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The Accounting Cycle Completed –
Adjusting, Closing, andPost-Closing Trial Balance
Chapter 5
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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.
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Analyze Transactions
PrepareTrial Balance
Record, Journalize,and Post
End of the Period Activities
Accounting Cycle
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End of the Period Activities
Prepare Adjustments
Complete Worksheet
Prepare ReportsClose the Accounting
Period
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Learning Objective 1
Journalizing and postingadjusting entries.
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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
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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.
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Learning Objective 2
Journalizing and postingclosing entries.
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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.
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Learning Unit 5-2
What are permanent accounts?– assets– liabilities– capital– balance sheet accounts
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Learning Unit 5-2
Permanent accounts are also called real accounts.
Balances are carried forward.
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Learning Unit 5-2
What are temporary accounts?– revenue– expenses– withdrawals
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Learning Unit 5-2
New data is accumulated each period. Temporary accounts are also called
nominal accounts. Balances are set to zero.
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Learning Unit 5-2
Closing entries: There are four steps to perform.1 Debit revenue accounts and credit the
Income Summary account.2 Debit the Income Summary account and
credit expense accounts.
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Learning Unit 5-2
3 Debit or credit the Income Summary account and debit or credit the Capital account.
4 Debit the Capital account and credit the Withdrawals account.
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Learning Unit 5-2
Four Steps in Journalizing Closing Entries
Step 1:Revenue
Step 2:Expenses
Step 3:Income Summary
Net Income or Loss`
Step 4:Withdrawals Capital
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Revenue IncomeSummary3,450
Various Exp1,205
3,450
1,205
1,455 3,450
Dep. Exp 50 50
Supplies Exp200 200
1,955
1,955
(Close Revenue Account)
(Close ExpenseAccounts)
(Close IncomeSummary)
CapitalAccount
Learning Unit 5-2
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Learning Objective 3
Prepare a post-closingtrial balance.
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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.
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Adjustments Example
Adjusted Trial Balance Adjustments Trial Balance
Account Title Dr. Cr. Dr. Cr. Dr. Cr.CashAccounts receivableSuppliesEquipmentAccum. depreciationAccounts payableCapitalRevenueVarious expensesSupplies expenseDepreciation expense
Totals
4,065850300
1,200
1,205
7,620
1705,00
02,45
0
7,620
a) 1,000
b) 200c) 50
1,250
b) 200
c) 50
a) 1,000
1,250
4,0651,850
1001,200
1,205200
508,670
50170
5,0003,450
8,670
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Adjustments Example
Adjusted Income Balance Trial Balance Statement Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr.CashAccounts receivableSuppliesEquipmentAccum. depreciationAccounts payableCapitalRevenueVarious expensesSupplies expenseDepreciation expense
Totals
4,0651,850
1001,200
1,205200
508,670
50170
5,0003,450
8,670
1,20520050
1,455
3,450
3,450
4,065
1,850
1001,20
0
7,215
50170
5,000
5,220 1,995 1,995 3,450 3,450 7,215 7,215
Net income
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Cash $4,065Accounts Receivable 1,850Supplies 100Equipment 1,200
Total $7,215Accumulated Depreciation: Equipment 50Accounts Payable 170Clara J., Capital 6,995
Total $7,215
Post Closing Trial Balance
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End of Chapter 5