1. Recording Closing Entries
LESSON 8-2
5/23/2019
LESSON 8-2
Recording Closing Entries
Must reduce SOME accounts to ZERO to start new month
Helpful to track income and expenses and net income/loss
GREEN

2. LESSON 8-2

3. LESSON 8-2

4. Permanent accounts (real accounts)
Asset, Liability, OE
Ending balance is beginning balance for next fiscal period – DO NOT ZERO THESE OUT!!!

5. Temporary accounts (nominal acc’ts)
Revenue(sales), Expenses, Drawing
Ending balances are transferred to owner’s capital acc’t (profit credited to capital acc’t (increased worth), loss debited to capital acc’t (decreases capital—shows company is worth less, drawing is debited to capital acc’t—money taken out of business with decrease capital)
so beginning balance for next fiscal period is ZERO

6. Temporary accounts must be reduced to ZERO
If an acc’t has a credit balance of $3,565, a debit of $3,565 has to be recorded to close it

7. This is a temporary acc’t used for closing entries
Income Summary Acc’t
This is a temporary acc’t used for closing entries
It does NOT have a normal balance side – it changes
Determined by loss or income
Net income – credit – income increases Capital (Capital has a Cr Balance)
Net loss – debit

8. NEED FOR THE INCOME SUMMARY ACCOUNT
page 207
Credit balance if Net income
Debit ENTRY
If Net loss
LESSON 8-2

9. LESSON 8-2

10. Must close Sales (revenue), Expenses, Income Summary (recording loss/income) and Drawing….do Sales FRIST

11. CLOSING ENTRY FOR AN INCOME STATEMENT ACCOUNT WITH A CREDIT BALANCE
page 208
(Debit to close)
From the worksheet
LESSON 8-2

12. Must close Sales (revenue), Expenses, Income Summary (recording loss/income) and Drawing….do Expenses NEXT

13. CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES
page 209
(Credit to close)
LESSON 8-2

14. Must record loss/income
Will always use Capital account for this and matching debit or credit will be to Income Summary – the debit/credit will flip depending on loss or income

15. LESSON 8-2

16. Income = increases Capital (credit) Loss = decreases Capital (debit)
The matching debit/credit is to Income Summary
Did Kim Park have a net loss or net income?
LESSON 8-2

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

18. A debit to capital is a decrease in value of company
Opposite if it is a loss
A debit to capital is a decrease in value of company
LESSON 8-2

19. Must close Sales (revenue), Expenses, Income Summary (recording loss/income) and Drawing….do Drawing NEXT/LAST
Drawing will always have a debit balance – so to CLOSE it, it has to be credited for the amount of the balance.
The credit will ALWAYS be to the Capital account.
LESSON 8-2

20. Drawing – total of money taken of business for various reasons during one month; DECREASES Capital of owner/business
Capital decreases on debit side; Must debit Capital acc’t for total of drawing acc’t—matching credit will be to the drawing acc’t—so to zero it out

21. CLOSING ENTRY FOR THE OWNER’S DRAWING ACCOUNT
LESSON 8-2
5/23/2019
CLOSING ENTRY FOR THE OWNER’S DRAWING ACCOUNT
page 211
LESSON 8-2
GREEN

22. MUST NOW GO AND POST THESE TO THE CORRECT ACCOUNTS

23. LESSON 8-2

24. LESSON 8-2

25. LESSON 8-2

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