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The closing process
applies only to
temporary accounts.
Temporary and Permanent Accounts
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Lets see how the
closing process
works!
Recording Closing Entries
Close Revenue accounts
to Income Summary.
Close Expense accounts
to Income Summary.
Close Income Summary
account to Owners
Capital.
Close Withdrawals to
Owners Capital.
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Balances before closing.
Income Summary
Owner's Capital
30,000
30,000
Revenue Accounts
25,000
25,000
Withdrawals Account
5,000
5,000
Expense Accounts
10,000
10,000
Closing Process
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Income Summary
25,000
25,000
Close Revenue
accounts to Income
Summary.
Owner's Capital
30,000
30,000
Revenue Accounts
25,000 25,000
-
Withdrawals Account
5,000
5,000
Expense Accounts
10,000
10,000
Closing Process
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Income Summary
10,000 25,000
15,000
Owner's Capital
30,000
30,000
Revenue Accounts
25,000 25,000
-
Withdrawals Account
5,000
5,000
Close Expense
accounts to Income
Summary.
Expense Accounts
10,000 10,000
-
Closing Process
The balance in Income
Summary equals profit
for the period
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Owner's Capital
30,000
15,000
45,000
Owner's Capital
30,000
15,000
45,000
Withdrawals Account
5,000
5,000
Withdrawals Account
5,000
5,000
Close Income
Summary to
Owners Capital.
Revenue Accounts
25,000 25,000
-
Expense Accounts
10,000 10,000
-
Income Summary
10,000 25,000
15,000
-
Closing Process
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Owner's Capital
30,000
15,000
45,000
Owner's Capital
5,000 30,000
15,000
40,000
Withdrawals Account
5,000
5,000
Withdrawals Account
5,000 5,000
-
Revenue Accounts
25,000 25,000
-
Expense Accounts
10,000 10,000
-
Income Summary
10,000 25,000
15,000
-
Closing Process
Close Withdrawals
account to Owners
Capital.
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
FASTFORWARD
ADJUSTED TRIAL BALANCE
31 DECEMBER 2006
Cash $3,950
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation-Equip. $375
Accounts payable 6,200
Salaries payable 210
Unearned consulting revenue 2,750
C. Taylor, Capital 30,000
C. Taylor, Withdrawals 600
Consulting revenue 7,850
Rental revenue 300
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $47,685 $47,685
Using the
adjusted trial
balance, lets
prepare the
closing
entries for
FastForward.
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Close Revenue
accounts to
Income Summary.
FASTFORWARD
ADJUSTED TRIAL BALANCE
31 DECEMBER 2006
Cash $3,950
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation-Equip. $375
Accounts payable 6,200
Salaries payable 210
Unearned consulting revenue 2,750
C. Taylor, Capital 30,000
C. Taylor, Withdrawals 600
Consulting revenue 7,850
Rental revenue 300
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $47,685 $47,685
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Close Revenue Accounts to Income
Summary
Dec. 31 Consulting revenue 7,850
Rental revenue 300
Income summary 8,150
Now, lets look at the ledger accounts after
posting this closing entry.
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Close Revenue Accounts to Income
Summary
Consulting Revenue
7,850 7,850
-
Rental Revenue
300 300
-
Income Summary
7,850
300
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Close Expense
accounts to
Income Summary.
FASTFORWARD
ADJUSTED TRIAL BALNCE
31 DECEMBER 2006
Cash $3,950
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation-Equip. $375
Accounts payable 6,200
Salaries payable 210
Unearned consulting revenue 2,750
C. Taylor, Capital 30,000
C. Taylor, Withdrawals 600
Consulting revenue 7,850
Rental revenue 300
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $47,685 $47,685
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Now, lets look at the ledger accounts after
posting this closing entry.
Close Expense Accounts to Income
Summary
Dec. 31 Income summary 4,365
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Income Summary
4,365 7,850
300
3,785
Utilities Expense
230 230
-
Rent Expense
1,000 1,000
-
Profit for
the period
Close Expense Accounts to Income
Summary
Close Expense Accounts to Income
Summary
Supplies Expense
1,050 1,050
-
Depreciation
Expense- Eq.
375 375
-
Salaries Expense
1,610 1,610
-
Insurance Expense
100 100
-
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Close Income
Summary to
Owners Capital.
FASTFORWARD
ADJUSTED TRIAL BALANCE
31 DECEMBER 2006
Cash $3,950
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation-Equip. $375
Accounts payable 6,200
Salaries payable 210
Unearned consulting revenue 2,750
C. Taylor, Capital 30000
C. Taylor, Withdrawals 600
Consulting revenue 7,850
Rental revenue 300
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $47,685 $47,685
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Now, lets look at the ledger accounts after
posting this closing entry.
Close Income Summary to Owners
Capital
Dec. 31 Income summary 3,785
C. Taylor, Capital 3,785
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
C. Taylor, Capital
30,000
3,785
33,785
Close Income Summary to Owners
Capital
Close Income Summary to Owners
Capital
Income Summary
4,365 7,850
3,785 300
-
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Close
Withdrawals to
Owners Capital.
FASTFORWARD
ADJUSTED TRIAL BALANCE
31 DECEMBER 2006
Cash $3,950
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation-Equip. $375
Accounts payable 6,200
Salaries payable 210
Unearned consulting revenue 2,750
C. Taylor, Capital 30,000
C. Taylor, Withdrawals 600
Consulting revenue 7,850
Rental revenue 300
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $47,685 $47,685
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Now, lets look at the ledger accounts after
posting this closing entry.
Close Withdrawals to Owners
Capital
Dec. 31 C. Taylor, Capital 600
C. Taylor, Withdrawals 600
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
C. Taylor, Capital
600 30,000
3,785
33,185
C. Taylor,
Withdrawals
600 600
-
Close Withdrawals to Owners
Capital
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Lets look at
FastForwards
post-closing trial
balance.
Post-Closing Trial Balance
List of permanent
accounts and their
balances after posting
closing entries.
Total debits and
credits must be equal.
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
FASTFORWARD
POST-CLOSING TRIAL BALANCE
31 DECEMBER 2006
Cash $3,950
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
Accumulated depreciation-Equipment $375
Accounts payable 6,200
Salaries payable 210
Unearned consulting revenue 2,750
C.Taylor, Capital 33,185
Totals $42,720 $42,720
Post-Closing Trial Balance
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Lets discuss
the
components
of a classified
balance
sheet.
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Categories of a Classified Balance Sheet
Assets Liabilities and Equity
Current Assets Current Liabilities
Noncurrent Assets Noncurrent Liabilities
Long-Term Investments Equity
Fixed Assets
Intangible Assets
Current items are those expected to come due (both
collected and owed) within the longer of one year or
the companys normal operating cycle.
Classified Balance Sheet
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
SNOWBOARDING COMPONENTS
BALANCE SHEET
AS AT 31 JANUARY 2006
Non-current assets
Store equipment $33,200
Less accumulated depreciation 8,000 $25,200
Buildings 170,000
Less accumulated depreciation 45,000 125,000
Land 73,200
223.400 $
Long-term investments
Notes receivable 1.500
Investments in stocks and bonds 18.000
Land held for future expansion 48.000
Total investments 67.500
Intangible assets 10.000
Total non-current assets 300.900 $
Cash $6,500
Short-term investments 2,100
Accounts receivable 4,400
Merchandise inventory 27,500
Prepaid expenses 2,400
$42,900
Current Assets
Current assets are expected to be
sold, collected, or used within one
year or the companys operating
cycle.
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
SNOWBOARDING COMPONENTS
BALANCE SHEET
31 JANUARY 2006
Non-current assets
Store equipment $33,200
Less accumulated depreciation 8,000 $25,200
Buildings 170,000
Less accumulated depreciation 45,000 125,000
Land 73,200
$223,400
Long-term investments
Notes receivable 1,500
Investments in stocks and bonds 18,000
Land held for future expansion 48,000
Total investments 67,500
Intangible assets 10.000
Total assets $300.900
Current Assets
Cash 6.500
Short-term investments 2.100
Accounts receivable 4,400
Merchandise inventory 27,500
Long-term investments are
expected to be held for the longer
of one year or the operating cycle.
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
SNOWBOARDING COMPONENTS
BALANCE SHEET
31 JANUARY 2006
Non-current assets
Store equipment $33,200
Less accumulated depreciation 8,000 $25,200
Buildings 170,000
Less accumulated depreciation 45,000 125,000
Land 73,200
$223,400
Long-term investments
Notes receivable 1.500
Investments in stocks and bonds 18.000
Land held for future expansion 48.000
Total investments 67.500
Intangible assets 10.000
$300,900
Current assets
Cash $6,500
Short-term investments 2,100
Accounts receivable 4,400
Fixed assets are tangible long-lived
assets used to produce or sell
products and services.
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
SNOWBOARDING COMPONENTS
BALANCE SHEET
31 JANUARY 2006
Non-current assets
Store equipment $33,200
Less accumulated depreciation 8,000 $25,200
Buildings 170,000
Less accumulated depreciation 45,000 125,000
Land 73,200
$223,400
Long-term investments
Notes receivable $1,500
Investments in stocks and bonds 18,000
Land held for future expansion 48,000
$67,500
Intangible assets 10.000
$300.900
Current Assets
Cash 6.500
Intangible assets are long-term
resources used to produce or sell
products and services and that
lack physical form.
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Current liabilities are obligations due
within the longer of one year or the
companys operating cycle.
SNOWBOARDING COMPONENTS
BALANCE SHEET
AS AT 31 JANUARY 2006
Current liabilities
Accounts payable 15.300 $
Wages payable 3.200
Notes payable 3.000
Current portion of long-term liabilities 7.500
Total current liabilities $29,000
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
SNOWBOARDING COMPONENTS
BALANCE SHEET
AS AT 31 JANUARY 2006
Equity and liabilities
T.Hawk, Capital $164,800
Non-current liabilities
Notes payable (net of current portion) $150,000
Current liabilities
Long-term liabilities are obligations
not due within the longer of one year
or the companys operating cycle.
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
Equity is the owners claim on the
assets.
SNOWBOARDING COMPONENTS
BALANCE SHEET
AS AT 31 JANUARY 2006
Equity and liabilities
T.Hawk, Capital $164,800
Non-current liabilities
Notes payable (net of current portion) $150,000
Current liabilities
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
The McGraw-Hill Companies, I nc., 2007
End of Chapter 4