Completing the Accounting Cycle for a Merchandising Corporation

1. Chapter 20 $ Completing the Accounting Cycle for a Merchandising Corporation $ Making Accounting Relevant At the end of a fiscal period, businesses must “close the accounting records” or clean the slate in order to begin another period. $ $ At the end of a school year, what types of activities do you perform? Do you clean out your locker? Do you prepare for a summer job?

2. Chapter 20 $ Section 1 Journalizing Closing Entries $ • What You’ll Learn • What steps are followed to close the ledger. • What closing entries are required for a merchandising business organized as a corporation. • What closing entry is required when a corporation reports a loss. $ $

3. Section 1 Journalizing Closing Entries (cont'd.) Chapter 20 $ Why It’s Important Closing the ledger “cleans the slate” so that the next accounting cycle can begin. $ $ $

4. Section 1 Journalizing Closing Entries (cont'd.) Chapter 20 $ Steps for Closing the Ledger Closing entries transfer the balances of all the temporary accounts to a permanent account. $ 1. Close the temporary accounts with credit balances to Income Summary $ 2. Close the temporary accounts with debit balances to Income Summary $ 3. Close the balance of Income Summary to capital 4. Close the withdrawals account to capital

5. Section 1 Journalizing Closing Entries (cont'd.) Chapter 20 $ Close Temporary Accounts with Credit Balances $ $ $

6. Section 1 Journalizing Closing Entries (cont'd.) Chapter 20 $ Close Temporary Accounts with Debit Balances $ $ $

7. Section 1 Journalizing Closing Entries (cont'd.) Chapter 20 $ Close the Balance of Income Summary to Retained Earnings $ $ $

8. Section 1 Journalizing Closing Entries (cont'd.) Chapter 20 $ Check Your Understanding 1. During the closing process, which account balances are credited to the Income Summary account? $ $ 2. Which account balances are debited to the Income Summary account? $