1 LESSON 8-3

ACCOUNTING CYCLE FOR A SERVICE BUSINESS

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8. Prepare post-closing trial balance

7. Post adjusting and closing entries

6. Journalize adjusting and closing entries

5. Prepare financial statements

4. Prepare work sheet

3. Post

2. Journalize

1. Analyzes transactions

LESSON 8-1 2

ADJUSTING ENTRY FOR SUPPLIES

LESSON 8-1 3

ADJUSTING ENTRY FOR PREPAID INSURANCE

SALES +EXPENSES INCOME SUMMARY CAPITAL ACCOUNT (OE)

CLOSING ENTRIES

TEMPORARY

PERMANENT

Permanent Accounts also known as Real Accounts - Assets, Liabilities and OE accounts

Temporary Accounts – used to accumulate information until it is transferred to OE accounts (e.g. Sales & Expenses)

Closing Entries – used to reduce temporary accounts back to 0. WHY??

LESSON 8-2 5

CLOSING ENTRIES TERMS REVIEW

WORK SHEET

LESSON 8-2 7

NEED FOR THE INCOME SUMMARY ACCOUNT

LESSON 8-2 8

CLOSING ENTRY FOR AN INCOME STATEMENT ACCOUNT WITH A CREDIT BALANCE

(Debit to close)

LESSON 8-2 9

CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES

(Credit to close)

LESSON 8-2 10

CLOSING ENTRY TO RECORD NET INCOME OR LOSS AND CLOSE THE INCOME

SUMMARY ACCOUNT

(Income Summary:debit to close)

(Capital: credit torecord net income)

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LESSON 8-2 11

CLOSING ENTRY FOR THE OWNER’S DRAWING ACCOUNT

(Credit to close)

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1. Get a textbook.2. Go to schoolrack.com/dgarfinkel.

Click on “Accounting”3. Scroll down to “Chapter 8” and click

on “Activity: Excel Application Problem 8-2”

4. Open the file up and turn to p. 221 in the text

APPLICATION PROBLEM 8-2