Closing
Chapter
4-1
Closing
Even though the balance sheet
account balances carry
forward from period to period,
the income statement accounts
do not.
Chapter
4-2 SO 7 Explain the purpose of closing entries.
Closing
•At the end of the accounting period, the company
makes the accounts ready for the next period.
This is called closing the books.
•In closing the books, the company distinguishes
between temporary and permanent accounts.
•The company close all temporary accounts at the
end of the period.
• Temporary accounts include all income statement
accounts ,owner’s drawing accounts and dividents.
Chapter
4-3 SO 7 Explain the purpose of closing entries.
Closing
•Permanent accounts relate to one or more future
accounting period.
•They consist of all balance sheet accounts, including
the owner’s capital account.
•Permanent accounts are not closed from period to
period.
•The company carries forward the balances of
Permanent accounts into the next accounting period.
Chapter
4-4 SO 7 Explain the purpose of closing entries.
Closing
At the end of the accounting period, companies transfer
the temporary account balances to the permanent
stockholders’ equity account—Retained Earnings.
Illustration 4-29
Chapter
4-5 SO 7 Explain the purpose of closing entries.
Closing
In addition to updating Retained Earnings to its correct
ending balance, closing entries produce a zero balance in
each temporary account.
Illustration 4-30
Capital
drawing
Chapter
4-6 SO 7 Explain the purpose of closing entries.
Closing Basic 4 entries:
1. Debit each revenue account for its balance, and
credit Income Summary for total revenues.
Revenue xxx
Income Summary xxx
2. Debit Income summary for total expenses, and credit
each expense account for its balance.
Income Summary xxx
Advertising expense xxx
insurance e expense xxx
and any other expense xxx
Chapter
4-7 SO 7 Explain the purpose of closing entries.
Closing Basic 4 entries:
3. Debit Income Summary and credit Owner’s capital for
the amount of net income.
Income Summary xxx
Capital xxx
4. Debit Owner’s Capital for the balance in the owner’s
Drawing account, and credit Owner’s Drawing for the
same amount.
Capital xxx
Owner’s Drawing xxx
Chapter
4-8 SO 7 Explain the purpose of closing entries.
Closing
Chapter
4-9
Summary of the Accounting Cycle
1. Analyze business transactions
9. Prepare a post-closing 2. Journalize the
trial balance transactions
8. Journalize and post
3. Post to ledger accounts
closing entries
7. Prepare financial
4. Prepare a trial balance
statements
6. Prepare an adjusted trial 5. Journalize and post
balance adjusting entries
Chapter
4-10 SO 8 Describe the required steps in the accounting cycle.
Adjusted Trial Balance
Cash $41,000
Acc. Rec. 7,800
Buildings 180,000
Accumulated Depreciation Building $36,000
Equipments 270,000
Accumulated Depreciation Equipments 90,000
Accounts Payable 23,100
Salaries payable 6,900
Capital (beginning balance) 331,560
Owner’s drawing 75,000
Revenue 576,000
Advertizing expense 52,560
Rent expense 121,500
Salaries expense 252,600
Chapter
Depreciation expense building 18,000
4-11 SO 7 Explain the purpose of closing entries.
Depreciation expense Equipments 45,000
Closing Basic 4 entries:
1. Debit each revenue account for its balance, and credit Income
Summary for total revenues.
Revenue 576,000
Income Summary 576,000
2. Debit Income summary for total expenses, and credit each expense
account for its balance.
Income Summary 489,660
Advertising expense 52,560
rent expense 121,500
salaries expense 252,600
Depreciation expense building 18,000
Depreciation expense Equipments 45,000
Chapter
4-12 SO 7 Explain the purpose of closing entries.
Closing Basic 4 entries:
3. Debit Income Summary and credit Owner’s capital for
the amount of net income.
Income Summary 86,340
Capital 86,340
4. Debit Owner’s Capital for the balance in the owner’s
Drawing account, and credit Owner’s Drawing for the
same amount.
Capital 75,000
Owner’s Drawing 75,000
Chapter
4-13 SO 7 Explain the purpose of closing entries.