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CHAPTER 20 • PLANNING GUIDE

SECTION RESOURCESSection College & Career Readiness Professional Development

SECTION 20.1 JOURNALIZING CLOSING ENTRIES Reading Strategy, pp. 591, 592, 594

Critical Thinking, p. 594Writing Support, p. 594Math Skill Practice, p. 593

English Language Learners, p. 593Extended Skill Practice, p. 593

A corporation’s net income (or net loss) is closed to Retained Earnings.

SECTION 20.2 POSTING CLOSING ENTRIES Reading Strategy, pp. 596, 597Critical Thinking, pp. 596, 597, 598, 599, 600, 601Differentiated Instruction, pp. 600, 601Writing Support, p. 598Math Skill Practice, p. 600

Extending the Content, p. 597Extended Skill Practice, p. 599Connect to History, p. 600Case Study, p. 61221st Century Skills, p. 612Career Wise, p. 613H.O.T. Audit, p. 613

After posting the closing entries, prepare a post-closing trial balance.

PACING YOUR LESSONS

Chapter Introduction Section 1 Section 2 Chapter Assessment

½ period 2 periods 2 periods ½ period

P

*This pacing guide is based on a traditional 36-week course. See pp. TM38–TM39 for complete pacing guide information.

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STANDARDS AND SKILLS • CHAPTER 20

STANDARDS-BASED LESSON PLANNational Standards for Business Education

StandardsI.C.5 Identify and use information technology productively

IV.D.3 Record equity-related transactions

V.A.11 Describe the relationship between the closing process, the fi nancial statements, and the post-closing trial balance

VI.A.2 Identify and apply appropriate information technology to the accounting system

PROFESSIONALDEVELOPMENT

Targeted professional development is correlated throughout Glencoe Accounting. The McGraw-Hill Professional Development Mini Clip Video Library provides teaching strategies to strengthen academic and learning skills. Log on to glencoe.com.

In this Chapter, you will fi nd these Mini Clips:• Math: Multiple Approaches to Problem Solving, p. 593• ELL: Reading Aloud, p. 599

*Highlighted blocks indicate areas covered in the chapter. Additional skills are also covered throughout the Teacher Edition.

Resources: Allocating Time Allocating Money Allocating Material and Facility Resources

Allocating Human Resources

Information:Acquiring and

Evaluating Information

Organizing and Maintaining Information

Interpreting and Communicating

Information

Using Computers to Process Information

Interpersonal Skills: Participating as a Member of a Team Teaching Others Serving Clients/

Customers Exercising Leadership Negotiating to Arrive at a Decision

Working With Cultural Diversity

Systems: Understanding Systems

Monitoring and Correcting Performance

Improving and Designing Systems

Technology: Selecting Technology Applying Technology to Task

Maintainingand Troubleshooting

Technology

21st Century Skills Correlations

*See pp. TM33–TM35 for detailed NBEA standards and correlations.

Chapter 20 588B

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CORRELATIONS TO NATIONAL STANDARDS FOR BUSINESS EDUCATION

See p. TM33 for a detailed correlation chart.Standards: I.B.1, I.C.3, I.C.4, I.C.5, IV.D.3, V.A.11, VI.A.2

FOCUS

Frugal management policies and cutting-edge warehouse and stock-tracking technologies have served to help keep low prices and high profits on track for the 99 Cents Only Stores. Such technologies help facilitate accurate closing entries for the business. Founder David Gold and his team are also master marketers. Besides the iPod nano promotion, they have celebrated the 99th birthday of public figures as another “99” promotion.

Analyze If temporary accounts were not closed before the next accounting period’s transactions, it would be diffi cult to assess each period’s income and expenses. By closing one period before beginning the next, the temporary accounts hold only that period’s transactions and activities.

FOCUS ON THE PHOTO Visual Literacy Possible answer: Answers will vary. Students might mention temporary accounts, such as Sales, Purchases, and expense accounts. Ask: What do you already know about completing the accounting cycle? Possible answer: In a general sense, closing a door separates one room from another. Closing something out means it has concluded. Also, closing entries for a sole proprietorship (in Chapter 10) may be similar to closing entries for a merchandising corporation.

F l li i d i

REAL-WORLD Business Connection

CHAPTER

glencoe.com Get podcasts, videos, and accounting forms.

BIG IDEAJournalizing and closing

entries “clean the slate” before a new accounting period.

FOCUS ON THE PHOTOSmart shoppers depend on the 99 Cents Only Stores for all kinds of discounted merchandise, including fresh produce and other food items. What accounts might be involved for preparing closing entries for this merchandising business?

99 Cents Only StoresDo you think it is possible to buy a new iPod Nano for 99 cents? It was for the fi rst nine customers at a recent grand opening of a 99 Cents Only Store. Promoting the newest of its more than 275 retail outlets, 99 Cents Only Stores tempted customers with all kinds of bargains for 99 cents or less: name-brand and private-label foods, beverages, health and beauty products, toys, and household goods. How can selling products at such a low price make the company a profi t? This retailer focuses on close-out inventory and distressed products purchased at discount prices.

Connect to the BusinessAt the end of a fi scal period, companies like 99 Cents Only Stores prepare closing entries to transfer all temporary account balances to a permanent account. The general ledger is then ready for a new accounting period.

AnalyzeWhat might happen if temporary accounts were not closed before the next accounting period begins?

COMPLETING THE ACCOUNTING CYCLE FOR A MERCHANDISING CORPORATION

20REAL-WORLD Business Connection

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BIG IDEA

INTRODUCING CHAPTER 20

Both corporations and sole proprietorships must “clean the slate” to prepare for the next accounting period. Ask students to remember the steps in the closing process for sole proprietorships.

588 Chapter 20

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TEACH Previewing the Main IdeasUse these questions and activities at the beginning of the sections to focus on the Main Ideas.

SECTION 20.1 JOURNALIZING CLOSING ENTRIESClosing entries are made for both a sole proprietorship and a corporation. Ask: Which closing entries are different for the two types of businesses? The third and fourth closing entries are different. Point out that corporations do not use withdrawals accounts and Income Summary is closed to the Retained Earnings account for a corporation.

SECTION 20.2 POSTING CLOSING ENTRIESAsk: How might you check for errors in posting closing entries to the general ledger? prepare a trial balance Ask: What accounts are not closed and are listed on the post-closing trial balance? assets, liabilities, and stockholders’ equity

589

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The interactive student text and working papers can be found on McGraw-Hill Connect.

Online Learning CenterGet activity and game ideas, reproducible forms, and links to additional accounting resources.

Glencoe Technology Solutions

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Chapter 20 589

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Before You ReadBefore You Read

READING GUIDE STANDARDS

Chapter Objectives

Concepts

C1 Journalize closing entries for a merchandising corporation. (p. 591)

Analysis

A1 Post closing entries to the general ledger accounts. (p. 596)

Procedures

P1 Prepare a post-closing trial balance. (p. 600)

P2 Describe the steps in the accounting cycle. (p. 601)

Main IdeaA corporation’s net income or net loss is closed to Retained Earnings. After posting the closing entries, accountants prepare a post-closing trial balance.

The Essential Question Why is it important to “clean the slate” before a new accounting period?

CHAPTER 20

ACADEMIC

English Language ArtsNCTE 1 Read texts to acquire new information. (p. 604)

MathematicsNCTM Problem Solving Build new mathematical knowledge through problem solving. (p. 604)

NCTE National Council of Teachers of EnglishNCTM National Council of Teachers of Mathematics

Common Core

Reading Analyze how and why individuals, events, and ideas develop and interact over the course of a text. (p. 604)

590 Chapter 20 Completing the Accounting Cycle for a Merchandising Corporation

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FOCUS READING GUIDE

Before You ReadThe Essential Question The essential question encourages students to inquire about the underlying purpose of accounting. Use the essential question as a discussion starter, emphasizing to students that there are no right or wrong answers.

Main IdeaHave students read the Main Idea in Before You Read. Ask: Why is the net income/loss closed to Retained Earnings and not to owner’s equity? Corporations use the Retained Earnings account to show accumulated earnings, whereas sole proprietorships use the owner’s capital account. Ask: Why is the post-closing trial balance so important? It verifi es that debits equal credits.

Chapter Objectives Have students review the objectives to set expectations for what they’ll learn in Chapter 20.

Academic StandardsHelp students see cross-curricular connections whenever possible.

College and Career Readiness standards emphasize skills and concepts students will need beyond high school.

Connect to the Reading Guide Use the following questions to help students connect to the reading.1. What does the chapter title tell you?

Predict2. What do you already know about this

subject from personal experience? Activate Prior Knowledge

3. What have you learned about this in the earlier chapters? Make Connections

4. What gaps exist in your knowledge of this subject? Set a Purpose for Reading

Print• Chapter Study Guides and

Working Papers pp. 585–614 • Fast File Chapter 20 ResourcesDigital Transparencies(TeacherWorks Plus)• Section 1: Transparencies 20-1 to

20-6

• Section 2: Transparencies 20-7 to 20-10

Technology• Presentation Plus! • TeacherWorks Plus• Peachtree Accounting Software

and Applications

• Using QuickBooks® with Glencoe Accounting

Online• McGraw-Hill Connect• Glencoe Accounting Online

Learning Center

CHAPTER 20 RESOURCES MANAGER

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PRETEACHING SECTION VOCABULARY

SECTION VOCABULARY

Academic Vocabulary• journal

• temporary

• retain

SECTION 20.1

JOURNALIZING CLOSING ENTRIESIn Chapter 10 you journalized and posted the closing entries for

a sole proprietorship service business. In this chapter you will learn to journalize and post the closing entries for a merchandising corporation. The journalizing procedures are the same.

Steps for Closing the LedgerHow Are Closing Entries for a Corporation Different from Closing Entries for a Sole Proprietorship?

In Chapter 10 you made four entries to close the temporary general ledger accounts of a sole proprietorship:

1. Close the temporary accounts with credit balances to Income Summary.

2. Close the temporary accounts with debit balances to Income Summary.

3. Close the balance of Income Summary to capital. 4. Close the withdrawals account to capital.

Only the first three closing entries are made to close the temporary accounts for a merchandising business organized as a corporation. Since a corporation does not have a withdrawals account, the fourth closing entry is not needed.

The portion of The Starting Line’s work sheet in Figure 20–1 on pages 592 and 593 shows the account balances that are closed. Let’s look closely at each closing entry.

1. Close the accounts with balances in the Credit column of the Income Statement section of the work sheet (revenue and contra cost of mer chan dise accounts) to Income Summary. After this closing entry has been journalized and posted, the Sales, Purchases Discounts, and Purchases Returns and Allowances accounts have zero balances.

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• Show Me tutorials • Let Me Try interactive

activities.

Sales

Credit�

Bal. 320,450.00

Debit�

Clos. 320,450.00

Income Summary

Credit

Clos. 323,590.00

Debit

Adj. 3,536.00

Purchases Discounts

Credit�

Bal. 1,340.00

Debit�

Clos. 1,340.00

Purchases Returns and Allowances

Credit�

Bal. 1,800.00

Debit�

Clos. 1,800.00

GENERAL JOURNAL PAGE

1

2

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4

5

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1

2

3

4

5

6

DEBIT CREDITDESCRIPTIONDATE POST.REF.

23

20--Dec.

Closing EntriesSalesPurchases DiscountsPurchases Returns and Allow.

Income Summary

31 320 450 001 340 001 800 00

323 590 00

Section 20.1 Journalizing Closing Entries 591

591_602_C20_SEC_893567.indd 591 9/10/10 3:17 PM

R1

R2

SECTION 20.1

FOCUSBell Ringer • Comparing and Contrasting:

Have students recall the closing entries they prepared in Chapter 10 for a sole proprietorship service business. Ask: How might the closing entries for a merchandising corporation differ from those for a sole proprietorship? The process is the same; some of the accounts closed will be different because they are unique to a merchandising business.

• Digital Transparency 20-1 focuses students’ attention on the topics covered in Section 20.1.

Bell Ringer

R1 Reading StrategyActivating Prior Knowledge Ask: What have you already learned about journalizing? Journalizing is entering transactions in a book of original entry. OL

R2 Reading StrategyActivating Prior Knowledge Refer students to the general journal (Digital Transparency 20-3). Ask: What are the balances in the Sales and Purchases accounts after closing entries have been journalized and posted? zero OL

Academic Vocabulary1. What does journal mean in the following: He wrote in his travel journal every day. log/diary2. What does temporary mean in the following: The detour was a temporary route to get to the town.

short-term3. What does retain mean in the following: The group wants to retain the design of the historical landmark.

maintain/preserve

Chapter 20 591

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Closing the General Ledger Demonstrate how accounts are closed into the general ledger. Pass out to students note cards containing the balances of general ledger accounts affected by the closing process. Place a bucket representing the general ledger in the front of the class. Have each student drop his or her card into the bucket and call out the account name and balance. After all cards have been “closed,” explain that the next step is to prepare the post-closing trial balance.

Linda StevensEisenhower Senior High School, Houston, TexasTE RTE

ACHER

TEACHERTEACHER

TOTOAACCHH

2. Close the accounts with balances in the Debit column of the Income Statement section of the work sheet (contra revenue, cost of merchan dise, and expense accounts) to Income Summary. After this closing entry has been journalized and posted, the contra revenue, cost of merchandise, and expense accounts have zero balances.

Income Summary now has a credit balance of $32,674.72.

$ 323,590.00 closing credit � 3,536.00 adjustment debit

� 287,379.28 closing debit $ 32,674.72 credit balance

3. Close Income Summary to Retained Earnings.

Retained Earnings

Credit�

Bal. 19,771.19Clos. 32,674.72Bal. 52,445.91

Debit�

Income Summary

Credit

Clos. 323,590.00

Debit

Adj. 3,536.00Clos. 287,379.28Clos. 32,674.72

After the entry to close Income Summary to Retained Earnings has been journalized and posted, Income Summary has a zero balance. The balance of Retained Earnings is increased to $52,445.91.

TRIAL BALANCE

DEBIT CREDIT

ADJUSTMENTS

DEBIT CREDITACCOUNT NAME

ACCT.NO.

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310401405410501505510515601605630635650655657660665670680

Income SummarySalesSales DiscountsSales Returns and AllowancesPurchasesTransportation InPurchases DiscountsPurchases Returns and Allow.Advertising ExpenseBankcard Fees ExpenseFed. Corporate Income Tax Exp.Insurance ExpenseMaintenance ExpenseMiscellaneous ExpensePayroll Tax ExpenseRent ExpenseSalaries ExpenseSupplies ExpenseUtilities Expense

Net Income

The Starting LineWork

For the Year Ended

730 002 000 00

206 700 004 036 18

2 450 004 199 279 840 00

3 519 25348 28

3 826 8314 000 0029 374 60

2 364 87435 798 28

320 450 00

1 340 001 800 00

435 798 28

3 536 00

155 00125 00

3 710 00

7 526 00 7 526 00

(a)

(b)

(c)

(d)

Figure 20–1 Closing Entries Needed for a Corporation


591_602_C20_SEC_893567.indd 592 9/10/10 3:19 PM

C3

C1

C2

SECTION 20.1

TEACHC1 Critical ThinkingApplying Prior Knowledge Point out that the second entry closes accounts with debit balances. Ask: What three account classifi cations have debit balances on the income statement? contra revenue, cost of merchandise, and expenses AL

C2 Critical ThinkingApplying Prior Knowledge Ask: Which accounts are classifi ed as contra revenue? sales discounts and sales returns and allowances OL

C3 Critical ThinkingMaking Inferences Have students examine Figure 20-1 (Digital Transparency 20-2). Point out that the fi gure presents only temporary accounts. Ask: Based on this fi gure, how many accounts will be affected by closing entries? 19 OL

592 Chapter 20

591_602_C20_SEC_895867.indd 592 24/11/10 10:08 AM

Sales Discounts

Debit

Bal. 730.00

Credit

Clos. 730.00

Sales Returns and Allowances

Debit

Bal. 2,000.00

Credit

Clos. 2,000.00

Transportation In

Debit

Bal. 4,036.18

Credit

Clos. 4,036.18

Purchases

Debit

Bal. 206,700.00

Credit

Clos. 206,700.00

Advertising Expense

Debit

Bal. 2,450.00

Credit

Clos. 2,450.00

Federal Corporate Income Tax Expense

Debit

Bal. 9,995.00

Credit

Clos. 9,995.00

Bankcard Fees Expense

Debit

Bal. 4,199.27

Credit

Clos. 4,199.27

Insurance Expense

Debit

Bal. 125.00

Credit

Clos. 125.00

Miscellaneous Expense

Debit

Bal. 348.28

Credit

Clos. 348.28

Maintenance Expense

Debit

Bal. 3,519.25

Credit

Clos. 3,519.25

Payroll Tax Expense

Debit

Bal. 3,826.83

Credit

Clos. 3,826.83

Salaries Expense

Debit

Bal. 29,374.60

Credit

Clos. 29,374.60

Rent Expense

Debit

Bal. 14,000.00

Credit

Clos. 14,000.00

Utilities Expense

Debit

Bal. 2,364.87

Credit

Clos. 2,364.87

Supplies Expense

Debit

Bal. 3,710.00

Credit

Clos. 3,710.00

Income Summary

Debit

Adj. 3,536.00Clos. 287,379.28

Credit

Clos. 323,590.00

ADJUSTED TRIAL BALANCE

DEBIT CREDIT

INCOME STATEMENT

DEBIT CREDIT

BALANCE SHEET

DEBIT CREDIT

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Sports GearSheetDecember 31, 20--

3 53600

730002 00000

206 700004 03618

2 450004 199279 9950012500

3 5192534828

3 8268314 0000029 374603 710002 36487

435 95328

320 45000

1 340001 80000

435 95328

3 53600

730002 00000

206 700004 03618

2 450004 199279 9950012500

3 5192534828

3 8268314 0000029 374603 710002 36487

290 9152832 67472323 59000

320 45000

1 340001 80000

323 59000

323 59000

145 03800

145 03800

112 3632832 67472145 03800

1 Close temporary accounts withbalances in the Income StatementCredit column to Income Summary.

2 Close temporary accounts withbalances in the Income StatementDebit column to Income Summary.

3 Close Income Summary to RetainedEarnings by the amount of the netincome or loss.

Figure 20–1 Closing Entries Needed for a Corporation (continued)


591_602_C20_SEC_893567.indd 593 9/10/10 3:19 PM


Math: Multiple Approaches to Problem Solving A teacher and students discuss various options for problem solving and then apply one, working backwards, to a problem situation.

M

SECTION 20.1

TEACHEnglish Language LearnersUnderstanding the vocabulary is critical to success in this course. Students whose primary language is not English might need extra support in order to keep up with the new vocabulary. Always demonstrate new processes and procedures. Provide visuals whenever possible. Keep these posted so that students can access them when necessary.

M Math Skill PracticeCalculating Closing Entries Refer students to the work sheet in Figure 20-1 (Digital Transparency 20-2). Tell them to suppose the Income Statement Credit column contained the following entries for Sales, Purchases Discounts and Purchases Returns and Allowances: $120,562, $483, and $679. Ask: To close these temporary accounts, will Income Summary be debited or credited? credited Ask: For what amount? $121,724 OL

Journalizing Closing Entries Use Demonstration Problem 20-1 in Chapter 20 Fast File for step-by-step practice journalizing closing entries. The problem also appears on TeacherWorks Plus.

EXTENDED SKILL PRACTICE

Chapter 20 593

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Reading Check Explain In your own words, explain the process of closing the ledger.

Closing Entry to Transfer a Net LossHow Do You Close a Net Loss to Retained Earnings?

Sometimes businesses incur net losses. Suppose that after posting the first two entries closing the temporary accounts, the Income Summaryaccount is as shown. Before it is closed, Income Summary has a debit balance of $5,000.00:

$ 3,612.00 adjustment debit � 65,178.00 closing debit � 63,790.00 closing credit

$ 5,000.00 debit balance

To close Income Summary, credit it for $5,000 and debit Retained Earnings for $5,000. The net loss amount decreases the earnings the business retains. This closing entry is recorded in the general journal as follows:


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DEBIT CREDITDESCRIPTIONDATE POST.REF.

23

Dec.

Dec.

287 3 7 9 28

32 6 7 4 72

7 3 0 002 0 0 0 00

206 7 0 0 004 0 3 6 182 4 5 0 004 1 9 9 279 9 9 5 00

1 2 5 003 5 1 9 25

3 4 8 283 8 2 6 83

14 0 0 0 0029 3 7 4 60

3 7 1 0 002 3 6 4 87

Income SummarySales DiscountsSales Returns and Allow.PurchasesTransportation InAdvertising ExpenseBankcard Fees ExpenseFed. Corp. Inc. Tax ExpenseInsurance ExpenseMaintenance ExpenseMiscellaneous ExpensePayroll Tax ExpenseRent ExpenseSalaries ExpenseSupplies ExpenseUtilities Expense

Income SummaryRetained Earnings

31

3132 6 7 4 72

Income Summary

Credit

Clos. 63,790.00

Debit

Adj. 3,612.00Clos. 65,178.00


22

23

24

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1 1

DEBIT CREDITDESCRIPTIONDATEPOST. REF.

Dec. 5 0 0 0 005 0 0 0 00

Retained EarningsIncome Summary

Closing Entries

31

23


591_602_C20_SEC_893567.indd 594 9/10/10 3:19 PM

W

R

C

SECTION 20.1

TEACHW Writing SupportWriting Clearly Ask: Write a sentence explaining your thoughts as to why the company incurred a net loss. Answers will vary but may include expenses exceeded revenue or revenue was down for the period. OL

R Reading StrategyActivating Prior Knowledge Ask: Why does a loss from operations require a debit to a corporation’s Retained Earnings? When total expenses (debits) exceed total revenues (credits), the resulting loss shows up as debit to Retained Earnings (which has a normal credit balance). OL

C Critical ThinkingApplying Procedures Refer students to the general journal at the bottom of the page (Digital Transparency 20-6). Tell them to assume that after posting the fi rst two closing entries, Income Summary has a debit balance of $16,247. Ask: What is the journal entry to close Income Summary to Retained Earnings? Dr. Retained Earnings $16,247; Cr. Income Summary $16,247 Ask: Did the corporation earn a profi t or incur a loss? loss OL

Reading CheckAnswers will vary. When the ledger is closed, all temporary accounts end up with a zero balance so a new period can start. Closing separates the operating results of one accounting period from the next.

594 Chapter 20

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SECTION 20.1

ASSESSSECTION 20.1 ASSESSMENT RESOURCES Use these resources to assess mastery of section content.• Chapter Study Guides and Working

Papers (Problem 20-1)• Presentation Plus!

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Online Learning Center: Click on Student Center. Click on Self-Assessment Quizzes and select Chapter 20.

SECTION 20.1 ASSESSMENT

Reinforce the Main IdeaTop box: Close temporary accounts with

credit balances to Income Summary.Second box: Close temporary accounts

with debit balances to Income Summary.

Third box: Close Income Summary balance to Retained Earnings.

Math for Accountingcredit $5,000

PROBLEM 20–1See solution in the Teacher Annotated Edition of Chapter Study Guides and Working Papers.

CLOSESynthesizing Write on the board: Total Revenues: $187,322, Total Expenses: $155,689. Ask: Make summary entries to close revenue, expenses, and Income Summary accounts. Debit revenues, credit Income Summary $187,322; credit expenses, debit Income Summary $155,689; debit Income Summary, credit Retained Earnings $31,633

Journalizing a Merchandising Corporation’s Closing Entries

After You Read

PROBLEM 20–1 Identifying Accounts Affected by Closing Entries

The following account names appear in the chart of accounts of Larkin’s Department Store.

Accounts Receivable Purchases Bankcard Fees Expense Purchases Discounts Capital Stock Purchases Returns and Allowances Cash in Bank Retained Earnings Equipment Sales Fed. Corp. Income Tax Expense Sales Discounts Fed. Corp. Income Tax Payable Sales Returns and AllowancesIncome Summary Sales Tax Payable Insurance Expense Supplies Merchandise Inventory Supplies Expense Miscellaneous Expense Transportation InPrepaid Insurance Utilities Expense

INSTRUCTIONS Use the form in your working papers to answer the following questions about each account. Assume that all accounts have normal balances.1. Is the account affected by a closing entry?2. During closing, is the account debited or credited?3. During closing, is Income Summary debited or credited?

Math for AccountingThe closing debit entry to the Income Summary account was $263,000, and the closing credit entry was $300,000. If the Income Summary account had a $42,000 credit balance after these entries, was the inventory adjustment a debit or credit? What was the amount?

Reinforce the Main IdeaUsing a diagram like this one, describe the step-by-step process for journalizing a merchandising corporation’s closing entries. Add or remove answer boxes as needed.

SECTION 20.1 • ASSESSMENT


591_602_C20_SEC_893567.indd 595 9/10/10 2:51 PM

QUIZ 1. Are temporary accounts with debit balances debited or credited to Income Summary? debited

2. Are temporary accounts with credit balances debited or credited to Income Summary? credited

3. What is the balance of Income Summary after closing? zero4. What is the closing entry for a net loss? debit Retained Earnings, credit Income Summary5. To which account is Income Summary closed? Retained Earnings

SEC TION 20.1

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PRETEACHING SECTION VOCABULARY

SECTION VOCABULARY

Academic Vocabulary• process

• adjusting

• consists

• analyze

SECTION 20.2

POSTING CLOSING ENTRIESClosing entries recorded in the general journal are posted to the general

ledger.

Closing the General LedgerHow Do You Close a Merchandising Corporation’sGeneral Ledger?

Figure 20–2 shows the portion of The Starting Line’s general ledger affected by the closing process after the closing entries have been posted. Write the term Closing Entry (abbreviated Clos. Ent. here) for each posting in the Description column of the general ledger account.

Figure 20–2 Partial General Ledger at the End of the Fiscal Period

DEBIT CREDIT

BALANCEDEBIT CREDITDESCRIPTIONDATE POST.

REF.

ACCOUNT NO.ACCOUNT

20--Dec. 19 7 7 1 19

52 4 4 5 9132 6 7 4 72BalanceClos. Ent.

131

✓

G23

Retained Earnings 305

DEBIT CREDIT


REF.

ACCOUNT NO.ACCOUNT

20--Dec. 3 5 3 6 00

320 0 5 4 0032 6 7 4 72

3 5 3 6 00

287 3 7 9 2832 6 7 4 72

323 5 9 0 00Adj. EntClos. Ent.Clos. Ent.Clos. Ent.

31313131

G22G23G23G23

Income Summary 310

Fi 20 2 P i l G l L d h E d f h Fi l P i d

DEBIT CREDIT


REF.

ACCOUNT NO.ACCOUNT

20--Dec. 300 0 0 0 00

310 7 5 0 00320 4 5 0 00

320 4 5 0 00

10 7 5 0 009 7 0 0 00

Balance

Clos. Ent.

1313131

✓

S12CR13G23

Sales 401

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• Show Me tutorials • Let Me Try interactive

activities.


591_602_C20_SEC_893567.indd 596 9/10/10 3:19 PM

RC

SECTION 20.2

FOCUSBell Ringer • Classifying: Use this activity to

reinforce learning of the closing process. Make a handout listing each of the temporary account names in scrambled order at the top of the page. In the lower half of the page, draw four columns and add these labels: Normal Debit Balance, Normal Credit Balance, Closed with a Debit, Closed with a Credit. Have students write the account names in the appropriate columns. For example, Sales goes in the Normal Credit Balance and the Closed with a Debit columns.

• Digital Transparency 20-7 focuses students’ attention on the topics covered in Section 20.2.

Bell Ringer

C Critical ThinkingMaking Inferences Review Figure 20-2 (Digital Transparency 20-8a) with students. Ask: Why is Retained Earnings the only account with an ending balance? It is a permanent account. Ask: Why is Retained Earnings the fi rst account in the partial ledger? Equity accounts come before revenues and expenses in the ledger. OL

R Reading StrategyActivating Prior Knowledge Ask: Do adjusting entries come before or after closing entries? before Ask: Why? All accounts must be up to date before determining net income or loss. OL

Academic Vocabulary Have students rewrite the following sentences using an Academic Vocabulary word instead of the underlined word or phrase.1. Following the Accounting Cycle is an organized procedure. process2. The department accountants will be modifying their books. adjusting3. The kit is made up of all the supplies and tools you need to build your model. consists4. The inspectors examine the fi ndings of the reports. analyze

596 Chapter 20

591_602_C20_SEC_895867.indd 596 11/30/10 11:48 AM

SECTION 20.2

DEBIT CREDIT


REF.

ACCOUNT NO.ACCOUNT

20--Dec. 7 0 0 00

7 3 0 003 0 007 3 0 00

Balance

Clos. Ent.

13131

✓

CR13G23

Sales Discounts 405

DEBIT CREDIT


REF.

ACCOUNT NO.ACCOUNT

20--Dec. 1 8 5 0 00

2 0 0 0 001 5 0 002 0 0 0 00

Balance

Clos. Ent.

14

31

✓

G20G23

Sales Returns and Allowances 410

DEBIT CREDIT


REF.

ACCOUNT NO.ACCOUNT

20--Dec. 190 0 0 0 00

191 3 0 0 00206 7 0 0 00

1 3 0 0 0015 4 0 0 00

206 7 0 0 00

Balance

Clos. Ent.

1193131

✓

CP14P12G23

Purchases 501

DEBIT CREDIT


REF.

ACCOUNT NO.ACCOUNT

20--Dec. 3 7 6 1 18

4 0 3 6 182 7 5 004 0 3 6 18

Balance

Clos. Ent.

12431

✓

CP14G23

Transportation In 505

DEBIT CREDIT


REF.

ACCOUNT NO.ACCOUNT

20--Dec. 1 2 0 0 00

1 3 4 0 001 3 4 0 00

1 4 0 00Balance

Clos. Ent.

13131

✓

CP14G23

Purchases Discounts 510

Figure 20–2 Partial General Ledger at the End of the Fiscal Period (continued)

Section 20.2 Posting Closing Entries 597

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C1R

C2

TEACHR Reading Strategy

Reading Accounting Forms Refer to the Account No. section of each ledger card in the Figure 20-2 continuation (Digital Transparency 20-8b). Ask: What can you tell about the account classifi cations? Accounts with a 400 classifi cation are revenue accounts and accounts with a 500 classifi cation are cost of merchandise accounts. AL

C1 Critical ThinkingApplying Prior Knowledge Review the general ledger account for Purchases in the Figure 20-2 continuation. Ask: What does the CP14 in the Post. Ref. column indicate? Purchase was posted from page 14 in the cash payments journal. BL

C2 Critical ThinkingDifferentiating Ask: What information is recorded in the Transportation In account? the cost of getting merchandise to be resold from the supplier/seller to the merchandising company that will resell it Ask: Why is the Delivery Expense account not used? Delivery Expense is used to record the merchandising company’s cost to deliver goods to the consumers who purchased those goods, not the cost of transporting the goods from the supplier to the merchandising company. OL

Keeping Up with New Developments It is a challenge for many people to keep up with new technology and how it changes in both our personal and professional lives. Have students keep portfolios where they can place newspaper clippings, notes, articles, and advertisements of the newest products and trends in the computer industry. As students gather information, have them identify how the new products and developments impact accounting-related jobs. Ask students to refl ect on how people working with technology can keep up with the new developments.

EXTENDING THE CONTENT

Chapter 20 597

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CHAPTER 20 ENRICHMENT RESOURCES

Fast File Chapter 20 Resources• Concept Assessment• Chapter Quiz• Chapter Test

Presentation Plus!PowerPoint® Presentations

glencoe.com

Online Learning Center• Info Trek• Show Me• Let Me Try• Interactive Glossary (English and Spanish)

• Connect to Careers• Extend—A Matter of Ethics• Personal Finance Online• Self-Assessment Section Quizzes• Self-Assessment Chapter Quiz


DEBIT CREDIT


REF.

ACCOUNT NO.ACCOUNT

20--Dec. 1 6 0 0 00

1 8 0 0 001 8 0 0 00

2 0 0 00Balance

Clos. Ent.

11631

✓

G21G23

Purchases Returns and Allowances 515

DEBIT CREDIT


REF.

ACCOUNT NO.ACCOUNT

20--Dec. 2 4 5 0 00

2 4 5 0 00BalanceClos. Ent.

131

✓

G23

Advertising Expense 601

DEBIT CREDIT


REF.

ACCOUNT NO.ACCOUNT

20--Dec. 4 1 2 4 27

4 1 9 9 277 5 004 1 9 9 27

Balance

Clos. Ent.

13131

✓

CP14G23

Bankcard Fees Expense 605

DEBIT CREDIT


REF.

ACCOUNT NO.ACCOUNT

20--Dec. 9 8 4 0 00

9 9 9 5 001 5 5 009 9 9 5 00

BalanceAdj. Ent.Clos. Ent.

13131

✓

G22G23

Federal Corporate Income Tax Expense 630

DEBIT CREDIT


REF.

ACCOUNT NO.ACCOUNT

20--Dec. 1 2 5 001 2 5 00

1 2 5 00Adj. Ent.Clos. Ent.

3131

G22G23

Insurance Expense 635


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C1

C2

W

SECTION 20.2

TEACHW Writing SupportWriting Clearly Have students examine the Purchases Returns and Allowances general ledger account in the Figure 20-2 continuation (Digital Transparency 20-8b). Have students write a sentence explaining the credit to Purchases Returns and Allowances for $200 on December 16th. A purchase must have been returned or an allowance granted for damaged merchandise. OL

C1 Critical ThinkingApplying Prior Knowledge Have students examine the Bankcard Fees Expense general ledger account in the Figure 20-2 continuation (Digital Transparency 20-8c). Ask: What source document is used to record Bankcard Fees Expense? the bank statement OL

C2 Critical ThinkingApplying Prior Knowledge Have students examine the Insurance Expense general ledger account in the Figure 20-2 continuation. Ask: What does the adjusting entry to Insurance Expense represent? the expired or used up portion of prepaid insurance OL

598 Chapter 20

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SECTION 20.2


DEBIT CREDIT


REF.

ACCOUNT NO.ACCOUNT

20--Dec. 3 5 1 9 25


131

✓

G23

Maintenance Expense 650

DEBIT CREDIT


REF.

ACCOUNT NO.ACCOUNT

20--Dec. 3 2 8 28

3 4 8 282 0 003 4 8 28

Balance

Clos. Ent.

13131

✓

CP14G23

Miscellaneous Expense 655

DEBIT CREDIT


REF.

ACCOUNT NO.ACCOUNT

20--Dec. 3 8 2 6 83


131

✓

G23

Payroll Tax Expense 657

DEBIT CREDIT


REF.

ACCOUNT NO.ACCOUNT

20--Dec. 12 0 0 0 00

14 0 0 0 002 0 0 0 0014 0 0 0 00

Balance

Clos. Ent.

13131

✓

CP14G23

Rent Expense 660

DEBIT CREDIT


REF.

ACCOUNT NO.ACCOUNT

20--Dec. 25 3 7 4 60

29 3 7 4 604 0 0 0 0029 3 7 4 60

Balance

Clos. Ent.

13131

✓

CP14G23

Salaries Expense 665


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C2

C1

C3


ELL: Reading Aloud A teacher reads aloud modeling fl uency, pronunciation, expression, and comprehension strategies.

TEACHC1 Critical ThinkingApplying Prior Knowledge Have students examine the balance columns in the ledger cards in the Figure 20-2 continuation (Digital Transparency 20-8d). Ask: What does the line in the balance column signify? The balance is zero. BL

C2 Critical ThinkingMaking Inferences Ask: In the Figure 20-2 continuation, if the closing entry was not made to Miscellaneous Expense, would the expense be over- or understated in the next accounting period? overstated OL

C3 Critical ThinkingApplying GAAP Ask: What GAAP principle is being followed when closing entries are made? matching principle AL

Posting Closing Entries Use Demonstration Problem 20-3 in Chapter 20 Fast File for step-by-step practice posting closing entries. The problem also appears on the TeacherWorks Plus.

EXTENDED SKILL PRACTICE

Chapter 20 599

591_602_C20_SEC_895867.indd 599 24/11/10 10:29 AM

Students with Visual Impairments One of the ways students with visual impairments cope with classroom printed material is by listening to taped classroom lectures. Keeping that in mind, think carefully about

what you say in class. When writing on the chalkboard or while presenting information on a digital transparency, be clear and specifi c. “This (pointing) account increases and this (pointing) account is credited” will not mean anything to

students listening to an audio tape of the presentation. “The Income Summary account increases, and the Retained Earnings account is credited” provides a clear explanation.

Differentiated Instruction

Reading Check Recall Where do you post closing entries that have been recorded in the general journal?

Preparing a Post-Closing Trial BalanceHow Do You Prepare a Post-Closing Trial Balance?

A post-closing trial balance is prepared at the end of the accounting period to prove that the general ledger accounts are in balance after all adjusting and closing entries have been posted. Figure 20–3 shows the post- closing trial balance for The Starting Line.


ACCOUNT NO.ACCOUNT Supplies Expense 670

DESCRIPTIONDATEPOST.REF.

3 7 1 0 00Adj. Ent.Clos. Ent.

3131

G22G23

20--Dec.

DEBIT CREDIT

BALANCEDEBIT CREDIT

DEBIT CREDIT

BALANCEDEBIT CREDIT

3 7 1 0 003 7 1 0 00

ACCOUNT Utilities Expense ACCOUNT NO. 680

DESCRIPTIONDATEPOST.REF.

20--Dec. Balance

Clos. Ent.1

31 G23

DEBIT CREDIT

BALANCEDEBIT CREDIT

2 3 6 4 872 3 6 4 87

The Starting Line Sports GearPost-Closing Trial Balance

December 31, 20--

13 8 5 0 001 5 5 006 4 0 00

8 0 002 4 8 00

5 8 001 8 36

1 1 4 732 4 2 8 00

75 0 0 0 0052 4 4 5 91

145 0 3 8 00

15 1 7 9 0010 4 0 4 0081 3 8 5 00

1 8 3 9 001 3 7 5 00

19 8 3 1 009 8 2 5 005 2 0 0 00

145 0 3 8 00

Cash in BankAccounts ReceivableMerchandise InventorySuppliesPrepaid InsuranceDelivery EquipmentOffice EquipmentStore EquipmentAccounts PayableFed. Corp. Income Tax PayableEmployees’ Fed. Income Tax PayableEmployees’ State Income Tax PayableSocial Security Tax PayableMedicare Tax PayableFed. Unemployment Tax PayableState Unemployment Tax PayableSales Tax PayableCapital StockRetained Earnings

TotalsFigure 20–3 Post-Closing Trial Balance


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C1

C2

M

SECTION 20.2

TEACHC1 Critical ThinkingConnecting to Financial Literacy Ask: How is reconciling a personal checking account similar to preparing a post-closing trial balance? You regularly check accuracy and verify account balances in both. OL

M Math Skill PracticeCalculating Balances Refer students to Figure 20-3 (Digital Transparency 20-9). Ask: If net income for the period was $13,298.00, what was the beginning balance of Retained Earnings? $39,147.91 ($52,445.91 � $13,298.00) BL

C2 Critical ThinkingDifferentiating Ask: On which fi nancial statement do all of the accounts listed on the post-closing trial balance appear? balance sheet OL

Connect to HistoryCCoonnnneecctt ttoo HHiissttoorryyrr

600 Chapter 20

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SECTION 20.2Completing the Accounting Cyclefor a Merchandising BusinessWhat Is the Accounting Cycle for aMerchandising Business?

You have completed the study of the accounting cycle for a merchandising business organized as a corporation, which consists of the following steps:

1. Collect and verify source documents. 2. Analyze each business transaction. 3. Journalize each transaction. 4. Post to the general and subsidiary ledgers. 5. Prepare a trial balance. 6. Complete a work sheet. 7. Prepare the financial statements—income statement, statement of

retained earnings, and balance sheet. Publicly held corporations also prepare a statement of cash flows.

8. Journalize and post the adjusting entries. 9. Journalize and post the closing entries. 10. Prepare a post-closing trial balance.

The accounting cycle for a service and a manufacturing business follows the same steps. Also, regardless of how a business is organized—sole proprietorship, partnership, or corporation—the basic steps of the accounting cycle are the same. Figure 20–4 illustrates the accounting cycle.

3344

55

667799 88

11

1010

22ACCOUNT

DEBIT

CREDIT

Collect and verify source documents

Journalizeeach transaction Post to the

general and subsidiary ledgers

Prepare a trial balance

Prepare a work sheet

Prepare financialstatements

Journalize and post the closing entries

Prepare apost-closingtrial balance

INVOICE

RECEIPT

MEMORANDUM

LEDGER

GENERALJOURNAL

TRIALBALANCE

WORK SHEETINCOME

STATEMENTSTATEMENT OF

RETAINED EARNINGS

BALANCESHEET

POST-CLOSINGTRIAL BALANCE

GENERALJOURNAL

LEDGER

Journalize and post the adjusting entries

GENERALJOURNAL

LEDGER

Analyze each transaction

ACCOUNT

DEBIT CREDIT

The accounting system used, whether manual or computerized, does not affect the steps in the accounting cycle. In a computerized accounting system, however, the computer performs many of the routine procedures such as posting.

Figure 20–4 The Accounting Cycle


591_602_C20_SEC_893567.indd 601 9/6/10 11:00 AM

C1

C2

D

TEACHC1 Critical ThinkingApplying Prior Knowledge Refer students to Figure 20-4 (Digital Transparency 20-10), Step 5. Ask: What is the purpose of preparing a trial balance prior to completing the work sheet? to prove the equality of debits and credits in the general ledger OL

D Diff erentiated Instruction

Visual-Spatial Learning Show students a check register for a personal checking account. Ask: Discuss and compare the system used in the register with the accounting cycle for a merchandising business in Figure 20-4. Discussion may include: every entry is supported by a source document, cash is a permanent account, expenses decrease cash, deposits increase cash. OL

C2 Critical ThinkingApplying Prior Knowledge Ask: When does a business perform steps 1–5 of the accounting cycle? usually on a daily basis throughout the accounting period Ask: When does it perform steps 6–10? at the end of the accounting period OL

Chapter 20 601

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ASSESSSECTION 20.2 ASSESSMENT RESOURCES Use these resources to assess mastery of section content.• Chapter Study Guides and Working

Papers (Problem 20-2, 20-3)• Presentation Plus!

glencoe.com

Online Learning Center: Click on Student Center. Click on Self-Assessment Quizzes and select Chapter 20.

SECTION 20.2 ASSESSMENT

Reinforce the Main IdeaTop box: Post closing entries to the general ledger. Second box: Write Closing Entry in the Description column for each account. Third box: Prepare a post-closing trial balance.

Math for Accounting$36,000 ($156,000 � $75,000 � $45,000)

PROBLEM 20–2July 12: Dr. Rent Exp. $750; Cr. Cash in Bank $750

PROBLEM 20–3 1. Collecting and verifying source

documents 2. Analyzing business transactions 3. Journalizing business transactions 4. Posting journal entries to ledgers 5. Preparing a trial balance 6. Completing the work sheet 7. Preparing fi nancial statements 8. Journalizing and posting adjusting

entries 9. Journalizing and posting clos. ent.10. Preparing a post-closing trial bal.

CLOSESynthesizing Write on the board: post-closing trial balance. Ask: Why and when is it used? to prove the general ledger is in balance after all adjusting and closing entries; last step in the accounting cycle

Posting a Merchandising Corporation’s Closing Entriesg g p g

After You Read

PROBLEM 20–2 Analyzing a Source Document INSTRUCTIONS Review the source document and prepare the journal entry to record this transaction in your working papers. Your Backpack Inc. uses a cash payments journal to record disbursements.

PROBLEM 20–3 Organizing the Steps in the Accounting Cycle

INSTRUCTIONS List the following steps of the accounting cycle in their proper order. Use the form provided in your working papers or a separate sheet of paper.Analyzing business transactionsCollecting and verifying source documentsCompleting the work sheetJournalizing business transactionsJournalizing and posting adjusting entriesJournalizing and posting closing entriesPosting journal entries to ledgersPreparing financial statementsPreparing a post-closing trial balancePreparing a trial balance

Math for AccountingTotals on the post-closing trial balance were assets, $156,000, and liabilities, $75,000. If the ending balance of Retained Earnings was $45,000, what was the capital stock account’s ending balance?

Reinforce the Main IdeaUsing a diagram like this one, describe the step-by-step process for posting a merchandising corporation’s closing entries. Add or remove answer boxes as needed.

SECTION 20.2 • ASSESSMENT

y g

TO:FROM:DATE:SUBJECT:

MEMORANDUM

Would you please make a check out to Warehouse Inc. for $750. The check is for the new storage facility we are renting. Please mail the check to:

Mr. James Skiller, ControllerWarehouse Inc.7576 County Line HighwayCrossplains, TX 77361-8411

Robert Chan, Chief AccountantJames Perkins, PresidentJuly 12, 20--New Storage Facility Rent

Your Backpack Inc.Your Backpack Inc.29000 White Road

Cold Springs, TX 77282-4513

No. 42


591_602_C20_SEC_893567.indd 602 9/10/10 3:20 PM

SECTION 20.2

QUIZ 1. What accounts appear on the post-closing trial balance? permanent accounts

2. Which is completed fi rst: fi nancial statements or work sheet? work sheet

3. Is the trial balance prepared before or after the work sheet? before

4. What accounts are closed each accounting period? temporary accounts

5. After closing entries, does Income Summary have a debit or credit balance? Neither, Income Summary is closed to Retained Earnings and therefore has no balance at all.

SEC TION 20.2

602 Chapter 20

591_602_C20_SEC_895867.indd 602 24/11/10 1:46 PM

Three steps to close the temporary accountsof a merchandising business:

1. Close all temporary accounts with credit balances to Income Summary.

2. Close all temporary accounts with debit balances to Income Summary.

3. Close the balance of Income Summary to the Retained Earnings account.

CHAPTER 20 • VISUAL SUMMARY

glencoe.com Download the vocabulary review, i-Summary, and i-Quiz for Chapter 20.mm D

Conc

epts

Ana

lysi

sPr

oced

ures

The basic accounting cycle is the same whether

A post-closing trial balance is prepared at the end of the accounting period.

• the business is a service provider or merchandiser.• the business is organized as a sole proprietorship, corporation, or

partnership.• the business uses a manual or computerized accounting system.

g g

The Starting Line Sports GearPost-Closing Trial Balance

December 31, 20--

13 8 5 0 001 5 5 006 4 0 00

8 0 002 4 8 00

5 8 001 8 36

1 1 4 732 4 2 8 00

75 0 0 0 0052 4 4 5 91

145 0 3 8 00

15 1 7 9 0010 4 0 4 0081 3 8 5 00

1 8 3 9 001 3 7 5 00

19 8 3 1 009 8 2 5 005 2 0 0 00

145 0 3 8 00

Cash in BankAccounts ReceivableMerchandise InventorySuppliesPrepaid InsuranceDelivery EquipmentOffice EquipmentStore EquipmentAccounts PayableFed. Corp. Income Tax PayableEmployees’ Fed. Income Tax PayableEmployees’ State Income Tax PayableSocial Security Tax PayableMedicare Tax PayableFed. Unemployment Tax PayableState Unemployment Tax PayableSales Tax PayableCapital StockRetained Earnings

Totals

Chapter 20 Visual Summary 603

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CHAPTER 20

Visual SummaryAfter students have looked at the Visual Summary, challenge them to create their own diagrams of the Procedures section. Tell them that these diagrams could be used to help them remember how to prepare the Post-Closing Trial Balance. Choose several to discuss and share with the class.

English Language LearnersStudents whose primary language is not English might benefit from extra review or tutoring at this point. You might encourage them to write down the situations in which the basic accounting cycle is always the same on index cards to use as reference. Pair ELLs with students who are fluent in English to review the Procedures part of the Summary. Provide more examples for the pairs to work through together.

Student Edition• Reading Check, p. 594• Section Assessments 1, 2: pp. 595, 602• Review and Activities, p. 604• Standardized Test Practice, p. 605 • Chapter 20 Problems, pp. 607–611• Real-World Applications and Connections,

pp. 612–613

Teacher Edition• Section Quizzes 1, 2: pp. 595, 602

Fast File Chapter 20 Resources (on TeacherWorks Plus)• Concept Assessment• Quick Quiz• Chapter Quiz

• Chapter Test • Performance Task Assessment List• Rubric

ExamView Assessment SuiteConnect Assignment Builder

CHAPTER 20 ASSESSMENT RESOURCES Use these resources to review, assess, or reteach the chapter.

Chapter 20 603

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CHAPTER 20 • REVIEW AND ACTIVITIES

1. Why is it important to “clean the slate” before a new accounting period? Like sole proprietorships that you studied in Chapter 10, corporations need to “close the books” at the end of each accounting period. How do businesses get ready for a new accounting period?

Answering the Essential Question

Vocabulary Check 2. Content Vocabulary The following terms were introduced in Chapter 10 when we learned about

closing the accounting cycle for a sole proprietorship business. How do they relate to a merchandising corporation? What differences exist between the closing entries for a sole proprietorship and the closing entries for a merchandising corporation? Use the following terms in your written explanation:

• closing entries (p. 253) • permanent accounts (p. 108) • temporary accounts (p. 116)

3. Academic Vocabulary As you know, academic vocabulary words can be used in subject areas other than accounting. For each academic vocabulary word below, write its meaning in relation to accounting. Then write a meaning for each as it would apply to another subject. Be sure to include the name of that subject.

• journalize (p. 591)• temporary (p. 591)

• retain (p. 594)• process (p. 596)

• adjust (p. 600)• consist (p. 601)

• analyze (p. 601)

Concept Check 4. Analyze Explain how the closing entries for corporations and sole proprietorships are similar and how

they are different. 5. What account(s) are used to close temporary accounts with debit and credit balances? 6. How are temporary accounts with debit balances closed? 7. What is written in the Description column of the general ledger account as the closing entries are posted? 8. What is the purpose of preparing a post-closing trial balance? 9. Analyze Does the Income Summary account appear on the post-closing trial balance? Why or why not? 10. Name the 10 steps in the accounting cycle.

After You Read

Math 11. Rudy’s watch store just celebrated one

year in business. Rudy wants to know the stock-turnover rate for six months to check his progress. Over 12 months, his sale totaled $156,000. His average inventory on hand totaled $68,000. What was the rate?

NCTM Problem Solving Build new mathematical knowledge through problem solving.

English Language Arts 12. Research Supply and Demand Economics

using the Internet or your school library, and explain how this system works to regulate the flow of goods and services within an economy. Create a poster presentation that illustrates the basic concepts of supply and demand within an economy. Be sure to cite the sources for your information.

NCTE 1 Read texts to acquire new information.

604 Chapter 20 Review and Activities

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CHAPTER 20

Review and Activities

After You ReadAnswering the Essential Question

1. The intent of this essential question is to help students use inquiry to arrive at an understanding of the basic role of accounting. Once they see the benefi t of accounting processes on a personal level with their own money, they can generalize and broaden that understanding to businesses.

Vocabulary Check 2. Content Vocabulary See the

glossary for defi nitions of these terms. Have students share and discuss their defi nitions.

3. Academic Vocabulary Answers will vary. Possible meanings for Accounting: journal—a ledger, temporary—short-term, retain—keep, process—procedure, adjust—correct, consist—include, analyze—evaluate. Other meanings for English or Social Studies: journal—magazine or diary, temporary—impermanent, retain—keep, process—method, adjust—modify, consist—made up of, analyze—consider.

Concept Check4. Similar: The process of closing

for both is the same, to prepare the fi nancial records for the next accounting period by bringing temporary account balances to zero. The posting from the Income Summary accounting both results in either an increase or a decrease that must be transferred. Different: Posting for a corporation transfers the increase or decrease to Retained Earnings, but for a proprietorship, the transfer is to the Owner’s Capital account. Also, withdrawals by a sole proprietor are closed to the Capital account.

5. Income Summary6. Each account with a balance in

the Debit column of the Income Statement section of the work sheet (contra revenue, cost of merchandise and expense accounts) is credited to bring its balance to zero. The sum of all these amounts is debited to Income Summary.

7. Closing Entry8. A post-closing trial balance is prepared to

prove that the general ledger accounts are in balance after all adjusting and closing entries have been posted.

9. It does not, because it is a temporary account. Only permanent accounts appear on the post-closing trial balance.

10. 1) Collect/verify source documents. 2) Analyze transactions. 3) Journalize transactions. 4) Post journal entries to general ledger and subsidiary ledgers. 5) Prepare trial balance. 6) Complete work sheet. 7) Prepare fi nancial statements. 8) Journalize/post adjusting entries. 9) Journalize/post closing entries. 10) Prepare post-closing trial balance.

604 Chapter 20

603_604_C20_REV_895867.indd 604 24/11/10 1:57 PM

Math11. 6-month stock-turnover rate � 1.2 ($156,000

� 68,000 � 2.3 for 12 months; 2.3 � 2 � 1.2 for 6 months)

English Language Arts12. Student posters should illustrate that

competition among sellers lowers cost and prices and encourages producers to produce

more of what consumers are willing and able to buy. Competition among buyers increases price and allocates goods and services to those who are willing and able to pay the most for them.

CHAPTER 20 • STANDARDIZED TEST PRACTICE

Multiple Choice1. The procedure for transferring information from a journal to ledger accounts is called

a. journalizing.b. adjusting.c. file maintenance.d. posting.e. none of these answers

2. Proving the accuracy of the adjusting and closing entries is best defined asa. preparing a post-closing trial balance.b. preparing the statements.c. closing the temporary accounts.d. adjusting the ledger accounts.e. none of these answers

3. To close the Income Summary account of a corporation with a net loss, the balance is closed into thea. Retained Earnings account with a debit.b. Retained Earnings account with a credit.c. account which caused the net loss with a debit.d. none of these answers

4. Which of the following accounts is closed at the end of a fiscal period?a. Membership Fees Incomeb. Accounts Receivablec. Delivery Equipmentd. Retained Earnings

True or False5. The Income Summary account appears on the post-closing trial balance.

6. Retained Earnings is credited when the business earns a profit.

Short Answer7. Where can you find the information needed to prepare closing entries?

Extended Response8. Explain the closing entries for a business organized as a corporation.

Chapter 20 Standardized Test Practice 605

605_606_C20_STP_893567.indd 605 9/6/10 10:53 AM

Standardized Test Practice

Multiple Choice1. d2. a3. a4. a

True or False5. F6. T

Short Answer7. The Income Statement section of the

work sheet.

Extended Response8. a) Close balances of revenue and

contra cost of merchandise accounts into Income Summary. b) Close balances of contra revenue, cost of merchandise, and expense accounts into Income Summary. c) Close balance of Income Summary into Retained Earnings.

CHAPTER 20

Chapter 20 605

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CHAPTER 20 • COMPUTERIZED ACCOUNTING

Closing a Fiscal Year and Preparing a Post-Closing Trial BalanceMaking the Transition from a Manual to a Computerized System

MANUAL METHODSMANUAL METHODS COMPUTERIZED METHODS

• Journalize the entries to close the revenue, expense, Income Summary, and Withdrawals accounts.

• Closing the fiscal year is per formed only if you want to clear income and expense accounts at the end of the fiscal year.

• Post the closing entries. • If you have selected the closing option, the software journalizes closing entries.

• After the closing entries have been posted to the ledger, prepare a trial balance to verify the equality of debits and credits.

• A post-closing trial balance can be printed to verify that all revenue and expense accounts have been closed.

• All expense and revenue accounts should have zero balances.

QuickBooks®

Q What tasks should I perform before closing a fi scal year?

A • Post and print all journal entries and reports before you close the fiscal year.

• Back up the company file before closing.

Q How do I close the fi scal year?

A • From the Company menu, select Set Up Users.

• Click Closing Date.• Enter the date on which you want to close

your books and enter a password.

Q What tasks should I perform before closing a fi scal year?

A • Post and print all journal entries and reports before you close the fiscal year.

• Back up all files before closing. Closing the fiscal year cannot be reversed.

Q How do I close the fi scal year?

A • From the Tasks menu, select System.• Choose Year-End Wizard.• You will be prompted if any procedures

need to be completed before the system continues the closing process.

For detailed instructions, see your Glencoe Accounting Chapter Study Guides and Working Papers.

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Computerized Accounting

Peachtree detects any unposted entries and reminds you to print reports. Peachtree reminds you to back up your files before closing. When you close the fiscal period, the software will create closing entries and post them. All income and expense account balances will be transferred to the Retained Earnings account.

QuickBooks®

QuickBooks does not require that you close your books. QuickBooks allows password protection to protect your data for the year. It is recommended that you print all necessary Financial and Journal reports prior to protecting your data. On the first day of the new fiscal year, QuickBooks increases or decreases your Retained Earnings account depending on whether you had a profit or a loss for the period.

CHAPTER 20

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PROBLEMS CAN BE SOLVED USING:

Manual Methods• McGraw-Hill Connect• Manual Glencoe

Working Papers

Computerized Methods• Peachtree®• QuickBooks®• Spreadsheet

CHAPTER 20 • PROBLEMS

Identify the effect of the closing entries on the Retained Earnings account.

Analyze

PROBLEM 20–4 Journalizing Closing EntriesThe following amounts appeared in the Income Statement section of Sunset Surfwear’s work sheet.

INSTRUCTIONS In your working papers, re cord the closing entries for the year ended December 31. Start with general journal page 13.

PROBLEMS CAN BE SOLVED USING:

Manual Methods• Manual Glencoe

Working Papers

Computerized Methods• Spreadsheet• Templates

SPREADSHEETSMART GUIDE

INCOME STATEMENT

DEBIT CREDITACCOUNT NAMEACCT.

NO.

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

310401405410501505510515625635650655665675

Income SummarySalesSales DiscountsSales Returns and AllowancesPurchasesTransportation InPurchases DiscountsPurchases Returns and AllowancesFederal Corporate Income Tax Exp.Insurance ExpenseMiscellaneous ExpenseRent ExpenseSupplies ExpenseUtilities Expense

Net Income

1 000 002 400 00

25 000 003 000 00

5 532 00300 00

6 000 0012 000 00

450 0014 000 0069 682 0029 318 0099 000 00

7 000 0090 000 00

500 001 500 00

99 000 00

99 000 00


Step–by–Step Instructions:Problem 20–4

1. Select the problem set for Sunset Surfwear (Prob. 20–4).

2. Rename the company and set the system date.

3. Choose System from the Tasks menu and then select Year-End Wizard to close the fiscal year.

4. Print a post-closing trial balance.

5. Complete the Analyze activity.

6. End the session.

TIP: Choose the General Ledger Trial Balance report whenever you are instructed to print a Post-Closing Trial Balance.

SMART GUIDE

Chapter 20 Problems 607

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CHAPTER 20

PROBLEM 20–4Journalizing Closing EntriesDec. 31: Dr. Sales $90,000, Purchases

Discounts $500, Purchases Returns and Allowances $1,500; Cr. Income Summary $92,000

Dec. 31: Dr. Income Summary $69,682; Cr. Sales Discounts $1,000, Sales Returns and Allowances $2,400, Purchases $25,000, Transportation In $3,000, Federal Corporate Income Tax Exp. $5,532, Insurance Expense $300, Miscellaneous Exp. $6,000, Rent Exp. $12,000, Supplies Exp. $450, Utilities Exp. $14,000

Dec. 31: Dr. Income Summary $29,318; Cr. Retained Earnings $29,318

The third closing entry increased Retained Earnings by $29,318.

Analyze

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PROBLEM 20–5 Journalizing and Posting Closing Entries

The following account balances appeared in the Income Statement section of the work sheet of Shutterbug Cameras.

INSTRUCTIONS 1. Journalize the closing entries for the year ended December 31. Start

with page 14 of a general journal (in your working papers). 2. Post the closing entries to the general ledger accounts, which are

included in your working papers.

PROBLEM 20–6 Identifying Accounts for Closing Entries

A partial list of the accounts used by Cycle Tech Bicycles appears on page 609. All of the accounts have nonzero balances.

Describe what would happen if the accountant for Shutterbug Cameras made a mistake and did not close the Transportation In account.

Analyze


T


1. Select the problem set for Shutterbug Cameras (Prob. 20–5).


3. Close the fiscal year.4. Print a post-closing trial

balance.5. Complete the Analyze

activity.6. End the session.

SMART GUIDE

INCOME STATEMENT

DEBIT CREDITACCOUNT NAMEACCT.

NO.

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

4 000 00

5 000 0090 000 00

5 000 00

4 700 00300 00

6 000 001 630 003 000 00

119 630 0032 870 00

152 500 00

150 000 00

1 000 001 500 00

152 500 00

152 500 00

310401410501505510515620645650660670

Income SummarySalesSales Returns and AllowancesPurchasesTransportation InPurchases DiscountsPurchases Returns and AllowancesFederal Corporate Income Tax Exp.Miscellaneous ExpenseRent ExpenseSupplies ExpenseUtilities Expense

Net Income

QuickBooks®


1. Restore the Problem20–5.QBB file.

2. Enter the closing entries.3. Print a post-closing trial

balance.4. Complete the Analyze

activity.5. Back up your work.

PROBLEM GUIDE

CONTINUE

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CHAPTER 20

PROBLEM 20–5Journalizing and Posting Closing EntriesClosing entries:Dec. 31: Dr. Sales $150,000, Purchases

Disc. $1,000, Purchases Returns and Allowances $1,500; Cr. Income Summary $152,500

Dec. 31: Dr. Income Summary $115,630; Cr. Sales Returns and Allowances $5,000, Purchases $90,000, Trans. In $5,000, Fed. Corp. Inc. Tax Exp. $4,700, Misc. Exp. $300, Rent Exp. $6,000, Supplies Exp. $1,630, Utilities Exp. $3,000,

Dec. 31: Dr. Inc. Summary $32,870; Cr. Retained Earnings $32,870

If the error was not caught and corrected, the balance of the Transportation In account would be carried forward to the new fiscal year. Retained Earnings for the year just ended would be overstated.

PROBLEM 20–6Identifying Accounts for Closing EntriesAccounts debited:401 Sales515 Purchases Ret. and Allow.310 Income Summary (for credits and

profi ts)305 Retained Earnings (for losses)

Accounts credited:650 Miscellaneous Expense665 Supplies Expense505 Transportation In405 Sales Discounts501 Purchases601 Advertising Expense625 Fed. Corp. Income Tax Exp.657 Rent Expense310 Income Summary (for debits and

losses)305 Retained Earnings (for profi ts)

Analyze

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General Ledger 101 Cash in Bank 650 Miscellaneous Expense 125 Merchandise Inventory 665 Supplies Expense 215 Sales Tax Payable 505 Transportation In 305 Retained Earnings 401 Sales 405 Sales Discounts 310 Income Summary 501 Purchases 515 Purchases Returns and Allowances 601 Advertising Expense 625 Federal Corporate Income Tax Expense 657 Rent Expense 135 Prepaid Insurance

INSTRUCTIONS In your working papers, list all account numbers and names for accounts that will be debited when closed. Next, list all account numbers and names for accounts that will be credited when closed.

Step–by–Step Instructions: Problem 20–6

1. Select the problem set for Cycle Tech Bicycles (Prob. 20–6).


3. Print a Chart of Accounts report.

4. List the accounts that will be debited and those that will be credited when closed.


6. End the session.

SMART GUIDE

Conclude whether the company made a profit for the year.Analyze

Examine your list. Determine whether it contains all of the accounts. If it does not, explain why.

Analyze

PROBLEM 20–7 Completing End-of-Period Activities

The general ledger accounts for River’s Edge Canoe & Kayak as ofDecember 31, the end of the period, appear in the working papers.

INSTRUCTIONS In your working papers: 1. Prepare a trial balance on a ten-column work sheet. 2. Complete the work sheet. Use the following adjustment information. Merchandise inventory, December 31 $20,000 Supplies inventory, December 31 900 Unexpired insurance, December 31 1,800 Total federal corporate income taxes for the year 2,965 3. Prepare an income statement from the work sheet information. 4. Prepare a statement of retained earnings. 5. Prepare a balance sheet. 6. Journalize and post the adjusting entries. Begin on general journal

page 14. 7. Journalize and post the closing entries. 8. Prepare a post-closing trial balance.


1. Select the spreadsheet template for Problem 20–7.

2. Enter your name and the date in the spaces provided on the template.

3. Complete the spread sheet using the instructions in your working papers.

4. Print the spreadsheet and proof your work.


6. Save your work and exit the spreadsheet



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CHAPTER 20

PROBLEM 20–6Identifying Accounts for Closing Entries (cont’d)

No, because some of the accounts are not affected by closing entries.

PROBLEM 20–7Completing End-of-Period ActivitiesTrial balance totals $261,826.57Adj. trial balance totals $261,851.57Net Income $41,285Ending Retained Earnings $66,685Total Assets $120,236.57

Adjusting entries:Dec. 31: Dr. Income Summary $5,000; Cr.

Merchandise Inv. $5,000Dec. 31: Dr. Supplies Exp. $3,200; Cr.

Supplies $3,200Dec. 31: Dr. Insur. Exp. $1,200; Cr. Prepaid

Insur. $1,200Dec. 31: Dr. Fed. Corp. Inc. Tax Exp. $25;

Cr. Fed. Corp. Inc. Tax Pay. $25

Closing entries:Dec. 31: Dr. Sales $175,000, Purchases

Disc. $2,300, Purchases Ret. and Allow. $5,600; Cr. Income Summary $182,900

Dec. 31: Dr. Income Summary $136,615; Cr. Sales Disc. $3,775, Sales Ret. and Allow. $2,500, Purchases $75,300, Trans. In $5,000, Bankcard Fees Exp. $3,515, Fed. Corp. Inc. Tax Exp. $2,965, Insur. Exp. $1,200, Misc. Exp. $5,960, Rent Exp. $9,000, Salaries Exp. $22,200, Supplies Exp. $3,200, Utilities Exp. $2,000

Dec. 31: Dr. Inc. Summary $41,285; Cr. Retained Earnings $41,285

Post- Closing Trial Balance totals $120,236.57

Analyze

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Step–by–Step Instructions: Problem 20–8

1. Select the problem set for Buzz Newsstand (Prob. 20–8).


3. Print a Working Trial Balance to help you prepare the adjustments.

4. Record the adjustments using the General Journal Entry option.

5. Print a General Journal report and proof your work.


7. Close the fiscal year.8. Print a post-closing trial

balance.9. End the session.

TIP: Peachtree automati cally updates the general ledger accounts when you close the fiscal year.

SMART GUIDE

CHALLENGEPROBLEM

PROBLEM 20–8 Preparing Adjusting and Closing Entries

In the middle of the end-of-period activities, the accountant for Buzz Newsstand was called away because of an illness in the family. Before leaving, the accountant prepared the work sheet and the financial statements. However, the business manager can locate only the trial balance shown here (before adjustments) and the income statement.

INSTRUCTIONS In your working papers: 1. Journalize the adjusting and closing entries on page 16 of the general

journal. 2. Using the information provided, prepare a post-closing trial balance.

CONTINUE

Buzz NewsstandTrial Balance, Before Adjustments

December 31, 20--

4 6 9 0 00

4 1 6 0040 0 0 0 0024 6 0 3 00

299 1 5 6 00

2 9 5 0 002 1 0 8 00

373 9 2 3 00

12 0 3 5 006 1 0 6 00

64 8 0 0 003 9 1 6 005 4 0 0 00

46 1 0 6 00

9 5 0 0 00168 6 2 4 00

8 2 3 6 00

4 0 0 0 0012 5 0 0 00

1 6 0 0 0026 9 0 0 00

4 2 0 0 00373 9 2 3 00

Cash in BankAccounts ReceivableMerchandise InventorySuppliesPrepaid InsuranceDelivery TruckAccounts PayableFed. Corp. Income Tax Pay.Sales Tax PayableCapital StockRetained EarningsIncome SummarySalesSales Returns and AllowancesPurchasesTransportation InPurchases DiscountsPurchases Returns and AllowancesAdvertising ExpenseFed. Corp. Income Tax ExpenseInsurance ExpenseMiscellaneous ExpenseSalaries ExpenseSupplies ExpenseUtilities Expense

Totals

101115130135140145201204215301305310401410501505510515601625635650660665675

QuickBooks®


1. Restore the Problem 20-8.QBB file.

2. Print a Trial Balance.3. Record the adjustments.4. Print a Journal report.5. Complete the Analyze

activity.6. Enter the closing entries.7. Print a post-closing trial

balance.8. Back up your work.

PROBLEM GUIDE

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CHAPTER 20

PROBLEM 20–7Completing End-of-Period Activities (cont’d)Ending debit balances:Cash in Bank $22,236.57Accounts Receivable $7,400.00Merchandise Inventory $20,000.00Supplies $900.00Prepaid Insurance $1,800.00Delivery Truck $67,900.00

Ending credit balances:Accounts Payable $13,000.00Federal Corp. Income Tax Payable $25.00Sales Tax Payable $526.57Capital Stock $40,000.00Retained Earnings $66,685.00

Yes, it had a $41,285 profit.

PROBLEM 20–8Preparing Adjusting and Closing EntriesAdjusting entries:Dec. 31: Dr. Income Summary $4,400; Cr.

Merchandise Inventory $4,400Dec. 31: Dr. Insurance Exp. $1,800; Cr.

Prepaid Insurance $1,800Dec. 31: Dr. Supplies Exp. $2,744; Cr.

Supplies $2,744Dec. 31: Dr. Federal Corporate Income Tax

Exp. $2,413; Cr. Federal Corporate Income Tax Pay. $2,413

Closing Entries:Dec. 31: Dr. Sales $299,156, Purchases

Discounts $2,950, Purchases Returns and Allowances $2,108; Cr. Income Summary $304,214

Dec. 31: Dr. Income Summary $242,517; Cr. Sales Returns and Allowances $9,500, Purchases $168,624, Transportation In $8,236, Advertising Exp. $4,000, Federal Corporate Income Tax Exp. $14,913, Insurance Exp. $1,800, Miscellaneous Exp. $1,600, Salaries Exp. $26,900, Supplies Exp. $2,744, Utilities Exp. $4,200

Dec. 31: Dr. Income Summary $57,297; Cr. Retained Earnings $57,297

Post-Closing Trial Balance totals $129,419

Analyze

CHALLENGEPROBLEM

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Buzz NewsstandIncome Statement

For the Year Ended December 31, 20--

176 8 6 0 00

5 0 5 8 00

168 6 2 4 008 2 3 6 00

2 9 5 0 002 1 0 8 00

Revenue: Sales Less: Sales Ret. and Allow. Net SalesCost of Merch. Sold:

Merch. Inv., Jan 1, 20--PurchasesPlus: Transportation InCost of Del. Merch.Less: Purch. Discounts

Purch. Ret. and Allow.Net PurchasesCost of Merch. Avail.Merch. Inv., Dec. 31, 20--

Cost of Merch. SoldGross Profit on SalesOperating Expenses:

Advertising ExpenseInsurance ExpenseMiscellaneous ExpenseSalaries ExpenseSupplies ExpenseUtilities Expense

Total Oper. ExpensesOperating Income

Less: Fed. Inc. Tax Exp.Net Income

299 1 5 6 009 5 0 0 00

64 8 0 0 00

171 8 0 2 00236 6 0 2 0060 4 0 0 00

4 0 0 0 001 8 0 0 001 6 0 0 00

26 9 0 0 002 7 4 4 004 2 0 0 00

289 6 5 6 00

176 2 0 2 00113 4 5 4 00

41 2 4 4 0072 2 1 0 0014 9 1 3 0057 2 9 7 00

Determine the impact of these adjusting entries on net income.

Analyze


607_611_C20_PROB_893567.indd 611 9/6/10 10:51 AM

CHAPTER 20

PROBLEM 20–8Preparing Adjusting and Closing Entries (cont’d)

The adjusting entries increased expenses and cost of merchandise by $11,357 ($4,400 � $1,800 � $2,744 � $2,413), reducing net income by that amount.

Analyze

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CHAPTER 20

— Pearl’s Department Store —

H.O.T.

— PPePeararll’l’ss DeDepa trtment Store —

CASE STUDY

WITHHIGHER ORDER THINKINGREAL-WORLD Applications & Connections

Direct DepositFor many employees, the days of getting a paycheck and taking it to the bank are long gone. Many employers use direct deposit by which they place a worker’s pay directly into his or her bank account. To set up direct deposit, the worker usually has to provide his or her bank account number and the bank’s routing number to the employer. The worker may supply the employer with a voided check or deposit slip. With this, the payroll clerk is able to deposit money into the worker’s account.

DISCUSS AND WRITE

a. Discuss with a partner why you think businesses are willing to offer direct deposit to employees.

b. List three benefits direct deposit offers to workers. Would you like to have direct deposit? Why or why not?

Merchandising Business: Department StoreYou work in the accounting department for Pearl’s, a trendy department store. The accounting manager asked you to review the work of an accounting intern who completed the closing process. Some temporary accounts in the post-closing trial balance still have balances.

INSTRUCTIONS

a. Explain how to tell which accounts should have zero balances after closing.

b. Explain how to determine which accounts have and have not been closed.

c. Suggest ways to explain to the intern why temporary accounts have zero balances after closing.

d. List human-relations skills you might use in your explanation to the intern.

612 Chapter 20 Real-World Applications and Connections

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Merchandising Business: Department Store1. Only temporary accounts should have

zero balances after closing.

2. Temporary (income statement) accounts are closed; permanent (balance sheet) accounts are not.

3. The accounts must begin each period with zero balances to separate data by fi scal period.

4. Answers may vary. A manager might praise work well done and explain areas that need improvement. Clear oral and written communications should be used to reinforce and document expected improvements.

Direct Deposita. Most answers will indicate reduced

paperwork and clerical costs and, as a result, lower cost. Having no printed checks means that a check cannot be lost or stolen. If any errors occur in electronic payroll, they can be corrected immediately without waiting for the employee to return an incorrect check.

b. Answers may include convenience, never misplacing a check, immediate availability of funds, and less effort for the individual.

CASE STUDY

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CHAPTER 20

H.O.T. Audit

General Ledger AccountantThe general ledger is the primary source of information from which companies generate their financial reports. The general ledger accountant is responsible for making sure that all information in the ledger, including all business transactions, is accurate and up to date, and properly accounted for. General ledger accountants may themselves be responsible for recording the day-to-day bookkeeping activities of an organization, or may work in a supervisory role, directing other accountants or clerks and reviewing their work. A general accountant may also be referred to as a corporate accountant or a management accountant.

RESEARCH AND SHARE

a. Use the Internet to locate three sources of information on general ledger accounting.

b. What level of education is required to be a general ledger accountant? What are the roles and responsibilities of a general ledger accountant?

Closing EntriesMr. Raheev Sing’s accountant made the following closing entry:

INSTRUCTIONS Review the closing entry. On a separate sheet of paper, prepare the closing entries that the accountant should have made.

GENERAL JOURNAL

00 017 0000 08 0002 03 0003 02 0005 03 00

Date20--

XX

Income Summary Purchases Discounts Purchases Ret. and Allow. Sales Discounts Sales Returns and Allow.

1

2

3

4

5

6

1

2

3

4

5

6

Chapter 20 Real-World Applications and Connections 613

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General Ledger

a. Possible sources: Wikipedia, Bureau of Labor Statistics, eHow.com

b. General ledger accountants typically hold at least a bachelor’s degree in accounting or business. Many hold master’s degrees in accounting; many are CPAs. Duties include reviewing accounts, closing the accounting schedule, payroll, calculating depreciation, amortization, and depletion, determining cost of goods sold, and preparing reports for management review, and this position often requires supervision of clerks.

H.O.T. Audit Closing Entries Dec. 31: Dr. Purchases Disc. $8,000, Purchases Returns & Allowances $3,200; Cr. Sales Disc. $2,300, Sales Returns & Allowances $3,500, Income Summary $5,400

Have students research credit ratings and credit scores. Ask what steps they can take to start building and maintaining a strong credit rating. One way to establish a credit rating would be to obtain a credit card and make payments on time.

FINANCIALLITERACY

Chapter 20 613

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