Ch apter 9 Recording Adjusting and Closing Entries for a Service Business

Adjusting Entries Journal entries recorded to update general ledger accounts at the end of a fiscal period These entries are recorded on the next general journal page following the daily transactions

9.1- Recording Adjusting entries In the General Journal- Write Adjusting Entries in the Middle of the Account Title Column There is no source document for an adjusting entry Date, Debit supplies expense, Credit Supplies ******SUPPLIES EXPENSE HAS THE UP TO DATE BALANCE!!!!*****Remember to subtract

9.1 cont For Prepaid Insurance: Date, Debit Insurance Expense, Credit Prepaid Insurance

9.1 Review p. 196 Terms Review Audit Your Understanding #1-3 Work Together #4 On Your Own #5

9.2 Recording Closing Entries Permanent Accounts- “real accounts”; accounts used to accumulate information from one fiscal period to the next (asset, liability and owner’s eq) Temporary Accounts- “nominal accounts’; accounts used to accumulate information until it is transferred to the Owner’s Capital account (revenue, expense, drawing, income summary) and show changes for a single fiscal period

9.2 cont Closing Temporary Accounts Closing Entries- journal entries used to prepare temporary accounts for a new fiscal period Each fiscal period, these temp accounts must be reduced to zero Easier to calculuate net income from fiscal period to fiscal period

9.2 Cont Income Summary Account- What is the need? Used to balance out the closing of the account. To close a credit, record a debit of the same amount to the income summary. To close a debit, record a credit of the same amount to the income summary Income Summary is debited when there is a net loss Income Summary is credited when there is a net income

9.2 Cont Encore has four closing entries: close income statement accounts with credit balances close income statement with debit balances record net income/loss and close Income Summary close the drawing account

9.2 Recording Closing Entries- Income Statement Account with a Credit Balance Write Closing Entries as the heading in the middle of the Account Title Column Date, Title of Account to be Debited, and amount Income Summary to be credited and amount

9.2 Closing Entry- Income Statement Account with Debit Balance Date, Income Summary will be debited in the amount which totals all accounts with a debit balance List all the accounts with debit balances and their ending balance and credit that amount

9.2 Closing Entry to Record net loss/income and close income summary account Date, Income Summary Account and record balance (debit if it is net income, credit if its net loss) Record balance in Capital Account

9.2 Closing the Drawing Account- The drawing account will have a debit balance (credit to close) Date, Capital Account to be debited balance, drawing account to be credited the amount of the balance

9.2 Review- p. 203 Terms Review Audit Your Understanding #1-3 Work Together #4 On Your Own #5

9.3 Preparing a Post-Closing Trial Balance Review General Ledger on pages Post- Closing Trial Balance- a trial balance prepared after the closing entries are posted. Only general ledger accounts with balances are included (which means no temporary accounts because you have brought those balances to zero in 9.2)

9.3 Write the Heading on 3 lines Write titles of all accounts with balances and the account balances in Debit or Credit Columns Rule a single line and sum the columns Compare and fix any errors Rule double lines to prove two columns are equal

9.3 cont Accounting Cycle- the series of financial activities included in recording financial information for a fiscal period Steps: p. 208

9.3 Review- p. 209 Terms Review Audit Your Understanding #1-3 Work Together #4 On Your Own #5