Bookkeeping 26. Closing the books

Question 1

1. What is the purpose of CLOSING THE BOOKS?

Answer 1

1. To ready each REVENUE and EXPENSE account for the next accounting period.
2. To adjust the CAPITAL (Owner´s Equity) ACCOUNT by the amount of the period´s PROFIT or LOSS
3. To adjust the CAPITAL ACCOUNT to reflect money drawn by the owner for personal use.

Question 2

2. What is the DRAWING ACCOUNT?

Answer 2

It is the LEDGER ACCOUNT in which you record money the owner has withdrawn for personal use.

Question 3

3. For each sum drawn by the owner, the following entry is made:

Answer 3

Drawing Account….200
Cash…………………..200

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Question 4

4. When the accounts are closed, the DEBIT BALANCE in the DRAWING ACCOUNT is.

Answer 4

Charged against CAPITAL.

Question 5

5. You begin the process of closing after you:

Answer 5

have JOURNALIZED EVERY ADJUSTING ENTRY from columns 3 and 4 of the worksheet.

Question 6

6. The INCOME SUMMARY ACCOUNT is then created to:

Answer 6

summarize the information from all the REVENUE and EXPENSE accounts.

Question 7

7. The CLOSING PROCESS then consists of the following four steps:

Answer 7

1. Bringing REVENUE accounts to zero.
2. Bringing EXPENSE accounts to zero.
3. Balancing the INCOME SUMMARY and ADJUSTING THE CAPITAL ACCOUNT.
4. Adjusting the OWNER´S DRAW.

Question 8

8. A common characteristic of an adjusting entry is that it will involve

Answer 8

one income statement account and one balance sheet account. (The purpose of each adjusting entry is to get both the income statement and the balance sheet to be accurate.)