Recording Adjusting and Closing Entries

Vocabulary

100

Journal entries recorded to update general ledger accounts at the end of a fiscal period

adjusting entries

200

Accounts that are not closed at the end of the fiscal period. They are used to accumulate information from one fiscal period to the next.

Permanent Accounts

300

Accounts that are closed at the end of the fiscal period to start the next fiscal period with a 0 balance.

Temporary Accounts: Sales, Expenses, Dividends and Income Summary

400

Journal entries used to prepare temporary accounts for a new fiscal period

closing entries

500

What is a real account? What is a nominal account?

A real account is a permanent account A nominal account is a temporary account

Accounting Concepts

100

Applied when changes in financial information are reported for a specific period of time in the form of financial statements

Accounting Period Cycle

200

What concept is being applied when: Supplies Expense has an up-to-date balance which is the value of the supplies used during the fiscal period.

Matching Expenses with Revenue

300

This accounting concept is applied when the same accounting procedures are followed in the same way each accounting period

Consistent Reporting

400

This accounting concept is applied when a source document is prepared for each transaction

Objective Evidence

500

This accounting concept is applied when a business's financial information is recorded and reported separately from the owner's personal financial information

Business Entity

Adjusting Entries

100

Where are the adjustment amounts found to journalize the adjusting entries in the general journal?

Adjustment columns of the worksheet

200

What source document is used in the DOC. NO. in the general journal for adjusting entries?

No source documents are used. The heading Adjusting Entries is written in the middle of the Account Title column of the general journal.

300

Explain why you would make an adjustment to the Prepaid Insurance account

Insurance is typically paid in advance. If six months of insurance coverage is paid in January it would be inaccurate to charge the January expenses with coverage for February through June. The expenses incurred would not match the revenue earned.

400

Explain the adjusting entry to update the Supplies account-- 1. How is it figured 2. What account is debited 3. What account is credited

1. The balance of the supply account is subtracted from the supplies on hand. 2. Supplies Expense is debited for that amount 3. Supplies Account is credited for that amount which decreases the balance of that account

500

What accounting concept is applied by posting adjusting entries?

Matching Expenses with Revenue

Closing Entries

100

To close a temporary account, an amount equal to its balance is recorded where?

On the side opposite to its balance. For example, if an account has a credit balance of $3565, a debit of $3565 is recorded to close the account and create a 0 balance.

200

Name 3 permanent accounts

Assets: Cash, Petty Cash, Accounts Receivable, Pre-paid Insurance Liabilities: Accounts Payable Capital

300

What is the normal balance for the Income Summary Account?

The Income Summary does not have a normal balance. It is determined if there is either a net income or a net loss.

400

Name 3 temporary Accounts that get closed at the end of the fiscal period

1. Sales 2. Expenses 3. Drawing 4. Income Summary

500

4 Steps for recording Closing Entries:

1. Close Sales into Income Summary 2. Close Expenses into Income Summary 3. Close Income Summary into Capital 4. Close the Drawing into Capital

Post Closing Trial Balance

100

A trial balance that is prepared after the closing entries are posted

What is Post Closing Trial Balance?

200

What accounting concept is being described: The series of accounting activities included in recording financial information for a fiscal period

Accounting Period Cycle

300

What accounts are included in the Post Closing Trial Balance?

-Only the accounts with balances -Permanent Accounts -Assets, Liabilities, Owner's Capital

400

What are the first 4 steps in the Accounting Cycle for a Service Business?

1. Analyze Transactions 2. Journalize Transactions in the General Journal 3. Post the Journal Entries to the Ledger Accounts 4. Prepare the Worksheet

500

What are the last four steps in the Accounting cycle for a Service Business?

5. Prepare Financial Statements (Balance Sheet and Income Statement) 6. Journalize Adjusting and Closing Entries 7. Post Adjusting and Closing Entries 8. Prepare a Post closing Trial Balance