chap 6 acct 151a - cabrillo collegecabrillo.edu/~mbooth/acct151a/price 14th ed/chapter 6 lecture...

Acct 151A

Chap 6Instructor: Michael Booth

Cabrillo College

Closing Entries

and the Postclosing

Trial Balance

Closing Entries

1. Journalize and post closing

entries.

Chapter 5 introduced and showed how to use the worksheet. It also covered the preparation of adjusting entries and financial statements. Chapter 6 completes the accounting cycle by showing how the accounting cycle is completed and closed before a new financial period is begun. In this first section, we learn how to make closing entries.

The Closing Process

Let’s discuss the closing process.

The Accounting Cycle

Step 7

Journalize and

post closing

entries

Step 1

Analyze

transactions

Step 2

Journalize the

data about

transactions

Step 4

Prepare

a

worksheet

Step 5

Prepare

financial

statements

Step 6

Journalize and

post adjusting

entriesStep 8

Prepare a

postclosing

trial balance

Step 9

Interpret

the financial

information

Step 3

Post the

data about

transactions

The seventh step in the accounting cycle is to journalize

and post closing entries.

Step 7

Journalize and

post closing

entries

Journalizing and posting closing entries is the seventh step in the accounting cycle.

Closing entries are journal entries

that transfer the results of

operations (net income or net loss)

to owner’s equity and reduce the

revenue, expense, and drawing

account balances to zero.

ANSWER:

QUESTION:

What are closing entries?

Closing entries are journal entries which are done at the end of an accounting cycle so that the business can start fresh.

The Income Summary Account

Let’s discuss the closing process.

The Income Summary account is a

special owner’s equity account that

is used only in the closing process

to summarize the results of

operations.

ANSWER:

QUESTION:

What is the Income Summary account?

Income Summary is only used during the closing process. It is a special Owner’s Capital account, without a normal balance.

Income Summary Account

Classified as a temporary owner’s equity account

Does not have a normal balance

Has a zero balance after the closing process and remains with a zero balance until after the closing procedure for the next period

The Income Summary account is classified as a temporary owner’s equity account which will have a zero balance at the beginning and end of the accounting period.

Journalize and post closing entries.

Steps in the Closing Process

Let’s create the closing journal entries and then post them to the general ledger.

2. Transfer the expense account balances to the

Income Summary account.

There are four steps in the closing process:

4. Transfer the balance of the drawing account to the owner’s capital account.

3. Transfer the balance of the Income Summary

account to the owner’s capital account.

1. Transfer the balance of the revenue account to

the Income Summary account.

There are four steps in the closing process: close the revenue accounts, close the expense accounts, close the Income Summary accounts, and close the drawing account. • Transfer the balance of the revenue account to the Income Summary account. • Transfer the expense account balances to the Income Summary account. • Transfer the balance of the Income Summary account to the owner’s capital account. • Transfer the balance of the drawing account to the owner’s capital account.

Step 1: Transfer Revenue Account Balances

First, we close the revenue accounts to zero.

Net Income

CREDIT

BALANCE SHEETINCOME STMT.

DEBIT CREDIT DEBIT

111,350

5,000

1,000

11,000

4,000

183

3,500

100,000

5,000

47,000

8,000

650

500

183

4,000

47,000 103,68313,333 137,350

183

150,683

TRIAL BALANCE ADJ. TRIAL BAL.ADJUSTMENTS

DEBIT CREDIT CREDIT DEBIT CREDIT

ACCOUNT NAME

Cash

Accounts Receivable

Supplies

Prepaid Rent

Equipment

Accum. Depr.—Equip.

Carolyn Wells, Cap.

Accounts Payable

Carolyn Wells, Draw.

Fees Income

Salaries Expense

Utilities Expense

Supplies Expense

Rent Expense

Depr. Exp.—Equip.

Totals

DEBIT

111,350

3,500

100,000

5,000

47,000

8,000

650

11,000

8,000

5,000

1,500

111,350

5,000

11,000

5,000

8,000

650

1,000

3,500

100,000

47,000

500

183

4,000

150,500 150,500 4,683 4,683

(c) 183

(a) 500

(b) 4,000

(c) 183

(a) 500

(b) 4,000 4,000

150,683

33,667 33,667

47,000 47,000 137,350 137,350It has a credit balance

of $47,000.

Focus on the Income Statement section and subtract the smaller column total from the larger column total. The difference is considered net income(If the expense Debits are less than the Revenue Credit) or net loss(if the expense Debits are greater than the Revenue Credit).

The Fees Income account is closed to the Income

Summary account.

Step 1: Close Revenue

Fees Income is closed to the Income Summary account.

The revenue account, Fees Income, is decreased by

$47,000 to zero.

The $47,000 is transferred to the temporary owner’s

equity account, Income Summary.


Here is the first step — close revenue accounts.

Fees Income

Closing 47,000

Balance 47,000

Income Summary

Closing 47,000


Here is our first closing entry represented in T accounts; Debit to Fees Income, 47,000 and Credit to Income Summary, $47,000. After this closing entry, Fees Income has a zero balance, closed.

The words “Closing Entries” are written in the

Description column of the general journal.

GENERAL JOURNAL PAGE 4

DATE DESCRIPTION POST. DEBIT CREDITREF.

2016 Closing Entries

Dec. 31 Fees Income 47,000

Income Summary 47,000


Here is the first closing general journal entry. Notice that “closing entry” was written above the first closing journal entry.









There are four steps in the closing process: close the revenue accounts, close the expense accounts, close the Income Summary accounts, and close the drawing account. • Transfer the balance of the revenue account to the Income Summary account. • Transfer the expense account balances to the Income Summary account. • Transfer the balance of the Income Summary account to the owner’s capital account. • Transfer the balance of the drawing account to the owner’s capital account.

Step 2: Transfer Expense

Account Balances

Step 2 is to close all of the expense accounts.

The Income Statement section of the worksheet for

lists five expense accounts.

Since expense accounts have debit balances, enter a

credit in each account to reduce its balance to zero.

This closing entry transfers total expenses to the


Step 2: Close Expenses

Since expense accounts have a debit balance, we need to credit them to close their balances to zero.

Net Income

CREDIT


DEBIT CREDIT DEBIT

111,350

5,000

1,000

11,000

4,000

183

3,500

100,000

5,000

47,000

8,000

650

500

183

4,000

47,000 103,68313,333 137,350

183

150,683



ACCOUNT NAME

Cash

Accounts Receivable

Supplies

Prepaid Rent

Equipment


Carolyn Wells, Cap.

Accounts Payable


Fees Income

Salaries Expense

Utilities Expense

Supplies Expense

Rent Expense

Depr. Exp.—Equip.

Totals

DEBIT

111,350

3,500

100,000

5,000

47,000

8,000

650

11,000

8,000

5,000

1,500

111,350

5,000

11,000

5,000

8,000

650

1,000

3,500

100,000

47,000

500

183

4,000

150,500 150,500 4,683 4,683

(c) 183

(a) 500

(b) 4,000

(c) 183

(a) 500

(b) 4,000 4,000

150,683

33,667 33,667

47,000 47,000 137,350 137,350

Total of the expenses is

$13,333, the Debit amount

on the Income statement

Focus on the Income Statement section notice the total of the expense is a Debit total of $13,333

The five expense account balances are reduced to

zero.


The total, $13,333 of

expenses are transferred

to the temporary owner’s

equity account, Income

Summary.

When closing the expensing accounts, we will transfer their balances to the Income Summary account.

Which accounts are debited?

For what amounts?

Which accounts are credited?

For what amounts?


The Income Summary account will be debited for the total of all the debits made to the expense accounts. Each expense account will be credited to bring their balance down to zero, and are closed.

Income Summary


Salaries Expense

Closing 13,333

BAL 47,000

Closing 8,000

Balance 8,000

Utilities Expense Supplies Expense

Balance 650 Balance 500

Closing 500Closing 650

Depr. Expense – Equip.Rent Expense

Closing 4,000

Balance 4,000 Balance 183

Closing 183

Here is what the T accounts look like. Each expense account was closed to zero and a corresponding debit was made to the Income Summary account for $35,000.


DATE DESCRIPTION POST. DEBIT CREDITREF.


Dec. 31 Income Summary 13,333.00

Salaries Expense 8,000.00

Utilities Expense 650.00

Supplies Expense 500.00

Rent Expense 4,000.00

Depreciation Exp.-Equip. 183.00


Here is the second closing journal entry. Notice that Income Summary is listed first because it is the only debited account. In addition, the total amount of the Debit to income summary must equal the total on the Worksheet, Income Statement Debit side.

The Income Summary account reflects all entries in the

Income Statement section of the worksheet.

Income Summary

Dr.

Closing 13,333

Cr.

Balance 33.667

Closing 47,000

Net Income

After making the first two closing entries, Income Summary has a balance of $33,667, net income. The net income will match the worksheet amount Debit 33,667, Income Statement, and Credit 33,667, Balance Sheet.









There are four steps in the closing process: close the revenue accounts, close the expense accounts, close the Income Summary accounts, and close the drawing account.

Step 3: Transfer Net Income

or Net Loss to Owner’s

Equity

Now we need to transfer the balance in Income Summary to the owner’s capital account.

The journal entry to transfer net income to

owner’s

equity is a debit to Income Summary, and a credit

to Owner’s, Capital.

The balance of Income Summary is reduced to

zero; the owner’s capital account is increased by

the amount of net income.

Step 3: Close Net Income to

Capital

Our third closing entry transfers net income to Carolyn Well’s, Capital.

The Income Summary account is reduced to zero.

The net income amount, $33,667, is transferred to the

owner’s capital account. Owner’s, Capital is

increased by $33,667.


Capital

In step 3 in the closing process, our Income Summary account is closed to zero, a temporary Owner’s Equity account, and the owner’s capital account is increased by net income of $33,667.

Net Income

CREDIT


DEBIT CREDIT DEBIT

111,350

5,000

1,000

11,000

4,000

183

3,500

100,000

5,000

47,000

8,000

650

500

183

4,000

47,000 103,68313,333 137,350

183

150,683



ACCOUNT NAME

Cash

Accounts Receivable

Supplies

Prepaid Rent

Equipment


Carolyn Wells, Cap.

Accounts Payable


Fees Income

Salaries Expense

Utilities Expense

Supplies Expense

Rent Expense

Depr. Exp.—Equip.

Totals

DEBIT

111,350

3,500

100,000

5,000

47,000

8,000

650

11,000

8,000

5,000

1,500

111,350

5,000

11,000

5,000

8,000

650

1,000

3,500

100,000

47,000

500

183

4,000

150,500 150,500 4,683 4,683

(c) 183

(a) 500

(b) 4,000

(c) 183

(a) 500

(b) 4,000 4,000

150,683

33,667 33,667

47,000 47,000 137,350 137,350

Note: On the worksheet:

Debit 33,667, Income Statement

Credit 33,667, Balance sheet

Focus on the Income Statement section and balance sheet, specifically net income or net loss. You will note there is a Debit to the Income Statement, 33,667 and Credit to the Balance Sheet, 33,667.

Income Summary

13,333

Carolyn Wells Capital

$100,000


Capital

Close 33,667

$47,000

33,667 Close

Income Summary has a credit balance of $33,667 at this point. To close it we would debit it for this amount, 33,667, and make a corresponding credit, 33, 667 to the Owner’s capital account for the same amount. The debit and credit on the Worksheet match the closing process for Income Summary Account.

Income Summary Carolyn Well’s, Capital

Closing 33,667

Balance 33,667Balance 100,000


Capital

Closing 33,667

Balance $0

Here is an illustration of what the third closing entry would look like in the T accounts.


DATE DESCRIPTION POST. DEBIT CREDIT

REF.

Closing Entries

Dec. 31 Income Summary 33,667.00

Carolyn Well’s, Capital 33,667.00


Capital

Here is the third closing journal entry.

Step 4: Transfer the Drawing Account Balance to Capital

Our final step is to close the owner’s drawing account.









There are four steps in the closing process: close the revenue accounts, close the expense accounts, close the Income Summary accounts, and close the drawing account.

Net Income

CREDIT


DEBIT CREDIT DEBIT

111,350

5,000

1,000

11,000

4,000

183

3,500

100,000

5,000

47,000

8,000

650

500

183

4,000

47,000 103,68313,333 137,350

183

150,683



ACCOUNT NAME

Cash

Accounts Receivable

Supplies

Prepaid Rent

Equipment


Carolyn Wells, Cap.

Accounts Payable


Fees Income

Salaries Expense

Utilities Expense

Supplies Expense

Rent Expense

Depr. Exp.—Equip.

Totals

DEBIT

111,350

3,500

100,000

5,000

47,000

8,000

650

11,000

8,000

5,000

1,500

111,350

5,000

11,000

5,000

8,000

650

1,000

3,500

100,000

47,000

500

183

4,000

150,500 150,500 4,683 4,683

(c) 183

(a) 500

(b) 4,000

(c) 183

(a) 500

(b) 4,000 4,000

150,683

33,667 33,667

47,000 47,000 137,350 137,350

Carolyn Drawing

Focus on the Balance sheet, not the balance for Carolyn Well’s Drawing , Debit $5,000

Withdrawals appear in the statement of owner’s

equity as a deduction from capital.

The drawing account is closed directly to the capital

account.

Step 4: Close Drawing to Capital

Step 4—The owner’s drawing account has a debit balance, found on the worksheet under the balance sheet, and is closed directly to the owner’s capital account.

The drawing account balance is reduced to zero.

The balance of the drawing account, $5,000, is transferred to the owner’s capital account.

Step 4: Close Drawing to

Capital

In this final step, we are reducing the drawing account balance of $5,000 to zero, this will close the account.

Carolyn Well’s, Capital Carolyn Well’s, Drawing

Closing 5,000

Balance 133,667

Closing 5,000

Balance 5,000


Capital

$128,667 End

Balance

End Balance $0

We need to debit Carolyn Wells, Capital for $5,000 and credit Carolyn Wells, Drawing for $5,000 to close it to zero. After making the credit to the Drawing account is closed, its balance is zero. Carolyn Wells Capital account has been reduced by the withdrawals made during the period. Carolyn Well’s Capital account will now look like the Owner’s Equity Statement. Beginning Carolyn Wells Capital, Dec 1, 2016 + Net Income $33,667 - Drawing $5,000 Ending Carolyn Wells Capital, Dec 31, 2016


DATE DESCRIPTION POST. DEBIT CREDIT

REF.

Closing Entries

Dec. 31 Carolyn Well’s, Capital 5,000.00

Carolyn Well’s, Drawing 5,000.00


Capital

The last closing journal entry is shown here.

The new balance of the Carolyn Well’s, Capital account

agrees with the amount listed on Owner’s Equity

Statement and the balance sheet.

Carolyn Wells, CapitalCarolyn Wells, Drawing

Closing 5,000

Cr.Dr.

Balance 5,000

Balance 0

Cr.

Balance 100,000

Net Inc. 33,667

Balance 128,667

Dr.

Drawing 5,000

Owner’s, Capital

Carolyn Wells, Capital will show a balance of $128,667 on the Balance Sheet. Once again, notice Carolyn Wells Capital Account, will match the Owner’s Equity Financial Statement, prepared at the completion of the adjusting entries and worksheet.

Summary of Closing Entries


POST.

DATE DESCRIPTION REF. DEBIT CREDIT


Dec. 31 Fees Income 401 47,000.00

Income Summary 309 47,000.00

31 Income Summary 309 13,333.00

Salaries Expense 511 8,000.00

Utilities Expense 514 650.00

Supplies Expense 517 500.00

Rent Expense 520 4,500.00

Depr. Expense-Equip. 523 183.00


Carolyn Wells, Capital 301 33,667.00

31 Carolyn Wells, Capital 301 5,000.00

Carolyn Wells , Draw. 302 5,000.00

STEPS

1. CLOSE

REVENUE

2. CLOSE

EXPENSE

ACCTS

3. CLOSE

INCOME

SUMMARY

4. CLOSE

DRAWING

ACCOUNT

Here are all four of the closing journal entries: Step 1—close the revenue accounts Step 2—close the expense accounts Step 3—close the Income Summary account Step 4—close the Drawing account

All journal entries are posted to the general

ledger accounts.

Now all of the closing journal entries need to be posted to the general ledger.

“Closing” is entered in the Description column of

the ledger accounts.

The ending balances of the drawing, revenue,

and expense accounts are zero.

Posting the Closing Entries

When posting the closing entries, make sure you write “closing” in the description column of the general ledger.



POST.



Dec. 31 Fees Income 401 47,000.00












STEPS

1. CLOSE

REVENUE

2. CLOSE

EXPENSE

ACCOUNTS

3. CLOSE

INCOME

SUMMARY

4. CLOSE

DRAWING

ACCOUNT

ACCOUNT Fees Income ACCOUNT NO. 401

POST. BALANCE

DATE DESCRIPTION REF. DEBIT CREDIT DEBIT CREDIT

2016

Dec. 31 J2 36,000.00 36,000.00

Dec. 31 J2 11,000.00 47,000.00

Dec. 31 Closing Entry J4 47,000.00 -0-




POST.



Dec. 31 Fees Income 401 47,000.00












STEPS

1. CLOSE

REVENUE

2. CLOSE

EXPENSE

ACCOUNTS

3. CLOSE

INCOME

SUMMARY

4. CLOSE

DRAWING

ACCOUNT

ACCOUNT Income Summary ACCOUNT NO. 309

POST. BALANCE

DATE DESCRIPTION REF. DEBIT CREDIT DEBIT CREDIT

2016

Dec. 31 Closing J4 47,000.00 47,000.00


Using Accounting

Information

Objectives:

1. Prepare a postclosing trial

balance.

2. Interpret financial statements.

3. Review the steps in the

accounting cycle.

McGraw-Hill

In the second objective of chapter six, we will learn how to prepare a postclosing trial balance for a business.

Preparing the Postclosing Trial Balance

We need to prepare another trial balance called the post-closing trial balance.


The last two steps of

the accounting cycle.

•Post Closing Trial

Balance

•Interpret Financial

Information

Here we go. . . the last two steps in the accounting cycle.

Step 1

Analyze

transactions

Step 2

Journalize the

data about

transactions

Step 7

Journalize and

post closing

entries

Step 3

Post the

data about

transactions

Step 4

Prepare

a

worksheet

Step 5

Prepare

financial

statements

Step 6

Journalize and

post adjusting

entriesStep 8

Prepare a

postclosing

trial balance

Step 9

Interpret

the financial

information


Step 8

Prepare a

postclosing

trial balance

Step 9

Interpret

the financial

information

Step 8 is to prepare a postclosing trial balance and Step 9 is to interpret the financial information.

Prepare a postclosing trial balance.

A postclosing trial balance is a

statement that is prepared to prove

the equality of total debits and

credits after the closing process is

completed.

ANSWER:

QUESTION:

What is a postclosing trial balance?

The post closing trial balance is prepared after the closing process. It contains only the permanent accounts which were not closed at the end of the period.

Proves that total debits equal total credits

Verifies that revenue, expense, and drawing

accounts have zero balances

The Postclosing Trial Balance

It proves that debits still equal credits and that all temporary accounts were closed to zero.

Only permanent accounts appear on

the postclosing trial balance.

Assets

Liabilities

Owner’s equity

Only assets, liabilities and the owner’s capital will appear on the post closing trial balance.

Well’s Consulting Services

Postclosing Trial Balance

December 31, 2016

ACCOUNT NAME DEBIT CREDIT

Cash 111,350.00

Accounts Receivable 5,000.00

Supplies 1,000.00

Prepaid Rent 4,000.00

Equipment 11,000.00

Accumulated Depreciation–Equipment 183.00

Accounts Payable 3,500.00

Carolyn Well’s, Capital __________ 128,667.00

Totals 132,350.00 132,350.00

Postclosing Trial Balance

Notice that debits equal credits on the post closing trial balance.

Finding and Correcting Errors

If the postclosing trial balance does not

balance, the accounting records contain

errors.

Use the audit trail to trace data through

the accounting records.

We can use the audit trail to help us locate errors. In addition, refer to the handbook provided on blackboard for error identification.

Using Accounting

Information

Objectives


balance.



accounting cycle.

The third objective is to help us understand the importance of interpreting the information provided on financial statements.

Interpreting the Financial Statements

What do users do with the finished financial statements?

Interpret financial

statements.

In objective three we learn how users value the information provided in financial statements.

To interpret means to understand and

explain the meaning and importance of

something.

ANSWER:

QUESTION:

What is meant by “interpreting”financial statements?

Financial statements help users make all kinds of decisions.

Financial statements provide

answers.

What is the cash balance?

How much do customers owe the business?

How much does the business owe suppliers?

What is the profit or loss?

They provide answers to many questions.

Lets Analyze the financial statements for

Carloyn Well’s Consulting Services at the

end of the accounting period.

Let’s see what the financial statements Well’s Consulting Services tell us.

What is the cash balance?

Let’s look at the balance sheet for this information.

What is the

cash balance?

How much do the customers

owe the business?

Wells’ Consulting ServicesPartial Balance SheetDecember 31, 2016

Assets

Cash $ 111,350.00


Supplies 1,000.00


Equipment $ 11,000.00

Less Accumulated Depreciation 183.00 10,817.00

Total Assets $ 132,167.00

From looking at a balance sheet you can see that the Cash account has a balance of $111,350. Let’s look at Accounts Receivable on the balance sheet. You can see that our customers owe us $5,000.

How much does the business

owe suppliers?

Let’s look at Accounts Payable on the Balance sheet.

How much does the business owe its suppliers?

Wells’ Consulting ServicesBalance Sheet

December 31, 2016Assets

Cash $111,350.00


Supplies 1,000.00


Equipment $ 11,000.00

Less Accumulated Depreciation 183.00 10,817.00

Total Assets $ 132,167.00

Liabilities and Owner’s Equity

Liabilities

Accounts Payable $ 3,500.00

Owner’s Equity

Carolyn Wells, Capital 128,667.00

Total Liabilities and Owner’s Equity $132,167.00

You can also see what the company owes to other vendors. The business owes $3,500 to creditors.

What is the profit or loss?

We need to look at the income statement for this information.

Wells’ Consulting Services

Income Statement

Month Ended December 31, 2016

Revenue

Fees Income $47,000

Expenses

Salaries Expense $8,000

Utilities 650

Supplies Expense 500

Rent Expense 4,000

Depreciation Expense - Equipment 183

Total Expenses $13,333

Net Income for the Month $33,667

Prepare financial statements from

the worksheet

For the month ending December 31, 2016, Wells Consulting has Net Income $33,667. This represents the profit made by the business over the accounting period of 1 month.

Using Accounting

Information

Section Objectives


balance.



accounting cycle.

McGraw-Hill © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

The last objective of chapter 6 has us reviewing the steps in the accounting cycle of a business.


Let’s review the steps in the accounting cycle.


Step 1

Analyze

transactionsAnalyze the source documents.

Sales slips

Purchase invoices

Credit memorandums

Check stubs

Step 1

Analyze

transactions

We start with step 1, analyzing transactions.


Step 1

Analyze

transactions

Step 2

Journalize the

data about

transactions

Record the effects of the

transactions in a journal.

Step 2

Journalize the

data about

transactions

Step 2 –Journalize the financial transactions of the business.


Step 1

Analyze

transactions

Step 2

Journalize the

data about

transactions

Step 3

Post the

data about

transactions

Transfer data from the journal to the

general ledger accounts.

Step 3

Post the

data about

transactions

In step 3, we post our journal entries into the general ledger.


Step 1

Analyze

transactions

Step 2

Journalize the

data about

transactions

Step 3

Post the

data about

transactions

Prepare a worksheet with five sections.

Trial Balance

Adjustments

Adjusted Trial Balance

Income Statement

Balance Sheet

Step 4

Prepare

a

worksheet

Step 4

Prepare

a

worksheet

In step 4, we prepare a worksheet to help with the adjustment process and the financial statements.


Step 1

Analyze

transactions

Step 2

Journalize the

data about

transactions

Step 3

Post the

data about

transactions

Step 4

Prepare

a

worksheetPrepare financial statements.

Income Statement

Statement of Owner’s Equity

Balance Sheet

Step 5

Prepare

financial

statements

Step 5

Prepare

financial

statements

In step 5, we use the worksheet to prepare our financial statements.


Step 1

Analyze

transactions

Step 2

Journalize the

data about

transactions

Step 3

Post the

data about

transactions

Step 4

Prepare

a

worksheet

Step 5

Prepare

financial

statements

The adjusting entries are a permanent

record of the changes in account balances

shown on the worksheet.

Step 6

Journalize and

post adjusting

entries

Step 6

Journalize and

post adjusting

entries

In step 6, we journalize and post the adjusting entries off of the worksheet.


Step 1

Analyze

transactions

Step 2

Journalize the

data about

transactions

Step 3

Post the

data about

transactions

Step 4

Prepare

a

worksheet

Step 5

Prepare

financial

statements

Step 6

Journalize and

post adjusting

entries

Transfer net income or net loss

to owner’s equity.

Reduce the balances of the

temporary accounts to zero.

Step 7

Journalize and

post closing

entries

Step 7

Journalize and

post closing

entries

In step 7, we journalize and post our end of period closing entries.


Step 1

Analyze

transactions

Step 2

Journalize the

data about

transactions

Step 3

Post the

data about

transactions

Step 4

Prepare

a

worksheet

Step 5

Prepare

financial

statements

Step 6

Journalize and

post adjusting

entriesStep 7

Journalize and

post closing

entries

Confirm that the general ledger is in

balance.

Confirm that the revenue, expense, and

drawing accounts have zero balances.

Step 8

Prepare a

postclosing

trial balance

Step 8

Prepare a

postclosing

trial balance

In step 8, we prepare a post closing trial balance.


Step 1

Analyze

transactions

Step 2

Journalize the

data about

transactions

Step 3

Post the

data about

transactions

Step 4

Prepare

a

worksheet

Step 5

Prepare

financial

statements

Step 6

Journalize and

post adjusting

entriesStep 7

Journalize and

post closing

entries

Step 8

Prepare a

postclosing

trial balance

Use financial statements to understand and

communicate the financial information and to

make decisions.

Step 9

Interpret

the financial

information

Step 9

Interpret

the financial

information

In step 9, we interpret the information provided in our financial statements.


Step 1

Analyze

transactions

Step 2

Journalize the

data about

transactions

Step 3

Post the

data about

transactions

Step 4

Prepare

a

worksheet

Step 5

Prepare

financial

statements

Step 6

Journalize and

post adjusting

entriesStep 7

Journalize and

post closing

entries

Step 8

Prepare a

postclosing

trial balance

Step 9

Interpret

the financial

information

Step 9

Interpret

the financial

information Step 8

Prepare a

postclosing

trial balance

Step 5

Prepare

financial

statements

Step 4

Prepare

a

worksheet

Step 3

Post the

data about

transactions

Step 2

Journalize the

data about

transactionsStep 1

Analyze

transactions

Step 6

Journalize and

post adjusting

entriesStep 7

Journalize and

post closing

entries

These nine steps comprise an entire accounting cycle.

Flow of Data Through a Simple Accounting System

Source

documents

Source documents are analyzed.

General

journal

General

ledger

Worksheet Financial

statements

Source

Documents

After studying the accounting cycle of Well’s Consulting Services, you have an understanding of how data flows through a simple accounting system for a small business: First—Source documents are analyzed.

Transactions are recorded in the general journal.


Source

documents

General

journal

General

ledger

Worksheet Financial

statements

General

journal

Then, transactions are recorded in the general journal.

Transactions are posted from the general journal to

the general ledger.


Source

documents

General

journal

General

ledger

Worksheet Financial

statements

General

ledger

Then, transactions are posted from the general journal to the general ledger.

Financial information is proved, adjusted, and

summarized on the worksheet.


Source

documents

General

journal

General

ledger

Worksheet Financial

statements

Worksheet

Next, we prepare a worksheet where information will be proved, adjusted, and summarized.

Financial information is reported on financial

statements.


Source

documents

General

journal

General

ledger

Worksheet Financial

statements

Financial

statements

Finally, we prepare financial statements.

R

E

V

I

E

W

A postclosing trial balance is a statement

to prove the _______ of total debits and

credits.

Only the __________ accounts appear on

the postclosing trial balance.

Preparing a postclosing trial balance is

the ______ step of the accounting cycle. eighth

permanent

equality

Complete the following sentences:SECTION

Let’s see how many of these review questions you can answer.

R

E

V

I

E

W

The ninth step of the accounting cycle is

___________ the financial statements.

The flow of data through an accounting

system begins with a(n) _______________.

The financial statement that reports the

same items as the postclosing trial

balance is the ____________. balance sheet

Complete the following sentences:

interpreting

source document

SECTION

R

E

V

I

E

W

_____________ transfer the results of

operations to owner’s equity and reduce

the revenue, expense, and drawing

account balances to zero.

The Income Summary account is classified

as a(n) _________ _____________

account.

The first step in the closing process is to

transfer _______ account balances.revenue

temporary

Closing entries


owner’s equity

SECTION

Can you answer these review questions?

R

E

V

I

E

W

The ledger is called the ____________

_____ because it is the last place where

accounting transactions are recorded.

_______ is the process of transferring

data from a journal to a ledger.

The ____________ is the master reference

file for the accounting system.

general ledger

Posting

record of final


entry

SECTION

Can you answer these questions?

R

E

V

I

E

W

The first three steps of the accounting

cycle are to _______, _________, and ____

transactions.

________________ are an important part

of the audit trail.

A ______________ is a journal entry made

to correct an erroneous entry.


Posting references

analyze

correcting entry

journalize post

SECTION

R

E

V

I

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W

A ______ is a diary of business activities.

The journal is sometimes called the

____________________ because it is

where transactions are first entered in the

accounting records.

The _____________ is a financial record

for entering all types of business

transactions.

general journal

record of original entry

journal


The journal is a diary of business activities. The Journal is sometimes called the record of original entry because it is where transactions are first entered in the accounting records. The general journal is a financial record for entering all types of business transactions.

R

E

V

I

E

W

A journal entry that contains more than

one debit or credit is called a __________

_____.

The _________ is a chain of references that

makes it possible to trace information,

locate errors, and prevent fraud.

___________ is the process of recording

transactions in the general journal.

Journalizing

audit trail

compoundentry


Journalizing is the process of recording transactions in the general journal. The audit trail is a chain of references that makes it possible to trace information, locate errors, and prevent fraud. A journal entry that contains more than one debit or credit is called a compound entry.

R

E

V

I

E

W

The journal entry to close the drawing

account is debit ______ and credit

________.

After the closing entries are posted, the

Income Summary account has a(n) ____

balance.

After the closing entries are posted, all

_________ accounts have zero balances.temporary

zero

Capital


Drawing

SECTION

Assignments:

See web: https://cabrillo.blackboard.edu

This will be updated weekly as required