1. © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater The Accounting Cycle Completed Chapter 5

2. Learning Objective 1 Journalizing and posting adjusting entries © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-1

3. Steps in Accounting Cycle © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater TransactionsJournalizePost Worksheet Financial Statements Journalize & Post Adjusting Entries Journalize & Post Closing Entries Post-Closing Trial Balance LO-1

4. Summary of Adjustments © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-1 Adjustments update certain accounts so they will be at current balance before financial statements are prepared Accounts listed below account titles on trial balance of worksheet are increasing (Supplies, rent and depreciation expense, accumulated depreciation & salaries payable) Original cost of a piece of equipment is not adjusted; historical cost is not lost Depreciation spreads original cost of an asset over useful life Accumulated depreciation is a contra-asset amount of depreciation asset has accumulated

5. Adjusting Entries © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Refer back to Kevin’s Moving Company in Chapter 4 LO-1

6. © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater These need to be journalized and posted LO-1

7. Journalizing Adjusting Entries © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater General Journal Page 8 Date Account Titles and Description Adjusting Entries PRDr.Cr. Oct31 Insurance Expense 600 Prepaid Insurance 600 31 Moving Supplies Expense 1,090 Moving Supplies 1,090 LO-1

8. Journalizing Adjusting Entries © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater General Journal Page 8 DateAccount Titles and DescriptionPRDr.Cr. Oct31 Depreciation Expense, Truck580 Accumulated Depreciation, Truck 580 31 Wages Expense410 Wages Payable410 LO-1

9. Learning Objective 2 Journalizing and posting closing entries © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-2

10. Permanent (Real) Accounts Account balances carry forward to next accounting period ◦ Assets (Cash, Supplies, Accounts Receivable) ◦ Liabilities (Accounts Payable, Wages Payable) ◦ Capital (Jones Capital) © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-2 WHY? It would not make sense to zero out the cash balance. Cash in the company at the end of an accounting period stays there. Amounts owed to the company and to creditors carry over to the next accounting period as well.

11. Temporary (Nominal) Accounts Account balances are set to zero at the beginning of the accounting period ◦ Withdrawals ◦ Revenues ◦ Expenses © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-2 WHY? Stockholders are interested in the performance of a company on a monthly basis. A company can have very high revenue for a year, but still incur a net loss.

12. Closing Entries Sets temporary accounts to zero at the beginning of the next accounting period by closing at end of prior period © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-2 WHY? Can accumulate new data about revenue, expenses, and withdrawals Updates Capital account

13. Closing Entries – 4 Steps 1.Clear revenue balance & transfer to Income Summary Debit revenue accounts/Credit Income Summary 2.Clear individual expense balances and transfer the total to Income Summary Debit Income Summary/Credit expense accounts © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-2

14. Closing Entries (Cont) 3.Clear balance in Income Summary (Net Income) and transfer it to Capital Debit Income Summary/Credit Capital (if net income) 4.Clear the Withdrawals balance and transfer it to Capital Debit Capital/Credit Withdrawals © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-2

15. © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Fees Earned Income Summary 33,000 Rent Expense 5,000 J. King, Withdrawals 4,000 J. King, Capital 14,000 Wage Expense 7,000 Insurance Expense 1,200 Depr. Expense, Office Equipment 900 LO-2 Exercise 5-3

16. Journalizing Closing Entries © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater General Journal Page 8 DateAccount Titles and Description PRDr.Cr. Closing Entries Dec 31 Fees Earned33,000 Income Summary 33,000 Step 1: Debit revenue accounts/Credit Income Summary LO-2 Exercise 5-3

17. Exercise 5-3 Journalizing Closing Entries © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater General Journal Page 8 DateAccount Titles and DescriptionPRDr.Cr. Dec31Income Summary 14,100 Rent Expense 5,000 Wage Expense 7,000 Insurance Expense 1,200 Depr. Expense, Office Equip 900 Step 2: Debit Income Summary/Credit expense accounts LO-2

18. © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Fees Earned Income Summary 33,000 Rent Expense 5,000 J. King, Withdrawals 4,000 J. King, Capital 14,000 Wage Expense 7,000 Insurance Expense 1,200 Depr. Expense, Office Equipment 900 33,000 5,000 7,000 1,200 900 900 14,100 18,900 NET INCOME LO-2 14,10033,000

19. Exercise 5-3 Journalizing Closing Entries © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater General Journal Page 8 DateAccount Titles and DescriptionPRDr.Cr. Dec31 Income Summary18,900 J. King, Capital18,900 Step 3: Debit Income Summary/Credit Capital

20. Journalizing Closing Entries © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater General Journal Page 8 DateAccount Titles and DescriptionPRDr.Cr. Dec31 J. King, Capital4,000 J. King, Withdrawals4,000 Step 4: Debit Capital/Credit Withdrawals LO-2

21. © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Fees Earned Income Summary 33,000 Rent Expense 5,000 J. King, Withdrawals 4,000 J. King, Capital 14,000 Wage Expense 7,000 Insurance Expense 1,200 Depr. Expense, Office Equipment 900 33,00033,000 5,000 7,000 1,200 900 900 14,100 18,900 18,900 18,900 4,000 4,000 28,900 LO-2

22. Learning Objective 3 Prepare a post-closing trial balance © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-3

23. Post-Closing Trial Balance Lists only permanent accounts Aids in checking whether ledger is in balance Contains true ending figure for Capital © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-3

24. Post-Closing Trial Balance ROLO CO. POST-CLOSING TRIAL BALANCE JANUARY 31, 200X © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Dr.Cr. Cash1,180 Accounts Receivable 100 Prepaid Rent 200 Office Supplies 6 Office Equipment 150 Accum. Dep. Office Equipment 20 Accounts Payable 120 Salaries Payable 50 R. Kern, Capital 1446 TOTAL1636 LO-3

25. Steps in Accounting Cycle © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater TransactionJournalizePost Worksheet Financial Statements Journalize & Post Adjusting Entries Journalize & Post Closing Entries Post-Closing Trial Balance LO-3

26. © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater End of Chapter 5