Recording Adjusting and Closing Entries for a Service Business Chapter 9

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

Adjusting Entries So Far! Supplies Prepaid Insurance This information is obtained from the work sheet.

Permanent & Temporary Accounts Permanent Accounts (real accounts) are used to accumulate information from one fiscal period to the next. Include assets, liabilities, and capital. These are carried to the next fiscal period as the beginning balances. Temporary Accounts (nominal accounts) are used to accumulate information until it is transferred to the owner’s capital account. Include revenue, expenses, drawing, and Income Summary Show changes in the owner’s capital for a single period.

Closing Entries Journal entries used to prepare temporary accounts for a new fiscal period. They must be reduced to zero at the end of each fiscal period.

Income Summary A temporary account to summarize the closing entries for the revenue and expense accounts (i.e. junk account) No normal balance, the balance is determined by the amounts posted to the account at the end of the fiscal period.

Four Closing Entries Close Income Statement Accounts with credit balances Close Income Statement Accounts with debit balances Entry to record net income or net loss and close Income Summary (done in one shot) Close owner’s Drawing account

Post-Closing Trial Balance After the closing entries are posted, general ledger accounts with balances are added up. The total debits must equal total credits.

Accounting Cycle Analyze transactions Journalize Post Prepare Worksheet Prepare Financial Statements Journalize Adjusting and Closing Entries Post Adjusting and Closing Entries Prepare Post-Closing Trial Balance