CENTURY 21 ACCOUNTING © Thomson/South-Western 3.03 Adjusting & Closing Entries End-of-Period Work for a Departmentalized Business Modified by D. Burns & E.Byrd

CENTURY 21 ACCOUNTING © Thomson/South-Western JOURNALIZING ADJUSTING ENTRIES FOR A DEPARTMENTALIZED BUSINESS Journal entries recorded to update general ledger accounts at the end of a fiscal period are called adjusting entries. Account balances are changed only by posting journal entries to the general ledger accounts Adjusting entry journal entries are found in the adjustments column of the expanded worksheet. Modified by D. Burns West Johnston High School page 118

CENTURY 21 ACCOUNTING © Thomson/South-WesternModified by D. Burns West Johnston High School 2.Enter the adjusting entries without additional explanation. Adjusting entries do not have a source document JOURNALIZING ADJUSTING ENTRIES FOR A DEPARTMENTALIZED BUSINESS page Write Adjusting Entries in the Account Title column. This heading identifies the group of adjusting entries 1 2

CENTURY 21 ACCOUNTING © Thomson/South-Western JOURNALIZING CLOSING ENTRIES FOR A DEPARTMENTALIZED BUSINESS Journal entries used to prepare temporary accounts for a new fiscal period are called closing entries. The information to journalize closing entries is obtained from the Departmental Margin Statements and the Income Statement columns of the worksheet. Modified by D. Burns West Johnston High School page 119

CENTURY 21 ACCOUNTING © Thomson/South-Western EXPLANATION OF CLOSING ENTRIES At the end of each fiscal period, businesses record four closing entries: 1.Closing entry for income statement accounts with credit balances (revenue & contra cost accounts) 2.Closing entry for income statement accounts with debit balances (cost, contra revenue, and expense accounts) 3.Closing entry to record net income or net loss in the retained earnings account & to close the income summary account 4.Closing entry for the dividends account Modified by D. Burns West Johnston High School page 119

CENTURY 21 ACCOUNTING © Thomson/South-WesternModified by D. Burns West Johnston High School JOURNALIZING CLOSING ENTRIES FOR A DEPARTMENTALIZED BUSINESS page Write Closing Entries in Account Title column. 2.Record entry to close income statement accounts with credit balances. 3.Write (continued on general journal page 15) to show that the closing entries are continued. 2 3

CENTURY 21 ACCOUNTING © Thomson/South-WesternModified by D. Burns West Johnston High School JOURNALIZING CLOSING ENTRIES FOR A DEPARTMENTALIZED BUSINESS page Write Closing Entries (continued) in the Account Title column. 5.Record entry to close income statement accounts with debit balances. 6.Record entry to close Income Summary to Retained Earnings. 7.Record entry for Dividends

CENTURY 21 ACCOUNTING © Thomson/South-Western Rules of Debit & Credit: Retained Earnings & Dividends Modified by D. Burns West Johnston High School Retained Earnings + - Dividends + -

CENTURY 21 ACCOUNTING © Thomson/South-Western POST CLOSING TRIAL BALANCE FOR A A DEPARTMENTALIZED BUSINESS Modified by D. Burns West Johnston High School page 122  A trial balance prepared after the closing entries are posted is called a post-closing trial balance  A post closing trial balance proves that debits and credits are still equal after the adjusting and closing entries have been posted.

CENTURY 21 ACCOUNTING © Thomson/South-WesternModified by D. Burns West Johnston High School POST-CLOSING TRIAL BALANCE FOR A DEPARTMENTALIZED BUSINESS page 122  Post closing trial balance contains only the permanent account balances.  Temporary accounts were closed with the closing entries and have a zero balance.

CENTURY 21 ACCOUNTING © Thomson/South-WesternModified by D. Burns West Johnston High School 2.Record entries in journals. SUMMARY OF ACCOUNTING CYCLE page Post journal entries to the ledgers. 9.Prepare a post-closing trial balance. 8.Journalize and post adjusting and closing entries. 7.Prepare financial statements. 6.Prepare a trial balance on the work sheet. 5.Prepare schedules of accounts receivable and accounts payable from the subsidiary ledgers. 4.Prepare interim departmental statement of gross profit. 1.Verify source documents for accuracy. The series of accounting activities included in recording financial information for a fiscal period is called an accounting cycle.

CENTURY 21 ACCOUNTING © Thomson/South-WesternModified by D. Burns West Johnston High School TERMS REVIEW adjusting entries closing entries post-closing trial balance accounting cycle page 117