1. © The McGraw-Hill Companies, Inc., 2002 Slide 5-1 McGraw-Hill/Irwin 5 Completing the Accounting Cycle

2. © The McGraw-Hill Companies, Inc., 2002 Slide 5-2 McGraw-Hill/Irwin Resets revenue, expense and withdrawal account balances to zero at the end of the period. Helps summarize a period’s revenues and expenses in the Income Summary account. Identify accounts for closing. Record and post closing entries. Prepare post-closing trial balance. Closing Process

3. © The McGraw-Hill Companies, Inc., 2002 Slide 5-3 McGraw-Hill/Irwin Temporary Accounts Revenues Income Summary Expenses Withdrawals Permanent Accounts Assets Liabilities Owner’s Capital The closing process applies only to temporary accounts. Temporary and Permanent Accounts

4. © The McGraw-Hill Companies, Inc., 2002 Slide 5-4 McGraw-Hill/Irwin Let’s see how the closing process works! Recording and Posting Closing Entries  Close Revenue accounts to Income Summary.  Close Expense accounts to Income Summary.  Close Income Summary account to Owner’s Capital.  Close Withdrawals to Owner’s Capital.

5. © The McGraw-Hill Companies, Inc., 2002 Slide 5-5 McGraw-Hill/Irwin Balances before closing. Closing Process for a Proprietorship

6. © The McGraw-Hill Companies, Inc., 2002 Slide 5-6 McGraw-Hill/Irwin  Close Revenue accounts to Income Summary. Closing Process for a Proprietorship

7. © The McGraw-Hill Companies, Inc., 2002 Slide 5-7 McGraw-Hill/Irwin  Close Expense accounts to Income Summary. Closing Process for a Proprietorship The balance in Income Summary equals net income.

8. © The McGraw-Hill Companies, Inc., 2002 Slide 5-8 McGraw-Hill/Irwin  Close Income Summary to Owner’s Capital. Closing Process for a Proprietorship  Close Withdrawals account to Owner’s Capital.

9. © The McGraw-Hill Companies, Inc., 2002 Slide 5-9 McGraw-Hill/Irwin Using the adjusted trial balance, let’s prepare the closing entries for FastForward. Exh. 5.3

10. © The McGraw-Hill Companies, Inc., 2002 Slide 5-10 McGraw-Hill/Irwin  Close Revenue accounts to Income Summary. Exh. 5.3

11. © The McGraw-Hill Companies, Inc., 2002 Slide 5-11 McGraw-Hill/Irwin Prepare the entry to close Revenues by debiting the revenue accounts and crediting Income Summary. Now, let’s look at the ledger accounts after posting this closing entry.  Close Revenue Accounts to Income Summary Exh. 5.3

12. © The McGraw-Hill Companies, Inc., 2002 Slide 5-12 McGraw-Hill/Irwin Now, let’s look at the ledger accounts after posting this closing entry.  Close Revenue Accounts to Income Summary Exh. 5.3

13. © The McGraw-Hill Companies, Inc., 2002 Slide 5-13 McGraw-Hill/Irwin  Close Revenue Accounts to Income Summary

14. © The McGraw-Hill Companies, Inc., 2002 Slide 5-14 McGraw-Hill/Irwin  Close Expense accounts to Income Summary. Exh. 5.3

15. © The McGraw-Hill Companies, Inc., 2002 Slide 5-15 McGraw-Hill/Irwin Prepare the entry to close Expenses by crediting the expense accounts and debiting Income Summary. Now, let’s look at the ledger accounts after posting this closing entry.  Close Expense Accounts to Income Summary Exh. 5.3

16. © The McGraw-Hill Companies, Inc., 2002 Slide 5-16 McGraw-Hill/Irwin Now, let’s look at the ledger accounts after posting this closing entry.  Close Expense Accounts to Income Summary Exh. 5.3

17. © The McGraw-Hill Companies, Inc., 2002 Slide 5-17 McGraw-Hill/Irwin Net Income  Close Expense Accounts to Income Summary

18. © The McGraw-Hill Companies, Inc., 2002 Slide 5-18 McGraw-Hill/Irwin  Close Income Summary to Owner’s Capital. Exh. 5.3

19. © The McGraw-Hill Companies, Inc., 2002 Slide 5-19 McGraw-Hill/Irwin Now, let’s look at the ledger accounts after posting this closing entry.  Close Income Summary to Owner’s Capital Exh. 5.3

20. © The McGraw-Hill Companies, Inc., 2002 Slide 5-20 McGraw-Hill/Irwin  Close Income Summary to Owner’s Capital

21. © The McGraw-Hill Companies, Inc., 2002 Slide 5-21 McGraw-Hill/Irwin  Close Withdrawals to Owner’s Capital. Exh. 5.3

22. © The McGraw-Hill Companies, Inc., 2002 Slide 5-22 McGraw-Hill/Irwin Now, let’s look at the ledger accounts after posting this closing entry.  Close Withdrawals to Owner’s Capital Exh. 5.3

23. © The McGraw-Hill Companies, Inc., 2002 Slide 5-23 McGraw-Hill/Irwin  Close Withdrawals to Owner’s Capital

24. © The McGraw-Hill Companies, Inc., 2002 Slide 5-24 McGraw-Hill/Irwin Let’s look at FastForward’s post-closing trial balance. Post-Closing Trial Balance List of permanent accounts and their balances after posting closing entries. Total debits and credits must be equal. List of permanent accounts and their balances after posting closing entries. Total debits and credits must be equal.

25. © The McGraw-Hill Companies, Inc., 2002 Slide 5-25 McGraw-Hill/Irwin Exh. 5.4

26. © The McGraw-Hill Companies, Inc., 2002 Slide 5-26 McGraw-Hill/Irwin  Close Revenue accounts to Income Summary.  Close Expense accounts to Income Summary.  Close Income Summary account to Retained Earnings.  Close Dividends Declared to Retained Earnings. Closing Entries for a Corporation The first two entries are the same, but the last two are a little different!

27. © The McGraw-Hill Companies, Inc., 2002 Slide 5-27 McGraw-Hill/Irwin Let’s close this chapter! End of Chapter 5