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MU ACC 221 - Chapters 5 & 6: Closing Accounts & Purchasing on Account

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ACC 221 1st Edition Lecture 7Outline of Previous Lecture- Chapters 3 & 4: Additional Facts of New Accounts Owner’s Equity Accountso Common Stock v. Retained Earningso Revenue and expense accounts begin every new accounting period at zeroOutline of Current Lecture - Chapters 5 & 6: Closing Accounts & Purchasing on Account Closing accounts and post-closing trial balanceso Closing entrieso Steps in accounting cycle Purchasing on Accounto New Liabilityo Making a partial payment Paying interesto Paying interest for 2 monthsCurrent Lecture- Chapters 5 & 6: Closing Accounts & Purchasing on Account Closing accounts and post-closing trial balances Temporary accounts – Revenue and expense accounts that close every month Permanent accounts – accounts that are never closed- Include: Asset Accounts, Liability Accounts, Common Stock and Retained Earnings Post-Closing Trial Balance – Shows all of the general ledger account balances after the closing entries have been made- Purpose: to check that general ledger is in balance and the company is ready to move into a new accounting cycleo Closing entries:  Revenue Accounts:- Dr. Sales Revenue, Cr. Retained Earnings Expense Accounts:- Dr. retained earnings, Cr. Expense Accountso Steps in accounting cycleThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute. Make entries into General Journal, corresponding to the correct accounts and making sure to check Dr. & Cr. Are correct Post entries into the general ledger utilizing the temporary expense and revenue accounts Determine if any general ledger accounts need to be adjusted- If so, note changes to general journal, and complete general ledger Complete Pre-Closing trial balance to check accounts are in balance Complete income statement from ending balances in temporary revenue and expense accounts. Move ending balances for temporary revenue and expense accounts into retained earnings to find final balance Complete balance sheet from ending general ledger balances- Use asset accounts, liability accounts, common stock, and retained earnings Enter temporary revenue and expense closing entries into general journal, post closing entries to general ledger accounts Prepare a post-closing trial balance to make sure accounts are balanced- After completed, company is ready to begin a new accounting cycle Purchasing on Accounto New liability – paying on account, they now have non-owner’s claim to assets Dr. Inventory, Cr. Accounts Payable Company will pay for inventory at a later date Accounts payable – What we owe outside company- Liability Accounts receivable – What others owe to us- Asseto Making a partial payment Dr. Accounts Payable, Cr. Cash Paying interesto Pay interest for 2 months One transaction recorded into last month’s journal/ ledger February’s Interest: - Dr. Interest Payable, Cr. Cash March’s Interest:- Dr. Interest Expense, Cr. Cash Transaction may be written separately or as one longer


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