Financial Acct

SUMMARY

Definitions of Closing Process

* Closing Process Prepares account for recording the transaction of the next period Performed at the end of an accounting period after financial statements

* Involves closing each income and expense account to the Profit or Loss Summary account

* Balance of the account above is then closed off to the Capital account

* Drawing make by owner by the period are reflected in the Drawing account which is also closed off to the Capital account

* Temporary account contain ending balance for a specific period Such as, month, quarter or year

Closing process involves

1) Close revenue account to Income summary accounts

2) Close expense account to Income summary accounts

3) Close the Income summary account to Capital account

4) Close the Drawing account for Owner’s Capital account

Reason Why Certain Accounts Are Closed & Why This Is Necessary

* Temporary accounts

* Accounts that are closed at the end of each accounting year. Included are the income statement accounts (revenues, expenses, gains, losses), summary accounts (such as income summary), and a sole proprietor's drawing account

* Permanent Accounts

* Accounts that do not close at the end of the accounting year. The permanent accounts are all of the balance sheet accounts (asset accounts, liability accounts, owner's equity accounts) except for the owner's drawing account.

* Revenue, Expense, and Drawing accounts referred to as temporary or nominal account. Those account must be close

* Closing process gives revenues, expense and drawing accounts a zero balance which is for the next accounting period

* Statements since the end of the month, the company should take a look at the month occurred in the volume of business / profit (win or loss)

Link between Adjusting Entry and Closing Process

* Adjusting Entries are journal entries that are made at the end of the accounting period. Adjusting entries are...