Recording Adjusting and Closing Entries for a Service Business Chapter 9 Recording Adjusting and Closing Entries for a Service Business

9.1 Recording Adjusting Entries

Concept: Accounting Period Cycle-Preparation of work sheet at the end of each fiscal pd. to summarize general ledger info for financial stmts. Concept: Adequate Disclosure – info for financial stmts. are found on the work sheet. Journal entries recorded to update general ledger accounts at the end of a fiscal period are called adjusting entries.

Recorded in the Gen. Deb. & Gen. Cred. Columns. Adj. Entries are put on the journal page right after the daily transactions. Recorded in the Gen. Deb. & Gen. Cred. Columns. Record 2 journal entries: To bring supplies account up to date To bring prepaid insurance account up to date.

9.2 Recording Closing Entries

Accounts used to accumulate information from one fiscal period to the next are called permanent accounts. AKA real accounts. Assets, Liab, O.E. Ending balance from one period beginning balance for next.

Accounts used to accumulate information until it is transferred to the owner’s capital account are called temporary accounts. AKA nominal accounts Revenue, expense, owner’s drawing, income summary Show changes in capital for fiscal pd. Balances transferred to capital account New fiscal pd. balance is zero

Concept: Matching Revenue with Expenses Journal entries used to prepare temporary accounts for a new fiscal period are called closing entries. Concept: Matching Revenue with Expenses A temporary account titled Income Summary is used to close revenue and expenses Has no normal balance side Net income = credit balance in Income Summary Net loss = debit balance in Income Summary

Information comes from Income Stmt and Balance Sheet of Work Sheet Four Closing Entries An entry to close income stmt accounts with credit balances Entry to close income stmt accounts with debit balances Entry to record net income or net loss and close Income Summary Entry to close the owner’s drawing Information comes from Income Stmt and Balance Sheet of Work Sheet

9.3 Preparing a Post-Closing Trial Balance

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

After closing entries are posted debits & credits have to be verified as equal. A trial balance prepared after the closing entries are posted is called a post-closing trial balance. Only the permanent accounts are included

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