ch04 - PREVIEW OF CHAPTER 4 COMPLETION OF THE ACCOUNTING...

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COMPLETION OF THE ACCOUNTING CYCLE Closing the Books Preparing closing entries Posting closing entries Preparing a post-closing trial balance Summary of Accounting Cycle Correcting entries-an avoidable step Classified Balance Sheet Standard classification Balance sheet illustration PREVIEW OF CHAPTER 4
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CLOSING THE BOOKS TEMPORARY VERSUS PERMANENT ACCOUNTS TEMPORARY (NOMINAL) PERMANENT (REAL) These accounts are closed These accounts are not closed All revenue accounts All asset accounts All expense accounts All liability accounts
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CLOSING ENTRIES Closing entries formally recognize in the ledger the transfer of net income (loss) and dividends to retained earnings. Journalizing and posting closing entries is a required step in the accounting cycle . A temporary account, Income Summary , is used in closing revenue and expense accounts to minimize the amount of detail in the permanent retained earnings account.
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CLOSING PROCESS 1 2 1 Debit each revenue account for its balance, and credit Income Summary for total revenues. 2 Debit Income Summary for total expenses, and credit each expense account for its balance.
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3 3 Debit (credit) Income Summary and credit (debit) Retained Earnings for the amount of net income (loss). CLOSING PROCESS
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4 4 Debit Retained Earnings for the balance in the Dividends account and credit Dividends for the same amount. CLOSING PROCESS
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GENERAL JOURNAL Date Account Titles and Explanation Ref. Debit Credit 2002 (1) Oct. 31 Service Revenue 400 Income Summary 350 (To close revenue account) INCOME SUMMARY NO.350 Date Explanation Debit Credit Balance 2002 Oct. 31 10,600 10,600 31 31 Service Revenue NO. 400 Date Explanation Debit Credit Balance 2002 Oct. 31 10,600 31 –0– 10,600 CLOSING ENTRIES JOURNALIZED 1 10,600 10,600
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NO. 350 Date Explanation Debit Credit Balance 2002 Oct. 31 10,600 10,600 31 7,740 2,860 GENERAL JOURNAL Date Ref. Debit Credit (2) Oct. 31 350 726 Advertising Supplies Expense 611 729 Insurance Expense 722 905 Depreciation Expense 711 Account Titles and Explanation 2002 Income Summary
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ch04 - PREVIEW OF CHAPTER 4 COMPLETION OF THE ACCOUNTING...

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