Accounting 1 Lesson Plan Name: Terry Wilhelmi Day/Date: Topic: Recording Adjusting and Closing Entries - Partnership Unit: 3 Chapter 18 I. Objective(s): By the end of today s lesson, the student will be able to: identify accounting concepts and practices related to adjusting and closing entries for a merchandising business organized as a partnership. record adjusting entries for a merchandising business organized as a partnership. record closing entries for a merchandising business organized as a partnership. prepare a post-closing trial balance for a merchandising business organized as a partnership. II. Materials: Textbook Workbook Transparencies III. Anticipatory Set: Two types of journal entries change general ledger account balances at the end of a fiscal period: 1) Adjusting entries bring general ledger account balances up to date. The information is taken from the Adjustments columns of a work sheet. 2) Closing entries prepare temporary accounts for the next fiscal period. CONCEPT: Matching Expenses with Revenue The information is taken from the Income Statement and Balance Sheet columns of a work sheet and a distribution of net income statement. IV. Learning Activities:
2 RECORDING ADJUSTING ENTRIES (pg. 435) The adjusting entries are for merchandise inventory, supplies - office and store, and prepaid insurance. Adjusting entries are recorded on the next journal page following the page on which the last daily transaction for the month is recorded. The adjusting entries are entered in the General and columns of a journal. The heading, Adjusting Entries, is written in the middle of the journal s Account Title column. Indicating a source document is unnecessary. The first adjusting entry is recorded on the first two lines below the heading. Adjusting entry for merchandise inventory (pg. 436) Merchandise Inventory Adjusting entry for office supplies inventory (pg. 436) Supplies Expense - Office Supplies - Office Adjusting entry for store supplies inventory (pg. 436) Supplies Expense - Store Supplies - Store Adjusting entry for prepaid insurance (pg. 437) Insurance Expense Prepaid Insurance SUMMARY OF ADJUSTING ENTRIES - PARTNERSHIP (pg. 437) Point out to students.
3 Assignment: Be sure you know and understand: the answers to questions 1-4, pg. 452. answer Case 1, pg. 454. do Drill 18-D1, pgs. 454. do Problem 18-1, instr. 1-2, pg. 455-456. read pages 438-452. RECORDING CLOSING ENTRIES At the end of a fiscal period, the temporary accounts are closed to prepare the general ledger for the next fiscal period. To close a temporary account, an amount equal to its balance is recorded on the side opposite the balance. Four kinds of closing entries: 1) An entry to close the income statement accounts with credit balances. 2) An entry to close incomes statement accounts with debit balances. 3) An entry to record net income or loss and close the income summary account. 4) Entries to close the partners drawing account. The account The account is a temporary account used to summarize the closing entries for revenue, cost, and expenses. It is used only at the end of a fiscal period to help prepare other accounts for a new fiscal period. It is a unique account because it does not have a normal balance side. Amount needed for the closing entries are obtained from the Income Statement and Balance Sheet columns of the work sheet and from the distribution of net income statement.
4 Closing entries are entered in the General and columns of a journal. The heading,closing Entries, is written in the middle of the journal s Account Title column. Indicating a source document is unnecessary. The first closing entry is recorded on the first two lines below the heading. Closing entry for an income statement account with a credit balance (pg. 439) Sales is the only revenue account on the income statement with a credit balance. This credit balance must be reduced to zero to prepare the account for the next fiscal period. Sales Closing entry for income statement accounts with debit balances (pg. 440) The cost account, Purchases, and the expense accounts are the income statement accounts with debit balances. These debit balances must be reduced to zero to prepare the accounts for the next fiscal period. Purchases Expense Accounts now has three amounts: 1) A debit for the amount of the merchandise inventory adjustment. 2) A credit for the amount of the entry to close the revenue account, Sales. 3) A debit for the total amount of the entry to close the cost account, Purchases, and the expense accounts. The balance of is the net income/loss for the fiscal period. Closing entry to record net income or loss and close the income summary account (pg. 442) Net income increases the partners equity and, therefore, must be credited to the partners capital accounts.
5 The share of the net income to be recorded for each partner is on the distribution of net income statement. The balance of the temporary account,, must be reduced to zero to prepare the account for the next fiscal period. Partner 1, Capital Partner 2, Capital If the business has a net loss, the partners capital accounts are debited and is credited. Closing entries for the partners drawing accounts (pg. 443) The partners drawing accounts are temporary accounts and must begin each fiscal period with zero balances. The withdrawals are neither a revenue, cost, nor expense, so the drawing accounts are not closed through. The drawing account balances are closed directly to the partners capital accounts. Partner 1, Capital Partner 1, Drawing Partner 2, Capital Partner 2, Drawing After the closing entry for the partners drawing accounts, the balances of the partners capital accounts are the same as reported in the owners equity section of the balance sheet. SUMMARY OF CLOSING ENTRIES - PARTNERSHIP (pg. 444) Point out to students. CHECKING A GENERAL LEDGER S ACCURACY AFTER POSTING ADJUSTING AND CLOSING ENTRIES Each general ledger account shows its current balance at all times. When an account is closed, a short line is drawn in both the Balance and columns. The ending balance for one fiscal period is the beginning balance for the next fiscal period.
6 Completed general ledger (pgs. 446-451) Balance sheet accounts (asset, liability, and capital accounts) have up-to-date balances to begin the new fiscal period. Balances in the balance sheet accounts agree with the amounts on the balance sheet. Income statement accounts (revenue, cost, and expense accounts) have zero balances to begin the new fiscal period. Post-closing trial balance (pg. 451) After adjusting and closing entries have been posted, a post-closing trial balance is prepared to prove the equality of debits and credits in the general ledger. All general ledger accounts that have balances are listed on a post-closing trial balance. Accounts are listed in the same order as they appear in the general ledger. Accounts with zero balances are not listed on the post-closing trial balance. Account balances on the post-closing trial balance agree with the balances on the balance sheet. The post-closing trial balance debit and credit balance totals must be the same to prove the equality of debits and credits in the general ledger. SUMMARY OF AN ACCOUNTING CYCLE FOR A MERCHANDISING BUSINESS (pg. 456) Service and merchandising businesses use a similar accounting cycle. The accounting cycles for a proprietorship and partnership are also similar. Variations occur when subsidiary ledger are used and in preparing financial statements. The accounting cycle for a merchandising business is as follows:
7 1) Source documents are checked for accuracy, and transactions are analyzed into debit and credit parts. 2) Transactions, from information on source documents, are recorded in a Journal. 3) Journal entries are posted to the Accounts Receivable Ledger, the Accounts Payable Ledger, and the General Ledger. 4) Schedules of Accounts Receivable and Accounts Payable are prepared from the subsidiary ledgers. 5) A Work Sheet, including a trial balance, is prepared from the general ledger. 6) Income Statement, Distribution of Net Income Statement, Owners Equity Statement, and Balance Sheet are prepared from the work sheet. 7) Adjusting and Closing entries are journalized from the work sheet. 8) Adjusting and Closing entries are posted to the general ledger. 9) Post-closing Trial Balance of the general ledger is prepared. Assignment: Be sure you know and understand: the answers to questions 5-14, pg. 452. answer Case 2, pg. 454. do Drill 18-D2, pgs. 454-455. do Problem 18-1, instr. 3-5, pg. 456. do Problem 18-M, pgs. 456-457. V. Closure: To review for test do Study Guide 18 and Problem 18-M. VI. Evaluation of Student Learning: Students will be evaluated using Problems 18-M, and chapter 18 test.