View
217
Download
0
Category
Preview:
Citation preview
Chapter 8—Recording Adjusting & Closing Entries
for a Service Business
Accounting Theory
Accounting Period Cycle◦ Preparing financial statements at the end of each fiscal
period Adjusting Entries
◦ Journal entries recorded to update general ledger accounts at the end of the fiscal period
◦ Recorded on the next journal page following the page on which the last daily transaction for the month are recorded
Matching Expenses with Revenue◦ The revenue earned and the expenses incurred to earn
that revenue are reported in the same fiscal period Adjustments are analyzed and planned on a
worksheet
Accounting Concepts
Supplies and Supplies Expense are adjusted for the amount of supplies used during the period◦ Supplies Expense debit shows the supplies used◦ Supplies credit shows supplies used
Prepaid Insurance and Insurance Expense are adjusted for the amount of insurance used during the period◦ Insurance Expense debit shows the insurance
used◦ Prepaid Insurance credit shows insurance used
Supplies & Insurance Adjustments
Accounts used to accumulate information from one fiscal period to the next◦ Assets, Liabilities and Capital
Listed on the post-closing trial balance Ending balances are the beginning balances
for the next accounting period cycle The capital account’s new balance after all
closing entries are posted is verified by checking it with the amount of capital shown on the balance sheet at the end of the fiscal period
Permanent Accounts
Accounts used to accumulate information until it is transferred to the owner’s capital account◦ Sales, Expenses, Income Summary, and Drawing
Balances are summarized and transferred to the owner’s capital account
Must start each fiscal period with a zero balance by making closing entries◦ To close a temporary account, an amount equal to its
balance is recorded in the account on the side opposite its balance
◦ Information needed for closing entries is found in the work sheet income statement and balance sheet columns
Temporary accounts
Sales, Expenses, Income Summary and Drawing ◦ Debit Sales, Credit Income Summary◦ Debit Income Summary, Credit Expenses◦ Depending on the balance of income summary
When expenses are greater than revenue, income summary has a debit balance Debit Capital, Credit Income Summary
When expenses are less than revenue, income summary has a credit balance Debit Income Summary, Credit Capital
◦ Debit Capital, Credit Drawing There is not a source document for closing
entries
Closing Entries
1. Analyzing Transactions2. Journalize the Transactions to the General Journal3. Post the Transaction to the Ledger4. Prepare a Worksheet5. Prepare Financial Statements6. Journalize Adjusting and Closing Entries7. Post Adjusting and Closing Entries8. Prepare Post-Closing Trial Balance
◦ Verifies debits and credits◦ Only ledger accounts with balances are included
Assets, Liabilities and Capital Numbers come from ledgers not the worksheet
8 Steps in the Accounting Cycle
Recommended