• Document: Unit 2 The Basic Accounting Cycle
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Unit 2 The Basic Accounting Cycle Chapter 3 Business Transactions and the Accounting Equation Chapter 4 Transactions That Affect Assets, Liabilities, and Owner’s Capital Chapter 5 Transactions That Affect Revenue, Expenses, and Withdrawals Chapter 6 Recording Transactions in a General Journal Chapter 7 Posting Journal Entries to General Ledger Accounts Chapter 8 The Six-Column Work Sheet Chapter 9 Financial Statements for a Sole Proprietorship Chapter 10 Completing the Accounting Cycle for a Sole Proprietorship Chapter 11 Cash Control and Banking Activities Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 0 Chapter 10 Completing the Accounting Cycle for a Sole Proprietorship What You’ll Learn  Explain why it is necessary to update accounts through closing entries.  Explain the purpose of the Income Summary account.  Explain the relationship between the Income Summary account and the capital account.  Analyze and journalize the closing entries.  Post the closing entries to the general ledger.  Prepare a post-closing trial balance.  Define the accounting terms introduced in this chapter. Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 1 Chapter 10, Section 1 Preparing Closing Entries What Do You Think? Why is it important to transfer the temporary account balances to the permanent owner’s capital account? Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 2 SECTION 10.1 Preparing Closing Entries Main Idea Closing entries transfer the temporary account balances to the owner’s capital account. You Will Learn  the last two steps of the accounting cycle.  the purpose of closing entries.  the purpose of the Income Summary account.  how to journalize the closing entries. Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 3 SECTION 10.1 Preparing Closing Entries Key Terms  closing entries  Income Summary account  compound entry Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 4 SECTION 10.1 Preparing Closing Entries Completing the Accounting Cycle Closing entries are journal entries made at the end of an accounting period to zero the balances in the temporary accounts and transfer the net income or loss to the capital account. After closing entries are made, the trial balance can be prepared. Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 5 SECTION 10.1 Preparing Closing Entries Starting the Eighth Step in the Accounting Cycle: Journalizing the Closing Entries The events leading up to the closing process are:  Net income or loss is calculated on the work sheet.  The income statement is completed.  The capital account ending balance is calculated on the statement of changes in owner’s equity.  The ending balance of the capital account appears on the balance sheet.  The capital account balance in the general ledger does not equal the amount on the balance sheet. Closing entries must be journalized and posted. Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 6 SECTION 10.1 Preparing Closing Entries Glencoe Accounting Unit 2 Chapter 10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 7 SECTION 10.1 Preparing Closing Entries The Income Summary Account The Income Summary account:  serves as a simple income statement in the general ledger.  is used to accumulate revenue and expenses for the period.  equals the net income or loss for the period. It is a temporary account that:  is used only at the end of the accounting period to summarize revenue and expense balances.  does not have a normal balance.  has a zero balance b

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