lesson 8-2 recording closing entries. permanent accounts permanent accounts: accounts used to...
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LESSON 8-2
Recording Closing Entries
PERMANENT ACCOUNTS
Permanent Accounts: accounts used to accumulate information from one fiscal period to the next Also called Real Accounts Includes assets, liabilities, and owner’s capital Ending balances of permanent accounts for one fiscal period
are the beginning account balances for the next All accounts on the Balance Sheet (except drawing)
TEMPORARY ACCOUNTS
Temporary accounts: accounts used to accumulate information until it is transferred to the owner’s capital account Also known as nominal accounts Includes all Income Statement Accounts (Sales & Expenses)
Sales, expenses, and drawing Includes Income summary
Temp accounts begin a new fiscal period with a Zero Balance Temp accts. show changes in owner’s capital for a single fiscal period Balances transferred to owner’s capital at end of fiscal period
Is Cash a permanent or a temporary account? Permanent
Is Account Payables a permanent or temporary account? Permanent
Is Sales a permanent or a temporary account Temporary
Is drawing a permanent or temporary account? Temporary
CLOSING ENTRIES
Closing Entries: journal entries used to prepare temporary accounts for a new fiscal period (to zero) Temporary accounts reduced to zero at end of fiscal period Must start new fiscal period with zero to separate net income
or net loss for each fiscal period
How to Get Temp Accounts to Zero?
Two Steps Journalize an entry to get account to zero Post the entry to Ledger to get balance to zero
If Sales has a credit balance of $3800, how would you get it to zero? Enter a debit transaction equal to its balance Debit of $3800
In Dual entry, if you have a debit you must have a credit…. What account do we credit?????
Account: Sales Account No. 410
Date Account TitlePost
RefDebit Credit
Balance
Debit Credit
Nov 7 1 3 8 0 0 00 3 8 0 0 00
INCOME SUMMARY ACCOUNT
Income Summary: temporary account used to summarize closing entries Does not have a normal balance side Like a holding area before gets to final destination Balance of this account is determined by amounts posted Income Summary also closed at the end of the month as it
too is a temporary account
FOUR TYPE OF CLOSEING ENTRIES
Sales account: Debit sales account Credit Income Summary
Expense accounts: Credit expense account Debit Income summary
Income Summary: Either a Debit or Credit to the income summary Either a debit or credit to Capital account
Drawing Account: Credit Drawing Account Debit Capital Account
COMPLETING CLOSING ENTRIES
Step One: Enter section for closing entries in Journal
Recorded on Next Line below the adjusting entries Center Title “Closing Entries” on next line Enter date of Closing entries - No source document used for
journal entries – can enter Check mark in “doc. No.”
Journal
General Sales Credit
Cash
Date Account Title Doc No.
Post. Ref Debit Credit Debit Credit
Adjusting Entries Nov 30 Supplies Expense 570 5 0 0 00 Supplies 5 0 0 0 00 Nov 30 Insurance Expense 520 1 5 0 00 Prepaid Insurance 1 5 0 00
CLOSING REVENUE ACCOUNTS page 208
How do you close Sales with $3800?• Debit Sales $3800• Credit Income Summary $3800
Journal
General
Date Account Title Doc No.
Post. Ref Debit Credit
Adjusting Entries
Nov 30 Supplies Expense 570 5 0 0 00
Supplies 5 0 0 0 00
Nov 30 Insurance Expense 520 1 5 0 00
Prepaid Insurance 1 5 0 00
Closing Entries
CLOSING EXPENSEACCOUNTS page 208
How do you close Expenses?• Debit Income Summary• Credit Expense accounts
Enter in Journal• List each exp. account• Sum all expenses and
enter total amount as
Income summary
Journal
General
Date Account Title Doc No.
Post. Ref Debit Credit
Adjusting Entries
Nov 30 Supplies Expense 570 5 0 0 00
Supplies 5 0 0 0 00
Nov 30 Insurance Expense 520 1 5 0 00
Prepaid Insurance 1 5 0 00
Closing Entries
CLOSING INCOME SUMMARY ACCOUNT page 208
Close Income Summary?• If Net Income
• Debit Income Summary • Credit Capital Account
• Don Arnodt, Cap.• If Net Loss:
• Credit Income Summary• Debit Capital Account
Journal
General
Date Account Title Doc No.
Post. Ref Debit Credit
Adjusting Entries
Nov 30 Supplies Expense 570 5 0 0 00
Supplies 5 0 0 0 00
Nov 30 Insurance Expense 520 1 5 0 00
Prepaid Insurance 1 5 0 00
Closing Entries
Nov 30 Sales 3 8 0 0 00
Income Summary 3 8 0 0 00
Nov 30 Income Summary 1 8 9 0 00
Advertising Exp. 2 0 0 00
Insurance Exp. 1 5 0 00
Miscell. Exp. 5 0 00
Rent Exp. 6 0 0 00
Supplies Exp. 5 0 0 00
Utilities Exp. 3 9 0 00
CLOSING DRAWINGACCOUNT page 208
Journal
General
Date Account Title Doc No.
Post. Ref Debit Credit
Adjusting Entries
Nov 30 Supplies Expense 570 5 0 0 00
Supplies 5 0 0 0 00
Nov 30 Insurance Expense 520 1 5 0 00
Prepaid Insurance 1 5 0 00
Closing Entries
Nov 30 Sales 3 8 0 0 00
Income Summary 3 8 0 0 00
Nov 30 Income Summary 1 8 9 0 00
Advertising Exp. 2 0 0 00
Insurance Exp. 1 5 0 00
Miscell. Exp. 5 0 00
Rent Exp. 6 0 0 00
Supplies Exp. 5 0 0 00
Utilities Exp. 3 9 0 00
Nov 30 Income Summary 1 9 1 0 00
Don Arnodt, Cap 1 9 1 0 00
Close the Drawing Account• Credit the Drawing Account• Debit the Capital Account
• Don Arnodt, Cap.
CLOSING DRAWINGACCOUNT page 208
Journal
General
Date Account Title Doc No.
Post. Ref Debit Credit
Adjusting Entries
Nov 31 Supplies Expense 570 5 0 0 00
Supplies 5 0 0 0 00
Nov 31 Insurance Expense 520 1 5 0 00
Prepaid Insurance 1 5 0 00
Closing Entries
Nov 31 Sales 3 8 0 0 00
Income Summary 3 8 0 0 00
Nov 31 Income Summary 1 8 9 0 00
Advertising Exp. 2 0 0 00
Insurance Exp. 1 5 0 00
Miscellaneous Exp. 5 0 00
Rent Exp. 6 0 0 00
Supplies Exp. 5 0 0 00
Utilities Exp. 3 9 0 00
Nov 31 Income Summary 1 9 1 0 00
Don Arnodt, Cap 1 9 1 0 00
Nov 31 Don Arnodt, Capital 3 0 0 00
Don Arnodt, Draw. 3 0 0 00
Close the Drawing Account• Credit the Drawing Account• Debit the Capital Account
• Don Arnodt, Cap.
TERMS REVIEW
permanent accounts temporary accounts closing entries
page 212