The Accounting Cycle

Adjusting entries Cash 12,100 Closing entries Accounts Receivable 3,050

Postclosing Trial Balance

Cash 12,100 Accounts receivable 3,050

Recording the Adjusting Entries

The work sheet helps identify the accounts that need adjustments.
Actual adjustment of the accounts requires journalizing and posting the entries.

Recording the Adjusting Entries

The adjusting entries may be recorded in the

journal when they are entered on the work sheet. Many accountants journalize and post the adjusting entries just before they make the closing entries.

Objective 3 Close the revenue, expense, and withdrawal accounts.

Closing the Accounts

Closing the accounts is the end of period

process that prepares the accounts for recording transactions during the next period.

Closing the Accounts

Closing Entries Expenses and Withdrawals decrease Owners Equity.

Revenues increase Owners Equity.

Closing the Accounts

Revenues and Expense accounts are closed

to Income Summary. Income Summary is closed to Capital. Withdrawals are closed to Capital. In a corporation, Dividends are closed to Retained Earnings.

Closing the Accounts

Income Summary
A debit balance represents net loss. A credit balance represents net income.

Closing the Accounts

Revenue 28,500 12,000 7,500 9,000 Salary Exp 1,500 3,300 1,800 Rent Exp 800 800 Supplies Exp 350 350
2002 Prentice Hall, Inc.

(Close Revenue Account)

Income Summary (Close Expense 4,450 28,500 Accounts) 24,050 (Close Income Summary) Capital Account 2,500 24,050 (Close Withdrawals Withdrawals Account) 2,500 2,500
Accounting, 5/E Horngren/Harrison/Bamber 4 - 23

Business Publishing

Postclosing Trial Balance

The accounting cycle ends with the

postclosing trial balance. The postclosing trial balance is dated as of the end of the period for which the statements have been prepared.

Permanent Accounts
What accounts never close?
Assets Liabilities

Owners equity
Balances of permanent accounts carry over

to the next period.

The Classified Balance Sheet

XYZ Services January 31, 20XX
Assets Current assets: Cash 12,100 Accounts receivable 3,050 Supplies 150 Total current assets 15,300 Plant assets Equipment 15,500 Less Accum. deprec. 7,700 7,800 Total assets 23,100 Liabilities Current liabilities: Accounts payable Salary payable Unearned revenue Total liabilities Owners equity Capital Total liabilities and owners equity

1,200 1,100 1,500 3,800 19,300

23,100