Begin Chapter 8 notes

» Adjusting entries – journal entries recorded to update general ledger accounts at the end of a fiscal period

» Name two accounts that require adjusting entries » Two adjusting entries: ˃An adjusting entry to bring the supplies account up to date ˃An adjusting entry to bring the prepaid insurance account up to date

» Info needed to journalize the adjusting entry comes from the work sheet » Adjusting entries are recorded on the next general journal page following the page on which the last daily transactions for the month are recorded » Label with the heading: “Adjusting Entries” in the general journal

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 5 LESSON 8-1 ADJUSTING ENTRY FOR SUPPLIES 1 2 page Write the title of the account credited. Record the credit amount. 3.Write the title of the account debited. Record the debit amount. 2.Write the date. 1.Write the heading.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 6 LESSON 8-1 ADJUSTING ENTRY FOR PREPAID INSURANCE page Write the title of the account credited. Record the credit amount. 2.Write the title of the account debited. Record the debit amount. 1.Write the date.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Complete Activities 8-1 WT & OYO 8-1 Application Problem Chapter 8-2 Notes

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Today’s Target!  Nov. 12 th  Students will invest into companies presented using accounting data presented Agenda Stock Evaluation Review prices, update prices Buy/sell other stocks  Chapter 8-2  Chapter 8-3 Guiding Question:  “How can you use Accounting data to make wise business &/or investing decisions?”

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Need for Permanent and Temporary Accounts Permanent accounts – accounts used to accumulate information from one fiscal period to the next (aka Real Accounts) Include asset, liability and owner’s capital accounts The ending account balances of permanent accounts for one fiscal period are the beginning account balances for the next.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Need for Permanent and Temporary Accounts Temporary accounts – accounts used to accumulate information until it is transferred to the owner’s capital account (aka nominal accounts) Include revenue, expense, owner’s drawing, and income summary accounts Show changes in the owner’s capital for a single fiscal period End of fiscal period, temporary balances are summarized & transferred to owner’s capital Temporary accounts begin a new fiscal period with zero balances

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Need for Closing Temporary Accounts Closing entries – journal entries used to prepare temporary accounts for a new fiscal period The net income for the next fiscal period would be difficult to calculate because amounts from several fiscal periods remain in the accounts Therefore, the temporary accounts must start each period with zero balances

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Closing an Account To close a temporary account, an amount equal to its balance is recorded in the account on the side opposite to its balance. Example: if an account has a credit of $4,411, a debit of $4,411 is recorded to close the account Since all entries must have a debit and a credit, the second half of the entry to close a temporary account is recorded in the “Income Summary Account”

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Need for the Income Summary Account A temporary account titled Income Summary is used to summarize the closing entries for the revenue and expense accounts Unique: Does NOT have a normal balance side Balance is determined by the amounts posted at the end of fiscal period Net income=credit balance Net loss=debit balance

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning NEED FOR THE INCOME SUMMARY ACCOUNT LESSON

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Closing Entries Four closing entries:  Close income statement accounts with credit balances (sales)  Close income statement accounts with debit balances (expenses)  Record net income or loss and close Income Summary (owner’s capital)  Close the owner’s drawing account (owner’s capital)

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Closing Entries Information needed for closing entries is found on the Income Statement and Balance Sheet columns of the worksheet

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 17 LESSON 8-2 (Debit to close) CLOSING ENTRY FOR AN INCOME STATEMENT ACCOUNT WITH A CREDIT BALANCE page 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 18 LESSON 8-2 (Credit to close) CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES page Debit amount 3.Credit 2.Income Summary 1.Date 3

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Income Summary Account Income summary is also a temporary account and must be closed after the net income or loss is recorded

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 20 LESSON 8-2 (Income Summary: debit to close) (Capital: credit to record net income) CLOSING ENTRY TO RECORD NET INCOME OR LOSS AND CLOSE THE INCOME SUMMARY ACCOUNT page Credit 2.Debit 1.Date 1 2 3

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Owner’s Drawing Account The owner’s drawing account is neither a revenue or expense account. Therefore, it is not closed through the income summary account. The drawing account is closed directly to the owner’s capital account.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 22 LESSON 8-2 (Credit to close) CLOSING ENTRY FOR THE OWNER’S DRAWING ACCOUNT page Credit 2.Debit 1.Date 1 2 3

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Assignment 8-2 Work Together / On Your Own 8-2 Application Problem

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning General Ledger Accounts After Adjusting/Closing Entries are Posted The adjusting/closing entries are posted from the journal to the ledger If the ledger has a zero balance (temporary accounts) then lines are drawn in both the Balance Debit and Balance Credit columns Assures a reader that a balance has not been omitted

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 25 LESSON 8-3 GENERAL LEDGER ACCOUNTS AFTER ADJUSTING AND CLOSING ENTRIES ARE POSTED page 213

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Today’s Target!  Nov. 16 th  Students will complete the fiscal period with trial balances Agenda Stock Evaluation Review prices, update prices Buy/sell other stocks  Chapter 8-2  Chapter 8-3 Guiding Question:  “How can you use Accounting data to make wise business &/or investing decisions?”

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Post-Closing Trial Balance Post-closing trial balance – trial balance prepared after the closing entries are posted Only general ledger accounts with balances are included on a post-closing trial balance Permanent accounts: assets, liabilities, and owner’s capital Temporary accounts are closed and have zero balances so they do NOT appear on PCTB

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Post-Closing Trial Balance Debits must equal credits in a general ledger Shows the company is ready for a new fiscal period

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 29 LESSON Double rule 7.Record totals 6.Totals 5.Compare totals 4.Single rule 3.Account balances 2.Account titles 1.Heading POST-CLOSING TRIAL BALANCE 1 6 page

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Accounting Cycle Accounting Cycle – series of accounting activities included in recording financial information for a fiscal period 1.Analyze Transactions 2.Journalize 3.Post to the Ledger 4.Prepare Worksheet 5.Financial Statements 6.Journalize Adjusting/Closing Entries 7.Post Adjusting/Closing Entries 8.Post-Closing Trial Balance

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 31 LESSON 8-3 ACCOUNTING CYCLE FOR A SERVICE BUSINESS page Prepare post-closing trial balance 7.Post adjusting and closing entries 6.Journalize adjusting and closing entries 5.Prepare financial statements 4.Prepare work sheet 3.Post 2.Journalize 1.Analyzes transactions

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Assignment 8-3 Work Together / On Your Own 8-3 Application Chapter 8 Study Guide Chapter 8 Test A NOTE: Chapter 8 Test will be Wed., Nov. 18 th (or 19 th is snow day)

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Today’s Target!  Dec. 1 st  Students will recall accounting practices for a full accounting cycle Agenda Stock Evaluation Review prices, update prices Buy/sell other stocks  Chapter 8 Test Recap  Chapter Note Sheets – Fill out  Semester 1 Review  4-4B  5-5B  7-3B  8-4 Guiding Question:  “What are parts of the Accounting cycle you have questions on?”