Accounting Chapter 5

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  • Accounting Chapter 5

    1. 1. 5 Completing the Accounting Cycle
    2. 2. <ul><li>Resets revenue, expense and withdrawal account balances to zero at the end of the period. </li></ul><ul><li>Helps summarize a period’s revenues and expenses in the Income Summary account. </li></ul>Closing Process Identify accounts for closing. Record and post closing entries. Prepare post-closing trial balance.
    3. 3. Temporary and Permanent Accounts The closing process applies only to temporary accounts. Temporary Accounts Revenues Income Summary Expenses Withdrawals Permanent Accounts Assets Liabilities Owner’s Capital
    4. 4. Recording and Posting Closing Entries <ul><li>Close Revenue accounts to Income Summary. </li></ul><ul><li>Close Expense accounts to Income Summary. </li></ul><ul><li>Close Income Summary account to Owner’s Capital. </li></ul><ul><li>Close Withdrawals to Owner’s Capital. </li></ul>Let’s see how the closing process works!
    5. 5. Closing Process for a Proprietorship Balances before closing.
    6. 6. Closing Process for a Proprietorship <ul><li>Close Revenue accounts to Income Summary. </li></ul>
    7. 7. Closing Process for a Proprietorship <ul><li>Close Expense accounts to Income Summary. </li></ul>The balance in Income Summary equals net income.
    8. 8. Closing Process for a Proprietorship <ul><li>Close Income Summary to Owner’s Capital. </li></ul><ul><li>Close Withdrawals account to Owner’s Capital. </li></ul>
    9. 9. Using the adjusted trial balance, let’s prepare the closing entries for FastForward. Exh. 5.3
    10. 10. <ul><li>Close Revenue accounts to Income Summary. </li></ul>Exh. 5.3
    11. 11. <ul><li>Close Revenue Accounts to Income Summary </li></ul>Now, let’s look at the ledger accounts after posting this closing entry. Exh. 5.3 Prepare the entry to close Revenues by debiting the revenue accounts and crediting Income Summary.
    12. 12. <ul><li>Close Revenue Accounts to Income Summary </li></ul>Now, let’s look at the ledger accounts after posting this closing entry. Exh. 5.3
    13. 13. <ul><li>Close Revenue Accounts to Income Summary </li></ul>
    14. 14. <ul><li>Close Expense accounts to Income Summary. </li></ul>Exh. 5.3
    15. 15. <ul><li>Close Expense Accounts to Income Summary </li></ul>Now, let’s look at the ledger accounts after posting this closing entry. Exh. 5.3 Prepare the entry to close Expenses by crediting the expense accounts and debiting Income Summary.
    16. 16. <ul><li>Close Expense Accounts to Income Summary </li></ul>Now, let’s look at the ledger accounts after posting this closing entry. Exh. 5.3
    17. 17. <ul><li>Close Expense Accounts to Income Summary </li></ul>Net Income
    18. 18. <ul><li>Close Income Summary to Owner’s Capital. </li></ul>Exh. 5.3
    19. 19. <ul><li>Close Income Summary to Owner’s Capital </li></ul>Now, let’s look at the ledger accounts after posting this closing entry. Exh. 5.3
    20. 20. <ul><li>Close Income Summary to Owner’s Capital </li></ul>
    21. 21. <ul><li>Close Withdrawals to Owner’s Capital. </li></ul>Exh. 5.3
    22. 22. <ul><li>Close Withdrawals to Owner’s Capital </li></ul>Now, let’s look at the ledger accounts after posting this closing entry. Exh. 5.3
    23. 23. <ul><li>Close Withdrawals to Owner’s Capital </li></ul>
    24. 24. Post-Closing Trial Balance <ul><li>List of permanent accounts and their balances after posting closing entries. </li></ul><ul><li>Total debits and credits must be equal. </li></ul>Let’s look at FastForward’s post-closing trial balance.
    25. 25. Exh. 5.4
    26. 26. Closing Entries for a Corporation <ul><li>Close Revenue accounts to Income Summary. </li></ul><ul><li>Close Expense accounts to Income Summary. </li></ul><ul><li>Close Income Summary account to Retained Earnings. </li></ul><ul><li>Close Dividends Declared to Retained Earnings. </li></ul>The first two entries are the same, but the last two are a little different!
    27. 27. End of Chapter 5 Let’s close this chapter!

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