Accounting
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Accounting Cycle
1 Journalize the business transactions
2 Post transactions from journal to ledger
Year end
3 Prepare a trial balance
4 Journalize and post adjusting
5 Prepare an adjusted trial balance
6 Prepare financial statements
7 Journalize and post closing entries
8 Prepare a post-closing trial balance
Closing Entries
Purpose
1 Get all temporary or nominal accounts balances back to zero (Revenues, Expenses, Dividends, Income Summary)
Do not close anything not on this list
Accounts that are not closed are called real accounts.
2 Post the effect of the net income and the dividends to retained earnings so if reflects the end of the year balance
Four Closing Entries
Close Revenue
Revenue $$$$
Income Summary $$$$
Close Expense - One compound entry
Income summary $$$$$ (total of all Expenses)
Wages Expense $$
Utilities Exp $$
Supplies Exp $$
Tax Exp $$
Close the income summary to RE
$ For entry is he balance of the income summary after the first 2 closing entries
Income Summary $$$$
RE $$$$
Close Dividends
RE $$$$
Dividends $$$$
Pg 211 SE 10
1. Close the Revenues
Repair Revenue 36860
Income Summary 36860
2. Close all Expense Accounts
Income Summary 27840
Wages Expense 12260
Rent Expense 1800
Supplies Expense 6390
Insurances Expense 1370
Depreciation 2020
Income Taxes 4000
3. Income Summary 9020
RE 9020
4. RE 6000
Dividends 6000
Classified Balance sheet
Three major sections (assets, liabilities, and SE) are grouped into categories giving additional info.
Assets
Current assets used consumed or turned into cash with in a year
Cash, supplies, Accounts Receivable, Any prepaids, inventory, Marketable securities. These are listed in liquidity order.
Long terms investments investments being held for more than a year. Land or building held for investment that are not currently in use...