1. CHAPTER FIVE
THE CLOSING PROCESS

2. Our next to last step in our Accounting Cycle is. . .
Closing
Journal Entries
Oh happy day! We are almost finished!

3. CLOSING PROCESS
Gives temporary accounts zero balances so they are prepared to accumulate new information for the next accounting period
Involves four closing journal entries
Income Summary account is used to aid in the closing process.

4. PERMANENT ACCOUNTS All accounts reported on the Balance Sheet
Assets (including contra-assets)
Liabilities
Capital account
Contain the results of all transactions since the business started
NOT CLOSED

5. Income Statement accounts!?
TEMPORARY ACCOUNTS
Accumulate information for a specific accounting period
All accounts not on the Balance Sheet
Revenues
Expenses
Drawing
These accounts are closed.
You got it!
Okay, so let me get this straight..I don’t close Balance Sheet accounts, but I DO close
Income Statement accounts!?

6. CLOSING ENTRY ENTRY #1 Close Revenue Accounts to Income Summary
Income Summary is just a
temporary account used
during the closing process!

7. Revenue ACCOUNT TITLE ADJ. T. B. INCOME STMT BALANCE SHEET DR. CR. DR.
Cash
370
370
Accts. Rec.
650
650
Supplies 20 20
Ppd. Ins.
175
175
Revenue
Del. Eq.
3600
3600
A. D.-Del. Eq.
100
100
Accts. Pay.
1800
1800
Salaries Pay. 50 50
J J, Cap.
2000
2000
J J, Drawing
150
150
Del. Fees
2150
2150
Salaries Exp.
700
700
Rent Exp.
200
200
Sup. Exp. 60 60
Tel. Exp. 50 50
Ins. Exp. 25 25
Depr. Exp.
100
100
6100
6100
1135
2150
4965
3950
1015
1015
2150
2150
4965
4965

8. To reduce this account’s balance to
CLOSING ENTRY
ENTRY #1
Close Revenue Accounts to Income Summary
Delivery Fees
Income Summary
2,150
Bal.
(1)
2,150
To reduce this account’s balance to
zero, we must debit it $2,150.

9. We are, in effect, transferring Income Summary account.
CLOSING ENTRY
ENTRY #1
Close Revenue Accounts to Income Summary
DELIVERY FEES
INCOME SUMMARY
2,150
2,150
(1)
(1)
2,150
We are, in effect, transferring
the balance to the
Income Summary account.

10. CLOSING ENTRY ENTRY #1 Close Revenue Accounts to Income Summary 2,150
DELIVERY FEES
INCOME SUMMARY
2,150
Bal.
2,150
(1)
(1)
2,150
Let’s Journalize
this entry!

11. Instead of an explanation after written before the first entry.
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Closing Entries 2 3 4
Instead of an explanation after
each closing entry,
“Closing Entries” is
written before the first entry. 5 6 7 8 9 10 11

12. GENERAL JOURNAL Closing Entries DATE DESCRIPTION DEBIT PR CREDIT 1
20-- 2
June 30
Delivery Fees 3
Income Summary 4 5 6 7 8 9 10 11

13. Each expense account is closed in this one closing entry.
Close all Expense Accounts to Income Summary
Each expense account is closed
in this one closing entry.

14. Expenses have debit balances…. Therefore, to close them, they
Salaries Expense
Bal.
700
700
(2)
Expenses have debit balances….
Therefore, to close them, they
must be credited.

15. Wages Expense is now closed; the $700 balance will be
Salaries Expense
Bal.
700
700
(2)
Wages Expense is now closed;
the $700 balance will be
transferred to Income Summary
along with the balances of all
the other expense accounts.

16. All the expense account balances are combined and Income Summary is
Salaries Expense
Rent Expense
Income Summary
Bal.
700
700
(2)
Bal.
200
200
(2)
(2)
1,135
2,150
1,015
Bal.
Supplies Expense
Telephone Expense
Bal. 60 60
(2)
Bal. 50 50
(2)
All the expense
account balances
are combined
and Income
Summary is
debited for
the total.
Insurance Expense
Depr. Expense - Del. Eq.
Bal. 25 25
(2)
Bal.
100
100
(2)

17. Let’s journalize this entry!
Salaries Expense
Rent Expense
Income Summary
Bal.
700
700
(2)
Bal.
200
200
(2)
(2)
1,135
2,150
1,015
Bal.
Supplies Expense
Telephone Expense
Bal. 60 60
(2)
Bal. 50 50
(2)
Let’s journalize
this entry!
Insurance Expense
Depr. Expense - Del. Eq.
Bal. 25 25
(2)
Bal.
100
100
(2)

18. GENERAL JOURNAL This is a compound journal entry…..
One debit which equals the six credits
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Closing Entries
20-- 2
June 30
Delivery Fees 3
Income Summary 4 5 30
Income Summary 6
Salaries Expense 7
Rent Expense 8
Supplies Expense
60 00 9
Telephone Expense
50 00 10
Insurance Expense
25 00 11
Depr. Exp.-Delivery Equip.

19. The balance in Income Summary
CLOSING ENTRY
ENTRY #3
Close Income Summary to Capital
J. Jane, Capital
INCOME SUMMARY
1,135
2,150
1,015
Bal.
The balance in Income Summary
is the Net Income.

20. Let’s review how Income Summary got its balance. . .
CLOSING ENTRY
Let’s review how Income Summary got its balance. . .
ENTRY #3
Closing Income Summary to Capital
J. James, Capital
INCOME SUMMARY
REVENUES
2,150

21. Still reviewing how Income Summary got its balance. . .
CLOSING ENTRY
Still reviewing how Income Summary got its balance. . .
ENTRY #3
Close Income Summary to Capital
J. Jane, Capital
INCOME SUMMARY
1,135
2,150
EXPENSES

22. The balance in Income Summary
CLOSING ENTRY
ENTRY #3
Close Income Summary to Capital
J. Jane, Capital
INCOME SUMMARY
1,135
2,150
1,015
Bal.
The balance in Income Summary
is the Net Income.

23. By debiting Income Summary,
CLOSING ENTRY
ENTRY #3
Close Income Summary to Capital
J. Jane, Capital
INCOME SUMMARY
1,135
2,150
(3)
1,015
1,015
Bal.
By debiting Income Summary,
we close the account.

24. We transfer the Net Income into the Capital account.
CLOSING ENTRY
ENTRY #3
Close Income Summary to Capital
INCOME SUMMARY
J. Jane, Capital
1,135
2,150
2,000
Bal.
(3)
1,015
1,015
1,015
Bal.
We transfer the Net Income
into the Capital account.

25. GENERAL JOURNAL continued
DATE
DESCRIPTION
DEBIT PR
CREDIT 12
Closing Entries continued
20-- 13
June 30
Income Summary 14
J. Jane, Capital 15 16 17 18 19 20 21 22

26. CLOSING ENTRY ENTRY #4 Close Drawing to Capital J. JANE, DRAWING
J. JANE, CAPITAL
Bal.
150
2,000
150
(4)
1,015
3,015
Bal.
(4)
150

27. CLOSING ENTRY ENTRY #4 Close Drawing to Capital J. JANE, DRAWING
J. JANE, CAPITAL
Bal.
150
2,000
150
(4)
1,015
3,015
Bal.
(4)
150
The Capital account now
reflects the ending balance
shown on the Statement of
Owner’s Equity.
2,865
Bal.

28. GENERAL JOURNAL continued
DATE
DESCRIPTION
DEBIT PR
CREDIT 12
Closing Entries continued
20-- 13
June 30
Income Summary 14
J. Jane, Capital 15 16 30
J. Jane, Capital 17
J. Jane, Drawing 18
The Closing Entries are then posted
to the General Ledger accounts. 19 20 21 22

29. Posting to the General ledger
401
DELIVERY FEES
Account No.
Account:
“Closing” is
written in the
Item area.
BALANCE
DATE
ITEM PR
DR.
CR.
DR.
CR.
20--
June 6 J1
500
500 15 J1
600
1100 30 J2
1050
2150 30
Closing

30. Posting to the General ledger
401
DELIVERY FEES
Account No.
Account:
BALANCE
DATE
A line is drawn through
to signify a zero balance.
ITEM PR
DR.
CR.
DR.
CR.
20--
June 6 J1
500
500 15 J1
600
1100 30 J2
1050
2150 30
Closing J4
2150

31. Our Last step in our Accounting Cycle is. . .
The Post-Closing Trial Balance
It’s a good thing we’re done because I am getting pretty dizzy. .

32. POST-CLOSING TRIAL BALANCE
Prepared after closing entries
To prove the equality of the debit and credit balances in the general ledger accounts
Only accounts which remain open (permanent accounts) are listed.

33. Jessica Jane’s Campus Delivery Post-Closing Trial Balance June 30, 20--
Account Title
Acct No.
Debit Balance
Credit Balance
Cash
101
370
There are only
Permanent accounts
on the Post-Closing
Trial Balance.
Accounts Receivable
122
650
Supplies
141 20
Prepaid Insurance
145
175
Delivery Equipment
185
3600
Accumulated Depr.-Delivery Eq.
185.1
100
Accounts Payable
202
1800
Salaries Payable
219 50
Jessica Jane, Capital
311
2865
4815
4815

34. Remember these for our class!
Steps to remember for the ACCOUNTING CYCLE, (these may differ a little from your text…)
Remember these for our class!
Journalize the transaction.
Post to the general ledger accounts.
Prepare a trial balance.
Journalize adjusting journal entries.
Post adjustments to the general ledger.
Prepare an Adjusted Trial Balance

35. ACCOUNTING CYCLE cont. (these may differ a little from your text…)
Prepare an Income Statement, Statement of Owner’s Equity, and Balance Sheet.
Journalize closing journal entries.
Post closing entries to the general ledger
Prepare a post-closing trial balance.
Seriously, you really, really need to remember these 10 steps!