MODULE 7 – CLOSING THE BOOKS
The units in Module 7, Units 17 through 19, deal with the procedures carried out at the end of an accounting year to close the books and complete the accounting cycle. You will learn about adjusting and closing entries, balance and ruling ledger accounts, the Post-Closing Trial Balance, and reversing entries.
On December 1, XXX1, Penelope opens her own dental hygiene practice. During the month of December, she has the following transactions:
December 1 Penelope opens her own dental hygiene practice with an investment of $20,000 from her personal savings account.
December 2 Penelope pays $4,500 for 3 months’ rent (December XXX1 through February XXX2) in advance for a fully equipped office with telephone service.
December 3 Penelope purchases uniforms for $150 in cash (Uniform Expense).
December 4 She pays $2,400 in cash for one year’s liability insurance (December XXX1 through
November XXX2).
December 5 She purchases medical supplies for $1,500 in cash (Medical Supplies).
December 6 Income from fees received in cash for the week totals $100.
December 9 Penelope purchases $300 worth of office supplies (billing forms and calling cards) for cash from Office Max (Office Supplies).
December 13 Penelope pays her bookkeeper/secretary $200 salary in cash.
December 13 She bills the Beverly School (Beverly) $400 for services rendered (4 lectures and demonstrations on oral hygiene).
December 13 Income from fees received during the week in cash totals $300.
December 16 Penelope pays $85 in cash for telephone expense.
December 17 She pays an accountant $500 to design an accounting system for her business (Accounting and Legal Expense).
December 18 She purchases embossed toothbrushes to give away to patients for $100 (Promotion
Expense).
December 20 She pays the bookkeeper/secretary $200 salary in cash.
December 20 She withdraws $1,000 in cash for personal expenses.
December 20 Income from fees received in cash for the week totals $400.
December 24 Penelope pays the monthly maintenance charge of $500 in cash.
December 27 She pays her bookkeeper/secretary $200 salary in cash.
December 27 Income from fees received in cash for the week totals $400.
The following adjustment information is provided on December 31st:
a. An inventory shows $1,300 worth of medical supplies in house.
b. One month’s prepaid rent (for January) has expired.
c. One month’s insurance coverage (for January) has expired.
d. $30 worth of office supplies has been used in January.
e. $80 in salaries payable has accrued, although the salary will actually be paid in February.
Steps in Accounting Cycle:
1. Journalize and post all daily transactions, beginning with the December 1 transaction.
2. Prepare trial balance.
3. Prepare worksheet.
4. Prepare financial statements.
5. Journalize and post adjusting entries.
6. Journalize and post closing entries.
7. Prepare post-closing trial balance.
8. Journalize and post reversing entries.
Complete all the steps in the accounting cycle for Penelope Francis, Branding Specialist. Remember that the last three steps in the accounting cycle are done only once a year; however, for purposes of this assignment, complete them all because Penelope’s year end is December 31 even though she just started her business on December 1.
Problem 19-1
Journal Entries |
|||||
GENERAL JOURNAL
Page 1 |
|||||
DATE | ACCOUNTS AND EXPLANATION | REF. | DEBIT | CREDIT | |
XXX1 | Daily Entries | ||||
Dec. | 1 | ||||
Opened practice as dental hygienist | |||||
2 | |||||
Paid rent for December through February | |||||
3 | |||||
Purchased uniforms | |||||
4 | |||||
Paid one year of liability insurance coverage | |||||
5 | |||||
Purchased medical supplies | |||||
6 | |||||
Fee income for week ending December 6 | |||||
9 | |||||
Purchased office supplies | |||||
13 | |||||
Paid weekly salary for bookkeeper/secretary | |||||
13 | |||||
Billed Beverly for lectures and demonstrations | |||||
13 | |||||
Fee income for week ending December 13 |
Problem 19-1 (continued)
Journal Entries |
|||||
GENERAL JOURNAL
Page 2 |
|||||
DATE | ACCOUNTS AND EXPLANATION | REF. | DEBIT | CREDIT | |
Daily Entries (continued) | |||||
16 | |||||
Paid for telephone and internet services | |||||
17 | |||||
Paid for accounting system set-up | |||||
18 | |||||
Purchased toothbrushes, picks, and floss | |||||
20 | |||||
Paid weekly salary for bookkeeper/secretary | |||||
20 | |||||
Penelope withdrew cash for personal use | |||||
20 | |||||
Fee income for week ending January 20 | |||||
24 | |||||
Paid monthly maintenance charge | |||||
27 | |||||
Paid weekly salary for bookkeeper/secretary | |||||
27 | |||||
Fee income for week ending January 27 |
Note: After completing the journal entries, post them to the general ledger accounts on pages 10-14. Then come back to the following page 4 and prepare the Trial Balance from the General Ledger account balances.
Problem 19-1
Trial Balance (Unadjusted) |
|||
Note: Check your Trial balance totals against the Trial Balance totals included on the Worksheet on the next page. |
Note: Now prepare the worksheet, entering the trial balance amounts from in the first two columns of the worksheet.
Problem 19-1 (continued)
Worksheet |
|||||||||||
Penelope Francis, Branding Specialist
Worksheet For the Month Ended December 31, XXX1 |
|||||||||||
Acct.
No. |
Accounts | Trial Balance | Adjustments | Adjusted Trial Balance | Income Statement | Balance Sheet | |||||
Debit | Credit | Debit | Credit | Debit | Credit | Debit | Credit | Debit | Credit | ||
Cash | 9,565 | ||||||||||
Account Receivable – Beverly | 400 | ||||||||||
Medical Supplies | 1,500 | ||||||||||
Prepaid Rent | 4,500 | ||||||||||
Prepaid Insurance | 2,400 | ||||||||||
Office Supplies | 300 | ||||||||||
P. Francis, Capital | 20,000 | ||||||||||
P. Francis, Drawing | 1,000 | ||||||||||
Income from Fees | 1,600 | ||||||||||
Salary Expense | 600 | ||||||||||
Telephone and Internet Expense | 85 | ||||||||||
Uniform Expense | 150 | ||||||||||
Accounting and Legal Expense | 500 | ||||||||||
Promotion Expense | 100 | ||||||||||
Maintenance Expense | 500 | ||||||||||
Totals | 21,600 | 21,600 | |||||||||
Note: In this assignment, the company has a net loss. The net loss is added back to the smaller of the two Income Statement totals and the smaller of the two Balance Sheet columns, which is the inner two columns
Note: Using the worksheet on the previous page (page 5), complete the Income Statement, Statement of Owner Equity, and the Balance Sheet (classified/report form).
Problem 19-1 (continued)
Income Statement |
||
Problem 19-1 (continued)
Statement of Owner Equity |
||
Problem 19-1 (continued)
Balance Sheet |
||
Note: Using the worksheet Adjustments columns on page 5, journalize the adjusting entries in the General Journal below. Then post them to the General Ledger Accounts on pages 10-14.
Note: Using the worksheet Adjusted Trial Balance columns on page 5, journalize the closing entries in the General Journal below. Then post them to the General Ledger Accounts on pages 10-14. Then prepare Post-Closing Trial Balance using form on next page (page 10).
Problem 19-1 (continued)
Closing Entries |
|||||
GENERAL JOURNAL
Page 3 |
|||||
DATE | ACCOUNTS AND EXPLANATION | REF. | DEBIT | CREDIT | |
XXX1 | Closing Entries | ||||
Dec. | 31 | ||||
To close the income account | |||||
31 | |||||
31 | |||||
31 | |||||
To close expense accounts | |||||
31 | |||||
To transfer net loss | |||||
31 | |||||
To close drawing account |
Problem 19-1 (continued)
Post-Closing Trial Balance |
|||
Note: Last, using the Adjustments column of the worksheet on page 5 or the adjusting entry for salaries in the General Journal on page 8, journalize the Reversing Entry. Then post it to the appropriate general ledger accounts on pages 10-14.
Remember, reversing entries are just the reverse of any accrued expense or accrued revenue adjusting entries; and they are dated the first day of the next year. Reversing entries are not mandatory; they are optional. The reason they are done is that they make follow-up entries easier that must be done in the new year and thus save time.
Problem 19-1 (continued)
Reversing Entries |
|||||
GENERAL JOURNAL
Page 5 |
|||||
DATE | ACCOUNTS AND EXPLANATION | REF. | DEBIT | CREDIT | |
XXX2 | Reversing Entry | ||||
Jan. | 1 | ||||
To reverse accrued salary expense adjustment |
Problem 19-1 SOLUTION (continued)
General Ledger Posting from General Journal to General Ledger Using 3-Column Balance-Form Accounts |
|||||||
Cash Account No. 101 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Dr. | 0 | ||
Owner made investment | |||||||
2 | Paid for three months of rent | ||||||
3 | Purchased uniforms | ||||||
4 | Paid for one year of insurance | ||||||
5 | Purchased medical supplies | ||||||
6 | Earned income and received cash | ||||||
9 | Purchased office supplies | ||||||
13 | Paid salary | ||||||
13 | Earned income and received cash | ||||||
16 | Paid telephone and internet fees | ||||||
17 | Paid accounting and legal fees | ||||||
18 | Purchased promotion items | ||||||
20 | Paid salary | ||||||
20 | Owner withdrew cash | ||||||
20 | Earned income and received cash | ||||||
24 | Paid maintenance fees | ||||||
27 | Paid salary | ||||||
27 | Earned income and received cash | ||||||
Account Receivable–Beverly Account No. 112 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Dr. | 0 | ||
13 | Billed customer for services | ||||||
Medical Supplies Account No. 114 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Dr. | 0 | ||
5 | Purchased medical supplies | ||||||
31 | To adjust for medical supplies used | ||||||
Prepaid Rent Account No. 115 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Dr. | 0 | ||
2 | Paid for three months of rent | ||||||
31 | To adjust for expired rent | ||||||
Office Supplies Account No. 116 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Dr. | 0 | ||
9 | Purchased office supplies | ||||||
31 | To adjust for office supplies used | ||||||
Prepaid Insurance Account No. 117 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Dr. | 0 | ||
4 | Paid for one year of insurance | ||||||
31 | To adjust for expired insurance | ||||||
Accrued Salaries Payable Account No. 213 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Cr. | 0 | ||
31 | To accrue salaries | ||||||
Penelope Francis, Capital Account No. 311 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Cr. | 0 | ||
2 | Owner made investment | ||||||
31 | To transfer net loss | ||||||
31 | To close drawing | ||||||
Penelope Francis, Drawing Account No. 312 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Dr. | 0 | ||
20 | Owner made withdrawal | ||||||
31 | To close drawing | ||||||
Income and Expense Summary Account No. 313 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Cr. | 0 | ||
31 | To close revenues | ||||||
31 | To close expenses | ||||||
31 | To transfer net loss | ||||||
Income from Fees Account No. 411 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Dr. | 0 | ||
6 | Earned income and received cash | ||||||
13 | Billed customer for services | ||||||
13 | Earned income and received cash | ||||||
20 | Earned income and received cash | ||||||
27 | Earned income and received cash | ||||||
31 | To close revenue | ||||||
Rent Expense Account No. 511 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Dr. | 0 | ||
31 | To adjust for expired rent | ||||||
31 | To close account | ||||||
Salary Expense Account No. 512 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Dr. | 0 | ||
13 | Paid salary | ||||||
20 | Paid salary | ||||||
27 | Paid salary | ||||||
31 | Part of adjusting entry to accrue salaries | ||||||
31 | To close account | ||||||
Jan. | 1 | To reverse adjusting entry | |||||
Telephone and Internet Expense Account No. 513 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Dr. | 0 | ||
16 | Paid telephone and internet fees | ||||||
31 | To close account | ||||||
Uniform Expense Account No. 514 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Dr. | 0 | ||
3 | Purchased uniforms | ||||||
31 | To close account | ||||||
Accounting and Legal Expense Account No. 515 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Dr. | 0 | ||
17 | Paid accounting and legal fees | ||||||
31 | To close account | ||||||
Promotion Expense Account No. 516 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Dr. | 0 | ||
18 | Purchased promotional items | ||||||
31 | To close account | ||||||
Maintenance Expense Account No. 517 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Dr. | 0 | ||
24 | Paid maintenance fees | ||||||
31 | To close account | ||||||
Medical Supplies Expense Account No. 518 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Dr. | 0 | ||
31 | To adjusting for medical supplies used | ||||||
31 | To close account | ||||||
Office Supplies Expense Account No. 519 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Dr. | 0 | ||
31 | To adjust for office supplies used | ||||||
31 | To close account | ||||||
Insurance Expense Account No. 520 | |||||||
DATE | EXPLANATION | REF. | DEBITS | CREDITS | DR. OR CR. | BALANCE | |
Dec. | 1 | Balance | √ | Dr. | 0 | ||
31 | To adjust for expired insurance | ||||||
31 | To close account |
Note: Just review the following. You don’t need to do anything else with it. It’s just an example to show you how balancing and ruling would be done if you were using two-sided debit and credit column accounts instead of the 3-column, balance-form accounts for this assignment.
Page 1 of 27
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more