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Unit #13 – Adjustments on the Worksheet and Closing the Books. Unit #13 – Adjustments on the Worksheet and Closing the Books. Entering the Adjustments on the Worksheet is no different then what we have already done
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Unit #13 – Adjustments on the Worksheet and Closing the Books
Unit #13 – Adjustments on the Worksheet and Closing the Books • Entering the Adjustments on the Worksheet is no different then what we have already done • You enter the Debit & Credit to their respective accounts using the “Adjustments Column” of the worksheet.
Unit #13 – Adjustments on the Worksheet and Closing the Books
Unit #13 – Adjustments on the Worksheet and Closing the Books • Net Income is recorded as a Debit on the Income Statement & a Credit on the Balance Sheet Notice how the “totals” don’t add up Total 2020 2020 9700 12000 38460 36160 Net Income 2300 2300 12000 1200038460 38460
Unit #13 – Adjustments on the Worksheet and Closing the Books • Closing the Books • Is the process of reducing Revenue & Expense accounts to a zero (0) balance. • It serves 2 purposes • To prepare the Revenue & Expense accounts for the next period by reducing them to zero (0) • To update the Owner’s Equity account
Unit #13 – Adjustments on the Worksheet and Closing the Books • Updating the Owner’s Equity Account • Current Owner’s Equity = • Capital – Drawings + Revenue – Expenses Net Income Equity at start of Accounting period Change in Equity for Period
Unit #13 – Adjustments on the Worksheet and Closing the Books • Which Accounts are going to be closed? • Cash Capital are known as Permanent Accounts • Revenues, Expenses, and Drawings are known as Temporary Accounts
Unit #13 – Adjustments on the Worksheet and Closing the Books • The Income Summary Account! • This is only a “holding” account used to journalize the Closing Entries for Revenues & Expenses • Revenuewill have aCredit balance, therefore to close (make the account zero, we must debit this account) and Credit the Income Summary account
Unit #13 – Adjustments on the Worksheet and Closing the Books • Expenseswill have aDebit balance, therefore to close, we must Credit this Account & Debit the Income Summary Account
Unit #13 – Adjustments on the Worksheet and Closing the Books • It will Look like this Income Summary • You will then close the Income Summary account into Capital Expense Balance Revenue Balance
Unit #13 – Adjustments on the Worksheet and Closing the Books • Finally, Drawingswill have aDebit balance, therefore you must Credit this account (to close it) and Debit Owner’s Equity
Unit #13 – Adjustments on the Worksheet and Closing the Books • Steps in Closing the Books (Page 240 of your textbook) • Step 1 • Close Revenue Accounts into the Income Summary Account • Step 2 • Close Expense Accounts into the Income Summary Account
Unit #13 – Adjustments on the Worksheet and Closing the Books • Step 3 • Close the Income Summary Account into Capital • Step 4 • Close the Drawings Account into Capital
Unit #13 – Adjustments on the Worksheet and Closing the Books • A Post-Closing Trial Balance • Once you have closed all the temporary accounts (Revenue, Expenses, and Drawings) into Capital. • You must preform a Post-Closing Trial Balance to make sure that all your Debits = your Credits