CHECK JMC & FINISH LAST CLASSES LESSON PLAN

REVIEW:

  1. Do the Self-Study Test Questions 1-4 on page 200–Look at page 214 for the answers
  2. Do the Checkpoint Exercise #1 on page 201–Look at page 215 to see the answer

LO2–Journalize and post closing entries.

  1. WATCH THIS VIDEO
  2. The Closing Process (See Figure 6-5): Closing means resetting the temporary accounts to a zero balance. Each fiscal period is like a new ball game with a 0 starting score.
    1.  Accounts
      1. Permanent
        1. Assets, liabilities, and owner’s equity balances are carried forward to each new accounting period.
      2. Temporary
        1. Revenue, expense, and drawing accounts accumulate information for a specific accounting period.
        2. At the end of the fiscal year, these accounts must be closed.
      3. Accounts reported on the balance sheet are permanent and remain open, the exception is the Drawing account. All other accounts, (those reported on the income statement and drawing) are temporary and closed.
      4. Income Summary is a temporary owner’s equity account used in the closing process, revenue and expense account balances are transferred here during the closing process.
      5. The Income Summary is not really needed for the closing process. One benefit of using the Income Summary account is to review the activity and make certain the transactions equal the net income or net loss for the period.
      6. Why is Income Summary not included with the other accounts on the work sheet? It is not included because it is not needed for the adjusting entries and is not used in the preparation of financial statements for a service business. Income Summary will be used later in the text for a merchandising business.
  3. Steps in the Closing Process (See Figure 6-6 and Figure 6-7)
    1. Close Revenue Accounts to Income Summary.
      1. Debit the revenue accounts.
      2. Credit Income Summary.
    2. Close Expense Accounts to Income Summary.
      1. Debit Income Summary.
      2. Credit the expense accounts.
    3. Close Income Summary to Owner’s Capital Account. (See Figure 6-6)
      1. Net income
        • Debit Income Summary.
        • Credit the owner’s capital account.
      2. Net loss
        • Debit the owner’s capital account.
        • Credit Income Summary.
      3. Close Drawing to the Owner’s Capital Account.
        1. Debit the owner’s capital account.
        2. Credit Drawing.
          1. Do not treat drawing as an expense.
          2. Definition of an expense: an outflow of assets, or increase in liabilities, as a result of the efforts made to produce revenue.
          3. Withdrawals by the owner are not made in an attempt to produce revenue. Thus, the Drawing account is a contra-equity account rather than an expense account.
  4. Journalize Closing Entries (See Figure 6-8)
    1. Journalize the closing entries on the year-end date.
    2. Write “Closing Entries” in the Description column prior to making the first closing entry.
    3. Explanations are not required in the Description column for individual closing entries.
    4. Make one compound entry to close the expense accounts.
  5. Post the Closing Entries (See Figure 6-9)
    1. Post to the general ledger in the same manner as all other entries.
    2. Write “Closing” in the Item column of the general ledger to identify the closing entries.
  6. In-Class Exercise:
    1. E6-4A–WATCH AND DO THIS VIDEO
      1. USE THIS SPREADSHEET
        1. Download it and Enable Editing
      2. SHOW ME BEFORE MOVING ON
    2. E6-4B
      1. USE THIS SPREADSHEET
        1. Download it and Enable Editing
      2. SHOW ME BEFORE MOVING ON
    3. E6-6A
      1. USE THIS SPREADSHEET
        1. Download it and Enable Editing
      2. SHOW ME BEFORE MOVING ON
    4. E6-6B
      1. USE THIS SPREADSHEET
        1. Download it and Enable Editing
      2. SHOW ME BEFORE MOVING ON