Statements and closing entries
Building financial statements from the adjusted trial balance; how closing entries reset the temporary accounts for the next period.
Closing entries reset revenue, expense, and dividend accounts for the next period. Net income and ending equity connect the financial statements and must agree wherever they appear.
- Date
- Tue 9/880 minutes
- Reading
- Chapter 3: Financial statements and closing entries (read by next class) Optional Kieso equivalent: Chapter 2, section 2.4, pages 2-37 through 2-41
- Engagement points
- Scored5 points for answering at least 75%
Slides and downloads
View the slides online, or download the PDF for offline reading or printing.
Watch this meeting
Lecture playlist Subscribe on YouTube
The slides of this meeting's deck, each held for as long as the narration over it runs. Read by a speech synthesizer; every line was transcribed back and checked against its script before it was kept.
What to do before class
- Submit your private introduction slide by Friday, September 4 at 11:59 PM.
What we will do in class
Retrieve adjusted balances
Post the Class 2 wages adjustment and calculate the two adjusted balances.
Statements and closing
Map the order from adjusted balances through the statements and closing entries.
Build Red Cedar's linked statements
Prepare the income statement, statement of stockholders' equity, and balance sheet. Trace net income and ending equity between them.
Build a second statement set
Prepare Capitol Sign's three statements, then classify operating, investing, and financing cash flows.
Close and check the accounts
Prepare direct closing entries and check Capitol Sign's post-closing trial balance.
Finish the accounting cycle
Connect statement preparation, closing entries, and post-closing checks.
Dividends are not expenses
Dividends do not appear on the income statement or run through Income Summary. They close directly to retained earnings.
Assigned reading and deadlines
Solutions to the in-class problems post to D2L after the meeting.
- Read Chapter 3: Financial statements and closing entries after this meeting and before the next class.
- Complete the Unit 1 review assignment by Wednesday, September 16 at 11:59 PM (extended deadline).
Review closing and statement connections
Use one of these resources when you need help with a specific part of Lecture 3.
Account types
Check which accounts close and how retained earnings changes.
- Temporary account
An account that collects one period's activity and is reset to zero through closing entries. Revenue, expense, and dividend accounts are common examples.
- Permanent account
An account whose ending balance carries into the next reporting period instead of being reset to zero by closing entries.
- Retained earnings
A permanent equity account that accumulates net income and losses, reduced by dividends and other changes charged to the account.
Closing entries and equity
Review closing entries or trace net income into equity.
- Close the period without deleting its history
Classify temporary and permanent accounts, close period activity into retained earnings, and reconcile the post closing trial balance.
- Trace net income into ending equity
Use the income statement to calculate net income, then separate that result from dividends and share transactions.
A missing-adjustment investigation
Find why matching statement totals can still hide a missing adjustment.
- Find why a set of statements does not agree
Check shared amounts against the ledger and distinguish a missing adjustment from a mismatched report.
Worked statement example
Try the problem before reading the solution.
- Direct close and post-closing trial balance
Prepare Maple Studio's closing entries from a complete adjusted trial balance and check the balances that carry forward.
- Three statements that articulate
Prepare Maple Studio's income statement, statement of changes in equity, and balance sheet from its adjusted balances.
Check a rule or a mistake
- Closing entry
A journal entry that brings a temporary account to zero and transfers its balance to equity, directly or through an intermediate closing account.
- Mistaken idea: Closing deletes the prior period's activity
Correction: Closing resets temporary account balances to zero. It does not erase the original transactions from the journal or ledger.
- Mistaken idea: Each financial statement can be corrected independently
Correction: Correct the underlying account balances, then update every affected statement. For example, correcting an omitted wage accrual changes expense, the liability, net income, and ending equity.
Practice Chapter 3 by topic
Work through all five questions on one page, with answer checks and explanations beside each question. Your work is not submitted.