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Completing The Accounting Cycle Student

The document discusses the steps to complete the accounting cycle including closing entries, post-closing entries, and reversing entries. Closing entries transfer nominal account balances to income summary or capital accounts. The post-closing trial balance only includes permanent accounts with balances forwarded to the next period.

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25 views2 pages

Completing The Accounting Cycle Student

The document discusses the steps to complete the accounting cycle including closing entries, post-closing entries, and reversing entries. Closing entries transfer nominal account balances to income summary or capital accounts. The post-closing trial balance only includes permanent accounts with balances forwarded to the next period.

Uploaded by

acem16098
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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COMPLETING THE ACCOUNTING CYCLE

Desired Learning Outcomes

1. Understand and apply the remaining steps in completing cycle; closing entries, post-closing entries and reversing entries.
2. Deeper understanding the reasons and importance of the remaining steps.

CLOSING ENTRIES

Closing entries are usually prepared at the end of an accounting period like adjusting entries. Not all accounts are closed. Only the
nominal accounts, often called temporary accounts and the drawing account are closed at the end of the accounting period.
Nominal accounts are the accounts that appear in the income statement like revenue and expense accounts.

A temporary account is said to be closed when an entry is made such that its balance becomes zero. Closing simply transfers the
balance of one account to another account. In this case, the balances of the temporary accounts are transferred to the capital account.
A summary account – Income and Expense Summary is used to close the income and expense accounts.

1. Close the income accounts

Income accounts have credit balances before the closing entries are posted. For this reason, an entry debiting each revenue
account in the amount of its balance is needed to close the account.

Dec 31 Revenues 67,700.00


Income & Expense Summary 67,700.00

2. Close the expense accounts

Expense accounts have debit balances before the closing entries are posted. For this reason, a compound entry is needed
crediting each expense account for its balance and debiting the income and expense summary for the total.

Dec 31 Income & Expense Summary 36,700.00


Salaries Expense 15,600.00
Supplies Expense 3,000.00
Rent Expense 4,000.00
Insurance Expense 1,200.00
Utilities Expense 4,400.00
Depreciation Expense – S.V. 4,000.00
Depreciation Expense – Off.Equp. 1,000.00
Interest Expense 3,500.00

3. Closing the income and expense summary


After closing entries involving the income and expense accounts, the balance of the income summary account will be equal to
the profit or loss for the period. A profit is indicated by a credit balance and a loss by a debit balance.

Dec 31 Income & Expense Summary 31,000.00


XYZ, Capital 31,000.00

4. Close the withdrawal account


The withdrawal account shows the amount by which capital is reduced during the period by withdrawals of cash or other assets of the
business by the owner for personal use.

Dec. 31 XYZ, Capital 14,000.00


XYZ, withdrawals 14,000.00
POST-CLOSING TRIAL BALANCE

After posting the closing entries to the general ledger another trial balance is prepared. This time the accounts left with balances are all
balance sheet accounts or permanent accounts because all nominal accounts including the drawing accounts have zero balances.
This post-closing trial balance is prepared to check the equality of the accounting equation before the balances of the assets; liabilities
and capital are forwarded to the next accounting period. This is the end of the accounting period.

XYZ Company
Post-closing Trial Balance Dec. 31,2014

Cash 22,200
Accounts Receivable 17,300
Supplies 15,000
Prepaid Rent 4,000
Prepaid Insurance 13,200
Service Vehicle 420,000
Accumulated Depreciation-S.V. 4,000
Office Equipment 60,000
Accumulated Depreciation-O.E. 1,000
Notes Payable 210,000
Accounts Payable 53,000
Salaries Payable 266,700
XYZ, Capital 17,000

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