Chapter 17
Recording Adjusting and
Closing Entries for a
Partnership
OBJECTIVES:
 Identify accounting concepts and practices
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related to adjusting and closing entries for a
merchandising business organized as a
partnership
Record adjusting entries
Record closing entries for income statement
accounts
Record closing entries for net income or loss
and partners’ drawing accounts
Prepare a post-closing trial balance
Entries at the end of the Fiscal Period
 Adjusting - used to bring the general ledger
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accounts up to date. (correct balances)
Closing - prepare temporary accounts for the next
fiscal period.
Recorded in the General Journal.
No source document.
MATCHING EXPENSES WITH REVENUE
 Copy the adjusting entries from the worksheet to
the general journal and post.
PARTIAL WORK SHEET SHOWING ADJUSTMENTS
ADJUSTING ENTRY FOR MERCHANDISE INVENTORY
AFTER ADJUSTMENT
BEFORE
ADJUSTMENT
Income Summary
Adj. (a)
15,840.00
Merchandise Inventory
Bal.
270,480.00
(New Bal. 254,640.00)
Adj. (a)
15,840.00
ADJUSTING ENTRY FOR OFFICE SUPPLIES
INVENTORY
AFTER ADJUSTMENT
BEFORE
ADJUSTMENT
Supplies Expense—Office
Adj. (b)
4,730.00
Supplies —Office
Bal.
(New Bal.
6,480.00
1,750.00)
Adj. (b)
4,730.00
ADJUSTING ENTRY FOR STORE SUPPLIES
INVENTORY
AFTER ADJUSTMENT
BEFORE
ADJUSTMENT
Supplies Expense—Store
Adj. (c)
3,910.00
Supplies —Store
Bal.
(New Bal.
6,944.00
3,034.00)
Adj. (c)
3,910.00
ADJUSTING ENTRY FOR PREPAID INSURANCE
AFTER ADJUSTMENT
BEFORE
ADJUSTMENT
Insurance Expense
Adj. (d)
3,170.00
Prepaid Insurance
Bal.
(New Bal.
5,800.00
2,630.00)
Adj. (d)
3,170.00
ADJUSTING ENTRIES RECORDED IN A JOURNAL
2
1
3
5
1. Heading
2. Date
3. Account Debited
4. Debit
5. Account Credited
6. Credit
4
6
TO DO:
 Work Together, pg 433
 On your own, pg 433
Chapter 17-2: Recording Closing Entries for Income
Statement Accounts
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4 closing entries:
1. An entry to close income stmt accounts with CR
balances
2. An entry to close income stmt accounts with DR
balances
3. An entry to record net income or net loss and close
income summary account
4. Entries to close partners’ drawing accounts
Closing Entries:
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Record in general journal
Permanent accounts real accounts
– Assets, liabilities, capital accounts
– Ending balances are beginning balances for next fiscal
period
Temporary accounts nominal accounts
– Revenue, cost, expenses, withdrawals
– Must have a 0 balance at end of fiscal period
Close all income statement accounts with credit balances
to income summary.
– Examples: Sales, Interest Income
Close all income statement accounts with debit balances to
income summary.
– Ex) expenses, cost accounts
THE INCOME SUMMARY ACCOUNT
Income Summary
Debit
Total expenses
(Debit balance is the net loss.)
Credit
Total Revenue
(Credit balance is the net income.)
Income Summary used to summarize info about net income
*Used only at end of fiscal period to prepare ledger accounts
for new period
*Does not have a normal balance side
*If Revenue is greater than expenses, it will have a CR
balance = net income
*Ending balance should match net income/loss
CLOSING ENTRY FOR AN INCOME STATEMENT
ACCOUNT WITH A CREDIT BALANCE
1
2
1. Heading
2. Date
3. Debit to Close
4. Credit
3
4
CLOSING ENTRY FOR INCOME STATEMENT
ACCOUNTS WITH DEBIT BALANCES
1. Date
2. Account Debited
3. Credit to Close
4. Debit Total
3
3
1
2
4
SUMMARY OF CLOSING ENTRY FOR INCOME
STATEMENT ACCOUNTS WITH DEBIT BALANCES
Income Summary
Adj. (mdse. inv.)
Closing (costs and expenses)
15,840.00
337,664.15
Purchases
Bal.
189,960.00 Closing
(New Bal. zero)
Advertising Expense
Closing (revenue)
(New Bal.
423,120.00
69,615.85)
Rent Expense
189,960.00
Bal.
21,000.00 Closing
(New Bal. zero)
Salary Expense
21,000.00
Bal.
6,600.00 Closing
(New Bal. zero)
Credit Card Fee Expense
6,600.00
Bal.
89,400.00 Closing
(New Bal. zero)
Supplies Expense—Office
89,400.00
Bal.
3,385.00 Closing
(New Bal. zero)
Insurance Expense
3,385.00
Bal.
4,730.00 Closing
(New Bal. zero)
Supplies Expense—Store
4,730.00
Bal.
3,170.00 Closing
(New Bal. zero)
Miscellaneous Expense
3,170.00
Bal.
3,910.00 Closing
(New Bal. zero)
Utilities Expense
3,910.00
Bal.
2,584.15 Closing
(New Bal. zero)
Payroll Taxes Expense
2,584.15
Bal.
3,820.00
(New Bal. zero)
3,820.00
Bal.
9,105.00
(New Bal. zero)
9,105.00
Closing
Closing
TO DO:
 Work Together, pg 442
 On your own, pg 442
 App 17-1, 17-2
Chapter 17-3: Recording Additional Closing Entries
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Net income increases equity must CR to capital
accounts
– Share for each partner is shown on distribution of net
income stmt
Income Summary balance must be reduced to 0
Net Income CR to capital
Net Loss DR to capital
The capital accounts must now show ending capital
reported on the owners’ equity statement and
balance sheet.
Close partners’ drawing accounts to partners’ capital
accounts.
DO NOT use Income Summary to close Drawing
accounts
CLOSING ENTRY TO RECORD NET INCOME OR LOSS
AND CLOSE THE INCOME SUMMARY ACCOUNT
3
5
2
1
4
1. Date
2. Account Debited
3. Debit to Close
4. Accounts Credited
5. Credits to Record Net Income
CLOSING ENTRIES FOR THE PARTNERS’ DRAWING
ACCOUNTS
2
1
4
3
1. Date
2. Account
Debited
3. Debit to
Close
4. Account
Credited
5
5. Credits to
Close
COMPLETED CLOSING ENTRIES FOR A PARTNERSHIP
RECORDED IN A JOURNAL
NEXT STEP:
POSTING!!!
TO DO:
 Work Together, pg 442
 On your own, pg 442
After Adjusting and Closing Entries are Posted
 All permanent accounts are open and have the
correct balance.
 All temporary accounts are closed
Must now create a:
– Post-Closing Trial Balance:
• Prepared to prove the equality of the general
ledger before starting a new fiscal period.
POST-CLOSING TRIAL BALANCE
1
1. Write the heading.
2. List accounts that
have balances.
3. Write debit balances.
3
2
4
5
6
4. Write credit balances.
5. Write the word Totals.
6. Total Debit column.
7. Total Credit column.
8. Verify equality of
totals.
9. Rule double lines.
7
8
9
ACCOUNTING CYCLE FOR A MERCHANDISING
BUSINESS ORGANIZES AS A PARTNERSHIP.
1. Source documents checked for accuracy,
and transactions are analyzed.
1
2
9
2. Transactions are recorded in a
journal.
3. Journal entries are posted to
ledgers.
3
8
4
5
7
4. Schedules of accounts
payable and accounts
receivable are prepared from
subsidiary ledgers.
5. Work sheet is prepared.
6. Financial statements are
prepared.
7. Adjusting and closing
entries are journalized.
6
8. Adjusting and closing
entries are posted.
9. A post-closing trial
balance is prepared.
TO DO:
 Work Together, pg 447
 On your own, pg 447
 App. prob 17-3, 17-4, 17-5, pg 450
Summary:
 Mastery 17-6
 Ch 17 Quiz