Accounting
Chapter 9 Notes
Permanent Accounts – also referred to as real accounts – accounts used to accumulate
information from one fiscal period to the next. Permanent accounts include: Assets,
Liability, and Capital Accounts.
Permanent account balances at the end of one fiscal period are the same as the beginning
balances for the next fiscal period.
-----------------------------------------------------------------------------------------------------------Temporary Accounts – also referred to as nominal accounts – accounts used to
accumulate information until it is transferred to the owner’s capital account. Temporary
Accounts include: Revenue, Expense, Owner’s Drawing, and Income Summary
Accounts.
Temporary Accounts show changes in the owner’s capital accounts – therefore – at the
end of the fiscal period, the balances of temporary accounts must be summarized and
transferred to the owner’s capital accounts.
Temporary Accounts begin each fiscal period with a zero balance.
-----------------------------------------------------------------------------------------------------------Closing Entries – journal entries used to prepare temporary accounts for a new fiscal
period.
All temporary accounts are closed.
To close a temporary account, an amount equal to its balance is recorded in the account
on the side opposite to its balance.
-----------------------------------------------------------------------------------------------------------Income Summary – a temporary account that is used to summarize the closing entries for
the revenue and expense accounts.
The income summary account is unique because it does not have a normal balance. The
balance of this account is determined by the amounts posted to the account at the end of a
fiscal period. When revenue is great than expenses, resulting in a net income, the income
summary account has a credit balance. When total expenses are greater than total
revenue, this results in a net loss and a debit balance.
1
Accounting
Chapter 9 Notes
Closing Entries
There are 4 Closing Entries that need to be recorded:
1) An entry to close income statement accounts with credit balances (Revenue)
2) An entry to close income statement accounts with debit balances (Expenses)
3) An entry to record net income or net loss and close Income Summary account
4) An entry to close the owner’s drawing account





To close Sales – Debit Sales, Credit Income Summary
To close Expenses – Credit each expense account, Debit Income Summary
for total
To close Income Summary account when there’s a net income: Debit
Income Summary for the amount of the net income, Credit Capital
To close Income Summary account when there’s a net loss: Debit Capital for
the amount of the net loss, Credit Income Summary
To close Owner’s Drawing account – Debit Capital, Credit Drawing
-----------------------------------------------------------------------------------------------------------After recording all Adjusting Entries and all Closing Entries you must post them all. All
temporary accounts should now have zero balances (revenue, expenses, income
summary, drawing)
Post Closing Trial Balance – a trial balance prepared after the closing entries are posted.
Only general ledger accounts with balances are included on a post-closing trial balance.
The permanent accounts (assets, liabilities, and capital) have balances and do appear on a
post-closing trial balance. The temporary accounts (revenue, expenses, income summary,
drawing) are closed and have zero balances so should not appear on a post-closing trial
balance.
Accounting Cycle – the series of accounting activities included in recording financial
information for a fiscal period.
2