Lesson: 35
Topic: The Closing Entries - A General Journal Perspective
Objectives:
Students will come to understand how the closing entries do not actually change the value of the Owner's Equity. Rather, the closing entries allow us to erase the balances of the revenue, expense, and drawings accounts so that we can start each new accounting period with fresh Owner's Equity accounts that will therefore reflect only the activities of a single accounting period.
If we compare a Pre-Closing Trial Balance with a Post-Closing Trial Balance we will clearly see that, although the revenue, expense, and drawings accounts do not appear on the Post-Closing Trial Balance, the value of owner's equity has not changed. This is because the value of the the revenue, expense, and drawings accounts has simply been moved into the Capital account. At the moment of closing, the value of the capital account becomes identical to total owner's equity.
By the end of this class, the student should be able to complete a set of closing entries and then prepare a Post-Closing Trial Balance.
Pre-Closing Trial Balance
Account Account # Debit Credit Cash 101 $4,000.00 Supplies on Hand 105 2000.00 Equipment 107 1,700.00 Automobile 110 12,200.00 Bank Loan 201 8,000.00 Capital 301 5,000.00 Drawings 302 100.00 Fees Earned 401 10,000.00 Rent Expense 501 2,000.00 Hydro Expense 505 1,000.00 __________ __________ Totals $23,000.00 $23,000.00
Dec. 31 Fees Earned 10,000.00 Revenue & Expense Summary
10,000.00 Dec. 31 Revenue and Expense Summary 3,000.00 Rent Expense
2,000.00 Hydro Expense
1,000.00 Dec. 31 Revenue and Expense Summary 7,000.00 Capital
7,000.00 Dec. 31 Capital 100.00 Drawings
100.00
Post-Closing Trial Balance
| Account | Account # | Debit | Credit |
| Cash | 101 | $4,000.00 | |
| Supplies on Hand | 105 | 2,000.00 | |
| Equipment | 107 | 1,700.00 | |
| Automobile | 110 | 12,200.00 | |
| Bank Loan | 201 | 8,000.00 | |
| Capital | 301 | 11,900.00 | |
| __________ | __________ | ||
| Totals | $19,900.00 | $19,900.00 |
Method of Instruction and Evaluation:
Exercise #1, page 334 in your text.
After a Socratic lecture on the topics outlined above, students will complete
the Accrued Expense Excel Exercise.
Expectations Addressed:
The "Fundamental
Accounting Practices" strand of the BAF3M Ministry of Education Curriculum
Guidelines outlines all of the following specific expectations. The expectations
addressed by this lesson have been highlighted below.
Introduction
to Accounting as a Discipline:
explain
the purpose of accounting;
explain
the difference between accounting and bookkeeping;
identify
the users and uses of accounting; References:
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