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Financial Statements and Closing Procedures Section 2: Completing the Accounting Cycle Chapter 13 Section Objectives 4.Journalize and post the adjusting entries. 5.Journalize and post the closing entries. 6.Prepare a postclosing trial balance. 7.Journalize and post reversing entries. McGraw-Hill© 2007 The McGraw-Hill Companies, Inc. All rights reserved.

13-98 Journalizing and Posting the Closing Entries

13-99 Objective 5 Journalize and post the closing entries.

At the end of the period, the temporary accounts are closed. The temporary accounts are: Revenue accounts Cost of goods sold accounts Expense accounts Drawing account Journalizing and Posting the Closing Entries

Journalizing the Closing Entries

There are four steps in the closing process. 1.Close revenue accounts and cost of goods sold accounts with credit balances to Income Summary. 2.Close expense accounts and cost of goods sold accounts with debit balances to Income Summary. 3.Close Income Summary, which now reflects the net income or loss for the period, to owner's capital. 4.Close the drawing account to owner's capital.

GENERAL JOURNAL PAGE 28 DATE DESCRIPTION POST. DEBIT CREDIT REF Dec. 31 Closing Entries Income Summary 568, Sales 561, Interest Income Miscellaneous Income Purchases Returns and Allowances 3, Purchases Discounts 3, Step 1: Closing the Revenue Accounts and the Cost of Goods Sold Accounts with credit balances. Debit each account, except Income Summary, for its balance. Credit Income Summary for the total.

GENERAL JOURNAL PAGE 28 DATE DESCRIPTION POST. DEBIT CREDIT REF. Dec. 31 Sales Returns and Allowances 13, Income Summary 512, Purchases 321, Salaries Expense – Sales 79, Advertising Expense 7, Cash Short or Over Supplies Expense 4, Depreciation Expense - Store Equip 2, Rent Expense 27, Freight In 9, Salaries Expense - Office 26, Telephone Expense 1, Uncollectible Accounts Expense Utilities Expense 5, Depreciation Expense - Office Equip Interest Expense Payroll Taxes Expense 7, Insurance Expense 2, Step 2: Closing the Expense Accounts and the Cost of Goods Sold Accounts with Debit Balances. Credit each account, except Income Summary, for its balance. Debit Income Summary for the total.

Income Summary 12/31 47, /31568, , Bal. 51, Adjusting Entries (a-b)12/31 52, Closing Entries 12/31 512, , GENERAL JOURNAL PAGE 28 DATE DESCRIPTION POST. DEBIT CREDIT REF. Dec. 31 Income Summary 51, Patricia Simpson, Capital 51, The third closing entry transfers the Income Summary balance to the owner's capital account. This closes the Income Summary account, which remains closed until it is used in the end-of-period process for the next year. For Simpson Antiques, the third closing entry is as follows: Step 3: Closing the Income Summary Account.

GENERAL JOURNAL PAGE 28 DATE DESCRIPTION POST. DEBIT CREDIT REF. Dec. 31 Patricia Simpson, Capital 27, Patricia Simpson, Drawing 27, Step 4: Closing the Drawing account. This entry closes the drawing account and updates the capital account.

Posting the Closing Entries

Posting the Closing Entries The closing entries are posted from the general journal to the general ledger. This process brings the temporary account balances to zero. The word Closing is entered in the Description column.

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