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2.03 - Notes: Trial Balance Is Prepared. Only The Accounts That Have A Balance, Which Include

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The document discusses key concepts related to adjusting and closing entries. It explains that adjusting entries are recorded at the end of the period to update accounts, while closing entries transfer temporary account balances to the owner's capital account and zero out the temporary accounts. It also defines permanent accounts that carry balances forward to the next period, temporary accounts that accumulate revenues and expenses, and the income summary account that combines the revenue and expense totals. Finally, it notes that a post-closing trial balance is prepared to ensure debits equal credits after all closing entries.

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2.03 - Notes: Trial Balance Is Prepared. Only The Accounts That Have A Balance, Which Include

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94 views8 pages
The document discusses key concepts related to adjusting and closing entries. It explains that adjusting entries are recorded at the end of the period to update accounts, while closing entries transfer temporary account balances to the owner's capital account and zero out the temporary accounts. It also defines permanent accounts that carry balances forward to the next period, temporary accounts that accumulate revenues and expenses, and the income summary account that combines the revenue and expense totals. Finally, it notes that a post-closing trial balance is prepared to ensure debits equal credits after all closing entries.

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The document discusses key concepts related to adjusting and closing entries. It explains that adjusting entries are recorded at the end of the period to update accounts, while closing entries transfer temporary account balances to the owner's capital account and zero out the temporary accounts. It also defines permanent accounts that carry balances forward to the next period, temporary accounts that accumulate revenues and expenses, and the income summary account that combines the revenue and expense totals. Finally, it notes that a post-closing trial balance is prepared to ensure debits equal credits after all closing entries.

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© All Rights Reserved
Download as DOCX, PDF, TXT or read online from Scribd
Download as docx, pdf, or txt
94 views8 pages

2.03 - Notes: Trial Balance Is Prepared. Only The Accounts That Have A Balance, Which Include

Uploaded by

api-262218593
The document discusses key concepts related to adjusting and closing entries. It explains that adjusting entries are recorded at the end of the period to update accounts, while closing entries transfer temporary account balances to the owner's capital account and zero out the temporary accounts. It also defines permanent accounts that carry balances forward to the next period, temporary accounts that accumulate revenues and expenses, and the income summary account that combines the revenue and expense totals. Finally, it notes that a post-closing trial balance is prepared to ensure debits equal credits after all closing entries.

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2.

03 – Notes
Understand the concepts listed below to be able to apply the procedures to prepare end
of period adjusting and closing entries and a post-closing trial balance.

 Adjusting entries are journal entries recorded to update general ledger accounts at
the end of the fiscal period. Adjusting entries are recorded on the next page
following the last daily transaction for the month.

 Closing entries are journal entries that prepare temporary accounts for a new fiscal
period.
 Temporary accounts are used to accumulate information until it is transferred to
the owner’s capital account. They include revenue, expense, owner’s drawing
account, and the income summary account.
 Temporary accounts show the changes to the owner’s capital account during a
fiscal period.
 At the end of the fiscal period, temporary accounts are summarized, balances
are transferred to the owner’s capital account, and the accounts then have zero
balances.

 Permanent accounts are used to accumulate information from one fiscal period to
another.
 They include assets, liabilities, and owner’s equity accounts.
 The ending account balances for the permanent accounts become the opening
balances for the next fiscal period.

 The Income Summary account is used to accumulate and summarize the closing
entries for the revenue and expense accounts for a fiscal period.
 There is no normal balance side to the Income Summary account. The balance
side is determined after the amounts from the income and expense accounts are
posted.
 If revenue is greater than expenses, the Income Summary account will have a
credit balance, reflecting net income.
 If expenses are greater than revenue, the Income Summary account will have a
debit balance, reflecting net loss.

 To ensure that debits equal credits after closing entries are posted, a Post-Closing
Trial Balance is prepared. Only the accounts that have a balance, which include
assets, liabilities, and owner’s equity, or the permanent accounts, are recorded on a
Post-Closing Trial Balance.
2.03 Adjusting and Closing Entries
2.03 Adjusting and Closing Entries
2.03 Adjusting and Closing Entries
2.03 Post-Closing Trial Balance
2.03 Post-Closing Trial Balance
2.03 Post-Closing Trial Balance
2.03 Key Terms

Term Definition

Adjusting entries Journal entries recorded to update general ledger


accounts at the end of the fiscal period

Accounts used to accumulate information from one


Permanent accounts
fiscal period to another
Accounts used to accumulate information until it is
Temporary accounts transferred to the owner’s capital account

A temporary account used to accumulate and


Income summary accounts summarize the closing entries for the revenue and
expense accounts for a fiscal period
Journal entries that prepare temporary accounts for
Closing entries
a new fiscal period
The accounting form prepared to ensure that debits
equal credits after closing entries are posted
Post-closing trial balance
Lists only those accounts that have a balance

Accounting cycle The series of accounting activities included in


recording financial information for a fiscal period

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