Kế toán, kiểm toán - Chapter ten: Closing the ledger

CHAPTER TENClosing the Ledger1. Record closing entries.2. Post the closing entries to the general ledger accounts.3. Open new ledger accounts.4. Prepare a postclosing trial balance.5. Describe the accounting cycle. CLOSING THE LEDGERObjectives:3Recording the Closing EntriesThe procedure used at the end of each accounting period to make the ledger ready for the next period’s transactions is known as closing the ledger.This procedure begins with a series of closing entries, which are journalized and posted.4Recording the Closing Entries (continued)Closing entries: Summarize the balances of the revenue and expense accounts so that the net income or net loss can be recorded.5Recording the Closing Entries (continued)Closing entries: Transfer to the capital account the net increase or net decrease in owner’s equity resulting from the current period’s operations.6Recording the Closing Entries (continued)Closing entries: Reduce the balances of the revenue, expense, and drawing accounts to zero so that these accounts can be used to record information for the next period.7Recording the Closing Entries (continued)8Recording the Closing Entries (continued)9Opening New Ledger AccountsSome accountants prefer to file the previous period’s ledger and set up new ledger sheets for the current period, transferring the prior balances to the new ledger sheets.10Preparing the Postclosing Trial BalanceBefore any transactions are recorded for the new period, another trial balance, called a postclosing trial balance, is prepared to check the equality of the debits and credits in the ledger.11Preparing the Postclosing Trial Balance (Continued)The only accounts listed on the postclosing trial balance are the ones that are still open -- assets, liabilities, and owner’s equity accounts.These accounts are often called permanent accounts.12The Accounting CycleAccounting work follows a pattern that involves policies and procedures known as the accounting cycle.13The Accounting Cycle (Continued)The procedures that make up the accounting cycle include:1. Analyze transactions and record them in a journal.2. Post the journal entries to the ledger accounts.3. Prepare a trial balance to prove the ledger accounts.14The Accounting Cycle (continued)4. Complete a worksheet to plan the financial statements.5. Prepare the financial statements6. Journalize and post adjusting entries and closing entries.15The Accounting Cycle (continued)7. Prepare a postclosing trial balance to prove the ledger accounts that remain open at the end of the period.16Accounting TerminologyAccounting cycleClosing an accountClosing entriesClosing the ledgerIncome summaryPermanent accountsPostclosing trial balanceTemporary accounts17Chapter SummaryThe closing entries that are recorded at the end of each accounting cycle clear the revenue, expense, and withdrawal accounts so that they are ready for the next period’s transactions.18Chapter Summary (continued)An account called Income Summary is used in the closing entries. The balances of the revenue and expense accounts are transferred to the Income Summary account.The balance of the Income Summary account (net income/net loss) is transferred to the owner’s capital account.19Chapter Summary (continued)The balance of the owner’s withdrawal account is transferred to the owner’s capital account.After the closing entries have been posted, the revenue, expense, summary, and drawing accounts have zero balances.20Chapter Summary (continued)A postclosing trial balance is prepared to prove the equality of the debit and credit balances in the open accounts.The accounts that remain open from period to period are the permanent accounts–assets, liabilities, and owner’s capital accounts.21Chapter Summary (continued)The accounts that are closed at the end of each fiscal period are the temporary accounts–revenue, expense, drawing, and summary accounts.The accounting cycle consists of a series of procedures that are repeated in each accounting period.221. Only temporary accounts are closed at the end of the fiscal period. 2. Only permanent accounts remain open at the end of the fiscal period.3. A postclosing trial balance proves the equality of debits and credits in those accounts that were closed.Topic QuizAnswer the following true/false questions:TRUEFALSETRUE23 Investigating on the InternetSources of information about end of the fiscal period activities can be accessed at most financial websites.As a research assignment, access a financial website and report those sources of information that might concern the use of ending procedures in business.24(Return to Topic Quiz)3. A postclosing trial balance proves the equality of debits and credits in those accounts that were closed.FALSE. . .in those accounts that are still open. The closed accounts have zero balances.25