1. RECORDING ADJUSTING AND CLOSING ENTRIES FOR A SERVICE BUSINESS
Chapter 9
RECORDING ADJUSTING AND CLOSING ENTRIES FOR A SERVICE BUSINESS

2. Objectives:
Define accounting terms related to adjusting and closing entries for a service business organized as a proprietorship
Identify accounting concepts and practices related to adjusting and closing entries for a business organized as a proprietorship
Record adjusting and closing entries for a service business organized as a proprietorship
Prepare a post-closing trial balance for a service business organized as a proprietorship

3. Adjusting Entries
Adjustments from the work sheet MUST BE recorded in the general journal then POSTED to ledger
No source document is prepared so “Adjusting Entries” is written above the entries in the journal to identify the entries.
They are recorded on the next general journal page following the page on which last daily transactions for month are recorded
Encore records 2 adjusting entries to:
bring Supplies account up to date
bring Prepaid Insurance account up to date

4. ADJUSTING ENTRY FOR SUPPLIES
Lesson 9-1 (GJ)
ADJUSTING ENTRY FOR SUPPLIES 3 1 2 4
1. Write the heading.
2. Write the date.
3. Record the debit.
4. Record the credit.

5. ADJUSTING ENTRY FOR PREPAID INSURANCE2 1 3
1. Write the date.
2. Record the debit.
3. Record the credit.

6. TERMS REVIEW adjusting entries TO DO: Work Together, pg 196
On your own, pg 196

7. Recording Closing Entries
CHAPTER 9-2
Recording Closing Entries

8. Two Classifications of Accounts
Permanent – (Real)
Used to accumulate information from period to period
Asset, Liability, Owner’s Equity
Ending Account balances are Beginning balances for next period
Temporary-(Nominal)
Closed at the end of the fiscal period.
Revenue, Expense, Drawing, Income Summary
These accounts show changes in Owner’s Equity in ONE single period
Summarized and transferred into capital account
Begin each fiscal period with 0 balance

9. Reasons for Closing Temporary Accounts:
CLOSING ENTRY: journal entries used to prepare temporary account for a new fiscal period
WHY?????????
We are starting a new month (fiscal period) so we must close the accounts and start fresh (ZERO balances) with the temporary accounts.
To match expenses with revenue for each period.
To be able to make comparisons of income and expenses from one period to another.
Makes it easier to figure net income or loss for a period.

10. Income summary is the temporary account used to close accounts.
Classification - Owner’s Equity
Used to summarize the closing entries.
To close temporary accounts amount equal to balance is recorded on opposite side in Income Summary
When temp. account is closed DR = CR!!!!!
DOES NOT HAVE A NORMAL BALANCE

11. Income Summary No Normal Balance
If the balance of the account is a CREDIT after closing revenue
and expense accounts there is a NET INCOME.
If the balance is a DEBIT, there is a NET LOSS.
Income Summary
Debit Side
Total Expenses
Debit Balance = Net Loss
Credit Side
Total Revenue
Credit Balance = Net Income
No Normal Balance

12. Four Closing Entries
Close revenue accounts to Income Summary.
Close expense accounts to Income Summary.
Close Income Summary account to Capital account (Balance must be income or loss on work sheet).
Close drawing account to capital account NOT a revenue or expense
There are no source documents for the closing entries.
To indicate closing entries in the journal, the words “closing entries” is centered in the account title column of the general journal.

13. CLOSING ENTRY FOR AN INCOME STATEMENT ACCOUNT WITH A CREDIT BALANCE
Lesson 9-1 (GJ)
CLOSING ENTRY FOR AN INCOME STATEMENT ACCOUNT WITH A CREDIT BALANCE
(Debit to close) 3 1 2 4
1. Write the heading.
2. Write the date.
3. Record the debit.
4. Record the credit.

14. CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES
1. Write the date.
2. Income Summary.
(Credit to close) 3
3. Record the credits.
4. Record the TOTAL debit. 4 2 1

15. *If business incurs a net loss opposite entry
CLOSING ENTRY TO RECORD NET INCOME OR LOSS AND CLOSE THE INCOME SUMMARY ACCOUNT
(Capital: credit to record net income)
(Income Summary: debit to close) 2 1 3
*If business incurs a net loss opposite entry
*This entry CLOSES income summary
1. Write the date.
2. Record the debit.
3. Record the credit.

16. CLOSING ENTRY FOR THE OWNER’S DRAWING ACCOUNT
(Capital: credit to close) 2 1 3
1. Write the date.
2. Record the debit.
3. Record the credit.

17. TERMS REVIEW permanent accounts temporary accounts closing entries
************************************
TO DO:
Work Together pg. 203
On Your Own pg. 203
Application Problem 9-1, 9-2

18. Post-Closing Trial Balance
Prepared after closing entries are posted.
Lists all OPEN accounts (permanent accounts) with their balances. (No Temp accounts are listed)
All permanent accounts: assets, liabilities, and owner’s capital accounts.
Purpose is to verify the equality of debits and credits in the general ledger.
It completes the accounting cycle.
Debits must equal Credits in your post closing trial balance.

19. POST-CLOSING TRIAL BALANCE
1. Write the heading. 1
2. Write titles of all general ledger accounts with balances in the Account Title column. 2 3
3. Write each account’s balance. 4 6
4. Rule a single line. 8 7 5
5. Compare the two column totals.
6. Write Totals.
7. Write the column totals.
8. Rule double lines.

20. ACCOUNTING CYCLE FOR A SERVICE BUSINESS
1. Source documents checked for accuracy, and transactions are analyzed. 1 2
2. Transactions are recorded in a general journal. 8
3. Journal entries are posted to the general ledger. 3
4. Work sheet is prepared.
5. Financial statements are prepared. 7 4
6. Adjusting and closing entries are journalized. 6
7. Adjusting and closing entries are posted. 5
8. A post-closing trial balance is prepared.

21. CHAPTER 9-3
How do you know if account has a 0 balance or is closed?
Which accounts have an adjusting entry posted?
Which accounts are temporary accounts?
Which accounts have been closed?

22. Net Losses on an Income Statement
Negative numbers are not shown with a minus sign
Negative numbers are denoted by parentheses, but still treated as a negative number
IE: (500) = -500

23. TERMS REVIEW post-closing trial balance accounting cycle TO DO:
Work Together pg 209
On Your Own pg 209
Application Problem 9-3
Mastery 9-4
Challenge 8-4, 9-5
Extra Problem 8/9
Study Guide Ch 8/9