© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Please note: this presentation includes slide transitions and animations. To utilize the presentation features, launch the slide show and click to advance the slides and where appropriate, the animations will appear.

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. College Accounting 11 th Edition Closing Entries and the Post-Closing Trial Balance chapter 5 5–2

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives After you have completed this chapter, you will be able to do the following: 5–3

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective 5–4

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Steps in the Accounting Cycle 5–5

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5–6

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The purpose of closing entries is to close (or zero) the temporary-equity or nominal accounts. Closing entries are made after the last adjusting entry and after the financial statements have been prepared. Closing entries update the owner’s capital account. Purpose of Closing Entries 5–7

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Purpose of Closing Entries 5–8

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 1 5–9

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective 5–10

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The procedure for closing is simply to balance off the account; in other words, to make the balance equal to zero. An account to be closed has a debit balance of $870. To make the balance equal to zero, we credit the account for $870. Procedure for Closing 5–11

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The procedure for closing is simply to balance off the account; in other words, to make the balance equal to zero. An account to be closed has a credit balance of $1,400. To make the balance equal to zero, we debit the account for $1,400. Procedure for Closing 5–12

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Steps in the Closing Procedure 5–13

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Closing the Accounts for Conner’s Whitewater Adventure 5–14

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5–15 2,832 1, ,524

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5–16

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5–17

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. In cases where a net loss exists, Income Summary and Capital are both reduced. Assume J. Doe Company experienced a $600 net loss. 5–18

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5–19

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5–20

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. With accounting software, each time the financials statements are prepared, the capital account is updated. If accounting software is being used, perform the following steps: 1.Make a backup of the file. 2.Print all financial statements. 3.Set a closing date and password-protect the books for that fiscal year. Computerized Accounting

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. You can gather information for the closing entries either directly from the ledger accounts or from the work sheet (figures for three of the four entries can be taken from the last four columns). You may plan the closing entries by balancing off all the figures that appear in the Income Statement columns. In the Item column of the ledger account, we write the word “Closing”. Closing Entries Taken Directly from the Work Sheet 5–22

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5–23

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Accountants call the accounts that are to be closed (such as revenue, expenses, Income Summary, and Drawing) nominal (temporary-equity) accounts. Accountants call the accounts that remain open from one fiscal period to the next real (permanent) accounts. Posting the Closing Entries 5–24

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5–25 General Ledgers After Closing Entries

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5–26

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5–27

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5–28

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5–29

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 2 5–30

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Learning Objective 5–32

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. To verify the balances of the accounts that remain open, a post-closing trial balance is prepared using the final balance figures from the ledger accounts. Note that the accounts listed in the post-closing trial balance are the real or permanent accounts. The Post-Closing Trial Balance 5–33

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5–34

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. If the totals of the post-closing trial balance are not equal, here’s the recommended procedures for tracking down the error. 1.Re-add the trial balance columns. 2.Check to see that the figures were correctly transferred from the ledger accounts to the post-closing trial balance. 3.Verify the posting of the adjusting entries and the recording of the new balances. 4.Make sure that the closing entries have been posted and that all revenues, expense, Income Summary, and Drawing accounts have zero balances. Tracking Down an Error 5–35

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 3 5–36

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective 5–37

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Under the cash basis of accounting, revenue is recorded when it is received in cash, and generally expenses are recorded when they are paid in cash. Under the accrual basis of accounting, revenue is recorded when it is earned, and expenses are recorded when they are incurred. Cash and Accrual Accounting 5–38

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cash versus Accrual Roby Hair Salon pays $6,000 cash in July for the current month (July) and the following five months of rent (August-December). Recording rent expense under cash basis and accrual basis.

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 4 5–40

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective 5–41

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Financial statements prepared during the fiscal year, for periods of less than twelve months, are called interim statements. A business may prepare the financial statements monthly to provide up-to-date information about the results of operations. Interim Statements 5–42

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5–43

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 5 5–44

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. College Accounting 11 th Edition Closing Entries and the Post-Closing Trial Balance chapter 5 5–45