0 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Unit 4 The Accounting Cycle for a Merchandising Corporation Chapter 14Accounting for Sales and Cash Receipts Chapter 15Accounting for Purchases and Cash Payments Chapter 16Special Journals: Sales and Cash Receipts Chapter 17Special Journals: Purchases and Cash Payments Chapter 18Adjustments and the Ten-Column Work Sheet Chapter 19Financial Statements for a Corporation Chapter 20Completing the Accounting Cycle for a Merchandising Corporation Chapter 21Accounting for Publicly Held Corporations

1 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 20 Completing the Accounting Cycle for a Merchandising Corporation What You’ll Learn  Journalize closing entries for a merchandising corporation.  Post closing entries to the general ledger accounts.  Prepare a post-closing trial balance.  Describe the steps in the accounting cycle.

2 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 20, Section 1 Journalizing Closing Entries What Do You Think? Why is net income/loss closed to Retained Earnings and not to owner’s equity?

3 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Main Idea A corporation’s net income (or net loss) is closed to Retained Earnings. You Will Learn  how to journalize closing entries for a merchandising corporation.  how to journalize a net loss. Journalizing Closing Entries SECTION 20.1

4 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Steps for Closing the Ledger A corporation does not have a withdrawals account, so there are only three steps to closing the ledger for a merchandising business organized as a corporation:  Close accounts with balances in the Income Statement Credit column to Income Summary.  Close accounts with balances in the Income Statement Debit column to Income Summary.  Close Income Summary to Retained Earnings. Journalizing Closing Entries SECTION 20.1

5 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Journalizing Closing Entries SECTION 20.1

6 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Journalizing Closing Entries SECTION 20.1

7 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Closing Entry to Transfer a Net Loss If there is a net loss, credit Income Summary for the amount and debit Retained Earnings for the amount. Journalizing Closing Entries SECTION 20.1

8 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 20, Section 2 Posting Closing Entries What Do You Think? Why is the post-closing trial balance so important?

9 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Main Idea After posting the closing entries, prepare a post-closing trial balance. You Will Learn  how to post the closing entries for a merchandising corporation.  how to prepare a post-closing trial balance for a merchandising corporation.  about a review of the accounting cycle for a merchandising business. Posting Closing Entries SECTION 20.2

10 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Closing the General Ledger When closing the general ledger, write Closing Entry for each posting in the Description column of the general ledger account. Posting Closing Entries SECTION 20.2

11 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Posting Closing Entries SECTION 20.2 Partial general ledger at the end of the fiscal period.

12 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Posting Closing Entries SECTION 20.2 Partial general ledger at the end of the fiscal period.

13 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Posting Closing Entries SECTION 20.2 Partial general ledger at the end of the fiscal period.

14 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Posting Closing Entries SECTION 20.2 Partial general ledger at the end of the fiscal period.

15 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Posting Closing Entries SECTION 20.2 Partial general ledger at the end of the fiscal period.

16 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Posting Closing Entries SECTION 20.2 Partial general ledger at the end of the fiscal period.

17 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Posting Closing Entries SECTION 20.2 Partial general ledger at the end of the fiscal period.

18 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Preparing a Post-Closing Trial Balance A post-closing trial balance is prepared at the end of the accounting period to prove the general ledger accounts are in balance. Posting Closing Entries SECTION 20.2

19 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Posting Closing Entries SECTION 20.2 Post-closing trial balance.

20 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Completing the Accounting Cycle for a Merchandising Business As you have learned, the accounting cycle for a merchandising business organized as a corporation consists of the following steps:  Collect and verify source documents.  Analyze each business transaction.  Journalize each transaction.  Post to the general and subsidiary ledgers.  Prepare a trial balance.  Complete a work sheet. Posting Closing Entries SECTION 20.2

21 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Completing the Accounting Cycle for a Merchandising Business  Prepare the financial statements–income statement, statement of retained earnings, balance sheet, and statement of cash flows.  Journalize and post the adjusting entries.  Journalize and post the closing entries.  Prepare a post-closing trial balance. Posting Closing Entries SECTION 20.2

22 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Posting Closing Entries SECTION 20.2

23 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Question 1 To journalize the closing entries, put the following in order: Close temporary accounts with debit balances.________ Close temporary accounts with credit balances. ________ Close the Income Summary account to Capital.________ Chapter 20 Review CHAPTER 20

24 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Answer 1 Close temporary accounts with debit balances: 2 Close temporary accounts with credit balances: 1 Close the Income Summary account to Capital: 3 Chapter 20 Review CHAPTER 20

25 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Question 2 How is a post-closing trial balance different from other trial balances? Chapter 20 Review CHAPTER 20

26 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Answer 2 The post-closing trial balance is prepared after closing entries in which temporary account balances have been transferred to the capital account. The post-closing trial balance has only permanent or balance sheet accounts. Other trial balances include both temporary and permanent accounts. Chapter 20 Review CHAPTER 20

27 Glencoe Accounting Unit 4 Chapter 20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Resources Glencoe Accounting Online Learning Center English Glossary Spanish Glossary