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1 McGraw-Hill Ryerson College Accounting First Canadian Edition Price Haddock Brock Hahn Reed.

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Presentation on theme: "1 McGraw-Hill Ryerson College Accounting First Canadian Edition Price Haddock Brock Hahn Reed."— Presentation transcript:

1 1 McGraw-Hill Ryerson College Accounting First Canadian Edition Price Haddock Brock Hahn Reed

2 CLOSING ENTRIES AND THE POSTCLOSING TRIAL BALANCE CHAPTER 6 2

3 OBJECTIVE 1 Journalize and post closing entries. OBJECTIVE 1 Journalize and post closing entries. 3

4 CLOSING ENTRIES 4 Entries made in the general journal to transfer the results of operations to owner’s equity and to prepare the revenue, expense, and drawing accounts for use in the next accounting period.

5 INCOME SUMMARY ACCOUNT 5 A special owner’s equity account that is used to summarize the results of operations and is used only in the closing process.

6 JOHN ARROW, CAPITAL DRAWING EXPENSES REVENUE TEMPORARY ACCOUNTS 6

7 ARROW EMPLOYMENT SERVICES Adjusted Trial Balance December 31, 20X5 ACCOUNT NAME DEBIT CREDIT Cash 16, Accounts Receivable 2, Supplies Prepaid Rent 17, Equipment 15, Accumulated Amortization: Equipment Accounts Payable 4, John Arrow, Capital 40, John Arrow, Drawing 1, Fees Income 14, Salaries Expense 2, Utilities Expense Supplies Expense Rent Expense 2, Amortization Expense – Equipment Totals 58, ,

8 GENERAL JOURNAL Page 4 POST. DATE DESCRIPTION REF. DEBIT CREDIT 20X5 Closing Entries Dec. 31 Income Summary 6, Salaries Expense 2, Utilities Expense Supplies Expense Rent Expense 2, Amortization Exp.-Equip SALARIES EXPENSE Dr. + Cr. - Balance 2,500 Closing 2,500 UTILITIES EXPENSE Dr. + Cr. - Balance 300 Closing 300 SUPPLIES EXPENSE Dr. + Cr. - Balance 500 Closing 500 RENT EXPENSE Dr. + Cr. - Balance 2,500 Closing 2,500 AMORT.. EXPENSE-EQUIPMENT Dr. + Cr. - Balance 250 Closing 250 INCOME SUMMARY Dr. Cr. 6,050 14,000 8

9 GENERAL JOURNAL Page 4 POST. DATE DESCRIPTION REF. DEBIT CREDIT Income Summary Dr. Cr. Revenue 14,000 Expenses 6,050 9 John Arrow, Capital Dr. Cr. - + Balance 40,000 Net Inc. 7,950 Closing 7,950 Dec. 31 Income Summary 7, X5 Closing Entries J. Arrow, Capital 7,950.00

10 GENERAL JOURNAL Page 4 POST. DATE DESCRIPTION REF. DEBIT CREDIT 20X5 Closing Entries 10 John Arrow, Capital Dr. Cr. - + Closing 1,000 John Arrow, Drawing Dr. Cr. + - Drawing 1,000 Balance 1,000 Dec. 31 John Arrow, Capital 1, J. Arrow, Drawing1, Balance 40,000 Net Inc. 7,950

11 11 ACCOUNT John Arrow, Capital ACCOUNT NO DATE EXPLANATION POST. DEBIT CREDIT BALANCE REF. DEBIT CREDIT 20X5 Nov. 6 J1 40, , Dec. 31 Closing J4 7, , Closing J4 1, , Net Income Closing Balance Drawing Beginning Balance

12 GENERAL JOURNAL Page 4 POST. DATE DESCRIPTION REF. DEBIT CREDIT 20X5 Closing Entries Dec. 31 Fees Income , Income Summary , Income Summary , Salaries Expense , Utilities Expense Supplies Expense Rent Expense , Amort. Expense-Equip Income Summary , John Arrow, Capital , John Arrow, Capital , John Arrow, Draw , STEPS 1. CLOSE REVENUE 2. CLOSE EXPENSES 3. CLOSE INCOME SUMMARY 4. CLOSE DRAWING 12

13 OBJECTIVE 2 Prepare a postclosing trial balance. OBJECTIVE 2 Prepare a postclosing trial balance. 13

14 ARROW EMPLOYMENT SERVICES POSTCLOSING TRIAL BALANCE DECEMBER 31, 20X5 ACCOUNT NAME DEBIT CREDIT Cash 16, Accounts Receivable 2, Supplies Prepaid Rent 17, Equipment 15, Accumulated Amortization-Equipment Accounts Payable 4, John Arrow, Capital 46, Totals 51, ,

15 OBJECTIVE 3 Interpret financial statements. OBJECTIVE 3 Interpret financial statements. 15

16 ARROW ACCOUNTING SERVICES Balance Sheet December 31, 20X5 Assets Cash 16, Accounts Receivable 2, Supplies Prepaid Rent 17, Equipment 15, Accumulated Amortization , Total Assets 50, Liabilities and Owner’s Equity Liabilities Accounts Payable 4, Owner’s Equity John Arrow, Capital 46, Total Liabilities and Owner’s Equity 50, QUESTION FREQUENTLY ASKED BY MANAGEMENT 16 What is the amount owed to suppliers? (Look at the Accounts Pay. account in the Liabilities Section of the Balance Sheet.)

17 ARROW ACCOUNTING SERVICES Balance Sheet December 31, 20X5 Assets Cash 16, Accounts Receivable 2, Supplies Prepaid Rent 17, Equipment 15, Accumulated Depreciation , Total Assets 50, Liabilities and Owner’s Equity Liabilities Accounts Payable 4, Owner’s Equity John Arrow, Capital 46, Total Liabilities and Owner’s Equity 50, QUESTION FREQUENTLY ASKED BY MANAGEMENT 17 How much money do customers owe the business? (Look at the Accounts Rec. account in the Assets Section of the Balance Sheet.)

18 OBJECTIVE 4 Review the steps in the accounting cycle. OBJECTIVE 4 Review the steps in the accounting cycle. 18

19 Step 1 Analyze transactions Step 1 Analyze transactions Step 2 Journalize the data about transactions Step 2 Journalize the data about transactions Step 3 Post the data about transactions Step 3 Post the data about transactions Step 4 Prepare a trial balance Step 4 Prepare a trial balance Step 7 Prepare financial statements Step 7 Prepare financial statements Step 5 Record adjusting entries Step 5 Record adjusting entries Step 8 Record closing entries Step 8 Record closing entries Step 9 Prepare a postclosing trial balance Step 9 Prepare a postclosing trial balance Step 10 Interpret the financial information Step 10 Interpret the financial information 19 Step 6 Prepare an adjusted trial balance Step 6 Prepare an adjusted trial balance


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