chapter 10
DESCRIPTION
Chapter 10. Completing the Accounting Cycle for a Sole Propiertorship. Chapter 10 Objectives. Explain why it is necessary to update accounts through closing entries Explain the purpose of the Income Summary account Explain the relationship between the IS account and the capital account - PowerPoint PPT PresentationTRANSCRIPT
![Page 1: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/1.jpg)
Chapter 10Completing the Accounting Cycle for a Sole
Propiertorship
![Page 2: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/2.jpg)
Explain why it is necessary to update accounts through closing entries
Explain the purpose of the Income Summary account
Explain the relationship between the IS account and the capital account
Analyze and journalize the closing entries Post the closing entries to the GL Prepare a post-closing trial balance
Chapter 10 Objectives
![Page 3: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/3.jpg)
When you refer to the close of a period, what do you mean? End of period
Why is it important to transfer the temporary account balances to the permanent owner’s capital account? To bring the Capital account balances up to
date
What do you think?
![Page 4: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/4.jpg)
What do you think closing entries will do? Prepare the accounting records when one
period is ending and to get ready for the next period
Why are revenue, expense and owner’s w/d temporary accounts? They need to have a ZERO balance at end of
period
Discussion
![Page 5: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/5.jpg)
The last two steps of the accounting cycle The purpose of closing entries The purpose of the Income Summary
account How to journalize the closing entries
Section 10.1 Objectives
![Page 6: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/6.jpg)
8th step in the accounting cycle Journal entries made to close, or reduce to zero,
the balances of the temporary accounts Transfer the net income or net loss to the
owner’s capital account After the closing entries have been journalized
and posted, a Post-Closing Trial Balance is prepared to ensure that DR=CR
Closing Entries
![Page 7: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/7.jpg)
All temporary accounts (expenses, revenue, etc…) need to start each new accounting period with a ZERO balance
Closing Entries
![Page 8: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/8.jpg)
Net income or net loss Calculated from the worksheet and transferred to
the Income Statement From the IS, it’s included in the Statement of
Changes of Owner’s Equity Then listed on the Balance Sheet as the new Capital
account Notice that the capital account from the
worksheet and prepared Balance Sheet do not match
We already know
![Page 9: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/9.jpg)
Maria Sanchez, Capital from the worksheet = $25,400
Maria Sanchez, Capital from the BS = $26,050
These amounts are different because the temporary accounts need to go through the closing process to bring all the accounts up to date
We already know
![Page 10: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/10.jpg)
Income Summary Account
Serves as a simple income statement in the general ledger
Used to accumulate revenue and expenses for the period
Equals the net income or loss for the periodIncome Summary
Account = general ledger
account used to summarize the revenue and
expenses for the period.
![Page 11: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/11.jpg)
Income Summary Account is a temporary account that
Is used only at the end
of the accounting period to
summarize revenue and
expense balances
does not have a normal balance
side
has a zero balance
before and after closing
process
does not appear on
any financial
statement
![Page 12: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/12.jpg)
Journalizing Closing Entries
Four journal entries are prepared to close the temporary accounts
![Page 13: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/13.jpg)
Close Revenue to Income Summary Transfer balances of all revenue accounts to
the CR side of IS
#1: Revenue to Income Summary
![Page 14: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/14.jpg)
Close expense accounts to Income Summary Transfer expense account balances to the DR
side of Income Summary
#2: Expenses to Income Summary
![Page 15: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/15.jpg)
#2: Expenses to Income Summary
![Page 16: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/16.jpg)
Close Income Summary to the Owner’s Capital account Transfer the balance of Income Summary to
the Owner’s Capital account
#3: Income Summary to Capital
Income Summary
Expenses $1,500 Revenue $2,650
Balance $1,150
![Page 17: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/17.jpg)
#3: Income Summary to Capital
![Page 18: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/18.jpg)
Close Owner’s Withdrawal to Owner’s Capital Transfer the balance of the withdrawals to the
DR side of the Owner’s Capital account
#4: Withdrawals to Capital
![Page 19: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/19.jpg)
In what step in the accounting cycle are closing entries made?
What is the DR side of Income Summary used for?
What is the CR side of Income Summary used for?
What is an entry called that has two or more debits or two or more credits?
Exit Ticket
![Page 20: Chapter 10](https://reader031.vdocuments.us/reader031/viewer/2022020500/56815b20550346895dc8dc93/html5/thumbnails/20.jpg)
10-1: text p. 259; wbk p. 184 10-2: text p. 259; wbk p. 185 9-1 & 9-2 Work Together
To-Do