Recording Adjusting and Closing Entries for a service business Chapter 8 Recording Adjusting and Closing Entries for a service business

Key terms accounting cycle: the series of accounting activities included in recording financial information for a fiscal period adjusting entries: journal entries recorded to update general ledger accounts at the end of a fiscal period closing entries: journal entries used to prepare temporary accounts for a new fiscal period

Key terms permanent accounts: accounts used to accumulate information from one fiscal period to the next post-closing trial balance: a trial balance prepared after the closing entries are posted temporary accounts: accounts used to accumulate information until it is transferred to the owner’s capital account

Identifying Financial Statement Procedures: Income summary is a temporary account. Temporary accounts begin each new fiscal period with a zero balance. The journal entry to close Income Summary when there is a net income is debit Income Summary; credit owner’s capital. Accounts used to accumulate information from one fiscal period to the next are permanent accounts.

Identifying Financial Statement Procedures: The journal entry to adjust Supplies is debit Supplies Expense; credit Supplies. When the total expenses are greater then the total revenue, the income summary account has a debit balance. Accounting Period Cycle concept applies when a work sheet is prepared at the end of each fiscal cycle to summarize the general ledger information needed to prepare financial statements. After the closing entries are posted, the owner’s capital account balance should be the same as shown on the balance sheet for the fiscal period.

Identifying Accounting Concepts and Procedures: A source document is prepared for adjusting entries FALSE The income summary account has a normal debit balance FALSE The drawing account is a permanent account FALSE (temp) Temporary accounts must start each fiscal period with a zero balance TRUE

Identifying Accounting Concepts and Procedures: A post-closing trial balance verifies the equality of debits and credits in a general ledger after the closing entries are posted TRUE Journal entries used to prepare temporary accounts for a new fiscal period are closing entries TRUE The balances of the expense accounts must be reduced to zero to prepare the accounts for the next fiscal period TRUE To close a temporary account, an amount equal to its balance is recorded in the amount on the side opposite to its balance TRUE