1. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

2. Closing Entries and the Postclosing Trial Balance Section 1: Closing Entries Chapter 6 Section Objectives 6-1 Journalize and post closing entries. 6-2

3. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. The Accounting Cycle Step 7 Journalize and post closing entries Step 1 Analyze transactions Step 2 Journalize the data about transactions Step 4 Prepare a worksheet Step 5 Prepare financial statements Step 6 Journalize and post adjusting entries Step 8 Prepare a postclosing trial balance Step 9 Interpret the financial information Step 3 Post the data about transactions The seventh step in the accounting cycle is to journalize and post closing entries Step 7 Journalize and post closing entries 6-3

4. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. The Income Summary account is a special owner’s equity account that is used only in the closing process to summarize the results of operations. ANSWER: QUESTION: What is the Income Summary account? 6-4

5. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Income Summary Account Classified as a temporary owner’s equity account. Does not have a normal balance. Has a zero balance after the closing process and remains with a zero balance until the closing procedure for the next period. 6-5

6. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 2. Transfer the expense account balances to the Income Summary account. 4. Transfer the drawing account balance to the owner’s capital account. 3. Transfer the the Income Summary account balance to the owner’s capital account. 1. Transfer the revenue account balances to the Income Summary account. Objective 6-1 Journalize and post closing entries. There are four steps in the closing process: 6-6

7. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. The words “Closing Entries” are written in the Description column of the general journal GENERAL JOURNAL PAGE 4 DATE DESCRIPTION POST. DEBIT CREDIT REF. 2016 Closing Entries Dec. 31 Fees Income 47,000.00 Income Summary 47,000.00 Step 1: Close Revenue 6-7

8. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. The Income Statement section of the worksheet for Wells’ Consulting Services lists five expense accounts. Since expense accounts have debit balances, enter a credit in each account to reduce its balance to zero. This closing entry transfers total expenses to the Income Summary account. Step 2: Close Expenses 6-8

9. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. The journal entry to transfer net income to owner’s equity is a debit to Income Summary, and a credit to Carolyn Wells, Capital. Step 3: Close Net Income to Capital The Income Summary account is reduced to zero. The net income amount, $33,667, is transferred to the owner’s capital account. Carolyn Wells, Capital is increased by $33,667. 6-9

10. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Income Summary Carolyn Wells, Capital Closing 33,667 Balance 33,667 Balance 100,000 Step 3: Close Net Income to Capital Closing 33,667 6-10

11. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Withdrawals appear in the statement of owner’s equity as a deduction from capital. The drawing account is closed directly to the capital account. The drawing account balance is reduced to zero. The balance of the drawing account, $5,000, is transferred to the owner’s capital account. Step 4: Close Drawing to Capital 6-11

12. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. “Closing” is entered in the Description column of the ledger accounts. The ending balances of the drawing, revenue, and expense accounts are zero. Posting the Closing Entries All journal entries are posted to the general ledger accounts. 6-12

13. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Closing Entries and the Postclosing Trial Balance Section 2: Using Accounting Information Chapter 6 6-2. Prepare a postclosing trial balance. 6-3. Interpret financial statements. 6-4. Review the steps in the accounting cycle. 6-13

14. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. What is the postclosing trial balance? A postclosing trial balance is a report that is prepared to prove the equality of total debits and credits after the closing process is completed. It verifies that revenue, expense, and drawing accounts have zero balances. QUESTION: ANSWER: Objective 6-2 Prepare a postclosing Trial Balance. 6-14

15. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wells’ Consulting Services Postclosing Trial Balance December 31, 2016 ACCOUNT NAMEDEBIT CREDIT Cash 111,350.00 Accounts Receivable 5,000.00 Supplies 1,000.00 Prepaid Rent 4,000.00 Equipment 11,000.00 Accumulated Depreciation–Equipment 183.00 Accounts Payable 3,500.00 Carolyn Wells, Capital 128,667.00 Totals 132,350.00 132,350.00 6-15

16. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Flow of Data Through a Simple Accounting System Source Documents General journal General ledger Worksheet Financial statements Source Documents 6-16

17. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Thank You for using College Accounting, 3rd Edition Haddock Price Farina 6-17