CENTURY 21 ACCOUNTING © Thomson/South-Western

LESSON 8-1LESSON 8-1

Recording Adjusting Entries

2

CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 8-2

ADJUSTING ENTRIESADJUSTING 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 LESSON 8-2

ADJUSTING ENTRY STEPS: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 LESSON 8-2

ADJUSTING ENTRY FOR SUPPLIESADJUSTING ENTRY FOR SUPPLIES

11

22

page 202

33

44

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 LESSON 8-2

ADJUSTING ENTRY FOR PREPAID ADJUSTING ENTRY FOR PREPAID INSURANCEINSURANCE page 204

1122

33

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.

CENTURY 21 ACCOUNTING © Thomson/South-Western

LESSON 8-2LESSON 8-2

Recording Closing Entries

7

CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 8-2

Closing EntriesClosing 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 LESSON 8-2

CLOSING ENTRIESCLOSING 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 ledgerBalance determined if there is a net income or net lossClosed at the end of the fiscal period

9

CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 8-2

NEED FOR THE INCOME SUMMARY NEED FOR THE INCOME SUMMARY ACCOUNTACCOUNT page 207

10

CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 8-2

STEPS FOR CLOSING ENTRIESSTEPS 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 LESSON 8-2

CLOSING ENTRY FOR AN INCOME STATEMENT CLOSING ENTRY FOR AN INCOME STATEMENT ACCOUNT WITH A CREDIT BALANCEACCOUNT WITH A CREDIT BALANCE page 208

1122 33

441. 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 LESSON 8-2

CLOSING ENTRY FOR INCOME STATEMENT CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCESACCOUNTS WITH DEBIT BALANCES page 209

11 22 44

4. Debit amount3. Credit2. Income Summary1. Date

33

13

CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 8-2

CLOSING ENTRY TO RECORD NET INCOME OR CLOSING ENTRY TO RECORD NET INCOME OR LOSS AND CLOSE THE INCOME SUMMARY LOSS AND CLOSE THE INCOME SUMMARY ACCOUNTACCOUNT page 210

3. Credit

2. Debit

1. Date

11 22

33

14

CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 8-2

CLOSING ENTRY FOR THE OWNER’S CLOSING ENTRY FOR THE OWNER’S DRAWING ACCOUNTDRAWING ACCOUNT page 211

3. Credit

2. Debit

1. Date

11 22

33

15

CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 8-2

EXAMPLE OF CLOSING ENTRIESEXAMPLE OF CLOSING ENTRIES

    CLOSING ENTRIES  DOC.POST REF. DEBIT CREDIT

  31 SALES     3,565.00  

    INCOME SUMMARY       3,565.00

  31 INCOME 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

  31 INCOME SUMMARY     2,099.00  

    KIM PARK, CAPITAL       2,099.00

  31 KIM PARK, CAPITAL     625.00  

    KIM PARK, DRAWING       625.00

16

CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 8-2

TERMS REVIEWTERMS REVIEW

permanent accounts temporary accounts closing entries

page 212

CENTURY 21 ACCOUNTING © Thomson/South-Western

LESSON 8-3LESSON 8-3

Preparing a Post-Closing Trial Balance

18

CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 8-2

GENERAL LEDGER ACCOUNTS AFTER GENERAL LEDGER ACCOUNTS AFTER ADJUSTING AND CLOSING ENTRIES ARE ADJUSTING AND CLOSING ENTRIES ARE POSTEDPOSTED page 213

19

CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 8-2

7. Double rule

6. Totals

5. Calculate totals, must =

4. Single rule

3. Account balances

2. Account titles-only permanent accts.

1. Heading

POST-CLOSING TRIAL BALANCEPOST-CLOSING TRIAL BALANCE

11

66

page 216

22 33

77

55

44

20

CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 8-2

ACCOUNTING CYCLE FOR A SERVICE ACCOUNTING CYCLE FOR A SERVICE BUSINESSBUSINESS page 217

22

33

44

5566

11

77

88

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 LESSON 8-2

TERMS REVIEWTERMS REVIEW

post-closing trial balance accounting cycle

page 219