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.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

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.

Section 1 Journalizing Closing Entries (cont'd.)

Steps for Closing the LedgerClosing entries transfer the balances of all

the temporary accounts to a permanent account.

1. Close the temporary accounts with credit balances to Income Summary

Section 1 Journalizing Closing Entries (cont'd.)

2. Close the temporary accounts with debit balances to Income Summary

3. Close the balance of Income Summary to Capital/Retained Earnings

4. Close the withdrawals account to Capital (not necessary with corporations since there isn’t a withdrawal account! )

Close Temporary Accounts with Credit Balances

Section 1 Journalizing Closing Entries (cont'd.)

Close Temporary Accounts with Debit Balances

Section 1 Journalizing Closing Entries (cont'd.)

Close the Balance of Income Summary to Retained Earnings

Section 1 Journalizing Closing Entries (cont'd.)

Check Your Understanding

1. During the closing process, which

account balances are credited to

the Income Summary account?

Section 1 Journalizing Closing Entries (cont'd.)

2. Which account balances are

debited to the Income Summary

account?

Section 2Posting Closing Entries

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 ImportantTo prepare the general ledger for

the next period, you need to transfer the temporary account balances to the permanent Retained Earnings account.

This also sets all of the temporary accounts back down to zero for the next accounting period!

Section 2 Posting Closing Entries (cont'd.)

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.

Section 2 Posting Closing Entries (cont'd.)

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.

Section 2 Posting Closing Entries (cont'd.)

Check Your Understanding

After all closing journal entries

are posted, what is the balance of

the temporary accounts?

Section 2 Posting Closing Entries (cont'd.)