1. Starting the Eighth Step in the Accounting Cycle: Journalizing the Closing Entries Closing entries are journal entries made to close, or reduce to zero, the balances in the temporary capital accounts and to transfer the net income or net loss for the period to the capital account. These entries prepare the financial records for the next fiscal year. Starting the Eighth Step in the Accounting Cycle: Journalizing the Closing Entries Closing entries are journal entries made to close, or reduce to zero, the balances in the temporary capital accounts and to transfer the net income or net loss for the period to the capital account. These entries prepare the financial records for the next fiscal year. Section 1Preparing Closing Entries (cont'd.)

2. The Income Summary Account The Income Summary account is used to accumulate and summarize the revenue and expenses for the period. The Income Summary Account The Income Summary account is used to accumulate and summarize the revenue and expenses for the period. Section 1Preparing Closing Entries (cont'd.) Income Summary DebitCredit ExpensesRevenue If Revenue > Expenses Balance is net income If Revenue < Expenses Balance is net loss

3. The Work Sheet All temporary accounts are closed

4. Preparing Closing Entries 1.The balance of the revenue account is transferred to the credit side of the Income Summary account. 2.The expense account balances are transferred to the debit side of the Income Summary account. Preparing Closing Entries 1.The balance of the revenue account is transferred to the credit side of the Income Summary account. 2.The expense account balances are transferred to the debit side of the Income Summary account. Section 1Preparing Closing Entries (cont'd.)

5. Preparing Closing Entries (cont'd.) 3.The balance of the Income Summary account is transferred to the capital account (net income to the credit side; net loss to the debit side). 4.The balance of the withdrawals account is transferred to the debit side of the capital account. Preparing Closing Entries (cont'd.) 3.The balance of the Income Summary account is transferred to the capital account (net income to the credit side; net loss to the debit side). 4.The balance of the withdrawals account is transferred to the debit side of the capital account. Section 1Preparing Closing Entries (cont'd.)

6. T ACCOUNTS 6. DeliveryIncome EquipmentSummary Debit – Closing 2,650 Credit Closing 2,650 Debit Section 1Preparing Closing Entries (cont'd.) First Closing Entry (cont'd.) First Closing Entry—Close Revenue to Income Summary Closing Entry (cont'd.) Credit + Balance 2,650

7. Closing Entry (cont'd.) JOURNAL ENTRY Section 1Preparing Closing Entries (cont'd.) First Closing Entry (cont'd.) First Closing Entry—Close Revenue to Income Summary

8. T ACCOUNTS 6. Income SummaryAdvertising Expense Debit – Closing 1,500 Credit – Closing 75 Section 1Preparing Closing Entries (cont'd.) Second Closing Entry (cont'd.) Closing Entry (cont'd.) Credit Second Closing Entry—Close Expenses to Income Summary Debit + Balance 75 Maintenance ExpenseRent Expense Debit + Balance 125 Credit – Closing 600 Debit + Balance 700 Credit – Closing 700 Utilities Expense Credit – Closing 125 Debit + Balance 600

9. Closing Entry (cont'd.) JOURNAL ENTRY 7. Section 1Preparing Closing Entries (cont'd.) Second Closing Entry (cont'd.) Second Closing Entry—Close Expenses to Income Summary

10. T ACCOUNTS 6. Maria Sanchez Income SummaryCapital Debit Closing 1,150 Debit – Section 1Preparing Closing Entries (cont'd.) Third Closing Entry (cont'd.) Closing Entry (cont'd.) Credit Balance 1,150 Credit + Balance 25,400 Closing 1,150 Third Closing Entry—Close Income Summary to Capital

11. Closing Entry (cont'd.) JOURNAL ENTRY 7. Section 1Preparing Closing Entries (cont'd.) Third Closing Entry (cont'd.) Third Closing Entry—Close Income Summary to Capital

12. T ACCOUNTS 6. Maria Sanchez CapitalWithdrawals Debit – Closing 500 Credit – Closing 500 Section 1Preparing Closing Entries (cont'd.) Fourth Closing Entry (cont'd.) Closing Entry (cont'd.) Credit + Balance 26,550 Debit + Balance 500 Fourth Closing Entry—Close Withdrawals to Capital

13. Closing Entry (cont'd.) JOURNAL ENTRY 7. Section 1Preparing Closing Entries (cont'd.) Fourth Closing Entry (cont'd.) Fourth Closing Entry—Close Withdrawals to Capital

14. Why It’s Important A post-closing trial balance verifies that the closing entries are properly recorded in the general ledger and that you are ready to start the next accounting period. Why It’s Important A post-closing trial balance verifies that the closing entries are properly recorded in the general ledger and that you are ready to start the next accounting period. Section 2Posting Closing Entries and Preparing a Post-Closing Trial Balance (cont'd.) Key Terms  post-closing trial balance Key Terms  post-closing trial balance

15. Completing the Eighth Step in the Accounting Cycle: Posting Closing Entries to the General Ledger Section 2Posting Closing Entries and Preparing a Post-Closing Trial Balance (cont'd.)

16. The Ninth Step in the Accounting Cycle: Preparing a Post-Closing Trial Balance Section 2Posting Closing Entries and Preparing a Post-Closing Trial Balance (cont'd.)  Prepared to make sure total debits equal total credits after the closing entries are posted.