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McGraw-Hill Ryerson

College Accounting First Canadian Edition Price • Haddock • Brock • Hahn • Reed. McGraw-Hill Ryerson. 1. CHAPTER 6. CLOSING ENTRIES AND THE POSTCLOSING TRIAL BALANCE. 2. OBJECTIVE 1 Journalize and post closing entries. 3. CLOSING ENTRIES.

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McGraw-Hill Ryerson

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  1. College Accounting First Canadian Edition Price • Haddock • Brock • Hahn • Reed McGraw-Hill Ryerson 1

  2. CHAPTER 6 CLOSING ENTRIES AND THE POSTCLOSING TRIAL BALANCE 2

  3. OBJECTIVE 1 Journalize and post closing entries. 3

  4. CLOSING ENTRIES • Entries made in the general journal to transfer the results of operations to owner’s equity and to prepare the revenue, expense, and drawing accounts for use in the next accounting period. 4

  5. INCOME SUMMARY ACCOUNT • A special owner’s equity account that is used to summarize the results of operations and is used only in the closing process. 5

  6. JOHN ARROW, CAPITAL DRAWING EXPENSES REVENUE TEMPORARY ACCOUNTS 6

  7. ARROW EMPLOYMENT SERVICES Adjusted Trial Balance December 31, 20X5 ACCOUNT NAME DEBIT CREDIT Cash 16,200.00 Accounts Receivable 2,000.00 Supplies 500.00 Prepaid Rent 17,500.00 Equipment 15,000.00 Accumulated Amortization: Equipment 250.00 Accounts Payable 4,000.00 John Arrow, Capital 40,000.00 John Arrow, Drawing 1,000.00 Fees Income 14,000.00 Salaries Expense 2,500.00 Utilities Expense 300.00 Supplies Expense 500.00 Rent Expense 2,500.00 Amortization Expense – Equipment 250.00 Totals 58,250.00 58,250.00 7 32

  8. SALARIES EXPENSE Dr. + Cr. - Balance 2,500 Closing 2,500 UTILITIES EXPENSE Dr. + Cr. - Balance 300 Closing 300 SUPPLIES EXPENSE Dr. + Cr. - Balance 500 Closing 500 RENT EXPENSE Dr. + Cr. - Balance 2,500 Closing 2,500 INCOME SUMMARY Dr. Cr. 6,050 14,000 AMORT.. EXPENSE-EQUIPMENT Dr. + Cr. - Balance 250 Closing 250 GENERAL JOURNALPage 4 POST. DATE DESCRIPTION REF. DEBIT CREDIT 20X5 Closing Entries Dec. 31 Income Summary 6,050.00 Salaries Expense 2,500.00 Utilities Expense 300.00 Supplies Expense 500.00 Rent Expense 2,500.00 Amortization Exp.-Equip. 250.00 8

  9. GENERAL JOURNAL Page 4 POST. DATE DESCRIPTION REF. DEBIT CREDIT Income Summary Dr. Cr. John Arrow, Capital Dr. Cr. - + Revenue 14,000 Balance 40,000 20X5 Closing Entries Dec. 31 Income Summary 7,950.00 J. Arrow, Capital 7,950.00 Expenses 6,050 Closing 7,950 Net Inc. 7,950 9

  10. GENERAL JOURNAL Page 4 POST. DATE DESCRIPTION REF. DEBIT CREDIT John Arrow, Capital Dr. Cr. - + John Arrow, Drawing Dr. Cr. + - 20X5 Closing Entries Dec. 31 John Arrow, Capital 1,000.00 J. Arrow, Drawing 1,000.00 Balance 1,000 Closing 1,000 Drawing 1,000 Balance 40,000 Net Inc. 7,950 10

  11. ACCOUNT John Arrow, Capital ACCOUNT NO. 3001 DATE EXPLANATION POST. DEBIT CREDIT BALANCE REF. DEBIT CREDIT 20X5 Nov. 6 J1 40,000.00 40,000.00 Dec. 31 Closing J4 7,950.00 47,950.00 31 Closing J4 1,000.00 46,950.00 Beginning Balance Drawing Net Income Closing Balance 11

  12. STEPS GENERAL JOURNAL Page 4 POST. DATE DESCRIPTION REF. DEBIT CREDIT 20X5 Closing Entries 1. CLOSE REVENUE Dec. 31 Fees Income 4001 14,000.00 Income Summary 3099 14,000.00 31 Income Summary 3099 6,050.00 Salaries Expense 5011 2,500.00 Utilities Expense 5014 300.00 Supplies Expense 5017 500.00 Rent Expense 5020 2,500.00 Amort. Expense-Equip. 5023 250.00 2. CLOSE EXPENSES 3. CLOSE INCOME SUMMARY 31 Income Summary 3099 7,950.00 John Arrow, Capital 3001 7,950.00 4. CLOSE DRAWING 31 John Arrow, Capital 3001 1,000.00 John Arrow, Draw. 3002 1,000.00 12

  13. OBJECTIVE 2 Prepare a postclosing trial balance. 13

  14. ARROW EMPLOYMENT SERVICES POSTCLOSING TRIAL BALANCE DECEMBER 31, 20X5 ACCOUNT NAME DEBIT CREDIT Cash 16,200.00 Accounts Receivable 2,000.00 Supplies 500.00 Prepaid Rent 17,500.00 Equipment 15,000.00 Accumulated Amortization-Equipment 250.00 Accounts Payable 4,000.00 John Arrow, Capital 46,950.00 Totals 51,200.00 51,200.00 14

  15. OBJECTIVE 3 Interpret financial statements. 15

  16. ARROW ACCOUNTING SERVICES Balance Sheet December 31, 20X5 Assets Cash 16,200.00 Accounts Receivable 2,000.00 Supplies 500.00 Prepaid Rent 17,500.00 Equipment 15,000.00 Accumulated Amortization 250.00 14,750.00 Total Assets 50,950.00 Liabilities and Owner’s Equity Liabilities Accounts Payable 4,000.00 Owner’s Equity John Arrow, Capital 46,950.00 Total Liabilities and Owner’s Equity 50,950.00 QUESTION FREQUENTLY ASKED BY MANAGEMENT What is the amount owed to suppliers? (Look at the Accounts Pay. account in the Liabilities Section of the Balance Sheet.) 16

  17. ARROW ACCOUNTING SERVICES Balance Sheet December 31, 20X5 Assets Cash 16,200.00 Accounts Receivable 2,000.00 Supplies 500.00 Prepaid Rent 17,500.00 Equipment 15,000.00 Accumulated Depreciation 250.00 14,750.00 Total Assets 50,950.00 Liabilities and Owner’s Equity Liabilities Accounts Payable 4,000.00 Owner’s Equity John Arrow, Capital 46,950.00 Total Liabilities and Owner’s Equity 50,950.00 QUESTION FREQUENTLY ASKED BY MANAGEMENT How much money do customers owe the business? (Look at the Accounts Rec. account in the Assets Section of the Balance Sheet.) 17

  18. OBJECTIVE 4 Review the steps in the accounting cycle. 18

  19. Step 2 Journalize the data about transactions Step 1 Analyze transactions Step 3 Post the data about transactions Step 4 Prepare a trial balance Step 5 Record adjusting entries Step 10 Interpret the financial information Step 6 Prepare an adjusted trial balance Step 7 Prepare financial statements Step 9 Prepare a postclosing trial balance Step 8 Record closing entries 19

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