ACCOUTING FOR CLOSING ENTRIES

The Accounting Cycle 1) Analyzing

& Classifying
Data about
an Economic
Event
2)
7) Preparing
Journalizing
Financial
the
Comprises of 7 Steps
Statements
Tranaction

▷ We’ll be talking about Accounting

6) Cycle 3) Posting

the 2nd last item of the Recording

Closing
from the
Journals to
General
accounting i.e. Recording Entries Ledger

closing entries.
4) Perparing
5) Recording
the
Adjusting
Unadjusted
Entries
Trial Balance

2
 A CLOSING ENTRY IS A JOURNAL ENTRY
AT THE END OF AN ACCOUNTING
PERIOD
SEDD
LO
C Temporary Account Permanent Account

REVENUES
EXPENSES
DIVIDENDS/DRAWINGS

- Closing entries are journal entries used to empty temporary accounts at the end
of a reporting period and transfer their balances into permanent accounts.
3
 Temporary/Permanent Accounts
Temporary Accounts Permanent Accounts
Expense Assets

Revenue Liabilities

Dividends/Drawings Owner’s equity

Income Summary Unearned Revenues

Other Gains & Losses Prepaid Expense

Only temporary accounts are closed at the end of accounting period

4
 Key Points to Remember

Financial Statements are prepared after the closing entries

have been passed.

The reason for the closing entries is to ensure that temporary

accounts begin the next accounting year with a zero balance

The objective is to get the account balance to be zero

5
 Details of Closing Enteries
There are four closing entries, which transfer all temporary account balances to the owner’s capital account

Revenue Expense

Close Revenue accounts to Income Summary

Close Expense accounts to Income Summary Income Summary

Close Income summary account to Unappropriated Profits

Dividends/
Drawings
Close Dividends to Unappropriated Profits

Unappropriated
Profits
6
 Closing Revenue Accounts
• Revenues positively impact capital & increase owner’s equity; it will have a +ve sign
attached to it.
• Closing revenue account means a journal entry which makes the balance of revenue
account zero and transfers the former balance of the revenue account into the income
summary account.

7
 Closing Expense Accounts
• Expenses negatively impact capital & decrease owner’s equity; it will have a –ve sign
attached to it.
• All the expenses will be summed and the value of total expenses will be transferred to
the Income summary account.

8
 Closing Income Summary Account
• The amount in Income summary
account is the result of balance
from Expense and Revenue
accounts.
• Closing an income summary
account means transferring its
balance to the account of
Unappropriated Profits, bringing
the income summary account to
zero.
• After this closing entry has been
posted, the income summary
account has a zero balance at the
end of the year. Income is transferred to R/E as
income summary is closed
9
 Closing Dividends/Drawings Account
• Dividends to stockholders are not considered an expense of the business; therefore,
they are not considered in determining net income for the period.
• Since dividends are not an expense, the Dividends account is not closed to the Income
Summary account.
• Instead, it is closed directly to the unappropriated profits account.
• Since dividends/drawings have a natural -ve balance, So they are deducted from the
dividends account, and are added to the account of unappropriated profits.

10
 Chapter – Mind Map

Big concept
11
THANK YOU!