trial balnce

7/29/2019 trial balnce

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Closing Entries andThe Post-Closing Trial Balance

Chapter 5


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Learning Outcomes

List the steps of the accounting cycle

Journalize and post closing entries

Prepare a post-closing trial balance


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9 Steps of Accounting Cycle

1. Analyze transactions and record injournal (Chapters 1 and 2)

2. Post journal entries to the ledgeraccounts (Chapter 3)

3. Prepare a trial balance (Chapter 3)

4. Gather adjustment data and recordin worksheet (Chapter 4)


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9 Steps of Accounting Cycle

5. Complete the worksheet (Chapter 4)

6. Prepare financial statements fromworksheet (Chapter 4)

7. Journalize and post the adjusting entriesfrom worksheet (Chapter 4)

8. Journalize and post the closing entries

(Chapter 5)

9. Prepare a post-closing trial balance(Chapter 5)


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Closing Entries

Purpose: to clear the temporary ornominal accounts Revenue

Expenses Drawing

Income Summary

We close the books because thisinformation pertains to only one fiscalperiod


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Closing Entries

These accounts provide information for Income Statement

Statement of Owners Equity

Permanent or real accounts provideinformation for the balance sheet

Real/Permanent accounts are: Assets

Liabilities

Owners Equity


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New Account For Closing

Income Summary

Used only for closing accounts andadjusting for merchandise (later on)

You zero out the account you areclosing with a debit or a credit (theopposite of which side the accountsbalance is on) and the second entry is tothe Income Summary account


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Steps in Closing Accounts (1)

Close Revenue to Income Summary

Normal balance of revenue accounts iscredit

Debit the revenue account the sameamount making balance zero

Credit Income Summary

Income from Services Income Summary$5,000(normal

balance side)

$5,000 $5,000


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Close each Expense Account toIncome Summary Normal balance of each Expense account is debit

Credit the expense account the same amountmaking balance zero

debit Income Summary

Utilities Expense Income Summary$5,000$350

(normalbalanceside)

$350 $350

Bal: $4,650


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Steps in Closing Accounts




Depreciation Expense,

Equipment Income Summary$5,000$550

(normalbalanceside)

$550 $350

$550 Bal: $4,100


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Salary Expense Income Summary$5,000$1,000

(normalbalanceside)

$1,000 $350$550

$1,000Bal: $3,100


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Rent Expense Income Summary$5,000$1,200

(normalbalanceside)

$1,200 $350$550$1,000

$1,200Bal: $1,900


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Close Income Summary to Capital Normal balance of Income Summary account is

credit (if you show Net Income)

Debit the Income Summary account the sameamount making balance zero

Credit the Capital account by the same amount

Income Summary$1,900

Bal: $1,900(Normal balance

side)New balance = $0

$1,900

Capital

Previous balance:

20,000

$1,900

New balance:

21,900


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Close Drawing to Capital Normal balance of Drawing is debit (contra)

Credit the Drawing account the same amount,

making balance zero

Debit the Capitalaccount to reduce it by howmuch the owner took out of the business

CapitalPrevious balance

$21,900$1,000

Drawing

$1,000$1,000(normal

balance

side)

(new balance:

$20,900)


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Next, Journalize the Closing Entries

Center the title Closing Entries on aline in the Journal

No explanation is necessary aftereach entry

Debits must equal credits


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Chapter 5

GENERAL JOURNAL

PAGE____4_____

DATE DESCRIPTION

POST.

REF. DEBIT CREDIT

1 2005 Closing Entries 1

2 June 30 Income from Services 5 0 0 0 00 2

3 Income Summary 5 0 0 0 00 3

4 4

5 30 Income Summary 3 1 0 0 00 5

6 Utilities Expense 3 5 0 00 6

7 Depreciation Expense, Equipment 5 5 0 00 7

8 Salary Expense 1 0 0 0 00 8

9 Rent Expense 1 2 0 0 00 9

10 10

11 30 Income Summary 1 9 0 0 00 11

12 R. Gentry, Capital 1 9 0 0 00 12

13 13

14 30 R. Gentry, Capital 1 0 0 0 00 14

15 R. Gentry, Drawing 1 0 0 0 00 15

16 16


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Next, Post the Closing Entries

Post the journal closing entries to theledger accounts.

Cross reference your journal andledger page numbers.

Draw a line through both the debitcolumn and the credit column to

show that the balance is zero.


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Lastly, prepare thePost-Closing Trial Balance

This is to make sure the books areready for the new fiscal period

List only those accounts that havebalances

Debits must equal credits

R G t C lti S i


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R. Gentry Consulting Services

Post-Closing Trial Balance

June 30, 2005

ACCOUNT NAME

DEBIT CREDIT

1 Cash 21 4 6 0 00

Accounts Receivable 2 0 0 0 00

2 Supplies 1 0 0 00

Prepaid Insurance 3 3 0 00

3 Equipment 15 0 0 0 00

4

Accumulated Depreciation,

Equipment 12 0 0 0 00

5 Accounts Payable 5 7 0 0 00

Wages Payable 2 9 0 00

6 R. Gentry, Capital 20 9 0 0 00

7 R. Gentry, Drawing 1 0 0 0 00

8 Fees Income 5 0 0 0 00

9 Salary Expense 1 0 0 0 00

10 Rent Expense 1 2 0 0 00

11 Utilities Expense 3 5 0 00

12 Depreciation Expense, Equipment 5 5 0 00

13

Do not listtheaccountsshown here

in red

they willnot havebalancesafter theyare closed.

Thedifference(netincome) isshown on

the IncomeStatement.


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R. Gentry Consulting Services

Post-Closing Trial Balance

June 30, 2005

ACCOUNT NAME

DEBIT CREDIT

1 Cash 21 4 6 0 00

Accounts Receivable 2 0 0 0 00

2 Supplies 1 0 0 00

Prepaid Insurance 3 3 0 00

3 Equipment 15 0 0 0 00

4 Accumulated Depreciation, Equipment 12 0 0 0 00

5 Accounts Payable 5 7 0 0 00

Wages Payable 2 9 0 00

6 R. Gentry, Capital 20 9 0 0 00

13 38 8 9 0 00 38 8 9 0 00

14


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Chapter 5 Demonstration Problems

Monday, October 8

E 5-1

E 5-3Wednesday, October 10

E 5-4

E 5-7P 5-1A


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Chapter 5 Homework

Problem 5-2A (E-20)(textbook - page 168-169+ working papers - pages 109-110)

Problem 5-3A (E-20)(textbook - page 169+ working papers - pages 112-113,

116-119)

due October 17


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Next Week:

Monday: In-class Assignment #3(Look at textbook pages 178 through180 could you do this problem?)

Journalize transactions

Post transactions to ledger accounts

Prepare a Trial Balance

Complete the work sheet withadjustments (continued)


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In-Class Assignment (continued)

Prepare the Income Statement

Prepare the Statement of OwnersEquity

Prepare the Balance Sheet

Journalize the adjusting entries

Post adjusting entries to ledger

accounts Journalize closing entries

(continued)


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In-Class Assignment (continued)

Post the closing entries to the ledgeraccounts

Prepare a post-closing Trial Balance

You will have all class period onMonday, 10/15 plus class time after

quiz on Wednesday, 10/17 plus allclass period the following Monday (ifneeded)


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Midterm (Ch. 1-5) onWednesday, October 24 (100 points)

Monday Wednesday

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trial balnce