seventh step in the accounting cycle
to journalize and post closing entries
Closing entries
- transfer the results of operations (net income or net loss) to owner's equity,- reduce revenue, expense, and drawing account balances to zero.
Income Summary account
a special owner's equity account that is used only in the closing process to summarize results of operations.Income Summary has a zero balance after the closing process, and it remains with a zero balance until after the closing procedure for the next period.
steps of closing process
1. Transfer the balance of the revenue account to the Income Summary account.2.
Transfer the expense account balances to the Income Summary account.3. Transfer the balance of the Income Summary account to the owner's capital account.4. Transfer the balance of the drawing account to the owner's capital account.
To close an account means
to reduce its balance to zero
First Closing Entry
The balance of the revenue account is transferred to the Income Summary account.
Debit RevenueCredit Income Summary
Second Closing Entry
The balances of the expense accounts are transferred to the Income Summary account.Debit Income SummaryCredit Expenses
Third Closing Entry
3. The balance of the Income Summary account—net income or net loss—is transferred to the owner's capital account.If Income Summary has a credit balance:Debit Income SummaryCredit Owner's CapitalIf Income Summary has a debit balance:Debit Owner's CapitalCredit Income Summary
Fourth Closing Entry
4. The drawing account is closed to the owner's capital account.
Debit Owner's CapitalCredit Drawing
eighth step in the accounting cycle
prepare the postclosing trial balance, or after-closing trial balance
postclosing trial balance
a statement that is prepared to prove the equality of total debits and credits. It is the last step in the end-of-period routine.
postclosing trial balance verifies...
total debits equal total credits;revenue, expense, and drawing accounts have zero balances.only accts in this trial balance are asset, liability and owner equity
ninth and last step in the accounting cycle
interpreting the financial statements
what answers does interpreting financial statments answer
What is the cash balance? How much do customers owe the business? How much does the business owe suppliers? What is the profit or loss?
what are all nine steps of accting cycle?
1. Analyze transactions.2. Journalize the transactions.3.
Post the journal entries.4. Prepare a worksheet.5.
Prepare financial statements.6. Record adjusting entries.7. Record closing entries.8.
Prepare a postclosing trial balance.9. Interpret the financial information.
