Completing the
Accounting Cycle for a
Merchandising
Corporation
Making Accounting Relevant
At the end of a fiscal period, businesses
must “close the accounting records” or
clean the slate in order to begin another
period.
At the end of a school year, what types
of activities do you perform? Do you
clean out your locker? Do you prepare
for a summer job?
Section 1 Journalizing Closing
Entries
What You’ll Learn
 What steps are followed to close
the ledger.
 What closing entries are required
for a merchandising business
organized as a corporation.
 What closing entry is required
when a corporation reports a loss.
Section 1 The Ownership of a Corporation (con’t.)
Why It’s Important
Closing the ledger “cleans
the slate” so that the next
accounting cycle can begin.
Section 1 The Ownership of a Corporation (con’t.)
Steps for Closing the Ledger
…transfer balances of all temporary
accounts to a permanent account.
1. Close temporary credit accounts to
Income Summary
2. Close temporary debit accounts to
Income Summary
3. Close Income Summary to Retained
Earnings
Section 1 The Ownership of a Corporation (con’t.)
Close Temporary Accounts with
Credit Balances
Section 1 The Ownership of a Corporation (con’t.)
Close Temporary Accounts with
Debit Balances
Section 1 The Ownership of a Corporation (con’t.)
Close the Balance of Income
Summary to Retained Earnings
Section 1 The Ownership of a Corporation (con’t.)
Check Your Understanding
1. During the closing process, which
account balances are credited to
the Income Summary account?
2. Which account balances are
debited to the Income Summary
account?
Section 2 Posting Closing
Entries
What You’ll Learn
 How to post closing entries.
 How to prepare a post-closing
trial balance.
 The accounting cycle for a
merchandising business.
Section 2 Posting Closing Entries (con’t.)
Why It’s Important
To prepare the general ledger for
the next period, you need to transfer
the temporary account balances to
the permanent Retained Earnings
account.
Section 2 Posting Closing Entries (con’t.)
Closing the General Ledger
 After closing entries are recorded in
the general journal, they are posted
to the general ledger.
 For each posting the term “Closing
Entry” is written in the Description
column of the general ledger
account.
Section 2 Posting Closing Entries (con’t.)
Preparing a Post-Closing Trial
Balance
A post-closing trial balance is
prepared at the end of the
accounting period to prove that the
general ledger accounts are in
balance after all adjusting and
closing entries are posted.
Section 2 Posting Closing Entries (con’t.)
Check Your Understanding
After all closing journal entries
are posted, what is the balance of
the temporary accounts?