Ch. 10 Completing the Accounting Cycle for a Sole Proprietorship

Introduction

Closing Entry DefinitionA closing entry is a journal entry made at the end of the accounting period whereby data are moved from temporary accounts to permanent accounts.

Lesson Overview

Closing entries transfer the temporary account balances to the owner’s capital account. After the closing entries are posted, a post-closing trial balance is prepared to verify that debits equal credits.

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.