1. Closing Entries Chapter 8.3

2. We’re almost done, let’s finish it up!
Post the Adjusting & Closing Entries to the Ledger
Journalize the Adjusting &Closing Entries
Prepare the Post-Closing Trial Balance
Step 7
Step 8
Step 9

3. Which accounts will we need in the next financial period?
These accounts are not closed.
“Real” or Permanent
Assets
Liabilities
Capital (OE)

4. Which accounts will not apply to the next financial period?
Close these accounts
“Nominal” or Temporary
Revenue
Expenses
Drawings
Bring balance to zero!!

5. Why are Income Statement accounts not required for next fiscal period?
Matching Principle: states Revenue & Expenses must be recorded in same fiscal period to fairly calculate Net income/ loss.

6. Why do we Prepare the closing Entries?
To bring nominal (“RED”) accounts to zero
To update Capital

7. Complete Accounting Cycle
Post-closing Trial Balance Chp. 9.3
(9)_____________________________
(1) Transactions occur, gather source documents. Chp. 3 & 6
Journalize & Post adjusting and closing
(8)________________________________
____________________
Entries Chp. 9.3, 9.4
(2) Accounting entries recorded in the journal. Chp. 6
(7) Adjusting entries journalized and posted. Chp. 9.2, 9.5
-supplies
-insurance
-late bills
-depreciation
(3) Journal entries posted to the ledger accounts
(4) Ledger balanced by means of a trial balance
(DR= CR Chp.4)
(6) Income statement (chp 5) and balance sheet (chp.2,8) prepared.
(5) Work sheet prepared

8. 9.4 Journalizing & Posting the Closing Entries
1. The information to prepare the closing entries comes from the worksheet

9. 2) 4 Steps of Closing Entries:
1. Closing Entry No. 1
Transfers the balances in the REVENUE account(s) (Income Statement) to a new nominal account called Income Summary
Since R=CR, DR entries are needed to close them out
Therefore: Revenue DR Income Summary CR

10. 2. Closing Entry No. 2
Closes EXPENSES to Income Summary
Since E=DR, CR entries are needed to close them out
Therefore: Income Summary DR
Expense CR

11. 3. Closing Entry No. 3
Closes Income Summary to CAPITAL
if Income Summary account has a CR balance, DR entry is needed to close it
Therefore: Income Summary DR
Owner, Capital CR

12. 3. Closing Entry No. 3 cont.
If Income Summary account has a DR balance, CR entry is needed to close it
Therefore: Owner, Capital DR
Income Summary CR

13. 4. Closing Entry No. 4
Closes DRAWINGS to CAPITAL
Since D=DR, CR entries are needed to close them out
Therefore: Owner, Capital DR
Owner, Drawings CR

14. Let’s Try It!
Complete Exercise #1, 2, 3, 4 p (t), p (w)

15. Worksheet Pilot Plumbing Month Ended Dec. 31, 2012
Accounts
Trial Balance
Income Statement
Balance Sheet
Dr.
Cr.
Bank
A/R - Carmen's Restaurants
A/R - Willow Apartments
Plumbing Supplies
950.00
Plumbing Equipment
Van
Bank Loan
A/p - Hudson's Plumbing
600.00
L. Wallace, Capital
L. Wallace, Drawings
150.00
Plumbing Revenue
Advertising Expense
100.00
Bank Charges Expense
20.00
General Expenses
80.00
Telephone Expense
50.00
Van Repairs
400.00
4,500.00
35,150.00
31,050.00
Net Income
4,100.00