1. Unit #13 – Adjustments on the Worksheet and Closing the Books

2.  Entering the Adjustments on the Worksheet is no different then what we have already done You enter the Debit & Credit to their respective accounts using the “Adjustments Column” of the worksheet.

3. Unit #13 – Adjustments on the Worksheet and Closing the Books Accounts Acc. N o. Trial BalanceAdjustmentsIncome StatementBalance Sheet DRCRDRCRDRCRDRCR 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8

4. Unit #13 – Adjustments on the Worksheet and Closing the Books  Net Income is recorded as a Debit on the Income Statement & a Credit on the Balance Sheet Accounts Acc. No. Trial BalanceAdjustments Income StatementBalance Sheet DRCRDRCRDRCRDRCR 1 1 2 2 3 3 Total 2020 2020 9700 12000 38460 36160 Notice how the “totals” don’t add up Net Income 2300 12000 12000 38460 38460

5. Unit #13 – Adjustments on the Worksheet and Closing the Books  Closing the Books Is the process of reducing Revenue & Expense accounts to a zero (0) balance.  It serves 2 purposes 1.To prepare the Revenue & Expense accounts for the next period by reducing them to zero (0) 2.To update the Owner’s Equity account

6. Unit #13 – Adjustments on the Worksheet and Closing the Books  Updating the Owner’s Equity Account Current Owner’s Equity =  Capital – Drawings + Revenue – Expenses Equity at start of Accounting period Net Income Change in Equity for Period

7. Unit #13 – Adjustments on the Worksheet and Closing the Books  Which Accounts are going to be closed? Cash  Capital are known as Permanent Accounts Revenues, Expenses, and Drawings are known as Temporary Accounts

8. Unit #13 – Adjustments on the Worksheet and Closing the Books  The Income Summary Account! This is only a “holding” account used to journalize the Closing Entries for Revenues & Expenses Revenue will have a Credit balance, therefore to close (make the account zero, we must debit this account) and Credit the Income Summary account

9. Unit #13 – Adjustments on the Worksheet and Closing the Books  Expenses will have a Debit balance, therefore to close, we must Credit this Account & Debit the Income Summary Account

10. Unit #13 – Adjustments on the Worksheet and Closing the Books  It will Look like this Income Summary  You will then close the Income Summary account into Capital Revenue BalanceExpense Balance

11. Unit #13 – Adjustments on the Worksheet and Closing the Books  Finally, Drawings will have a Debit balance, therefore you must Credit this account (to close it) and Debit Owner’s Equity

12. Unit #13 – Adjustments on the Worksheet and Closing the Books  Steps in Closing the Books (Page 240 of your textbook)  Step 1 Close Revenue Accounts into the Income Summary Account  Step 2 Close Expense Accounts into the Income Summary Account

13. Unit #13 – Adjustments on the Worksheet and Closing the Books  Step 3 Close the Income Summary Account into Capital  Step 4 Close the Drawings Account into Capital

14. Unit #13 – Adjustments on the Worksheet and Closing the Books  A Post-Closing Trial Balance Once you have closed all the temporary accounts (Revenue, Expenses, and Drawings) into Capital. You must preform a Post-Closing Trial Balance to make sure that all your Debits = your Credits