chapter 9 recording adjusting and closing entries for a service business
TRANSCRIPT
Chapter 9
Recording Adjusting and Closing Entries for a Service
Business
9.1 Recording Adjusting Entries
Concept: Accounting Period Cycle-Preparation of work sheet at the end of each fiscal pd. to summarize general ledger info for financial stmts.
Concept: Adequate Disclosure – info for financial stmts. are found on the work sheet.
Journal entries recorded to update general ledger accounts at the end of a fiscal period are called adjusting entries.
Adj. Entries are put on the journal page right after the daily transactions.
Recorded in the Gen. Deb. & Gen. Cred. Columns.
Record 2 journal entries: To bring supplies account up to date To bring prepaid insurance account
up to date.
9.2 Recording Closing Entries
Accounts used to accumulate information from one fiscal period to the next are called permanent accounts. AKA real accounts. Assets, Liab, O.E. Ending balance from one period
beginning balance for next.
Accounts used to accumulate information until it is transferred to the owner’s capital account are called temporary accounts. AKA nominal accounts Revenue, expense, owner’s drawing, income
summary Show changes in capital for fiscal pd. Balances transferred to capital account New fiscal pd. balance is zero
Journal entries used to prepare temporary accounts for a new fiscal period are called closing entries.
Concept: Matching Revenue with Expenses A temporary account titled Income
Summary is used to close revenue and expenses Has no normal balance side Net income = credit balance in Income Summary Net loss = debit balance in Income Summary
Four Closing Entries An entry to close income stmt accounts with
credit balances Entry to close income stmt accounts with
debit balances Entry to record net income or net loss and
close Income Summary Entry to close the owner’s drawing
Information comes from Income Stmt and Balance Sheet of Work Sheet
9.3 Preparing a Post-Closing Trial Balance
Accounting Cycle
1. Analyze Transactions2. Journalize3. Post4. Prepare Worksheet5. Prepare Financial Statements6. Journalize Adjusting and Closing Entries7. Post Adjusting and Closing Entries8. Prepare Post-Closing Trial Balance
After closing entries are posted debits & credits have to be verified as equal.
A trial balance prepared after the closing entries are posted is called a post-closing trial balance.
Only the permanent accounts are included
Accounting Cycle
1. Analyze Transactions2. Journalize3. Post4. Prepare Worksheet5. Prepare Financial Statements6. Journalize Adjusting and Closing Entries7. Post Adjusting and Closing Entries8. Prepare Post-Closing Trial Balance