Chapter 4

COMPLETING THE ACCOUNTING CYCLE

PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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P1

BENEFITS OF A WORK SHEET

Aids the Assists in
preparation of planning and
financial organizing an
statements. audit.

Helps in
Reduces Not a
preparing
possibility of required interim financial
errors.
report. statements.
Shows the
Links accounts
effects of
and their
proposed
adjustments.
transactions.
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FastForward
Worksheet
P1 For the Month Ended December 31, 2011
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P1

PREPARING THE FINANCIAL STATEMENTS

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P1

PREPARING THE FINANCIAL STATEMENTS

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C1

RECORDING CLOSING ENTRIES

1. Resets revenue,
expense and Identify accounts
withdrawal account for closing.
balances to zero at
the end of the
Record and post
period.
closing entries.
2. Helps summarize a
period’s revenues
and expenses in the Prepare post-closing
Income Summary trial balance.
account.
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C1 TEMPORARY AND
PERMANENT ACCOUNTS
Revenues Assets

Withdrawals

Liabilities
Expenses

Owner’s
Capital
Temporary Permanent
Accounts Accounts

Income
Summary The closing process
applies only to
temporary accounts.
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P2

RECORDING CLOSING ENTRIES

Close Credit Balances in
Revenue Accounts to Let’s see how
Income Summary. the closing
Close Debit Balances in process works!
Expense accounts to Income
Summary.
Close Income Summary
account to Owner’s Capital.
Close Withdrawals to
Owner’s Capital.
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P2

FastForward
Adjusted Trial Balance
December 31, 2011
Debit Credit
Cash $ 4,350
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment
Accumulated depreciation-Equip.
26,000
$ 375
Close Credit
Accounts payable 6,200 Balances in
Salaries payable 210
Unearned consulting revenue 2,750
Revenue
C. Taylor, Capital 30,000 Accounts to
C. Taylor, Withdrawals 200
Consulting revenue 7,850
Income
Rental revenue 300 Summary.
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $ 47,685 $ 47,685
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P2

 CLOSE CREDIT BALANCES IN

REVENUE ACCOUNTS TO INCOME SUMMARY
Dr. Cr.
Dec. 31 Consulting revenue 7,850
Rental revenue 300
Income summary 8,150

Now, let’s look at the ledger accounts after

posting this closing entry.
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P2

 CLOSE CREDIT BALANCES IN

REVENUE ACCOUNTS TO INCOME SUMMARY
Consulting Revenue
7,850 7,850

Income Summary
8,150
Rental Revenue
300 300

-
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P2

FastForward
Adjusted Trial Balance
December 31, 2011
Debit Credit
Cash $ 4,350
Accounts receivable 1,800
Supplies 8,670
Prepaid insurance 2,300
Equipment
Accumulated depreciation-Equip.
26,000
$ 375
Close Debit
Accounts payable 6,200 Balances in
Salaries payable 210
Unearned consulting revenue 2,750
Expense Accounts
C. Taylor, Capital 30,000 to Income
C. Taylor, Withdrawals 200
Consulting revenue 7,850
Summary.
Rental revenue 300
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Totals $ 47,685 $ 47,685
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P2

 CLOSE DEBIT BALANCES IN EXPENSE

ACCOUNTS TO INCOME SUMMARY
Dr. Cr.
Dec. 31 Income summary 4,365
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230

Now, let’s look at the ledger accounts

after posting this closing entry.
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P2

 CLOSE DEBIT BALANCES IN EXPENSE

ACCOUNTS TO INCOME SUMMARY
Depreciation
Rent Expense
Expense- Eq.
1,000 1,000
375 375
-
-

Income Summary
Salaries Expense Supplies Expense
4,365 8,150
1,610 1,610 1,050 1,050
- - 3,785

Insurance Expense Utilities Expense Net Income

100 100 230 230
- -
 4 - 15

SUMMARY OF THE CLOSING PROCESS

1. Close Credit Balances in Revenue Accounts
to Income Summary.
2. Close Debit Balances in Expense Accounts
to Income Summary.
3. Close Income Summary to Owner’s Capital.
4. Close Withdrawals Account to Owner’s
Capital.
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END OF CHAPTER 4