Closing Entries and The Post-Closing Trial Balance: Teacher Version

chapter
Closing Entries and the

College Accounting
5
Post-Closing Trial Balance 11th Edition
Teacher Version
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
5–1
After
Afteryou
youhave
havecompleted
completedthis
thischapter,
chapter,you
you
Learning Objectives will
willbe
beable
ableto
todo
dothe
thefollowing:
following:
5–2
Steps
Steps in
in the
the Accounting
Accounting Cycle
Cycle
5–3
5–4
Purpose
Purpose of
of Closing
Closing Entries
Entries
• The purpose of closing entries is to close (or zero) the
temporary-equity or nominal accounts.
• Closing entries are made after the last adjusting entry and
after the financial statements have been prepared.
• Closing entries update the owner’s capital account.
5–5
Practice Exercise 1
5–6
Procedure
Procedure for
for Closing
Closing
The procedure for closing is simply to balance off the
account; in other words, to make the balance is Equal
to Zero.
An account to be closed has a debit balance of $1,400. To make
the balance equal to zero, we credit the account for $1,400.
An account to be closed has a debit balance of $870. To make the

balance equal to zero, we credit the account for $870.
5–7
Steps
Steps in
in the
the Closing
Closing Procedure
Procedure
5–8
Steps
Steps in
in the
the Closing
Closing Procedure
Procedure
5–9
2,832
1,250
460
620
225
625
512
6,524
5–10
In cases where a net loss exists, Income Summary and Capital are both
reduced. Assume J. Doe Company experienced a $600 net loss.
5–11
5–12
Closing
ClosingEntries
EntriesTaken
TakenDirectly
Directlyfrom
fromthe
theWork
WorkSheet
Sheet
• You can gather information for the
closing entries either directly from the
ledger accounts or from the work
sheet (figures for three of the four
entries can be taken from the last four
columns).
• You may plan the closing entries by
balancing off all the figures that appear
in the Income Statement columns.
• In the Item column of the ledger
account, we write the word Closing.
5–13
Posting
Posting the
the Closing
Closing Entries
Entries
• Accountants call the accounts that are to be closed

(such as revenue, expenses, Income Summary, and
Drawing) nominal (temporary-equity) accounts.
• Accountants call the accounts that remain open from
one fiscal period to the next real (permanent)
accounts.
5–14
General Ledgers After Closing Entries
5–15
5–16
The
ThePost-Closing
Post-ClosingTrial
TrialBalance
Balance
• To verify the balances of the accounts that remain open, a

Post Closing Trial Balance is prepared using the final
balance figures from the ledger accounts.
• Note that the accounts listed in the post-closing trial
balance are the real or permanent accounts.
5–18
Tracking
Tracking Down
Down an
an Error
Error
If the totals of the post-closing trial balance are not equal,
here’s the recommended procedures for tracking down the
error.
1. Re-add the trial balance columns.
2. Check to see that the figures were correctly transferred from the
ledger accounts to the post-closing trial balance.
3. Verify the posting of the adjusting entries and the recording of the new
balances.
4. Make sure that the closing entries have been posted and that all
revenues, expense, Income Summary, and Drawing accounts have
zero balances.
5–19
Cash
Cash and
and Accrual
Accrual Accounting
Accounting
• Under the cash basis of accounting, revenue is

recorded when it is received in cash, and generally
expenses are recorded when they are paid in cash.
• Under the accrual basis of accounting, revenue is
recorded when it is earned, and expenses are
recorded when they are incurred.
5–20
Interim
Interim Statements
Statements
• Financial statements prepared during the fiscal year,
for periods of less than twelve months, are called
interim statements.
• A business may prepare the financial statements
monthly to provide up-to-date information about the
results of operations.
5–21

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chapter

Closing Entries and the

An account to be closed has a debit balance of $870. To make the

• Accountants call the accounts that are to be closed

• To verify the balances of the accounts that remain open, a

• Under the cash basis of accounting, revenue is

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