Closing Entries and the Post-closing Trial Balance

1. Closing Entries and the Post-closing Trial Balance

2. Closing Entries • All temporary accounts must be “closed” at the end of an accounting cycle • This prepares themfor the next fiscal period. • Closing a temporary account reduces the account balance to zero. • Sales Revenue, all expense accounts, Owner’s Withdrawal and Income Summary are temporary accounts. • Income Summary is a special temporary account and used as a means of transferring the profit or loss from business operations to the Owners Capital (Owner’s Equity) account.

3. Closing Entries (continued) • Recorded first in the General Journal • Like all journal entries, they are then posted to the appropriate ledger accounts. • The result is to “zero out” all temporary accounts preparing them for the next fiscal period.

4. Case Development-Step 13: Closing Entries • Complete all closing entries for the fiscal period • In the Multicolumn Journal write “Closing Entries” as a heading in the Item Column • The rows that follow are used to record any necessary closing entries • All closing entries should be dated the last day of the fiscal period.

5. Case Development-Step 13: Closing Entries (continued) • Journalize all closing entries for the sample case • Once the closing entries are recorded in the journal, post them to the General Ledger and determine the ending balances for each account. • See General Ledger solutions

6. Post-closing Trial Balance • The Post-closing Trial Balance should reflect the ending account balances after posting the adjusting and closing entries. • Balances should occur in the Asset accounts, the Liability account(s), and the <Owner’s Name>, Capital account. • There should be a zerobalance in the <Owner’s Name>, Drawing; Sales Revenue; Income Summary; and all Expense accounts • See Post-closing Trial Balance solution file