C L O S I N G E N T R I E S Kamran E-mail: kamranuni@yahoo.com M.com(Accounting) , Corporate Pipfa Kardan Institute of Higher Education

CLOSING ENTRIES At the end of the accounting cycle, the business performs a finalizing of the books by closing them for the period.

TEMPORARY ACCOUNTS Revenue and expense accounts are called temporary accounts, or nominal accounts . They need to be closed at the end of accounting period means there balance should bring to zero.

PERMANENT ACCOUNTS Balance sheet accounts, that is, assets, liabilities and owner’s equity accounts are called permanent accounts. They do not close at the end of Accounting period. Their balances will be transferred to next Accounting period.

LOOK AT AN INCOME STATEMENT FOR THE MONTH ENDED MAR 31, 2010 REVENUE $25,453 EXPENSES SALARIES EXPENSE $10,000 COMMISSIONS $ 3,000 RENT EXPENSE $ 1,500 $14,500 NET INCOME $10,953

THIS IS WHAT HAPPENS AT THE END OF THE ACCOUNTING PERIOD: REVENUES 31/03 I/S 25,453 Bal 25,453   INCOME SUMMARY(I/S) Rev 25,453 FIRST, CLOSE REVENUE ACCOUNTS TO INCOME SUMMARY DR CR Revenue 25,453 Income summary 25,453

Revenue should then have a zero balance.

Close Expenses to Income Summary A/c DR CR Income Summary a/c 14,500 Salaries Exp 10,000 Commissions Exp 3,000 Rent Exp 1,500 9/12/2019

SECOND, CLOSE EXPENSE ACCOUNTS TO INCOME SUMMARY SALARIES EXPENSE COMMISSIONS EXP Bal 10,000 I/S 10,000 Bal 3,000 I/S 3000   RENT EXPENSE INCOME SUMMARY Bal 1500 I/S 1,500 Bal 14,500 I/S 25,453

EXPENSE ACCOUNTS SHOULD THEN HAVE A ZERO BALANCE

3) CLOSE INCOME SUMMARY Income summary is also a temporary account and it will be closed in capital account as:

CLOSE INCOME SUMMARY TO THE CAPITAL ACCOUNT Expenses14,500 Revenues 25,453 Capital 10953 Bal b/f 10,953   CAPITAL Income summary 10953

NOW, INCOME SUMMARY SHOULD SHOW A ZERO BALANCE AS WELL.

4) CLOSE WITHDRAWALS TO THE CAPITAL ACCOUNT WITHDRAWALS WERE $500. WITHDRAWALS CAPITAL Bal 500 Capital 500 Withdrawals 500 I/S 10953   DR CR Capital 500 Withdrawals 500

AFTER CLOSING, THE BUSINESS’S TEMPORARY ACCOUNTS SHOULD SHOW ZERO BALANCES. A WAY TO TEST THIS IS TO PREPARE A POST-CLOSING TRIAL BALANCE:

QS