LESSON 8-1
Recording Adjusting Entries
Accounting Period Cycle: When a company prepares a work
sheet at the end of each fiscal period to summarize the
general ledger.
Adequate Disclosure: When financial statements are
prepared from information on the work sheet.
Adjusting Entries – journal entries recorded to update general
ledger accounts at the end of the fiscal period. These entries
are recorded on the NEXT JOURNAL PAGE!!!
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
2
ADJUSTING ENTRY FOR SUPPLIES
1
3
2
page 202
1. Write the heading.
2. Write the date.
3. Write the title of
the account
debited. Record
the debit amount.
4. Write the title of
the account
credited. Record
the credit amount.
4
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 8-1
3
ADJUSTING ENTRY FOR PREPAID
INSURANCE
page 204
1. Write the date.
2. Write the title of
the account
debited. Record
the debit amount.
3. Write the title of
the account
credited. Record
the credit amount.
1
2
3
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 8-1
4
TERM REVIEW
page 205
 adjusting entries
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 8-1
5
Lesson 8-2 Recording Closing Entries
 Permanent Accounts – accounts used to accumulate
information from one fiscal period to the next
“Real accounts” = assets, liabilities, owner’s Capital
The ending balances for one fiscal period are the beginning account balances for the
next fiscal period.
 Temporary Accounts – accounts used to accumulate
information until it is transferred to the owner’s capital account.
“Nominal Accounts” = Revenue, Expenses, Owner’s Drawing & Income Summary
Show changes in the owner’s capital for a single fiscal period
(transfer ending balances to capital and begin the next fiscal period with a zero balance)
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 8-2
LESSON 8-2
Closing Entries – journal entries
used to prepare temporary accounts
for a new fiscal period by reducing
their balances to zero.
- A closing entry merely transfers the balance of one
account to another account
- The procedure for closing an account includes entering an
amount equal to the account balance on the side opposite
its balance.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
7
NEED FOR THE INCOME SUMMARY
ACCOUNT
page 207
Income Summary – a temporary account that is used to
summarize the closing entries for revenue and expenses.
DOES NOT HAVE A NORMAL BALANCE SIDE.
Closed at the end of a fiscal period when the Net Income or
Net Loss is recorded.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 8-2
8
Closing Entries
Four closing entries are made:
1. Close income statement accounts with credit
balances (debit sales, credit income summary)
2. Close income statement accounts with debit
balances (debit income summary with total
expenses; credit all of your expenses individually)
3. Record Net Income or Net Loss in Owner’s Capital
account (debit Income Summary; credit Capital) OR
(debit Capital; credit Income Summary for loss)
4. Close owner’s drawing account
(Debit Capital; Credit Drawing)
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 8-2
9
CLOSING ENTRY FOR AN INCOME STATEMENT
ACCOUNT WITH A CREDIT BALANCE
page 208
(Debit to close)
1
2
3
4
1. Write the heading.
2. Write the date.
3. Write the title of the account debited.
Record the debit amount.
4. Write the title of the account credited. Record the credit amount.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 8-2
10
CLOSING ENTRY FOR INCOME STATEMENT
ACCOUNTS WITH DEBIT BALANCES
1.
2.
3.
4.
page 209
Date
Income Summary
Credit
Debit amount
(Credit to close)
1
2
4
3
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 8-2
CLOSING ENTRY TO RECORD NET INCOME
OR LOSS AND CLOSE THE INCOME
SUMMARY ACCOUNT
11
page 210
1. Date
2. Debit
3. Credit
(Capital: credit to
record net income)
(Income Summary:
debit to close)
1
2
3
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 8-2
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CLOSING ENTRY FOR THE OWNER’S
DRAWING ACCOUNT
page 211
1. Date
2. Debit
3. Credit
(Credit to close)
1
2
3
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 8-2
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TERMS REVIEW
page 212
 permanent accounts
 temporary accounts
 closing entries
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 8-2
LESSON 8-3
Preparing a Post-Closing
Trial Balance
Post-closing trial balance – a trial
balance prepared after the closing
entries are posted
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
GENERAL LEDGER ACCOUNTS AFTER
ADJUSTING AND CLOSING ENTRIES ARE
POSTED
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
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page 213
LESSON 8-3
16
Post Closing Trial Balance
Write this down on the bottom of your
notes page….
1. Any account that has a Zero Balance from Closing Entries has a
line drawn through the debit and credit column.
2. Only general ledger accounts with balances are included on a postclosing trial balance (Assets, Liabilities, and Owner’s Capital).
3. The total of all Debits must equal the total of all Credits.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 8-3
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POST-CLOSING TRIAL BALANCE
4
1
3
2
6
5
7
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
page 216
1. Heading
2. Account titles
3. Account
balances
4. Single rule
5. Compare
totals
6. Totals
7. Record totals
8. Double rule
8
LESSON 8-3
18
TERMS REVIEW
page 219
Accounting cycle – the series of
accounting activities included in
recording financial information for a
fiscal period
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 8-3
19
ACCOUNTING CYCLE FOR A SERVICE
BUSINESS
1
2
8
3
7
4
6
5
page 217
1.
2.
3.
4.
5.
Analyzes transactions
Journalize
Post
Prepare work sheet
Prepare financial
statements
6. Journalize adjusting
and closing entries
7. Post adjusting and
closing entries
8. Prepare post-closing
trial balance
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 8-3