CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 8 Recording Adjusting and...

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 8LESSON 8

Recording Adjusting and Closing Entries

for a Service Business

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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TERMS REVIEWTERMS REVIEW

Adjusting Entries = journal entries recorded to update general ledger accounts at the end of a fiscal period Permanent Accounts = also referred to as real accounts . . . They are the asset, liability and owner’s capital accounts . . . The ending balances for one fiscal period are the beginning account balances for the next fiscal period. Temporary Accounts = also referred to as nominal accounts . . . Revenue, expenses & drawing PLUS the new income summary . . . Temporary accounts begin a new fiscal period with a zero balance.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

TERMS REVIEWTERMS REVIEW

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Closing Entries = journal entries used to prepare temporary accounts for a new fiscal period. The temporary account balances must be reduced to zero at the end of each fiscal period. Post-Closing Trial Balance = a statement prepared at the end to verify that debits equal credits Accounting Cycle = the series of accounting activities included in recording financial information for a fiscal period

Analyze Transactions, Journalize Transactions, Post, Prepare a Work Sheet, Prepare Financial Statements (Income Statement & Balance Sheet), Journalize Adjusting and Closing Entries, Post Adjusting & Closing Entries, Prepare a Post-Closing Trial Balance.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Notes About Adjusting Entries

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• You do not have to decide the debit or credit parts of the entry . . . It is already on the work sheet

• All you need to do is record the entry in the journal • There will be no document associated with Adjusting Entries so

leave the Doc. No. Column blank • Don’t forget to post • Once the entry is posted, the supplies account balance will reflect

the amount of supplies on hand at the end of the period

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Notes about closing entries

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• The 4 closing entries are taken from the Income Statement and Balance Sheet columns of the work sheet

• Closing entries make the balances of all the temporary accounts ZERO

• The other account used for closing revenue and expenses is INCOME SUMMARY

• Income Summary doesn’t have a normal balance, its balance depends on the amount of revenue and expenses the business had for the period (net income or net loss . . . Get it?☺)

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Other important notes

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• The word POST means AFTER . . . Therefore a Post- Closing Trial Balance is prepared after the closing entries are posted.

• Only general ledger accounts with balances will be found on the Post-Closing Trial Balance

• It is very important to prove debits equal credits at the close of one fiscal period because you don’t want to begin the next period with errors!

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

ADJUSTING ENTRY FOR SUPPLIES

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

ADJUSTING ENTRY FOR PREPAID INSURANCE

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

NEED FOR THE INCOME SUMMARY ACCOUNT

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

CLOSING ENTRY FOR AN INCOME STATEMENT ACCOUNT WITH A CREDIT BALANCE

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

CLOSING ENTRY TO RECORD NET INCOME OR LOSS AND CLOSE THE INCOME SUMMARY ACCOUNT

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

CLOSING ENTRY FOR THE OWNER’S DRAWING ACCOUNT

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

GENERAL LEDGER ACCOUNTS AFTER ADJUSTING AND CLOSING ENTRIES ARE POSTED

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

POST-CLOSING TRIAL BALANCE

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

ACCOUNTING CYCLE FOR A SERVICE BUSINESS

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