Closing Procedures

Closing Procedures

• The final stage of the accounting cycle is to prepare the accounts for the next fiscal period
• Remember that revenue and expenses start with no balance at the beginning of each fiscal period

Real Accounts

• Assets, Liabilities, and Capital
• Have balances that continue into the next fiscal period

Nominal Accounts

• Revenue, Expenses, and Drawings
• Have balances that do not continue into next fiscal period
• Drawings is the only one that does not appear on the income statement
• All nominal accounts begin each fiscal period with a zero balance

Income Summary

• A nominal account that is only used during closing procedures
• Summarizes revenue, expenses, and drawings for a period
• Temporary balance in the account represents either a net income or a net loss

Steps in Closing Process

• Journalize and post adjusting entries
• Close revenue accounts to the income summary account
• Close expense accounts to the income summary account
• Close the income summary account to the capital account
• Close the drawings account to the capital account
• Take off a post closing trial balance