Concepts and Practices

 Last stage in the accounting cycle is to prepare the accounts for the next period by transferring the results of business operations and owner’s withdrawals to Capital.

 Real accounts continue from one period to another  Real accounts are assets, liabilities, and Capital  Nominal accounts have balances that do not continue from one period to another  Nominal accounts are revenue and expense accounts with the addition of Drawings

 Used only for closing entries  Nominal accounts are closed into Income Summary to collect information  Income Summary is then closed to Capital

 Nominal accounts need to have a balance of zero at the end of the fiscal period in order to collect only one period’s information  Net income will be transferred to Capital via the Income Summary account  Drawings are closed directly to Capital

Four steps: 1. Close revenue (income statement credit column) to Income Summary 2. Close expenses (income statement debit column) to Income Summary 3. Close Income Summary to Capital (this amount will be net income or loss) 4. Close Drawings to Capital

Closing Revenue—to make it zero, you will debit Fees Earned

DateParticularsPRDRCR Dec 31Fees Earned Income Summary Close revenue Use Income summary to collect information

Closing Expenses—to make them zero, you will credit them

DateParticularsPRDRCR Dec 31Fees Earned Income Summary Close revenue 31Income Summary Car Expense General Expense Miscellaneous Expense700-- Rent Expense Wages Expense Supplies Expense300-- Insurance Expense950-- Close expenses Journal after closing revenue and expenses

Closing Income Summary –transferring net income to Capital

DateParticularsPRDRCR Dec 31Fees Earned Income Summary Close revenue 31Income Summary Car Expense General Expense Miscellaneous Expense700-- Rent Expense Wages Expense Supplies Expense300-- Insurance Expense950-- Close expenses 31Income Summary P. Tang, Capital To close income summary and transfer net income to Capital Closing Income Summary to Capital

Closing Drawings—to make it zero, you will debit Capital to show that it has been decreased by Drawings

DateParticularsPRDRCR Dec 31Fees Earned Income Summary Close revenue 31Income Summary Car Expense General Expense Miscellaneous Expense700-- Rent Expense Wages Expense Supplies Expense300-- Insurance Expense950-- Close expenses 31Income Summary P. Tang, Capital To close income summary and transfer net income to Capital 31P. Tang, Capital P. Tang, Drawings Close Drawings Closing Entries Completed

P. Tang and Company Post-Closing Trial Balance December 31, 2009 AccountsTrial Balance DRCR Bank1800 Accounts Receivable19500 Supplies700 Prepaid Insurance800 Equipment22000 Automobile21000 Accounts Payable4535 P. Tang, Capital Post-closing balance is prepared after the adjusting and closing entries have been journalized and posted. Only assets, liabilities, and capital should have balances. Everything else should be zero.