Bookkeeping 27. Closing the books

Question 1

1. At CLOSING, how do you bring the REVENUE accounts to zero?

Answer 1

DEBIT each REVENUE account in the LEDGER in the AMOUNT OF ITS BALANCE, bringing the account to zero, then CREDIT the INCOME SUMMARY ACCOUNT with the TOTAL OF ALL REVENUES.

Question 2

2. At CLOSING, how do you bring the EXPENSE ACCOUNTS to zero?

Answer 2

CREDIT each EXPENSE ACCOUNT in the AMOUNT OF ITS BALANCE, bringing it to zero.
Then DEBIT the INCOME SUMMARY by the total of all expenses.

Question 3

3. How do you balance the INCOME SUMMARY AND ADJUST THE CAPITAL ACCOUNT?

Answer 3

Total the Debits and Credits to find the balance.

A CREDIT BALANCE shows a PROFIT. You then DEBIT the INCOME SUMMARY by this amount and CREDIT the CAPITAL ACCOUNT.

Question 4

4. What if the result is a DEBIT when you balance the INCOME SUMMARY?

Answer 4

It shows a loss for the period. You CREDIT the INCOME SUMMARY for that amount and DEBIT the CAPITAL ACCOUNT.

Question 5

5. How do you adjust for the OWNER´S DRAW?

Answer 5

CREDIT the DRAWING ACCOUNT in the amount of its balance and DEBIT the CAPITAL ACCOUNT in the same amount.

Question 6

6. You conclude the CLOSING PROCESS by:

Answer 6

Making GENERAL JOURNAL ENTRIES for each step.