CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 8-1LESSON 8-1

Recording Adjusting EntriesAccounting Period Cycle: When a company prepares a work sheet at the end of each fiscal period to summarize the general ledger.

Adequate Disclosure: When financial statements are prepared from information on the work sheet.

Adjusting Entries – journal entries recorded to update general ledger accounts at the end of the fiscal period. These entries are recorded on the NEXT JOURNAL PAGE!!!

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 8-1

ADJUSTING ENTRY FOR SUPPLIESADJUSTING ENTRY FOR SUPPLIES

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4. Write the title of the account credited. Record the credit amount.

3. Write the title of the account debited. Record the debit amount.

2. Write the date.

1. Write the heading.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 8-1

ADJUSTING ENTRY FOR PREPAID ADJUSTING ENTRY FOR PREPAID INSURANCEINSURANCE page 204

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3. Write the title of the account credited. Record the credit amount.

2. Write the title of the account debited. Record the debit amount.

1. Write the date.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 8-1

TERM REVIEWTERM REVIEW

adjusting entries

page 205

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Lesson 8-2 Recording Closing EntriesLesson 8-2 Recording Closing Entries

Permanent Accounts – accounts used to accumulate information from one fiscal period to the next

“Real accounts” = assets, liabilities, owner’s Capital

The ending balances for one fiscal period are the beginning account balances for the next fiscal period.

Temporary Accounts – accounts used to accumulate information until it is transferred to the owner’s capital account.

“Nominal Accounts” = Revenue, Expenses, Owner’s Drawing & Income Summary

Show changes in the owner’s capital for a single fiscal period

(transfer ending balances to capital and begin the next fiscal period with a zero balance)

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LESSON 8-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 8-2LESSON 8-2

Closing Entries – journal entries used to prepare temporary accounts for a new fiscal period by reducing their balances to zero.- A closing entry merely transfers the balance of one account to another account

- The procedure for closing an account includes entering an amount equal to the account balance on the side opposite its balance.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 8-2

NEED FOR THE INCOME SUMMARY NEED FOR THE INCOME SUMMARY ACCOUNTACCOUNT page 207

Income Summary – a temporary account that is used to summarize the closing entries for revenue and expenses.

DOES NOT HAVE A NORMAL BALANCE SIDE.Closed at the end of a fiscal period when the Net Income or

Net Loss is recorded.

Income Summary – a temporary account that is used to summarize the closing entries for revenue and expenses.

DOES NOT HAVE A NORMAL BALANCE SIDE.Closed at the end of a fiscal period when the Net Income or

Net Loss is recorded.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Closing EntriesClosing Entries

Four closing entries are made:

1. Close income statement accounts with credit balances (debit sales, credit income summary)

2. Close income statement accounts with debit balances (debit income summary with total expenses; credit all of your expenses individually)

3. Record Net Income or Net Loss in Owner’s Capital account (debit Income Summary; credit Capital) OR (debit Capital; credit Income Summary for loss)

4. Close owner’s drawing account

(Debit Capital; Credit Drawing)

Close

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LESSON 8-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 8-2

(Debit to close)

CLOSING ENTRY FOR AN INCOME STATEMENT CLOSING ENTRY FOR AN INCOME STATEMENT ACCOUNT WITH A CREDIT BALANCEACCOUNT WITH A CREDIT BALANCE page 208

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441. Write the heading.

2. Write the date.3. Write the title of the account debited. Record the debit amount.

4. Write the title of the account credited. Record the credit amount.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 8-2

(Credit to close)

CLOSING ENTRY FOR INCOME STATEMENT CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCESACCOUNTS WITH DEBIT BALANCES page 209

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4. Debit amount3. Credit2. Income Summary1. Date

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 8-2

(Income Summary:debit to close)

(Capital: credit torecord net income)

CLOSING ENTRY TO RECORD NET INCOME CLOSING ENTRY TO RECORD NET INCOME OR LOSS AND CLOSE THE INCOME OR LOSS AND CLOSE THE INCOME SUMMARY ACCOUNTSUMMARY ACCOUNT page 210

3. Credit

2. Debit

1. Date

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 8-2

(Credit to close)

CLOSING ENTRY FOR THE OWNER’S CLOSING ENTRY FOR THE OWNER’S DRAWING ACCOUNTDRAWING ACCOUNT page 211

3. Credit

2. Debit

1. Date

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 8-2

TERMS REVIEWTERMS REVIEW

permanent accounts temporary accounts closing entries

page 212

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 8-3LESSON 8-3

Preparing a Post-Closing Trial Balance

Post-closing trial balance – a trial balance prepared after the closing entries are posted

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 8-3

GENERAL LEDGER ACCOUNTS AFTER GENERAL LEDGER ACCOUNTS AFTER ADJUSTING AND CLOSING ENTRIES ARE POSTEDADJUSTING AND CLOSING ENTRIES ARE POSTEDpage 213

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Post Closing Trial BalancePost Closing Trial Balance

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LESSON 8-3

1. Any account that has a Zero Balance from Closing Entries has a line drawn through the debit and credit column.

2. Only general ledger accounts with balances are included on a post-closing trial balance (Assets, Liabilities, and Owner’s Capital).

3. The total of all Debits must equal the total of all Credits.

Write this down on the bottom of your notes page….

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 8-3

8. Double rule

7. Record totals

6. Totals

5. Compare totals

4. Single rule

3. Account balances

2. Account titles

1. Heading

POST-CLOSING TRIAL BALANCEPOST-CLOSING TRIAL BALANCE

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 8-3

TERMS REVIEWTERMS REVIEW

Accounting cycle – the series of accounting activities included in recording financial information for a fiscal period

page 219

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 8-3

ACCOUNTING CYCLE FOR A SERVICE ACCOUNTING CYCLE FOR A SERVICE BUSINESSBUSINESS page 217

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8. Prepare post-closing trial balance

7. Post adjusting and closing entries

6. Journalize adjusting and closing entries

5. Prepare financial statements

4. Prepare work sheet

3. Post

2. Journalize

1. Analyzes transactions