CHAPTER 8

1. CHAPTER 8 Recording Adjusting Entries and Closing Entries for a Service Business

2. 8-1 RECORDING ADJUSTING ENTRIES We record our adjustments on the worksheet, but we also have to journalize them so we can post them to the general ledger accounts. Adjusting entries are recorded on the next journal page following the page that the daily transactions for the month are recorded. -Recorded under the general debit & generalcredit columns.

3. 3 4 ADJUSTING ENTRY FOR SUPPLIES page 202 1. Write the heading. 2. Write the date. 3. Write the title of the account debited. Record the debit amount. 1 4. Write the title of the account credited. Record the credit amount. 2

4. 2 3 ADJUSTING ENTRY FOR PREPAID INSURANCE page 204 1. Write the date. 2. Write the title of the account debited. Record the debit amount. 3. Write the title of the account credited. Record the credit amount. 1

5. 8-2 RECORDING CLOSING ENTRIES Permanent accounts are used to accumulated information from fiscal period to fiscal period. AKA - Real Accounts Assets, Liabilities & the Owner’s Capital Account Temporary Accounts are used to accumulate information until it is transferred to the owner’s capital account. AKA - Nominal Accounts Revenue, Expense, Owner’s Drawing & Income Summary -They begin each fiscal period with a zero balance. So we need to close them out at the end of each fiscal period.

6. CLOSING ENTRIES Closing Entries are journal entries used to prepare temporary accounts for the new fiscal period. Must reduce temporary Account balances to zero to prepare for the next fiscal period. 4 Closing Entries 1. Close Income Statement Accounts with credit balances -revenue 2. Close Income Statement Accounts with debit balances -expenses 3. Record net income or net loss and close income summary 4. Close owner’s drawing account -We find all info on the Worksheet, Income Statement and Balance Sheet Columns

7. NEED FOR THE INCOME SUMMARY ACCOUNT page 207 Income Summary is an account used to summarize the closing entries for the revenue and expense accounts. It does NOT have a normal balance side

8. 3 4 CLOSING ENTRY FOR AN INCOME STATEMENT ACCOUNT WITH A CREDIT BALANCE page 208 1 2 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.

9. 3 CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES page 209 1. Date 2. Income Summary 3. Credit 4. Debit amount 2 4 1

10. 2 3 CLOSING ENTRY TO RECORD NET INCOME OR LOSS AND CLOSE THE INCOME SUMMARY ACCOUNT page 210 1. Date 2. Debit 3. Credit 1

11. 2 3 CLOSING ENTRY FOR THE OWNER’S DRAWING ACCOUNT page 211 1. Date 2. Debit 3. Credit 1

12. 8-3 PREPARING A POST-CLOSING TRIAL BALNCE A post-closing-trial balance is used to verify the equality of debits & credits in general ledger accounts. -prepared AFTER closing entries are posted. -Includes ONLY general ledger accounts WITH balances. Permanent accounts: Assets, Liabilities, & Owner’s Equity

13. GENERAL LEDGER ACCOUNTS AFTER ADJUSTING AND CLOSING ENTRIES ARE POSTED page 213

14. 4 3 2 5 7 8 POST-CLOSING TRIAL BALANCE page 216 1. Heading 1 2. Account titles 3. Account balances 4. Single rule 5. Compare totals 6. Totals 7. Record totals 6 8. Double rule

15. ACCOUNTING CYCLE FOR A SERVICE BUSINESS page 217 1. Analyzes transactions 1 2. Journalize 2 3. Post 8 4. Prepare work sheet 5. Prepare financial statements 3 6. Journalize adjusting and closing entries 7 4 7. Post adjusting and closing entries 8. Prepare post-closing trial balance 6 5