Chapter 6 (“Closing Entries and the Postclosing Trial Balance”)

Question 1

STEPS IN THE CLOSING PROCESS

Answer 1

1. Transfer the balance of the revenue account to the Income Summary account.
2. Transfer the expense account balances to the Income Summary account.
3. Transfer the balance of the Income Summary account to the owner’s capital account.
4. Transfer the balance of the drawing account to the owner’s capital account.

Question 2

Income Summary account

Answer 2

A special owner’s equity account that is used only in the closing process to summarize the results of operations

Question 3

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Answer 3

• total debits equal total credits;
• revenue, expense, and drawing accounts have zero balances.

On the postclosing trial balance, the only accounts with balances are the permanent accounts:

• assets
• liabilities
• owner’s equity

Question 4

Interpreting the Financial Statements

Information in the financial statements provides answers to many questions:
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Answer 4

• What is the cash balance?
• How much do customers owe the business?
• How much does the business owe suppliers?
• What is the profit or loss?