2. 5 - 1 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater The Accounting Cycle Completed: Adjusting, Closing, and Post-Closing Trial Balance Chapter 5

3. 5 - 2 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater The Accounting Cycle BusinesstransactionsBusinesstransactions1 Book of original entry Book of original entry 2 Journal Book of final entry Book of final entry 3 Ledger Trial balance 4WorksheetWorksheet5

4. 5 - 3 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater The Accounting Cycle TrialbalanceTrialbalanceAdjustmentsAdjustmentsAdjustedtrialbalanceAdjustedtrialbalanceIncomestatementIncomestatementBalancesheetBalancesheet BalancesheetBalancesheet Statement of owner’s equity Statement of owner’s equity 6 Financial Statements IncomestatementIncomestatement

5. 5 - 4 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater The Accounting Cycle AdjustingentriesAdjustingentries 7 ClosingentriesClosingentries8 Post-closing trial balance Post-closing 9

6. 5 - 5 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater End of the Period Activities Adjusting entries must be entered in the journal and posted. Adjusting entries must be entered in the journal and posted. Closing entries must be journalized at the end of the accounting period so that income can be measured for the new period. Closing entries must be journalized at the end of the accounting period so that income can be measured for the new period. Temporary accounts are closed.

7. 5 - 6 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater End of the Period Activities Prepare adjustments Complete worksheet Prepare reports Close the accounting period

8. 5 - 7 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Objective 1 Journalizing and posting adjusting entries.

9. 5 - 8 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 5-1 (Journalizing and Posting Adjusting Entries) Examine each account. Determine the appropriate ending account balances. Determine the appropriate ending account balances. Determine the required increase or decrease. Determine the required increase or decrease. Make an adjusting entry.

10. 5 - 9 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 5-1 (Journalizing and Posting Adjusting Entries) Assets must be adjusted to show amounts used or allocated to periods and recorded as expenses. Assets must be adjusted to show amounts used or allocated to periods and recorded as expenses. Supplies used Prepaid rent expired over time Equipment depreciated

11. 5 - 10 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 5-1 (Journalizing and Posting Adjusting Entries) The worksheet is complete. The books are not up to date. Adjusting entries are taken from the worksheet and journalized. Adjusting entries are taken from the worksheet and journalized. The journal entries must be posted.

12. 5 - 11 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 5-1 (Journalizing and Posting Adjusting Entries) a. $500 of office supplies were used. (a) Office Supplies Expense500 Office Supplies500 (a) Office Supplies Expense500 Office Supplies500 b. $400 of prepaid rent expired. (b) Rent Expense400 Prepaid Rent400 (b) Rent Expense400 Prepaid Rent400

13. 5 - 12 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 5-1 (Journalizing and Posting Adjusting Entries) c.Depreciation of word processing equipment was recorded. c.Depreciation of word processing equipment was recorded. (c) Depreciation Expense 80 Accumulated depreciation 80 (c) Depreciation Expense 80 Accumulated depreciation 80

14. 5 - 13 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Objective 2 Journalizing and posting closing entries.

15. 5 - 14 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 5-2 (Journalizing and Posting Closing Entries) Closing is a mechanical step which sets temporary accounts to zero so that they are ready for a new measurement period. Closing is a mechanical step which sets temporary accounts to zero so that they are ready for a new measurement period.

16. 5 - 15 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 5-2 (Journalizing and Posting Closing Entries) AssetsAssets LiabilitiesLiabilities CapitalCapital Balance sheet accounts

17. 5 - 16 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 5-2 (Journalizing and Posting Closing Entries) Permanent accounts are also called real accounts. Permanent accounts are also called real accounts. Balances are carried forward.

18. 5 - 17 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 5-2 (Journalizing and Posting Closing Entries) RevenueRevenue ExpensesExpenses WithdrawalsWithdrawals

19. 5 - 18 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 5-2 (Journalizing and Posting Closing Entries) New data are accumulated each period. Temporary accounts are also called nominal accounts. Temporary accounts are also called nominal accounts. Balances are set to zero.

20. 5 - 19 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 5-2 (Journalizing and Posting Closing Entries) There are four steps to perform. 1. Debit revenue accounts and credit the Income Summary account. 1. Debit revenue accounts and credit the Income Summary account. 2. Debit the Income Summary account and credit expense accounts. 2. Debit the Income Summary account and credit expense accounts.

21. 5 - 20 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 5-2 (Journalizing and Posting Closing Entries) 3. Debit or credit the Income Summary account and debit or credit the Capital account. 3. Debit or credit the Income Summary account and debit or credit the Capital account. 4. Debit the Capital account and credit the Withdrawals account. 4. Debit the Capital account and credit the Withdrawals account.

22. 5 - 21 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 5-2 (Journalizing and Posting Closing Entries) Four Steps in Journalizing Closing Entries: Step 1: Revenue Revenue Step 2: Expenses Expenses Step 4: Withdrawals Withdrawals Step 3: Income Summary Net Income or Loss Step 3: Income Summary Net Income or Loss CapitalCapital

23. 5 - 22 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater The Closing Process May 31 Word Processing Fees8,000 Income Summary8,000 May 31 Word Processing Fees8,000 Income Summary8,000 May 31 Income Summary3,100 Various Expenses3,100 May 31 Income Summary3,100 Various Expenses3,100

24. 5 - 23 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater The Closing Process May 31 Income Summary4,900 B. Clark, Capital4,900 May 31 Income Summary4,900 B. Clark, Capital4,900 May 31 B. Clark, Capital 625 B. Clark, Withdrawals 625 May 31 B. Clark, Capital 625 B. Clark, Withdrawals 625

25. 5 - 24 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 5-2 (Journalizing and Posting Closing Entries) 8,0008,0003,1003,100 Expenses Income Summary Revenue8,000 3,100 B. Clark, Capital B. Clark, Withdrawals 625 4,9004,900 625625

26. 5 - 25 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Objective 3 Prepare a post-closing trial balance.

27. 5 - 26 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 5-3 (The Post- Closing Trial Balance) The post-closing trial balance helps prove the accuracy of the adjusting and closing process. The post-closing trial balance helps prove the accuracy of the adjusting and closing process. It contains the true ending figure for capital. It contains only permanent accounts.

28. 5 - 27 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 5-3 (The Post- Closing Trial Balance) Clark’s Word Processing Services Post-closing Trial Balance May 31, 200x Cash Accounts Receivable Office Supplies Prepaid Rent Word Processing Equipment Accumulated Depreciation Accounts Payable Salaries Payable Brenda Clark, Capital Totals TotalsCash Accounts Receivable Office Supplies Prepaid Rent Word Processing Equipment Accumulated Depreciation Accounts Payable Salaries Payable Brenda Clark, Capital Totals Totals 6,155 6,155 5,000 5,000 100 100 800 800 6,000 6,000 80 80 3,350 3,350 350 35014,275 18,05518,055 6,155 6,155 5,000 5,000 100 100 800 800 6,000 6,000 80 80 3,350 3,350 350 35014,275 18,05518,055 Dr.Cr.

29. 5 - 28 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater End of Chapter 5