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Recording Adjusting and Closing Entries for a Service Business

A businesses adjustments are analyzed and planned on a worksheet, and then journalized so that they can be posted to their individual general ledger accounts. The journal entries recorded to update general ledger accounts at the end of a fiscal period are called adjusting entries. It is these entries which are recorded and then posted so that an updated post-closing trial balance can be prepared.

Adjusting EntriesJournal entries recorded to update general ledger accounts at the end of a fiscal period.
Permanent AccountsAccounts used to accumulate information from one fiscal period to the next.
Temporary AccountsAccounts used to accumulate information until it is transferred to the owner’s capital account. These accounts must be reduced to zero at the end of each fiscal period.
Closing EntriesJournal entries used to prepare temporary accounts for a new fiscal period.
Post-Closing Trial BalanceA trial balance prepared after the closing entries are posted.
Accounting CycleThe series of accounting activities included in recording financial information for a fiscal period.
Examples of permanent accounts include:Assets, liabilities and owner’s capital accounts.
Examples of temporary accounts include:Income summary, sales, all expense accounts, net income or net loss, and owner’s drawing.
The heading of a post-closing trial balance includes:The name of the business, the name of the statement, the date of the statement.
The account titles included on the post-closing trial balance are:Cash, petty cash, supplies, prepaid insurance, liability accounts, and the owner’s capital account.

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