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Chapter 4 Part 2

AGRICULUTURAL TECHNICAL INSTITUTE BUS TEC T101 ACCOUNTING. Chapter 4 Part 2. Completing the Accounting Cycle. Closing Entries. ACCOUNTING CONCEPTS. CH 1: ACCT & THE BUS ENVIRONMENT CH 2: RECORDING TRANSACTIONS CH 3: MEASURING INCOME; ADJUSTMENTS CH 4: COMPLETING THE ACCTING CYCLE

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Chapter 4 Part 2

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  1. AGRICULUTURAL TECHNICAL INSTITUTEBUS TEC T101 ACCOUNTING Chapter 4 Part 2 Completing the Accounting Cycle Closing Entries

  2. ACCOUNTING CONCEPTS • CH 1: ACCT & THE BUS ENVIRONMENT • CH 2: RECORDING TRANSACTIONS • CH 3: MEASURING INCOME; ADJUSTMENTS • CH 4: COMPLETING THE ACCTING CYCLE • CH 5: MERCHANDISE OPERATIONS • CH 6: SPECIAL JOURNALS • CH 7: CONTROLLING CASH • CH 8: RECEIVABLES • CH 9: MERCHANDISE INVENTORY • CH 10: PAYROLL • CH 17 CASH FLOW • APPENDIX C: INCOME TAX

  3. CH 4: COMPLETING THE ACCT CYCLE PART 1 SUMMARY • New Terms a. Accting Cycle b. Work Sheet c. Income Columnd. Bal Sheet Column 2. New Proceduresa. Work Sheetb. Net Income Calc

  4. ACCOUNTING CONCEPTS Chapter One Business Transactions Journal Entries Chapter 2 Pt 1 Posting to Ledgers Chapter 2 Pt 2 Trial Balance Chapter 3 Pt 1 Adjusting Entries Chapter 3 Pt 2 Adjusted Trial Balance Chapter 4 Pt 1 Worksheet Closing Entries Chapter 4 Pt 2 Financial Statements

  5. CH 4: COMPLETING THE ACCTING CYCLE LEARNING OBJECTIVES • AFTER COMPLETING THIS LESSON, THE STUDENT SHOULD BE ABLE TO: • PART 2: Closing & Entries • 1. • 2. Close revenue, expense, & withdrawal accounts. Classify assets & liab as current or long-term.

  6. Prepare an accounting work sheet 140 1 I. The Accounting Cycle OBJ A. DURING THE ACCOUNTING PERIOD TRANSACTIONS 1. JOURNALIZE In the GENERAL JOURNAL 2. POST TO THE ACCOUNTS In the GENERAL JOURNAL B. END OF THE ACCOUNTING PERIOD 1. JOURNALIZE AND POST ADJUSTING ENTRIES 2. JOURNALIZE AND POST CLOSING ENTRIES 3. PREPARE FINANCIAL STATEMENT

  7. 131 1 Prepare an accounting work sheet OBJ Adjusted Income Balance Trial Balance Statement Sheet Account Title Dr. Cr. Dr. Cr. Dr. Cr. Cash Accounts receivable Supplies Equipment Accum. depreciation Accounts payable Salary payable Unearned revenue Capital Withdrawals Revenue Salary expense Supplies expense Depreciation expense Totals Net income 12,100 3,050 150 15,500 1,000 12,000 100 200 44,100 12,100 3,050 150 15,500 1,000 31,800 31,800 7,700 1,200 1,100 1,500 7,200 25,400 44,100 7,700 1,200 1,100 1,500 7,200 18,700 13,100 31,800 25,400 25,400 25,400 12,000 100 200 12,300 13,100 25,400

  8. 148 3 Close rev, exp, & withdrawal accts II. Closing the Accounts OBJ A. Why? • 1. Prepares the accounts for recording transactions during the next period. 2. Measure net income for each period separately from all others B. Where? 1. Gen Journal 2. Ledger C. When? End of every fiscal period D. Who? Accountants, Chief Fiscal Officer

  9. 148 Close rev, exp, & withdrawal accts 3 Closing the Accounts OBJ E. What? 2. Expenses 3. Withdraws • 1. Receipts F. How? 4 Step Closing Entry Process 1. Service Revenue xxxxxx Income Summary xxxxx 2. Income Summary xxxxxx All Expense Accounts Individually xxxxxx 3. Income Summary xxxxx (if a profit) Capital xxxxx 4. Capital xxxxxx Withdraws xxxxx

  10. 149 3 Close rev, exp, & withdrawal accts OBJ Closing Entries Revenues increase Owner’s Equity. Expenses & Withdrawals decrease Owner’s Equity. Income Summary A debitbalance represents net loss. A creditbalance represents net income.

  11. 149 3 Close rev, exp, & withdrawal accts OBJ Closing Steps Step 2 Step 1 Step 3 Step 4

  12. 149 3 Close rev, exp, & withdrawal accts 0 OBJ Revenue A. Closing Step 1 Step1a Debit each Revenue Acct for Amt of its Credit Balance Norm Bal Debit Closed Into Credit Income Summary for the Total of Revenue Accts Step1b Credit IncomeSummary

  13. 149 3 Close rev, exp, & withdrawal accts OBJ Step 1: Close Revenue to Income Summary Before Adjusted Trial Balance Account Title Dr. Cr. Cash Accounts receivable Supplies Equipment Accum. depreciation Accounts payable Salary payable Unearned revenue Capital Withdrawals Revenue Salary expense Supplies expense Depreciation expense Totals Revenue Inc Sum 25400 12,100 3,050 150 15,500 1,000 12,000 100 200 44,100 Revenue 25400 7,700 1,200 1,100 1,500 7,200 25,400 44,100 Inc Sum 25400 After Revenue Inc Sum 25400 25400 25400 0

  14. 149 3 Close rev, exp, & withdrawal accts 0 OBJ Expenses B. Closing Step 2 Credit each Expense Acct for Amt of its Debit Balance Norm Bal Step 2a Credit Closed Into Step 2b Debit Income Summary for the Total of Expense Accts Debit IncomeSummary

  15. 149 3 Close rev, exp, & withdrawal accts 0 OBJ Step 2: Close Expenses to Income Summary Before Salary Exp Inc Sum Adjusted Trial Balance Account Title Dr. Cr. Cash Accounts receivable Supplies Equipment Accum. depreciation Accounts payable Salary payable Unearned revenue Capital Withdrawals Revenue Salary expense Supplies expense Depreciation expense Totals 25400 12000 12,100 3,050 150 15,500 1,000 12,000 100 200 44,100 Inc Sum 12300 12000 Salary Exp 100 Supp Exp 7,700 1,200 1,100 1,500 7,200 25,400 44,100 200 Depr Exp After Salary Exp Inc Sum 12000 12000 12300 25400 0

  16. 149 3 Close rev, exp, & withdrawal accts 0 OBJ IncomeSummary C. Closing Step 3 Step 3a Debit Income Summary for the Amt of its Balance Debit Closed Into Step2b Credit Capital for the Same Amount Credit Capital Credit Norm Bal =

  17. 149 3 Close rev, exp, & withdrawal accts OBJ Step 3: Close Income Summary to Capital Before Adjusted Trial Balance Account Title Dr. Cr. Cash Accounts receivable Supplies Equipment Accum. depreciation Accounts payable Salary payable Unearned revenue Capital Withdrawals Revenue Salary expense Supplies expense Depreciation expense Totals Capital Inc Sum 7200 25400 12300 12,100 3,050 150 15,500 1,000 12,000 100 200 44,100 7,700 1,200 1,100 1,500 7,200 25,400 44,100 Inc Sum 13100 13100 Capital After Capital Inc Sum 12300 25400 7200 13100 13100 20300 25400 25400

  18. 150 3 Close rev, exp, & withdrawal accts 0 OBJ D. Closing Step 4 Step 4a Credit Withdraw for the Amt of its Debit Balance Step 4b Debit Capital for the Same Amount Credit Closed Into Withdraw Capital Norm Bal Debit

  19. 150 3 Close rev, exp, & withdrawal accts OBJ Step 4: Close Withdraws to Capital Before Adjusted Trial Balance Account Title Dr. Cr. Cash Accounts receivable Supplies Equipment Accum. depreciation Accounts payable Salary payable Unearned revenue Capital Withdrawals Revenue Salary expense Supplies expense Depreciation expense Totals Withdraw Capital 7200 1000 12,100 3,050 150 15,500 1,000 12,000 100 200 44,100 13100 20300 1000 Capital 7,700 1,200 1,100 1,500 7,200 25,400 44,100 1000 Withdraw After Capital Withdraw 1000 1000 7200 1000 13100 20300 19300

  20. 150 3 Close rev, exp, & withdrawal accts OBJ Adjusted Trial Balance Account Title Dr. Cr. Cash Accounts receivable Supplies Equipment Accum. depreciation Accounts payable Salary payable Unearned revenue Capital Withdrawals Revenue Salary expense Supplies expense Depreciation expense Totals Closings Debit Credit 12,100 3,050 150 15,500 1,000 12,000 100 200 44,100 1,000 25,400 7,700 1,200 1,100 1,500 7,200 25,400 44,100 13,100 1,000 12,000 100 200 Income Summary 12,300 25,400 13,100

  21. 151 3 Close rev, exp, & withdrawal accts Postclosing Trial Balance OBJ The accounting cycle ends with the post closing trial balance. Post Closing Trial Balance Account Title Dr. Cr. Cash Accounts receivable Supplies Equipment Accum. depreciation Accounts payable Salary payable Unearned revenue Capital Withdrawals Revenue Salary expense Supplies expense Depreciation expense Totals 12,100 3,050 150 15,500 30,800 The postclosing trial balance is dated as of the end of the period for which the statements have been prepared. 7,700 1,200 1,100 1,500 19,300 30,800

  22. 3 Close rev, exp, & withdrawal accts Permanent Accounts OBJ • What accounts NEVERclose? Assets Liabilities Owner’s equity • Balances of permanent accounts carry over to the next period.

  23. 39 4 Classify Assets & Liabilities Current Assets OBJ • Current assets are cash, or will be converted to cash, in one year • What are some other examples? Inventory Short-term receivable, Prepaid expenses Long-term Assets Long-term assets include all other assets. property, equipment, and intangibles

  24. 39 4 Classify Assets & Liabilities Current Liabilities OBJ • Current liabilities are debts or obligations due within one year • What are some examples? accounts and salary payable, short-term notes payable, unearned revenue Long-term Liabilities Long-term liabilities are all other debts due in longer than one year

  25. 39 4 Classify Assets & Liabilities Classified Balance Sheet OBJ Business Name As of Date Assets Liabilities Current assets Current liabilities Long-term assets Long-term liabilities Listed in order of how soon they must be paid Listed in the order of decreasing liquidity Owner’s Equity

  26. 39 4 Classify Assets & Liabilities The Classified Balance Sheet OBJ Balance Sheet XYZ Services January 31, 20XX AssetsLiabilities Current assets: Current liabilities: Cash 12,100 Accounts payable 1,200 Accounts receivable 3,050 Salary payable 1,100 Supplies 150 Unearned revenue 1,500 Total current assets 15,300 Total liabilities 3,800 Plant assetsLong Term Liabilities Equipment 15,500 Owner’s equity Less Accum. deprec. 7,700 7,800 Capital 19,300 Total liabilities and Total assets 23,100 owner’s equity 23,100

  27. CH 4: COMPLETING THE ACCTING CYCLE PART 2 SUMMARY 2. New Proceduresa. Closing • New Termsa. Income Summary b. Temporary Acctsc. Permanent Acctsd. Closing Entriese. Post Closing Trial Bal 3. Accts That Close 4. Accts That DO NOT Close A. Revenue A. Assets B. Expenses B. Liabilities C. Withdraw C. Capital D. Inc Summary

  28. 163 Closing Entries 1 OBJ Yes No Cash Sales & Mkting Exp Other Assets Service Revenue No Yes • S4-6 Pg 163 Interest Exp Yes Acct Payable No No Long Trm Liab Acct Rec No 0 5/31 Service Rev 5,139 Income Summary 5,139 5/31 Income Summary 2,643 Sales & Mkting Exp 2,622 Interest Expense 21

  29. Closing Entries 166 1 0 6/30 Service Rev 110,000 Interest Rev 700 110,700 Income Summary • E4-7 Pg 166 6/30 Income Summary 32,500 Salary Exp 12,500 Supplies Expense 1,700 Interest Expense 2,200 Deprec Expense 10,200 Rent Expense 5,900 Income Summary 78,200 6/30 78,200 Park Capital 6/30 40,000 Park Capital Park Withdraws 40,000

  30. NEXT TOPIC CH 5: MERCHANDISE OPERATIONS

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