Learning Objective LO 4 Prepare closing entries 2014

Lesson 16 -4 Closing Entries LO 4 ● A corporation records four closing entries: 1. A closing entry for income statement accounts with credit balances (revenue and contra-cost accounts). 2. A closing entry for income statement accounts with debit balances (cost, contra revenue, and expense accounts). 3. A closing entry to record net income or net loss in the Retained Earnings account and close the Income Summary account. 4. A closing entry for the Dividends account. © 2014 Cengage Learning. All Rights Reserved. SLIDE 2

Lesson 16 -4 The Income Summary Account LO 4 Income Summary Debit Expenses Credit Revenue (greater than expenses) (Credit balance is the net income) © 2014 Cengage Learning. All Rights Reserved. SLIDE 3

Lesson 16 -4 Closing Entry for Accounts with Credit Balances LO 4 Sales Closing 632, 371. 75 Bal. (New Bal. 632, 371. 75 0. 00) Interest Expense Adj. (mdse inv. ) 5, 648. 44 Closing 635, 345. 90 (credit accounts) © 2014 Cengage Learning. All Rights Reserved. SLIDE 4

Lesson 16 -4 Closing Entry for Accounts with Credit Balances Debit to Close 3

Lesson 16 -4 Closing Entry for Income Statement Accounts with Debit Balances Credit to Close 3 LO 4 3 2 Date 1 © 2014 Cengage Learning. All Rights Reserved. Income summary 4 Debit to Income Summary SLIDE 6

Lesson 16 -4 Summary of Closing Entry for Income Statement Accounts with Debit Balances LO 4 Purchases Bal. (New Bal. 254, 851. 26 0. 00) Closing 254, 851. 26 Income Summary Adj. (mdse. Inv. ) Closing (debit accounts) 5, 643. 44 Closing (credit accounts) 549, 800. 89 (New Bal. © 2014 Cengage Learning. All Rights Reserved. 635, 345. 90 79, 896. 57) SLIDE 7

Lesson 16 -4 Closing Entry to Record Net Income LO 4 Income Summary Adj. (mdse. inv. ) Closing (debit accounts) Closing (Retained Earnings) 5, 643. 44 549, 800. 89 79, 896. 57 Closing (credit accounts) (New Bal. 635, 345. 90 0. 00) Retained Earnings Closing (credit accounts) Closing (Retained Earnings) (New Bal. Date 65, 218. 84 79, 896. 57 145, 115. 41) Debit Income Summary Credit Retained Earnings © 2014 Cengage Learning. All Rights Reserved. SLIDE 8

Lesson 16 -4 Closing Entry for Dividends LO 4 Retained Earnings Closing (Dividends) 15, 000. 00 Bal. Closing (Income Summary) (New Bal. 65, 218. 84 79, 896. 57 130, 115. 41) Dividends Bal. (New Bal. 15, 000. 00) Closing (Retained Earnings) Date 15, 000. 00 Debit Retained Earnings Credit Dividends © 2014 Cengage Learning. All Rights Reserved. SLIDE 9

Lesson 16 -4 Completed Closing Entries for a Corporation Recorded in a Journal ©

Lesson 16 -4 Audit Your Understanding 1. Where is the information obtained to journalize closing entries for revenue, cost, and expenses? ANSWER From the adjusted trial balance © 2014 Cengage Learning. All Rights Reserved. SLIDE 11

Lesson 16 -4 Audit Your Understanding 2. What is the name of the temporary account used to summarize the closing entries for revenue, cost, and expenses? ANSWER Income Summary © 2014 Cengage Learning. All Rights Reserved. SLIDE 12