Price SM ch06 qxd 10 26 05 2 41 PM Page 93 Chapter 6 Closing Entries and the Postclosing Trial Balance Chapter Opener Thinking Critically Students should recognize that financial statements can be used to evaluate net profit or loss return on investments expense trends or growth in company net assets The income statement is used to measure net income or loss while the balance sheet can be used to measure growth in assets or liabilities Executives and managers would use financial statements to make decisions about expanding business investing in new ventures or hiring new employees Fast Facts Carnival has 27 000 employees 24 000 of these employees work on board the company s fleet of 20 cruise ships Of the 3 million passengers Carnival serves annually approximately 1 000 000 are seniors and 500 000 are children Carnival became a publicly traded company in 1987 In 2003 Carnival Corporation merged with P O Princess Cruises PLC creating a global vacation leader with 12 brands encompassing 66 ships and more than 100 000 lower berths making it one of the largest leisure travel companies in the world Accounting on the Job Thinking Critically Students responses will vary A strong understanding of accounting procedures and tasks would be beneficial to this professional A computer science degree along with several years of programming experience good communication skills and excellent problem solving abilities would also be helpful Accounting on the Job Internet Application Students can go to www greatplains com www peachtree com and www microsoft com Job opportunities selected by students will vary Answers should include the job title job description education and skill requirements Managerial Implications Answers will vary but could include monthly or quarterly Students should want financial statements frequently so that trends can be observed and timely decisions made before the business is negatively impacted Discussion Questions These questions are designed to check the students understanding of the new terms concepts and procedures presented in the chapter 1 Worksheet 2 Balances of revenue and expense accounts are transferred to Income Summary Next the balance of the Income Summary account is transferred to the owner s equity account 3 Transfer results of operations to the owner s capital account Reduce balances of revenue expense and drawing accounts to zero 4 Adjustments columns of the worksheet 5 Journalize and post adjusting entries Journalize and post closing entries Prepare a postclosing trial balance 6 Source document info to general journal to general ledger to worksheet to financial statements 7 1 analyze 2 journalize 3 post 4 prepare worksheet 5 prepare financial statements 6 journalize and post adjusting entries 7 journalize and post closing entries 8 prepare postclosing trial balance 9 interpret financial information 8 Steps to classify record and summarize financial data 9 Asset liability and owner s capital 10 Avoids errors proves total debits and credits are equal after the closing process Copyright 2007 The McGraw Hill Companies Inc All rights reserved Chapter 6 93 Price SM ch06 qxd 10 26 05 2 41 PM Page 94 Exercises Exercise 6 1 GENERAL JOURNAL Date PAGE 4 Post Ref Description Debit Credit Closing Entries 2007 Dec 31 31 31 31 Fees Income Income Summary Income Summary Salaries Expense Utilities Expense Supplies Expense Telephone Expense Depreciation Expense Income Summary Eugene Henderson Capital Eugene Henderson Capital Eugene Henderson Drawing Exercise 6 2 1 Analyze transactions 2 Journalize the transactions 3 Post the journal entries 4 Prepare a worksheet 5 Prepare financial statements 6 Record adjusting entries 7 Record closing entries 8 Prepare a postclosing trial balance 9 Interpret the financial information Exercise 6 3 1 Cash 2 Accounts Receivable 3 Supplies 4 Equipment 5 Accumulated Depreciation 6 Accounts Payable 7 Jane Nelson Capital 94 Chapter 6 85 000 85 000 45 800 28 000 7 200 4 000 3 600 3 000 39 200 39 200 24 000 24 000 Exercise 6 4 1 E 2 B 3 I 4 B 5 B 6 I 7 B 8 B 9 I 10 B 11 B E 12 I E 13 B 14 I 15 B Exercise 6 5 1 Total revenue for the period is 23 250 2 Total expenses for the period are 15 150 3 Net income for the period is 8 100 4 Owner s withdrawals for the period are 3 000 Copyright 2007 The McGraw Hill Companies Inc All rights reserved Price SM ch06 qxd 10 26 05 2 41 PM Page 95 Exercise 6 6 GENERAL JOURNAL PAGE 4 Description Post Ref Fees Income Income Summary Income Summary Depreciation Expense Equipment Insurance Expense Rent Expense Salaries Expense Supplies Expense Telephone Expense Utilities Expense Income Summary Dennis Ortiz Capital Dennis Ortiz Capital Dennis Ortiz Drawing 401 399 399 510 511 514 517 518 519 523 399 301 301 302 Date Debit Credit Closing Entries 2007 Mar 31 31 31 31 138 000 138 000 103 290 5 040 4 800 14 400 70 800 1 950 2 700 3 600 34 710 34 710 3 000 3 000 GENERAL LEDGER ACCOUNT Dennis Ortiz Capital Date 2007 Mar 31 31 31 Description Balance Closing Closing ACCOUNT Description Balance Closing ACCOUNT J4 J4 Debit Description Closing Closing Closing 58 800 93 510 90 510 34 710 3 000 ACCOUNT NO Post Ref Debit J4 3 000 J4 J4 J4 Debit Credit 138 000 103 290 34 710 Copyright 2007 The McGraw Hill Companies Inc All rights reserved 302 Balance Debit Credit Credit 3 000 0 ACCOUNT NO Post Ref 301 Balance Debit Credit Credit Income Summary Date 2007 Mar 31 31 31 Post Ref Dennis Ortiz Drawing Date 2007 Mar 31 31 ACCOUNT NO 399 Balance Debit Credit 138 000 34 710 0 Chapter 6 95 Price SM ch06 qxd ACCOUNT 10 26 05 Description Balance Closing ACCOUNT Description Balance Closing ACCOUNT Description Balance Closing ACCOUNT Description Balance Closing ACCOUNT Description Balance Closing ACCOUNT 138 000 0 138 000 ACCOUNT NO Debit J4 5 040 Description Balance Closing 96 Chapter 6 5 040 0 ACCOUNT NO Post Ref Debit J4 4 800 Debit J4 4 800 0 14 400 Debit J4 14 400 0 70 800 J4 Debit 517 Balance Debit Credit Credit 70 800 0 ACCOUNT NO Post Ref 514 Balance Debit Credit Credit ACCOUNT NO Post Ref 511 Balance Debit Credit Credit ACCOUNT NO Post Ref 510 Balance Debit Credit Credit Supplies Expense Date 2007 Mar 31 31 Post Ref 401 Balance Debit Credit Credit Salaries Expense Date 2007 Mar 31 31 J4 Debit Rent Expense Date 2007 Mar 31 31 Post Ref Insurance Expense Date 2007 Mar 31 31 ACCOUNT NO Depreciation Expense Equipment Date 2007 Mar 31 31 Page 96 Fees Income Date 2007 Mar 31 31 2 41 PM Credit 1 950 518 Balance Debit Credit 1 950 0 Copyright 2007