CHP 10

Closing entries transfer the temporary
account balances to the owner’s capital

account. After the closing entries are
posted, a post-closing trial balance is
prepared to verify that debits equal credits.
Glencoe Accounting Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Explain why it is necessary to update accounts through closing
entries.
Explain the purpose of the Income Summary account.
Explain the relationship between the Income Summary Account and

the capital account.
Analyze and journalize the closing entries.
Post the closing entries to the general ledger.
Prepare a post-closing trial balance.
Preparing Closing
Section 10.1
Entries
Key Terms
closing entries
Income Summary account
compound entry
Completing the
Accounting Cycle
Preparing Closing
Section 10.1
Entries
After the closing entries have been journalized

and posted, a trial balance is prepared.
closing entries
Journal entries made to close, or reduce to zero,
the balances in the temporary accounts and to
transfer the net income or net loss for the period to
the capital account.
Starting the Eighth Step in the
Accounting Cycle: Journalizing
the Closing Entries
Preparing Closing
Section 10.1
Entries
The Income
Summary Account
Preparing Closing
Section 10.1
Entries
The Income Summary Account

Income Summary
Serves as a simple income statement account
in the general ledger The general ledger
account used to
summarize the
Used to accumulate revenue and revenue and
expenses for the period expenses for the
period.
Equals the net income or loss for
the period
The Income
Summary Account
Preparing Closing
Section 10.1
Entries
is used only at the end of the accounting period to

summarize revenue and expense balances.
The Income
Summary does not have a normal balance.
account is a
temporary has a zero balance before and after the closing.
account that:
does not appear on any financial statement.
Preparing the
Closing Entries
Preparing Closing
Section 10.1
Entries
Enter Closing Entries in the

Description column.
To record Enter the last day of the accounting period.

closing entries
in the general
Enter the name(s) and amount(s) of the account(s)
journal: to be debited.
Enter Income Summary as the name of the account to

be credited and the amount to be credited.
Preparing Closing Entries
Preparing Closing
Section 10.1
Entries
Closing Entry First Closing Entry—Close Revenue to Income

Summary
See page 257
Preparing Closing
Section 10.1
Entries
Closing Entry Second Closing Entry—Close Expenses to

Income Summary
See page 258
Preparing Closing
Section 10.1
Entries
Closing Entry Second Closing Entry—Close Expenses to

Income Summary
See pages 258–259
Preparing Closing
Section 10.1
Entries
Closing Entry Third Closing Entry—Close Income Summary to

Capital
See page 259–260
Preparing Closing
Section 10.1
Entries
Closing Entry Fourth Closing Entry—Close Withdrawals to

Capital
See page 261
Posting Closing Entries and
Section 10.2 Preparing a Post-Closing Trial
Balance
Key Term
post-closing trial balance
Completing the Eighth Step in the
Accounting Cycle: Posting the Closing
Entries to the General Ledger
Balance
Closing Entries Posted to the General Ledger
See page 263

The Ninth Step in the Accounting
Cycle: Preparing a Post-Closing
Trial Balance
Balance
Post-Closing Trial Balance
See page 265
post-closing trial balance

A list of the permanent general ledger account balances; it is prepared
to prove the ledger after the closing entries are posted.
Question 1
As a result of the first two closing entries, the Income Summary account had a debit of
$2,250 and a credit of $4,125.
(a) What does the debit of $2,250 represent?
(b) What does the credit of $4,125 represent?
List the process to use to complete the third closing entry to close the balance of the
Income Summary account to Scott Jones, Capital.
Step 1
Calculate the balance of the Income Summary account.
Credits are more than debits; therefore,
$4,125 - $2,250 = $1,875 credit balance,
which indicates a net income.
(continued)
Question 1
Step 2
Identify the accounts affected.
The accounts Income Summary and Scott Jones,
Capital are affected.
(continued)
Question 1
Step 3
Classify the accounts affected.
Income Summary is a temporary owner’s equity
account; Scott Jones, Capital is the permanent owner’s
capital account.
(continued)
Question 1
Step 4
Are the accounts increased or decreased?
The Income Summary account is decreased by its
balance, $1,875, to zero. Scott Jones, Capital is
increased by $1,875.
(continued)
Question 1
Step 5
Apply the debit/credit rule.
To reduce the Income Summary account to zero, debit
Income Summary $1,875. To increase the capital
account, credit Scott Jones, Capital for $1,875.
Question 2
Why are all of the temporary accounts reset to zero at the end of the
fiscal year?
All revenues increase owner’s equity, and all expenses reduce

owner’s equity.
These transactions are separated from capital so the business
can analyze how a profit or loss was made during the year.
At the end of the year, the accumulation of these revenues and
expenses are transferred into the capital account.
The temporary accounts are reset to zero, which allows the
business to compare the revenue and expense data from one
period to the next.
End of

CHP 10

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CHP 10

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Closing entries transfer the temporary

account balances to the owner’s capital

Explain the purpose of the Income Summary account.

Explain the relationship between the Income Summary Account and

Analyze and journalize the closing entries.

Post the closing entries to the general ledger.

Prepare a post-closing trial balance.

After the closing entries have been journalized

The Income Summary Account

is used only at the end of the accounting period to

does not appear on any financial statement.

Enter Closing Entries in the

To record Enter the last day of the accounting period.

Enter Income Summary as the name of the account to

Closing Entry First Closing Entry—Close Revenue to Income

See page 257

Closing Entry Second Closing Entry—Close Expenses to

See page 258

Closing Entry Second Closing Entry—Close Expenses to

See pages 258–259

Closing Entry Third Closing Entry—Close Income Summary to

See page 259–260

Closing Entry Fourth Closing Entry—Close Withdrawals to

See page 261

Closing Entries Posted to the General Ledger

See page 263

Post-Closing Trial Balance

See page 265

post-closing trial balance

All revenues increase owner’s equity, and all expenses reduce

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