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/Retained Earnings $ 4. Close the withdrawals account to Capital (not necessary with corporations since there isn’t a withdrawal account! )

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? $

9. Chapter 20 $ Section 2 Posting Closing Entries $ • What You’ll Learn • How to post closing entries. • How to prepare a post-closing trial balance. • The accounting cycle for a merchandising business. $ $

10. Section 2 Posting Closing Entries (cont'd.) Chapter 20 $ Why It’s Important To prepare the general ledger for the next period, you need to transfer the temporary account balances to the permanent Retained Earnings account. This also sets all of the temporary accounts back down to zero for the next accounting period! $ $ $

11. Section 2 Posting Closing Entries (cont'd.) Chapter 20 $ Closing the General Ledger $ • After closing entries are recorded in the general journal, they are posted to the general ledger. • For each posting the term “Closing Entry” is written in the Description column of the general ledger account. $ $

12. Section 2 Posting Closing Entries (cont'd.) Chapter 20 $ Preparing a Post-Closing Trial Balance $ A post-closing trial balance is prepared at the end of the accounting period to prove that the general ledger accounts are in balance after all adjusting and closing entries are posted. $ $

13. Section 2 Posting Closing Entries (cont'd.) Chapter 20 $ Check Your Understanding $ After all closing journal entries are posted, what is the balance of the temporary accounts? $ $