Recording Adjusting and Closing Entries for a Partnership Chapter 17 Recording Adjusting and Closing Entries for a Partnership

Record adjusting entries OBJECTIVES: Identify accounting concepts and practices related to adjusting and closing entries for a merchandising business organized as a partnership Record adjusting entries Record closing entries for income statement accounts Record closing entries for net income or loss and partners’ drawing accounts Prepare a post-closing trial balance

Entries at the end of the Fiscal Period Adjusting - used to bring the general ledger accounts up to date. (correct balances) Closing - prepare temporary accounts for the next fiscal period. Recorded in the General Journal. No source document. MATCHING EXPENSES WITH REVENUE Copy the adjusting entries from the worksheet to the general journal and post.

PARTIAL WORK SHEET SHOWING ADJUSTMENTS

ADJUSTING ENTRY FOR MERCHANDISE INVENTORY AFTER ADJUSTMENT BEFORE ADJUSTMENT Income Summary Adj. (a) 15,840.00 Merchandise Inventory Bal. 270,480.00 Bal. 270,480.00 Adj. (a) 15,840.00 (New Bal. 254,640.00)

ADJUSTING ENTRY FOR OFFICE SUPPLIES INVENTORY AFTER ADJUSTMENT BEFORE ADJUSTMENT Supplies Expense—Office Adj. (b) 4,730.00 Supplies —Office Bal. 6,480.00 Bal. 6,480.00 Adj. (b) 4,730.00 (New Bal. 1,750.00)

ADJUSTING ENTRY FOR STORE SUPPLIES INVENTORY AFTER ADJUSTMENT BEFORE ADJUSTMENT Supplies Expense—Store Adj. (c) 3,910.00 Supplies —Store Bal. 6,944.00 Bal. 6,944.00 Adj. (c) 3,910.00 (New Bal. 3,034.00)

ADJUSTING ENTRY FOR PREPAID INSURANCE AFTER ADJUSTMENT BEFORE ADJUSTMENT Insurance Expense Adj. (d) 3,170.00 Prepaid Insurance Bal. 5,800.00 Bal. 5,800.00 Adj. (d) 3,170.00 (New Bal. 2,630.00)

ADJUSTING ENTRIES RECORDED IN A JOURNAL Lesson 17-1 (GJ) ADJUSTING ENTRIES RECORDED IN A JOURNAL 1 2 4 3 5 6 1. Heading 4. Debit 2. Date 5. Account Credited 3. Account Debited 6. Credit

TO DO: Work Together, pg 433 On your own, pg 433

Chapter 17-2: Recording Closing Entries for Income Statement Accounts An entry to close income stmt accounts with CR balances An entry to close income stmt accounts with DR balances An entry to record net income or net loss and close income summary account Entries to close partners’ drawing accounts

Closing Entries: Record in general journal Permanent accounts real accounts Assets, liabilities, capital accounts Ending balances are beginning balances for next fiscal period Temporary accounts nominal accounts Revenue, cost, expenses, withdrawals Must have a 0 balance at end of fiscal period Close all income statement accounts with credit balances to income summary. Examples: Sales, Interest Income Close all income statement accounts with debit balances to income summary. Ex) expenses, cost accounts

THE INCOME SUMMARY ACCOUNT Lesson 17-1 (GJ) THE INCOME SUMMARY ACCOUNT Income Summary Debit Total expenses (Debit balance is the net loss.) Credit Total Revenue (Credit balance is the net income.) Income Summary used to summarize info about net income *Used only at end of fiscal period to prepare ledger accounts for new period *Does not have a normal balance side *If Revenue is greater than expenses, it will have a CR balance = net income *Ending balance should match net income/loss

CLOSING ENTRY FOR AN INCOME STATEMENT ACCOUNT WITH A CREDIT BALANCE 3 1 2 4 1. Heading 2. Date 3. Debit to Close 4. Credit

CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES 1. Date 2. Account Debited 3 3. Credit to Close 4. Debit Total 1 2 4

Lesson 17-1 (GJ) SUMMARY OF CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES Bal. 189,960.00 Purchases Bal. 6,600.00 Advertising Expense Bal. 3,385.00 Credit Card Fee Expense Bal. 3,170.00 Insurance Expense Bal. 2,584.15 Miscellaneous Expense Bal. 9,105.00 Payroll Taxes Expense Bal. 21,000.00 Rent Expense Bal. 89,400.00 Salary Expense Bal. 4,730.00 Supplies Expense—Office Bal. 3,910.00 Supplies Expense—Store Bal. 3,820.00 Utilities Expense Income Summary Closing (revenue) 423,120.00 Adj. (mdse. inv.) 15,840.00 Closing (costs and expenses) 337,664.15 (New Bal. 69,615.85) (New Bal. zero) Closing 189,960.00 (New Bal. zero) Closing 21,000.00 (New Bal. zero) Closing 6,600.00 (New Bal. zero) Closing 89,400.00 (New Bal. zero) Closing 3,385.00 (New Bal. zero) Closing 4,730.00 (New Bal. zero) Closing 3,170.00 (New Bal. zero) Closing 3,910.00 (New Bal. zero) Closing 2,584.15 (New Bal. zero) Closing 3,820.00 (New Bal. zero) Closing 9,105.00

TO DO: Work Together, pg 442 On your own, pg 442 App 17-1, 17-2

Chapter 17-3: Recording Additional Closing Entries Net income increases equity must CR to capital accounts Share for each partner is shown on distribution of net income stmt Income Summary balance must be reduced to 0 Net Income CR to capital Net Loss DR to capital The capital accounts must now show ending capital reported on the owners’ equity statement and balance sheet. Close partners’ drawing accounts to partners’ capital accounts. DO NOT use Income Summary to close Drawing accounts

Lesson 17-1 (GJ) CLOSING ENTRY TO RECORD NET INCOME OR LOSS AND CLOSE THE INCOME SUMMARY ACCOUNT 5 3 2 1 4 1. Date 4. Accounts Credited 2. Account Debited 5. Credits to Record Net Income 3. Debit to Close

CLOSING ENTRIES FOR THE PARTNERS’ DRAWING ACCOUNTS 1. Date 2. Account Debited 5 3. Debit to Close 4. Account Credited 2 5. Credits to Close 1 3 4

COMPLETED CLOSING ENTRIES FOR A PARTNERSHIP RECORDED IN A JOURNAL NEXT STEP: POSTING!!!

TO DO: Work Together, pg 442 On your own, pg 442

After Adjusting and Closing Entries are Posted All permanent accounts are open and have the correct balance. All temporary accounts are closed Must now create a: Post-Closing Trial Balance: Prepared to prove the equality of the general ledger before starting a new fiscal period.

POST-CLOSING TRIAL BALANCE 1 1. Write the heading. 3 2. List accounts that have balances. 2 3. Write debit balances. 4. Write credit balances. 4 5. Write the word Totals. 6. Total Debit column. 7. Total Credit column. 8. Verify equality of totals. 9. Rule double lines. 6 7 5 8 9

Lesson 17-1 (GJ) ACCOUNTING CYCLE FOR A MERCHANDISING BUSINESS ORGANIZES AS A PARTNERSHIP. 1. Source documents checked for accuracy, and transactions are analyzed. 1 2. Transactions are recorded in a journal. 2 9 3. Journal entries are posted to ledgers. 4. Schedules of accounts payable and accounts receivable are prepared from subsidiary ledgers. 3 8 4 5. Work sheet is prepared. 5 6. Financial statements are prepared. 7 7. Adjusting and closing entries are journalized. 8. Adjusting and closing entries are posted. 6 9. A post-closing trial balance is prepared.

TO DO: Work Together, pg 447 On your own, pg 447 App. prob 17-3, 17-4, 17-5, pg 450 Summary: Mastery 17-6 Ch 17 Quiz