1. Chapter 16
Objectives:
Identify accounting concepts & practices related to adjusting and closing entries for a merchandising business organized as a corporation
Record adjusting entries
Record closing entries for income statement accounts
Record closing entry for dividends
Prepare a post closing trial balance
LESSON 16-1

2. LESSON 16-1: Recording Adjusting Entries
4/25/2017
LESSON 16-1: Recording Adjusting Entries
Adjustments on a work sheet are the source for journalizing adjusting entries.
Adjusting entries are recorded in the general journal.
Adjusting entries are recorded on a new general journal page with the heading “Adjusting Entries” centered on the first line of the journal.
Adjusting entries are journalized in their debit and credit parts identified by corresponding letters in the work sheet.
GREEN

3. ADJUSTING ENTRIES RECORDED FROM A WORK SHEET
LESSON 16-1
4/25/2017
ADJUSTING ENTRIES RECORDED FROM A WORK SHEET
page 480
1. Heading
2. Date 3
3. Identify the first adjustment
4. Account debited
5. Debit
6. Account credited
7. Credit
8. Continue down the Adjustments columns 2 1 4 6 5 7
LESSON 16-1
GREEN

4. ADJUSTING ENTRY FOR ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
page 482
LESSON 16-1

5. ADJUSTING ENTRY FOR MERCHANDISE INVENTORY
page 482
LESSON 16-1

6. ADJUSTING ENTRY FOR SUPPLIES—OFFICE
page 483
LESSON 16-1

7. ADJUSTING ENTRY FOR SUPPLIES—STORE
page 483
LESSON 16-1

8. ADJUSTING ENTRY FOR PREPAID INSURANCE
page 484
LESSON 16-1

9. ADJUSTING ENTRY FOR DEPRECIATION—OFFICE EQUIPMENT
page 484
LESSON 16-1

10. ADJUSTING ENTRY FOR DEPRECIATION—STORE EQUIPMENT
page 485
LESSON 16-1

11. ADJUSTING ENTRY FOR FEDERAL INCOME TAXES
page 485
LESSON 16-1

12. Let’s do Work Together 16-1 and On Your Own 16-1 on textbook page 486.
Lesson 16-1
Let’s do Work Together 16-1 and On Your Own 16-1 on textbook page 486.
LESSON 16-1

13. LESSON 16-2: Recording Closing Entries for Income Statement Accounts
4/25/2017
LESSON 16-2: Recording Closing Entries for Income Statement Accounts
The income summary account is used only at the end of the fiscal period to summarize the closing entries for revenue, cost, and expenses.
At the end of a fiscal period, temporary accounts are closed to prepare the general ledger for the next fiscal period.
There are four kinds of closing entries:
1. To close income statement accounts with credit balances
2. To close income statement accounts with debit balances
3. To record net income or loss and close the income
summary account
4. To close the dividends account
Amounts needed for closing entries are obtained from the income statement and balance sheet columns of the work sheet.
GREEN

14. THE INCOME SUMMARY ACCOUNT
page 487
The income summary account is unique because it does not have a normal balance side. The balance of this account is determined by the amounts posted to the account at the end of a fiscal period.
LESSON 16-2

15. CLOSING ENTRY FOR ACCOUNTS WITH CREDIT BALANCES
page 488 3 1 2 4
1. Heading
To close each account, the account is debited for the balance of the account and Income Summary is credited for the total debits.
2. Date
3. Debits to close
4. Credit to Income Summary
LESSON 16-2

16. CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES
page 489
1. Date
2. Account debited 3
3. Credits to close
4. Debit amount
The sum of all the income statement accounts with debit balances will be debited to the Income Summary account. 1 2 4
LESSON 16-2

17. SUMMARY OF CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES
page 490
Bal. 209, Closing 209,960.00
(New Bal. zero)
Purchases
Adj. (mdse. inv.) 15, Closing (credit amounts) 500,253.10
Closing (debit accounts) 404, (New Bal. 80,313.95)
Income Summary
After the sales, cost, and expense accounts are closed, the balance in the income summary account is the net income (if a credit balance) or net loss (if a debit balance) for the fiscal period.
LESSON 16-2

18. CLOSING ENTRY TO RECORD NET INCOME
page 491 1 2 3
1. Date
The balance of Income Summary is the same as the net income amount on the work sheet and income statement.
2. Debit Income Summary
3. Credit Retained Earnings
LESSON 16-2

19. CLOSING ENTRY FOR DIVIDENDS
page 491 1 2 3
1. Date
Because dividends decrease the earnings retained by a corporation, the dividends account is closed to Retained Earnings.
2. Debit Retained Earnings
3. Credit Dividends
LESSON 16-2

20. COMPLETED CLOSING ENTRIES FOR A CORPORATION RECORDED IN A JOURNAL
page 492
Closing entries for a corporation:
Close credit balance income statement accounts
Close debit balance income statement accounts
Close Income Summary
Close Dividends
Closing entries in the journal must be posted to close the temporary accounts in the general ledger.
LESSON 16-2

21. Let’s do Work Together 16-2 and On Your Own 16-2 on textbook page 493.
LESSON 16-3
4/25/2017
LESSON 16-2
Let’s do Work Together 16-2 and On Your Own 16-2 on textbook page 493.
GREEN

22. LESSON 16-3: Preparing a Post-Closing Trial Balance
4/25/2017
LESSON 16-3: Preparing a Post-Closing Trial Balance
After all adjusting and closing entries have been posted, the only general ledger accounts that should have balances are the balance sheet accounts—assets, liabilities, and capital accounts.
The income statement accounts—revenue, cost, and expense accounts—plus the Dividends account should all have zero balances to start the new fiscal period.
GREEN

23. POST-CLOSING TRIAL BALANCE
LESSON 16-3
4/25/2017
POST-CLOSING TRIAL BALANCE
page 496
After adjusting and closing entries have been posted, a post closing trial balance should be prepared to prove the equality of debits and credits in the general ledger.
The post closing trial balance should contain only balances for asset, liability, and capital accounts. All revenue, cost, expense, and the Dividends accounts should have zero balances.
The post closing trial balance should list all the balance sheet accounts in the order they are listed in the chart of accounts.
The debit balance amounts should be listed in the first column and the credit balance amounts should be listed in the second column of the form.
If the total debits equal total credits, then the equality of debits and credits is proved.
LESSON 16-3
GREEN

24. POST-CLOSING TRIAL BALANCE
LESSON 16-3
4/25/2017
POST-CLOSING TRIAL BALANCE
page 496
1. Heading 1
2. Accounts that have balances 3 2
3. Balances of asset accounts 4
4. Balances contra asset, liability, and capital accounts
5. Word Totals
6. Totals
7. Double lines 5 6 7
LESSON 16-3
GREEN

25. ACCOUNTING CYCLE FOR A MERCHANDISING BUSINESS ORGANIZED AS A CORPORATION
page 497
1. Source documents are checked, and transactions are analyzed. 1 2
2. Transactions are recorded in journals.
3. Journal entries are posted to the accounts payable ledger, the accounts receivable ledger, and the general ledger. 3 4 5
4. Schedules of accounts payable and account receivable are prepared from the subsidiary ledgers.
5. A work sheet is prepared from the general ledger.
(continued on next slide)
LESSON 16-3

26. ACCOUNTING CYCLE FOR A MERCHANDISING BUSINESS ORGANIZED AS A CORPORATION
page 497
6. Financial statements are prepared.
7. Adjusting and closing entries are journalized from the work sheet. 9
8. Adjusting and closing entries are posted to the general ledger.
9. A post-closing trial balance of the general ledger is prepared. 8 7 6
(continued from previous slide)
LESSON 16-3

27. Let’s do Work Together 16-3 and On Your Own 16-3 on textbook page 498.
Lesson 16-3
Let’s do Work Together 16-3 and On Your Own 16-3 on textbook page 498.
LESSON 16-1

28. Chapter 16 Assignments Study Guide Application Problem 16-1
Mastery Problem 16-5
LESSON 16-1