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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 8LESSON 8
Recording Adjusting and Closing Entries
for a Service Business
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
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TERMS REVIEWTERMS REVIEW
Adjusting Entries = journal entries recorded to update general ledger accounts at the end of a fiscal period Permanent Accounts = also referred to as real accounts . . . They are the asset, liability and owner’s capital accounts . . . The ending balances for one fiscal period are the beginning account balances for the next fiscal period. Temporary Accounts = also referred to as nominal accounts . . . Revenue, expenses & drawing PLUS the new income summary . . . Temporary accounts begin a new fiscal period with a zero balance.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
TERMS REVIEWTERMS REVIEW
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Closing Entries = journal entries used to prepare temporary accounts for a new fiscal period. The temporary account balances must be reduced to zero at the end of each fiscal period. Post-Closing Trial Balance = a statement prepared at the end to verify that debits equal credits Accounting Cycle = the series of accounting activities included in recording financial information for a fiscal period
Analyze Transactions, Journalize Transactions, Post, Prepare a Work Sheet, Prepare Financial Statements (Income Statement & Balance Sheet), Journalize Adjusting and Closing Entries, Post Adjusting & Closing Entries, Prepare a Post-Closing Trial Balance.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Notes About Adjusting Entries
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• You do not have to decide the debit or credit parts of the entry . . . It is already on the work sheet
• All you need to do is record the entry in the journal • There will be no document associated with Adjusting Entries so
leave the Doc. No. Column blank • Don’t forget to post • Once the entry is posted, the supplies account balance will reflect
the amount of supplies on hand at the end of the period
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Notes about closing entries
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• The 4 closing entries are taken from the Income Statement and Balance Sheet columns of the work sheet
• Closing entries make the balances of all the temporary accounts ZERO
• The other account used for closing revenue and expenses is INCOME SUMMARY
• Income Summary doesn’t have a normal balance, its balance depends on the amount of revenue and expenses the business had for the period (net income or net loss . . . Get it?☺)
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Other important notes
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• The word POST means AFTER . . . Therefore a Post- Closing Trial Balance is prepared after the closing entries are posted.
• Only general ledger accounts with balances will be found on the Post-Closing Trial Balance
• It is very important to prove debits equal credits at the close of one fiscal period because you don’t want to begin the next period with errors!
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
ADJUSTING ENTRY FOR SUPPLIES
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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
ADJUSTING ENTRY FOR PREPAID INSURANCE
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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
NEED FOR THE INCOME SUMMARY ACCOUNT
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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
CLOSING ENTRY FOR AN INCOME STATEMENT ACCOUNT WITH A CREDIT BALANCE
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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES
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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
CLOSING ENTRY TO RECORD NET INCOME OR LOSS AND CLOSE THE INCOME SUMMARY ACCOUNT
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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
CLOSING ENTRY FOR THE OWNER’S DRAWING ACCOUNT
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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
GENERAL LEDGER ACCOUNTS AFTER ADJUSTING AND CLOSING ENTRIES ARE POSTED
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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
POST-CLOSING TRIAL BALANCE
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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
ACCOUNTING CYCLE FOR A SERVICE BUSINESS
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