Accounting Training

Chapter 13
Closing Entries

Copyright ©Jerry Belch 2015



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Chapter 13 worksheet
Income and Expense Summary
General Journal Template
Bromley's Closing Entries - General Journal
General Ledger
Journalize closing entries for your company
Post your company's closing entries to your company's general ledger
Chapter Test



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Accounting Terms in This Chapter
Click on terms.

Temporary Accounts
Closing the Books
Income & Expense Summary
Journalizing Closing Entries
Posting Closing Entries
Post-Closing Trial Balance
Accounting Cycle


Tutorial : Closing Entries


You may want to wait until the end of the VE simulation, April 30, to close your books. By waiting until then you will be able to see how much your company made over the entire year. If you close books each month, you can see how much you made each month, but cannot see the amount for the whole year. Ask your instructor. If you are part of the Virtual Enterprise network and you want to compete in the business plan competition, you need to maintain your books all year round.
  • Revenue and expense accounts are really only temporary stockholders' equity accounts.
  • A revenue transaction increases stockholders' equity and and expense transactions reduce stockholders' equity.
  • It is impractical to debit and credit stockholders' equity each time there is a business transaction, that is why we set up a series of revenue and expense accounts.
  • We also need to classify the expenses to make better business decisions.
  • At the close of the period, after the income statement has been prepared, the account balances for these temporary accounts are totalled, zeroed out and the difference between expense and revenue is transferred to the retained earning account in the stockholders' equity section.
  • The balance of each revenue and the balance of each expense account are transferred to one ledger account to summarize the increases and decreases in owners' equity.
  • The account name is Income and Expense Summary.
  • It is the stockholders' equity section of the chart of accounts.
  • It is a temporary account used only for adjustments and closing entries.
  • We have used this account briefly in the worksheet chapter for some of our adjustments.
  • The balance of the revenue and expense accounts are transferred into the income and expense summary account by journal entries.
  • Look at the income and expense summary link in the project box to see a graphical representation of this process.
  • There are already two adjusting entries in this account that relate to beginning and ending inventory.
  • They were posted to this account in the last chapter.
  • Looking at the chart you will see that sales is on the right.
  • Sales has a credit balance as you can see.
  • To close the sales account, we will debit sales the amount that is in the account, 333,572.76 and credit income and expense summary account the same amount.
  • The expense accounts are all listed on the left-hand of the page.
  • To close all expense accounts we will credit each expense account the amount that is in the account and then debit the income and expense summary for the total of the expenses.
  • Listed below are the closing entries for Bromley's formal wear.
  • If you have a service business, the only difference in closing the books is that you do not have a purchases account, merchandise inventory account and there will be no adjusting entries in the income summary account.


Closing Entries

Account Name

Debit

Credit

Sales

$333,572.76

Income & Expense Summary

$333,572.76

Income & Expense Summary

$265,064.71

Purchases

$120,858.42

Salary Expense

$119,166.67

Rent Expense

$3,750.00

Repairs Expense

$350.00

Alterations Expense

$459.25

Advertising Expense

$1,000.00

Supplies Expense

$135.00

Depreciation Expense

$491.12

Insurance Expense

$812.50

Miscellaneous Expense

$200.00

Payroll Taxes Expense

$14,121.25

Utilities

$2,187.50

Interest Expense

$1,508.00

Delivery Expense

$25.00