This assignment has 2 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.
Expert Solution Preview
Adjusting and closing entries are crucial steps in the accounting process that helps to ensure the accuracy of financial statements at the end of a period. As a medical professor in charge of creating college assignments and answers for medical college students, it is important to understand the purpose and significance of these entries in the accounting cycle.
The purpose of adjusting entries is to ensure that all financial transactions have been accurately recorded and reflected in the financial statements. Adjusting entries are made at the end of an accounting period to correct errors and omissions that were made during the period. These entries are necessary because some transactions may not have been recorded, or the recording of transactions may have been incorrect. Adjusting entries include accrued expenses, prepaid expenses, accrued revenues, and unearned revenues.
Closing entries, on the other hand, are made at the end of an accounting period to close temporary accounts (revenue, expense, and dividend accounts) and transfer their balances to the permanent account (retained earnings). The purpose of closing entries is to reset the temporary accounts to zero and prepare the accounting records for the next period. Closing entries are made after the financial statements have been prepared and are important because they ensure that the results of operations for the period are correctly reflected in the financial statements.
Example of adjusting entries: Suppose a company pays for insurance coverage for the next six months in advance. The entire amount is recorded as an expense in the month of payment. However, this differs because insurance premiums are pre-paid and recognized as expense over the policy period. An adjusting entry would be made to transfer a portion of the insurance expense from the current period into the next period(s).
Example of closing entries: Suppose a company has a revenue of $100,000 and expenses of $65,000 for the year. To close the accounts, the revenue and expense accounts are first closed, and then the net income ($35,000) is transferred to the retained earnings account. The income summary account has a zero balance once the transfer is complete.
Please find the journalized closing entries on the attached general journal template.