1. Completing the Accounting Cycle for a Sole Proprietorship
Chapter 10

2. The Last Two Steps of the Accounting Cycle
Journalize and Post 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
Prepare a Post-Closing Trial Balance
Trial Balance prepared after temporary accounts are brought to zero and capital has been adjusted accordingly
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3. The Process of Closing Entries
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Prior to the closing process, you know that the net income or net loss is calculated on the work sheet
The net income or net loss amount then appears on the income statement
On the statement of changes in owner’s equity, the ending balance of the capital account includes net income or net loss
The ending balance of the capital account then appears on the balance sheet
At this point, however, the balance of the capital account in the general ledger does not equal the amount on the balance sheet because the closing entries need to be journalized and posted

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6. The Income Summary Account
The Income Summary Account is used to accumulate and summarize the revenue and expenses for the period.
Expenses, which have debit balances, are transferred as debits to Income Summary
Revenues, which have credit balances, are transferred as credits to Income Summary
The balance in the account equals the net income or net loss for the fiscal period
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7. Income Summary T Account
Debit
Expenses
Credit
Revenue
If Revenue >Expenses
If Revenue < Expenses
Balance is net income
Balance in net loss
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8. General Journal Closing TransactionsPg

9. Closing Income Summary to Capital
Once all transactions for Revenue and Expenses have been journalized, Income Summary has a balance. If there was a net income the Income Summary Account should have a credit balance. If there was a net loss, Income Summary should have a debit balance
The balance is then offset with the Capital account opposite to what the current Income Summary balance is. The idea is to bring the account to a zero balance.
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10. Closing Income Summary to Capital
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11. Closing Withdrawals to Capital
Withdrawal accounts usually have a debit balance so to close them you off set with a credit and debit to Capital
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12. General Journal of Closing Entries
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13. Posting the Closing Entries to the General LedgerPg

14. Post-Closing Trial Balance
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9th & Final Step in the Accounting Cycle – Prepared to make sure total debits equal total credits after the closing entries are posted.