PowerPoint® Slides to accompany Basic Bookkeeping, Seventh Edition Prepared by JD Chazan CPA, CA...

PowerPoint® Slides to accompany

Basic Bookkeeping,Seventh Edition

Prepared by

JD Chazan CPA, CANational Taiwan University

15-1Copyright © 2015 by Nelson Education Ltd.

15-2

Chapter 15

At Year End: Closing the Books

Copyright © 2015 by Nelson Education Ltd.

Chapter 15: At Year-End: Closing the Books

Chapter Objectives

After completing this chapter, you will be able to:

• record year-end closing entries in the General Journal• prepare an Income Statement• prepare a Balance Sheet

Copyright © 2015 by Nelson Education Ltd. 15-3


Closing Journal Entries

At the end of each year, all “temporary” accounts are closed.

• Temporary accounts are the revenue and expense accounts.

• Their account balances are transferred to an equity account called Current Earnings (sometimes called Income Summary).

• Drawings is also a temporary account, which is closed to Capital.



The Income Statement columns of the worksheet is the source for most of the closing entries.

Only FOUR journal entries are needed to close the books...



1. All temporary accounts with credit balances are closed to the Current Earnings account.


Accounts with credit balances are

now debited to close the accounts

to zero.


2. All temporary accounts with debit balances are closed to the Current Earnings account.

• The balance in Current Earnings should now be the same as the net profit or loss shown on the worksheet.


Accounts with debit balances are now

credited to close them to zero.


3. A credit balance in the Current Earnings account (a net profit) is closed to the owner's Capital account.

If Current Earnings has a debit balance (a net loss), the closing entry will look like this:



4. The Drawings account is closed to the owner's Capital account.



Post-Closing Trial Balance• A final trial balance after the closing entries are posted• All revenue and expense accounts, plus Drawings, should now

have zero balances



Financial Statements

• Income Statement (or Profit/Loss Statement)• A statement of revenues and expenses, showing the

net profit or loss for the financial period• Similar to the interim statement discussed in

Chapter 13

• Balance Sheet• A statement of assets, liabilities, and equity on a

specific date (usually year end)




Revenues:Usually sales of goods and/or services, less any returns and discounts.Cost of Goods Sold:All the accounts related to buying the goods, less any returns and discounts.

Operating Expenses:All the usual operating costs incurred during the year.

Net Profit or Loss:The same profit or loss amount shown on the worksheet.



Current Assets:Assets that can be quickly converted to cash, if necessary.

Capital Assets:Assets purchased for long-term use.

Current Liabilities:Debts to be paid off within one year.

Owner's Equity:Showing the effects of Drawings and the year's profit or loss.


End of Chapter 15


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