CLOSING PROCEDURES

Lesson 21
Objectives
• Journalize and post adjusting entries
• Journalize and post closing entries
• Prepare a post-closing trial balance
Journalize and post adjusting entries
Adjusting entries were already prepared and its effects were included in
the worksheet and ultimately, in the financial statements. However,
these adjusting entries are not yet journalized and posted formally in
the books of accounts.
Journalize and post adjusting entries
After these adjusting entries are journalized and
posted formally, the updated balances in the
ledger should be equal to the adjusted trial
balance column of the worksheet.
Journalize and post closing entries
Closing entries are entries that close the balances of
drawing, revenue, and expense accounts to zero to
prepare them for the next accounting period.
Journalize and post closing entries
ASSETS
LIABILITIES Real Accounts
CAPITAL

DRAWING
REVENUE Nominal Accounts
EXPENSES
Journalize and post closing entries
1. Debit all revenue accounts and credit the total to the profit or loss
summary account
2. Credit all expenses accounts and debit the total to the profit or loss
summary account.
3. The net effect of the profit or loss summary account will be closed
to the capital account.
4. Any balance of the drawing account will be charged against the
capital account.
CLOSING ENTRIES
After journalizing and posting closing
entries…
1. Assets and liabilities should maintain their updated
balances.
2. Drawing, revenue, and expenses should be zero.
3. The capital account should be updated with the
amount equal to what is reported in the Statement
of Changes in Equity.
Post-Closing Trial Balance
The post-closing trial balance is a trial balance prepared
after all closing procedures. Since all nominal accounts
have already been closed, the PCTB only includes
assets, liabilities, and capital.
Wrapping up…
After all these processes, make sure that:
1. The journal shall include the normal journal entries, adjusting
entries, closing entries, and reversing entries (an optional step)
2. The ledger balances are updated as to assets, liabilities, and capital,
and zero as to drawing, revenue, and expenses.
3. The post-closing trial balance had been prepared.