Monday, November 8 Bell ringer: See link on web site Today: – Stopwatch Activity – Objective #3—did you read today’s assignment?? 1

Stop Watch Activity 2 volunteers needed How long does it take for one of your classmates to pass out.... Tootsie Rolls... Starbursts... 2 STOPWATCH

What is the point? Besides a little sugar start... What is the point? In business, we want to know certain financial pieces of information for the year. – For example: How much net income was earned during the year 3

Therefore... We record revenue and expenses for the year... – Income statement But before we can begin recording revenues and expenses for the next year, we must “reset” each of the revenue and expense accounts to zero….just as we start the clock to determine the time it takes to pass out the candy 4

Also... The Drawing account is reset to a zero balance. The process of getting these account balances to zero balances is accomplished through – Closing entries 5

6 Objective 3 Close the revenue, expense, and withdrawal accounts

7 Closing the Accounts Prepares accounts for recording transactions during next period Updates owner’s capital account

8 Closing the Accounts Temporary Accounts – EXAMPLES: Service Revenue Utilities Expense Permanent Accounts – EXAMPLES: Cash Accounts Receivable/Payable Capital

9 Four Closing Entries Close all income statement accounts to Income Summary Entry 1: Close revenue accounts to Income Summary Entry 2: Close expense accounts to Income Summary

10 Four Closing Entries 500 Revenue 500 Bal Expense 200 Bal Income Summary 500 Bal 300 Revenues – Expenses = Net Income

11 Four Closing Entries Entry 3: Close Income Summary to Capital Entry 4: Close Withdrawals to Capital

12 Four Closing Entries 200 Income Summary 500 Bal Withdrawals 100 Bal Capital 300 1,000 Beginning balance 300 1,200 Ending balance Bal 0

Wages Expense Bal.4,525 Rent Expense Bal.1,600 Depreciation Expense Bal.50 Utilities Expense Bal.985 Supplies Expense Bal.2,040 Insurance Expense Bal.100 Miscellaneous Expense Bal.455 Fees Earned Bal.16,840 Rent Revenue Bal.120 Pat King, Capital Bal.15,000 Pat King, Drawing Bal.4,000 Income Summary Note: Note: The balances shown are adjusted balances before closing. The following sequence demonstrates the closing process. The Closing Process

Wages Expense Bal.4,525 Rent Expense Bal.1,600 Depreciation Expense Bal.50 Utilities Expense Bal.985 Supplies Expense Bal.2,040 Insurance Expense Bal.100 Miscellaneous Expense Bal.455 Fees Earned Bal.16,840 Rent Revenue Bal , Income Summary 16,960 16,960 Pat King, Capital Close Revenues Close Revenues Bal.15,000 Pat King, Drawing Bal.4,000 Total Revenues The Closing Process

Wages Expense Bal.4,525 Rent Expense Bal.1,600 Depreciation Expense Bal.50 Utilities Expense Bal.985 Supplies Expense Bal.2,040 Insurance Expense Bal.100 Miscellaneous Expense Bal.455 4,5251, , Fees Earned Bal.16,840 Rent Revenue Bal , Income Summary 16,960 16,9609,755 Pat King, Capital Close Revenues Close Revenues Bal.15,000 Pat King, Drawing Bal.4,000 Close Expenses Close Expenses Total Expenses Total Revenues The Closing Process

Wages Expense Bal.4,525 Rent Expense Bal.1,600 Depreciation Expense Bal.50 Utilities Expense Bal.985 Supplies Expense Bal.2,040 Insurance Expense Bal.100 Miscellaneous Expense Bal.455 4,5251, , Fees Earned Bal.16,840 Rent Income Bal , Income Summary 16,960 16,9609,755 Pat King, Capital Close Revenues Close Revenues Bal.15,000 Pat King, Drawing Bal.4,000 Close Expenses Close Expenses The Closing Process 7,205 7,205 7,205 Close Income Summary Net Income Closed

Wages Expense Bal.4,525 Rent Expense Bal.1,600 Depreciation Expense Bal.50 Utilities Expense Bal.985 Supplies Expense Bal.2,040 Insurance Expense Bal.100 Miscellaneous Expense Bal.455 4,5251, , Fees Earned Bal.16,840 Rent Income Bal , Income Summary 16,960 16,9609,755 Pat King, Capital Close Revenues Close Revenues Bal.15,000 Pat King, Drawing Bal.4,000 Close Expenses Close Expenses The Closing Process 7,205 7,205 7,205 Close Income Summary Close Income Summary Net Income 4,000 4,000 Close Drawing Close Drawing Drawing Closed

Wages Expense Rent Expense Depreciation Expense Utilities Expense Supplies Expense Insurance Expense Miscellaneous Expense Fees Earned Rent Income Income Summary Pat King, Capital Bal.15,000 Pat King, Drawing Net Income Net Income Drawing Drawing Bal.18,205 All temporary accounts now have zero balances and are ready for the next accounting period. 7,205 7,205 4,000 The Closing Process