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AGRICULUTURAL TECHNICAL INSTITUTE BUS TEC T101 ACCOUNTING. Chapter 4 Part 2. Completing the Accounting Cycle. Closing Entries. ACCOUNTING CONCEPTS. CH 1: ACCT & THE BUS ENVIRONMENT CH 2: RECORDING TRANSACTIONS CH 3: MEASURING INCOME; ADJUSTMENTS CH 4: COMPLETING THE ACCTING CYCLE

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chapter 4 part 2

AGRICULUTURAL TECHNICAL INSTITUTEBUS TEC T101 ACCOUNTING

Chapter 4 Part 2

Completing the Accounting Cycle

Closing Entries

accounting concepts
ACCOUNTING CONCEPTS
  • CH 1: ACCT & THE BUS ENVIRONMENT
  • CH 2: RECORDING TRANSACTIONS
  • CH 3: MEASURING INCOME; ADJUSTMENTS
  • CH 4: COMPLETING THE ACCTING CYCLE
  • CH 5: MERCHANDISE OPERATIONS
  • CH 6: SPECIAL JOURNALS
  • CH 7: CONTROLLING CASH
  • CH 8: RECEIVABLES
  • CH 9: MERCHANDISE INVENTORY
  • CH 10: PAYROLL
  • CH 17 CASH FLOW
  • APPENDIX C: INCOME TAX
part 1 summary

CH 4: COMPLETING THE ACCT CYCLE

PART 1 SUMMARY
  • New Terms a. Accting Cycle b. Work Sheet c. Income Columnd. Bal Sheet Column

2. New Proceduresa. Work Sheetb. Net Income Calc

accounting concepts1
ACCOUNTING CONCEPTS

Chapter One

Business Transactions

Journal Entries

Chapter 2 Pt 1

Posting to Ledgers

Chapter 2 Pt 2

Trial Balance

Chapter 3 Pt 1

Adjusting Entries

Chapter 3 Pt 2

Adjusted Trial Balance

Chapter 4 Pt 1

Worksheet

Closing Entries

Chapter 4 Pt 2

Financial Statements

learning objectives

CH 4: COMPLETING THE ACCTING CYCLE

LEARNING OBJECTIVES
  • AFTER COMPLETING THIS LESSON, THE STUDENT SHOULD BE ABLE TO:
  • PART 2: Closing & Entries
  • 1.
  • 2.

Close revenue, expense, & withdrawal accounts.

Classify assets & liab as current or long-term.

i the accounting cycle

Prepare an accounting work sheet

140

1

I. The Accounting Cycle

OBJ

A. DURING THE ACCOUNTING PERIOD

TRANSACTIONS

1. JOURNALIZE

In the

GENERAL JOURNAL

2. POST TO THE

ACCOUNTS

In the

GENERAL JOURNAL

B. END OF THE ACCOUNTING PERIOD

1. JOURNALIZE AND POST ADJUSTING ENTRIES

2. JOURNALIZE AND POST CLOSING ENTRIES

3. PREPARE FINANCIAL STATEMENT

slide7

131

1

Prepare an accounting work sheet

OBJ

Adjusted Income Balance

Trial Balance Statement Sheet

Account Title Dr. Cr. Dr. Cr. Dr. Cr.

Cash

Accounts receivable

Supplies

Equipment

Accum. depreciation

Accounts payable

Salary payable

Unearned revenue

Capital

Withdrawals

Revenue

Salary expense

Supplies expense

Depreciation expense

Totals

Net income

12,100

3,050

150

15,500

1,000

12,000

100

200

44,100

12,100

3,050

150

15,500

1,000

31,800

31,800

7,700

1,200

1,100

1,500

7,200

25,400

44,100

7,700

1,200

1,100

1,500

7,200

18,700

13,100

31,800

25,400

25,400

25,400

12,000

100

200

12,300

13,100

25,400

ii closing the accounts

148

3

Close rev, exp, & withdrawal accts

II. Closing the Accounts

OBJ

A. Why?

  • 1. Prepares the accounts for recording transactions during the next period.

2. Measure net income for each period separately from all others

B. Where?

1. Gen Journal 2. Ledger

C. When?

End of every fiscal period

D. Who?

Accountants, Chief Fiscal Officer

closing the accounts

148

Close rev, exp, & withdrawal accts

3

Closing the Accounts

OBJ

E. What?

2. Expenses

3. Withdraws

  • 1. Receipts

F. How?

4 Step Closing Entry Process

1. Service Revenue xxxxxx Income Summary xxxxx

2. Income Summary xxxxxx All Expense Accounts Individually xxxxxx

3. Income Summary xxxxx (if a profit) Capital xxxxx

4. Capital xxxxxx Withdraws xxxxx

slide10

149

3

Close rev, exp, & withdrawal accts

OBJ

Closing Entries

Revenues

increase

Owner’s Equity.

Expenses & Withdrawals

decrease

Owner’s Equity.

Income Summary

A debitbalance represents net loss.

A creditbalance represents net income.

slide11

149

3

Close rev, exp, & withdrawal accts

OBJ

Closing Steps

Step 2

Step 1

Step 3

Step 4

slide12

149

3

Close rev, exp, & withdrawal accts

0

OBJ

Revenue

A. Closing Step 1

Step1a

Debit each Revenue Acct for Amt of its Credit Balance

Norm Bal

Debit

Closed Into

Credit Income Summary for the Total of Revenue Accts

Step1b

Credit

IncomeSummary

slide13

149

3

Close rev, exp, & withdrawal accts

OBJ

Step 1: Close Revenue to Income Summary

Before

Adjusted

Trial Balance

Account Title Dr. Cr.

Cash

Accounts receivable

Supplies

Equipment

Accum. depreciation

Accounts payable

Salary payable

Unearned revenue

Capital

Withdrawals

Revenue

Salary expense

Supplies expense

Depreciation expense

Totals

Revenue

Inc Sum

25400

12,100

3,050

150

15,500

1,000

12,000

100

200

44,100

Revenue

25400

7,700

1,200

1,100

1,500

7,200

25,400

44,100

Inc Sum

25400

After

Revenue

Inc Sum

25400

25400

25400

0

slide14

149

3

Close rev, exp, & withdrawal accts

0

OBJ

Expenses

B. Closing Step 2

Credit each Expense Acct for Amt of its Debit Balance

Norm Bal

Step 2a

Credit

Closed Into

Step 2b

Debit Income Summary for the Total of Expense Accts

Debit

IncomeSummary

slide15

149

3

Close rev, exp, & withdrawal accts

0

OBJ

Step 2: Close Expenses to Income Summary

Before

Salary Exp

Inc Sum

Adjusted

Trial Balance

Account Title Dr. Cr.

Cash

Accounts receivable

Supplies

Equipment

Accum. depreciation

Accounts payable

Salary payable

Unearned revenue

Capital

Withdrawals

Revenue

Salary expense

Supplies expense

Depreciation expense

Totals

25400

12000

12,100

3,050

150

15,500

1,000

12,000

100

200

44,100

Inc Sum

12300

12000

Salary Exp

100

Supp Exp

7,700

1,200

1,100

1,500

7,200

25,400

44,100

200

Depr Exp

After

Salary Exp

Inc Sum

12000

12000

12300

25400

0

slide16

149

3

Close rev, exp, & withdrawal accts

0

OBJ

IncomeSummary

C. Closing Step 3

Step 3a

Debit Income Summary for the Amt of its Balance

Debit

Closed Into

Step2b

Credit Capital for the Same Amount

Credit

Capital

Credit

Norm Bal =

slide17

149

3

Close rev, exp, & withdrawal accts

OBJ

Step 3: Close Income Summary to Capital

Before

Adjusted

Trial Balance

Account Title Dr. Cr.

Cash

Accounts receivable

Supplies

Equipment

Accum. depreciation

Accounts payable

Salary payable

Unearned revenue

Capital

Withdrawals

Revenue

Salary expense

Supplies expense

Depreciation expense

Totals

Capital

Inc Sum

7200

25400

12300

12,100

3,050

150

15,500

1,000

12,000

100

200

44,100

7,700

1,200

1,100

1,500

7,200

25,400

44,100

Inc Sum

13100

13100

Capital

After

Capital

Inc Sum

12300

25400

7200

13100

13100

20300

25400

25400

slide18

150

3

Close rev, exp, & withdrawal accts

0

OBJ

D. Closing Step 4

Step 4a

Credit Withdraw for the Amt of its Debit Balance

Step 4b

Debit Capital for the Same Amount

Credit

Closed Into

Withdraw

Capital

Norm Bal

Debit

slide19

150

3

Close rev, exp, & withdrawal accts

OBJ

Step 4: Close Withdraws to Capital

Before

Adjusted

Trial Balance

Account Title Dr. Cr.

Cash

Accounts receivable

Supplies

Equipment

Accum. depreciation

Accounts payable

Salary payable

Unearned revenue

Capital

Withdrawals

Revenue

Salary expense

Supplies expense

Depreciation expense

Totals

Withdraw

Capital

7200

1000

12,100

3,050

150

15,500

1,000

12,000

100

200

44,100

13100

20300

1000

Capital

7,700

1,200

1,100

1,500

7,200

25,400

44,100

1000

Withdraw

After

Capital

Withdraw

1000

1000

7200

1000

13100

20300

19300

slide20

150

3

Close rev, exp, & withdrawal accts

OBJ

Adjusted

Trial Balance

Account Title Dr. Cr.

Cash

Accounts receivable

Supplies

Equipment

Accum. depreciation

Accounts payable

Salary payable

Unearned revenue

Capital

Withdrawals

Revenue

Salary expense

Supplies expense

Depreciation expense

Totals

Closings

Debit

Credit

12,100

3,050

150

15,500

1,000

12,000

100

200

44,100

1,000

25,400

7,700

1,200

1,100

1,500

7,200

25,400

44,100

13,100

1,000

12,000

100

200

Income Summary

12,300

25,400

13,100

postclosing trial balance

151

3

Close rev, exp, & withdrawal accts

Postclosing Trial Balance

OBJ

The accounting cycle ends with the post closing trial balance.

Post Closing

Trial Balance

Account Title Dr. Cr.

Cash

Accounts receivable

Supplies

Equipment

Accum. depreciation

Accounts payable

Salary payable

Unearned revenue

Capital

Withdrawals

Revenue

Salary expense

Supplies expense

Depreciation expense

Totals

12,100

3,050

150

15,500

30,800

The postclosing trial balance is dated as of the end of the period for which the statements have been prepared.

7,700

1,200

1,100

1,500

19,300

30,800

permanent accounts

3

Close rev, exp, & withdrawal accts

Permanent Accounts

OBJ

  • What accounts NEVERclose?

Assets

Liabilities

Owner’s equity

  • Balances of permanent accounts carry over to the next period.
current assets

39

4

Classify Assets & Liabilities

Current Assets

OBJ

  • Current assets are cash, or will be converted to cash, in one year
  • What are some other examples?

Inventory

Short-term receivable,

Prepaid expenses

Long-term Assets

Long-term assets include all other assets.

property, equipment, and intangibles

current liabilities

39

4

Classify Assets & Liabilities

Current Liabilities

OBJ

  • Current liabilities are debts or obligations due within one year
  • What are some examples? accounts and salary payable, short-term notes payable, unearned revenue

Long-term Liabilities

Long-term liabilities are all other debts due in longer than one year

classified balance sheet

39

4

Classify Assets & Liabilities

Classified Balance Sheet

OBJ

Business Name

As of Date

Assets

Liabilities

Current assets

Current liabilities

Long-term assets

Long-term liabilities

Listed in order of how

soon they must be paid

Listed in the order

of decreasing liquidity

Owner’s Equity

the classified balance sheet

39

4

Classify Assets & Liabilities

The Classified Balance Sheet

OBJ

Balance Sheet

XYZ Services

January 31, 20XX

AssetsLiabilities

Current assets: Current liabilities:

Cash 12,100 Accounts payable 1,200

Accounts receivable 3,050 Salary payable 1,100

Supplies 150 Unearned revenue 1,500

Total current assets 15,300 Total liabilities 3,800

Plant assetsLong Term Liabilities

Equipment 15,500 Owner’s equity

Less Accum. deprec. 7,700 7,800 Capital 19,300

Total liabilities and

Total assets 23,100 owner’s equity 23,100

part 2 summary

CH 4: COMPLETING THE ACCTING CYCLE

PART 2 SUMMARY

2. New Proceduresa. Closing

  • New Termsa. Income Summary b. Temporary Acctsc. Permanent Acctsd. Closing Entriese. Post Closing Trial Bal

3. Accts That Close

4. Accts That DO NOT Close

A. Revenue

A. Assets

B. Expenses

B. Liabilities

C. Withdraw

C. Capital

D. Inc Summary

slide28

163

Closing Entries

1

OBJ

Yes

No

Cash

Sales & Mkting Exp

Other Assets

Service Revenue

No

Yes

  • S4-6 Pg 163

Interest Exp

Yes

Acct Payable

No

No

Long Trm Liab

Acct Rec

No

0

5/31

Service Rev

5,139

Income Summary

5,139

5/31

Income Summary

2,643

Sales & Mkting Exp

2,622

Interest Expense

21

slide29

Closing Entries

166

1

0

6/30

Service Rev

110,000

Interest Rev

700

110,700

Income Summary

  • E4-7 Pg 166

6/30

Income Summary

32,500

Salary Exp

12,500

Supplies Expense

1,700

Interest Expense

2,200

Deprec Expense

10,200

Rent Expense

5,900

Income Summary

78,200

6/30

78,200

Park Capital

6/30

40,000

Park Capital

Park Withdraws

40,000

slide30

NEXT TOPIC

CH 5: MERCHANDISE OPERATIONS