a manual accounting system at the end of an accounting period to shift the balances in temporary accounts to permanent accounts. Closing journal entries are made at the end of the accounting period to prepare temporary accounts for the next period.
Temporary or Nominal Accounts
- (also called income statement accounts),
are measured periodically.
Income Summary Account
is a temporary account which facilitates the closing process. Temporary accounts include:
Revenue, Income and Gain Accounts
Expense and Loss Accounts Dividend, Drawings or Withdrawals Accounts Income Summary Account Four Steps in Preparing Closing Entries
Close all income accounts to Income
Summary. Close all expense accounts to Income Summary. Close Income Summary to the appropriate capital account. Close withdrawals to the capital account/s (this step is for sole proprietorship and partnership only.) CLOSE THE INCOME ACCOUNTS
Since income accounts have normal credit
balances,each revenue account will have to be debited in the amount of the balance to bring their balances to zero.The credit is made to the income summary account. CLOSE THE EXPENSE ACCOUNTS
Expense accounts have normal debit
balances,each of those will have to be credited to close the account.Thus,a compound entry is needed considering the number of expense accounts.The total of all expense accounts is then debited to income summary. CLOSE THE INCOME SUMMARY TO CAPITAL
Notice that after posting the entries involving and expense
accounts,the balance of the income summary account is exactly the net income or net loss for the period.A credit balance indicates a net income and a debit balance indicates a net loss.Regardless of whether the business yields a net income or a net loss,the income summary account must be closed to the capital account. CLOSE THE DRAWING ACCOUNT
The drawing account represents the amount
withdrawn by the owner either in cash and non- cash assets for personal use. It is for this reason that the debit balance of the drawing account should be closed to capital. Example Of Closing Entries Answer the following:
1. It is a temporary account which facilitates the closing
process.
2. Are those journal entries made in a manual accounting
system at the end of an accounting period .
3.Also called income statement accounts,are measured periodically.
4.)Give atleast one temporary account.
5.Give atleast one step in preparing closing entries.