5 - 1

The Accounting Cycle Completed –

Adjusting, Closing, andPost-Closing Trial Balance

Chapter 5

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End of the Period Activities

Adjusting entries must be entered in the journal and posted.

Closing entries must be journalized at the end of the accounting period so that income can be measured for the new period.

Temporary accounts are closed.

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Analyze Transactions

PrepareTrial Balance

Record, Journalize,and Post

End of the Period Activities

Accounting Cycle

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End of the Period Activities

Prepare Adjustments

Complete Worksheet

Prepare ReportsClose the Accounting

Period

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Learning Objective 1

Journalizing and postingadjusting entries.

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Learning Unit 5-1

Adjusting entries Assets must be adjusted to show amounts

used or allocated to periods and recorded as expenses.

– supplies used– prepaid rent expired over time– equipment depreciated

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Learning Unit 5-1

Journalizing and posting adjusting entries The worksheet is complete. The books are not up to date. Adjusting entries are taken from the

worksheet and journalized. The journal entries must be posted.

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Learning Objective 2

Journalizing and postingclosing entries.

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Learning Unit 5-2

Journalizing and posting closing entries Closing is a mechanical step which sets

temporary accounts to zero so that they are ready for a new measurement period.

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Learning Unit 5-2

What are permanent accounts?– assets– liabilities– capital– balance sheet accounts

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Learning Unit 5-2

Permanent accounts are also called real accounts.

Balances are carried forward.

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Learning Unit 5-2

What are temporary accounts?– revenue– expenses– withdrawals

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Learning Unit 5-2

New data is accumulated each period. Temporary accounts are also called

nominal accounts. Balances are set to zero.

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Learning Unit 5-2

Closing entries: There are four steps to perform.1 Debit revenue accounts and credit the

Income Summary account.2 Debit the Income Summary account and

credit expense accounts.

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Learning Unit 5-2

3 Debit or credit the Income Summary account and debit or credit the Capital account.

4 Debit the Capital account and credit the Withdrawals account.

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Learning Unit 5-2

Four Steps in Journalizing Closing Entries

Step 1:Revenue

Step 2:Expenses

Step 3:Income Summary

Net Income or Loss`

Step 4:Withdrawals Capital

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Revenue IncomeSummary3,450

Various Exp1,205

3,450

1,205

1,455 3,450

Dep. Exp 50 50

Supplies Exp200 200

1,955

1,955

(Close Revenue Account)

(Close ExpenseAccounts)

(Close IncomeSummary)

CapitalAccount

Learning Unit 5-2

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Learning Objective 3

Prepare a post-closingtrial balance.

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Learning Unit 5-3

The post-closing trial balance:Step 8 of the Accounting Cycle

The post-closing trial balance helpsprove the accuracy of the adjusting and closing process.

It contains the true ending figure for capital. It contains only permanent accounts.

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Adjustments Example

Adjusted Trial Balance Adjustments Trial Balance

Account Title Dr. Cr. Dr. Cr. Dr. Cr.CashAccounts receivableSuppliesEquipmentAccum. depreciationAccounts payableCapitalRevenueVarious expensesSupplies expenseDepreciation expense

Totals

4,065850300

1,200

1,205

7,620

1705,00

02,45

0

7,620

a) 1,000

b) 200c) 50

1,250

b) 200

c) 50

a) 1,000

1,250

4,0651,850

1001,200

1,205200

508,670

50170

5,0003,450

8,670

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Adjustments Example

Adjusted Income Balance Trial Balance Statement Sheet

Account Title Dr. Cr. Dr. Cr. Dr. Cr.CashAccounts receivableSuppliesEquipmentAccum. depreciationAccounts payableCapitalRevenueVarious expensesSupplies expenseDepreciation expense

Totals

4,0651,850

1001,200

1,205200

508,670

50170

5,0003,450

8,670

1,20520050

1,455

3,450

3,450

4,065

1,850

1001,20

0

7,215

50170

5,000

5,220 1,995 1,995 3,450 3,450 7,215 7,215

Net income

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Cash $4,065Accounts Receivable 1,850Supplies 100Equipment 1,200

Total $7,215Accumulated Depreciation: Equipment 50Accounts Payable 170Clara J., Capital 6,995

Total $7,215

Post Closing Trial Balance

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End of Chapter 5