Preparing for New Fiscal Years

Preparing for New Fiscal Years

• We know that January 1 is an important date. Why?

• When businesses reach the end of a fiscal year, there are a lot of things that we have to do. Accounting software helps.

Closing Procedures with Accounting Software

• First thing to remember is that adjustments need to be posted. This is so ledger account balances match the amounts that appear in year-end financial statements.

Closing Procedures with Accounting Software

• Real Accounts - Carry a balance into a new fiscal period. Capital will change.

• Nominal Accounts – Have balances that do not carry into the new year. All of them (with the exception of Drawings) relate to income.

• Closing an account – Means to cause it to haveno balance.

Closing Procedures with Accounting Software

Closing Procedures with Accounting Software

Preparing the Closing Journal Entries

• We have to put closing entries into our journals.

• All the amounts that we need for it are on the worksheet.

• We are going to do Revenues first, then Expenses, then Income (or Loss), then Drawings.

Closing Entry #1 - Revenues

• Revenues are a nominal account. That means that they have to be closed (and set to zero).

• So…Shipping Revenue was $207,821.00. It is a revenue account. This means it has a credit balance.

• To get rid of a credit balance, we have to journalize a debit of $207,821.00.

Closing Entry #1 - Revenues

• What Credit do we journalize though? We have a debit. We need a credit too.

• Capital would make sense. BUT…we do something different just for closing out the year.

• We create an account called Income Summary. We use this to record debit and credit amounts during the closing process. It summarizes revenue and expense amounts in one ledger account. It will then reveal net income or loss.

• Accountants can then use this to move the value to the Capital account.

Closing Entry #1 - Revenues

• This is what the journal entry would look like.