Unit #13 – Adjustments on the Worksheet and Closing the Books

1. Unit #13 – Adjustments on the Worksheet and Closing the Books

2. Unit #13 – Adjustments on the Worksheet and Closing the Books • Entering the Adjustments on the Worksheet is no different then what we have already done • You enter the Debit & Credit to their respective accounts using the “Adjustments Column” of the worksheet.

3. Unit #13 – Adjustments on the Worksheet and Closing the Books

4. Unit #13 – Adjustments on the Worksheet and Closing the Books • Net Income is recorded as a Debit on the Income Statement & a Credit on the Balance Sheet Notice how the “totals” don’t add up Total 2020 2020 9700 12000 38460 36160 Net Income 2300 2300 12000 1200038460 38460

5. Unit #13 – Adjustments on the Worksheet and Closing the Books • Closing the Books • Is the process of reducing Revenue & Expense accounts to a zero (0) balance. • It serves 2 purposes • To prepare the Revenue & Expense accounts for the next period by reducing them to zero (0) • To update the Owner’s Equity account

6. Unit #13 – Adjustments on the Worksheet and Closing the Books • Updating the Owner’s Equity Account • Current Owner’s Equity = • Capital – Drawings + Revenue – Expenses Net Income Equity at start of Accounting period Change in Equity for Period

7. Unit #13 – Adjustments on the Worksheet and Closing the Books • Which Accounts are going to be closed? • Cash  Capital are known as Permanent Accounts • Revenues, Expenses, and Drawings are known as Temporary Accounts

8. Unit #13 – Adjustments on the Worksheet and Closing the Books • The Income Summary Account! • This is only a “holding” account used to journalize the Closing Entries for Revenues & Expenses • Revenuewill have aCredit balance, therefore to close (make the account zero, we must debit this account) and Credit the Income Summary account

9. Unit #13 – Adjustments on the Worksheet and Closing the Books • Expenseswill have aDebit balance, therefore to close, we must Credit this Account & Debit the Income Summary Account

10. Unit #13 – Adjustments on the Worksheet and Closing the Books • It will Look like this Income Summary • You will then close the Income Summary account into Capital Expense Balance Revenue Balance

11. Unit #13 – Adjustments on the Worksheet and Closing the Books • Finally, Drawingswill have aDebit balance, therefore you must Credit this account (to close it) and Debit Owner’s Equity

12. Unit #13 – Adjustments on the Worksheet and Closing the Books • Steps in Closing the Books (Page 240 of your textbook) • Step 1 • Close Revenue Accounts into the Income Summary Account • Step 2 • Close Expense Accounts into the Income Summary Account

13. Unit #13 – Adjustments on the Worksheet and Closing the Books • Step 3 • Close the Income Summary Account into Capital • Step 4 • Close the Drawings Account into Capital

14. Unit #13 – Adjustments on the Worksheet and Closing the Books • A Post-Closing Trial Balance • Once you have closed all the temporary accounts (Revenue, Expenses, and Drawings) into Capital. • You must preform a Post-Closing Trial Balance to make sure that all your Debits = your Credits