Closing Entries, Adjustments
and Accounting Worksheet
Created 2007
By Michael Worthington
Elizabeth City State University
Take-Off Trial Balance
Trial Balance is initial stage of ______________
1. Copy (take-off) unadjusted Trial Balance
from General Ledger to the worksheet
2. Record adjustments on worksheet
3. Extend across to Adjusted Trial Balance
Prepare the Financial Statements from the
Adjusted Trial Balance on Worksheet
Worksheet
Unadjusted
Trial
Adjustments
Balance
Debit
Credit
Debit
Credit
Adjusted
Trial
Balance
Debit
Credit
Income
Statement
Accounts
Debit
Credit
Balance
Sheet
Accounts
Debit
Credit
Work from left to _________
1
Adjustments
Include at least one income statement
account and one balance sheet account
Debit Expenses or ___________ Revenues
Do the opposite for Balance Sheet account
Usually the amount of the adjustment =
change in the balance sheet account
Purpose of Adjustments
Convert ___________ basis to accrual basis
CONVERT
Cash Basis
Receivables
Assets
AND
Payables
Liabilities
Accrual Basis
Accrual Basis means to record the asset
(receivable) or liability (payable)
Bookkeeping for some accounts is on the
cash basis, so they must be converted to
accrual before making financial statements
Four Types of Adjustments
1. accrue unrecorded expenses
2. accrue unrecorded revenues
3. allocate __________ from asset to expense
4. allocate revenue from liability to revenue
“Accrue” means to record on balance sheet
“Allocate” means to divide an amount
between two accounts
2
Unearned Revenue
Unearned Revenue = prepayment by
customer for _________ or services
Business must repay customer if the
goods or services are not delivered
Unearned Revenue = liability until
the goods or services are provided
Example: receipt of “last month’s rent”
when tenant moves into an apartment
Assets
Allocate Costs
Dr Expense
Cr Asset
Expenses
(debit side)
Accrue Expenses
Dr Expense
Cr Payable
Accrue Revenue
Dr Receivable
Cr Revenue
Adjustment
Diamond
Revenues
(credit side)
Allocate Unearned
Revenue
Dr Unearned Rev.
Cr Revenue
________________
Prepaid Insurance
Company paid $2,400 annual insurance
premium on July 1st and amount was
debited to Prepaid Insurance.
Adjust the amount as of December 31st
Account Title
Debit
Credit
3
Repairs
Received an invoice of $2,300 for repair
work which has not yet been recorded
What account should be debited?
Account Title
Debit
Credit
Worksheet
Unadjusted
Trial
Balance
Adjustments
Debit
Credit
Debit
Credit
Adjusted
Trial
Balance
Debit
Credit
Income
Statement
Accounts
Debit
Credit
Balance
Sheet
Accounts
Debit
Credit
Carry balances of all Revenue and Expense
accounts to Income ________________ columns
Carry balances of Assets, Liabilities and
Owners’ Equity accounts to Balance Sheet
columns
Worksheet
Unadjusted
Trial
Balance
Adjustments
Debit
Credit
Debit
Totals
Net Income
Totals
Credit
Adjusted
Trial
Balance
Debit
Credit
Income
Statement
Accounts
Debit
Credit
Balance
Sheet
Accounts
Debit
Credit
380 400 270 250
20
20
400 400 270 270
Total Debits will NOT equal Total _________ for
Income Stmt. Or Balance Sheet columns:
add Net Income to force them to balance
4
Worksheet
Unadjusted
Trial
Balance
Adjustments
Debit
Credit
Debit
Credit
Adjusted
Trial
Balance
Debit
Credit
Totals
Net Income
Totals
Income
Statement
Accounts
Debit
Credit
Balance
Sheet
Accounts
Debit
Credit
380 400 270 250
20
20
400 400 270 270
Net Income is recorded twice; once as a
debit and once as a _________; & must be equal
Nominal or Temporary Accounts
“Nomen” is Latin for “name”
Nominal means “in _________ only”
Example: The Queen of Britain is the nominal head
of the British Government
“Nominal accounts” are general ledger accounts
whose balances do NOT carry over to next period
“Nominal accounts” = “temporary accounts”
which are closed to zero at the end of the period
“Real account” balances continue to next period:
assets, liabilities and owners’ equity
Closing ____________
Close (set balances to zero)
all temporary accounts at
the end of the fiscal year
Like setting fuel pump meter
to zero before filling up
Temporary Accounts = Revenue, Expenses,
Dividends Declared, and Income Summary
5
First Closing Entry
Close all revenue accounts to Income Summary
Normal balance of revenue = credit, so debit
revenue accounts to zero-out their _______________
Debit list of revenue accounts for account balances
Credit “Income Summary” account for the total of
the revenue accounts
Second Closing Entry
Close all expense accounts to Income Summary
Normal balance of expenses = debit,
so credit expense accounts to zero-out balances
Credit list of expense accounts for account balances
Debit “Income Summary” account for the __________ of
the expense accounts
Third Closing Entry
Close Income Summary account
If firm showed Net Income (revenue > expenses)
debit Income ___________ for amount of net income
If firm showed Net Loss (revenues < expenses)
credit Income Summary for amount of net loss
Debit or credit Retained Earnings to balance the
journal entry
6
Fourth Closing Entry
Close Dividends Account
Normal balance of Dividends ______________ is “debit”
So credit Dividends Account for amount of balance
Debit Retained Earnings for the amount of
declared dividends to balance the journal entry
All Four Closing _____________
Sales
Interest Revenue
Income Summary
XXX
X
Income Summary
Salary Expense
Rent Expense
XXX
XXXX
XX
X
Income Summary
Retained Earnings
XX
Retained Earnings
Dividends Declared
X
XX
X
Summary
Analyze documents
Journalize transactions
Post to General Ledger
Take-off Unadjusted Trial Balance
Prepare Adjusting Journal Entries
Post Adjustments
Take-off Adjusted Trial Balance
Prepare Financial Statements
Prepare and record Closing Entries
Take-off Post-Closing Trial Balance
7