do now in your notebooks: what do you think a “closing” entry is? why do you think a company...
TRANSCRIPT
Do Now In your notebooks:
What do you think a “closing” entry is? Why do you think a company may need to
close their sales or expense accounts?
Recording Adjusting Entries and Closing
Entries
Accounting 1Chapter 8
The Accounting CycleHere’s what we’ve done through Chapter 7:
Source documents Transactions are journalized Journal entries are posted to the general ledger A work sheet with a working trial balance and working
income statement and balance sheet is prepared Financial statements – Income Statement and Balance
Sheet are prepared from the work sheet
Now we need to make final adjustments and close the books
1st - The Adjustments We need to journalize and post the
adjustments from our work sheet
Adjusting entries: journal entries recorded to update general ledger accounts at the end of a fiscal period
Insurance expense Supplies expense
1st - The Adjustments Adjustments analyzed and planned on a
work sheet
Adjustments must be journalized so they can be posted to general ledger accounts
Adjusting entries recorded on next journal page following page on which last daily transactions for month are recorded
2nd – The Closing Entries Temporary accounts must have a 0 balance at the end
of the fiscal period We want to start with 0 at the beginning of the next
fiscal period Temporary Accounts:
Sales Expenses Income Summary Drawing
Adjusting EntriesChapter 8: ADJUSTING ENTRIES (8-1) Journalize adjusting entries from the work sheet
Write “Adjusting Entries” on next journal page Write next page number Record adjustment entries
Supplies adjustment Debit Supplies Expense
Credit Supplies Insurance adjustment
Debit Insurance Expense Credit Prepaid Insurance Remember to record all debits first
X X
Adjusting Entries Textbook p. 202
DATE DOC. NO.POST. REF.
GENDEBIT
ERALCREDIT
1 Adjusting Entries
2 Aug 31 Supplies Expense 550 715.00
3 Supplies 150 715.00
4 31 Insurance Expense 520 100.00
5 Prepaid Insurance 160 100.00
Remember: We need to simply transfer the Information from the adjustment columns to ourjournal, since we haven’t yet journalized thesetransactions.
Next: We transfer the journalized transactions to The ledgers by posting them, and placing Post RefNumbers in the journal
Adjusting Entries WT 8-1, Txt p. 205, WP p. 157 OYO 8-1, Txt p. 205, WP p.162 8-1 Application problem
Do Now What are the “normal balances” of the
following accounts: Sales Expenses Drawing
How can we “offset” these accounts to have a balance of zero before the next fiscal period? Why would we want to do this?
Recording Closing Entries Accounts used to accumulate information
from one fiscal period to the next are called permanent (or real) accounts.
Include asset and liability accounts and the owner’s capital account
Ending account balances for one fiscal period are the beginning account balances for the next fiscal period
Recording Closing Entries Accounts used to accumulate information until it
is transferred to the owner’s capital account are called temporary (or nominal) accounts.
Revenue, expense, and owner’s drawing accounts plus income summary account
Show changes in owner’s capital for single fiscal period At end of fiscal period, balances of temporary accounts
summarized and transferred to owner’s capital account Begin new fiscal period with zero balances
Recording Closing Entries Journal entries used to prepare temporary
accounts for a new fiscal period is called closing entries.
Temporary account balances set to zero at end of fiscal period in order to prepare temporary accounts for recording info next fiscal period
Can’t have information in temporary accounts from last fiscal period
Closing EntriesCHAPTER 8: CLOSING ENTRIES (8-2)
Now, we need to “reset” Close our temporary accounts
Bring them back to 0 to get ready for the next fiscal period
Sales Expenses Owner’s drawing AND INCOME SUMMARY
Income Summary is used as a temporary holding place for sales, expenses and net income before it is reset
Closing EntriesClose our temporary accounts
Write “Closing Entries” on the next line of the Journal
DATE DOC. NO.POST. REF.
GENDEBIT
ERALCREDIT
1 2012 Adjusting Entries
2 Aug 31 Supplies Expense 715.00
3 Supplies 715.00
4 31 Insurance Expense 100.00
5 Prepaid Insurance 100.00
6 Closing Entries
Closing Entries: Sales AccountClose our temporary accounts
Close Sales: Find Sales account amount on Work Sheet
Debit Sales acct Credit Income Summary acct
This “offsets” sales
Closing Entries: SalesTextbook p. 208
Close our temporary accounts Close Sales: Find Sales account amount on Work Sheet
Debit Sales acct Credit Income Summary acct
DATE DOC. NO.
POST. REF.
GENDEBIT
ERALCREDIT
7 Closing Entries
8 31 Sales 3565.00
9 Income Summary 3565.00
10
11
12
13
14
15
16
17
Closing Entries: ExpensesTextbook p. 209
Close Expense Accounts: Debit Income Summary acct
Credit each expense acct separately Be sure to total all expenses to check your
accuracy DATE DOC. NO.
POST. REF.
GENDEBIT
ERALCREDIT
7 Closing Entries8 31 Sales 3565.009 Income Summary 3565.0010 31 Income Summary 1466.00
11 Advertising Expense 213.0012 Insurance Expense 100.0013 Miscellaneous Expense 28.00
14 Rent Expense 300.00
15 Supplies Expense 715.0016 Utilities Expense 110.0017
Closing Entries: Sales and Expenses
Practice:
8-2 WT for Sales and Expenses8-2 OYO for Sales and Expense
Closing Entries: Net Income/Loss
Closing Entry for Net Income/Net Loss: Remember:
Net Income or Net Loss are not accounts Think of them differently!
Net Income increases owner’s capital (credit) Net Loss decreases owner’s capital (debit)
Net Income: Debit Income Summary the net income amt on I/S
Credit Owner’s Capital
Net Loss: Debit Owner’s Capital the net loss amt on I/S
Credit Income Summary
THIS CLOSES YOUR INCOME SUMMARY ACCOUNT! CHECK TO BE SURE!
Closing Entries: Net Income/LossTextbook p. 210
Net Income: Debit Income Summary the net income amt on I/S
Credit Owner’s Capital
DATE DOC. NO.
POST. REF.
GENDEBIT
ERALCREDIT
7 Closing Entries8 31 Sales 3565.009 Income Summary 3565.0010 31 Income Summary 1466.0011 Advertising Expense 213.0012 Insurance Expense 100.0013 Miscellaneous Expense 28.0014 Rent Expense 300.0015 Supplies Expense 715.0016 Utilities Expense 110.0017 31 Income Summary 2099.00
18 Kim Park, Capital 2099.00
19
20
21
Closing Entries: Net Income/LossTextbook p. 210
THIS CLOSES YOUR INCOME SUMMARY ACCOUNT! CHECK TO BE SURE!
DATE DOC. NO.
POST. REF.
GENDEBIT
ERALCREDIT
7 Closing Entries8 31 Sales 3565.009 Income Summary 3565.0010 31 Income Summary 1466.0011 Advertising Expense 213.0012 Insurance Expense 100.0013 Miscellaneous Expense 28.0014 Rent Expense 300.0015 Supplies Expense 715.0016 Utilities Expense 110.0017 31 Income Summary 2099.00
18 Kim Park, Capital 2099.00
19
20
21
1466 + 2099 – 3565 = 0!
Closing Entries: Net Income/Loss
Practice:
8-2 WT for Net Income/Loss8-2 OYO for Net Income/Loss
Closing Entries: Drawing AccountTextbook p. 211
Close Owner’s Drawing Account: Debit Owner’s Capital
Credit Owner’s Drawing
DATE DOC. NO.
POST. REF.
GENDEBIT
ERALCREDIT
7 Closing Entries8 31 Sales 3565.009 Income Summary 3565.0010 31 Income Summary 1466.0011 Advertising Expense 213.0012 Insurance Expense 100.0013 Miscellaneous Expense 28.0014 Rent Expense 300.0015 Supplies Expense 715.0016 Utilities Expense 110.0017 31 Income Summary 2099.0018 Kim Park, Capital 2099.0019 31 Kim Park, Capital 625.0020 Kim Park, Drawing 625.0021
Closing Entries: Drawing
8-2 WT, 8-2 OYO
Homework: 8-2 App Problem
Do Now In your notebooks:
What was the purpose of the trial balance columns of the worksheet? What were we trying to prove?
POST-CLOSING WORK GENERAL LEDGER ACCOUNTS
Post Adjusting and Closing Entries in General Ledger
If the balance of the account is 0, draw a line through both the Debit and Credit column
Accounting cycle: series of accounting activities included in recording financial information for a fiscal period
POST-CLOSING WORK POST-CLOSING TRIAL BALANCE
Use general ledger accounts to prepare the post-closing trial balance
Only include accounts with balances What type of accounts will we see?
PERMANENT ACCOUNTS
Total and prove
POST-CLOSING ACTIVITY Practice 8-3 OYO 8-3 App Problem 8-3