1. Closing Entries
Closing Entries are journal entries made to close the balances in the temporary capital accounts and to transfer the net income or net loss for the period to the capital account.
After journalizing Closing Entries the accounting cycle is almost complete. 2
Analyze
each
transaction 2
Analyze
each
transaction 3
Journalize
each
transaction 3
Journalize
each
transaction 1
Collect
and verify
source
documents 1
Collect
and verify
source
documents 4
Post to the
ledger 4
Post to the
ledger 9
Prepare a
post-closing
trial
balance 5
Prepare a
trial
balance 5
Prepare a
trial
balance 8
Journalize
and post
closing
entries 8
Journalize
and post
closing
entries 6
Prepare a
worksheet 6
Prepare a
worksheet 7
Prepare
financial
statements 7
Prepare
financial
statements

2. The Purpose of Closing Entries
The net income appears on the income statement
Net income is included in ending capital balance.
Ending capital balance goes on the balance sheet.
This capital balance does not match the capital balance in the general ledger.

3. The Income Summary Account
It’s about time we started using this account.
How do we use the income summary account?
Income Summary is used to accumulate and summarize the revenue and the expenses for the accounting period.
Income Summary
Income Summary is a simple version of the income statement for the period.
Debit
Credit
Expenses
Revenue
Revenue goes in as a credit, and expenses go in as debits. The balance of Income Summary is the net income or net loss for the accounting period.
Debit balance
Means
Net Loss
Credit balance
Means
Net Income

4. Quick Summary of Closing Entries
The balance of the revenue account is transferred to Income Summary
The expense balances are transferred to Income Summary
The balance of Income Summary is transferred to the Capital account
The balance of withdrawals is transferred to the Capital account

5. Remember to always keep balance Daniel Son.
Revenue Closing Entry
Since a revenue account has a credit balance, in order to make the balance zero, the account must be debited.
Since for every debit there must be a credit of equal value, Income Summary is credited.
Remember to always keep balance Daniel Son.
Refer to the worksheet on page 192 of your textbook to follow the examples.

6. Expense Closing Entry
Since an expense account has a debit balance, in order to make the balance zero, the account must be credited.
Since for every credit there must be a debit of equal value, Income Summary is debited.
Debit Income Summary for the total of all expenses, and credit each individual expense account.

7. Income Summary Closing Entry
Let’s take a look at what the income summary account looks like.
1,500
2,650
1, Bal
A credit balance represents a net income.
Since income summary has a credit balance, in order to make the balance zero, the account must be debited.
Since for every debit there must be a credit of equal value, capital is credited.
A credit to capital increases the net worth of the company.

8. Withdrawals Closing Entry
Since withdrawals has a debit balance, in order to make the balance zero, the account must be credited.
Since for every credit there must be a debit of equal value, capital is debited.
When the closing entries are complete, all the temporary accounts have zero balances, and the capital account has the balance that was calculated as the ending balance on the Statement of Changes in Owner’s Equity.

9. Completed Closing Entries
1) Close Revenue Accounts
3) Close Income Summary Account
2) Close Expense Accounts
4) Close Withdrawal Account

10. Posting the Revenue Closing Entry

11. Posting the Expense Closing Entry (1)

12. Posting the Expense Closing Entry (2)

13. Posting the Income Summary Closing Entry

14. Posting the Withdrawal Closing Entry

23. Problem 10-4 1) Close Revenue Accounts 3) Close Income Summary Account
2) Close Expense Accounts
4) Close Withdrawal Account