?

Chapter 10 Real-World Applications and Connections 277

276_277_C10_RW_893567.indd 277 9/1/10 3:58 AMTell students that misuse of credit and excessive and uncontrollable debt is a growing problem to the economy. Ask students if they think using credit cards encourages people to spend beyond their means.

FINANCIALLITERACY

Chapter 10 277

Auditora. Possible sources: Wikipedia, Bureau

of Labor Statistics, The Institute of Internal Auditors’ Web site

b. According to BLS, most auditing positions require at least a bachelor’s degree in accounting or a related fi eld, and many employers prefer a master’s degree. Responsibilities and roles vary, but should include internal controls, maintaining and examining fi nancial records, and checking for mismanagement, waste, and fraud.

Closing Activities You Perform

Answers will vary.

Calculating Return on Owner’s Equity

1. $1,150 � ($25,400 � $500) � $1,150 � $24,900 � 4.6%

2. The current return on owner’s equity is higher than the bank. Moreover, the business is new, so the return can be expected to increase. The savings account is less likely than the return on owner’s equity to increase.

FinancialAnalyzing

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