1. PowerPoint® Slides to accompany Basic Bookkeeping, Seventh Edition Prepared by JD Chazan CPA, CA National Taiwan University 15-1 Copyright © 2015 by Nelson Education Ltd.

2. 15-2 Chapter 15 At Year End: Closing the Books Copyright © 2015 by Nelson Education Ltd.

3. Chapter 15: At Year-End: Closing the Books Chapter Objectives After completing this chapter, you will be able to: record year-end closing entries in the General Journal prepare an Income Statement prepare a Balance Sheet Copyright © 2015 by Nelson Education Ltd. 15-3

4. Chapter 15: At Year-End: Closing the Books Closing Journal Entries At the end of each year, all “temporary” accounts are closed. Temporary accounts are the revenue and expense accounts. Their account balances are transferred to an equity account called Current Earnings (sometimes called Income Summary). Drawings is also a temporary account, which is closed to Capital. Copyright © 2015 by Nelson Education Ltd.15-4

5. Chapter 15: At Year-End: Closing the Books The Income Statement columns of the worksheet is the source for most of the closing entries. Only FOUR journal entries are needed to close the books... Copyright © 2015 by Nelson Education Ltd.15-5

6. Chapter 15: At Year-End: Closing the Books 1. All temporary accounts with credit balances are closed to the Current Earnings account. Copyright © 2015 by Nelson Education Ltd.15-6 Accounts with credit balances are now debited to close the accounts to zero.

7. Chapter 15: At Year-End: Closing the Books 2. All temporary accounts with debit balances are closed to the Current Earnings account. The balance in Current Earnings should now be the same as the net profit or loss shown on the worksheet. Copyright © 2015 by Nelson Education Ltd.15-7 Accounts with debit balances are now credited to close them to zero.

8. Chapter 15: At Year-End: Closing the Books 3. A credit balance in the Current Earnings account (a net profit) is closed to the owner's Capital account. If Current Earnings has a debit balance (a net loss), the closing entry will look like this: Copyright © 2015 by Nelson Education Ltd.15-8

9. Chapter 15: At Year-End: Closing the Books 4. The Drawings account is closed to the owner's Capital account. Copyright © 2015 by Nelson Education Ltd.15-9

10. Chapter 15: At Year-End: Closing the Books Post-Closing Trial Balance A final trial balance after the closing entries are posted All revenue and expense accounts, plus Drawings, should now have zero balances Copyright © 2015 by Nelson Education Ltd.15-10

11. Chapter 15: At Year-End: Closing the Books Financial Statements Income Statement (or Profit/Loss Statement) A statement of revenues and expenses, showing the net profit or loss for the financial period Similar to the interim statement discussed in Chapter 13 Balance Sheet A statement of assets, liabilities, and equity on a specific date (usually year end) Copyright © 2015 by Nelson Education Ltd.15-11

12. Chapter 15: At Year-End: Closing the Books Copyright © 2015 by Nelson Education Ltd.15-12 Revenues: Usually sales of goods and/or services, less any returns and discounts. Cost of Goods Sold: All the accounts related to buying the goods, less any returns and discounts. Operating Expenses: All the usual operating costs incurred during the year. Net Profit or Loss: The same profit or loss amount shown on the worksheet.

13. Chapter 15: At Year-End: Closing the Books Copyright © 2015 by Nelson Education Ltd.15-13 Current Assets: Assets that can be quickly converted to cash, if necessary. Capital Assets: Assets purchased for long-term use. Current Liabilities: Debts to be paid off within one year. Owner's Equity: Showing the effects of Drawings and the year's profit or loss.

14. Chapter 15: At Year-End: Closing the Books End of Chapter 15 Copyright © 2015 by Nelson Education Ltd.15-14