Adjusting and Closing Entries

Adjusting and Closing Entries

Adjusting entries and closing entries are performed by various organizations every month. Adjusting entries are documented at the close of every month, whereas the closing of entries is entered at the close of the fiscal period, typically a year. The primary purpose of adjusting entries is to comply with the accounting framework through modifications. On the other hand, closing entries bring all clearance temporary accounts. According to Dean et al. (2020), adjusting entries ensures an alignment between the books of account and the accrual and matching concept stipulated by the accounting standards. By doing so, the books of account offer a more truthful impression of a firm’s performance during a fiscal period concerning cash flows and profitability. Various adjustments to entries accomplish multiple purposes. First, adjustments to entries accrue expenses that took place but failed to be accounted for in the fiscal period. For instance, suppose a book-keeping period ends on March 31^st while containing a power bill paid on the 20^th of every month. In that case, an adjusting entry is made pro-rata for electricity expenses incurred till March 31^st. Specifically, a debit entry is made to the electricity expense, while a credit entry is made for costs accrued.

Second, adjusting entries accomplishes the rescheduling of incomes and expenses accounted for but relating to successive accounting phases. An example of an entry achieved through adjustment is a yearly maintenance expense waged for in advance at the contract commencement. Taking four months to be left on the contract, an adjustment will be made to the prepaid expenditure requirements to be granted by crediting maintenance expenses and debiting prepaid costs. Third, adjusting entries is necessary to recognize income achieved but remains unrecognized during the fiscal year. An example of such an accomplishment is a loan on March 1^st, a quarterly receivable interest. As a result, an adjusting entry will account for interest income accumulated by March 31^st, even though it has not yet been received. The adjusting entry will entail a credit to the interest income account and a debit to the income receivable account.

On the other hand, closing entries are handed to transfer to permanent accounts individual temporary ledger account balances. Notably, temporary accounts are opened with a zero balance at the start of a fiscal period. In contrast, permanent accounts refer to statements of financial position accounts whose balances are passed from one financial period to another (Hines & Tapis, 2022). Examples of permanent accounts entail liability and asset accounts. Closing entries accomplish various purposes. First, closing entries close to the income summary account are the temporary income accounts, whereby all revenue accounts given in the ledger, such as rental revenue, interest revenue, and sales, are closed with their credit balances passed to the income summary account through debiting incomes and crediting income summary.

Second, closing entries close to the income summary account from temporary expense accounts, whereby ledger expense accounts such as rent, electricity, and wages are sealed. Their debit balances are passed to the income summary by debiting and crediting the expenses account. Third, closing entries accomplish closing to the permanent retained earnings account from the temporary income summary account. Notably, the income summary account is brief and requires completing the reserved income account. For example, when a credit balance is identified in the income summary account, a debit is made to the income summary, and a credit entry is made to retained earnings. Finally, closing entries close the dividends account since dividends are withdrawn from the company and are not expenses. Debit and credit entries are made in the retained earnings account and dividends.

References

Dean, B. A., Perkiss, S., Simic Misic, M., & Luzia, K. (2020). Transforming accounting curricula to enhance integrative learning. Accounting & Finance, 60(3), 2301-2338.

Hines, C. S., & Tapis, G. P. (2022). Accounting-Specific Data Analytics: A Framework for Addressing AACSB Standard A5 and Industry Demand. Journal of Emerging Technologies in Accounting, 19(1), 173-180.

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Adjusting and Closing Entries

This assignment has two parts, as follows:

Please explain the purpose of adjusting entries and closing entries. In a 1-2-page paper, not including the title and reference pages, detail what each accomplishes and give examples of each.
Please journalize the closing entries from the attached 10-column worksheet. Use the attached template to complete your General Journal.
Please submit both parts of your assignment.

Please use your text, Web resources, and all course materials to assist with your assignment.