Closing Entries Notes

Fastforward Closing Entries Overview

Closing Entries Purpose

• Closing entries are made at the end of an accounting period to prepare accounts for the next period.

• They involve transferring temporary account balances to permanent accounts.

• Temporary accounts include revenues, expenses, and dividends.

• Permanent accounts, like retained earnings, carry over into future accounting periods.

Details of Closing Entries (December 31)

General Closing Entry Structure

• Date: December 31

• Accounts Involved: Consulting Revenue, Rental Revenue, Income Summary, various Expense accounts, Retained Earnings, Dividends.

Revenue Closing Entries

• Consulting Revenue:

  • Debit: $7,850

  • Credit:

• Rental Revenue:

  • Debit: $300

Transfer to Income Summary

• Income Summary after revenue entries:

  • Total Debits:

  • $7,850 (Consulting Revenue)

  • $300 (Rental Revenue)

  • Total Credits: $8,150

Expense Closing Entries

1. Income Summary: Total expenses closed into this account by debiting it. Subtotal for all expenses is $4,365.

   • Debit: $4,365

   • Expense Accounts:

     • Depreciation Expense - Equipment:

     • Credit: $300

     • Salaries Expense:

     • Credit: $1,610

     • Insurance Expense:

     • Credit: $100

     • Rent Expense:

     • Credit: $1,000

     • Supplies Expense:

     • Credit: $1,050

     • Utilities Expense:

     • Credit: $305

   • Total Debits for Expenses:

     • Calculation:

     • $300 + $1,610 + $100 + $1,000 + $1,050 + $305 = $4,365

Closing Income Summary to Retained Earnings

• Income Summary balance after closing expenses is $3,785.

  • Total Income Summary:

  • Debit: $3,785

  • Retained Earnings:

  • Credit: $3,785

Dividends Closing Entry

• Dividends:

  • Debit: $200

  • Retained Earnings:

  • Credit: $200

Final Totals

• Ending Balance in Retained Earnings after closing entries:

  • Calculation: $3,785 - $200 = $3,585