Take-Off Trial Balance

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1 Closing Entries, and Accounting Worksheet Created 2007 By Michael Worthington Elizabeth City State University Take-Off is initial stage of 1. Copy (take-off) unadjusted from General Ledger to the worksheet 2. Record adjustments on worksheet 3. Extend across to Prepare the Financial s from the on Worksheet Worksheet Work from left to 1

2 Include at least one income statement account and one balance sheet account Expenses or Revenues Do the opposite for account Usually the amount of the adjustment = change in the balance sheet account Purpose of Convert basis to accrual basis Cash Basis Assets CONVERT Receivables AND Payables Liabilities Accrual Basis Accrual Basis means to record the asset (receivable) or liability (payable) Bookkeeping for some accounts is on the cash basis, so they must be converted to accrual before making financial statements Four Types of 1. accrue unrecorded expenses 2. accrue unrecorded revenues 3. allocate from asset to expense 4. allocate revenue from liability to revenue Accrue means to record on balance sheet Allocate means to divide an amount between two accounts 2

3 Unearned Revenue Unearned Revenue = prepayment by customer for or services Business must repay customer if the goods or services are not delivered Unearned Revenue = liability until the goods or services are provided Example: receipt of last month s rent when tenant moves into an apartment Allocate Costs Dr Expense Cr Asset Expenses (debit side) Accrue Expenses Dr Expense Cr Payable Assets Adjustment Diamond Accrue Revenue Dr Receivable Cr Revenue Revenues (credit side) Allocate Unearned Revenue Dr Unearned Rev. Cr Revenue Prepaid Insurance Company paid $2,400 annual insurance premium on July 1 st and amount was debited to Prepaid Insurance. Adjust the amount as of December 31 st Account Title 3

4 Repairs Received an invoice of $2,300 for repair work which has not yet been recorded What account should be debited? Account Title Worksheet Carry balances of all Revenue and Expense accounts to columns Carry balances of Assets, Liabilities and Owners Equity accounts to columns Worksheet Totals Net Totals Total s will NOT equal Total for Stmt. Or columns: add Net to force them to balance 4

5 Worksheet Totals Net Totals Net is recorded twice; once as a debit and once as a ; & must be equal Nominal or Temporary Nomen is Latin for name Nominal means in only Example: The Queen of Britain is the nominal head of the British Government Nominal accounts are general ledger accounts whose balances do NOT carry over to next period Nominal accounts = temporary accounts which are closed to zero at the end of the period Real account balances continue to next period: assets, liabilities and owners equity Closing Close (set balances to zero) all temporary accounts at the end of the fiscal year Like setting fuel pump meter to zero before filling up Temporary = Revenue, Expenses, Dividends Declared, and Summary 5

6 First Closing Entry Close all revenue accounts to Summary Normal balance of revenue = credit, so debit revenue accounts to zero-out their list of revenue accounts for account balances Summary account for the total of the revenue accounts Second Closing Entry Close all expense accounts to Summary Normal balance of expenses = debit, so credit expense accounts to zero-out balances list of expense accounts for account balances Summary account for the of the expense accounts Third Closing Entry Close Summary account If firm showed Net (revenue > expenses) debit for amount of net income If firm showed Net Loss (revenues < expenses) credit Summary for amount of net loss or credit Retained Earnings to balance the journal entry 6

7 Fourth Closing Entry Close Dividends Account Normal balance of Dividends is debit So credit Dividends Account for amount of balance Retained Earnings for the amount of declared dividends to balance the journal entry All Four Closing Sales Interest Revenue Summary Summary Salary Expense Rent Expense Summary Retained Earnings Retained Earnings Dividends Declared Summary Analyze documents Journalize transactions Post to General Ledger Take-off Prepare Adjusting Journal Entries Post Take-off Prepare Financial s Prepare and record Closing Entries Take-off Post-Closing 7

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