Accounting 3
Chapter 26 Section 4
Adjusting, Closing, and Reversing
Entries for a Corporation
Adjusting Entries

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Adjusting Entries for a corporation are
similar to those of proprietorships and
partnerships except for the adjustment
for federal income tax expense and
payable.
The adjusting entries are made from the
Adjustments column of a work sheet.
To assure that each work sheet
adjustment is journalized, the entries
should be recorded in the order of the
letters assigned to each adjustment.
Winning Edge’s worksheet is shown in Chapter 25.
General Journal
Date
Account Title
Doc.
Post
No.
Ref.
15
Page ___
Debit
Credit
Adjusting Entries
Dec 31
Interest Receivable
2 0
00
Interest Income
31
Uncollectible Accounts Expense
2 0 00
98
2 8 00
Allowance for Uncollect. Accts
31
Merchandise Inventory
9 8 2
6 1 5
8 00
Income Summary
31
Supplies Expense
7
4 7
Insurance Expense
9
8 5
Depreciation Exp. Office Equip
4
6 5 0
Depreciation Exp. Store Equip
8
7 5
Interest Expense
31
Interest Payable
Federal Income Tax Expense
Federal Income Tax Payable
7
4
7 2 00
9
8
5 0 00
4
6
5 0 00
8
7
5 0 00
0 00
Acc. Dep. Store Equip
31
8 00
00
Acc. Dep. Office Equip
31
5
0 00
Prepaid Insurance
31
6 1
2 00
Supplies
31
8 00
2 0 0 00
13 2 0
6 46
2 0
13 2 0
0 00
6 46
Closing Entries
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

Closing entries for a corporation are made
from information on the worksheet.
Closing entries for revenue and expense
accounts and net income and temporary
equity accounts are similar to those of
proprietorships and partnerships.
However, these closing entries affect
different accounts.
Closing Entries

Corporations record four closing entries:




For income statement accounts with credit
balances (revenue and contra accounts).
For income statement accounts with debit
balances (cost, contra revenue, and expense
accounts).
To record net income or net loss in the
retained earnings account and close the
income summary account.
For the dividends account.
Closing Entry for Accounts with Credit
Balances
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Income statement credit balance accounts
are the revenue (Sales, Gain on Plant
Assets, and Interest Income) and the
contra cost accounts (Purchases Discount,
and Purchases Returns and Allowances).
For this closing entry, you must debit all
of the accounts listed above and credit
Income Summary.
I apologize for the small number at the beginning
16
General Journal
Date
Account Title
Doc.
Post
No.
Ref.
Page ___
Debit
Credit
Closing Entries
Dec 31
Sales
1917
Purchases Discount
10 5 4 8
00
5 1 4 2
00
5 6 0
00
8 8
00
Purchases Ret. And Allow.
Gain on Plant Assets
Interest Income
Income Summary
9
5
5
50
1934
2
9
3
50
Closing Entry for Accounts with Debit
Balances
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Income statement debit balance accounts are the
contra revenue accounts (Sales Discount and
Sales Returns and Allowances) and the cost
(Purchases) and expense accounts.
If Cash Short and Over has a credit balance, the
account balance amount is closed to Income
Summary with the credit balance accounts.
To record this closing entry you must debit
Income Summary and credit all of the
accounts listed in the first bullet.
•I do not have room on this slide to show all of
this closing entries’ accounts.
•Please refer to page 677 in your textbook to
see a picture of this example.
Closing Entry to Record Net Income
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After closing entries for the income
statement accounts are posted, Income
Summary should have a credit balance.
This credit balance should equal the net
income calculated on the worksheet.
A corporation’s net income should be
recorded in the retained earnings account
at the end of the fiscal year.
Closing Entry to Record Net Income
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After the closing entry is posted,
Income Summary should have a
zero balance.
If a corporation has a net loss,
Income Summary has a debit
balance.
Retained Earnings would then be
debited and Income Summary
credit for the net loss amount.
General Journal
Date
31
Account Title
Income Summary
Retained Earnings
Doc.
Post
No.
Ref.
16
Page ___
Debit
163 7 0 7
Credit
54
163 7
0
7 54
Closing Entry for Dividends
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Because dividends decrease the
earnings retained by a corporation,
the dividends account is closed to
Retained Earnings.
After the closing entry is posted,
Dividends has a zero balance.
The amount of dividends reduces
the amount of Retained Earnings.
General Journal
Date
Account Title
31 Retained Earnings
Dividends
Doc.
Post
No.
Ref.
16
Page ___
Debit
40 0 0
Credit
0 00
40 0 0 0 00
Post-Closing Trial Balance
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The Post-Closing Trial Balance is prepared
after all closing entries have been
journalized and posted.
It is used to check for accuracy in the
general ledger at the end of the fiscal
period.
This is done just as it is for
proprietorships and partnerships by listing
all of the accounts with balances and
checking to see that debits and credits
equal.
Reversing Entries
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If an adjusting entry creates a
balance in an asset or liability
account, the adjusting entry should
be reversed at the beginning of the
next fiscal period.
Usually there are three adjusting
entries that create a balance in an
asset or liability account.
These are detailed on the next slide.
Reversing Entries

The adjusting entry…



For accrued interest income creates a
balance in the interest receivable
account.
For accrued interest expense creates a
balance in the interest payable
account.
For federal income tax expense creates
a balance in the federal income tax
payable account.
General Journal
Date
Account Title
Doc.
Post
No.
Ref.
17
Page ___
Debit
Credit
Reversing Entries
Jan
1
Interest Income
2 0
00
Interest Receivable
1
Interest Payable
2 0 00
2
0 0
00
Interest Expense
1
Federal Income Tax Payable
Federal Income Tax Expense
2 0
13 2
0
0 00
6 46
13 2
0 6 46
Work Together p. 681
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
Due to the nature of the length of
this Work Together problem, I am
not including it in this presentation.
However, you may refer to my
workbook as you look at the
situation given on page 681 to
further understand the adjusting,
closing, and reversing entries of a
corporation.
Assignments
Assignments
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Do application 26-4 by hand.
Turn it in.
Complete the mastery problem by using
the Automated Accounting software (yes
this chapter has a problem unlike Ch. 25).
Take your test.
Congratulations! You have completed the
Corporate Accounting Cycle!!!
Move on to your simulation