Recording Adjusting and Closing Entries for a Service Business Chapter 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. Adjusting entries are recorded on the page following the page on which the last daily transactions for the month are recorded. Adjusting entries are obtained from the adjustment column of the WS. The heading, Adjusting Entries, is written in the middle of the Account title column of the journal.

Permanent Accounts Accts. used to accumulate information from one fiscal period to the next. (Also known as real accounts) They include: Asset accounts Liability accounts Owner’s capital account

Temporary Accounts Accts used to accumulate information until it is transferred to the owner’s capital account. (Also referred to as nominal accounts) They include: Revenue Expenses Owner’s drawing account Income summary account Balances must be reduced to zero at the end of each fiscal period.

Closing Entries Journal entries used to prepare temporary accounts for a new fiscal period. A temporary account titled Income Summary is used to summarize the closing entries for the revenue and expense accts.

Four Closing Entries: Close income statement accounts with credit balances. Close income statement accounts with debit balances Record the net income or net loss in the owner’s capital account and close Income Summary. Close the owner’s drawing account.

Post-Closing Trial Balance A trial balance prepared after the closing entries are posted.

Eight steps to prepare a post-closing trial balance 1. Write the heading. 1 2. Write titles of all general ledger accounts with balances in the Account Title column. 2 3 3. Write each account’s balance. 4 6 4. Rule a single line. 8 7 5 5. Compare the two column totals. 6. Write Totals. 7. Write the column totals. 8. Rule double lines.

Accounting Cycle The series of accounting activities included in recording financial information for a fiscal period.

ACCOUNTING CYCLE FOR A SERVICE BUSINESS 1. Source documents checked for accuracy, and transactions are analyzed. 1 2 2. Transactions are recorded in a journal. 8 3. Journal entries are posted to the general ledger. 3 4. Work sheet is prepared. 5. Financial statements are prepared. 7 4 6. Adjusting and closing entries are journalized. 6 7. Adjusting and closing entries are posted. 5 8. A post-closing trial balance is prepared.