LESSON 8-2
Recording Closing Entries
Original created by M.C. McLaughlin, Thomson/South-Western
Modified by Deborah L. Burns, Johnston County Schools, West Johnston High School
CENTURY 21 ACCOUNTING © Thomson/South-Western
2
Permanent & Temporary Accounts
 Accounts used to accumulate information from
one fiscal period to the next are called permanent
accounts (also referred to as real accounts)
 Assets, Liabilities, Owner’s Equity
 Accounts used to accumulate information until it
is transferred to the owner’s capital account are
called temporary accounts (also referred to as
nominal accounts)
 Revenue, Expense, Owner’s Drawing, Income Summary
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 8-2
3
NEED FOR CLOSING TEMPORARY
ACCOUNTS
page 207
Journal entries used to prepare temporary accounts for a
new fiscal period are called closing entries
Temporary account balances must be reduced to zero at
the end of each fiscal period
To close a temporary account, an amount equal to its
balance is recorded in the account on the side opposite to
its balance
A temporary capital account titled Income Summary is
used to summarize the closing entries for the revenue &
expense accounts
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 8-2
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NEED FOR THE INCOME SUMMARY
ACCOUNT
page 207
The income summary account is unique because it does not have a
normal balance side
The balance of this account is determined by the amounts posted to
the account at the end of a fiscal period
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 8-2
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NEED FOR THE INCOME SUMMARY
ACCOUNT
Business record four closing entries:
An entry to close Income statement accounts with
credit balances
An entry to close income statement accounts with
debit balances
An entry to record net income or net loss and close
Income Summary
An entry to close the owner’s drawing account
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 8-2
6
CLOSING ENTRY FOR AN INCOME STATEMENT
ACCOUNT WITH A CREDIT BALANCE
page 208
(Debit to close)
1
2
3
4
1. Write the heading.
2. Write the date.
3. Write the title of the account debited.
Record the debit amount.
4. Write the title of the account credited. Record the credit amount.
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 8-2
7
CLOSING ENTRY FOR INCOME STATEMENT
ACCOUNTS WITH DEBIT BALANCES
1.
2.
3.
4.
page 209
Date
Income Summary
Credit
Debit amount
(Credit to close)
1
2
4
3
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 8-2
CLOSING ENTRY TO RECORD NET INCOME
OR LOSS AND CLOSE THE INCOME
SUMMARY ACCOUNT
8
page 210
1. Date
2. Debit
3. Credit
(Capital: credit to
record net income)
(Income Summary:
debit to close)
1
2
3
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 8-2
9
CLOSING ENTRY FOR THE OWNER’S
DRAWING ACCOUNT
page 211
1. Date
2. Debit
3. Credit
(Credit to close)
1
2
3
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 8-2
10
TERMS REVIEW
page 212
 permanent accounts
 temporary accounts
 closing entries
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 8-2