1. Closing Entries and The Post-Closing Trial Balance
Chapter 5

2. Learning Outcomes List the steps of the accounting cycle
Journalize and post closing entries
Prepare a post-closing trial balance

3. 9 Steps of Accounting Cycle
Analyze transactions and record in journal (Chapters 1 and 2)
Post journal entries to the ledger accounts (Chapter 3)
Prepare a trial balance (Chapter 3)
Gather adjustment data and record in worksheet (Chapter 4)

4. 9 Steps of Accounting Cycle
Complete the worksheet (Chapter 4)
Prepare financial statements from worksheet (Chapter 4)
Journalize and post the adjusting entries from worksheet (Chapter 4)
Journalize and post the closing entries (Chapter 5)
Prepare a post-closing trial balance (Chapter 5)

5. Closing Entries
Purpose: to clear the “temporary” or “nominal” accounts
Revenue
Expenses
Drawing
Income Summary
We “close” the books because this information pertains to only one fiscal period

6. Closing Entries These accounts provide information for
Income Statement
Statement of Owner’s Equity
“Permanent” or “real” accounts provide information for the balance sheet
Real/Permanent accounts are:
Assets
Liabilities
Owner’s Equity

7. New Account For Closing
Income Summary
Used only for closing accounts and adjusting for merchandise (later on)
You “zero out” the account you are closing with a debit or a credit (the opposite of which side the account’s balance is on) and the second entry is to the Income Summary account

8. Steps in Closing Accounts (1)
Close Revenue to Income Summary
Normal balance of revenue accounts is credit
Debit the revenue account the same amount making balance zero
Credit Income Summary
Income from Services
Income Summary
$5,000
$5,000 (normal balance side)
$5,000

9. Steps in Closing Accounts (2)
Close each Expense Account to Income Summary
Normal balance of each Expense account is debit
Credit the expense account the same amount making balance zero
debit Income Summary
Utilities Expense
Income Summary
$350 (normal balance side)
$350
$350
$5,000
Bal: $4,650

10. Steps in Closing Accounts
Close each Expense Account to Income Summary
Normal balance of each Expense account is debit
Credit the expense account the same amount making balance zero
debit Income Summary
Depreciation Expense, Equipment
Income Summary
$550 (normal balance side)
$550
$350
$550
$5,000
Bal: $4,100

11. Steps in Closing Accounts
Close each Expense Account to Income Summary
Normal balance of each Expense account is debit
Credit the expense account the same amount making balance zero
debit Income Summary
Salary Expense
Income Summary
$1,000 (normal balance side)
$1,000
$350
$550
$1,000
$5,000
Bal: $3,100

12. Steps in Closing Accounts
Close each Expense Account to Income Summary
Normal balance of each Expense account is debit
Credit the expense account the same amount making balance zero
debit Income Summary
Rent Expense
Income Summary
$1,200 (normal balance side)
$1,200
$350
$550
$1,000 $1,200
$5,000
Bal: $1,900

13. Steps in Closing Accounts (3)
Close Income Summary to Capital
Normal balance of Income Summary account is credit (if you show Net Income)
Debit the Income Summary account the same amount making balance zero
Credit the Capital account by the same amount
Capital
Income Summary
$1,900
Previous balance: 20,000
$1,900
New balance: 21,900
$1,900
Bal: $1,900 (Normal balance side) New balance = $0

14. Steps in Closing Accounts (4)
Close Drawing to Capital
Normal balance of Drawing is debit (contra)
Credit the Drawing account the same amount, making balance zero
Debit the Capital account to “reduce” it by how much the owner took out of the business
Drawing
Capital
Previous balance $21,900
$1,000
$1,000 (normal balance side)
$1,000
(new balance: $20,900)

15. Next, Journalize the Closing Entries
Center the title “Closing Entries” on a line in the Journal
No explanation is necessary after each entry
Debits must equal credits

16. Chapter 5 Closing Entries GENERAL JOURNAL PAGE____4_____ DATE
DATE
DESCRIPTION
POST. REF.
DEBIT
CREDIT 1
2005
Closing Entries 2
June 30
Income from Services 5 00 3
Income Summary 4 6
Utilities Expense 7
Depreciation Expense, Equipment 8
Salary Expense 9
Rent Expense 10 11 12
R. Gentry, Capital 13 14 15
R. Gentry, Drawing 16

17. Next, Post the Closing Entries
Post the journal closing entries to the ledger accounts.
Cross reference your journal and ledger page numbers.
Draw a line through both the debit column and the credit column to show that the balance is zero.

18. Lastly, prepare the Post-Closing Trial Balance
This is to make sure the “books” are ready for the new fiscal period
List only those accounts that have balances
Debits must equal credits

19. The difference (net income) is shown on the Income Statement.
R. Gentry Consulting Services
Post-Closing Trial Balance
June 30, 2005
ACCOUNT NAME
DEBIT
CREDIT 1
Cash 21 4 6 00
Accounts Receivable 2
Supplies
Prepaid Insurance 3
Equipment 15
Accumulated Depreciation, Equipment 12 5
Accounts Payable 7
Wages Payable 9
R. Gentry, Capital 20
R. Gentry, Drawing 8
Fees Income
Salary Expense 10
Rent Expense 11
Utilities Expense
Depreciation Expense, Equipment 13 14
Do not list the accounts shown here in red – they will not have balances after they are closed.
The difference (net income) is shown on the Income Statement.

20. R. Gentry Consulting Services Post-Closing Trial Balance June 30, 2005
R. Gentry Consulting Services
Post-Closing Trial Balance
June 30, 2005
ACCOUNT NAME
DEBIT
CREDIT 1
Cash 21 4 6 00
Accounts Receivable 2
Supplies
Prepaid Insurance 3
Equipment 15
Accumulated Depreciation, Equipment 12 5
Accounts Payable 7
Wages Payable 9
R. Gentry, Capital 20 13 38 8 14

21. Chapter 5 Demonstration Problems
Monday, October 8
E 5-1
  E 5-3
Wednesday, October 10
E 5-4
  E 5-7
P 5-1A

22. Chapter 5 Homework
Problem 5-2A      (E-20) (textbook - page working papers - pages  )  
Problem 5-3A      (E-20) (textbook - page working papers - pages  , )   
due October 17

23. Next Week:
Monday: In-class Assignment #3 (Look at textbook pages 178 through 180 – could you do this problem?)
Journalize transactions
Post transactions to ledger accounts
Prepare a Trial Balance
Complete the work sheet with adjustments (continued)

24. In-Class Assignment (continued)
Prepare the Income Statement
Prepare the Statement of Owner’s Equity
Prepare the Balance Sheet
Journalize the adjusting entries
Post adjusting entries to ledger accounts
Journalize closing entries (continued)

25. In-Class Assignment (continued)
Post the closing entries to the ledger accounts
Prepare a post-closing Trial Balance
You will have all class period on Monday, 10/15 – plus class time after quiz on Wednesday, 10/17 – plus all class period the following Monday (if needed)

26. Midterm (Ch. 1-5) on Wednesday, October 24 (100 points)
Monday
Wednesday