1. Completing the Accounting Cycle for a Merchandising Corporation Making Accounting Relevant At the end of a fiscal period, businesses must “close the accounting records” or clean the slate in order to begin another period. Making Accounting Relevant At the end of a fiscal period, businesses must “close the accounting records” or clean the slate in order to begin another period. At the end of a school year, what types of activities do you perform? Do you clean out your locker? Do you prepare for a summer job?

2. Section 1Journalizing Closing Entries What You’ll Learn  What steps are followed to close the ledger.  What closing entries are required for a merchandising business organized as a corporation.  What closing entry is required when a corporation reports a loss. What You’ll Learn  What steps are followed to close the ledger.  What closing entries are required for a merchandising business organized as a corporation.  What closing entry is required when a corporation reports a loss.

3. Why It’s Important Closing the ledger “cleans the slate” so that the next accounting cycle can begin. Why It’s Important Closing the ledger “cleans the slate” so that the next accounting cycle can begin. Section 1Journalizing Closing Entries ( cont'd.)

4. Steps for Closing the Ledger Closing entries transfer the balances of all the temporary accounts to a permanent account. Steps for Closing the Ledger Closing entries transfer the balances of all the temporary accounts to a permanent account. 1. Close the temporary accounts with credit balances to Income Summary Section 1Journalizing Closing Entries ( cont'd.) 2. Close the temporary accounts with debit balances to Income Summary 3. Close the balance of Income Summary to Capital/Retained Earnings 4. Close the withdrawals account to Capital (not necessary with corporations since there isn’t a withdrawal account! )

5. Close Temporary Accounts with Credit Balances Section 1Journalizing Closing Entries ( cont'd.)

6. Close Temporary Accounts with Debit Balances Section 1Journalizing Closing Entries ( cont'd.)

7. Close the Balance of Income Summary to Retained Earnings Section 1Journalizing Closing Entries ( cont'd.)

8. Check Your Understanding 1. During the closing process, which account balances are credited to the Income Summary account? Section 1Journalizing Closing Entries ( cont'd.) 2. Which account balances are debited to the Income Summary account?

9. Section 2Posting Closing Entries What You’ll Learn  How to post closing entries.  How to prepare a post-closing trial balance.  The accounting cycle for a merchandising business. What You’ll Learn  How to post closing entries.  How to prepare a post-closing trial balance.  The accounting cycle for a merchandising business.

10. Why It’s Important To prepare the general ledger for the next period, you need to transfer the temporary account balances to the permanent Retained Earnings account. This also sets all of the temporary accounts back down to zero for the next accounting period! Why It’s Important To prepare the general ledger for the next period, you need to transfer the temporary account balances to the permanent Retained Earnings account. This also sets all of the temporary accounts back down to zero for the next accounting period! Section 2Posting Closing Entries (cont'd.)

11. Closing the General Ledger  After closing entries are recorded in the general journal, they are posted to the general ledger.  For each posting the term “Closing Entry” is written in the Description column of the general ledger account.  After closing entries are recorded in the general journal, they are posted to the general ledger.  For each posting the term “Closing Entry” is written in the Description column of the general ledger account. Section 2Posting Closing Entries (cont'd.)

12. Preparing a Post-Closing Trial Balance A post-closing trial balance is prepared at the end of the accounting period to prove that the general ledger accounts are in balance after all adjusting and closing entries are posted. Section 2Posting Closing Entries (cont'd.)

13. Check Your Understanding After all closing journal entries are posted, what is the balance of the temporary accounts? Section 2Posting Closing Entries (cont'd.)