chapter 8 recording adjusting entries and closing entries for a service business
TRANSCRIPT
CHAPTER 8CHAPTER 8
Recording Adjusting Entries and Closing Entries for a Service Business
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8-1 RECORDING ADJUSTING ENTRIES8-1 RECORDING ADJUSTING ENTRIES
We record our adjustments on the worksheet, but we also have to journalize them so we can post them to the general ledger accounts.
Adjusting entries are recorded on the next journal page following the page that the daily transactions for the month are recorded. -Recorded under the general debit & general credit columns.
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ADJUSTING ENTRY FOR SUPPLIESADJUSTING ENTRY FOR SUPPLIES
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page 202
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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.
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ADJUSTING ENTRY FOR PREPAID INSURANCEADJUSTING ENTRY FOR PREPAID INSURANCEpage 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.
8-2 RECORDING CLOSING ENTRIES8-2 RECORDING CLOSING ENTRIES
Permanent accounts are used to accumulated information from fiscal period to fiscal period.
AKA - Real AccountsAssets, Liabilities & the Owner’s Capital Account
Temporary Accounts are used to accumulate information until it is transferred to the owner’s capital account.
AKA - Nominal AccountsRevenue, Expense, Owner’s Drawing & Income
Summary-They begin each fiscal period with a zero balance.
So we need to close them out at the end of each fiscal period.
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CLOSING ENTRIESCLOSING ENTRIES
Closing Entries are journal entries used to prepare temporary
accounts for the new fiscal period. Must reduce temporaryAccount balances to zero to prepare for the next fiscal period. 4 Closing Entries1. Close Income Statement Accounts with credit balances -
revenue2. Close Income Statement Accounts with debit balances -
expenses3. Record net income or net loss and close income summary4. Close owner’s drawing account
-We find all info on the Worksheet, Income Statement
and Balance Sheet Columns
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NEED FOR THE INCOME SUMMARY ACCOUNTNEED FOR THE INCOME SUMMARY ACCOUNTpage 207
Income Summary is an account used to summarize the closing entries for the revenue and expense accounts.
It does NOT have a normal balance side
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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.
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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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CLOSING ENTRY TO RECORD NET INCOME OR LOSS CLOSING ENTRY TO RECORD NET INCOME OR LOSS AND CLOSE THE INCOME SUMMARY ACCOUNTAND CLOSE THE INCOME SUMMARY ACCOUNT
page 210
3. Credit
2. Debit
1. Date
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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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8-3 PREPARING A POST-CLOSING 8-3 PREPARING A POST-CLOSING TRIAL BALNCETRIAL BALNCE
A post-closing-trial balance is used to verify the equality of debits & credits in general ledger accounts.
-prepared AFTER closing entries are posted.-Includes ONLY general ledger accounts WITH balances. Permanent accounts: Assets, Liabilities, & Owner’s Equity
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GENERAL LEDGER ACCOUNTS AFTER ADJUSTING AND GENERAL LEDGER ACCOUNTS AFTER ADJUSTING AND CLOSING ENTRIES ARE POSTEDCLOSING ENTRIES ARE POSTED
page 213
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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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page 216
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7755
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ACCOUNTING CYCLE FOR A SERVICE BUSINESSACCOUNTING CYCLE FOR A SERVICE BUSINESSpage 217
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5566
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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