Accounting Chapter 17

1
Accounting Chapter 17

• Adjusting and Closing Entries for a
  Merchandising Business

2
Adjusting Entries

• Four adjusting entries are made to bring these
  permanent accounts up-to-date
• Merchandise Inventory
• Office Supplies
• Store Supplies
• Prepaid Insurance
• "Adjusting Entries" is written at the top of the
  journal - no source document
• Taken from the Adjustment columns of the Work
  Sheet.
• Post adjusting entries in the general ledger

3
Closing Entries

• Four closing entries are made to bring the
  balance of temporary accounts to "zero" at the
  end of a fiscal period.
• Close Sales
• Close Expenses and Purchases
• Close Income Summary (transfer net income or net
  loss into Capital)
• Close Drawing
• When "closing" accounts, you are reversing their
  balance to the side opposite their normal balance

4
Close Sales

• Income Statement account w/credit balance
• To close
• Debit Sales
• Credit Income Summary

5
Close Purchases and Expenses

• Income Statement accounts w/debit balances
• To close
• Debit Income Summary (for the total of all
  expenses and purchases)
• Credit Purchases and all Expenses

6
Close Income Summary

• Transfers net income or net loss into the owners'
  capital accounts
• Net income increases capital (must credit
  capital)
• Net loss decreases capital (must debit capital)
• Information for this entry comes from the
  Distribution of Net Income Statement
• To close Income Summary where a net income is
  reported
• Debit Income Summary for the total amount of net
  income
• Credit EACH Capital account for the owner's share
  of net income
• To close Income Summary where a net loss is
  reported
• Debit EACH Capital account for the owner's share
  of net loss
• Credit Income Summary for the total amount of net
  loss

7
Close Drawing

• Drawing reduces capital
• Owners' Equity account w/debit balance
• To close
• Debit Capital (for the balance in the Drawing
  account)
• Credit Drawing (for the balance in the Drawing
  account)
• Must make one entry for each partner

8
Check General Ledger Accuracy

• Only permanent accounts (assets, liabilities, and
  owners' capital have a balance)
• Create a Post-Closing Trial Balance
• Proves the equality of debits and credits in the
  general ledger
• Only permanent accounts are listed
• Total of the debits must equal the total of the
  credits