2. Closing entries transfer the temporary account balances to the owner’s capital account. After the closing entries are posted, a post-closing trial balance is prepared to verify that debits equal credits.
Glencoe Accounting
Glencoe Accounting
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

3. Explain the purpose of the Income Summary account.
Explain why it is necessary to update accounts through closing entries.
Explain the purpose of the Income Summary account.
Explain the relationship between the Income Summary Account and the capital account.
Analyze and journalize the closing entries.
Post the closing entries to the general ledger.
Prepare a post-closing trial balance.
Glencoe Accounting
Glencoe Accounting
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

4. Key Terms closing entries Income Summary account compound entry
Preparing Closing Entries
Section 10.1
Key Terms
closing entries
Income Summary account
compound entry
Glencoe Accounting

5. Completing the Accounting Cycle
Preparing Closing Entries
Section 10.1
After the closing entries have been journalized and posted, a trial balance is prepared.
closing entries
Journal entries made to close, or reduce to zero, the balances in the temporary accounts and to transfer the net income or net loss for the period to the capital account.
Glencoe Accounting

6. Starting the Eighth Step in the Accounting Cycle: Journalizing the Closing Entries
Preparing Closing Entries
Section 10.1
Glencoe Accounting

7. The Income Summary Account
Preparing Closing Entries
Section 10.1
The Income Summary Account
Income Summary account
The general ledger account used to summarize the revenue and expenses for the period.
Serves as a simple income statement in the general ledger
Used to accumulate revenue and expenses for the period
Equals the net income or loss for the period
Glencoe Accounting

8. The Income Summary Account
Preparing Closing Entries
Section 10.1
is used only at the end of the accounting period to summarize revenue and expense balances.
The Income Summary account is a temporary account that:
does not have a normal balance.
has a zero balance before and after the closing.
does not appear on any financial statement.
Glencoe Accounting

9. Preparing the Closing Entries
Preparing Closing Entries
Section 10.1
Enter Closing Entries in the Description column.
To record closing entries in the general journal:
Enter the last day of the accounting period.
Enter the name(s) and amount(s) of the account(s) to be debited.
Enter Income Summary as the name of the account to be credited and the amount to be credited.
Glencoe Accounting

10. Preparing Closing Entries
Section 10.1
Closing Entry
First Closing Entry—Close Revenue to Income Summary
See page 257
Glencoe Accounting

11. Preparing Closing Entries
Section 10.1
Closing Entry
Second Closing Entry—Close Expenses to Income Summary
See page 258
Glencoe Accounting

12. Preparing Closing Entries
Section 10.1
Closing Entry
Second Closing Entry—Close Expenses to Income Summary
See pages 258–259
Glencoe Accounting

13. Preparing Closing Entries
Section 10.1
Closing Entry
Third Closing Entry—Close Income Summary to Capital
See page 259–260
Glencoe Accounting

14. Preparing Closing Entries
Section 10.1
Closing Entry
Fourth Closing Entry—Close Withdrawals to Capital
See page 261
Glencoe Accounting

15. Key Term post-closing trial balance Section 10.2
Posting Closing Entries and Preparing a Post-Closing Trial Balance
Section 10.2
Key Term
post-closing trial balance
Glencoe Accounting

16. Closing Entries Posted to the General Ledger
Completing the Eighth Step in the Accounting Cycle: Posting the Closing Entries to the General Ledger
Posting Closing Entries and Preparing a Post-Closing Trial Balance
Section 10.2
Closing Entries Posted to the General Ledger
See page 263
Glencoe Accounting

17. Post-Closing Trial Balance
The Ninth Step in the Accounting Cycle: Preparing a Post-Closing Trial Balance
Posting Closing Entries and Preparing a Post-Closing Trial Balance
Section 10.2
Post-Closing Trial Balance
See page 265
post-closing trial balance
A list of the permanent general ledger account balances; it is prepared to prove the ledger after the closing entries are posted.
Glencoe Accounting

18. Step 1 (continued) Question 1
As a result of the first two closing entries, the Income Summary account had a debit of $2,250 and a credit of $4,125.
(a) What does the debit of $2,250 represent?
(b) What does the credit of $4,125 represent?
List the process to use to complete the third closing entry to close the balance of the Income Summary account to Scott Jones, Capital.
Step 1
Calculate the balance of the Income Summary account.
Credits are more than debits; therefore, $4,125 - $2,250 = $1,875 credit balance, which indicates a net income.
(continued)
Glencoe Accounting

19. Step 2 (continued) Question 1
As a result of the first two closing entries, the Income Summary account had a debit of $2,250 and a credit of $4,125.
(a) What does the debit of $2,250 represent?
(b) What does the credit of $4,125 represent?
List the process to use to complete the third closing entry to close the balance of the Income Summary account to Scott Jones, Capital.
Step 2
Identify the accounts affected.
The accounts Income Summary and Scott Jones, Capital are affected.
(continued)
Glencoe Accounting

20. Step 3 (continued) Question 1
As a result of the first two closing entries, the Income Summary account had a debit of $2,250 and a credit of $4,125.
(a) What does the debit of $2,250 represent?
(b) What does the credit of $4,125 represent?
List the process to use to complete the third closing entry to close the balance of the Income Summary account to Scott Jones, Capital.
Step 3
Classify the accounts affected.
Income Summary is a temporary owner’s equity account; Scott Jones, Capital is the permanent owner’s capital account.
(continued)
Glencoe Accounting

21. Step 4 (continued) Question 1
As a result of the first two closing entries, the Income Summary account had a debit of $2,250 and a credit of $4,125.
(a) What does the debit of $2,250 represent?
(b) What does the credit of $4,125 represent?
List the process to use to complete the third closing entry to close the balance of the Income Summary account to Scott Jones, Capital.
Step 4
Are the accounts increased or decreased?
The Income Summary account is decreased by its balance, $1,875, to zero. Scott Jones, Capital is increased by $1,875.
(continued)
Glencoe Accounting

22. Question 1
As a result of the first two closing entries, the Income Summary account had a debit of $2,250 and a credit of $4,125.
(a) What does the debit of $2,250 represent?
(b) What does the credit of $4,125 represent?
List the process to use to complete the third closing entry to close the balance of the Income Summary account to Scott Jones, Capital.
Step 5
Apply the debit/credit rule.
To reduce the Income Summary account to zero, debit Income Summary $1,875. To increase the capital account, credit Scott Jones, Capital for $1,875.
Glencoe Accounting

23. Question 2
Why are all of the temporary accounts reset to zero at the end of the fiscal year?
All revenues increase owner’s equity, and all expenses reduce owner’s equity.
These transactions are separated from capital so the business can analyze how a profit or loss was made during the year.
At the end of the year, the accumulation of these revenues and expenses are transferred into the capital account.
The temporary accounts are reset to zero, which allows the business to compare the revenue and expense data from one period to the next.
Glencoe Accounting

24. End of