6.4 - Closing Entries

Question 1

REMINDER: Time Period Concept

Answer 1

Financial reporting on net income, is done in equal periods of time (called the fiscal period)

At the end of each accounting period the financial statements are prepared.

Question 2

Real Accounts

Answer 2

Are PERMANENT

Have balances that continue into the next financial period

Includes: all assets, liabilities, capital

Always keep going, never necessarily closed

Question 3

Nominal Accounts

Answer 3

Are TEMPORARY

Have balances that do NOT continue into the next financial period

Includes: all revenue, expenses, drawings

Always start back at zero each accounting period

Question 4

Closing the accounts

Answer 4

Revenue, Expenses and Drawings must be brought back down to zero, in order to prepare for the next period

the Capital account will have a new updated balance which will carry on into the next fiscal period

Question 5

In order to close accounts, we use

Answer 5

a temporary account called Income Summary

Question 6

Income Summary

Answer 6

a nominal account used only during the closing entry process

The balance in this account represents either the amount of net income or net loss.

Question 7

Order of closing them
REID

Answer 7

1. Close out the revenue accounts to Income Summary
2. Close out the expense accounts to Income Summary
3. Close the Income Summary account to the Capital account
4. Close the Drawings account to the Capital account

Question 8

both closing and adjusting entries are

Answer 8

Written in the journal and posted to the ledger