AOF Principles of Accounting
Lesson 9
The Accounting Cycle Closes
Student Resources
Resource
Description
Student Resource 9.1
Statements: May’s Martial Arts Academy General Journal
Student Resource 9.2
Reference: May’s Martial Arts Academy Chart of Accounts
Student Resource 9.3
Statements: Tommy’s Taekwondo General Journal
Student Resource 9.4
Reference: Tommy’s Taekwondo Chart of Accounts
Student Resource 9.5
Reading: Closing the Books
Student Resource 9.6
Statements: Rosa’s Bicycle Rentals General Ledger, Trial Balance,
Income Statement, Statement of Changes in Owner’s Equity, and
Balance Sheet
Student Resource 9.7
Worksheet: Closing the Books in Monopoly
Copyright © 2008–2013 National Academy Foundation. All rights reserved.
AOF Principles of Accounting
Lesson 9 The Accounting Cycle Closes
Student Resource 9.1
Statements: May’s Martial Arts Academy General
Journal
Directions: Post the general journal transactions for May’s (below) to the general ledger. Use Student
Resource 9.2, Reference: May’s Martial Arts Academy Chart of Accounts, for account names to label the
general ledger accounts. You’ll need to turn in closing journal entries, post the closing journal entries to
the general ledger, and prepare a post-closing trial balance. Use accounting paper provided by your
teacher to complete your work.
May’s Martial Arts Academy
GENERAL JOURNAL
DATE
7/1/2013
7/2/2013
7/5/2013
7/8/2013
7/12/2013
7/14/2013
7/18/2013
7/19/2013
7/20/2013
7/23/2013
7/24/2013
DESCRIPTION
Cash
Capital - May
Memo 1
Equipment
A/P - Martial Arts Supply
Invoice A250-1
Equipment
Notes Payable - Fern Hills Bank
Invoice 44512
Advertising Expense
A/P - Bellevue Tribune
Invoice #3436
Insurance Expense
Cash
Check 101
Office Supplies
Accounts Payable - Office World
Invoice #1250
Telephone Expense
Accounts Payable - TranTel
Invoice 555-1212
Cash
Tai Chi Training Revenue
Receipts 101–121
Cash
Karate Training Revenue
Receipts 122–134
A/R - Zuni
Karate Training Revenue
Invoice A-121
A/R - Takana
Tai Chi Training Revenue
Copyright © 2008–2013 National Academy Foundation. All rights reserved.
POST REF
DEBIT
CREDIT
4,000.00
4,000.00
2,025.00
2,025.00
1,500.00
1,500.00
440.00
440.00
225.00
225.00
375.00
375.00
110.00
110.00
2,585.00
2,585.00
445.00
445.00
255.00
255.00
625.00
625.00
AOF Principles of Accounting
Lesson 9 The Accounting Cycle Closes
7/27/2013
7/28/2013
7/29/2013
7/30/2013
7/31/2013
Invoice A-122
Accounting Expense
Cash
Check 102
Cash
Interest Revenue
Interest on bank stmt 7/28/13
A/R - Jun
Tai Chi Training Revenue
Invoice A-123
Rent Expense
Cash
Check 103
Withdrawals - May
Cash
Check 104
Copyright © 2008–2013 National Academy Foundation. All rights reserved.
85.00
85.00
45.00
45.00
840.00
840.00
1,200.00
1,200.00
2,250.00
2,250.00
AOF Principles of Accounting
Lesson 9 The Accounting Cycle Closes
Student Resource 9.2
Reference: May’s Martial Arts Academy Chart of
Accounts
May’s Martial Arts Academy
CHART OF ACCOUNTS
101
Cash
130
150
160
180
190
210
240
250
260
280
301
305
401
410
505
510
540
570
580
601
Accounts Receivable - Jun
Accounts Receivable - Takana
Accounts Receivable - Zuni
Office Supplies
Equipment
Accounts Payable - Bellevue Tribune
Accounts Payable - Martial Arts Supply
Accounts Payable - Office World
Accounts Payable - TranTel
Notes Payable - Fern Hills Bank
Capital - May
Withdrawals - May
Karate Training Revenue
Tai Chi Training Revenue
Accounting Expense
Advertising Expense
Insurance Expense
Rent Expense
Telephone Expense
Interest Revenue
Copyright © 2008–2013 National Academy Foundation. All rights reserved.
AOF Principles of Accounting
Lesson 9 The Accounting Cycle Closes
Student Resource 9.3
Statements: Tommy’s Taekwondo General Journal
Directions: Post the general journal transactions for Tommy’s to the general ledger. Use Student
Resource 9.4, Reference: Tommy’s Taekwondo Chart of Accounts, for account names to label the
general ledger accounts. Use accounting paper provided by your teacher to complete your work.
Tommy’s Taekwondo
GENERAL JOURNAL
Page 1
DATE
7/2/2013
7/5/2013
7/7/2013
7/10/2013
7/11/2013
7/14/2013
7/15/2013
7/16/2013
7/18/2013
DESCRIPTION
POST
REF
Cash
Capital - Tommy
Memo 26
Equipment
A/P - Martial Arts Supply
Invoice 2250
Maintenance Expense
Cash
Check 1562
A/R - Dana
Karate Lessons Revenue
Taekwondo Lessons Revenue
Invoice D-25
Cell Phone Expense
Cash
Check 1563
Equipment
Notes Payable - SparTCus
Sparring Equipment Note 12561
Cash
Judo Lessons Revenue
Receipts J42 - J63
Advertising Expense
Cash
Check 1564
Cash
Karate Lessons Revenue
Receipts K165–T168
Copyright © 2008–2013 National Academy Foundation. All rights reserved.
DEBIT
CREDIT
2,500.00
2,500.00
625.00
625.00
35.00
35.00
700.00
100.00
600.00
85.00
85.00
2,200.00
2,200.00
1,625.00
1,625.00
225.00
225.00
120.00
120.00
AOF Principles of Accounting
Lesson 9 The Accounting Cycle Closes
7/20/2013
7/22/2013
7/24/2013
7/26/2013
7/27/2013
7/28/2013
7/29/2013
Maintenance Expense
Cash
Check 1565
Utilities Expense
Cash
Check 1566
A/R - Ben
Judo Lessons Revenue
Invoice D-26
Cash
Interest Revenue
Interest on bank stmt 7/26/09
Rent Expense
Cash
Check 1567
Cash
Taekwondo Lessons Revenue
Receipts T25–T37
Withdrawals - Tommy
Cash
Check 1568
Copyright © 2008–2013 National Academy Foundation. All rights reserved.
100.00
100.00
35.00
35.00
625.00
625.00
25.00
25.00
1,000.00
1,000.00
845.00
845.00
1,500.00
1,500.00
AOF Principles of Accounting
Lesson 9 The Accounting Cycle Closes
Student Resource 9.4
Reference: Tommy’s Taekwondo Chart of Accounts
Tommy’s Taekwondo
CHART OF ACCOUNTS
101
130
140
160
180
210
220
250
280
301
305
401
410
420
510
520
540
550
570
580
601
Cash
Accounts Receivable - Ben
Accounts Receivable - Dana
Accounts Receivable - Rangel Inc.
Equipment
Accounts Payable - Dojo World
Accounts Payable - Franklin Equipment
Accounts Payable - Martial Arts Supply
Notes Payable - SparTCus Equipment
Capital - Tommy
Withdrawals - Tommy
Judo Lessons Revenue
Karate Lessons Revenue
Taekwondo Lessons Revenue
Advertising Expense
Cell Phone Expense
Maintenance Expense
Insurance Expense
Rent Expense
Utilities Expense
Interest Revenue
Copyright © 2008–2013 National Academy Foundation. All rights reserved.
AOF Principles of Accounting
Lesson 9 The Accounting Cycle Closes
Student Resource 9.5
Reading: Closing the Books
At the end of the accounting period, businesses must “close the books.” The process of closing the books
is a routine procedure that allows companies to assess performance during one accounting period and
then begin the next accounting period fresh. Closing the books involves bringing the income statement
accounts and the withdrawal account to zero. By doing this, businesses can track their balances in these
accounts for a specific amount of time and then use this information to make important financial
decisions.
Copyright © 2008–2013 National Academy Foundation. All rights reserved.
AOF Principles of Accounting
Lesson 9 The Accounting Cycle Closes
It seems as though once the fiscal year-end financial statements have been produced, the accounting
cycle should be complete; however, this is not the case. After the financial statements are run,
accountants begin preparing for the start of the new accounting period. They do this by preparing closing
journal entries and a post-closing trial balance. These last two steps ensure that the accounting cycle will
continue to provide accurate and useful information to all interested parties.
Copyright © 2008–2013 National Academy Foundation. All rights reserved.
AOF Principles of Accounting
Lesson 9 The Accounting Cycle Closes
The process of closing the books is done for many reasons.
•
One reason to close the books is so that in the previous fiscal year or in the last accounting
period, owners and investors can measure a company’s performance and compare it with the
performance of other fiscal years and other companies in the same industry.
•
Closing the books allows owners and investors to keep track of the firm’s profit and loss from
year to year.
•
Owners run their businesses in order to make money. By closing out net income/net loss, an
owner can see how the amount of owner’s equity has increased or decreased over the year.
•
In accordance with GAAP, temporary accounts must be closed at the end of each fiscal year.
Copyright © 2008–2013 National Academy Foundation. All rights reserved.
AOF Principles of Accounting
Lesson 9 The Accounting Cycle Closes
Closing the books begins with the closing of all temporary accounts. Temporary accounts are used to
collect information about a single accounting period; they need to be cleared so that the new reporting
period can start with a zero balance. The balances from these temporary accounts are transferred to the
owner’s capital account. Once all closing entries are posted, the ending capital balance in the general
ledger will now equal the capital balance on the final balance sheet. Starting with a zero balance in the
temporary accounts makes it easy to track revenue and expenses and compare data from one period to
the next.
Permanent accounts have balances that carry over. Permanent accounts are not closed after each
period, and their ending balance is always the starting balance in the next accounting period. Balance
sheet accounts are permanent.
Copyright © 2008–2013 National Academy Foundation. All rights reserved.
AOF Principles of Accounting
Lesson 9 The Accounting Cycle Closes
After accounts are posted to the general ledger, one more trial balance is prepared. Since all the revenue,
expense, and withdrawal accounts have been closed out to zero, the post-closing trial balance will
contain only permanent accounts or balance sheet accounts. The post-closing trial balance shows that
the accounts are in balance and that the new accounting period is ready to begin.
Copyright © 2008–2013 National Academy Foundation. All rights reserved.
AOF Principles of Accounting
Lesson 9 The Accounting Cycle Closes
Student Resource 9.6
Statements: Rosa’s Bicycle Rentals General Ledger,
Trial Balance, Income Statement, Statement of
Changes in Owner’s Equity, and Balance Sheet
Directions: Use Rosa’s financials to close her books for the year ending June 30, 2013. You’ll need to
prepare closing journal entries, post the closing journal entries to the general ledger, and prepare a postclosing trial balance.
Rosa’s Bicycle Rentals
GENERAL LEDGER
ACCOUNT
Cash
ACCOUNT NO.
101
BALANCE
DATE
6/1/2013
6/1/2013
6/5/2013
6/8/2013
6/10/2013
6/13/2013
6/14/2013
6/20/2013
6/25/2013
6/30/2013
DESCRIPTION
POST REF
G1
G1
G1
G1
G1
G1
G1
G1
G2
G2
ACCOUNT
Accounts Receivable - Hom
DEBIT
10,000.00
CREDIT
80.00
1,200.00
440.00
1,000.00
500.00
125.00
3,000.00
215.00
150.00
DEBIT
10,000.00
9,920.00
8,720.00
8,280.00
7,280.00
6,780.00
6,905.00
9,905.00
9,690.00
9,540.00
ACCOUNT NO.
CREDIT
110
BALANCE
DATE
6/25/2013
DESCRIPTION
ACCOUNT
Office Supplies
POST REF
G2
DEBIT
750.00
CREDIT
DEBIT
750.00
ACCOUNT NO.
CREDIT
120
BALANCE
DATE
6/25/2013
DESCRIPTION
POST REF
G2
DEBIT
215.00
Copyright © 2008–2013 National Academy Foundation. All rights reserved.
CREDIT
DEBIT
215.00
CREDIT
AOF Principles of Accounting
Lesson 9 The Accounting Cycle Closes
ACCOUNT
Equipment
ACCOUNT NO.
130
BALANCE
DATE
6/1/2013
6/12/2013
DESCRIPTION
POST REF
G1
G1
DEBIT
230.00
1,500.00
ACCOUNT
Accounts Payable – Helmet Shop
CREDIT
DEBIT
230.00
1,730.00
ACCOUNT NO.
CREDIT
201
BALANCE
DATE
6/1/2013
6/12/2013
DESCRIPTION
POST REF
G1
G1
ACCOUNT
Capital - Rosa
DATE
6/1/2013
DESCRIPTION
ACCOUNT
Withdrawals - Rosa
DEBIT
CREDIT
230.00
1,500.00
DEBIT
ACCOUNT NO.
CREDIT
230.00
1,730.00
301
BALANCE
POST REF
G1
DEBIT
CREDIT
10,000.00
DEBIT
ACCOUNT NO.
CREDIT
10,000.00
305
BALANCE
DATE
6/10/2013
DESCRIPTION
ACCOUNT
Rental Revenue
POST REF
G1
DEBIT
1,000.00
CREDIT
DEBIT
1,000.00
ACCOUNT NO.
CREDIT
401
BALANCE
DATE
6/20/2013
6/25/2013
DESCRIPTION
POST REF
G1
G2
ACCOUNT
Accounting Expense
DEBIT
CREDIT
3,000.00
750.00
DEBIT
ACCOUNT NO.
CREDIT
3,000.00
3,750.00
505
BALANCE
DATE
6/30/2013
DESCRIPTION
POST REF
G2
DEBIT
150.00
Copyright © 2008–2013 National Academy Foundation. All rights reserved.
CREDIT
DEBIT
150.00
CREDIT
AOF Principles of Accounting
Lesson 9 The Accounting Cycle Closes
ACCOUNT
Advertising Expense
ACCOUNT NO.
510
BALANCE
DATE
6/8/2013
DESCRIPTION
POST REF
G1
ACCOUNT
Insurance Expense
DEBIT
440.00
CREDIT
DEBIT
440.00
ACCOUNT NO.
CREDIT
515
BALANCE
DATE
6/13/2013
DESCRIPTION
ACCOUNT
Rent Expense
POST REF
G1
DEBIT
500.00
CREDIT
DEBIT
500.00
ACCOUNT NO.
CREDIT
520
BALANCE
DATE
6/5/2013
DESCRIPTION
ACCOUNT
Trash Expense
POST REF
G1
DEBIT
1,200.00
CREDIT
DEBIT
1,200.00
ACCOUNT NO.
CREDIT
525
BALANCE
DATE
6/1/2013
DESCRIPTION
POST REF
G1
ACCOUNT
Interest Revenue
DEBIT
80.00
CREDIT
DEBIT
80.00
ACCOUNT NO.
CREDIT
601
BALANCE
DATE
6/14/2013
DESCRIPTION
POST REF
G1
DEBIT
Copyright © 2008–2013 National Academy Foundation. All rights reserved.
CREDIT
125.00
DEBIT
CREDIT
125.00
AOF Principles of Accounting
Lesson 9 The Accounting Cycle Closes
Rosa’s Bicycle Rentals
Trial Balance
June 30, 2013
Cash
Accounts Receivable - Hom
Equipment
Office Supplies
Accounts Payable - Helmet Shop
Accounts Payable - Road Runner Bikes
Capital - Rosa
Withdrawals - Rosa
Rental Revenue
Accounting Expense
Advertising Expense
Insurance Expense
Rent Expense
Trash Expense
Interest Revenue
TOTAL
Debits
9,540.00
750.00
1,730.00
215.00
Credits
230.00
1,500.00
10,000.00
1,000.00
3,750.00
150.00
440.00
500.00
1,200.00
80.00
15,605.00
125.00
15,605.00
Rosa’s Bicycle Rentals
Income Statement
For the Month Ended June 30, 2013
Revenue:
Rental Revenue
Operating Expenses:
Accounting Expense
Advertising Expense
Insurance Expense
Rent Expense
Trash Expense
Total Operating Expenses
Operating Income
Other Revenue:
Interest Revenue
Net Income
3,750.00
150.00
440.00
500.00
1,200.00
80.00
2,370.00
1,380.00
125.00
1,505.00
Copyright © 2008–2013 National Academy Foundation. All rights reserved.
AOF Principles of Accounting
Lesson 9 The Accounting Cycle Closes
Rosa’s Bicycle Rentals
Statement of Changes in Owner’s Equity
For the Month Ended June 30, 2013
Beginning Capital, June 1, 2013
Add: Investments by Owner
Net Income
Total Increase in Capital
Subtotal
Less: Withdrawals by Owner
Ending Capital, June 30, 2013
0.00
10,000.00
1,505.00
11,505.00
11,505.00
1,000.00
10,505.00
Rosa’s Bicycle Rentals
Balance Sheet
June 30, 2013
Assets
Current Assets
Cash
Accounts Receivable - Hom
Office Supplies
Total Current Assets
Fixed Assets
Equipment
Total Assets
Liabilities
Current Liabilities
Accounts Payable - Helmet Shop
Accounts Payable - Road Runner Bikes
Total Liabilities
Owner’s Equity
Capital - Rosa
Total Liabilities and Owner’s Equity
9,540.00
750.00
215.00
10,505.00
1,730.00
12,235.00
230.00
1,500.00
1,730.00
10,505.00
12,235.00
Copyright © 2008–2013 National Academy Foundation. All rights reserved.
AOF Principles of Accounting
Lesson 9 The Accounting Cycle Closes
Student Resource 9.7
Worksheet: Closing the Books in Monopoly
Student Name:_______________________________________________ Date:___________
Directions: The purpose of closing the books in your real estate development company is to take
advantage of more practice learning this skill and to evaluate your and your classmates’ performance in
ways other than simply by whoever had the most money at the end of the game.
Please prepare your closing journal entries, post them to the general ledger accounts, and prepare a
post-closing trial balance using accounting paper. Trade books with a classmate, and then evaluate both
performances based on the following considerations (and any others you may think are important).
Evaluate your and your classmate’s performance. Consider the following items in your analysis.
Your Books
Your Classmate’s Books
Revenue
Expenses
Net Income/Net Loss
Beginning Capital Balance
Investments
Withdrawals
Ending Capital Balance
Assets
Liabilities
Owner’s Equity
1. In what ways did your company outperform your classmate’s company?
2. In what ways did your classmate’s company outperform yours?
3. Based on the above categories, who do you think has finished ahead overall and why?
4. What are some other considerations that may be important in analyzing a company’s
performance?
Copyright © 2008–2013 National Academy Foundation. All rights reserved.