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Closing Entries by

Closing Process

Must do at the end of the accounting period after financial statements have been completed. It prepares accounts for next accounting period.

The purp­ose is to

1. Reset Revenu­e,e­xpe­nses, and dividend accounts back to zero for the end of the accounting period.
2. Helps summarize the revenues and expenses for that period.

Steps for Closing

1. Iden­tify what accounts need to be closed
2. Record and post the entries to be closed
3. Prep­are the post-c­losing trial balance

Temporary/ Permanent accounts

Temp­orary
Perm­anent
Revenues
Assets
Expenses
Liabil­ities
Dividends
Common Stock
Income Summary
Retained Earnings
(The closing process applies only to these accounts)
(These accounts carry ending balances to the next period)

Recording Closing Entries

Income Summary
Is a temporary account (used for CLOSING). The balance equals net income­(loss) and it goes to the retained earnings.
Dividends goes to retained earnings.
 

Closing Process

Recording Closing Entries

Revenues
1. They have a debit balance
2. Close to income summary, it has a credit balance.

Expenses
1. Close to income summary, it has a debit balance.
2. All expenses are going to have a credit balance

Close income summary to retained earnings
1. Income Summary has a debit balance
2. Retained Earnings has a credit balance

Close dividends account
1. Retained Earnings is going to have a debit balance
2. Dividends has a credit balance
 

Accounting Cycle

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