Accounting Examples – End of Month Closing

Closing the Accounts At the end of the period, temporary or nominal accounts are closed; these include expense, revenue, and owner withdrawing accounts. This process zeros out the account balances so that the balance of the transactions in each account reflects only the transactions of a particular period. This is normally done only at the end of the year. To facilitate closing, a clearing account called Income Summary is used. The Income Summary account is used only momentarily; revenue and…

EIN Employer Identification Number

The Employer Identification Number (EIN – also known as Tax ID Number), is a nine-digit number issued to businesses by the IRS.  Obviously, a business that has employees needs an EIN, but there are instances when all business types and even individuals may need to get an EIN. Who Needs an EIN Keep in mind – EINs are not transferable, so if you buy or sell a business you or the new owner will need to get a new number. …

Accounting Examples – Trial Balance

Trial Balance The Trial Balance, which can be taken at any point in time, lists all ledger accounts and their balances and is used to prove the equality of debits and credits. Assets are listed first followed by liabilities and then owner’s equity. Debit balances are listed in the left column and credit balances in the right column. The trial balance proves that the accounts balance, but it does ensure that all transactions were entered or entered into the proper accounts.…

LLC – Limited Liability Company Example

LLC – Limited Liability Company Limited Liability Company LLC Books A Limited Liability Company (LLC) is sort of a cross between a partnership and a corporation.  A small business formed as an LLC affords its owners the advantages of limited liability (little or no personal liability like corporate shareholders have) along with pass-through taxation (a tax saving benefit enjoyed by partnerships and sole proprietorships). Forming the LLC Forming a LLC is a little more complicated than forming a partnership and less…

Owner Equity Accounts Examples

Owner Equity Accounts: There are several types of transactions that effect owner equity including: investments, withdrawals of cash by the owner, revenue earned, and expenses incurred.  The accounts that collect data from these transactions are: Capital Account – The companies net worth.  Initial and subsequent Investments are recorded here as well as changes in the equity of the owners; such as net income or loss. Capital stock represents the investment of stockholders for corporations, and retained earnings represents the net income/loss.…

Trial Balance Example

Trial Balance The Trial Balance, which can be taken at any point in time, lists all ledger accounts and their balances and is used to prove the equality of debits and credits. Assets are listed first followed by liabilities and then owner’s equity. Debit balances are listed in the left column and credit balances in the right column. The trial balance proves that the accounts balance, but it does ensure that all transactions were entered or entered into the proper accounts.…

Chart of Accounts Example

Chart of Accounts: The complexity of a company’s chart of accounts depends on a number of factors including: daily activity, type of business conducted, and to what detail records are needed for management decisions and tax authorities.  Some businesses have very few accounts, others have thousands. It is common practice to assign a number to each account for indexing & coding transactions.  Although simply numbering the accounts sequentially will work, it is more advisable to use a flexible system as…

Adjusting Entries Examples

End of Period Adjusting Entries Before end-of-period financial reports are prepared, adjustments to prepaid and accrued accounts are made. This process helps provide a true indication of where the company stands financially and it matches income and expenses to the period they effect. There are several types of accounts that require adjustments: Prepaid Expenses – items or services that are paid for up-front. They are classified as assets when purchased. Unearned Revenues – revenues received before they are earned.  They are classified…

Accounts Payable Example

Accounts Payable: When goods, services, or supplies are purchased on account, they become, to the purchaser, an account payable (to the supplier, they are an account receivable). For example, if Your Company purchases office supplies and agrees to pay the supplier at a later date, the amount due from that purchase is recorded in your books as an account payable. The journal entry below illustrates how an on-account purchase of $200 in office supplies would be recorded: General Journal Page:…