Closing the Accounting Cycle CENTURY 21 ACCOUNTING 2009

Closing the Accounting Cycle CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Closing the Accounting Cycle Please note that all slides are available on the class website. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

3 THE ACCOUNTING CYCLE 1 2 8 3 7 4 6 5 page 217 1. 2. 3. 4. 5. Analyzes transactions 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 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 8 -3

Recording Adjusting Entries CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

5 ADJUSTING ENTRY PROCEDURES page 202 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. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 8 -1

Recording Closing Entries CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

7 TERMS all on page 206 of your text book page 212 n permanent accounts n temporary accounts n closing entries CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 8 -2

8 TERMS all on page 206 of your text book page 212 n Permanent Accounts – Accounts used to accumulate information form one fiscal period to the next. Examples of permanent accounts include asset and liability accounts (balance sheet accounts), as well as the owner’s capital account. n Temporary Accounts – Accounts used to accumulate information until it is transferred to the owner’s capital account. Examples of temporary accounts are revenue and expense accounts (income statement accounts), the owner’s drawing account, and the income summary account. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 8 -2

9 TERMS all on page 206 of your text book page 212 n Closing Entries – Journal entries used to prepare temporary accounts for a new fiscal period. The temporary account balances must be reduced to ZERO at the end of each fiscal period. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 8 -2

10 NEED FOR THE INCOME SUMMARY ACCOUNT CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning page 207 LESSON 8 -2

11 CLOSING ENTRY FOR AN INCOME STATEMENT page 208 ACCOUNT WITH A CREDIT BALANCE (Debit to close) 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. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 8 -2

12 CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES 1. 2. 3. 4. page 209 Date Income Summary Credit Debit amount (Credit to close) CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 8 -2

CLOSING ENTRY TO RECORD NET INCOME OR LOSS AND CLOSE THE INCOME SUMMARY ACCOUNT 13 page 210 1. Date 2. Debit 3. Credit (Capital: credit to record net income) (Income Summary: debit to close) CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 8 -2

14 CLOSING ENTRY FOR THE OWNER’S DRAWING ACCOUNT page 211 1. Date 2. Debit 3. Credit (Credit to close) CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 8 -2

Preparing a Post-Closing Trial Balance CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

16 GENERAL LEDGER ACCOUNTS AFTER page 213 ADJUSTING AND CLOSING ENTRIES ARE POSTED CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 8 -3

17 POST-CLOSING TRIAL BALANCE page 216 1. Heading 2. Account titles 3. Account balances 4. Single rule 5. Compare totals 6. Totals 7. Record totals 8. Double rule CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 8 -3