1. Chapter 16 Recording Adjusting and Closing Entries for a Corporation

2. Adjusting Entries At the end of a fiscal period, two journal entries will change the general ledger account balances. –Adjusting entries bring journal entries up to date. –Closing entries prepare temporary accounts for the next fiscal period. The adjustments on a worksheet are the source for journalizing adjusting entries.

3. Adjusting Entries Adjusting entries are recorded in the general journal. Adjusting entries start on a new page and are titled “Adjusting Entries,” centered on the first line. Adjusting entries are journalized in pairs. Journalize the adjustments in the order that they appear at the top of the adjustments column. Journalizing adjusting entries involves only copying the adjusting information from the adjustment column.

4. ADJUSTING ENTRIES RECORDED FROM A WORK SHEET 3 214567 1.Heading 2.Date 3.Identify the first adjustment 4.Account debited 5.Debit 6.Account credited 7.Credit 8.Continue down the Adjustments columns

5. ADJUSTING ENTRY FOR ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS

6. ADJUSTING ENTRY FOR MERCHANDISE INVENTORY

7. ADJUSTING ENTRY FOR SUPPLIES—OFFICE

8. ADJUSTING ENTRY FOR SUPPLIES—STORE

9. ADJUSTING ENTRY FOR PREPAID INSURANCE

10. ADJUSTING ENTRY FOR DEPRECIATION—OFFICE EQUIPMENT

11. ADJUSTING ENTRY FOR DEPRECIATION—STORE EQUIPMENT

12. ADJUSTING ENTRY FOR FEDERAL INCOME TAXES

13. 16-2 Recording Closing Entries for Income Statement Accounts

14. Closing Entries Corporation have four closing entries. –Credit balances in the income statement column. –Debit balances in the income statement column. –Closing entry for net income or loss in the retained earnings account. –A closing entry for the dividends account. Income summary account is used at the end of the fiscal period to summarize the closing entries for revenue, cost, and expenses. Temporary accounts are closed for the next fiscal period.

15. THE INCOME SUMMARY ACCOUNT

16. Closing Entries Amounts needed for closing entries are obtained in the income statement and balance sheet columns of the worksheet. Closing Entries are recorded in the general journal. Center and write “Closing Entries” on the first line.

17. Closing Entry #1 Income Statement credit columns need to be closed out. –Sales –Purchases Discount – Contra account –Purchase Returns and Allowances - Contra Debit these accounts and credit income summary. Income Statement credit columns need to be reduced to zero.

18. CLOSING ENTRY FOR ACCOUNTS WITH CREDIT BALANCES 1 2 3.Debits to close 4 1.Heading 2.Date4.Credit to Income Summary 33

19. Closing Entry #2 Income Statement Debit columns need to be closed out. (Credit these accounts) –All Expenses –Sales Discounts –Sales Returns and Allowances –Cash short and over Credit these accounts to reduce their balances to zero and debit income summary. After closing out the expenses, the Income Summary balance should equal the net income total.

20. CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES 1 24 3.Credits to close 1.Date 2.Account debited 4.Debit amount 3 3

21. Closing Entry #3 Need to close out Income Summary account. –Debit Income Summary if you have net income. –Credit Income Summary if you have a net loss. Credit/Debit Retained Earnings based on net income or loss.

22. CLOSING ENTRY TO RECORD NET INCOME 1 2 3 3.Credit Retained Earnings 1.Date 2.Debit Income Summary

23. Closing Entry #4 Closed out Dividends account. –Debit – Retained Earnings –Credit – Dividends Dividends is closed to retained earnings because it reduces the corporations retained earnings. Closing entries must be posted to close the temporary accounts in the general ledger.

24. CLOSING ENTRY FOR DIVIDENDS 3.Credit Dividends 1.Date 2.Debit Retained Earnings 1 2 3

25. SUMMARY OF CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES Bal.209,960.00Closing 209,960.00 (New Bal. zero) Purchases Adj. (mdse. inv.)15,840.00Closing (credit amounts)500,253.10 Closing (debit accounts)404,099.15(New Bal.80,313.95) Income Summary

26. COMPLETED CLOSING ENTRIES FOR A CORPORATION RECORDED IN A JOURNAL

27. 16-3 Preparing a Post Closing Balance

28. Post Closing Balance After posting all adjusting and closing entries, the only accounts with a balance should be permanent accounts or balance sheet accounts (Assets, liabilities, O.E.). All income statement accounts should have zero balances to start the next fiscal period. Post closing trial balance should be only accounts with balances.

29. Post Closing Balance The post closing trial balance account should be in the order that they appear on the chart of accounts. Debit amounts are listed in the first column and credit amounts are listed in the second column. Debits should equal credits.

30. POST-CLOSING TRIAL BALANCE 1 6 7.Double lines 6.Totals 5.Word Totals 4.Credit balances 3.Debit balances 2.Accounts that have balances 1.Heading 2 3 4 7 5

31. ACCOUNTING CYCLE FOR A MERCHANDISING BUSINESS ORGANIZED AS A CORPORATION 1 2 3 4 5 (continued on next slide) 1.Source documents are checked, and transactions are analyzed. 2.Transactions are recorded in journals. 3.Journal entries are posted to the accounts payable ledger, the accounts receivable ledger, and the general ledger. 4.Schedules of accounts payable and account receivable are prepared from the subsidiary ledgers. 5.A work sheet is prepared from the general ledger.

32. ACCOUNTING CYCLE FOR A MERCHANDISING BUSINESS ORGANIZED AS A CORPORATION 6.Financial statements are prepared. (continued from previous slide) 6 7 8 9 9.A post-closing trial balance of the general ledger is prepared. 8.Adjusting and closing entries are posted to the general ledger. 7.Adjusting and closing entries are journalized from the work sheet.