3 CHAPTER REVIEW OF THE ACCOUNTING PROCESS
The word "accrued" is not needed in either account title, but it could be used in the liability account title if desired (the account title would then be Accrued Salaries Payable). It would be wrong to insert the. word "accrued" in the expense account title. Same people simply call the credit account "Accrued Salaries" (rather than "Salaries Payable") but we advise that you include the key ward "Payable" and omit the unnecessary ward "Accrued." TIP: The cost of most long-lived tangible assets is allocated to expense in a systematic and rational manner. The entry .to record the expiration of cost due to the consumption of benefits yielded by the asset is a debit to Depreciation Expense and a credit to Accumulated Depreciation. The amortization of intangibles is similar to depreciation. A reduction in the net realizable value of accounts receivable or inventories is recorded in an adjusting entry by a charge to expense and a credit to a contra asset account. An unadjusted trial balance is referred to. as either "unadjusted trial balance" or simply "trial balance." An adjusted trial balance is referred to as either "adjusted trial balance" or the "adjusted trial." Closing entries are necessary at the end of an accounting period to prepare the nominal accounts (revenues, expenses, gains, and losses) far the recording of transactions for the next accounting period. Closing entries are prepared after the nominal account balances have been used to prepare the Income statement. Only nominal accounts are Real closed. accounts are never closed; their balances continue into the next accounting. period. Nominal accounts are often called temporary accounts; real accounts are often called permanent accounts. A nominal account with a credit balance is closed by a debit to that account and a credit to. Income Summary. A nominal account with a debit balance is closed by a credit to that account and a debit to lncome Summary. The Income Summary account is closed to. an owners' equity account (Retained Earnings far a corporation) and is often called the Revenue and Expense Summary.
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If a separate account is used to record owner withdrawals or owner distributions (such as Dividends or Dividends.Declared for a corporation or Owner's Drawings for a proprietorship or partnership), this. Account is also closed at the. end of the accounting period, but it is not closed to. the Income Summary account because it is not a component of the net income computation. Rather, it is closed directly. to Retained Earnings (for a corporation) or to Owner's Capital (for a proprietorship or partnership). A post-closing trial balance contains only real accounts because the nominal accounts all have a zero. balance after the closing process . A post-closing trial balance is prepared to check on the equality of debits and credits after the closing process.
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***TIP: In preparing a 10-calumn work sheet, the debit and credit columns for every column pair must be equal before you can proceed to the next column pair. (This pertains to. the first three column pairs). All five pairs of columns must balance for a work sheet to be complete.