Closing Entries Closing the Books At the end
Closing Entries
Closing the Books At the end of the accounting period, the company makes the accounts ready for the next period. Illustration 4 -5 SO 2 Explain the process of closing the books.
In summary, there are four steps involved in closing the books: 1. Close the revenue accounts into Income Summary. 2. Close the expense accounts into Income Summary. 3. Close Income Summary into Capital. 4. Close Drawings into Capital.
Income Summary • Used to accumulate and summarize the revenue and expenses for the period STEP 1: Revenues (CREDIT balances) are transferred as credit in Income Summary – Then the Revenue Account is closed by a Debit revenue Income summary Db XX CR xx STEP 2: Expenses (DEBIT balances) are transferred as debits in Income summary – Then the Expense Account is closed by a Credit Income summary expense Db XX CR xx
Income Summary STEP 3. Close the Income Summary to the Owners Capital as a Net Income or Net Loss – Take the Difference between Revenue & Expenses & transfer it to Capital- CHOOSE A OR B A. If the income summary has a credit balance (more credit then debit) then transfer it to Capital as a credit- b/c you are increasing capital. Then put a debit for Income Summary Income summary capital Db XX CR XX B. If the income summary has a debit balance (more debit then credit) then transfer it to Capital as a debit- b/c you are decreasing capital. Then put a credit for Income Summary Db Capital XX Income Summary CR XX
Withdrawals STEP 4: Close Withdrawals (Owner’s Drawing) to the Owners Capital Account – Owner’s Capital is debited & the Owner’s Drawing account is closed with a credit Db XX Capital Drawing CR XX
The ledger of Swann Company contains the following ledger balances: – Service Revenue $50, 000 – Salaries Expense $27, 000 – Supplies Expense $4, 000 – Swann, Drawing $2, 000 Hint: Prepare closing JOURNAL entries at 12/31 from ledger balances. Use CHEAT SHEET
Your turn The ledgers contains the following ledger balances: – Service Revenue $18, 100 – Salaries Expense $8, 800 – Supplies Expense $1, 300 – Rent Expense $3, 000 – D. Swann, Drawing $2, 500 Prepare the closing entries at December 31. Hint: Prepare closing JOURNAL entries from ledger balances. Use CHEAT SHEET
Your turn The ledgers contains the following ledger balances: – Service Revenue $16, 100 – Salaries Expense $7, 800 – Supplies Expense $2, 300 – Rent Expense $5, 000 – D. Swann, Drawing $3, 500 Prepare the closing entries at December 31. Hint: Prepare closing JOURNAL entries from ledger balances. Use CHEAT SHEET
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