The Accounting Cycle Completed – Adjusting, Closing, and Post-Closing Trial Balance

1. The Accounting Cycle Completed –Adjusting, Closing, andPost-Closing Trial Balance Chapter 5

2. End of the Period Activities • Adjusting entries must be entered in the journal and posted. • Closing entries must be journalized at the end of the accounting period so that income can be measured for the new period. • Temporary accounts are closed.

3. End of the Period Activities Accounting Cycle Analyze Transactions Record, Journalize, and Post Prepare Trial Balance

4. End of the Period Activities Prepare Adjustments Complete Worksheet Close the Accounting Period Prepare Reports

5. Journalizing and posting adjusting entries. Learning Objective 1

6. Learning Unit 5-1 Adjusting entries • Assets must be adjusted to show amounts used or allocated to periods and recorded as expenses. • supplies used • prepaid rent expired over time • equipment depreciated

7. Learning Unit 5-1 Journalizing and posting adjusting entries • The worksheet is complete. • The books are not up to date. • Adjusting entries are taken from the worksheet and journalized. • The journal entries must be posted.

8. Journalizing and posting closing entries. Learning Objective 2

9. Learning Unit 5-2 Journalizing and posting closing entries • Closing is a mechanical step which sets temporary accounts to zero so that they are ready for a new measurement period.

10. Learning Unit 5-2 • What are permanent accounts? • assets • liabilities • capital • balance sheet accounts

11. Learning Unit 5-2 • Permanent accounts are also called real accounts. • Balances are carried forward.

12. Learning Unit 5-2 • What are temporary accounts? • revenue • expenses • withdrawals

13. Learning Unit 5-2 • New data is accumulated each period. • Temporary accounts are also called nominal accounts. • Balances are set to zero.

14. Learning Unit 5-2 Closing entries: • There are four steps to perform. • Debit revenue accounts and credit the Income Summary account. • Debit the Income Summary account and credit expense accounts.

15. Learning Unit 5-2 • Debit or credit the Income Summary account and debit or credit the Capital account. • Debit the Capital account and credit the Withdrawals account.

16. Learning Unit 5-2 Four Steps in Journalizing Closing Entries Step 2: Expenses Step 1: Revenue Step 3: Income Summary Net Income or Loss` Step 4: Withdrawals Capital

17. Learning Unit 5-2 (Close Revenue Account) Income Summary Revenue 3,450 3,450 (Close Expense Accounts) 3,450 1,455 1,955 Various Exp (Close Income Summary) 1,205 1,205 Capital Account Dep. Exp 50 50 1,955 Supplies Exp 200 200

18. Prepare a post-closing trial balance. Learning Objective 3

19. Learning Unit 5-3 The post-closing trial balance: Step 8 of the Accounting Cycle • The post-closing trial balance helpsprove the accuracy of the adjusting and closing process. • It contains the true ending figure for capital. • It contains only permanent accounts.

20. Adjustments Example Adjusted Trial Balance Adjustments Trial Balance Account Title Dr. Cr. Dr. Cr. Dr. Cr. Cash Accounts receivable Supplies Equipment Accum. depreciation Accounts payable Capital Revenue Various expenses Supplies expense Depreciation expense Totals 4,065 850 300 1,200 1,205 7,620 4,065 1,850 100 1,200 1,205 200 50 8,670 a) 1,000 b) 200 c) 50 1,250 b) 200 c) 50 a) 1,000 1,250 170 5,000 2,450 7,620 50 170 5,000 3,450 8,670

21. Adjustments Example Adjusted Income Balance Trial Balance Statement Sheet Account Title Dr. Cr. Dr. Cr. Dr. Cr. Cash Accounts receivable Supplies Equipment Accum. depreciation Accounts payable Capital Revenue Various expenses Supplies expense Depreciation expense Totals 4,065 1,850 100 1,200 7,215 4,065 1,850 100 1,200 1,205 200 50 8,670 50 170 5,000 3,450 8,670 50 170 5,000 5,220 3,450 3,450 1,205 200 50 1,455 Net income 1,9951,995 3,450 3,450 7,215 7,215

22. Post Closing Trial Balance Cash $4,065 Accounts Receivable 1,850 Supplies 100 Equipment 1,200 Total $7,215 Accumulated Depreciation: Equipment 50 Accounts Payable 170 Clara J., Capital 6,995 Total $7,215

23. End of Chapter 5