Transcript Recording Adjusting and Closing Entries for a Service Business

Recording Adjusting
and Closing Entries
for a Service Business
Chapter 8
Terms
 Adjusting entries
 Permanent accounts
 Temporary accounts
 Closing entries
 Post-closing trial balance
 Accounting Cycle
Section 8-1: Recording
Adjusting Entries
 Adjustments on a worksheet must be
journalized so they can be posted to the
general ledger accounts
 Adjusting entries are recorded on the
next journal page….
 Journalizing Supplies and Prepaid
Insurance
ADJUSTING ENTRY FOR SUPPLIES
page 202
1. Write the heading.
2. Write the date.
3. Write the title of the
account debited.
Record the debit
amount.
1
3
2
4
4. Write the title of the
account credited.
Record the credit
amount.
ADJUSTING ENTRY FOR PREPAID
INSURANCE
page 204
1. Write the date.
2. Write the title of the
account debited.
Record the debit
amount.
3. Write the title of the
account credited.
Record the credit
amount.
2
1
3
Practice Journalizing Adjusting
Entries
 Working Together
 Application 8-1
Section 8-2: Recording
Closing Entries
 Permanent accounts- used to accumulate
information from one fiscal period to the next
(real accounts)


Assets, Liabilities, Capital
Ending balances = beginning balances for next
period
 Temporary accounts – used to accumulate
information until it is transferred to the owner’s
capital account (nominal accounts)

Revenue, Expenses, Drawing, Income Summary
Temporary Accounts
 Show changes in the owner’s capital
account for a single period
 End of each fiscal period, balances of
temporary accounts are summarized and
transferred to the owner’s capital
account
 Temporary accounts begin new fiscal
period with a zero balance.
Need for Closing Temporary
Accounts
 Closing Entries – preparing temporary
accounts for a new fiscal period


Accounts must be reduced to zero
Difficult to analyze and calculate of period
information was blended
 To close – amount = to balance will be
recorded on opposite side of the account
to reduce to a 0 balance.
Need for the Income Summary
Account
 When temporary accounts are closed –
debits still must = credits
 Income Summary account is used to
summarize the closing entries for
revenue and expenses
 Income Summary Account



No normal balance
Balance is determined by amount posted
Example on Board
Four Closing Entries
 1. An entry to close income statement
accounts with credit balances (SALES)
 2. An entry to close income statement
accounts with debit balances (EXPENSE
ACCOUNTS)
 3. An entry to close net income or net
loss AND close Income Summary
 4. An entry to close the owner’s drawing
account
NEED FOR THE INCOME
SUMMARY ACCOUNT
page 207
CLOSING ENTRY FOR AN INCOME STATEMENT
ACCOUNT WITH A CREDIT BALANCE
1
2
1. Write the heading.
3
4
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.
page 208
CLOSING ENTRY FOR INCOME STATEMENT page 209
ACCOUNTS WITH DEBIT BALANCES
1. Date
2. Income Summary
3. Credit
1
2
4
3
4. Debit amount
Balance in Income Summary
 Net Income for the period the account
will have a credit balance
 Net Loss the account will have a debit
balance
 After closing the revenue and expenses
into Income Summary it represents the
balance of net income or incurred loss.

This now must be closed – income
summary is also a temporary account
CLOSING ENTRY TO RECORD NET INCOME
page 210
OR LOSS AND CLOSE THE INCOME SUMMARY
ACCOUNT
1
2
3
CLOSING ENTRY FOR THE OWNER’S
DRAWING ACCOUNT
1
2
3
page 211
Four Closing Entries
1. Revenue (Sales) into Income Summary
2. Expenses into IS
3. Income Summary into Capital
4. Drawing into Capital
This information can be taken from the
income statement and balance sheet
columns of a worksheet
Visualization of Closing Entries
FISH BOWL EXAMPLE
 Revenue
 Expenses
 Income Summary
 Drawing
 Journalize than Post
Practice
 Section 2 Working Together
 Application 8-2
REVIEW
 Go Over Homework
 Soaking Up Closing Entries
Section 8-3: Post-Closing Trial
Balance
 After adjusting and closing entries are
journalized and posted the general
ledger has all account balances up to
date
 Accounts with 0 balances have a line
drawn through both the debit and crdit
balance columns
 Verifies debit=credit by preparing postclosing trial balance
Post-closing trial balance
 Only general ledger accounts with
balances are included


Permanent accounts
Assets, Liabilities, & Capital
 Debits=Credits
Accounting Cycle for a Service
Business
1.
2.
3.
4.
5.
6.
7.
8.
Analyze Transactions (SD)
Sally’s Jolly PIG
Wilbur Followed
Journalize
Aunt Clara’s Pretty
Post
Pony
Prepare Worksheet
Prepare Financial Statements
Journalize Adjusting and Closing Entries
Post Adjusting and Closing Entries
Prepare Post-closing Trial Balance
Practice
 Working Together 3
 Applications Problem 8-3
 Mastery
 Challenge
REVIEW
 M&M ACTIVITY
 STUDY GUIDE