CHAPTER TWENTY THREE

ADJUSTING AND CLOSING THE

GENERAL LEDGER

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1. Journalize adjusting and closing entries.

2. Post the adjusting and closing entries.

3. Prepare a postclosing trial balance.

ADJUSTING AND CLOSING THE GENERAL LEDGER

Objectives:

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Recording the Adjusting Entries

Adjusting entries are recorded in the general journal. The amounts are obtained from the Adjustments section of the worksheet.

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Recording the Adjusting Entries (continued)

Post Ref Debit Credit

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Apr 30 8,000 Merchandise Inventory 8,000 To close the beginning inventory

30 Merchandise Inventory 12,000 Income Summary 12,000 To record the ending inventory

Date Description

Income Summary

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Recording the Adjusting Entries (continued)

Post Ref Debit Credit

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Apr 30 240 Supplies 240 To record cost of supplies used during April.

30 Insurance Expense 100 Prepaid Insurance 100 To record cost of expired insurance for April.

Date Description

Supplies Expense

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Recording the Adjusting Entries (continued)

Post Ref Debit Credit

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Apr 30 63 Accumulated Depreciation - Store Equipment 63 To record depreciation for April.

30 Depreciation Expense - Office Equipment 257 Accumulated Depreciation - Office Equipment 257 To record depreciation for April.

30 Depreciation Expense - Building 80 Accumulated Depreciation - Building 80 To record depreciation for April.

Date Description

Depreciation Expense - Store Equipment

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Recording the Adjusting Entries (continued)

Post Ref Debit Credit

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Apr 30 75 Allowance for Doubtful Accounts 75 To record estimated doubtful account for April.

Date Description

Doubtful Accounts Expense

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Recording the Closing Entries

After the adjusting entries are posted, closing entries must be recorded. These entries reduce the balances of the temporary accounts to zero and transfer the results of operations to the capital account.

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Recording the Closing Entries (continued)

The first step is to close the revenue and other temporary accounts with credit balances. The worksheet provides the necessary information.

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Recording the Closing Entries (continued)

Post Ref Debit Credit

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Apr 30 14,950Purchases Returns and Allowances 180Purchases Discount 60 Income Summary 15,190 To close temporary accounts w ith credit balances.

Date Description

Sales

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Recording the Closing Entries (continued)

The second step is to close the cost, expense, and other temporary accounts with debit balances. The worksheet provides the necessary information.

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Recording the Closing Entries (continued)

Post Ref Debit Credit

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Apr 30 17,106 Sales Returns and Allowances 150 Sales Discount 21 Merchandise Purchases 12,800 Freight In 285 Salaries Expense 2,550 Telephone Expense 135 Electricity Expense 350 Supplies Expense 240 Insurance Expense 100 Depreciation Expense--Store Equipment 63 Depreciation Expense--Office Equipment 257 Depreciation Expense--Building 80 Uncollectible Accounts Expense 75 To close temporary accounts w ith debit balances.

Income Summary

Date Description

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Recording the Closing Entries (continued)

The third step is to close the Income Summary account and transfer the net income to the capital account. The worksheet shows the net income for the period.

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Recording the Closing Entries (continued)

Post Ref Debit Credit

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Apr 30 2,084 Ross Maddalon, Capital 2,084 To transfer net income to the ow ner's capital account.

Income Summary

Date Description

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Recording the Closing Entries (continued)

The fourth step is to close the drawing account and transfer its balance to the capital account.

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Recording the Closing Entries (continued)

Post Ref Debit Credit

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Apr 30 1,000 Ross Maddalon, Drawing 1,000 To close the w ithdraw als account

Ross Maddalon, Capital

Date Description

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Preparing the Postclosing Trial Balance

The accounts that appear on the postclosing trial balance are the asset, liability, and owner’s capital accounts.

Debits must equal credits to continue into the next fiscal period.

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Accounting Terminology

•Adjusting entries

•Closing entries

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Chapter Summary

• Adjusting entries must be journalized and posted so that the amounts in the General Ledger will agree with the amounts reported on the financial statements.

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Chapter Summary (continued)

• Adjusting entries are recorded in the General Journal and then posted to the proper General Ledger accounts. The information for these entries comes from the Adjustments section of the worksheet.

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Chapter Summary (continued)

• After the adjusting entries are completed, it is necessary to journalize and post closing entries. These entries make the General Ledger ready to receive transactions for the next period.

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Chapter Summary (continued)

• The first closing entry is used to close the temporary accounts with credit balances. The necessary information comes from the Income Statement Credit column of the worksheet.

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Chapter Summary (continued)

• The second closing entry is used to close the temporary accounts with debit balances. The necessary information comes from the Income Statement Debit column of the worksheet.

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Chapter Summary (continued)

• The third closing entry is used to close the Income Summary account and transfer the net income or net loss to the capital account.

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Chapter Summary (continued)

• The fourth closing entry is used to close the drawing account and transfer its balance to the capital account.

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Chapter Summary (continued)

• After the closing entries are posted, a postclosing trial balance is prepared to check the equality of the debits and credits in the accounts that remain open.

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Investigating on the Internet

As a research assignment, access the PEPSI® web site and report sources of information that might concern financial statements.

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1. Closing entries in the General Journal prepare the business for the next fiscal period.

2. Temporary accounts have zero

balances after closing activities.

3. Some permanent accounts are closed following the closing activities.

Topic QuizAnswer the following true/false questions:

TRUE

FALSE

TRUE

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(Return to Topic Quiz)

3. Some permanent accounts are closed following the closing activities.

FALSEAll the permanent accounts are open for the new fiscal period.