the accounting cycle, Lecture notes of Business Accounting

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Accounting Fundamentals In Society ACCY WEEK 8 LECTURE NOTES - COMPLETING THE ACCOUNTING CYCLE

• Closing temporary accounts
• Closing entries
• Post closing trial balance

CLOSING ENTRIES

• CLOSING TEMPORARY ACCOUNTS

• TEMPORARY Accounts
  • PERMANENT
    • Accounts **- REVENUE ACCOUNTS
• EXPENSE ACCOUNTS
• DRAWINGS ACCOUNT
• ASSET ACCOUNTS
• LIABILITY ACCOUNTS
• OWNER’S CAPITAL ACCOUNT**
• CLOSING TEMPORARY ACCOUNTS - Income and expense accounts must be reduced to zero at the end of each period to determine the profit or loss for the period - These are called CLOSING ENTRIES! - Income and expense accounts then begin the next accounting period with a zero balance
• PROFIT OR LOSS SUMMARY ACCOUNT
• THE CLOSING PROCESS - Income accounts closed to Profit or Loss summary
• Debit Income
• Credit Profit or Loss summary
• The compound journal entry needed to close the income accounts is as follows.
• THE CLOSING PROCESS - Expense accounts closed to Profit or Loss summary
• Debit Profit or Loss summary
• Credit Expense

 Prepared to verify the equality of debits and credits.  Confirms that only permanent accounts have balances.  Confirm that the ledger is ‘in balance’.  These balances are also the starting point for the next accounting period.