Preparing Closing Entries SECTION 10.1 Completing the Accounting Cycle Closing entries are journal entries made at the end of an accounting period to zero the balances in the temporary accounts and transfer the net income or loss to the capital account. After closing entries are made, the trial balance can be prepared. Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Preparing Closing Entries SECTION 10.1 Starting the Eighth Step in the Accounting Cycle: Journalizing the Closing Entries The events leading up to the closing process are: Net income or loss is calculated on the work sheet. The income statement is completed. The capital account ending balance is calculated on the statement of changes in owner’s equity. The ending balance of the capital account appears on the balance sheet. The capital account balance in the general ledger does not equal the amount on the balance sheet. Closing entries need to be journalized and posted. Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Preparing Closing Entries SECTION 10.1 Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Preparing Closing Entries SECTION 10.1 The Income Summary Account The Income Summary account: serves as a simple income statement in the general ledger. is used to accumulate revenue and expenses for the period. equals the net income or loss for the period. It is a temporary account that: is used only at the end of the accounting period to summarize revenue and expense balances. does not have a normal balance. has a zero balance before and after the closing. does not appear on any financial statement. Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Preparing Closing Entries SECTION 10.1 Closing Revenue to Income Summary To record closing entries in the general journal: Enter Closing Entries in the Description column. Enter the last day of the accounting period. Enter the name(s) and amount(s) of the account(s) to be debited. Enter Income Summary as the name of the account to be credited and the amount to be credited. Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Preparing Closing Entries SECTION 10.1 Closing Expenses to Income Summary A journal entry with two or more debits or credits is a compound entry. Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Preparing Closing Entries SECTION 10.1 Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Preparing Closing Entries SECTION 10.1 Closing Income Summary to Capital This entry transfers the balance of the Income Summary account to the capital account. An example of this closing entry can be seen here: Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Preparing Closing Entries SECTION 10.1 Closing Withdrawals to Capital This entry transfers the balance of the withdrawals account to the capital account. An example of this closing entry is shown below: Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Posting Closing Entries and Preparing a Post-Closing Trial Balance SECTION 10.2 Completing the Eighth Step in the Accounting Cycle: Posting the Closing Entries to the General Ledger The next step in the closing process is to post closing entries to general ledger accounts. Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Posting Closing Entries and Preparing a Post-Closing Trial Balance SECTION 10.2 Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Posting Closing Entries and Preparing a Post-Closing Trial Balance SECTION 10.2 The Ninth Step in the Accounting Cycle: Preparing a Post-Closing Trial Balance Preparing a post-closing trial balance is the final step in the accounting cycle. It is prepared after the closing entries are posted in order to verify total debits equal total credits. Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Posting Closing Entries and Preparing a Post-Closing Trial Balance SECTION 10.2 The Ninth Step in the Accounting Cycle: Preparing a Post-Closing Trial Balance Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.