completing the accounting cycle for a merchandising corporation

Completing the Accounting Cycle for a Merchandising Corporation

Completing the Accounting Cycle for a Merchandising CorporationMaking Accounting RelevantAt the end of a fiscal period, businesses must “close the accounting records” or clean the slate in order to begin another period.

Making Accounting RelevantAt 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?

Section 1Journalizing Closing Entries

Section 1Journalizing Closing Entries

What You’ll 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.

What You’ll 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.

Why It’s Important

Closing the ledger “cleans

the slate” so that the next

accounting cycle can begin.

Why It’s Important

Closing the ledger “cleans

the slate” so that the next

accounting cycle can begin.

Section 1 The Ownership of a Corporation (con’t.)Section 1 The Ownership of a Corporation (con’t.)

Steps for Closing the Ledger

…transfer balances of all temporary accounts to a permanent account.

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

1. Close temporary credit accounts to Income Summary

2. Close temporary debit accounts to Income Summary

3. Close Income Summary to Retained Earnings

Section 1 The Ownership of a Corporation (con’t.)Section 1 The Ownership of a Corporation (con’t.)

Close Temporary Accounts with Credit BalancesClose Temporary Accounts with Credit Balances

Section 1 The Ownership of a Corporation (con’t.)Section 1 The Ownership of a Corporation (con’t.)

Close Temporary Accounts with Debit BalancesClose Temporary Accounts with Debit Balances

Section 1 The Ownership of a Corporation (con’t.)Section 1 The Ownership of a Corporation (con’t.)

Close the Balance of Income Summary to Retained EarningsClose the Balance of Income Summary to Retained Earnings

Section 1 The Ownership of a Corporation (con’t.)Section 1 The Ownership of a Corporation (con’t.)

Check Your UnderstandingCheck Your Understanding

1. During the closing process, which

account balances are credited to

the Income Summary account?

1. During the closing process, which

account balances are credited to

the Income Summary account?

Section 1 The Ownership of a Corporation (con’t.)Section 1 The Ownership of a Corporation (con’t.)

2. Which account balances are

debited to the Income Summary

account?

2. Which account balances are

debited to the Income Summary

account?

Section 2Posting Closing Entries

Section 2Posting Closing EntriesWhat You’ll Learn

How to post closing entries.

How to prepare a post-closing

trial balance.

The accounting cycle for a

merchandising business.

What You’ll Learn

How to post closing entries.

How to prepare a post-closing

trial balance.

The accounting cycle for a

merchandising business.

Why It’s Important

To prepare the general ledger for

the next period, you need to transfer

the temporary account balances to

the permanent Retained Earnings

account.

Why It’s Important

To prepare the general ledger for

the next period, you need to transfer

the temporary account balances to

the permanent Retained Earnings

account.

Section 2 Posting Closing Entries (con’t.)Section 2 Posting Closing Entries (con’t.)

Closing the General LedgerClosing 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.

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.

Section 2 Posting Closing Entries (con’t.)Section 2 Posting Closing Entries (con’t.)

Preparing a Post-Closing Trial BalancePreparing 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.

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.

Section 2 Posting Closing Entries (con’t.)Section 2 Posting Closing Entries (con’t.)

Check Your UnderstandingCheck Your Understanding

After all closing journal entries

are posted, what is the balance of

the temporary accounts?

After all closing journal entries

are posted, what is the balance of

the temporary accounts?

Section 2 Posting Closing Entries (con’t.)Section 2 Posting Closing Entries (con’t.)