CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 8-2 Recording Closing Entries

CENTURY 21 ACCOUNTING © Thomson/South-Western 2 LESSON 8-2 TERMS permanent accounts – real accounts (assets, liabilities, and owners equity) temporary accounts – nominal accounts (revenue, expenses, owners drawing, and income summary) closing entries – prepare temporary accounts for next fiscal period Odometer Example page 212

CENTURY 21 ACCOUNTING © Thomson/South-Western 3 LESSON 8-2 Cup Example At end of the fiscal period, what happens to temporary accounts? page 212 DIES and in order to bring them back to life for the next fiscal period we need to work backwards. Sales (water) Expenses (sponges) Income Summary Drawing (sponges)

CENTURY 21 ACCOUNTING © Thomson/South-Western 4 LESSON 8-2 NEED FOR THE INCOME SUMMARY ACCOUNT page 207

CENTURY 21 ACCOUNTING © Thomson/South-Western 5 LESSON 8-2 (Debit to close) CLOSING ENTRY FOR AN INCOME STATEMENT ACCOUNT WITH A CREDIT BALANCE page Write the heading. 2.Write the date. 3.Write the title of the account debited. Record the debit amount. 4.Write the title of the account credited. Record the credit amount.

CENTURY 21 ACCOUNTING © Thomson/South-Western 6 LESSON 8-2 (Credit to close) CLOSING ENTRY FOR INCOME STATEMENT ACCOUNTS WITH DEBIT BALANCES page Debit amount 3.Credit 2.Income Summary 1.Date 3

CENTURY 21 ACCOUNTING © Thomson/South-Western 7 LESSON 8-2 (Income Summary: debit to close) (Capital: credit to record net income) CLOSING ENTRY TO RECORD NET INCOME OR LOSS AND CLOSE THE INCOME SUMMARY ACCOUNT page Credit 2.Debit 1.Date 1 2 3

CENTURY 21 ACCOUNTING © Thomson/South-Western 8 LESSON 8-2 (Credit to close) CLOSING ENTRY FOR THE OWNER’S DRAWING ACCOUNT page Credit 2.Debit 1.Date 1 2 3

CENTURY 21 ACCOUNTING © Thomson/South-Western 9 LESSON 8-2 TERMS REVIEW permanent accounts temporary accounts closing entries page 212