Completing the Accounting Cycle for a Merchandising Corporation

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Chapter 20

Completing the Accounting Cycle for a
Merchandising Corporation

Making Accounting Relevant At the end of a fiscal
period, businesses must close the accounting
records or clean the slate in order to begin
another period.


At the end of a school year, what types of
activities do you perform? Do you clean out your
locker? Do you prepare for a summer job?
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Chapter 20

Section 1 Journalizing Closing Entries

• What Youll Learn
• What steps are followed to close the ledger.
• What closing entries are required for a
  merchandising business organized as a
  corporation.
• What closing entry is required when a corporation
  reports a loss.

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Section 1 The Ownership of a Corporation (cont.)
Chapter 20

Why Its Important Closing the ledger cleans
the slate so that the next accounting cycle can
begin.



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Section 1 The Ownership of a Corporation (cont.)
Chapter 20

Steps for Closing the Ledger transfer balances
of all temporary accounts to a permanent account.

1. Close temporary credit accounts to Income
Summary 2. Close temporary debit accounts to
Income Summary 3. Close Income Summary to
Retained Earnings


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Section 1 The Ownership of a Corporation (cont.)
Chapter 20

Close Temporary Accounts with Credit Balances



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Section 1 The Ownership of a Corporation (cont.)
Chapter 20

Close Temporary Accounts with Debit Balances



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Section 1 The Ownership of a Corporation (cont.)
Chapter 20

Close the Balance of Income Summary to Retained
Earnings



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Section 1 The Ownership of a Corporation (cont.)
Chapter 20

Check Your Understanding
1. During the closing process, which account
balances are credited to the Income Summary
account?


2. Which account balances are debited to the
Income Summary account?

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Chapter 20

Section 2 Posting Closing Entries

• What Youll Learn
• How to post closing entries.
• How to prepare a post-closing trial balance.
• The accounting cycle for a merchandising business.

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Section 2 Posting Closing Entries (cont.)
Chapter 20

Why Its Important To prepare the general ledger
for the next period, you need to transfer the
temporary account balances to the permanent
Retained Earnings account.



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Section 2 Posting Closing Entries (cont.)
Chapter 20

Closing the General Ledger

• After closing entries are recorded in the general
  journal, they are posted to the general ledger.
• For each posting the term Closing Entry is
  written in the Description column of the general
  ledger account.

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Section 2 Posting Closing Entries (cont.)
Chapter 20

Preparing a Post-Closing Trial Balance

A post-closing trial balance is prepared at the
end of the accounting period to prove that the
general ledger accounts are in balance after all
adjusting and closing entries are posted.


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Section 2 Posting Closing Entries (cont.)
Chapter 20

Check Your Understanding

After all closing journal entries are posted,
what is the balance of the temporary accounts?