Chapter 8 Recording Closing Entries and Preparing a Post-Closing Trial Balance for a Service Business

8.1 Recording Closing Entries

Permanent Accounts 0 Permanent Accounts-Accounts used to accumulate information from one fiscal period to the next 0 Also called real accounts 0 Permanent Accounts = assets, liabilities, owner’s capital account 0 Ending account balance for one fiscal period is beginning account balance for next fiscal period

Temporary Accounts 0 Temporary Accounts-Accounts used to accumulate information until it is transferred to the owner’s capital account 0 Also called nominal accounts 0 Nominal accounts=Revenue, expenses, owner’s drawing accounts, income summary 0 At end of fiscal period balances transferred to owner’s capital account and account balances become 0

Closing Entries 0 Closing Entries-Journal entries used to prepare temporary accounts for a new fiscal period 0 Temporary accounts must be closed for accurate net income

Closing Entries 0 4 closing entries 1) Entry to close income state accounts with credit balances: Sales 2) Entry to close income statement accounts with debit balances: Expenses 3)Entry to record net income or net loss to close Income Summary 4)Entry to Close Drawing

1) Sales Income Summary 2) Income Summary Expenses 3) Income Summary(Net Income) Capital OR Capital(Net Loss) Income Summary 4) Capital Drawing

8.2 Preparing a Post-Closing Trial Balance

Post-Closing Trial Balance 0 AFTER CLOSING ENTRIES ARE POSTED 0 Post-Closing Trial Balance- A trial balance prepared after the closing entries are posted 0 Only includes general ledger accounts still open: 0 Assets 0 Liabilities 0 Capital