College Accounting - Bakersfield College

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College. Accounting. Heintz & Parry. 20th Edition. Chapter 6. FINANCIAL. STATEMENTS AND. THE CLOSING. PROCESS. Prepare financial statements with the ...
Heintz & Parry

Chapter

20th Edition

6 FINANCIAL STATEMENTS AND THE CLOSING PROCESS

College Accounting

THE WORK SHEET

1

• Used for three major end-of-period activities:

– Journalizing adjusting entries – Preparing financial statements – Journalizing closing entries

Prepare financial statements with the aid of a work sheet.

ACCOUNT TITLE

ADJ. T. B. DR. CR.

INCOME STMT. DR. CR.

Cash 370 Accts. Rec. 650 Supplies 20 Ppd. Ins. 175 Del. Eq. 3600 A. D.–Del. Eq. 100 Accts. Pay. 1800 From 50 this work sheet, Wages Pay. J. J., Cap. 2000can prepare the we 150 financial statements. J. J., Drawing Del. Fees 2150 2150 700 Wages Exp. 700 200 Rent Exp. 200 Sup. Exp 60 60 50 Tel. Exp. 50 Ins. Exp. 25 25 D. E.–Del. Eq. 100 100 1135 2150 6100 6100 1015 2150 2150

BALANCE SHEET CR. DR.

370 650 20 175 3600

• 1st: Prepare the income statement. 100 1800 50 2000

150

4965 4965

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PREPARING FINANCIAL STATEMENTS

• 2nd: Prepare the statement of owner’s equity. • 3rd: Prepare the balance sheet.

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Jessie Jane's Campus Delivery Income Statement For Month Ended June 30, 20--

Jessie Jane's Campus Delivery Income Statement For Month Ended June 30, 20-Revenues

Heading should contain 3 lines: 1. Company name 2. Statement title 3. Period ended or last date in the period

Revenues are shown first.

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

ACCOUNT TITLE

ADJ. T. B. DR. CR.

Cash 370 Accts. Rec. 650 Supplies 20 Ppd. Ins. 175 Del. Eq. 3600 A. D.–Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. 150 J. J., Drawing Del. Fees 700 Wages Exp. 200 Rent Exp Sup. Exp. 60 Tel. Exp. 50 Ins. Exp. 25 D. E.–Del. Eq. 100 6100

INCOME STMT. DR. CR.

BALANCE SHEET DR. CR.

370 650 20 175 3600

Revenue 100 1800 50 2000

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

100 1800 50 2000

Jessie Jane's Campus Delivery Income Statement For Month Ended June 30, 20-Revenues Delivery fees

150

6100

Dollar signs used at top of columns.

2150

2150 700 200 60 50 25 100 1135 1015 2150

2150

4965

2150

4965

3950 1015 4965

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Jessie Jane's Campus Delivery Income Statement For Month Ended June 30, 20-Revenues Delivery fees

$2,150

Jessie Jane's Campus Delivery Income Statement For Month Ended June 30, 20--

$2,150

Revenues Delivery fees

$2,150

Expenses

When there is only one revenue account, “Total Revenues” is not computed or shown.

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Expenses are shown next.

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

ACCOUNT TITLE

Cash Accts. Rec. Supplies Ppd. Ins. Del. Eq. A. D.–Del. Eq. Accts Pay Wages Pay. J. J., Cap. J. J., Drawing Del. Fees Wages Exp. Rent Exp. Sup. Exp. Tel. Exp. Ins. Exp. D. E.–Del. Eq.

ADJ. T. B. DR. CR.

370 650 20 175 3600

INCOME STMT. DR. CR.

BALANCE SHEET DR. CR.

370 650 20 175 3600

Expenses 100 1800 50 2000

150

150

6100

Revenues Delivery fees $2,150 Expenses Wages expense

$ 700

2150

2150 700 200 60 50 25 100 6100

100 1800 50 2000

Jessie Jane's Campus Delivery Income Statement For Month Ended June 30, 20--

700 200 60 50 25 100 1135 1015 2150

2150

4965

2150

4965

3950 1015 4965

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Dollar signs used at top of columns. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Jessie Jane's Campus Delivery Income Statement For Month Ended June 30, 20--

Jessie Jane's Campus Delivery Income Statement For Month Ended June 30, 20--

Revenues Delivery fees

Revenues Delivery fees $2,150

Expenses Wages expense Rent expense Supplies expense Telephone expense Insurance expense Depreciation expense—delivery eq.

$2,150 Expenses Wages expense Rent expense Supplies expense Telephone expense Insurance expense Depreciation expense—delivery eq.

$ 700 200 60 50 25 100

$ 700 200 60 50 25 100

Expenses are listed in either: account number order OR descending order by dollar amount.

Single rulings indicate addition or subtraction.

Jessie Jane's Campus Delivery Income Statement For Month Ended June 30, 20--

Jessie Jane's Campus Delivery Income Statement For Month Ended June 30, 20--

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Revenues Delivery fees Next, expenses are totaled. Expenses Wages expense Rent expense Supplies expense Telephone expense Insurance expense Depreciation expense—delivery eq. Total expenses

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Revenues Delivery fees $2,150 $ 700 200 60 50 25 100 1,135

$2,150 Expenses Wages expense Rent expense Supplies expense Telephone expense Insurance expense Depreciation expense—delivery eq. Total expenses Net income

$ 700 200 60 50 25 100

Net income is computed last. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

1,135 $1,015

Jessie Jane's Campus Delivery Statement of Owner’s Equity For Month Ended June 30, 20--

Jessie Jane's Campus Delivery Statement of Owner’s Equity For Month Ended June 30, 20--

Jessica Jane, capital, June 1, 20--

Jessica Jane, capital, June 1, 20--

Instead of showing revenue increasing and expenses decreasing the owner’s equity, this statement uses the net effect (net income/loss) from the income statement.

The statement starts with the capital account balance as of the beginning of the accounting period.

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

ACCOUNT TITLE

ADJ. T. B. DR. CR.

INCOME STMT. DR. CR.

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

BALANCE SHEET DR. CR.

370 Cash 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 3600 Del. Eq. 3600 A. D.–Del Eq. 100 Accts. Pay. 1800 50 Wages Pay. 2000 J. J., Cap. 150 J. J., Drawing 150 Del. Fees 2150 2150 700 Wages Exp 700 200 Capital from Rent ExpBe careful!! 200 the work sheet Sup. Exp 60 60 may not be the beginning 50 capital account Tel. Exp 50 It is the beginning balance PLUS Ins. Expbalance. 25 25 D. E.–Del. Eq. any 100 additional 100 investments. 1135 2150 4965 6100 6100 1015 2150 4965 2150

100 1800 50 2000

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Jessica Jane, capital, June 1, 20--

$2,000

Since Jessie made no additional investments this period, we can use the capital account balance from the work sheet. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

ACCOUNT TITLE

Jessie Jane's Campus Delivery Statement of Owner’s Equity For Month Ended June 30, 20--

Next, we add in the net income/loss from the income statement or from the work sheet.

Jessie Jane's Campus Delivery Statement of Owner’s Equity For Month Ended June 30, 20--

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©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Jessica Jane, capital, June 1, 20--

$2,000

$2,000

ADJ. T. B. DR. CR.

INCOME STMT. DR. CR.

BALANCE SHEET CR. DR.

370 Cash 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 3600 Del. Eq. 3600 A. D.–Del Eq. 100 Accts. Pay 1800 Net income is found in the 50 Wages Pay 2000 J. J., Cap. Income Statement Debit column150 150 J. J., Drawing Del. Fees and the Balance 2150 column. 2150 Sheet Credit 700 Wages Exp 700 200 Rent Exp. 200 Sup. Exp. 60 60 50 Tel. Exp. 50 Ins. Exp. 25 25 D. E.–Del. Eq. 100 100 1135 2150 4965 6100 6100 1015 Net Income 2150 4965 2150 ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

100 1800 50 2000

3950 1015 4965

ACCOUNT TITLE

Jessie Jane's Campus Delivery Statement of Owner’s Equity For Month Ended June 30, 20--

Jessica Jane, capital, June 1, 20-Net income for June Less withdrawals for June

$2,000 $1,015

Now we will go to the work sheet for the drawing account.

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INCOME STMT. DR. CR.

BALANCE SHEET DR. CR.

370 Cash 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 3600 Del. Eq. 3600 A. D.–Del. Eq. 100 Accts. Pay. 1800 50 Wages Pay. 2000 J. J., Cap. J. J., Drawing 150 150 Del. Fees 2150 2150 700 Wages Exp. 700 200 Rent Exp 200 Sup. Exp The drawing 60 account60 tells us the amount 50 Tel. Exp 50 of assets Ins. Exp 25 Jessie has 25withdrawn from D. E.–Del. Eq. the 100 100 business for personal use. 1135 2150 4965 6100 6100 1015 Net Income 2150 4965 2150 ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Jessie Jane's Campus Delivery Statement of Owner’s Equity For Month Ended June 30, 20--

Jessica Jane, capital, June 1, 20-Net income for June Less withdrawals for June Increase in capital Jessica Jane, capital, June 30, 20--

ADJ. T. B. DR. CR.

FORMS OF BALANCE SHEETS $2,000

$1,015 150 865 $2,865

REPORT FORM • Liabilities and owner’s equity sections are shown BELOW the assets section. • This is the form you will see from now on in this text.

ACCOUNT FORM • Assets section is on the LEFT, and liabilities and owner’s equity sections are on the RIGHT. • This is the form you saw in chapters 2–5.

Lastly, we calculate the ending capital account balance and double rule the statement. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CLASSIFIED BALANCE SHEET • Similar items are grouped together • Assets are classified as:

– Current Assets – Property, Plant, and Equipment • Liabilities are classified as:

– Current Liabilities – Long-Term Liabilities

CURRENT ASSETS • Assets (including cash) that will be converted into cash or consumed within one year or the normal operating cycle, whichever is longer • Examples:

– Cash, accounts receivable, supplies, and prepaid insurance

100 1800 50 2000

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PROPERTY, PLANT, AND EQUIPMENT

OPERATING CYCLE The time period required to purchase supplies and services and convert them back into cash

Start with Cash

Purchase Supplies and Services

Provide Services for Cash and “On Account”

• Assets that are expected to serve the business for many years • Also called plant assets or long-term assets • Examples:

Collect Receivables

CURRENT LIABILITIES • Liabilities that are due within one year or the normal operating cycle of the business, whichever is longer • They will be paid out of current assets • Examples:

– Accounts payable – Wages payable

Jessie Jane's Campus Delivery Balance Sheet June 30, 20-Assets Current assets:

Current assets are listed first.

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– Land, buildings, and equipment

Back to Cash

LONG-TERM LIABILITIES • Obligations that are not expected to be paid within a year and do not require the use of current assets • Also called long-term debt • Example:

– A mortgage on an office building • Jessie Jane does not have any long-term liabilities.

ACCOUNT TITLE

ADJ. T. B. DR. CR.

370 Cash Accts. Rec. 650 Supplies 20 Ppd. Ins. 175 Del. Eq. 3600 A. D.–Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. 150 J. J., Drawing Del. Fees 700 Wages Exp. 200 Rent Exp. Sup. Exp 60 Tel. Exp. 50 Ins. Exp. 25 D. E.–Del. Eq. 100 6100 Net Income

INCOME STMT. DR. CR.

100 1800 50 2000

Current assets2150 2150 700 200 60 50 25 100 1135 2150 6100 1015 2150 2150

BALANCE SHEET CR. DR.

370 650 20 175 3600

100 1800 50 2000

150

4965 4965

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

3950 1015 4965

ACCOUNT TITLE

Jessie Jane's Campus Delivery Balance Sheet June 30, 20-Assets Current assets: Cash Accounts receivable Supplies Prepaid insurance Total current assets Property, plant, and equipment

$370 650 20 175 $1,215

The long-term assets are listed next. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

INCOME STMT. DR. CR.

BALANCE SHEET DR. CR.

370 Cash 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 3600 Del. Eq 3600 A. D.–Del Eq. 100 Accts. Pay. 1800 50 Wages Pay 2000 J. J., Cap Property, plant, and equipment includes 150 J. J., Drawing 150 Del. Fees 2150 2150 the long-term assets 700 Wages Exp 700 related AND their 200 Rent Exp 200 accumulated depreciation accounts. Sup. Exp 60 60 50 Tel. Exp. 50 Ins. Exp. 25 25 D. E.–Del. Eq. 100 100 1135 2150 4965 6100 6100 1015 Net Income 2150 4965 2150

100 1800 50 2000

3950 1015 4965

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Jessie Jane's Campus Delivery Balance Sheet June 30, 20-Assets Current assets: Cash Accounts receivable Supplies Prepaid insurance Total current assets Property, plant, and equipment Delivery equipment Less accum. depr.—delivery eq.

ADJ. T. B. DR. CR.

Jessie Jane's Campus Delivery Balance Sheet June 30, 20--

$370 650 20 175 $1,215 $3,600 100

3,500

Assets Current assets: Cash $370 Accounts receivable 650 20 Supplies Prepaid insurance Now for the liabilities!!! 175 Total current assets Property, plant, and equipment Delivery equipment $3,600 Less accum. depr.—delivery eq. 100 Total assets Liabilities

$1,215

3,500 $4,715

$3,500 = Book Value ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

ACCOUNT TITLE

Jessie Jane's Campus Delivery Balance Sheet June 30, 20-Assets Current assets: Cash $370 Accounts receivable 650 20 Supplies Just as with assets, current (or short-term) 175 Prepaidthe insurance Totalliabilities current assets are shown first. Property, plant, and equipment Delivery equipment $3,600 Less accum. depr.—delivery eq. 100 Total assets Liabilities Current liabilities: ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

$1,215

3,500 $4,715

ADJ. T. B. DR. CR.

INCOME STMT. DR. CR.

BALANCE SHEET CR. DR.

370 Cash 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 3600 Del. Eq. 3600 A. D.–Del. Eq. 100 Accts. Pay. 1800 50 Wages Pay. 2000 J. J., Cap. J. J., Drawing 150 150 Del. Fees 2150 2150 700 Wages Exp 700 200 Rent Exp 200 two liabilities Jessie has only Sup. Exp 60and they are60both current… 50 Tel. Exp 50 accounts payable 25 and wages payable. Ins. Exp 25 D. E.–Del. Eq. 100 100 1135 2150 4965 6100 6100 1015 Net Income 2150 4965 2150 ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

100 1800 50 2000

3950 1015 4965

Jessie Jane's Campus Delivery Balance Sheet June 30, 20-Assets Current assets: Cash Accounts receivable Supplies Prepaid insurance Total current assets to the lower Property,Let’s plant,shift and equipment part of our balance sheet. Delivery equipment Less accum. depr.—delivery eq. Total assets Liabilities Current liabilities: Accounts payable

Jessie Jane's Campus Delivery Balance Sheet June 30, 20-Liabilities Current liabilities: Accounts payable Wages payable Total current liabilities Owner’s Equity

$370 650 20 175

ADJ. T. B. DR. CR.

$3,600 100

3,500 $4,715

$1,800

INCOME STMT. DR. CR.

100 1800 50 2000

3950 1015 4965

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Jessica Jane, capital, June 1, 20-Net income for June Less withdrawals for June Increase in capital Jessica Jane, capital, June 30, 20--

$2,000 $1,015 150 865 $2,865

This is the amount we will put on the balance sheet.

ADDITIONAL INVESTMENTS BY OWNER • Additional investments by the owner during the accounting period:

$1,800 50

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Jessie Jane's Campus Delivery Statement of Owner’s Equity For Month Ended June 30, 20--

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Jessie Jane's Campus Delivery Balance Sheet June 30, 20--

It balances!!! Total assets of $4,715 equals Total liabilities and owner’s equity of $4,715.

Since Jessie does not have long-term liabilities, we will move on to the owner’s equity section. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

BALANCE SHEET DR. CR.

Cash 370 370 Accts. Rec. 650 650 Supplies 20 20 Ppd. Ins. 175 175 3600 Del. Eq. 3600 A. D.–Del. Eq. 100 Accts. Pay. 1800 50 Wages Pay. 2000 J. J., Cap. 150 J. J., Drawing 150 Del. Fees 2150 2150 700 Wages Exp. 700 Caution!!! 200 This 200 capital amount does Rent Exp. Sup. Exp. 60 not60include net income or drawing. 50 Tel. Exp. 50 We must use the Ins. Exp. 25 25June 30th capital D. E.–Del. Eq. 100amount from 100the statement 1135 2150 4965 6100 6100 of owner’s Net Income 1015 equity. 2150 4965 2150

Liabilities Current liabilities: Accounts payable Wages payable Total current liabilities Owner’s Equity Jessica Jane, capital Total liabilities and owner’s equity

$1,850

$1,215

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

ACCOUNT TITLE

$1,800 50

$1,850 2,865 $4,715

– Appear in the general ledger capital account – Are part of the amount reported in the unadjusted trial balance on the work sheet – Must be shown separately in the statement of owner’s equity

Ramon’s Shopping Service Statement of Owner’s Equity For Month Ended July 31, 20--

ADDITIONAL INVESTMENTS BY OWNER • Ramon Balboa’s capital account had a beginning balance of $5,000. During the month, he invested an additional $3,000 into his business. The $8,000 balance in the capital account appears in the unadjusted trial balance on the work sheet.

How does the additional investment affect the Statement of Owner’s Equity?

From the general ledger

Ramon Balboa, capital, July 1, 20-Add additional investments Total investment Net income for July Less withdrawals for July Increase in capital Ramon Balboa, capital, July 31, 20--

$5,000 3,000 $8,000 $2,100 250 1,850 $9,850

From the work sheet To the balance sheet ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

2 Journalize and post closing entries.

THE CLOSING PROCESS • Gives temporary accounts zero balances so they are prepared to accumulate new information for the next accounting period • Involves four closing journal entries • The income summary account is used to aid in the closing process

PERMANENT ACCOUNTS • All accounts reported on the balance sheet

– Assets (including contra-assets) – Liabilities – Capital account • Contain the results of all transactions since the business started • These accounts are NOT CLOSED

TEMPORARY ACCOUNTS • Accumulate information for a specific accounting period • All accounts not on the balance sheet

– Revenues – Expenses – Drawing • These accounts are CLOSED

ACCOUNT TITLE

STEPS IN THE CLOSING PROCESS STEP #1 Close Revenue Accounts to Income Summary.

ADJ. T. B. DR. CR.

370 Cash Accts. Rec. 650 Supplies 20 Ppd. Ins. 175 Del. Eq. 3600 A. D.–Del. Eq. Accts. Pay. Wages Pay. J. J., Cap. 150 J. J., Drawing Del. Fees 700 Wages Exp. 200 Rent Exp. Sup. Exp. 60 Tel. Exp. 50 Ins. Exp. 25 D. E.–Del. Eq. 100 6100

INCOME STMT. DR. CR.

BALANCE SHEET DR. CR.

370 650 20 175 3600

Revenue 100 1800 50 2000

100 1800 50 2000

150 2150

2150

6100

700 200 60 50 25 100 1135 1015 2150

2150

4965

2150

4965

3950 1015 4965

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

STEPS IN THE CLOSING PROCESS

STEPS IN THE CLOSING PROCESS

STEP #1 Close Revenue Accounts to Income Summary.

STEP #1

DELIVERY FEES

DELIVERY FEES 2,150 (1) 2,150

(1)

2,150

2,150

Bal.

CLOSING ENTRIES IN JOURNAL FORM DATE

STEP #1

INCOME SUMMARY 2,150 (1)

We are, in effect, transferring the balance to the income summary account.

To reduce this account’s balance to zero, we must debit it for $2,150.

STEPS IN THE CLOSING PROCESS

Close Revenue Accounts to Income Summary.

Close Revenue Accounts to Income Summary.

DELIVERY FEES INCOME SUMMARY (1) 2,150 2,150 Bal. 2,150 (1) — — Let’s journalize this entry!

1 2 3 4 5 6 7

DESCRIPTION

PR DEBIT CREDIT

Closing Entries

Instead of an explanation after each closing entry, “Closing Entries” is written before the first entry.

8 9 10 11

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CLOSING ENTRIES IN JOURNAL FORM DATE DESCRIPTION Closing Entries 1 20-2 June 30 Delivery Fees 3 Income Summary 4

STEPS IN THE CLOSING PROCESS

PR DEBIT CREDIT

STEP #2

2,150 00 2,150 00

Close Expense Accounts to Income Summary.

5 6

Each expense account is closed in this one closing entry.

7 8 9 10 11

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Wages Expense

Wages Expense

Bal. 700 700 (2)

Bal. 700 —

Wages Expense is now closed; the $700 balance will be transferred to Income Summary along with the balances of all the other expense accounts.

Expenses have debit balances… therefore, to close them, they must be credited. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Wages Expense Bal. 700 700 (2) —

Rent Expense Bal. 200 200 (2) —

Supplies Expense Bal. 60 60 (2) —

Telephone Expense Bal. 50 50 (2) —

Income Summary (2) 1,135

Insurance Expense Depr. Expense—Del. Eq. (2) Bal. 25 25 (2) Bal. 100 100 — —

700 (2)

2,150 1,015 Bal.

All expense account balances are combined and Income Summary is debited for the total.

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Wages Expense Bal. 700 700 (2) —

Rent Expense Bal. 200 200 (2) —

Supplies Expense Bal. 60 60 (2) —

Telephone Expense Bal. 50 50 (2) —

Income Summary (2) 1,135

2,150 1,015 Bal.

Let’s journalize this entry! Insurance Expense Depr. Expense—Del. Eq. Bal. 25 —

25

(2) Bal.

100 —

100

(2)

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CLOSING ENTRIES IN JOURNAL FORM DATE 1 2 3 4

DESCRIPTION

PR DEBIT CREDIT

Closing Entries 20-June 30 Delivery Fees 2,150 00 This is a compound journal entry… Income Summary 2,150 00 One debit that equals the six credits.

5 6

Wages Expense Rent Expense Supplies Expense

7 8 9

Telephone Expense Insurance Expense Depr. Exp.—Del. Equip.

10 11

Close Income Summary to the Owner’s Capital Account.

2,150

700 00

25 00 100 00

Close Income Summary to the Owner’s Capital Account.

INCOME SUMMARY 1,135 2,150

STEPS IN THE CLOSING PROCESS STEP #3

Close Income Summary to the Owner’s Capital Account.

INCOME SUMMARY 1,135 2,150 1,015

EXPENSES

Close Income Summary to the Owner’s Capital Account.

INCOME SUMMARY

STEPS IN THE CLOSING PROCESS STEP #3

1,015 1,015

Bal.

By debiting Income Summary, we close the account.

Close Income Summary to the Owner’s Capital Account.

INCOME SUMMARY J. JANE, CAPITAL

1,135 2,150 (3)

Bal.

The balance in Income Summary is the net income.

STEPS IN THE CLOSING PROCESS STEP #3

REVENUES

200 00 60 00 50 00

STEPS IN THE CLOSING PROCESS STEP #3

STEP #3

INCOME SUMMARY

1,135 00

30 Income Summary

STEPS IN THE CLOSING PROCESS

(3)

1,135 2,150 1,015 1,015

Bal.

We transfer the net income into the Owner’s Capital account.

2,000 1,015

Bal.

CLOSING ENTRIES IN JOURNAL FORM DATE DESCRIPTION Closing Entries 12 20-13 June 30 Income Summary 14 Jessica Jane, Capital 15 16

STEPS IN THE CLOSING PROCESS

PR DEBIT CREDIT

STEP #4

1,015 00 1,015 00

Close Drawing to the Owner’s Capital Account.

J. JANE, DRAWING

17

Bal.

18

150

150

J. JANE, CAPITAL

(4)

(4)

19 20 21 22

150 2,000 1,015 2,865

Bal.

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STEPS IN THE CLOSING PROCESS

CLOSING ENTRIES IN JOURNAL FORM

STEP #4 Close Drawing to the Owner’s Capital Account. J. JANE, DRAWING J. JANE, CAPITAL 2,000 Bal. 150 150 (4) 1,015 The owner’s capital account (4) 150 now reflects the ending 2,865 Bal. balance shown on the statement of owner’s equity.

CLOSING ENTRIES POSTED TO THE GENERAL LEDGER Account: DATE 20-June 6

ITEM

DR.

“Closing” is written inJ1the Item area. J1

15

J2

30 30

PR

CR.

BALANCE DR. CR.

500

500

600 1050

1100 2150

Closing

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

17

PR DEBIT CREDIT 1,015 00 1,015 00 150 00

Jessica Jane, Drawing

150 00

18 19 20 21 22

The closing entries are then posted to the general ledger accounts. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CLOSING ENTRIES POSTED TO THE GENERAL LEDGER

Account No. 401

DELIVERY FEES

DATE DESCRIPTION Closing Entries 12 20-13 June 30 Income Summary 14 Capital 15 16 30 Jessica Jane, Capital

Account: DATE 20-June 6

ITEM

PR

DR.

CR.

BALANCE DR. CR.

A line is drawn through 500 to signify a zeroJ1 balance.

J1

15 30 30

Account No. 401

DELIVERY FEES

Closing

J2 J4 2150

600 1050

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

500 1100 2150 ——

POST-CLOSING TRIAL BALANCE

3

• Prepared after closing entries • To prove the equality of the debit and credit balances in the general ledger accounts

Prepare a post-closing trial balance.

• Only accounts that remain open (permanent accounts) are listed

Jessie Jane's Campus Delivery Post-Closing Trial Balance June 30, 20-Account Title

Acct Debit No. Balance Cash 101 370 122 650 Accounts Receivable Supplies 20 141 permanent There are only 175 145 Prepaid Insurance accounts on the post-closing Delivery Equipment 185 3,600 balance. Accumulated Depr.—Del. Eq. trial185.1 202 Accounts Payable Wages Payable 219 Jessica Jane, Capital 311 4,815

4 Credit Balance

List and describe the steps in the accounting cycle. 100 1,800 50 2,865 4,815

©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

STEPS IN THE ACCOUNTING CYCLE

STEPS IN THE ACCOUNTING CYCLE (CONT.)

• Analyze source documents.

• Complete an end-of-period work sheet.

• Journalize the transaction.

• Journalize and post the adjusting entries.

• Post to the general ledger accounts.

• Prepare an income statement, a statement of owner’s equity, and a balance sheet.

• Prepare a trial balance. • Journalize and post the closing entries. • Determine and prepare the needed adjustments on the work sheet.

• Prepare a post-closing trial balance.