Mr. Belolan

Ch. 9 – Adjusting and Closing Entries

Objectives

1. Explain the purpose of adjusting and closing entries by journalizing and posting several transactions

2. Using the completed book work, pinpoint and make recommendations based on the fiscal year’s adjusting and closing entries

The Accounting Cycle

1. Collect source documents

2. Analyze each transaction

3. Journalize transactions in the general journal

4. Post to general ledger

5. Prepare the trial balance

6. Prepare a work sheet

7. Prepare financial statements (income statement and balance sheet)

8. Journalize and post adjusting and closing entries

9. Prepare post-closing trial balance

Permanent and Temporary Accounts

Permanent Accounts Accounts used to accumulate information from

one fiscal period to the next Examples?

Temporary Accounts Accounts used to accumulate information until it

is transferred to the owner’s capital account Each account starts over with a zero balance each

fiscal period Examples?

Closing Entries

Closing EntriesJournal entries used to prepare temporary accounts

for a new fiscal period

1. Revenue

2. Expenses

3. Net income or loss

4. Drawing

Post-Closing Trial Balance

Post-Closing Trial BalancePrepared after the closing entries are posted Lists all permanent accounts and their balances

Odds and Ends

The source document for closing entries is the work sheet

A business’ fiscal period can run from Jan. 1st through Dec. 31st, but it doesn’t have to

Examples?

Concept Review

1. How many steps are there in the accounting cycle?

2. Why do we “close” accounts?

3. What are the 4 closing entries?

4. Explain why a fiscal period is not always from Jan-Dec?