1Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Completing the Accounting CycleClosing entries are journal entries made at the end of an accounting period to zero the balances in the temporary accounts and transfer the net income or loss to the capital account. After closing entries are made, the trial balance can be prepared.

Preparing Closing EntriesSECTION 10.1

2Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Starting the Eighth Step in the Accounting Cycle: Journalizing the Closing EntriesThe events leading up to the closing process are:

Net income or loss is calculated on the work sheet. The income statement is completed. The capital account ending balance is calculated on

the statement of changes in owner’s equity. The ending balance of the capital account appears

on the balance sheet. The capital account balance in the general ledger

does not equal the amount on the balance sheet. Closing entries need to be journalized and posted.

Preparing Closing EntriesSECTION 10.1

3Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Preparing Closing EntriesSECTION 10.1

4Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

The Income Summary AccountThe Income Summary account:

serves as a simple income statement in the general ledger.

is used to accumulate revenue and expenses for the period.

equals the net income or loss for the period.

It is a temporary account that: is used only at the end of the accounting period to

summarize revenue and expense balances. does not have a normal balance. has a zero balance before and after the closing. does not appear on any financial statement.

Preparing Closing EntriesSECTION 10.1

5Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Closing Revenue to Income Summary

To record closing entries in the general journal: Enter Closing Entries in the Description

column. Enter the last day of the accounting period. Enter the name(s) and amount(s) of the

account(s) to be debited. Enter Income Summary as the name of

the account to be credited and the amount to be credited.

Preparing Closing EntriesSECTION 10.1

6Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Closing Expenses to Income SummaryA journal entry with two or more debits or credits is a compound entry.

Preparing Closing EntriesSECTION 10.1

7Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Preparing Closing EntriesSECTION 10.1

8Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Closing Income Summary to CapitalThis entry transfers the balance of the Income Summary account to the capital account.

An example of this closing entry can be seen here:

Preparing Closing EntriesSECTION 10.1

9Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Closing Withdrawals to CapitalThis entry transfers the balance of the withdrawals account to the capital account.

An example of this closing entry is shown below:

Preparing Closing EntriesSECTION 10.1

10Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Completing the Eighth Step in the Accounting Cycle: Posting the Closing Entries to the General LedgerThe next step in the closing process is to post closing entries to general ledger accounts.

Posting Closing Entries and Preparing a Post-Closing Trial Balance

SECTION 10.2

11Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Posting Closing Entries and Preparing a Post-Closing Trial Balance

SECTION 10.2

12Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

The Ninth Step in the Accounting Cycle: Preparing a Post-Closing Trial BalancePreparing a post-closing trial balance is the final step in the accounting cycle. It is prepared after the closing entries are posted in order to verify total debits equal total credits.

Posting Closing Entries and Preparing a Post-Closing Trial Balance

SECTION 10.2

13Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

The Ninth Step in the Accounting Cycle: Preparing a Post-Closing Trial Balance

Posting Closing Entries and Preparing a Post-Closing Trial Balance

SECTION 10.2