closing entries chapter 8.3. we’re almost done, let’s finish it up! post the adjusting &...
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Closing Entries Chapter 8.3
We’re almost done, let’s finish it up!
Post the Adjusting &
Closing Entries to the
Ledger
Journalize the
Adjusting &Closing
Entries
Prepare the Post-Closing Trial Balance
Step 7Step 8 Step 9
Which accounts will we need in the next financial period?
These accounts are not closed.
“Real” or Permanent
Assets
Liabilities
Capital (OE)
Which accounts will not apply to the next financial period?
Close these accounts
“Nominal” or Temporary
Revenue
Expenses
Drawings
Bring balance to zero!!
Why are Income Statement accounts not required for next fiscal period?
Matching Principle: states Revenue & Expenses must be recorded in same fiscal period to fairly calculate Net income/ loss.
Why do we Prepare the closing Entries?
1. To bring nominal (“RED”) accounts to zero
2. To update Capital
Complete Accounting Cycle
(1) Transactions occur, gather source documents. Chp. 3 & 6
(2) Accounting entries recorded in the journal. Chp. 6
(3) Journal entries posted to the ledger accounts
(4) Ledger balanced by means of a trial balance
(DR= CR Chp.4)
(5) Work sheet prepared
(6) Income statement (chp 5) and balance sheet (chp.2,8)
prepared.
(7) Adjusting entries journalized and posted. Chp. 9.2, 9.5
-supplies-insurance-late bills-depreciation
(9)_____________________________
(8)____________________________________________________
Journalize & Post adjusting and closing Entries Chp. 9.3, 9.4
Post-closing Trial Balance Chp. 9.3
9.4 Journalizing & Posting the Closing Entries
1. The information to prepare the closing entries comes from the worksheet
2) 4 Steps of Closing Entries:1. Closing Entry No. 1
Transfers the balances in the REVENUE account(s) (Income Statement) to a new nominal account called Income Summary
Since R=CR, DR entries are needed to close them out
Therefore: Revenue DR Income Summary
CR
2. Closing Entry No. 2
Closes EXPENSES to Income Summary
Since E=DR, CR entries are needed to close them out
Therefore: Income Summary DR
Expense CR
3. Closing Entry No. 3
Closes Income Summary to CAPITAL
if Income Summary account has a CR balance, DR entry is needed to close it
Therefore: Income Summary DR
Owner, Capital CR
3. Closing Entry No. 3 cont.
If Income Summary account has a DR balance, CR entry is needed to close it
Therefore: Owner, Capital DR
Income Summary CR
4. Closing Entry No. 4
Closes DRAWINGS to CAPITAL
Since D=DR, CR entries are needed to close them out
Therefore: Owner, Capital DR
Owner, Drawings CR
Let’s Try It!
Complete Exercise #1, 2, 3, 4 p. 298-301 (t), p. 236-241 (w)
Worksheet Pilot Plumbing Month Ended Dec. 31, 2012
Accounts Trial Balance Income Statement Balance Sheet
Dr. Cr. Dr. Cr. Dr. Cr.
Bank 12000.00 12000.00
A/R - Carmen's Restaurants 1200.00 1200.00
A/R - Willow Apartments 1800.00 1800.00
Plumbing Supplies 950.00 950.00
Plumbing Equipment 3050.00 3050.00
Van 16000.00 16000.00
Bank Loan 4000.00 4000.00
A/p - Hudson's Plumbing 600.00 600.00
L. Wallace, Capital 26450.00 26450.00
L. Wallace, Drawings 150.00 150.00
Plumbing Revenue 4500.00 4500.00
Advertising Expense 100.00 100.00
Bank Charges Expense 20.00 20.00
General Expenses 80.00 80.00
Telephone Expense 50.00 50.00
Van Repairs 150.00 150.00
35550.00 35550.00 400.00 4,500.00 35,150.00 31,050.00
Net Income 4,100.00 4,100.00
4,500.00 4,500.00 35,150.00 35,150.00