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 The Ownership of a Corporation (con’t.) Chapter 20 $ Why It’s Important Closing the ledger “cleans the slate” so that the next accounting cycle can begin. $ $ $

4. Section 1 The Ownership of a Corporation (con’t.) Chapter 20 $ Steps for Closing the Ledger …transfer balances of all temporary accounts to a permanent account. $ 1. Close temporary credit accounts to Income Summary 2. Close temporary debit accounts to Income Summary 3. Close Income Summary to Retained Earnings $ $

5. Section 1 The Ownership of a Corporation (con’t.) Chapter 20 $ Close Temporary Accounts with Credit Balances $ $ $

6. Section 1 The Ownership of a Corporation (con’t.) Chapter 20 $ Close Temporary Accounts with Debit Balances $ $ $

7. Section 1 The Ownership of a Corporation (con’t.) Chapter 20 $ Close the Balance of Income Summary to Retained Earnings $ $ $

8. Section 1 The Ownership of a Corporation (con’t.) 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 (con’t.) 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. $ $ $

11. Section 2 Posting Closing Entries (con’t.) 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 (con’t.) 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 (con’t.) Chapter 20 $ Check Your Understanding $ After all closing journal entries are posted, what is the balance of the temporary accounts? $ $