LESSON 8-2 Recording Closing Entries 4/25/2017 LESSON 8-2 Recording Closing Entries GREEN

PERMANENT ACCOUNTS Permanent- Accounts used to accumulate information from one fiscal period to another. Also known as real accounts Includes: Assets, Liability, and Owner’s Capital Account LESSON 8-2

TEMPORARY ACCOUNTS Temporary- Accounts used to accumulate information until it is transferred to the owner’s capital account. Also known as nominal accounts Includes: Revenue, Expense, Drawing, Income Summary Account LESSON 8-2

How do you close a temporary account? CLOSING ENTRIES Journal entries used to prepare temporary accounts for a new fiscal period. How do you close a temporary account? An amount equal to its balance is recorded in the account on the side opposite to its balance. Example: Sales  $3,650.00 LESSON 8-2

INCOME SUMMARY ACCOUNT A temporary account that is used to summarize the closing entries for the revenue and expense accounts. Why is it unique? The Income Summary does not have a normal balance side. LESSON 8-2

INCOME SUMMARY (CONT.) To determine whether the balance of income summary account is a credit or debit depends on if the business earns a net income or a net loss. When Revenue > Total Expenses, resulting in net income, the income summary account has a credit balance. When Total Expenses > Revenue, resulting in a net loss, the income summary account has a debit balance. LESSON 8-2

NEED FOR THE INCOME SUMMARY ACCOUNT page 207 LESSON 8-2

4 CLOSING ENTRIES (TECHKNOW) Entry to close income statement accounts with credit balances (Sales) Entry to close income statement accounts with debit balances (Expenses) Entry to record net income or net loss and close Income Summary Entry to close the owner’s drawing account LESSON 8-2

CLOSING ENTRY FOR AN INCOME STATEMENT ACCOUNT WITH A CREDIT BALANCE page 208 (Debit to close) 1 2 3 4 1. Write the heading. 2. Write the date. 3. Write the title of the account debited. Record the debit amount. 4. Write the title of the account credited. Record the credit amount. LESSON 8-2

CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES page 209 (Credit to close) 1. Date 2. Income Summary 3. Credit 4. Debit amount 2 4 1 3 LESSON 8-2

CLOSING ENTRY TO RECORD NET INCOME OR LOSS AND CLOSE THE INCOME SUMMARY ACCOUNT page 210 1. Date 2. Debit (Income Summary: debit to close) (Capital: credit to record net income) 3. Credit 1 2 3 LESSON 8-2

CLOSING ENTRY FOR THE OWNER’S DRAWING ACCOUNT LESSON 8-2 4/25/2017 CLOSING ENTRY FOR THE OWNER’S DRAWING ACCOUNT page 211 1. Date (Credit to close) 2. Debit 3. Credit 1 2 3 LESSON 8-2 GREEN

TERMS REVIEW permanent accounts temporary accounts closing entries page 212 permanent accounts temporary accounts closing entries LESSON 8-2