Accounting

Adjusting Entries
By Osman Bin Saif
 Adjusting Entries

Adjusting Entries
bring certain account 12/31/2010

balances up to date at
UPDATE

the end of the

accounting period.
 Adjustments
Adjusting entries are required when changes
in certain accounts have not been recorded in
the accounting records.

Adjustments are
necessary for items
that have either
been deferred or
accrued.
 Reason for Adjustments
It can be inefficient and costly to
account for certain types of
transactions on a daily basis.
 Reason for Adjustments
An example of the inefficiency of recording certain
transactions follows:

Each time an employee removes a pen from the supplies

closet, a journal entry debiting Supplies Expense and
crediting Supplies for $1.25 (estimated cost of pen)
should be recorded. However, it would be very costly
and inefficient to try to keep up with each little
transaction like this. So instead, we wait until the end of
the accounting period and determine the total amount of
supplies used. Then we make one adjusting entry to
account for all the supplies used during the period.
 Adjusting Entries

Adjusting Entries are necessary when

accrual basis accounting is used.

Adjusting entries allow businesses to

adhere to the Matching Principle.
 Accrual Basis Accounting

Under accrual basis accounting, revenues

are recognized when earned (regardless of
whether cash has been received) and
expenses are recognized when incurred
(regardless of cash payment).
The Matching Principle
The Matching
Principle states that
expenses should be
“matched” together
with the income
they produced in
the same time
period.
 Characteristics of Adjustments
Adjusting entries will always have the following
characteristics:
•Adjusting entries are internal transactions—no
new source document exists for the adjustment.
•Adjusting entries are non-cash transactions—the
Cash account will never be used in an adjusting
entry.
•Adjusting entries will always involve at least one
income statement account and one balance sheet
account.
 How to Analyze an Adjusting Entry

When analyzing an adjusting entry, look for

the item that has not been recorded but
should have been. This information is often
not explicit and must be inferred from the
data given.

For expenses, look for the amount used. For

revenue, look for the amount earned.
 Analyzing an Adjusting Entry:
An Example
You have the following data about an adjustment:
Prepaid $15,000 for 12 months of insurance
on Sept 1 of the current year. Make the
appropriate adjustment as of the end of the
fiscal period.
 Analyzing an Adjusting Entry:
An Example
Original Entry: On Sept 1 the following entry
would be recorded when the insurance was
prepaid:
Prepaid Insurance15,000
Cash 15,000

Prepaid Insurance is an asset account – it is an

amount owned by the company that has
economic value.
 Analyzing an Adjusting Entry:
An Example
Each month, a portion of the prepaid insurance
expires. At the end of the fiscal period, the
Prepaid Insurance and Insurance Expense
accounts must be updated for the insurance that
has expired (been used).
 Analyzing an Adjusting Entry:
An Example
Let’s divide the analysis of this transaction into two parts:
1.What accounts are involved?
When something is “used up” it indicates an expense
account. In this case, we need to debit Insurance
Expense for the expired insurance. Furthermore, the
asset, Prepaid Insurance, has decreased so we will
credit this asset.
2.What is the amount of the adjustment?
See the next slide for the calculation of the amount of
expired insurance.
Analyzing an Adjusting Entry:
An Example
$15,000 for 12 months=
$1,250/month (15,000/12)
-------
Policy purchased on Sept 1. Months that
have expired between purchase and
fiscal year-end = 4 (Sept, Oct, Nov, Dec)
Amount of adjustment = $5,000
($1,250/month X 4 months)
 Record the Adjustment
Adjusting entries are always recorded on
the last day of the fiscal period. For our
example, the fiscal period closes on Dec
31. The adjustment is journalized as
follows:

POST
DATE ACCOUNT DEBIT CREDIT
REF

Dec 31 Insurance Expense 5000 00

Prepaid Insurance 5000 00
 Analyzing an Adjusting Entry:
Another Example
Let’s try another example. You have the following data about an
adjustment:

You received $12,000 advance cash on

November 1 for a painting job you are to
complete over the next three months.
 Analyzing an Adjusting Entry:
Another Example
Original Entry: On November 1, Cash would be
debited and a liability account called Unearned
Painting Revenue would be credited. The liability
account is credited because you owe the customer.
You owe the customer painting services.)
Cash 12,000
Unearned Painting Rev 12,000
 Analyzing an Adjusting Entry:
Another Example
Each month as you perform painting services, you
are earning a portion of the unearned revenue. At
the end of the fiscal period, the Unearned Painting
Revenue and Painting Revenue accounts must be
updated for the revenue that has now been earned.
 Completing the Adjustment
We have performed step 1 of the analysis: the
accounts involved are Unearned Painting Revenue
(a liability) and Painting Revenue (a revenue). So
far, the adjusting entry looks as follows:
POST
DATE ACCOUNT DEBIT CREDIT
REF

Dec 31 Unearned Painting Revenue

Painting Revenue

Note that as we perform the services owed, the

liability decreases (this is accomplished by
debiting Unearned Painting Revenue) and the
revenue earned increases (this is accomplished by
crediting Painting Revenue).
 Step 2: What amount is
Used in the Adjustment?
$12,000 for 3 months=
$4,000/month (12,000/3)
-------
Cash advance received on November 1.
Two months of work have been
completed by the fiscal year-end (Nov
and Dec)
Amount of adjustment = $8,000
($4,000/month X 2 months)
 Complete the Adjusting Entry
Now fill in the amount of the adjustment:

POST
DATE ACCOUNT DEBIT CREDIT
REF

Dec 31 Unearned Painting Revenue 8,000 00

Painting Revenue 8,000 00
 Next Step
You are now closer to completing the accounting
cycle. You can continue to practice adjusting
entries by choosing the Adjusting Entries
Practice presentation.

The next step in the accounting cycle is to

prepare an Adjusted Trial Balance.
 NEXT
Chapter
Completing the Accounting Cycle

Learning Objectives
1. Work Sheet
2. Financial Statements
3. Adjusting and Closing Entries
4. Fiscal Year
5. Accounting Cycle
6. Financial Analysis and Interpretation
Chapter
Completing the Accounting Cycle

Slide # Power Note Topics

3 • The Work Sheet
18 • Financial Statements
22 • The Closing Process
28 • Post-Closing Trial Balance
31 • Accounting Cycles
43 • Working Capital and
Current Ratio

Note: To select a topic, type the slide # and press Enter.

 The Work Sheet

Trial Balance Adjustments Adjusted TB

Accounts Dr Cr Dr Cr Dr Cr

Prepared from general ledger.

Accounts are listed in order: A, L, OE, R, E
 The Work Sheet

Trial Balance Adjustments Adjusted TB

Accounts Dr Cr Dr Cr Dr Cr

Adjustments are entered here. Two possibilities:

1. Deferrals – Existing balances are changed.
2. Accruals – New information is entered.
 The Work Sheet

Trial Balance Adjustments Adjusted TB

Accounts Dr Cr Dr Cr Dr Cr

Adjustments are combined with the trial balance.

Account balances are now adjusted.
 NetSolutions - Work Sheet - Two Months Ended 12/31/02
Trial Balance Adjustments Adj. Trial Balance
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15 Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr. 0 (f) 50 50
21 Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31Chris Clark, Capital 25,000 25,000
32Chris Clark, Drawing 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc. Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
 NetSolutions - Work Sheet - Two Months Ended 12/31/02
Trial Balance Adjustments Adj. Trial Balance
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15 Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr. 0 (f) 50 50
21 Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31Chris Clark, Capital 25,000 25,000
32Chris Clark, Drawing 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc. Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
 NetSolutions - Work Sheet - Two Months Ended 12/31/02
Trial Balance Adjustments Adj. Trial Balance
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15 Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr. 0 (f) 50 50
21 Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31Chris Clark, Capital 25,000 25,000
32Chris Clark, Drawing 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc. Expense 455 455
42,600 32,600 2,260 2,260 43,400 43,400
 NetSolutions - Work Sheet - Two Months Ended 12/31/02
Trial Balance Adjustments Adj. Trial Balance
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15 Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr. 0 (f) 50 50
21 Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31Chris Clark, Capital 25,000 25,000
32Chris Clark, Drawing 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc. Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
 NetSolutions - Work Sheet - Two Months Ended 12/31/02
Trial Balance Adjustments Adj. Trial Balance
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15 Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr. 0 (f) 50 50
21 Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31Chris Clark, Capital 25,000 25,000
32Chris Clark, Drawing 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc. Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
 NetSolutions - Work Sheet - Two Months Ended 12/31/02
Trial Balance Adjustments Adj. Trial Balance
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15 Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr. 0 (f) 50 50
21 Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31Chris Clark, Capital 25,000 25,000
32Chris Clark, Drawing 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc. Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
 NetSolutions - Work Sheet - Two Months Ended 12/31/02
Trial Balance Adjustments Adj. Trial Balance
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15 Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr. 0 (f) 50 50
21 Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31Chris Clark, Capital 25,000 25,000
32Chris Clark, Drawing 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc. Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
 NetSolutions - Work Sheet - Two Months Ended 12/31/02
Trial Balance Adjustments Adj. Trial Balance
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15 Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr. 0 (f) 50 50
21 Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31Chris Clark, Capital 25,000 25,000
32Chris Clark, Drawing 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc. Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
 NetSolutions - Work Sheet - Two Months Ended 12/31/02
Trial Balance Adjustments Adj. Trial Balance
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15 Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr. 0 (f) 50 50
21 Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31Chris Clark, Capital 25,000 25,000
32Chris Clark, Drawing 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc. Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
 NetSolutions - Work Sheet - Two Months Ended 12/31/02
Adj. Trial Balance Income Statement Balance Sheet
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,720 2,720
14 Supplies 760 760
15 Prepaid Insurance 2,300 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr. 50 50
21 Accounts Payable 900 900
22 Wages Payable 250 250
23 Unearned Rent 240 240
31Chris Clark, Capital 25,000 25,000
32Chris Clark, Drawing 4,000 4,000
41 Fees Earned 16,840 16,840
42 Rent Revenue 120 120
51 Wages Expense 4,525 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 50 50
54 Utilities Expense 985 985
55 Supplies Expense 2,040 2,040
56Insurance Expense 100 100
59 Misc. Expense 455 455
43,400 43,400 9,755 16,960 43,645 16,440
Net Income 7,205 7,205
16,960 16,960 43,645 43,645
 NetSolutions - Work Sheet - Two Months Ended 12/31/02
Adj. Trial Balance Income Statement Balance Sheet
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,720 2,720
14 Supplies 760 760
15 Prepaid Insurance 2,300 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr. 50 50
21 Accounts Payable 900 900
22 Wages Payable 250 250
23 Unearned Rent 240 240
31Chris Clark, Capital 25,000 25,000
32Chris Clark, Drawing 4,000 4,000
41 Fees Earned 16,840 16,840
42 Rent Revenue 120 120
51 Wages Expense 4,525 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 50 50
54 Utilities Expense 985 985
55 Supplies Expense 2,040 2,040
56Insurance Expense 100 100
59 Misc. Expense 455 455
43,400 43,400 9,755 16,960 43,645 16,440
Net Income 7,205 7,205
16,960 16,960 43,645 43,645
 NetSolutions - Work Sheet - Two Months Ended 12/31/02
Adj. Trial Balance Income Statement Balance Sheet
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,720 2,720
14 Supplies 760 760
15 Prepaid Insurance 2,300 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr. 50 50
21 Accounts Payable 900 900
22 Wages Payable 250 250
23 Unearned Rent 240 240
31Chris Clark, Capital 25,000 25,000
32Chris Clark, Drawing 4,000 4,000
41 Fees Earned 16,840 16,840
42 Rent Income 120 120
51 Wages Expense 4,525 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 50 50
54 Utilities Expense 985 985
55 Supplies Expense 2,040 2,040
56Insurance Expense 100 100
59 Misc. Expense 455 455
43,400 43,400 9,755 16,960 43,645 16,440
Net Income 7,205 7,205
16,960 16,960 43,645 43,645
 NetSolutions
Income Statement
For Two Months Ended December 31, 2002

Fees earned $16,840

Rent revenue 120
Total revenues $16,960
Expenses:
Wages expense $ 4,525
Supplies expense 2,040
Rent expense 1,600
Utilities expense 985
Insurance expense 100
Depreciation expense 50
Miscellaneous expense 455
Total expenses 9,755
Net income $ 7,205
 NetSolutions
Statement of Owner’s Equity
For Two Months Ended December 31, 2002

Chris Clark, capital, November 1, 2002 $ 0

Investment on November 1, 2002 $25,000
Net income for November and December 7,205
$32,205
Less withdrawals 4,000
Increase in owner’s equity 28,205
Chris Clark, capital, December 31, 2002 $28,205
 NetSolutions
Balance Sheet
December 31, 2002

ASSETS
Current assets:
Cash $ 2,065
Accounts receivable 2,720
Supplies 760
Prepaid insurance 2,300
Total current assets $ 7,845
Property, plant, and
equipment:
Land $20,000
Office equipment 1,800
Less accum. depr. (50)
Total property, plant,
and equipment $21,750
Total assets $29,595
 NetSolutions
Balance Sheet
December 31, 2002

LIABILITIES
Current liabilities:
Accounts payable $ 900
Wages payable 250
Unearned rent 240
Total liabilities $ 1,390
OWNER’S EQUITY
Chris Clark, capital 28,205
Total liabilities and
owner’s equity $29,595
 The Closing Process

Wages Expense Fees Earned

Bal. Income Summary Bal.
4,525 16,840
Rent Expense Rent Revenue
Bal.
1,600 Bal.
120
Depreciation Expense
Bal.
50
Utilities Expense Note: The balances
Bal. Chris Clark, Capital shown are adjusted
985 balances before closing.
Bal.
Supplies Expense The following sequence
25,000
Bal. demonstrates the closing
2,040 process.
Insurance Expense
Bal.
100 Chris Clark, Drawing
Miscellaneous Expense
Bal.
Bal. 4,000
455
 The Closing Process

Wages Expense Fees Earned

Bal. Income Summary 16,840 Bal.
4,525 16,840
Rent Expense 16,960 Rent Revenue
Bal. Total
1,600 120 Bal.
Revenues 120
Depreciation Expense
Bal.
50
Utilities Expense
Close Revenues
Bal. Chris Clark, Capital
985
Bal.
Supplies Expense
25,000
Bal.
2,040
Insurance Expense
Bal.
100 Chris Clark, Drawing
Miscellaneous Expense
Bal. Bal.
455 4,000
 The Closing Process

Wages Expense Fees Earned

Bal. Income Summary 16,840 Bal.
4,525
4,525 16,840
Rent Expense 9,755 16,960 Rent Revenue
Bal. 1,600 Total Total
1,600 120 Bal.
Expenses Revenues 120
Depreciation Expense
Bal.
50
50
Utilities Expense
Close Revenues
Bal. Chris Clark, Capital
985
985
Bal. Close Expenses
Supplies Expense
25,000
Bal. 2,040
2,040
Insurance Expense
Bal. 100
100 Chris Clark, Drawing
Miscellaneous Expense
Bal. Bal.
455 4,000
455
 The Closing Process

Wages Expense Fees Earned

Bal. Income Summary 16,840 Bal.
4,525
4,525 16,840
Rent Expense 9,755 16,960 Rent Income
Bal. 1,600
1,600 7,205 120 Bal.
Depreciation Expense 120
Bal. Closed
50
50
Utilities Expense
Close Revenues
Bal. Chris Clark, Capital
985
985
Bal. Close Expenses
Supplies Expense
25,000
7,205
Bal. 2,040
2,040 Net Income Close Income Summary
Insurance Expense
Bal. 100
100 Chris Clark, Drawing
Miscellaneous Expense
Bal. Bal.
455 4,000
455
 The Closing Process

Wages Expense Fees Earned

Bal. Income Summary 16,840 Bal.
4,525
4,525 16,840
Rent Expense 9,755 16,960 Rent Income
Bal.
1,600 7,205 120 Bal.
1,600
Depreciation Expense 120
Bal. Closed
50
50
Utilities Expense
Close Revenues
Bal. Chris Clark, Capital
985
985
4,000 Bal. Close Expenses
Supplies Expense
25,000
7,205
Bal. Drawing
2,040 Close Income Summary
2,040 Net Income
Insurance Expense
Bal. 100 Close Drawing
100 Chris Clark, Drawing
Miscellaneous Expense Bal. 4,000
Bal. 455 4,000
455 Closed
 The Closing Process

Wages Expense Fees Earned

Income Summary
Rent Expense Rent Income

Depreciation Expense

Utilities Expense
Chris Clark, Capital
4,000 Bal. Drawing
Supplies Expense
25,000
7,205 Net Income
Bal.
Insurance Expense
28,205 All temporary accounts
Chris Clark, Drawing now have zero balances
Miscellaneous Expense and are ready for the
next accounting period.
 NetSolutions
Post-Closing Trial Balance
December 31, 2002
11 Cash 2,065
12 Accounts Receivable 2,720
14 Supplies 760
Assets 15 Prepaid Insurance 2,300
17 Land 20,000
18 Office Equipment 1,800
19 Accum. Depreciation 50
21 Accounts Payable 900
22 Wages Payable 250
23 Unearned Rent 240
31 Chris Clark, Capital 28,205
29,645 29,645
 NetSolutions
Post-Closing Trial Balance
December 31, 2002
11 Cash 2,065
12 Accounts Receivable 2,720
14 Supplies 760
15 Prepaid Insurance 2,300
17 Land 20,000
18 Office Equipment 1,800
19 Accum. Depreciation 50
21 Accounts Payable 900
Liabilities
22
23
Wages Payable
Unearned Rent
250
240
31 Chris Clark, Capital 28,205
29,645 29,645
 NetSolutions
Post-Closing Trial Balance
December 31, 2002
11 Cash 2,065
12 Accounts Receivable 2,720
14 Supplies 760
15 Prepaid Insurance 2,300
17 Land 20,000
18 Office Equipment 1,800
19 Accum. Depreciation 50
21 Accounts Payable 900
22 Wages Payable 250
23 Unearned Rent 240
Owner’s 31 Chris Clark, Capital 28,205
29,645 29,645
Equity
 Manual Accounting Cycle

1. Transactions are analyzed

and recorded in journal.
Documents Journal
 Manual Accounting Cycle

1. Transactions are analyzed

and recorded in journal.
Documents Journal

2. Transactions are posted

from journal to ledger.
Journal Ledger
 Manual Accounting Cycle

1. Transactions are analyzed

and recorded in journal.
Documents Journal

2. Transactions are posted

from journal to ledger.
Journal Ledger
3. Trial balance is prepared,
adjustment data is organized,
work sheet is completed.
Work Sheet
 Manual Accounting Cycle

1. Transactions are analyzed

and recorded in journal.
Documents Journal

2. Transactions are posted

from journal to ledger.
Journal Ledger
3. Trial balance is prepared,
adjustment data is organized,
work sheet is completed.
Work Sheet

4. Financial statements are IS SOE BS SCF

prepared and distributed.
Financial Statements
 Manual Accounting Cycle

5. Adjusting entries are

journalized and posted
to ledger. Journal Ledger
 Manual Accounting Cycle

5. Adjusting entries are

journalized and posted
to ledger. Journal Ledger

6. Closing entries are

journalized and posted
to ledger. Journal Ledger
 Manual Accounting Cycle

5. Adjusting entries are

journalized and posted
to ledger. Journal Ledger

6. Closing entries are

journalized and posted
to ledger. Journal Ledger
Assets
7. Post-closing trial balance Liabilities
is prepared. Owner’s Equity
Post-closing
Trial Balance
 Manual Accounting Cycle

5. Adjusting entries are

journalized and posted
to ledger. Journal Ledger

6. Closing entries are

journalized and posted
to ledger. Journal Ledger
Assets
7. Post-closing trial balance Liabilities
is prepared. Owner’s Equity
Post-closing
Trial Balance
8. Reports are analyzed and
interpreted for decision- ?
making purposes.
 Computer Accounting Cycle

1. Transactions are analyzed

and entered in the computer.
Documents
Computer
 Computer Accounting Cycle

1. Transactions are analyzed

and entered in the computer.
Documents
Computer

2. Preliminary reports are

analyzed, adjustments are
prepared and entered in the
Computer
computer. Reports Computer
 Computer Accounting Cycle

1. Transactions are analyzed

and entered in the computer.
Documents
Computer

2. Preliminary reports are

analyzed, adjustments are
prepared and entered in the
Computer
computer. Reports Computer

3. Financial statements are IS SOE BS SCF

printed and distributed.
Financial Statements
 Computer Accounting Cycle

1. Transactions are analyzed

and entered in the computer.
Documents
Computer

2. Preliminary reports are

analyzed, adjustments are
prepared and entered in the
Computer
computer. Reports Computer

3. Financial statements are IS SOE BS SCF

printed and distributed.
Financial Statements
4. Reports are analyzed and
interpreted for decision- ?
making purposes.