The Accounting Cycle Completed: Adjusting, Closing, and Post-Closing Trial Balance

1. The Accounting Cycle Completed:Adjusting, Closing, andPost-Closing Trial Balance Chapter 5

2. 1 2 Journal 3 Ledger Business transactions Book of original entry Book of final entry 5 4 Worksheet Trial balance The Accounting Cycle

3. 6 Financial Statements Statement of owner’s equity Income statement The Accounting Cycle Worksheet Trial balance Adjustments Adjusted trial balance Income statement Balance sheet Balance sheet

4. 8 Closing entries 9 Post-closing trial balance The Accounting Cycle 7 Adjusting entries

5. End of the Period Activities Adjusting entries must be entered in the journal and posted. Closing entries must be journalized at the end of the accounting period so that income can be measured for the new period. Temporary accounts are closed.

6. End of the Period Activities Prepare adjustments Complete worksheet Prepare reports Close the accounting period

7. Journalizing and posting adjusting entries. Learning Objective 1

8. Examine each account. 1 Determine the appropriate ending account balances. 2 Determine the required increase or decrease. 3 Make an adjusting entry. 4 Learning Unit 5-1 (Journalizing and Posting Adjusting Entries)

9. Learning Unit 5-1 (Journalizing and Posting Adjusting Entries) Assets must be adjusted to show amounts used or allocated to periods and recorded as expenses. Supplies used Prepaid rent expired over time Equipment depreciated

10. Learning Unit 5-1 (Journalizing and Posting Adjusting Entries) The worksheet is complete. The books are not up to date. Adjusting entries are taken from the worksheet and journalized. The journal entries must be posted.

11. Learning Unit 5-1 (Journalizing and Posting Adjusting Entries) a. $500 of office supplies were used. (a) Office Supplies Expense 500 Office Supplies 500 b. $400 of prepaid rent expired. (b) Rent Expense 400 Prepaid Rent 400

12. Learning Unit 5-1 (Journalizing and Posting Adjusting Entries) c. Depreciation of word processing equipment was recorded. (c) Depreciation Expense 80 Accumulated depreciation 80

13. Journalizing and posting closing entries. Learning Objective 2

14. Learning Unit 5-2 (Journalizing and Posting Closing Entries) Closing is a mechanical step which sets temporary accounts to zero so that they are ready for a new measurement period.

15. Learning Unit 5-2 (Journalizing and Posting Closing Entries) What are permanent accounts? Assets Liabilities Capital Balance sheet accounts

16. Learning Unit 5-2 (Journalizing and Posting Closing Entries) Permanent accounts are also called real accounts. Balances are carried forward.

17. Learning Unit 5-2 (Journalizing and Posting Closing Entries) What are temporary accounts? Revenue Expenses Withdrawals

18. Learning Unit 5-2 (Journalizing and Posting Closing Entries) New data are accumulated each period. Temporary accounts are also called nominal accounts. Balances are set to zero.

19. Learning Unit 5-2 (Journalizing and Posting Closing Entries) Closing Entries: There are four steps to perform. 1. Debit revenue accounts and credit the Income Summary account. 2. Debit the Income Summary account and credit expense accounts.

20. Learning Unit 5-2 (Journalizing and Posting Closing Entries) 3. Debit or credit the Income Summary account and debit or credit the Capital account. 4. Debit the Capital account and credit the Withdrawals account.

21. Step 3: Income Summary Net Income or Loss Capital Learning Unit 5-2 (Journalizing and Posting Closing Entries) Four Steps in Journalizing Closing Entries: Step 2: Expenses Step 1: Revenue Step 4: Withdrawals

22. May 31 Word Processing Fees 8,000 Income Summary 8,000 1 May 31 Income Summary 3,100 Various Expenses 3,100 2 The Closing Process

23. May 31 B. Clark, Capital 625 B. Clark, Withdrawals 625 4 The Closing Process May 31 Income Summary 4,900 B. Clark, Capital 4,900 3

24. Revenue Income Summary 8,000 8,000 3,100 8,000 4,900 B. Clark, Capital Expenses 625 4,900 3,100 3,100 B. Clark, Withdrawals 625 625 Learning Unit 5-2 (Journalizing and Posting Closing Entries)

25. Prepare a post-closing trial balance. Learning Objective 3

26. Learning Unit 5-3 (The Post-Closing Trial Balance) The post-closing trial balance helps prove the accuracy of the adjusting and closing process. It contains the true ending figure for capital. It contains only permanent accounts.

27. Learning Unit 5-3 (The Post- Closing Trial Balance) Clark’s Word Processing Services Post-closing Trial Balance May 31, 200x Dr. Cr. Cash Accounts Receivable Office Supplies Prepaid Rent Word Processing Equipment Accumulated Depreciation Accounts Payable Salaries Payable Brenda Clark, Capital Totals 6,155 5,000 100 800 6,000 80 3,350 350 14,275 18,055 18,055

28. End of Chapter 5