Chapter#6- Closing Entries and the Postclosing Trial Balance

After the Revenue and Expense Accounts are closed, Income Summary has a credit balance of $60,000. What does this figure represent?

A Net Profit of $60,000.

Income Summary Account

A special Owner's Equity Account that is used only in the closing process to summarize the results of operations.

Postclosing Trial Balance

A statement that is prepared to prove the equality of total debits and credits after the closing process is completed.

How is the Income Summary Account classified?

A temporary Owner's Equity Account.

What accounts appear on the Postclosing Trail Balance?

Assets, Liabilities, and the Owner's Capital Accounts.

On which financial statement would you be able to see how much money is owed to suppliers?

Balance Sheet.

On which financial statement would you be able to see if there's enough Cash to purchase new equipment?

Balance Sheet.

On which financial statement would you be able to see what customers, if any, owe money to the business?

Balance Sheet.

After the closing entries are posted, which account normally has a balance other than zero?

Capital Account.

What are the 4 steps in the closing process?

Close the Revenue Account to Income Summary. Close the Expense Accounts to Income Summary. Close the Income Summary Account to the Capital Account. Close the Drawing Account to the Capital Account.

What is the Journal Entry to close the Drawing Account?

Debit Capital and credit Drawing.

A firm has $90,000 in Revenue for the period. Give the entry to close the Fees Income Account.

Debit Fees Income Account by $90,000 and Credit $90,000 to Income Summary.

A firm has the following expenses: Rent Expense $3,600 Salary Expense $7,000 Supplies Expense $1,500. Give the entry to close the expense accounts.

Debit Income Summary $12,100, Credit Rent Expense $3,600, Credit Salary Expense $7,000 Supplies Expense $1,500.

What three financial statements are prepared during the accounting cycle?

Income Statement, Statement of Owner's Equity, and Balance Sheet.

On which financial statement would you be able to see if the business made a profit?

Income Statement.

On which financial statement would you be able to see what the Expenses were for an accounting period?

Income Statement.

On which financial statement would you be able to see what the total Fees Earned during this month/period?

Income Statement.

What is the last step in the Accounting Cycle?

Interpret the financial statements.

Closing Entries

Journal Entries that transfer the results of operations (Net Income or Net Loss) to Owner's Equity and reduces the Revenue, Expense, and Drawing Account Balances to zero.

The business owner removes supplies that are worth $1,200 from the company stockroom. She intends to take them home for personal use. What effect will this have on the company's Net Income?

No effect no Net Income.

Which of the following accounts will not appear on the Postclosing Trail Balance; Cash, Owner's Drawing, Accounts Payable, or Owner's Capital

Owner's Drawing Account.

What are the last 3 steps in the accounting cycle?

Record closing entries. Prepare a Postclosing Trial Balance. Interpret the financial statements.

After closing, which accounts have zero balances?

Revenue, Drawing, and Expense Accounts.

Why is a Postclosing Trail Balance prepared?

To make sure the General Ledger is in balance after the adjusting and closing entries are posted.

Interpret

To understand and explain the meaning and importance of something (such as financial statements)