Chapter 8
Accounting
January 2016
Recording Adjusting and
Closing Entries for a Service
Business
Warm Up
 The
Walt Disney Company
 What
do you think of when you hear the word
DISNEY?
 How
many of you think of the environment when
you hear the word Disney?
Warm Up
 The
Walt Disney Company
In 1990, the WDC introduced an
Initiative called “Environmentality.”
Definition-A fundamental ethic that
blends business growth with the
conservation of natural resources.
Warm Up
 The
Walt Disney Company
Environmentality goes beyond just
complying with laws. It includes
purchasing recycled products,
waste minimization , resource
conservation, research and
development, community
involvement and education.
Warm Up
 The
Walt Disney Company
It’s a success!!! A 2011 report on
the water usage at the Animal
Kingdom stated that 145,000,000
gallons of water were saved just by
having employees monitor their
usage.
So here is my question for
you!
Warm Up
 The
Walt Disney Company
List at least two reasons why you
think the WDC would be interested
in such environmental measures?
If the WDC purchased equipment
to help measure water usage,
would that equipment be classified
as an asset, liability, or owner’s
equity on the balance sheet?
Why?
Warm Up
 The
Walt Disney Company
List at least two reasons why you
think the WDC would be interested
in such environmental measures?
WDC could generally be concerned
about the environment and believe
that business has a responsibility
to do what it can to conserve
natural resources.
Warm Up
 The
Walt Disney Company
List at least two reasons why you
think the WDC would be interested
in such environmental measures?
Could be that good use of natural
resources can result in cost
savings for the company. A
company also might think that its
customers expect the company to
protect the environment.
Warm Up
 The
Walt Disney Company
If the WDC purchased equipment
to help measure water usage,
would that equipment be classified
as an asset, liability, or owner’s
equity on the balance sheet?
Why?
Equipment to help measure water
usage would be classified as an
asset because it is something of
value owned by the company
Internet Research Activity
 Go
to the homepage for a company
or corporation of your choice.
Search the site for the most recent
annual report. Go to the income
statement.
Looking at the categories of
Revenues on the income statement,
List the accounts that may be
Included in the company’s entry to
close the revenue accounts.
Internet Research Activity
Answers
should vary here, but
all answers should include the
Income Summary account
along with a variety of
appropriate revenue accounts.
•
•
•
Chapter 8 presents journalizing
adjusting entries for a service
business organized as a
proprietorship.
Adjusting entries play an
important role in the accounting
cycle.
Journalizing closing entries is
also covered in this chapter.
Preview
Chapter 8.1
Objectives
Objectives for Chapter 8.1

Define Accounting Terms related to adjusting
entries for a service business organized as a
proprietorship.

Identify accounting concepts and practices
related to adjusting entries for a service
business organized as a proprietorship.

Record adjusting entries for a service business
organized as a proprietorship.
REMEMBER…
 The
balance in an account is changed by
journalizing a transaction and posting the
entry to the account.
 When we prepared the worksheet, we
only planned the adjusting entries.
 NO account balances have been
changed.
Terminology 8.1
Adjusting
Entries- journal entries
recorded to update general
ledger accounts at the end of
a fiscal period. (p. 202)
Let me Explain…
•
You do not have to decide the
debit and credit parts of the entry.
The analysis was done when the
worksheet was completed.
•
All that needs to be done at this
point is to record the entry in the
journal. T accounts are given so
that you can visualize the effect of
the entry on accounts.
Let me Explain…
 There
are no documents associated
with adjusting entries, therefore the
doc No. column is left blank.
 The entry must be posted to the
general
 Ledger accounts before the account
balance changes.
 Once the entry is posted, the supplies
account balance will reflect the
amount of supplies on hand at the
end of the period.
19
ADJUSTING ENTRY FOR SUPPLIES
page 202
1
3
2
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
LESSON 8-1
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.
2
1
3
20
LESSON 8-1
21
page 205
TERM REVIEW
 Adjusting
entries- journal entries recorded
to update general ledger accounts at the
end of a fiscal period. (p. 202)
 Try
Aplia 8-1:Work Together & On Your
Own
 Application Problem 8-1
LESSON 8-1
Exit Ticket
1.
2.
3.
Why are Adjusting Entries Journalized?
Where is the information obtained to
journalize adjusting entries?
What account are increased from
zero balances after adjusting entries
for supplies and prepaid insurance
are journalized and posted?
Recording
Closing Entries
Accounting
Today in Accounting
 We
will learn about Closing Entries
 Complete in Aplia 8-2 Work together, On
Your Own and Application
 Next Class (Snow?) 8-3!
Objectives
Define Accounting Terms related to adjusting
entries for a service business organized as a

proprietorship.
•
Identify accounting concepts and practices
related

to adjusting entries for a service business
organized

as a proprietorship.
•
Record adjusting entries for a service business

organized as a proprietorship.
•
Terminology
 Permanent
accounts (real accounts)-accounts used
to accumulate information from one fiscal period to the
next. (p. 206)ex-asset and liability & owner’s equity
accounts.
 The
Ending Account Balances are carried over to the
next fiscal period.
Terminology
 Temporary
accounts-accounts used to accumulate
information until it is transferred to the owner’s capital
account. (p. 206) EX-revenue, expense, income
summary and Owner’s drawing account.
 These
accounts show changes in the owner’s capital
for a single fiscal period
 At
the end of a fiscal period the balances are
Summarized and transferred to the owner’s Capital
account.
 Begin
a new fiscal period at a zero balance.
Need for Closing Temporary
Accounts
 Closing
entries-journal entries used to prepare
temporary accounts for a new fiscal period.
 Example-
If an account has a credit balance of $3,565,
a debit of $3,565 is recorded to close the account.
Closing Entries
Necessary
because it 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.
Analogy





The reasons for recording closing entries can
be compared to a trip odometer. Closing
entries are recorded to prepare the
temporary accounts for
the next fiscal period by reducing their
balances
to zero.
Likewise, a trip odometer must be reset to
zero
to begin recording the miles for the next trip.
Here we go…
•
1.

2.



There are four closing entries taken from
the income Statement and balance
Sheet columns of the work sheet.
Close Income Statement accounts with credit
balances
Close income statement accounts with debit
balances
3. Record net income or loss in the owner’s
capital account and close Income Summary
4. Close the owner’s drawing account
NEED FOR THE INCOME
SUMMARY ACCOUNT
CLOSING ENTRY FOR AN INCOME STATEMENT
ACCOUNT WITH A CREDIT BALANCE
page 208
2
1
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.
LESSON 8-2
34
CLOSING ENTRY FOR INCOME STATEMENT
ACCOUNTS WITH DEBIT BALANCES
1.
2.
3.
4.
1
2
page 209
Date
Income Summary
Credit
Debit amount
4
3
LESSON 8-2
35
CLOSING ENTRY TO RECORD NET INCOME OR LOSS
AND CLOSE THE INCOME SUMMARY ACCOUNT
page 210
1. DATE - 2. DEBIT- 3. Credit
2. Debit
3. Credit
1
2
3
LESSON 8-2
36
CLOSING ENTRY FOR THE
OWNER’S DRAWING
ACCOUNT
1
1.DATE
2.DEBIT
3. CREDIT
page 211
2. Debit
3. Credit
2
3
LESSON 8-2
TERM REVIEW
permanent accounts
temporary accounts
closing entries
Case
Study
General
Bakken
forgot to journalize and
post the adjusting entry for prepaid
insurance at the end of the June fiscal
period. What effect will this ommision have
on the records of Ms. Bakken’s business as
of June 30th?”
Explain your answer…..
ANSWER
The amount of reported net income will be
overstated because Ms. Bakken did not
record the amount of the insurance
expense.
In addition, the value of the total assets will
be overstated.
The prepaid insurance account balance
will be larger than it should be because
the insurance used has not been deducted
from the account.
Ticket
WhatExit
do the
ending balances of permanent
accounts for one fiscal period represent at
the beginning of the next fiscal period?
What do the balances of temporary
accounts show?
List the Four Closing entries.
LESSON 8-3
Preparing a Post-Closing
Trial Balance
42
page 219
TERMS
 post-closing
trial balance-a trial balance
prepared after the closing entries are
posted. (p. 216)
 accounting cycle-the series of
accounting activities included in
recording financial information for a fiscal
period. (p. 217)
LESSON 8-3
43
page 217
ACCOUNTING CYCLE FOR A
1. Analyzes transactions
SERVICE
BUSINESS
1
2
8
3
7
4
6
5
2.
3.
4.
5.
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
LESSON 8-3
Reminder!
 After
closing entries are recorded and
posted, the business is almost ready to
start recording transactions for the new
accounting period.
 Before
this is done, it is important to check
if debits still equal credits
Take a look at Page 213
 The
illustration which continues through
page 215, shows all the general ledger
accounts and the entries posted to them.
 When
posting, if an account has a zero
balance, lines are drawn in both the
Balance Debit and Balance Credit
columns to assure the reader that a
balance has not been omitted.
Take a look at Page 213
 It
is important to check for the equality of
debits and credits before beginning a
new accounting period.
Analyzing the Ledger
Accounts
 Refer
to the illustrations of the ledger
accounts after adjusting and closing
entries are posted……Look at each
account to determine if it has a balance
or not.
48
GENERAL LEDGER ACCOUNTS AFTER ADJUSTING
page 213
AND CLOSING ENTRIES ARE POSTED
LESSON 8-3
Quick
PAGE
214
PAGE 215
Review
Post
Closing
Trial
Balance
The word “post” means “after”. Therefore, a postclosing trial balance is prepared after the closing
entries.
There are eight steps for preparing a post-closing
trial balance.
51
page 216
1. Heading
POST-CLOSING
TRIAL
BALANCE
4
1
3
2
6
5
7
8
2. Account titles
3. Account
balances
4. Single rule
5. Compare
totals
6. Totals
7. Record totals
8. Double rule
LESSON 8-3
Remember
Only General ledger accounts with balances are
included on a post-closing trial balance.
Why is it important to prove that debits equal
credits at the close of the fiscal period?
Answer: To prove that the work is correct
before starting a new fiscal period so errors are
not carried forward.
53
page 217
ACCOUNTING CYCLE FOR A
1. Analyzes transactions
SERVICE
BUSINESS
1
2
8
3
7
4
6
5
2.
3.
4.
5.
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
LESSON 8-3
54
page 219
TERMS REVIEW
 post-closing
trial balance-a trial balance
prepared after the closing entries are
posted. (p. 216)
 accounting cycle-the series of
accounting activities included in
recording financial information for a fiscal
period. (p. 217)
LESSON 8-3
To do list…
 Try
the Aplia problems for 8.3
 Aplia Chapter Study guide chapter 8
 Tutorial Quiz on c21accounting web-site
 Xtra study tools
 Workplace Competency (page 224)

We will go over the answers together.