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Closing Entries

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... Drawings 5000 Accounting Cycle Transactions occur Accounting entries recorded in the ... in the accounting cycle. The closing entries ... presentation format: On ... – PowerPoint PPT presentation

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Title: Closing Entries


1
Closing Entries
2
Closing Entries
  • Time Period Concept
  • Closing the accounts is also known as clearing
    the accounts
  • Real account balances are carried into the next
    fiscal period
  • Nominal accounts are not continued
  • R.E.D.I.

3
Nominal Accounts
  • Revenue
  • Expenses
  • Drawings
  • Income Summary
  • Summarizes the revenues and expenses

4
End-of-Period Procedure
  1. Bring accounts up to date
  2. Close the nominal accounts
  3. Transfer balances of revenues and expenses into
    the Income Summary Account
  4. Transfer balances of income summary and drawings
    across to the capital account
  5. Take off a post-closing trial balance

5
CLOSING ENTRIES
  • All revenues and expenses must be reduced to zero
    to allow new entries next period
  • Use the REID formula
  • R close revenues to Income Summary
  • E close expenses to Income Summary
  • I close Income Summary to Capital
  • D close Drawings to Capital

6
Close Revenues
  • Fees Income 30000
  • Management Revenue 20000
  • Income Summary 50000

7
Close Expenses
  • Income Summary 40000
  • Advertising Expense 10000
    Wages 15000 General
    Expense 15000

8
Close Income Summary
  • Income Summary 10000
  • J. Schmoo, Capital 10000

9
Close Drawings
  • J. Schmoo, Capital 5000
  • J. Schmoo, Drawings 5000

10
Accounting Cycle
Transactions occur
Accounting entries recorded in the journal
Journal entries posted to the ledger accounts
11
Continued
Ledger balanced by means of a trial balance
Work sheet prepared.
Formal income statement and balance sheet prepared
12
Continued
Adjusting entries journalized and posted
Closing entries journalized and posted
Post-closing trial balance
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