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Published byCorey Dorsey Modified over 9 years ago
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Closing Entries Closing Entries are journal entries made to close the balances in the temporary capital accounts and to transfer the net income or net loss for the period to the capital account. After journalizing Closing Entries the accounting cycle is almost complete. 2 Analyze each transaction 2 Analyze each transaction 3 Journalize each transaction 3 Journalize each transaction 1 Collect and verify source documents 1 Collect and verify source documents 4 Post to the ledger 4 Post to the ledger 9 Prepare a post-closing trial balance 5 Prepare a trial balance 5 Prepare a trial balance 8 Journalize and post closing entries 8 Journalize and post closing entries 6 Prepare a worksheet 6 Prepare a worksheet 7 Prepare financial statements 7 Prepare financial statements
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The Purpose of Closing Entries
The net income appears on the income statement Net income is included in ending capital balance. Ending capital balance goes on the balance sheet. This capital balance does not match the capital balance in the general ledger.
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The Income Summary Account
It’s about time we started using this account. How do we use the income summary account? Income Summary is used to accumulate and summarize the revenue and the expenses for the accounting period. Income Summary Income Summary is a simple version of the income statement for the period. Debit Credit Expenses Revenue Revenue goes in as a credit, and expenses go in as debits. The balance of Income Summary is the net income or net loss for the accounting period. Debit balance Means Net Loss Credit balance Means Net Income
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Quick Summary of Closing Entries
The balance of the revenue account is transferred to Income Summary The expense balances are transferred to Income Summary The balance of Income Summary is transferred to the Capital account The balance of withdrawals is transferred to the Capital account
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Remember to always keep balance Daniel Son.
Revenue Closing Entry Since a revenue account has a credit balance, in order to make the balance zero, the account must be debited. Since for every debit there must be a credit of equal value, Income Summary is credited. Remember to always keep balance Daniel Son. Refer to the worksheet on page 192 of your textbook to follow the examples.
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Expense Closing Entry Since an expense account has a debit balance, in order to make the balance zero, the account must be credited. Since for every credit there must be a debit of equal value, Income Summary is debited. Debit Income Summary for the total of all expenses, and credit each individual expense account.
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Income Summary Closing Entry
Let’s take a look at what the income summary account looks like. 1,500 2,650 1, Bal A credit balance represents a net income. Since income summary has a credit balance, in order to make the balance zero, the account must be debited. Since for every debit there must be a credit of equal value, capital is credited. A credit to capital increases the net worth of the company.
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Withdrawals Closing Entry
Since withdrawals has a debit balance, in order to make the balance zero, the account must be credited. Since for every credit there must be a debit of equal value, capital is debited. When the closing entries are complete, all the temporary accounts have zero balances, and the capital account has the balance that was calculated as the ending balance on the Statement of Changes in Owner’s Equity.
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Completed Closing Entries
1) Close Revenue Accounts 3) Close Income Summary Account 2) Close Expense Accounts 4) Close Withdrawal Account
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Posting the Revenue Closing Entry
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Posting the Expense Closing Entry (1)
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Posting the Expense Closing Entry (2)
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Posting the Income Summary Closing Entry
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Posting the Withdrawal Closing Entry
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Problem 10-4 1) Close Revenue Accounts 3) Close Income Summary Account
2) Close Expense Accounts 4) Close Withdrawal Account
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