6–26–2 Closing Entries and the Postclosing Trial Balance Section 1: Closing Entries Chapter 6 Section Objectives 1.Journalize and post closing entries.
6–36–3 The Accounting Cycle Step 7 Journalize and post closing entries Step 1 Analyze transactions Step 2 Journalize the data about transactions Step 4 Prepare a worksheet Step 5 Prepare financial statements Step 6 Journalize and post adjusting entries Step 8 Prepare a postclosing trial balance Step 9 Interpret the financial information Step 3 Post the data about transactions The seventh step in the accounting cycle is to journalize and post closing entries Step 7 Journalize and post closing entries
6–46–4 Income Summary Account Classified as a temporary owners equity account. Does not have a normal balance. Has a zero balance after the closing process and remains with a zero balance until after the closing procedure for the next period.
6–56–5 2. Transfer the expense account balances to the Income Summary account. 4. Transfer the balance of the drawing account to the owners capital account. 3. Transfer the balance of the Income Summary account to the owners capital account. 1. Transfer the balance of revenue account balances to the Income Summary account. Objective 1 Journalize and post closing entries There are four steps in the closing process:
6–66–6 The Income Statement section of the worksheet for Wells Consulting Services lists five expense accounts. Since expense accounts have debit balances, enter a credit in each account to reduce its balance to zero. This closing entry transfers total expenses to the Income Summary account. Step 2: Close Expenses
6–76–7 The journal entry to transfer net income to owners equity is a debit to Income Summary, and a credit to Carolyn Wells, Capital. The balance of Income Summary is reduced to zero; the owners capital account is increased by the amount of net income. Step 3: Close Net Income to Capital The Income Summary account is reduced to zero. The net income amount, $33,667, is transferred to the owners capital account. Carolyn Wells, Capital is increased by $33,667.
6–86–8 Withdrawals appear in the statement of owners equity as a deduction from capital. The drawing account is closed directly to the capital account. The drawing account balance is reduced to zero. The balance of the drawing account, $5,000, is transferred to the owners capital account. Step 4: Close Drawing to Capital
6–96–9 Summary of Closing Entries GENERAL JOURNAL PAGE 4 POST. DATE DESCRIPTION REF. DEBIT CREDIT 2013 Closing Entries Dec. 31 Fees Income 401 47,000.00 Income Summary 309 47,000.00 31 Income Summary 309 13,333.00 Salaries Expense 511 8,000.00 Utilities Expense 514 650.00 Supplies Expense 517 500.00 Rent Expense 520 4,000.00 Depr. Expense-Equip. 523 183.00 31 Income Summary 309 33,667.00 Carolyn Wells, Capital 301 33,667.00 31 Carolyn Wells, Capital 301 5,000.00 Carolyn Wells, Draw. 302 5,000.00 STEPS 1. Close Revenue Account 2. Close Expense Accounts 3. Close Income Summary 4. Close Drawing Account
6–10 Closing is entered in the Description column of the ledger accounts. The ending balances of the drawing, revenue, and expense accounts are zero. Posting the Closing Entries All journal entries are posted to the general ledger accounts.
6–11 Closing Entries and the Postclosing Trial Balance Section 2: Using Accounting Information Chapter 6 2. Prepare a postclosing trial balance. 3. Interpret financial statements. 4. Review the steps in the accounting cycle.
6–12 What is the postclosing trial balance A postclosing trial balance is report that is prepared to prove the equality of total debits and credits after the closing process is completed. It verifies that revenue, expense, and drawing accounts have zero balances. QUESTION: ANSWER:
6–14 What is the cash balance? How much do the customers owe the business? Wells Consulting Services Partial Balance Sheet December 31, 2013 Assets Cash $ 111,350.00 Accounts Receivable 5,000.00 Supplies 1,000.00 Prepaid Rent 4,000.00 Equipment $ 11,000.00 Less Accumulated Depreciation 183.00 10,817.00 Total Assets $ 132,167.00
6–15 How much does the business owe its suppliers? Wells Consulting Services Balance Sheet December 31, 2013 Assets Cash $ 111,350.00 Accounts Receivable 5,000.00 Supplies 1,000.00 Prepaid Rent 4,000.00 Equipment $ 11,000.00 Less Accumulated Depreciation 183.00 10,817.00 Total Assets $ 132,167.00 Liabilities and Owners Equity Liabilities Accounts Payable $ 3,500.00 Owners Equity Carolyn Wells, Capital 128,667.00 Total Liabilities and Owners Equity $132,167.00
6–16 Wells Consulting Services Income Statement Month Ended December 31, 2013 Revenue Fees Income 47,000.00 Expenses Salaries Expense 8,000.00 Utilities Expense 650.00 Supplies Expense 500.00 Rent Expense 4,000.00 Depr. Expense--Equipment 183.00 Total Expenses 13,333.00 Net Income for the Month 33,667.00 What is the profit?
6–17 Flow of Data Through a Simple Accounting System Source Documents Source documents are analyzed General journal General ledger Worksheet Financial statements Source Documents