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Chapter 9
Recording Adjusting and Closing
Entries for a Service Business
Adjusting Entries

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
Journal entries recorded to update general
ledger accounts at the end of a fiscal period.
Adjusting entries are recorded on the page
following the page on which the last daily
transactions for the month are recorded.
Adjusting entries are obtained from the
adjustment column of the WS.
The heading, Adjusting Entries, is written in
the middle of the Account title column of the
journal.
Permanent Accounts


Accts. used to accumulate information
from one fiscal period to the next. (Also
known as real accounts)
They include:
– Asset accounts
– Liability accounts
– Owner’s capital account
Temporary Accounts

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
Accts used to accumulate information until it
is transferred to the owner’s capital account.
(Also referred to as nominal accounts)
They include:
– Revenue
– Expenses
– Owner’s drawing account
– Income summary account
Balances must be reduced to zero at the end
of each fiscal period.
Closing Entries


Journal entries used to prepare temporary
accounts for a new fiscal period.
A temporary account titled Income Summary
is used to summarize the closing entries for
the revenue and expense accts.
Four Closing Entries:


Close income
statement accounts
with credit balances.
Close income
statement accounts
with debit balances

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Record the net
income or net loss in
the owner’s capital
account and close
Income Summary.
Close the owner’s
drawing account.
Post-Closing Trial Balance

A trial balance
prepared after the
closing entries are
posted.
Eight steps to prepare a post-closing trial balance
1. Write the heading.
2. Write titles of all
general ledger
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accounts with
balances in the
Account Title
column.
3. Write each
account’s
balance.
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4. Rule a single
line.
5. Compare the two column totals.
6. Write Totals.
7. Write the column totals.
8. Rule double lines.
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Accounting Cycle

The series of
accounting activities
included in
recording financial
information for a
fiscal period.
ACCOUNTING CYCLE FOR A SERVICE BUSINESS
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1. Source documents checked for
accuracy, and transactions are
analyzed.
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2. Transactions are recorded in
a journal.
3. Journal entries are posted
to the general ledger.
4. Work sheet is prepared.
5. Financial statements are
prepared.
6. Adjusting and closing
entries are journalized.
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7. Adjusting and closing
entries are posted.
8. A post-closing trial
balance is prepared.