Closing Entries and
The Post-Closing Trial Balance
Chapter 5
Learning Outcomes
 List the steps of the accounting cycle
 Journalize and post closing entries
 Prepare a post-closing trial balance
9 Steps of Accounting Cycle
1. Analyze transactions and record in
journal (Chapters 1 and 2)
2. Post journal entries to the ledger
accounts (Chapter 3)
3. Prepare a trial balance (Chapter 3)
4. Gather adjustment data and record
in worksheet (Chapter 4)
9 Steps of Accounting Cycle
5. Complete the worksheet (Chapter 4)
6. Prepare financial statements from
worksheet (Chapter 4)
7. Journalize and post the adjusting entries
from worksheet (Chapter 4)
8. Journalize and post the closing entries
(Chapter 5)
9. Prepare a post-closing trial balance
(Chapter 5)
Closing Entries
 Purpose: to clear the “temporary” or
“nominal” accounts




Revenue
Expenses
Drawing
Income Summary
 We “close” the books because this
information pertains to only one fiscal
period
Closing Entries
 These accounts provide information for
 Income Statement
 Statement of Owner’s Equity
 “Permanent” or “real” accounts provide
information for the balance sheet
 Real/Permanent accounts are:
 Assets
 Liabilities
 Owner’s Equity
New Account For Closing
 Income Summary
 Used only for closing accounts and
adjusting for merchandise (later on)
 You “zero out” the account you are
closing with a debit or a credit (the
opposite of which side the account’s
balance is on) and the second entry is to
the Income Summary account
Steps in Closing Accounts (1)
 Close Revenue to Income Summary
 Normal balance of revenue accounts is
credit
 Debit the revenue account the same
amount making balance zero
 Credit Income Summary
Income from Services
$5,000
$5,000
(normal
balance side)
Income Summary
$5,000
Steps in Closing Accounts (2)
 Close each Expense Account to
Income Summary
 Normal balance of each Expense account is debit
 Credit the expense account the same amount
making balance zero
 debit Income Summary
Utilities Expense
$350
(normal
balance
side)
$350
Income Summary
$350
$5,000
Bal: $4,650
Steps in Closing Accounts
 Close each Expense Account to
Income Summary
 Normal balance of each Expense account is debit
 Credit the expense account the same amount
making balance zero
 debit Income Summary
Depreciation Expense,
Equipment
$550
(normal
balance
side)
$550
Income Summary
$350
$550
$5,000
Bal: $4,100
Steps in Closing Accounts
 Close each Expense Account to
Income Summary
 Normal balance of each Expense account is debit
 Credit the expense account the same amount
making balance zero
 debit Income Summary
Salary Expense
$1,000
(normal
balance
side)
$1,000
Income Summary
$350
$550
$5,000
Bal: $3,100
$1,000
Steps in Closing Accounts
 Close each Expense Account to
Income Summary
 Normal balance of each Expense account is debit
 Credit the expense account the same amount
making balance zero
 debit Income Summary
Rent Expense
$1,200
(normal
balance
side)
$1,200
Income Summary
$350
$550
$1,000
$1,200
$5,000
Bal: $1,900
Steps in Closing Accounts (3)
 Close Income Summary to Capital
 Normal balance of Income Summary account is
credit (if you show Net Income)
 Debit the Income Summary account the same
amount making balance zero
 Credit the Capital account by the same amount
Capital
Previous balance:
20,000
$1,900
New balance:
21,900
Income Summary
$1,900
$1,900
Bal: $1,900
(Normal balance
side)
New balance = $0
Steps in Closing Accounts (4)
 Close Drawing to Capital
 Normal balance of Drawing is debit (contra)
 Credit the Drawing account the same amount,
making balance zero
 Debit the Capital account to “reduce” it by how
much the owner took out of the business
Drawing
$1,000
(normal
balance
side)
$1,000
Capital
$1,000
Previous balance
$21,900
(new balance:
$20,900)
Next, Journalize the Closing Entries
 Center the title “Closing Entries” on a
line in the Journal
 No explanation is necessary after
each entry
 Debits must equal credits
Chapter 5
GENERAL JOURNAL
PAGE____4_____
DATE
1
2005
2
June
DESCRIPTION
POST.
REF.
DEBIT
CREDIT
Closing Entries
30
3
Income from Services
1
5
0
0
0
00
Income Summary
2
5
0
0
0
00
4
5
3
4
30
Income Summary
3
1
0
0
00
5
6
Utilities Expense
3
5
0
00
6
7
Depreciation Expense, Equipment
5
5
0
00
7
8
Salary Expense
1
0
0
0
00
8
9
Rent Expense
1
2
0
0
00
9
10
11
10
30
12
Income Summary
1
9
0
0
00
R. Gentry, Capital
11
1
9
0
0
00
13
14
15
16
12
13
30
R. Gentry, Capital
R. Gentry, Drawing
1
0
0
0
00
14
1
0
0
0
00
15
16
Next, Post the Closing Entries
 Post the journal closing entries to the
ledger accounts.
 Cross reference your journal and
ledger page numbers.
 Draw a line through both the debit
column and the credit column to
show that the balance is zero.
Lastly, prepare the
Post-Closing Trial Balance
 This is to make sure the “books” are
ready for the new fiscal period
 List only those accounts that have
balances
 Debits must equal credits
R. Gentry Consulting Services
Post-Closing Trial Balance
June 30, 2005
ACCOUNT NAME
DEBIT
1
Do not list
the
accounts
shown here
in red –
they will
not have
balances
after they
are closed.
The
difference
(net
income) is
shown on
the Income
Statement.
Cash
21
4
6
0
00
2
0
0
0
00
Supplies
1
0
0
00
Prepaid Insurance
3
3
0
00
0
0
0
00
Accounts Receivable
2
CREDIT
3
Equipment
4
Accumulated Depreciation,
Equipment
5
Accounts Payable
15
12
0
0
0
00
5
7
0
0
00
2
9
0
00
20
9
0
0
00
5
0
0
0
00
Wages Payable
6
R. Gentry, Capital
7
R. Gentry, Drawing
8
Fees Income
9
Salary Expense
1
0
0
0
00
10
Rent Expense
1
2
0
0
00
11
Utilities Expense
3
5
0
00
12
Depreciation Expense, Equipment
5
5
0
00
13
1
0
0
0
00
R. Gentry Consulting Services
Post-Closing Trial Balance
June 30, 2005
ACCOUNT NAME
DEBIT
1
Cash
21
4
6
0
00
2
0
0
0
00
Supplies
1
0
0
00
Prepaid Insurance
3
3
0
00
0
0
0
00
Accounts Receivable
2
CREDIT
3
Equipment
4
Accumulated Depreciation, Equipment
5
Accounts Payable
15
12
0
0
0
00
5
7
0
0
00
2
9
0
00
20
9
0
0
00
38
8
9
0
00
Wages Payable
6
13
14
R. Gentry, Capital
38
8
9
0
00
Chapter 5 Demonstration Problems
 Monday, October 8
E 5-1
E 5-3
 Wednesday, October 10
E 5-4
E 5-7
P 5-1A
Chapter 5 Homework
 Problem 5-2A
(E-20)
(textbook - page 168-169
+ working papers - pages 109-110)
 Problem 5-3A
(E-20)
(textbook - page 169
+ working papers - pages 112-113,
116-119)
due October 17
Next Week:
 Monday: In-class Assignment #3
(Look at textbook pages 178 through
180 – could you do this problem?)
 Journalize transactions
 Post transactions to ledger accounts
 Prepare a Trial Balance
 Complete the work sheet with
adjustments
(continued)
In-Class Assignment (continued)
 Prepare the Income Statement
 Prepare the Statement of Owner’s
Equity
 Prepare the Balance Sheet
 Journalize the adjusting entries
 Post adjusting entries to ledger
accounts
 Journalize closing entries
(continued)
In-Class Assignment (continued)
 Post the closing entries to the ledger
accounts
 Prepare a post-closing Trial Balance
You will have all class period on
Monday, 10/15 – plus class time after
quiz on Wednesday, 10/17 – plus all
class period the following Monday (if
needed)
Midterm (Ch. 1-5) on
Wednesday, October 24 (100 points)
Monday
Wednesday