Permanent accounts, or real accounts, carry their end-of-period balances to next period

• Balance sheet accounts
• Are not closed at the end of each period

Temporary accounts, or nominal accounts begin each period with a zero balance

• Revenue and expense accounts and the Withdrawals account
• Are closed at the end of each period

• Set the stage for the next accounting period by clearing revenue and expense accounts and the Withdrawals account of their balances
• Required at the end of any accounting period for which financial statements are prepared
• Summarize a period’s revenues and expenses by transferring their balances to the Income Summary account

• Step 1: Close the credit balances of the income statement accounts to the Income Summary account.
• Step 2: Close the debit balances of the income statement accounts to the Income Summary account.
• Step 3: Close Income Summary to the owner’s Capital account.
• Step 4: Close the Withdrawals account balance to the owner’s Capital account.

• Entries made on the first day of a new accounting period
• Exact reverse of certain adjusting entries made at the end of the previous accounting period
• Optional
• Not all adjusting entries are reversed
• Adjusting entries for accruals can be reversed
• Deferrals should not be reversed

• When payroll is recorded in August, there is no need to look back in the accounting records to see what accrual has been made
• The reversing entry sets up an abnormal balance in the Wages Expense account and a zero balance in the Wages Payable account

• A working paper used to organize the data for financial statements
• Lessens the possibility of omitting an adjustment
• Helps the accountant check the arithmetical accuracy of the accounts

The columns of the work sheet are prepared and completed in the following order:

(1) Trial Balance

(2) Adjustments

(3) Adjusted Trial Balance

(4) Income Statement and Balance Sheet columns (5) Total the Income Statement and Balance Sheet columns

• Copy balances of accounts from the ledger into the Trial Balance columns as of the last day of the accounting period
• If a work sheet is used, a separate trial balance does not have to be prepared

• Enter adjustment amounts into the Adjustment columns
• Identify the debit and credit parts with an identifying letter
• The two adjustment columns must equal

• Combine the balances of accounts in the Trial Balance columns and the Adjustments columns and record the new balance in the Adjusted Trial Balance columns (called crossfooting)
• The Adjusted Trial Balance columns are footed to be sure they are equal

• Extend the balances line by line into the Income Statement or Balance Sheet columns
• Asset, liability, and owner’s equity account balances are extended to the Balance Sheet columns
• Revenue and expense account balances are extended to the Income Statement columns

The completed work sheet is used to perform these tasks:

• Recording the adjusting entries in the general journal
• Recording the closing entries in the general journal
• Preparing the financial statements

balance sheet accounts that carry their balances into the next accounting period.

Also called real accounts.

1. analyze - business transactions from source documents

2. Recod - the transactions by entering them in the general journal

3. Post - the journal entries to the ledger, and prepare a trail balance

4. Adjust- the accounts, and prepare an adjusted trail balance

5. Prepare - financial statements

6. Close - the accounts, and prepare a post-closing trail balance

Happends after the closing entries are posted to the ledger.

Prepared to verify again the equality of the debits and credits in the ledger. Only balance sheet accounts appear in the post-closing trail balance because all income statement accounts and the withdrawels account have zero balances at this point.

1. Enter and total the account balances in the Trail Balance columns.

2. Enter and total the adjustments in the Adjustments columns. (A letter identifies the debit and credit for each adjustment and can act as a key to a breif explanation at the bottom of the work sheet.)

3. Enter (after crossfooting, or adding and subtracting from left to right) and total the adjusted account balances in the adjusted trail balance columns

4. Extend (transfer) the account balances from the Adjustetd Trail Balance columns to the Income Statement columns or the balance sheet columns (depending on which typre of account is involved)

5. Total the income statement columns and the balance sheet columns. Enter the new income or net loss in both pairs of columns (one will be entered in a debit columns, and one will be entered in a credit column) as a balancing figure, and recompute the column totals.

1. record the adjusting entries in the general journal

2. record the closing entries in the general journal, this preparing the records for the new period

3. prepare the financial statements

Summary of Journal Entries

To close the credit balance account

Design Revenue (Credit)

Income Summary (Debit)

Summary of Journal Entries

To close the debit balances accounts

Income Summary (Credit)

Expenses: (Debit)

Wage

Utilities

Rent

Office Supplies

Depreciation

Summary of Journal Entries

To close the Income Summary account

(profit situation)

Income Summary (Credit Balance)

P. Tradle Capital (Debit, Net Income amount)

Summary of Journal Entries

To close the Withdrawels account

P. Treadle, Capital (Credit, withdrawels for period)

P. Treadle Withdrawels (Debit, withdrawels for period)

Summary of Journal Entries

To accrue unrecorded wages

Wages Expense (credit, amount incurred)

Wages Payable (debit, amount to be paid)

Summary of Journal Entries

Paynment of Wages (accrued unrecorded wages not reversed)

Wages Payable (debit, amount previously accrued)

Wages Expense (debit, amount incurred this period)

Cash (credit, amount paid)

Summary of Journal Entries

To reverse adjusting entry for payment of wages (assume wages expense had been closed at end of period)

Wages Payable (debit, amount to be paid)

Wages Expenses (credit, amount paid)

Summary of Journal Entries

Payment of wages - wages payable reversed

Wage expenses (credit, amount paid)

Cash (debit, amount paid)

Summary of Journal Entries

to reverse adjusting entry for accrued fees earned

Design Revenue (credit, amount accrued)

Accounts Receivable (debit, amount accrued)