LESSON 8-1

Recording Adjusting Entries

Adjusting Entries

• Adjustments are analyzed and planned on a work sheet. However, these adjustments must be journalized so they can be posted to the general ledger accounts.

• Journal entries recorded to update general ledger accounts at the end of the fiscal period are called adjusting entries.

• Adjusting entries are recorded on the next journal page following the page on which the last daily transactions for the month are recorded.

LESSON 8-1 3

ADJUSTING ENTRY FOR SUPPLIES

1

2

page 202

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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.

LESSON 8-1 4

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.

LESSON 8-1 5

TERM REVIEW

• adjusting entries

page 205

LESSON 8-2Recording Closing Entries

Permanent accounts

• Permanent Accounts

• Accounts used to accumulate information from one fiscal period to the next are called permanent accounts.

• Permanent accounts are also referred to as real accounts.

• Permanent accounts include the asset and liability accounts and the owner’s equity capital account. The ending account balances of permanent account for one fiscal period are the beginning account balances for the next fiscal period.

Temporary accounts

• Temporary Accounts

• Accounts used to accumulate information until it is transferred to the owner’s capital account are called temporary accounts.

• Temporary accounts are also referred to as nominal accounts. Temporary accounts include the revenue, expense and owner’s drawing accounts plus the income summary account. Temporary accounts show changes in the owner’s capital for a single fiscal period.

• Therefore, at the end of the fiscal period, the balances of temporary accounts are summarized and transferred to the owner’s capital account. The temporary accounts begin in a new fiscal period with zero balances.

Closing entries

• Journal entries used to prepare temporary accounts for a new fiscal period are called closing entries.

• The temporary account balances must be reduced to zero at the end of each fiscal period. This procedure prepares the temporary accounts for recording information about the next fiscal period.

• Ex. The net income for the next fiscal period would be difficult to calculate because amounts from several fiscal periods remain in the accounts. Therefore, the temporary accounts must start each new fiscal period with zero balances.

• To close a temporary account, an account equal to its balance is recorded in the account on the side opposite to its balance.

• For example, if an account has a credit balance of $3,565.00, a debit of $3,565.00 is recorded to close the account.

LESSON 8-2 10

NEED FOR THE INCOME SUMMARY ACCOUNT page 207

LESSON 8-2 11

CLOSING ENTRY FOR AN INCOME STATEMENT ACCOUNT WITH A CREDIT BALANCE

(Debit to close)

page 208

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2 3

41. 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.

LESSON 8-2 12

CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES

(Credit to close)

page 209

12 4

4. Debit amount3. Credit2. Income Summary1. Date

3

LESSON 8-2 13

CLOSING ENTRY TO RECORD NET INCOME OR LOSS AND CLOSE THE INCOME

SUMMARY ACCOUNT

(Income Summary:debit to close)

(Capital: credit torecord net income)

page 210

3. Credit

2. Debit

1. Date

1 2

3

LESSON 8-2 14

CLOSING ENTRY FOR THE OWNER’S DRAWING ACCOUNT

(Credit to close)

page 211

3. Credit

2. Debit

1. Date

1 2

3

LESSON 8-2 15

TERMS REVIEW

• permanent accounts

• temporary accounts

• closing entries

page 212

LESSON 8-3Preparing a Post-Closing Trial Balance

LESSON 8-3 17

GENERAL LEDGER ACCOUNTS AFTER ADJUSTING AND CLOSING ENTRIES ARE POSTED

page 213

Post-closing trial balance

• A trial balance prepared after the closing entries are posted is called a post-closing trial balance.

LESSON 8-3 19

POST-CLOSING TRIAL BALANCE

8. Double rule

7. Record totals

6. Totals

5. Compare totals

4. Single rule

3. Account balances

2. Account titles

1. Heading 1

6

page 216

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7

5

8

4

Accounting cycle

• The series of accounting activities included in recording financial information for a fiscal period is called the accounting cycle.

LESSON 8-3 21

ACCOUNTING CYCLE FOR A SERVICE BUSINESS page 217

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3

4

56

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

2. Journalize

1. Analyzes transactions

LESSON 8-3 22

TERMS REVIEW

• post-closing trial balance

• accounting cycle

page 219