concepts and practices. last stage in the accounting cycle is to prepare the accounts for the next...
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Closing EntriesConcepts and Practices
Last stage in the accounting cycle is to prepare the accounts for the next period by transferring the results of business operations and owner’s withdrawals to Capital.
Closing Entries
Real accounts continue from one period to another
Real accounts are assets, liabilities, and Capital
Nominal accounts have balances that do not continue from one period to another
Nominal accounts are revenue and expense accounts with the addition of Drawings
Types of Accounts
Used only for closing entries Nominal accounts are closed into Income
Summary to collect information Income Summary is then closed to Capital
Income Summary Accounts
Nominal accounts need to have a balance of zero at the end of the fiscal period in order to collect only one period’s information
Net income will be transferred to Capital via the Income Summary account
Drawings are closed directly to Capital
Closing Accounts
Four steps:1. Close revenue (income statement credit
column) to Income Summary2. Close expenses (income statement debit
column) to Income Summary3. Close Income Summary to Capital (this
amount will be net income or loss)4. Close Drawings to Capital
How to Close the Accounts
Sample Worksheet
AccountsDR CR DR CR DR CR DR CR
Bank 1800 1800Accounts Receivable 19500 19500Supplies 1000 300 700Prepaid Insurance 1750 950 800Equipment 22000 22000Automobile 21000 21000Accounts Payable 4360 175 4535P. Tang, Capital 54040 54040P. Tang, Drawings 15000 15000Fees Earned 60300 60300Car Expense 3800 75 3875General Expense 2950 100 3050Miscellaneous Expense 700 700Rent Expense 7200 7200Wages Expense 22000 22000
118700 118700Supplies Expense 300 300Insurance Expense 950 950
1425 1425 38075 60300 80800 58575Net Income 22225 22225
60300 60300 80800 80800
Trial Balance Income Statement Balance Sheet
P. Tang and Company Work Sheet For the year ended December 31, 2009
Adjustments
AccountsDR CR DR CR DR CR DR CR
Bank 1800 1800Accounts Receivable 19500 19500Supplies 1000 300 700Prepaid Insurance 1750 950 800Equipment 22000 22000Automobile 21000 21000Accounts Payable 4360 175 4535P. Tang, Capital 54040 54040P. Tang, Drawings 15000 15000Fees Earned 60300 60300Car Expense 3800 75 3875General Expense 2950 100 3050Miscellaneous Expense 700 700Rent Expense 7200 7200Wages Expense 22000 22000
118700 118700Supplies Expense 300 300Insurance Expense 950 950
1,425.00$ 1,425.00$ 38,075.00$ 60,300.00$ 80,800.00$ 58,575.00$ Net income 22,225.00$ 22,225.00$
60,300.00$ 60,300.00$ 80,800.00$ 80,800.00$
Trial Balance Income Statement Balance Sheet
P. Tang and Company Work Sheet For the year ended December 31, 2009
Adjustments
Closing Revenue—to make it zero, you will debit Fees Earned
Date Particulars PR DR CRDec 31 Fees Earned 60 3 0 0 --
Income Summary 60 3 0 0 --Close revenue
Use Income summary to collect information
AccountsDR CR DR CR DR CR DR CR
Bank 1800 1800Accounts Receivable 19500 19500Supplies 1000 300 700Prepaid Insurance 1750 950 800Equipment 22000 22000Automobile 21000 21000Accounts Payable 4360 175 4535P. Tang, Capital 54040 54040P. Tang, Drawings 15000 15000Fees Earned 60300 60300Car Expense 3800 75 3875General Expense 2950 100 3050Miscellaneous Expense 700 700Rent Expense 7200 7200Wages Expense 22000 22000
118700 118700Supplies Expense 300 300Insurance Expense 950 950
1,425.00$ 1,425.00$ 38,075.00$ 60,300.00$ 80,800.00$ 58,575.00$ Net income 22,225.00$ 22,225.00$
60,300.00$ 60,300.00$ 80,800.00$ 80,800.00$
Trial Balance Income Statement Balance Sheet
P. Tang and Company Work Sheet For the year ended December 31, 2009
Adjustments
Closing Expenses—to make them zero, you will credit them
Date Particulars PR DR CRDec 31 Fees Earned 60 3 0 0 --
Income Summary 60 3 0 0 --Close revenue
31 Income Summary 38 0 7 5 --
Car Expense 3 8 7 5 --
General Expense 3 0 5 0 --
Miscellaneous Expense 7 0 0 --
Rent Expense 7 2 0 0 --
Wages Expense 22 0 0 0 --
Supplies Expense 3 0 0 --
Insurance Expense 9 5 0 --
Close expenses
Journal after closing revenue and expenses
AccountsDR CR DR CR DR CR DR CR
Bank 1800 1800Accounts Receivable 19500 19500Supplies 1000 300 700Prepaid Insurance 1750 950 800Equipment 22000 22000Automobile 21000 21000Accounts Payable 4360 175 4535P. Tang, Capital 54040 54040P. Tang, Drawings 15000 15000Fees Earned 60300 60300Car Expense 3800 75 3875General Expense 2950 100 3050Miscellaneous Expense 700 700Rent Expense 7200 7200Wages Expense 22000 22000
118700 118700Supplies Expense 300 300Insurance Expense 950 950
1,425.00$ 1,425.00$ 38,075.00$ 60,300.00$ 80,800.00$ 58,575.00$ Net income 22,225.00$ 22,225.00$
60,300.00$ 60,300.00$ 80,800.00$ 80,800.00$
Trial Balance Income Statement Balance Sheet
P. Tang and Company Work Sheet For the year ended December 31, 2009
Adjustments
Closing Income Summary –transferring net income to Capital
Date Particulars PR DR CRDec 31 Fees Earned 60 3 0 0 --
Income Summary 60 3 0 0 --Close revenue
31 Income Summary 38 0 7 5 --
Car Expense 3 8 7 5 --
General Expense 3 0 5 0 --
Miscellaneous Expense 7 0 0 --
Rent Expense 7 2 0 0 --
Wages Expense 22 0 0 0 --
Supplies Expense 3 0 0 --
Insurance Expense 9 5 0 --
Close expenses
31 Income Summary 22 2 2 5 --
P. Tang, Capital 22 2 2 5 --
To close income summary and transfer net
income to Capital
Closing Income Summary to Capital
AccountsDR CR DR CR DR CR DR CR
Bank 1800 1800Accounts Receivable 19500 19500Supplies 1000 300 700Prepaid Insurance 1750 950 800Equipment 22000 22000Automobile 21000 21000Accounts Payable 4360 175 4535P. Tang, Capital 54040 54040P. Tang, Drawings 15000 15000Fees Earned 60300 60300Car Expense 3800 75 3875General Expense 2950 100 3050Miscellaneous Expense 700 700Rent Expense 7200 7200Wages Expense 22000 22000
118700 118700Supplies Expense 300 300Insurance Expense 950 950
1,425.00$ 1,425.00$ 38,075.00$ 60,300.00$ 80,800.00$ 58,575.00$ Net income 22,225.00$ 22,225.00$
60,300.00$ 60,300.00$ 80,800.00$ 80,800.00$
Trial Balance Income Statement Balance Sheet
P. Tang and Company Work Sheet For the year ended December 31, 2009
Adjustments
Closing Drawings—to make it zero, you will debit Capital to show that it has been decreased by Drawings
Date Particulars PR DR CRDec 31 Fees Earned 60 3 0 0 --
Income Summary 60 3 0 0 --Close revenue
31 Income Summary 38 0 7 5 --
Car Expense 3 8 7 5 --
General Expense 3 0 5 0 --
Miscellaneous Expense 7 0 0 --
Rent Expense 7 2 0 0 --
Wages Expense 22 0 0 0 --
Supplies Expense 3 0 0 --
Insurance Expense 9 5 0 --
Close expenses
31 Income Summary 22 2 2 5 --
P. Tang, Capital 22 2 2 5 --
To close income summary and transfer net
income to Capital
31 P. Tang, Capital 15 0 0 0 --
P. Tang, Drawings 15 0 0 0 --
Close Drawings
Closing Entries Completed
P. Tang and CompanyPost-Closing Trial Balance
December 31, 2009Accounts Trial Balance
DR CRBank 1800Accounts Receivable 19500Supplies 700Prepaid Insurance 800Equipment 22000Automobile 21000Accounts Payable 4535P. Tang, Capital 61265
65800 65800
Post-closing balance is prepared after the adjusting and closing entries have been journalized and posted. Only assets, liabilities, and capital should have balances. Everything else should be zero.