1. Introduction to Accounting Preparing for a User’s Perspective
Closing Entries: Analyze, record & post. Prepare Post-Closing Trial Balance
Debits and Credits Trainer
By Kevin C. Kimball, CPA
with support from
Free Jan. 2014
Available on the Google Play Store

2. The Full Accounting Cycle
Original Transaction Entries
Identify
Analyze
Record
Post
Prepare
Pre-adjusted TB
Adjusting Entries
Identify
Analyze
Record
Post
Prepare
Adjusted TB
Financial Statements
Closing Entries
Identify
Analyze
Record
Post
Prepare
Post-Closing TB

3. Steps in the Accounting Cycle
1) Identify
2) Analyze
Steps in the Accounting Cycle
a) What accounts?
Round 3
b) Increase or decrease?
Closing Entries
c) Amount $?
d) Debit or credit?
3) Record
5) Prepare
Post-Closing Trial Balance
Date
Account
Debit
Credit
12/31
Sales Revenue
1,000
Income Summary
DR (CR)
150,570 -
(5,000)
(65,756)
Etc. $0
Cash
Etc.
Accounts Payable
Retained Earnings Total
Income Summary
Sales Revenue
4) Post
1,000
1,000

4. Before continuing, make sure you :
Know the difference between temporary (aka nominal) and permanent (aka real) accounts.
Temporary are ALL accounts that do not appear on the Balance Sheet
Permanent are ALL accounts that appear on the Balance Sheet AND carry their balances forward from one year to the next
2) Why are temporary accounts closed into retained earnings each year.
Avoid double-counting of net income and dividends
Start fresh each year to account for net income and dividends
Need a refresher? Watch this 7m:34s video :

5. ABC Co.
Adjusted Trial Balance
For the year ended 12/31/X1
ABC Co.
Income Statement
For the year ended 12/31/X1
Revenues $90
Expenses (55)
= Net Income $35
ABC Co.
Statement of Retained Earnings
For the year ended 12/31/X1
Retained Earnings 1/1/X1 $25
+ Net Income
- Dividends (10)
Retained Earnings 12/31/X1 $50
Account name
Debits (Credits)
Assets
100
Liabilities
(40)
Capital Stock
(10)
Retained Earnings
(25)
Dividends 10
Revenues
(90)
Expenses 55
Balance $0
ABC Co.
Balance Sheet
As of 12/31/X1
Assets $100 Liabilities $40
Equity:
Capital Stock
Retained Earnings 50
Total Equity
Total liabilities & equity $100
ALL temporary accounts (REID) must be closed to match this ending balance sheet.

6. R E I D $100 $40 Permanent Accounts 25 10 35 10
Account name Debits Credits 50 R
Revenues
Income Summary E 55 90
Income Summary
Expenses 35 35 10 10 I
Income Summary
Retained Earnings D
Retained Earnings 90 90 55 55
Dividends

7. All temporary accounts are now $0 and are ready to capture new data for the new year.
ABC Co.
Adjusted Trial Balance
For the year ended 12/31/X1
ABC Co.
Post Closing Trial Balance
For the year ended 12/31/X1
AFTER ALL temporary accounts have been closed into retained earnings, ONLY permanent accounts will carry amounts forward to next year.
Account name
Debits (Credits)
Assets
100
Liabilities
(40)
Capital Stock
(10)
Retained Earnings
(25)
Dividends 10
Revenues
(90)
Expenses 55
Balance $0
Account name
Debits (Credits)
Assets
100
Liabilities
(40)
Capital Stock
(10)
Retained Earnings
(50)
Balance $0
ALL temporary account balances have been closed into retained earnings.

8. Temporary
Accounts
Permanent Account

9. Current asset Current asset Current asset Contra asset Current asset
Noncurrent liability
Current asset
Equity
Current asset
Contra asset
Current asset
Current asset
Current asset
Noncurrent asset
Noncurrent asset
Contra asset
Contra asset
Current liability
Current liability
Current liability
Current liability
Current liability

10. R Account name Debits Credits Sales Revenues 200,000
Interest Revenues
Dividend Income
Income Summary ,800 R R R

11. Revenues closed into Income Summary
Represents all
Revenues closed into Income Summary
200,800

12. R E Account name Debits Credits Sales Revenues 200,000
Interest Revenues
Dividend Income
Income Summary ,800
Income Summary ,104
Cost of Goods Sold ,000 R
Bad Debt Expense E
Commission Expense ,040 E E
Insurance Expense ,000 E
Office Supplies Expense E
Utilities Expense ,390 E
Depreciation Expense ,300 E
Bank Fees
Interest Expense ,667 E
Income Tax Expense ,797 E R R E E

13. Income Summary 129,104 200,800 71,796 Represents all
Expenses closed into Income Summary
Represents all
Revenues closed into Income Summary
129,104
200,800
Represents Net Income which will next be closed into Retained Earnings
71,796

14. R E I Account name Debits Credits Sales Revenues 200,000
Interest Revenues
Dividend Income
Income Summary ,800
Income Summary ,104
Cost of Goods Sold ,000 R
Bad Debt Expense E
Commission Expense ,040 E E
Insurance Expense ,000 E
Office Supplies Expense E
Utilities Expense ,390 E
Depreciation Expense ,300 E
Bank Fees
Interest Expense ,667 E
Income Tax Expense ,797 E R I
Income Summary ,796 R
Retained Earnings ,796 E E

15. Income Summary 129,104 200,800 71,796 71,796 $0 Represents all
Expenses closed into Income Summary
Represents all
Revenues closed into Income Summary
129,104
200,800
Represents Net Income which will next be closed into Retained Earnings
71,796
Represents entry to close Income Summary into Retained Earnings
71,796
Income summary ALWAYS finishes the closing process with a $0 balance $0

16. R E I D Account name Debits Credits Sales Revenues 200,000
Interest Revenues
Dividend Income
Income Summary ,800
Income Summary ,104 D
Cost of Goods Sold ,000 R
Bad Debt Expense E
Commission Expense ,040 E E
Insurance Expense ,000 E
Office Supplies Expense E
Utilities Expense ,390 E
Depreciation Expense ,300 E
Bank Fees
Interest Expense ,667 E
Income Tax Expense ,797 E R I
Income Summary ,796 R
Retained Earnings ,796 E D E
Retained Earnings ,940
Dividends ,940

17. AFTER ALL temporary accounts have been closed into retained earnings, ONLY permanent accounts will carry amounts forward to next year.
ALL temporary account balances have been closed into retained earnings.

18. Temporary
Accounts
Permanent Account

19. Retained Earnings 71,796 5,940 65,756 Beginning Retained Earnings
71,796
Net Income
5,940
Dividends
Ending Retained Earnings
65,756

20. Introduction to Accounting Preparing for a User’s Perspective
Closing Entries: Analyze, record & post. Prepare Post-Closing Trial Balance
Debits and Credits Trainer
By Kevin C. Kimball, CPA
with support from
Free Jan. 2014
Available on the Google Play Store