1. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 8-1 Recording Adjusting Entries

2. CENTURY 21 ACCOUNTING © Thomson/South-Western 2 LESSON 8-2 ADJUSTING ENTRIES Definition – journal entries recorded to update general ledger accounts at the end of a fiscal period Source – adjustment section of the work sheet Journal – General Why are adjustments journalized? To be posted to general ledger accounts to update balances

3. CENTURY 21 ACCOUNTING © Thomson/South-Western 3 LESSON 8-2 ADJUSTING ENTRY STEPS: 1.Heading – Adjusting Entries 2.Date (for each new entry) 3.Write debit account first (Supplies Expense or Insurance Expense) 4.Debit amount 5.Credit account (Supplies or Prepaid Insurance) 6.Post to the general ledger

4. CENTURY 21 ACCOUNTING © Thomson/South-Western 4 LESSON 8-2 ADJUSTING ENTRY FOR SUPPLIES 1 2 page 202 3 4 4.Write the title of the account credited. Record the credit amount. 3.Write the title of the account debited. Record the debit amount. 2.Write the date. 1.Write the heading.

5. CENTURY 21 ACCOUNTING © Thomson/South-Western 5 LESSON 8-2 ADJUSTING ENTRY FOR PREPAID INSURANCE page 204 1 2 3 3.Write the title of the account credited. Record the credit amount. 2.Write the title of the account debited. Record the debit amount. 1.Write the date.

6. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 8-2 Recording Closing Entries

7. CENTURY 21 ACCOUNTING © Thomson/South-Western 7 LESSON 8-2 Closing Entries Permanent Accounts – A, L, OE – “Balance Sheet” accts. accounts whose balances carry forward each fiscal period. NOT closed out Temporary Accounts – R & E – “Income Statement” accts. accounts whose balances are closed into permanent accounts. Must be reduced to zero to begin new fiscal period

8. CENTURY 21 ACCOUNTING © Thomson/South-Western 8 LESSON 8-2 CLOSING ENTRIES Closing Entries – Example – if Sales = $3500 credit bal. Must debit $3500 Source – Income Statement & Balance Sheet sections of the work sheet Income Summary acct. – Classified a temporary acct. Doesn’t have a normal balance side, will show a debit and credit balance in ledger Balance determined if there is a net income or net loss Closed at the end of the fiscal period

9. CENTURY 21 ACCOUNTING © Thomson/South-Western 9 LESSON 8-2 NEED FOR THE INCOME SUMMARY ACCOUNT page 207

10. CENTURY 21 ACCOUNTING © Thomson/South-Western 10 LESSON 8-2 STEPS FOR CLOSING ENTRIES 1.Close Sales into Income Summary 2.Close Expenses into Income Summary 3.Close Income Summary into Capital 4.Close Drawing into Capital *Once all closing entries have been journalized, they are posted to the general ledger to update balances. **All temporary accounts should have a zero balance!

11. CENTURY 21 ACCOUNTING © Thomson/South-Western 11 LESSON 8-2 CLOSING ENTRY FOR AN INCOME STATEMENT ACCOUNT WITH A CREDIT BALANCE page 208 1 2 3 4 1.Write the heading. 2.Write the date. 3.Write the title of the account debited. Record the debit amount. 4.Write the title of the account credited. Record the credit amount.

12. CENTURY 21 ACCOUNTING © Thomson/South-Western 12 LESSON 8-2 CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES page 209 1 24 4.Debit amount 3.Credit 2.Income Summary 1.Date 3

13. CENTURY 21 ACCOUNTING © Thomson/South-Western 13 LESSON 8-2 CLOSING ENTRY TO RECORD NET INCOME OR LOSS AND CLOSE THE INCOME SUMMARY ACCOUNT page 210 3.Credit 2.Debit 1.Date 1 2 3

14. CENTURY 21 ACCOUNTING © Thomson/South-Western 14 LESSON 8-2 CLOSING ENTRY FOR THE OWNER’S DRAWING ACCOUNT page 211 3.Credit 2.Debit 1.Date 1 2 3

15. CENTURY 21 ACCOUNTING © Thomson/South-Western 15 LESSON 8-2 EXAMPLE OF CLOSING ENTRIES CLOSING ENTRIES DOC. POST REF.DEBITCREDIT 31SALES 3,565.00 INCOME SUMMARY 3,565.00 31INCOME SUMMARY 1,466.00 ADVERTISING EXPENSE 213.00 INSURANCE EXPENSE 100.00 MISCELLANEOUS EXPENSE 28.00 RENT EXPENSE 300.00 SUPPLIES EXPENSE 715.00 UTILITIES EXPENSE 110.00 31INCOME SUMMARY 2,099.00 KIM PARK, CAPITAL 2,099.00 31KIM PARK, CAPITAL 625.00 KIM PARK, DRAWING 625.00

16. CENTURY 21 ACCOUNTING © Thomson/South-Western 16 LESSON 8-2 TERMS REVIEW permanent accounts temporary accounts closing entries page 212

17. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 8-3 Preparing a Post-Closing Trial Balance

18. CENTURY 21 ACCOUNTING © Thomson/South-Western 18 LESSON 8-2 GENERAL LEDGER ACCOUNTS AFTER ADJUSTING AND CLOSING ENTRIES ARE POSTED page 213

19. CENTURY 21 ACCOUNTING © Thomson/South-Western 19 LESSON 8-2 7.Double rule 6.Totals 5.Calculate totals, must = 4.Single rule 3.Account balances 2. 2.Account titles- only permanent accts. 1.Heading POST-CLOSING TRIAL BALANCE 1 6 page 216 2 3 7 5 4

20. CENTURY 21 ACCOUNTING © Thomson/South-Western 20 LESSON 8-2 ACCOUNTING CYCLE FOR A SERVICE BUSINESS page 217 2 3 4 5 6 1 7 8 8.Prepare post-closing trial balance 7.Post adjusting and closing entries 6.Journalize adjusting and closing entries 5.Prepare financial statements 4.Prepare work sheet 3.Post to the general ledger 2.Journalize transactions 1.Analyze transactions

21. CENTURY 21 ACCOUNTING © Thomson/South-Western 21 LESSON 8-2 TERMS REVIEW post-closing trial balance accounting cycle page 219