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I-2 I ACCOUNTING FOR SOLE PROPRIETORSHIPS Accounting, Fifth Edition

I-3 After studying this chapter, you should be able to: 1. 1.Identify the differences in equity accounts between a corporation and a sole proprietorship Understand what accounts increase and decrease owner’s equity Describe the differences between a retained earnings statement and an owner’s equity statement Explain the process of closing the books for a sole proprietorship. Learning Objectives

I-4 The primary difference between accounting and reporting for a sole proprietorship and a corporation involves accounting for equity transactions. Sole Proprietorship Accounting LO 1 Identify the differences in equity accounts between a corporation and a sole proprietorship. Illustration I-1

I-5 Sole Proprietorship Accounting LO 2 Understand what accounts increase and decrease owner’s equity. Owner’s Equity Illustration I-2 (Drawings)

I-6 Recording Transactions LO 2 Illustration I-3 Sierra’s transactions as a sole proprietor.

I-7 Sole proprietor prepares an owner’s equity statement rather than a retained earnings statement LO 3 Illustration I-4

I-8 LO 4 Closing the Books Illustration I-5

I-9 LO 4 Closing the Books Illustration I-6

I-10 LO 4 Closing the Books Illustration I-8

I-11 Preparing a Post-Closing Trial Balance Post-closing trial balance  List of all permanent accounts and their balances after closing entries are journalized and posted.  Purpose is to prove the equality of the permanent account balances that are carried forward into the next accounting period.  Contains only permanent—balance sheet—accounts. LO 4 Explain the process of closing the books for a sole proprietorship.

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